Asset managers: the superheroes of tomorrow

The world, as usual, needs saving, and I know just the industry to do it.

There is a popular view in the investment management industry that asset managers are tomorrow's superheroes, born to cure the world of its problems, although there is some leeway in how they are going to do that and what they are going to save it from.

Climate change is one of the big baddies, although thwarting it will almost certainly be more difficult than just selling a few coal companies - that level of sophistication might work on a cartoon villain, but it is unlikely to effect structural and technological change on the scale needed.

Impact investment is increasing in popularity; the Global Impact Investor Network annual survey, undertaken in partnership with JPMorgan, found its respondents manage more than $60bn in relevant assets. While a substantial proportion of that is either proprietary capital or managed within development institutions, almost two-thirds is managed on behalf of clients.

This move to make investment managers change the world for the better is strongly supported by governments. The G8's Social Impact Investment Taskforce recently released a report entitled "Impact Investment: The Invisible Heart of Markets", a slightly twisted take on economist Adam Smith's great insight.

According to the report, almost half of impact capital is deployed in developed markets, which implies the invisible hand is failing to carry out its self-appointed task of ensuring that what is needed is supplied.

Although impact investing is still a niche activity, almost a third of assets managed in Europe, the US, Canada, Asia, Japan, Australasia and Africa have some form of sustainability or responsibility strategy applied to their management, according to the 2014 Global Sustainable Investment Review.

A less grandiose claim for superhero status is that asset management is best placed to solve the pensions time bomb. As the ratio of retired people to workers increases, public systems will struggle to support them, while most people in the labour market now are not saving enough to support themselves.

The brilliant financial engineering of the investment management industry could stave off this disaster with the range of decumulation productions it is developing.

But neither the vision of the asset management industry saving the world by its philanthropic approach or solving the biggest demographic problem since the Black Death wiped out a third of Europe's population is entirely credible. But that is OK, because they are not reasonable ambitions for the industry to have.

Investment managers have a fiduciary duty to put their clients' interests first. Although it would be nice to save the world, that is probably not the job they were hired to do.

Retirement security may be mediated by the investment management industry, but the shape of the problem will and must be dictated by government policy. (At what age should people no longer have to work? How can those without savings be rescued from destitution without penalising the frugal?)

The biggest problem, that people are not saving enough for their foreseeable needs, is not going to be solved by some clever drawdown product or a few structured vehicles to limit downside risk. Using behavioural finance techniques to encourage saving may help, but it needs to be aligned with and in service of government policy.

Given that it is far from clear that asset managers are entirely succeeding in their fiduciary duty (in part because of disagreements about how that might be done, in part because of the inevitable agency problems created by the delegation of asset management), focusing on this obligation would be the right thing to do.

Luckily, in many cases, fiduciary duty to clients coincides with the grand aim of saving the world. In most cases, clients have a longer-term investment horizon than much-touted quarterly results, so analysis should include an evaluation of environmental impacts, and strategies should aim to minimise damage that will ultimately be wealth destroying.

Closer attention to the mundane challenges of understanding and acting in the best interests of clients is more likely to have a positive impact than all the grandstanding about socially responsible investment or decumulation innovation thought leadership in the world.

And no one has to wear their underpants outside their trousers to achieve it.

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