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bfinance wealth manager survey identifies major shifts in ESG integration, new technologies and use of alternative investments

A new survey from bfinance has identified significant changes in wealth managers’ investment capabilities and practices. Firms are innovating too as they fight to maintain market share and profitability in an era of fee compression and new tech-based competition.

The Wealth Manager Investment Survey gathered data from 120 wealth managers in 29 countries across five continents. Major developments are divided into three key areas: expanding investment capabilities, the rise of ESG and impact investing, and—finally—evolution in structures, systems and service providers.

Expanding investment capabilities

Wealth Managers are expanding the range of investment strategies available to clients, particularly within alternative asset classes. More than two thirds (69 per cent) have added new asset classes for wealth clients within the last three years, with 52 per cent stating they will do in the next two years. Fully 60 per cent now provide exposure to private equity, 52 per cent use emerging market debt, 52 per cent use private credit, 48 per cent use infrastructure and a further 42 per cent provide access to hedge funds.

When looking at allocations, the majority of wealth managers have reduced the proportion of wealth client assets invested in fixed income (63%) while 66% have increased allocations to equities and 61% have increased allocations to private markets strategies. The shift towards alternatives is set to continue strongly in the next two years, with improving sentiment towards liquid alternatives such as hedge funds, but only a minority plan to increase equity exposure. The surge of passive investment is also slowing. Just 21 per cent of wealth managers expect to increase their use of passive strategies in the next two years, compared to 50 per cent in the last three years.

ESG and impact investing

When it comes to the ESG agenda, three strategic camps have emerged: those planning integration of ESG across all wealth client strategies (55 per cent), those who seek to create specific ESG offerings for those clients that seek this dimension (35 per cent) and those who have no intentions in the space (10 per cent).

With this, four in five (80 per cent) wealth managers now integrate ESG considerations as part of their offering, up from 37 per cent three years ago (a 116 per cent increase). Half of wealth managers also integrate impact considerations, up from 18 per cent three years ago (a 177 per cent increase), while a third (33 per cent) state they are actively considering doing so – showing that the impact theme is moving rapidly up the priority list both in terms of demand and delivery.

However, ESG integration still only applies to the minority of wealth client assets. Only 13 per cent of those who do integrate ESG say this applies to ‘all’ of their wealth assets, while 27 per cent say it covers the ‘majority’.

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