Ross Fox

A new white paper from global trading network for managed funds, Calastone, shows a clear increase in the willingness of existing investors to invest further, with Covid-19 being a stimulus.

The paper builds on a series of global surveys conducted by Calastone before and throughout the pandemic to show sentiment and behavioural changes gleaned from investors representing multi-generations and regions.

Overall, comparison of the 2021 and 2020 results reveals a marked increase in investment appetite and activity, as a direct result of Covid-19, across the board. A good deal of this shift in investor behaviour reflects a mix of pent-up demand, growing confidence in the economic outlook and an increased appreciation of financial security, says Calastone.  Generation X and Baby boomers are leading the current charge, mostly in the United States, but closely followed by investors in Australia and New Zealand, noting that the poll was conducted before Sydney lockdowns started.

The paper looks at the opportunities these behaviours, some potentially accelerated by Covid, present for the global funds management industry.

Key global survey findings

One third of global investors are more likely to invest because of the current global Covid-19 situation^[1]

32 percent of participants surveyed from the UK, US, Australia, New Zealand, Hong Kong and Germany are more likely to invest in light of the current Covid-19 situation, and 42 percent have already done so as a direct consequence of the virus, (Fig 1).

Global Generation X investors far more proactive

While Millennials, across the globe, have been the generation to show most investment enthusiasm and activity over the course of Covid, with 75 per cent having invested recently or are likely to invest soon, the biggest moves throughout the pandemic have been from older investors, (Fig 2 right).

More than half of Generation X investors globally (52 percent) have made an investment in light of Covid-19, a rise of 18 percent since the second wave of Covid-19 swept though most parts of the world. Baby boomers followed, showing an 11 percent rise in active investment in light of Covid.  The lift for millennials was less pronounced at seven percent, (Fig 2 left).

Millennials have been the most active when it comes to swapping investment funds around or cashing in investments, though notably less so than in earlier waves, (Fig 2 right).

US, Australian and New Zealand investors most active following second global wave

Investors in the United States have showed the most conviction, with 68 percent actively investing in light of Covid-19, up 24 percentage points from pre-wave levels.  Investors in Australia and New Zealand followed, with 51 and 46 percent actively investing as a direct consequence of Covid, respectively rising 21 and 20 percentage points, (Fig 2 left).

Anxiety about the future down slightly for Australians and New Zealanders

Levels of anxiety have abated for Australian and New Zealand investors, though are still high. 66 percent of Australians and 62 percent of New Zealanders said Covid-19 has made them more worried about their financial future (Fig 6), down respectively from 72 and 64 percent^[2] in 2020.

Investing knowledge and ease rising, but much room for improvement

56 percent of Australian respondents found investing ‘easy’ (Fig 15 right), up 8 percentage points from 2020.  There was also a marked improvement in investor knowledge, albeit from a considerably low base, up 8 percentage points to 27 percent post second global wave. In comparison, ease of investing in the US jumped 10 percentage points, to 65 percent, along with a 14 percent lift in investor knowledge about their investments, (Fig 15).

Investors prefer managing investments via web, remain open to non-financial providers

Australian and New Zealand investors agree with global peers that websites are the most preferred means of investing, (Fig 8) although apps and email are growing in favour.

Incumbent providers of financial services continue to face challenges from non-traditional competitors.  47 percent of all respondents entertain the idea of buying investment products from a big technology brand (Fig 11), up 3% from 2020.  This reflects a slightly positive shift among Australian investors, notably more pronounced in New Zealand where the response was up four percentage points.

Concluding comments from Ross Fox, Managing Director, Head of Australia and New Zealand at Calastone: “Calastone’s research shows that COVID-19 and its implications for people and markets have continued to be a tailwind for investment in managed funds.

“Investors adopting a more proactive and opportunistic approach is also evident in the flow of funds that we continue to see across our network, with A$10.2 billion flowing into Australian based managed funds this year.

“This latest pulse check shows that investors have overcome some of the anxiety they expressed in earlier surveys, particularly in Australia, which perhaps signals a growing acceptance of living with Covid.

“It is possible that the mass shift to remote working environments has instilled greater familiarity and confidence with digital platforms among older generations, bringing them more in line with the behaviours of more technology trusting Millennials.

“While Australia currently feels the weight of Covid while other parts of the world appear to be recovering from the pandemic, rising levels of local engagement, ease of investing and product knowledge is a testament to the efforts of fund managers and distributors who have kept investors well informed and engaged throughout the last 18 months.

Methodology

Calastone surveyed 1,800 respondents, encompassing a sample size of 300 each for six key geographies – spanning the UK, USA, Germany, Hong Kong, Australia and New Zealand. Included within each region surveyed, more than half the respondents were proactive investors, having previously made active investment decisions to buy or sell into the market. The ages of those surveyed ranged across age bands from 24 to 70. Millennials are defined as anyone aged 24-39, Generation X are 40-55, Younger Baby Boomers are 56-65 and Older Baby Boomers are 66-70.

The most recent global surveys were completed in Q2 2021 and prior, Q2 2020, and Q2 2019.

Read the White paper.

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[1] The poll was conducted during April/May 2021
[2] Shift sourced from Sep 2020 white paper, Global Investor Behaviours and Attitudes, Fig 27 page 16

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Ross Fox

Calastone, the largest global funds network, is rolling out its new Wrap Reporting service, enabling fund managers to receive fast and standardised adviser directed fund flow data from platforms via its secure network.

Calastone actively worked with the Australian arm of global fund manager Dimensional Fund Advisors and other fund managers to create a reporting solution that overcomes the challenges of digesting disparate monthly data from multiple platforms.

Calastone’s technology ingests platform data that varies in format, fields and timeframes, which often change month-to-month, to create a standardised, consistent view of distribution activity.

The ability to quickly and easily analyse flow data is essential for understanding adviser distribution and clearly see who is driving inflows and outflows and refine business development activity.  In the past, this has been very challenging with significant time, energy and resources taken up in combining the various data flows.

Ross Fox, Managing Director, Head of Australia and New Zealand at Calastone, commented: “Building intelligence and responsiveness into adviser engagement models is critical, particularly as the industry transitions around industry reforms, new technologies and changing investor demands.

“We are extremely grateful for the input and commitment from our early adopters in helping us optimise the functionality of our Wrap Reporting service.  Each is already deriving meaningful and valuable insights from the reliable data that the service securely delivers.

“These timely insights help fund managers identify, understand and ultimately better manage behaviours and events that trigger fund flows, empowering business development teams to engage more proactively with advisers and improve the service they offer.”

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The research, which surveyed people in Australia, New Zealand, Hong Kong, UK, U.S. and Germany to assess current investment sentiment and behaviour, shows that investors, particularly millennials, are undeterred by volatility created by COVID.

Millennials (aged 24-39) are the most active demographic in every global market, with nearly 72% having invested or considering investing due to pandemic created conditions.

In Australia, 55% of all investors remain bullish, having made new investments already or considering investing in the near future (see Figure 1), while one third (31%) have actively invested as a direct consequence of COVID (see Figure 2), in a bid to capitalise on the continued market volatility.

The study shows that Australian millennials, who face a low interest rate environment and subdued economic growth, are very proactive with 81% either having invested since COVID or considering doing so soon (Figure 1).  Further, they were almost twice as active than Australian generation X investors, with 58% actively investing as a consequence of COVID compared to 28% (Figure 2) of the older cohort.

Looking globally, U.S. millennials led investment activity and sentiment, with 90% having already invested since COVID or intending to do so, while German millennials showed least appetite, at 58% (Figure 1).

Figure 1: Investment action since COVID-19 (Calastone and DJS research), where investors have made new investments already or are considering doing so in the near future.

Figure 2: Investing in light of COVID-19 (Calastone and DJS research), showing investor likelihood of investing due to COVID, plus active investment as direct consequence of COVID

The study also found that older Australian baby boomers (aged 66-70), were the most bearish of all groups, with 100% refraining from making any new investments (Figure 2).

Ross Fox, Managing Director, Head of Australia and New Zealand at Calastone, commented on the findings:  “The high level of engagement and consideration among Australian millennials during volatile market conditions shows a maturing and opportunistic investment mindset to capitalise on market dips.

“This proactive attitude to investing concurs with the local fund flows we’ve seen across the Calastone network, which in July processed record daily volumes into funds,” he said.

“Our data similarly indicates that COVID has contributed to a rise in investment activity among investors since the pandemic’s onset, driving a healthy return of flows into managed funds after an intense net outflow in March when markets sharply turned.”

Figure 3: Fund flows across Calastone network in Australia from 1 January to 31 July 2020

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Australia’s largest registry provider, OneVue, which represents 42 fund manager clients that are trading with platforms through Calastone, is now sending monthly Statements of Holdings and Transactions to enabled platforms on the Calastone network.  The added connectivity sees Calastone automating over 60% of monthly reports issued by fund managers on its network.

Ross Fox, Managing Director, Head of Australia and New Zealand at Calastone, commented: “The fact that the majority of Calastone connected fund managers are now using our Reporting capability shows that industry participants are embracing and benefiting from new and improved ways of managing their fiduciary responsibilities across front and back offices.

“Calastone’s interoperable Reporting solution converts statement information into a single file that allows fund managers and platforms to respectively send and receive monthly unit information, eliminating the need for copious emails, PDFs, faxes and manual portals that drag efficiency.

“With OneVue joining other leading registries in advocating electronic reporting, the question around why manual practices persist grows louder within the industry,” Fox said.

Richard Harris-Smith, Deputy Group CEO at OneVue, commented: “Manual reporting has been a major source of risk and drag in the managed funds value chain that can only be fully eliminated once all participants adopt automation.  Until this happens there will be undue errors, data security risks, delays, and costs that unjustifiably inhibit innovation and best practice. Platforms can now instantly digest and identify unit holding discrepancies with us, closing the timing gap on transaction queries that could otherwise take months to resolve,” he said.

Calastone’s Reporting solution is expected to yield greater benefits as more participants move away from manual processing, as seen with Calastone’s Order Routing solution, which now automates the vast majority of wholesale managed fund transactions between platforms and fund managers.  These participants need to opt in for Reporting functionality in order to send and receive monthly statements electronically over the network.

“Manual processing that persists today needs to be reviewed against rising demands for accuracy, speed, security and transparency around processes and outcomes. The faster and more accurate we can make reporting within the system, the more time and focus we can apply to delivering better client experiences and outcomes,” Fox said.

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The addition of OneVue and Mainstream, and their respective fund manager clients, trebles the number of participants benefiting from Calastone’s straight-through-processing transfers solution.

Transfers involve a series of transactions triggered when an adviser elects to move investor holdings from one platform to another. The process, which allows beneficial ownership of securities to move to a different custodian without having to be sold and repurchased through the market, has historically caused considerable cost and time for the involved parties, often requiring wet signatures and postage delays.

Since introducing the solution in early 2017, Calastone has reduced the average transfer completion time from two weeks to less than 12 hours, with the fastest recorded transfer processed in under six minutes. Over 30,000 transfers have been processed representing a network that has now grown to seven registries, six platforms and 48 fund managers.

Ross Fox, Acting Head of Australia and New Zealand at Calastone, said “The number of registered participants and volume of transfers have trebled over the last 12 months, indicative of the growing competitive pressures driving fund managers, platforms, advisory firms and custodian registries to adopt safer, faster and more transparent ways of doing business.”

“Calastone’s Transfers solution addresses a major friction point that has long frustrated industry participants due to the intensive documentation and authorisation required when an adviser initiates a single or bulk transfer to a different platform,” he said.

“Straight-through-processing allows for seamless and transparent transfers, removing the uncertainty, delays and risk inherent in manual processing of these complex transactions.”

Richard Harris-Smith, Deputy Group CEO at OneVue commented: “We are always looking to improve and optimise the experience and outcomes for our clients and their investors. The saved risks and time experienced by us and the 32 fund manager clients we’ve transitioned is an exciting indication of the value yet to be unlocked for the industry through increased automation.”

Andy Harrison, CEO of Mainstream Fund Services in Australia, added: “Our mission is to help our clients improve their efficiency and levels of automation while lowering costs. Through our partnership with Calastone, our clients on the platform see immediate benefits in the quality and speed of transactions we process on their behalf.”

Paul Hagger, Head of Custody at netwealth, which has used Calastone’s Transfers solution since its roll out, commented: “The platform space continues to embrace innovation and technology to both enhance and differentiate its value and portfolio of services, so the ability to transfer holdings across platforms is key to market efficiency and competition. By automating the highly manual and costly transfers process, Calastone is enabling greater efficiency, confidence and certainty in how the managed funds supply chain interacts.”

Fox added: “Calastone continues to work collaboratively with industry participants to automate key distribution and administration functions that support a more dynamic managed funds industry in Australia and around the globe.”

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