Capital Markets Corporate

June 29, 2018

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

All-Male Board Rooms Bad for Business

Companies with greater gender diversity on their boards are less likely to be targeted by activist investors, according to findings from a recent study. Activist investors are attracted to underperforming companies and studies have shown that companies with diverse boards are more likely to be high-performers – reaffirming that creating a better gender balance in the boardroom is not only good for diversity, but it is good for business too. (From Financial Times, 23 June 2018)

Perfect Pension Storm

Transfers from final-salary schemes hit £10.6 billion in the first three months of 2018. Many have argued that these transfers are evocative of the pension mis-selling scandal in the 1980s and 1990s and financial advisers are now concerned that, if the stock market underperforms, people will seek compensation from those who advised them to move. (From The Times, 23 June 2018)

Bleak Future for Research Analysts?

Commerzbank is experimenting with Artificial Intelligence (AI) technology to replace their traditional investment bank’s research analysts with robots. AI has already proven to be more cost effective, hold no bias and to be able to process and analyse more information than any human possibly can. So what will this mean for current analysts? As the resource to AI becomes common-place, firms will have to communicate this transition carefully. (From The Daily Telegraph, 26 June 2018)

The New Bank Branch Model

In the past three years, 3,000 bank branches have been earmarked for closure, with 60 branches currently closing down in the UK every month. Banks attribute these closures to the increased use of online and automated banking. But Halifax is bucking the trend, and recently opened a three-storey flagship store equipped with a café, coding classes, a playground and high end services and features.  So are amenity filled branches the way forward? (From Financial Times, 20 June 2018)

One Trading Day in 1838…

A fascinating note from June 1838 about an unremarkable trading day reveals what life was like as a financial investor in the 19th century. The historical note describes a world where tariffs, technology, and trade held just as much importance to investors then as they do to investors now. Times have certainly changed, though maybe less than we would expect. (From Quartz, 25 June 2018)

Redefining Risk

A report published this week on the lives and habits of millennials has found that a fifth of those surveyed would prefer to invest their money in cryptocurrencies, rather than real-estate — with 57% of respondents considering property investment to be “high risk” over the next five years.

This shift in attitudes towards home ownership means that millennials’ “cautious” approach to investing in property is today more akin to that of landlord investors — who are currently avoiding investing in new buy-to-let homes in response to fiscal measures introduced by the government.

If that is the case, then what does this tell us about millennials’ notion of what constitutes a risky investment? Might the perception of risk be a key factor in this new approach?

Firstly, it isn’t that Millennials are seeking risk – in fact, Millennials are quite risk adverse. Studies show they are less likely to uproot for work and research suggests Millennials would hire a financial adviser to avoid a downturn as opposed to increasing their profits.

Also, Millennials preferring to own crypto instead of bricks and mortar is, for many, a healthy and welcome change of focus. Advisers, experts and non-house-obsessed-Brits have long argued that too much emphasis on owning property at any cost may not be the smartest investment decision. Despite house prices now dipping in key areas, younger generations seem to be more open to contemplate other types of investment.

In this context it’s worth noting that the Millennial generation grew up in the credit crunch and that financial crises may have tempered expectations of market profits. In actual fact, Millennials also see stocks as riskier assets than crypto. Years of bank bailouts, market crashes and shamed fat cats have turned them off the traditional forms of investment favoured by their parents and grandparents.

A key question for them is: what is so risky about crypto, anyway? Bitcoin is up 1,000% over the last two years, while the FTSE is only up 17% over the same period. And while market sages may point to the volatility of crypto assets, Millennials have watched Generation X – who invested in traditional assets – suffer for years in the wake of the last financial crisis.

Risk is being redefined, and it’s the job of the financial services sector to catch up with the pervasive sentiment of this new, largest generation. What was once seen as a safe bet might not feel so safe anymore. Risky business or not, change has arrived and looks like it is here to stay.

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