This annual review is only available in English.
In these days of reflection, the annals of history will remember 2022 as a special year. At the beginning of the year, we expected 2022 to revolve around lockdowns, testing and vaccines, but it seems like the virus mutated itself mostly out of our lives. Alternative misery presented itself, primarily for Ukrainians and Russians, in the largest war on European soil since 1939 – 1945. The consequence for a large part of the rest of the world is limited to high energy prices and resulting high inflation. After years of record low interest rate, we now have a year of record high inflation. We seem to live in interesting times.
The economic impact of it all will find itself to both the real economy and financial economy, despite or possibly as a result of central bank and government interventions. The impact on the real economy should result in a recession, while the financial economy already encountered rising interest and a minor stock market correction. For our industry it reshuffles the attractiveness of asset classes. Finally, after years of relative obscurity, the limelight will be on fixed income managers again. Asset managers and private banks do suffer from lower assets under management because of both the rising interest rates and the stock market correction. The antiquated fee model of a percentage over assets under management results in 15% – 20% lower earnings compared to the start of the year. When lower earnings last, these organizations will start to consider cost cutting and reorganizations. A perspective equally unattractive for both the employees of these organizations and for consultants. Pension funds seem to live in an alternative reality. The rising interest rates, at partial interest rate hedging of liabilities, have resulted in high funding ratios. Their main challenge for the next years will be managing the reform of the Dutch pension system.
To adjust to a changing economic environment asset owners will alter their asset allocation over the next years. Pension funds will also make changes in their asset allocation due to choosing either of the new alternatives available as a result of the Dutch pension reform. This presents opportunities for asset managers that preempted these changes and are expanding their product range with suitable solutions. The asset management industry as a whole will continue to consolidate. Large asset managers will merge and boutique managers will be bought by multi boutique managers. Investments in new products, the operational infrastructure and distribution continue to increase cost levels. At the same time competition drives down fee levels. A clear sign that asset managers, who do not increase their size or specialize, will fall victim to consolidation.
In a consolidating Dutch asset management industry, there was plenty of work for AF Advisors. Acquisitions and integrations result in complex transition periods in which we have assisted our clients. The end of Covid19 has also meant that job market became more competitive. Employees more easily changed jobs. Some of our consultants moved on to new challenges, but in return we were able to attract a lot of new talent. Moving from working mostly remotely to a hybrid model of working at the office, at the client and at home required some adjusting. It is good to see that we have learned some lessons. Not all meetings require travelling for an hour back and forth; an online meeting is a suitable alternative.
All four of our business lines were able to attract interesting assignments. There are a few themes that ran through many assignments. The transition of our industry to sustainable investing is a process of trial and error. The implementation of the current transparency requirements of the Sustainable Finance Disclosure Regulation required a major effort from many financial institutions, some scrambling to meet the January 1st deadline. In many other assignments sustainable investing was front and center. Sourcing, processing and using sustainability data is complex. Many of our clients will need to improve their reporting on sustainability beyond what is mandatory. Another theme for many assignments is the Dutch pension reform. While many pension funds await the formal approval of the law, the service providers are already working diligently to alter their services. They do not have the luxury to wait. Assignments ranged from designing and implementing new operational models to reviewing or selecting new service providers like fiduciary managers or custodians. Over the next years we expect a multitude of changes that need to be implemented. RFP teams of asset managers, fiduciary managers, custodians and pension administrators will be busy. However, their change capacity is also limited. Lastly, we completed developing our very own Dutch Residential Mortgage Index (www.drmi.nl) together with Hypoport and are happy to onboard our first clients.
Ernst de Klerk joining our leadership team as a partner is important for the future of AF Advisors and for our regulatory consultancy services. It underlines our ambition to further grow in servicing the sector with regulatory advice. As a company we were able to grow by completed assignments for more than 80 clients on a wide range of topics. In return we are happy to give back to society through contributions to our social partnership with the Survival with Pancreatic Cancer Foundation. In addition to our annual donation, we organized fund raising events. To our delight Casper van Eijck and his team are well on their way to improve the lives of those affected by this horrible disease.
We are grateful for the trust that our clients grant us and hope to continue to provide consultancy and project management for many new challenges. We look forward to working together next year and wish you all a Merry Christmas and a Happy New Year.
On behalf of all of us at AF Advisors:
Anne, Arun, Caroline, Casper, Chi, Chris, Ernst, Hans, Hugo, Indira, Jasper, Joni, Kevin, Linda, Lucienne, Martine, Maurice, Nikki, Nina, Peter, Philip, Ronald, Saskia, Sef, Thomas, Willemijn, Zef.
