Investment Model Shifts

The control and delivery of client outcomes is a critical new focus—hence the growing emphasis on investment solutions, which are by design aligned to outcomes and so have natural advantages.

Build investment edge through advanced intelligence

The investment firm of the future will:

Achieve organizational coherence
Firms need to adopt stronger investment practices tied to the disciplines of beliefs, frameworks, processes, and measurement. The need to integrate more elements in the investment model is critical. There are potentially four dimensions to this greater “joining up”: short- and long-term, financial and extra-financial, allocation and ownership, and return and impact.

Strengthen investment models
On top of the greater sophistication needed in integrated management, there are other needs. At the top level, this is the need for a better investment model in which leading-edge designs are combined with better analysis. At a more detailed level, we should see better design and use of investment solutions with appropriate alignment to desired outcomes.

Require more precision to achieve client outcomes
Managing to outcomes involves a more complex investment challenge in successfully integrating the different risk and return premia, in particular making market exposures less dominant.

Build stronger investment culture
An investment culture is required that emphasizes investment skill as a craft and a passion and also includes a purpose-driven calling and mindset.

The adoption of an effective and purposeful long-horizon investment framework is a critical shift for the industry. This involves getting sustainability joined up on multiple dimensions: financial impacts and real-world impacts, short- and long-term, financial and extra-financial factors, allocation and stewardship, and value and utility.

In the investment industry of the future:

Sustainability issues are fully incorporated and integrated into the investment process, building on the risk and return picture and adding an extra dimension in addressing the wider impacts of portfolio positions.

Investors can make and keep commitments to long-horizon principles and exercise discipline in the integration of short-term and long-term considerations.

There is consistency of asset owner practice and decision making on ESG factors via stewardship, and mandates specify clear sustainability goals and metrics.

Universal owners see materiality in their portfolio and stewardship impacts, which they intentionally integrate into their strategies.

The data used in the investment process is consistent and coherent on ESG factors with a blend of accuracy, consistent interpretation, and good judgment.