On Thursday 9th March, Bocconi Students Capital Markets had the great honour to host at our university as guest speakers Michele Cervone (Managing Director at JP Morgan Asset Management) and Fabio Caiani (Managing director at Nordea Bank). They took part to the event organized by our association to explain how low interest rates which led to negative yields in some cases have affected the Asset Management sector in the recent past. Massimo Guidolin, Director of the MSc in Finance, moderated the event and in the introduction he underlined the growing importance of Asset Management in the current economic system, in which banks are having trouble with their core activity and so they have to try alternative ways of making profits.
In the first part Michele Cervone started explaining why there will be a greater amounts of savings in the financial system, especially in the emerging economies and in those developing countries where saving rates are reaching almost 30%. Then he explained why markets have reached a low level of interests going from the 80s, in which stock markets had such a good performance that people wanted to invest a greater percentage of income, to the Black Monday (1987), when the trend reversed and investors were more inclined to put their savings in safer products like bonds. In particular, Italian investors are more risk-averse than European ones. In fact, they tend to invest a larger percentage of the income in financial products with a lower return than shares but also with a lower volatility. Italian investors also prefer to put more than 30 per cent of the savings in liquidity (certificates of deposits or simple bank accounts).
The second part of the event was held by Fabio Caiani who initially tried to explain in simple words the dynamics of FED Funds’ rates in the last 40 years. In general, because of many economic factors (low Inflation and low growth rates) average returns decreased over the time. Now some rates are even below the zero. How is it possible to survive in the age of negative returns? Customers are still looking for positive margins but ordinary bonds will not be able to provide them anymore. On the other hand, betting on stocks can be very risky, too. The price to pay, in terms of volatility, seems too high. Asset Managers are counting on diversification and active management strategies in order to overcome these difficulties. A possible solution is trying to build a well-diversified portfolio betting on aggressive (or cyclical) assets when markets are bullish and on defensive (or anticyclical) assets when markets are bearish.
Both speakers at the end agreed that new strategies to survive at this environment of low interest rates and negative yields will count on the next digital generation (user-friendly interface or accounts with simplified access). They will take more into consideration long-term partnerships in order to build relationships based on trust. There will be also a wider range of investment opportunities for the average investor.
Nicola Maria Fiore
In the first part Michele Cervone started explaining why there will be a greater amounts of savings in the financial system, especially in the emerging economies and in those developing countries where saving rates are reaching almost 30%. Then he explained why markets have reached a low level of interests going from the 80s, in which stock markets had such a good performance that people wanted to invest a greater percentage of income, to the Black Monday (1987), when the trend reversed and investors were more inclined to put their savings in safer products like bonds. In particular, Italian investors are more risk-averse than European ones. In fact, they tend to invest a larger percentage of the income in financial products with a lower return than shares but also with a lower volatility. Italian investors also prefer to put more than 30 per cent of the savings in liquidity (certificates of deposits or simple bank accounts).
The second part of the event was held by Fabio Caiani who initially tried to explain in simple words the dynamics of FED Funds’ rates in the last 40 years. In general, because of many economic factors (low Inflation and low growth rates) average returns decreased over the time. Now some rates are even below the zero. How is it possible to survive in the age of negative returns? Customers are still looking for positive margins but ordinary bonds will not be able to provide them anymore. On the other hand, betting on stocks can be very risky, too. The price to pay, in terms of volatility, seems too high. Asset Managers are counting on diversification and active management strategies in order to overcome these difficulties. A possible solution is trying to build a well-diversified portfolio betting on aggressive (or cyclical) assets when markets are bullish and on defensive (or anticyclical) assets when markets are bearish.
Both speakers at the end agreed that new strategies to survive at this environment of low interest rates and negative yields will count on the next digital generation (user-friendly interface or accounts with simplified access). They will take more into consideration long-term partnerships in order to build relationships based on trust. There will be also a wider range of investment opportunities for the average investor.
Nicola Maria Fiore