The investment and pension industry has created too much complexity and added too many costs, and must move towards more simplicity, executive vice president and member of the management committee of State Street, Jack Klinck, told delegates in an opening address at the Fiduciary Investors Symposium in Santa Monica.
Klinck observed four mega trends in the industry: globalisation, retirement savings, regulation and complexity.
“The industry has been good at innovating. But we’ve become too complex and added costs. I think we need to go in the direction of simplicity,” he says.
“Sophistication is elegant simplicity, not complication. There are more than 76,000 fund products around the world. We don’t need any more products.”
Klinck says for every 10 funds that are added to 401(k) offerings, the number of people making a choice decreases. In addition, there is more money invested in cash than ever before.
“So, more products are not necessarily better.”
If a product or offering cannot be explained simply to someone outside the industry, Klinck says, then the chances are it’s not going to work.
Personal behaviours – such as trust and integrity – will also be important.
“With simplicity comes more understanding, and with more understanding comes trust,” he says.
Burrow: Take the lead
Klinck’s comments about simplicity were echoed by the general secretary of the International Trade Union Confederation, Sharan Burrow, who addressed issues of the global economy and the labour market, pointing out there were more than 200 million people around the world that were unemployed.
She believes that building economies has to be income-led growth and questioned the nature of fiduciary duty if institutional investments were not building economies.
“These funds can make a difference,” she says. “You are the leaders, but not if you follow the leader.”
Also at the conference, chief executive of Hermes, Saker Nusseibeh, chaired a session on the economic and political impacts on global markets.
All the participants in the industry need to act more cooperatively, he says, advocating a holistic approach to investments, which includes a partnership between asset owners and providers.
Nusseibeh was joined on a panel by senior general manager of risk at the $1.23-trillion Japan Post Insurance Company, Ryujiro Miki, and professor of law at Georgetown University, Chris Brummer.
Miki, whose fund invests 77 per cent in Japanese government bonds, discussed the concept of “Japanisation” with the delegates. Arguing the US and European short-term interest rates were following the same pattern as Japanese interest rates from 1987.
“Japan invented quantitative easing. We are maybe at QE10 or QE15,” he says. “But the US announcing QE3 is an indication that QE2 didn’t work.”
The Japanese government has indicated it will list Japan Post Insurance in the near-to-medium-term future, and Miki thinks this would potentially have an effect on the market more widely.
“If we build the return-seeking portfolio, then this might have an effect on global markets,” he says.