Last year was quite the journey for us all.
On the upside, most of the world returned to some kind of post-pandemic normality.
Set against this, we saw the impact of rising uncertainty caused by armed conflict, geopolitical tensions, energy and other supply crises, extreme climate events, high and persistent inflation and – as a consequence – a very rapid and steep change in monetary policy.
While these issues are certainly challenging to us all, they are the kind that we exist to manage on your behalf. Only a few will form part of the megatrends that I believe will dictate the path of the world over the next few decades.
The first, and most significant, megatrend is sustainability. While this may seem like business as usual, we need to remember that this is still a relatively new theme, and the industry is still grappling with its full impact. Regulation is complex, ever changing and not always consistent, but our early commitment to this topic has given us the strength and expertise needed to navigate this important area for our clients. This is why we continue to invest heavily in the integration of state-of-the-art ESG data into our investment decisions, and in the control framework needed to ensure our sustainability-led process delivers for our clients.
The scale of change ahead of us is unprecedented. For example, we do not simply have to cut emissions, but actively move to a net zero world. This will require the largest reallocation of capital ever seen and presents us all with the opportunity to not only reposition portfolios for sustainable growth, but to become a source of funding for a better world. A challenge of this magnitude requires a radically different level of thinking across the entire financial system that we have not had to do before.
The transition to the new world is too complex to face alone. I believe that it is only by working with clients, issuers, regulators and peers that we can create a sensible and successful way forward. Roadmaps, such as net zero and the measurement of the biodiversity impact of portfolios, will help guide our actions, but need to be applied diligently and across the board if they are to be of consequence.
Sustainability also guides how we both manage our business today and position it for the future. At the end of last year, we announced the acquisition of the majority of a sustainable forestry company, International Woodland Company (IWC). Actions such as these are not just about creating new investment opportunities for clients, but also about how we bring our commitment to sustainability to life.
Of course, the megatrends of the future are not just environmental. The growing complexity of the world necessitates greater technological innovation, and we are committed to investing in the best technology the industry has to offer to augment the stellar human capital in our firm, so that we can uncover more sources of alpha and help protect clients and the assets entrusted to us.
Finally, changing demographics require us to look even further ahead in the management of assets, underscoring why a focus on sustainable returns is so important. Active management will always be vital – after all, this is how we identify the winners of the future – but these lengthening lifespans will also require more investment in illiquid assets, such as infrastructure, that can deliver returns over years rather than months. Challenges like this are why, last year, we created a dedicated Private Assets unit, and took a majority stake in Dynamic Credit Group, a leading provider of Dutch mortgages, helping us take advantage of these areas at scale and offer new solutions to a whole spectrum of clients.
Overall, 2022 was a testing time and many of the events witnessed last year continue. While the economic cycle will prompt the return of areas such as bonds and money markets, one thing that the last few years have taught us, is that we need to expect the unexpected. Whatever we face, we face together, and our commitment to you remains firm: to provide sustainable investment returns over the long term.
Thank you for entrusting us with your assets. We cannot promise a calmer 2023, but we promise to remain by your side.