For many years, it seemed like all banks had the same strategy, given the policy and regulatory expectations put upon them. But they also faced huge issues. Limited strategic capacity, the shock of credit losses, increased regulatory attention and the need to invest in often outdated technology.

Finding purpose

Now, the banking sector needs to identify and move towards its overall purpose. Banking leaders must innovate strategically, to attract capital at the same time as gaining social and political support. Policy makers internationally see banking as an enabler in supporting the real economy, with customer welfare taking priority. These themes are in turn reinforced by politicians and consumer protection lobbies.

But the purpose demonstrated by the sector during the pandemic is moving the dial. Good work was done to support retail and corporate customers, as well as keeping the financial infrastructure running through an exceptional period of digital transactions and remote working has not gone unacknowledged. Banks did good work and made a difference in difficult times.

There is also an opportunity for banks to take back lost market share and restate their purpose in creating safe options for savings.

The future is green – and digital

Climate change presents a major opportunity for banks. They can play an incredibly important role in making sure that capital is invested in sustainable infrastructure and businesses.

The existential threat to global banking comes from ‘big technology’, who collect and create value from data, makes for a fascinating challenge. Banks want to embrace the culture of innovation they have often lacked, but also face regulatory governance expectations in a way that technology companies struggle with. Partnerships between banks and technology players may well fail because of the cultural challenges involved. However, the potential for exceptional value creation for banks and technology companies who get this combination right is tantalising.

Banking in Ireland and globally is still in a major transition. The end game is not clear. But banks are achieving levels of profitability that will give them more strategic options. This applies not only to our domestic banks but also to the increasing number of global banks and technology companies who prefer Ireland as a location for post-Brexit banking into the EU.

Ireland should look to build on very firm foundations and commit as a global centre of excellence for asset management. Our ability to do so, will be inextricably linked with our ability to compete against other countries competing for the same level of jobs and services. The industry in Ireland therefore needs to continually grow its capacity, advance its knowledge base and diversify its skill sets to attract and meet international attention that may otherwise look elsewhere.

In building our industry, we cannot lose sight of some real threats that might challenge and hamper growth, including:

• The emergence of alternative jurisdictions, such as the UK;
• The ease of working remotely in an industry that is not heavily dependent on capital or real estate, and is highly mobile;
• The need for investment and modernisation of third level education to deliver world class talent; and
• The suitability of Irish investment vehicles for use as global investment funds.

Structural issues

On top of navigating a vast EU and US regulatory agenda, the asset management industry has been working through many structural issues since the financial crisis of 2008.

“Value for money” tops the agenda. I We have witnessed investors switch from more expensive active managed funds to lower cost passive products. For active managers there are three core challenges: be distinct, perform and offer a value-based proposition. In a market as highly fragmented as asset management, it’s increasingly more difficult to be distinct. As a result, performance and operational efficiencies are key. It’s no surprise therefore that we have witnessed significant M&A activity across the entire asset management value chain, with participants consolidating for growth and economies of scale.

Size and scale will get the industry to point, but technology transformation, intelligent data analytics and digital distribution will quickly occupy board room conversations as the industry starts to truly transform itself.

Distribution and democratisation of investing

Digital distribution models for asset management companies have evolved significantly over the course of the pandemic. With the responsibility for long term savings having shifted from corporates to individuals, significant work is still needed to democratise investing and allow more and more individuals participate as investors.

In Ireland alone, we have over €130 billion in cash deposits from Irish households which will quickly lose value in an inflationary environment. The Irish government should act and begin to create demand-side incentives allowing more individuals participate in the wider market.

Sustainability in sustainable investment

The industry is embracing ESG. This is the right thing to do and holistically gives the industry a strong purpose to rally around. Strong ESG policies will ensure that capital is allocated through a more longer-term lens, this is important for companies to grow and infrastructure projects to obtain alternative funding, which in turn will sustain our communities Inevitably, switching to ESG will create tensions on returns during the early years, with ESG funds sometimes coming out in front, and sometimes behind. Patience from all sides will be necessary to stay the course in the early years, but the benefits will be worth it

Business models, processes, definitions and taxonomies will be challenging, and no doubt may change from time to time. But when it comes to climate, we have hundreds of years of erosion to pay reparations for. And if there is any doubt about that… just remember our children, and their children, and the world we leave for them.

Private Equity and private credit

There is no doubt that private equity and private credit will play a significant role in driving economic growth in Ireland. Private equity is a key source of funds for private companies and getting capital into the real economy, which in turn creates jobs, generates returns for its investors and builds better businesses.

Logically, the asset management ecosystem in Ireland lends itself to service the needs of International Asset Managers as they look to deploy this capital across the world. The Government and regulatory agendas need to align to ensure Ireland isn’t left behind as growth in these asset classes continues.