Home » Navigating the new era of investment: The CFA Institute launches Global Research and Policy Center

Navigating the new era of investment: The CFA Institute launches Global Research and Policy Center

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The investment industry is at an inflexion point and entering a new, uncertain, and transformational era, according to flagship research by the CFA Institute’s new Research and Policy Center (RPC).

The RPC, launched as both a “think and do” tank, offers a non-partisan forum for industry thought leaders, regulators, and subject-matter experts. Organised around four key themes: Capital Markets, Technology, the Future of the Industry, and Sustainability, the RPC aims to move from information to action to impact as unprecedented challenges and opportunities arise in the investment industry.

Its new report outlines the most significant developments and future state scenarios to impact the investment industry over the next five to ten years and draws from a global survey of over 3,000 CFA Institute members in late 2022.

Shifting forces to reshape the industry

According to the RPC, a number of interrelated forces of change are set to shape the future of the investment industry. The report, ‘Future State of the Investment Industry,’ highlights megatrends such as shifting demographics, technology transformation, deglobalisation, socioeconomic imbalances, a growing governmental footprint in economies, and climate change and environmental degradation.

Viewing these megatrends through the lens of finance, the RPC highlights four potential scenarios for the industry to consider and prepare for:

  • Diverging worlds – Various factors (deglobalisation, socioeconomic inequality, polarisation, etc.) will create divided perspectives and more demand for personalised content and products.
  • Sustainable finance – ESG will increasingly be taken into consideration in decision-making in a move toward a more “purposeful financial system,” with a growing multi-stakeholder focus, requiring firms to embrace systems thinking, new investment models and be centred on purpose.
  • Digital transformation – Technological innovation, the rise of Generative AI, big data, and machine learning as a catalyst for accelerated change in the industry. Generative AI is, in particular, highlighted for its potential to create productivity gains in the workplace, providing complementary capabilities to human cognition skills.
  • The end of cheap money – Elevated inflation, higher interest rates and market volatility create a challenging economic environment and are likely to encourage new strategies and investment products and see opportunities emerge related to active management.

Sustainable finance at the forefront

While we have seen a rise in anti-ESG sentiment in some regions when compared with six years ago, the RPC highlights that there’s more appetite from investors to consider environmental and social impact in their portfolios. And indeed, 77% of respondents reportedly believe investment management’s future impact on society will be “more positive in the next 5-10 years than it is today.”

Speaking about this, Andres Vinelli, Chief Economist, said that the importance of harmonising taxonomies, how we think about climate change and linking it to science and corporate disclosures are part of a “whole new agenda” and emerges as “very important” in this new stage.

Elsewhere, commenting on how the landscape is evolving regarding unified ESG disclosure metrics in the MENA region, Paul Andrews, Managing Director of Research, Advocacy and Standards, said that when taking in the different disclosure standards emerging across Europe and the US, there’s a general consistency, and projected that this will lead to greater consistency mirrored elsewhere, including in the MENA, with continued convergence.

Regarding overcoming roadblocks to sustainable finance in the MENA, Rhodri Preece, CFA Senior Head, Research and Policy Center, said that it “boils down to capacity building” and cited upskilling to address talent needs in the industry at large and access to blended and transition finance.

Further, discussing the potential of Islamic finance in the MENA and beyond, Preece said that there are a number of philosophical similarities between Islamic finance and ESG and that Islamic finance has been growing, albeit from a very small base, with sukuk issuance continuing to rise. He highlighted green sukuk as one of the “more interesting” innovations here, as an intersection of the two philosophies, and highlighted it as part of the financing package for scaling up access to capital to support the green transition.

The imperative to adapt

According to the RPC, in the next five to ten years, the industry will find itself at a fork in the road, faced with two paths, one leading to the “professional industry” state and the other, the “unnecessary industry” state. The latter path, which would see the industry displaced and decline, resulting in disintermediation, can and should be avoided, it notes. Here, Preece outlines that the challenge to the industry and investment professionals will be to “adapt quickly” and to “create a better, more integrated, more sustainable, and more client-focused sector.”

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