AGEFI Luxembourg - juillet / août 2022

AGEFI Luxembourg 20 Juillet / Août 2022 Consultance I n their 2022 EMEAAssetMana- ger Survey published on 20 June 2022, Deloitte Luxem- bourg andDeloitte Ireland jointly share their latest findings for trends affecting assetmanagers across both traditional and alterna- tive investments.Withdata collec- ted from11 assetmanagerswith a combined €9.7 trillion in assets undermanagement (AuM), the survey further enriches its findings by noting trends between asset managerswho havemore or less than €100 billion ofAuMorwho aremanagers of either liquid only or also illiquidproducts. Withconsistentindustrygrowth,theout- look for Asset Management is good; firms are seeking to grow their staff to managedataandcomplianceandtosup- port expansion of ESG and private debt product offerings. The global pandemic accelerated digita- lization and shifted ways of working, as investor interests continue to influence Asset Managers’ product offerings. “Our survey respondents see the oppor- tunities ahead for Asset Management,” said Vincent Gouverneur (picture), EMEA Investment Management Leader at Deloitte. “So, too, are they clear-eyed about the potential challenges ahead, taking action to ensure they are respon- ding to market changes and investor expectations.” TheAssetManagement future looks bright ThesurveyshowsthatAssetManagement in EMEA is strong with three successive years of increased revenue, due to new client acquisition and growth in net new money (NNM). For survey respondents who saw their revenues decrease, the investmentmarketandperformancewere the cited cause. Meanwhile, hiring new staff was the main force driving cost increases,particularlyforAssetManagers with less than €100bnAuM. “Withsuchsteadygrowthinrevenueand clients,it’snosurprisethatAssetManagers arelookingtostaffupinordertoscaletheir business,” said Vincent Gouverneur. “Although the survey shows some variance in proportional staff costs bet- ween smaller and largerAssetManagers, the refrain was clear: right-sizing staffing is on the minds of Europe’s Asset Managers. This is to be expectedwith the current backdrop of regulatory shifts across EMEA.” In a trend first identified in 2019, Asset Managers expect investment strategies in privatedebt andESGto increase themost inthenextthreeyears.Alsoonthehorizon is the rise of allocations into real assets, which offer a wider range of investment products to clients. Infrastructure, com- mercial and residential real estate, and land are estimated to have the most demand in this category. COVID-19 as a digitalizationdriver Like in so much of the business land- scape, COVID-19 continues to send waves through the Asset Management industry. The pandemic catalyzed changes inhowAssetManagers conduct business, with 67% of respondents revi- sing policies and ways of working and 44% ramping up digital capabilities or implementing new systems or techno- logy to rapidly adapt. Only 30% of res- pondents shared difficulties associated withworkingremotelyasaprimarychal- lenge throughout the pandemic. “COVID-19 seems to have given the industry an unanticipated shove toward shaking up its more outdated working models and increasing its digital capaci- ties,” saidVincentGouverneur. “Change can be difficult, but the Asset Managers surveyed felt mostly positive and repor- ted higher productivity and increased employeesatisfaction,inadditiontoacce- lerated digitalization.” Per the survey’s findings, the number- one focus of digitalization for Asset Managers is improvement of internal processes. Asset Managers with higher AUM were more likely to focus on improvingtheirdigitalinvestmentmana- gement capabilities and to partner with FinTech companies. Sustainable products steadily saturating themarket Adoption of ESG products shows no sign of slowing. With more than half of asset managers already offering sustai- nability-related funds, integration and exclusion appear to be themost popular strategies. Respondents reported they will be increasing theirAuM in SRI stra- tegies by an average of 62% within the next three years. “At this point, investors expectAssetManagers tohaveESGpro- ducts,” said Vincent Gouverneur. “And even though the regulatory landscape is still changing,AssetManagers recognize the opportunities associated with sus- tainable products.” Turning datawoes into data flows In a decisive statement on the impor- tance ofmanagingdata, 100%of respon- dents perform data management in house and indicated that asset data, market data, and ESG data were most important. Smaller players reported a greater need for innovation in regula- tory technology, risk management and compliance. “Even as data reliability improves, the respondents with lower AUM felt that using data remains expensive and not fully geared to their current working paradigm,” said Vincent Gouverneur. However, more than half (54%) ofAsset Managers believed that their data was sufficient to support their business needs, and also expectedproportionally higher short-term revenue growth than those who didn’t. Discovermoreinsightsfromthe2022AssetManagement Surveyonourdedicatedwebpage: European Asset Management future looks strong, according to new Deloitte survey The pandemic provided impetus for revisiting business models By Gary GRIMA, senior consultant Wavestone T he EuropeanCommission adopted the newcircular economy actionplan (CEAP) inMarch 2020. It is one of themain building blocks of the European GreenDeal, Europe’s newagenda for sustainable growth. The Euro- peanCommission aims to reduce pressure onnatural resources and create sustainable growth and jobs through the transition to a circular economy and theHorizonEurope fund is one of theways the EC is making this transitionhappen. A major hurdle for circular economy strategies and their implementation has beenthelackofrobust,generallyapplica- bleguidelinesandstrategy.TheEuropean Economic and Social Committee ( EESC ) surveyedandanalyzed thedozens of cir- cular economy initiatives that have been taking place across Europe to synthesize a comprehensive report. The work resulted in an identification of the sectors that are often beneficial to ad- dress (despite regional and political vari- ations). Furthermore, strategy categories werederivedfromthestudybasedonap- plicability. Also identified, were the core elements for a model strategy frame- work . Many of these elements are in fact inalignmentwith theapproachandaims of Horizon Europe funding program, specifically with regards to its circular economyactionplan. Specifically,meas- ures that are introduced under the action plan aimto: - focus on the industries that usemost re- sourcesandwherethepotentialforcircu- larity is high - make sustainable products the norm in the EU - make circularity work for people, re- gions and cities - empower consumers andpublic buyers The report (by theEESC) reviewed circu- lar economy strategies was carried out to support the EuropeanCircular Economy Stakeholder Platform ( ECESP ). Similari- ties and differences between circular economy strategies were reviewed to as- sist the ECESP in becoming more effec- tive, particularly through collaboration and the involvement of civil society or- ganizations. Itwas found that, until recently, circular economy strategies have had different degrees of inclusiveness in terms of horizontal tools and policies, sectors approached and partner involvement. The work done by the EESC however, in analyzing the various strategies, showed that strategies aremore effective when they address the circular econ- omy comprehensively and include broad partnerships. All the strategies reviewed aimed to fur- ther the transition to a circular economy but there are some differences depend- ing on the territorial context. Strategies follow different approaches, either aim- ing to close material loops in specific value chains, or focusing on integrated, horizontal approaches . Having estab- lished these distinctions, three types/cat- egorizes could bemade: - Integrated strategies, like the ones for Päijat-Häme, France, Paris, Greece, Italy, Oslo, Poland, and Catalonia, largely focus on horizontal tools and policies. They aim at steering the public opinion toward the concept of circular economy. - Strategieswith a restricted sector focus, likeLuxembourg,Amsterdam, Glasgow and London do not address a broad range of sectors. Including a large stake- holder base is also not a major concern, as normally only stakeholders directly linked to the selected loops are targeted. - All-encompassing strategies with a clear setting of priorities, like strategies for Brussels, Denmark, and Scotland, keep a balance of the two approaches. Strategies of this kind most directly en- sure the inclusion of both the broadest possible material loops and inclusive partnerships. While all three categories were valid in their application depending on the con- text, the third category is highlighted here as once again, it aligns with the aims of Horizon Europe and, as per the report, has been shown to further the in- tended impact. Additionally, itwas seen that the strate- gies that describe the economic sectors of manufacturing, food and feed and water processing do so in the most in- clusive way, with the most common economic sectors addressed being among those listedaswell .As such, one canalready see apossible focus for inclu- siveness emerging from the work done by the EESC. Horizon Europe seeks to support and advance these same industries through various Clusters; Cluster 4: Digital, In- dustry & Space, Cluster 5: Climate, En- ergy and Mobility, Cluster 6: Food, Bioeconomy, Natural Resources, Agri- culture and Environment. Each Cluster applies to the construction of a circular economy andyet each cluster represents awide arrayof topics to takeon. Thisun- derscores how essential it is to tackle them with a comprehensive and robust strategic approach. When considering the model strategy and its key elements (that were part of the outputs of the report), it becomes ev- ident that they canbe effectively applied to the various topics in the Horizon Eu- ropeprogram. These include goodprac- tices for inclusive circular economy strategies, such as ways to consider full value chains, participatory approaches and civil society involvement. The core elements of the strategy are 1. Rationale for the strategy : the need here is to establish and communicate the objectives to be achieved and the possi- ble impact of different initiatives. Addi- tionally, specify the need for intervention by policy sector. 2. Experience and links to other poli- cies and strategies : provide and elabo- rate upon examples of activities that highlight results. In support of this, carry out an extensive review of existing pro- grams in other contexts to draw appli- cable lessons learned. 3. Strategy objectives : The established strategy should, in addition to and by achievement of, its own specific objec- tiveshaveasorcontributetoobjectivesal- readyestablishedasbeingstrategic in the pursuit ofmore circular economies. Such strategicobjectives include increasing the number of jobs in recycling, increasing the budget forR&Don circular activities, decrease CO2 emissions by closing the loop of material flows and so on. 4. Implementationmeasures : the focus heremust be on settingup technical, po- litical and legal instruments that accu- rately and clearly illustrate results to increase their impact. Furthermore, it is imperative that the approach is coher- ent and integrated with other existing programs. 5. Governance : what is key here is the establishment of selective partnerships of stakeholders with the capacity to im- plement activities in accordance with the objectives and guidelines and in fol- lowing organized implementation. A clear if basic example, is a working group that represents all the technical, commercial, political and legal areas needed to draft said program. 6. Monitoring and evaluation plan : here the program in question must fur- ther a determined vision for develop- ment for long term (a term often going beyond the project itself, say in 2050) in the pursuit of larger common objectives. Short termobjectivesmust also be taken into account and focused on for contin- ued general awareness. To restate briefly, it can be seen that such a strategic approach is in align- ment with the aims of the Horizon Eu- rope funding program. In other words, the construction of a capable and dy- namic consortium of all the key stake- holders (public, private, commercial, industrial, and so on) is what has been identified as essential in order to syn- thesize a winning strategy for a given case where circular economy is to be created and subsequently implemented upon. And where the array of funded projects in their implementation work in concert in the pursuit of larger goals established (by the EC) as strategic. Speaking about more specific cases, as per the structure of this program there are many specified topics designated for funding. One such subject desig- nated to receive support is the bioecon- omy . Luxembourg, has chosen to focus on the development of the bioeconomy at the national level as per the overall goals for the outlined by the EC. These goals (as per the updated 2012 Bioeconomy strategy) being to ensure food and nutrition security, manage natural resources sustainably, reduce dependence on non-renewable, unsus- tainable resources whether sourced domestically or from abroad, mitigate and adapt to climate change and strengthen European competitiveness and creating jobs. As evidence of this, the grandduchyhas implemented legislation concerningbio- fuels, biogas and renewable electricity production, among others, over the last 8years. Luxembourghas also securedfi- nances at the European and national level to drive these initiatives. These ef- forts have resulted in the creation and implementation of various national In- novation clusters; including the Luxem- bourg EcoInnovation Cluster, the Luxembourg Wood Cluster and the Luxembourg Materials & Manufactur- ing Cluster, to name a few. As can be inferred, the development of the bioeconomy covers all sectors and systems that rely on biological resources (animals, plants, microorganisms and derived biomass, including organic waste), their functions and principles. As the definition of this term implies, very broad material loops are involved, and inclusive partnerships would be necessary. As such, the “all-encompass- ing” strategy is applied, which most di- rectly ensures the implementation of both the aforementioned aspects. At IMF we follow these developments closely throughvarious channels, includ- ing the ECESP. We continue to update our knowledge and expertise on Eu- rope’s evolving needs and as such the evolving priorities of the EC so that we can remain informed and up to date on the key strategic frameworks andguide- lines underpinning European level ini- tiatives. Horizon Europe is one of the ways that the ECenables effective action on key priorities such as Circular Economies. Thisprogram, aswell as oth- ers, represents a path forward to a more sustainable future for Europe as well as promising opportunities for various stakeholders to engage inmore environ- mentally and commercially sustainable activities. Continuingwith the specific example of thebioeconomy, aswas elaboratedupon in this article, the areas covered by bioe- conomy represent some of the opportu- nities with highest potential impacts. This is why bioeconomy is a priority for us at IMF Wavestone and why are ac- tively supporting clients and partners looking to acquire funding to engage in such activities. Strategic pursuit of circular economies