Why I work in asset management

You’re at a dinner party and the conversation is light-hearted. The company is great and everyone is having a good time. Then it happens! That dreaded question is asked.

“James, what do you actually do?”

There’s stunned silence. The whole table stares at me.

“I’m not a banker”, I say apologetically.

Well that’s not a good start!

But it’s true. I know nothing about mortgages, student loans or how to open a bank account. Well I do, but no more than the average person.

Then someone cottons on to what I do.

“How can I double my money if I give you £100?” I’m quickly asked.

It’s a humorous question that’s meant in jest. But it feels like it’s at my expense.

It’s even worse when I’m conversing with family.

On my mother’s side – of Indian descent – they’re all doctors. Then there’s my loud expressive Australian father. He’s a barrister. Most of the time he’s pretty good at his job.

He doesn’t really know what I do. It’s the same with the rest of his family, who also seem to be lawyers.

So, that’s what it’s like: doctors and lawyers!

I’m literally the black sheep in the family.

As far as they’re concerned, I went into “high finance” and now I live in Switzerland. I’m guilty as charged, so I can’t shake off this image.

Remember that financial crisis back in 2008? I’m the reason why it happened, although no one quite knows how I did it. I accepted bank bailouts, I rigged LIBOR and I didn’t lend to small businesses.

Then there’s that smart-ass uncle who once read the Wall Street Journal. So now I’m an aggressive, dart-throwing chimpanzee who gets paid for losing money. But it’s ok because he’s saving fees by buying the index by entrusting Mr. Market.

So back to the dinner party. Where were we?

“I work in asset management”, I reply.

There’s stunned silence.

 “How interesting!”, someone eventually replies. And so the conversation moves on.

Well what do you expect?

We named our industry using a nonsensical piece of jargon. So it’s our own fault that the masses don’t understand what we do.

But we do have a purpose.

I joined the asset management industry after I left university because I believe in what it does. I wanted to be part of the action and challenge the issues that bothered me.

Let me share some of them with you.

1. If you’re my age or younger you won’t retire

The governments we have elected have failed badly at addressing this issue. In fact, it’s a ticking time bomb. This is more important than Brexit!

The total value of unfunded government pension liabilities for OECD countries is $78 trillion (“The Coming Pension Crisis” publish by Citi). Increasing longevity and a rising ratio of retirees-to-active employees have largely caused this crisis. In fact, there is a good chance that state-pension systems won’t exist in 30 years’ time.

2. Your kids might not go to university

A good education should be seen as a basic human right, not an activity for only the privileged. If all our children had an equal chance of going to university, it would level the playing field between the “haves” and the “have nots”. It would create a fairer and more ambitious society. But this is difficult to deliver if governments are unwilling to foot the bill.

This is a big problem in the UK, which has moved from a free grant-based university system to the fifth most expensive place to go to university in the world.

3. Millennials will never be mortgage-free or live rent-free

Property prices are astronomically high for millennials trying to buy their first home. Many have given up on the idea. They have resigned to the fact that they will be renting for the rest of their lives.

In London, where I grew up, most first-time buyers are close to their 40s. Property prices have cooled and in some cases they have dipped. But this has been after huge price increases that have left the housing market inaccessible to the young and aspiring. 

Why we need to invest more

Investing contributes to economic growth and creates jobs. It can provide solutions to these issues and remove some of the inequality in society that has evolved over the last few decades. To make it work though, we need to make investing accessible. The asset management industry could do more to make this happen.

As an investment writer, my job is to create and curate valuable information for the investing public. I want to help investors by making them more knowledgeable about the economy, the markets and what they are investing into. That’s why I got into this job.

But the industry I work for doesn’t always help itself.

It’s become increasingly commoditised and detached from its investors, saturated with passive products, and active funds that do little to deserve the fees they earn. Some asset managers see themselves as vendors of financial products rather than providers of real solutions that investors need.

We shouldn’t be setting up funds that offer daily dealing and redemptions when they hold illiquid assets that are trading at low volumes. There’s nothing wrong with illiquid assets, but they shouldn’t be presented as a liquid source of equity income and capital preservation.

Cough… “Niel Woodford”.

Yet I feel optimistic.

The industry will change profoundly in the decades to follow. There’s going to be huge disruption with new entrants coming into the market.

It’s all very exciting and I’ll explain why in my next post.

But for now…

… this is why I work in asset management.