The agreement, announced yesterday by BPCE — Natixis IM’s parent company — and Generali, will see the launch of an asset manager with €1.9trn (£1.6trn) assets under management.

The parent companies will own 50% each of the combined business, with balanced governance and control rights.

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BPCE CEO Nicolas Namias will chair the board of the new entity, with Generali CEO Philippe Donnet as vice chair.

Meanwhile, current Generali Investments Holding CIO Woody Bradford would serve as CEO, with Natixis IM CEO Philippe Setbon as deputy CEO.

Subject to regulatory approval, the merger is expected to complete by early 2026.

Both parties cited critical scale, an enhanced offering in private assets to meet growing demand, and strengthened global distribution capabilities as some of the factors behind the deal.

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

They said politics is the key concern that could derail the strong returns made by indices in the first sixth months of the year – namely the US election.

Most of the 30 Natixis strategists surveyed (77%) said elections typically do not have an impact on markets, but this one could be an exception, with most saying that it could put investors at medium (37%) or high risk (37%).

Unlike past election years, most strategists (60%) said the US election is likely to weigh on markets rather than support them.

And these responses were made before Joe Biden stepped out of the race – uncertainty is likely to be even more heightened now that Kamala Harris is in the running against Trump, according to Dave Goodsell, executive director of the Natixis Center for Investor Insight.

“Politics is a springboard into what could disrupt a half-year outlook marked by a positive macroeconomic forecast and clear projections for markets and asset classes,” he said.

See also: Nedgroup’s Landecker: Investors can’t ignore macro anymore

Politics aside, strategists at Natixis highlighted slowing consumer spending (47%), a surprise bought of inflation (40%), and valuations (37%) as three other key concerns that could bring this year’s rally to an end.

Yet politics remained as the top priority. Analysts at other firms, such as at Principal Asset Management’s chief global strategist Seema Shah, also emphasized the importance of this year’s US election, calling it “one of the most contentious in history”.

The headwinds triggered by Trump versus Harris may appear short-lived as the election plays out, but Shah pointed out that the effects of either winner will continue to have an impact well after voting day.

“Taxes, trade, and geopolitical policy can all impact specific industries and the global economy,” she said. “This election season, investors should pay attention to proposals about US trade, geopolitics, and fiscal deficit management, which may influence market volatility.”

See also: Invesco: Sovereign wealth funds explore EM as geopolitics becomes primary concern

While investors would benefit from lowering their expectations as they enter the second half of 2024, Natixis’ head of global strategy Mabrouk Chetouane said there are actions they can take to shield their portfolios against political uncertainty.

“Investors should be cautiously optimistic as they continue to face an array of headwinds in the second half of the year, led by politics, geopolitical tensions, potentially higher for longer rates, slower consumer spending, and elevated levels of government debt,” he said.

“In order to mitigate risks, investors should look to diversify portfolios across bonds, equities, and alternative investments to prevent over exposure to a single asset class. The broader risks have put more of a focus on quality when it comes to fixed income, with strategists favouring government and investment grade corporates over riskier high-yield and emerging market securities.

“From here, all eyes will be on the US as we wait to find out the outcome of the presidential race, which may have wide knock-on effects to policy, markets, and geopolitics.”

The falling forecast, where 65% believe market volatility will increase from last year, comes alongside changes with AI as well as remaining fears of recession. Almost half of respondents still believe recession is inevitable, however those who believe it will be avoided increased by 20% from 2023.

AI impacts seem to be pervading through multiple areas of the industry, with just over half of those surveyed using the technology in their analysis and 73% maintaining it will reveal currently unclear investment opportunities.  

See also: Arc: Average private client portfolio returns 5.6% per year over two decades

Areas of concern for investors were topped by recession, but shadowed by concerns of war and terrorism, recorded by 50% of respondents, while 36% feared a possible central bank policy error.

Darren Pilbeam, Natixis head of UK sales, said: “It is clear that fund selectors expect the 2024 investment landscape to be anything but normal.

“Despite the shifting environment, the challenges ahead are a result of continued macroeconomic and market trends – such as prevailing higher rates, the rapid impact of AI, and the possibility of an EM bounce-back – that are being forecast and planned for accordingly.”

Across emerging markets, China remains out of favour with 64% of investors for 2024, while 48% marked Asia ex-China as their top lookout for 2024. Excluding Asia, both Latin America and Eastern Europe gained 36% of the vote for best opportunity in 2024.

Bonds hold a positive outlook for the year, with 66% responding they were bullish on fixed income, and 62% believing long duration will outperform shot duration for the year.

See also: Will inflation fall enough for ‘year of the bond’?

“Against this backdrop, selectors are preparing product and investment strategies that don’t just fit immediate client needs, but also help support them through a year that could be just as volatile as 2023,” Pilbeam said.

“In equities, selectors are counting on large caps to carry them through what could be a turbulent year, and are lengthening duration on bonds to capitalise on the rate environment.”

Among current private equity investors, making up 79% of respondents, almost half plan to maintain their holdings while 39% plan to add to them. They also report 51% claiming clients want additional private assets.

“Private assets and active management are also increasingly coming to the fore for selectors, as they seek to protect portfolios in a challenging year,” Pilbeam added.

The survey was conducted across 500 investment professionals in 26 countries, with a combined $34.8trn under management.

A global survey has revealed that 69% of investors are upbeat about their finances, according to Natixis Investment Managers.

This figure rises to 73% for UK investors.

The survey, which assessed the views of over 8,000 individual investors with more than $100,000 (£78,000, €92,000) in investable assets, also revealed that UK investors are expecting to make returns of 9.3% above inflation this year, higher than the global average expectations of 8.6%.

It also found that over the longer term, individual investors expect 13% returns above inflation.

Despite last year’s economic downturn, respondents globally said they generated positive returns of 1.9% on average.

Investors in the UK came closest to a loss, reporting they generated an average positive return of just 0.6%.

The report also showed that most investors anticipate a return to the bull market that delivered average annual total returns of 14.6% from the S&P between 2012 and 2021, including gains of 30% in 2019, 18% in 2020 and 28% in 2021.

Biggest financial fears

While investors globally reported feeling confident despite the changing economic backdrop, nearly two-thirds (62%) said that higher everyday costs are their biggest financial fear, rising to 71% among UK investors.

Almost half (43%) of UK investors said that a large, unexpected expense is a big concern, while 29% said that one of their biggest financial fears is a tax increase. Despite recession concerns, only 18% are afraid they will lose their job.

Darren Pilbeam, head of UK sales at Natixis IM, said: “Volatility and inflation are certainly impacting investors’ short-term outlook but longer term they are more optimistic about returns and their capacity to save for retirement. Central to achieving their goals will be working with trusted financial advisers, and the survey confirms that over half of UK investors still recognise the important role an adviser provides in navigating financial markets.

“The findings also reaffirm the importance of including active management to deliver returns and the importance of investors understanding the role different asset classes can play in delivering diversification and performance to a long-term investment portfolio.”

Concerns and risks

The survey also revealed that for 60% of UK investors, inflation is the top investment concern, and that 53% believe it is significantly impacting their ability to save for retirement.

More than half (53%) said they need to invest more to make up for inflation and 70% explained that rising costs have made them realise they must save more money, yet 42% admitted that they aren’t saving more.

After inflation, 47% see a recession as the biggest risk to their portfolio. Over a third (34%) pointed to market volatility and 27% said rising rates was the biggest threat to their investments.

Almost half (47%) of investors globally said they have more confidence in bonds to outperform in 2023, than equities compared to just 30% in the UK. In the UK, 25% of investors plan to increase their bond investments in response to rising rates – a much lower figure than the 46% globally who are increasing investments in bonds.

Gap in knowledge

However, while four-in-ten (42%) of UK investors say they understand the role of bonds in portfolios and the impact of rising rates on bonds (40%), when asked questions about what happens to bonds in a rising rates environment, only a small number of investors could provide the correct answers, 27% selected one correct answer and 54% stated that they did not know.

Furthermore, 59% of UK investors recognised that index funds provide returns that are comparable to the market, while 61% assumed index funds will help them minimise losses, and 56% made the assumption that index funds are less risky than other investments.

More than a quarter (29%) of UK investors defined risk as exposing their assets to volatility and 30% defined it as losing wealth. Only 8% viewed risk in terms of failing to meet their long-term financial goals, compared with 24% of financial advisers.

What investors want from advisers

While recent inflation has highlighted the importance of financial advice for 55% of UK respondents, only 31% said they need professional advice for investments.

When asked what advice services interest them the most, retirement income planning and financial planning came out on top, at 54% and 39% respectively.

Some 29% of UK investors also said they want their adviser to offer them tax-efficient investment strategies, 26% highlighted sustainable investments and 23% were looking for private investment opportunities.

This story originated on our sister title, International Adviser.

Pinto (pictured) has spent three years at Natixis IM, including nearly two years as global COO, having moved from Axa Investment Managers.

During his 13-year stint at Axa IM, Pinto was head of business development for south Europe and the Middle East, before being promoted to global head of markets and investment strategy, and then to global COO. In all, he has three decades of experience in industry.

He will take up the role in March, pending regulatory approval, and report to the group chief executive Andrea Rossi. Pinto will have accountability for all investment capabilities including the equity, fixed income, multi asset, private and alternative asset strategies alongside distribution, operations and proposition management across the asset management business.

M&G confirmed that he is succeeding Jack Daniels who, in July 2022, announced his intention to retire following 21 years with the business.

Rossi said: “Joseph brings to M&G a profound understanding of client needs and how they have evolved through changing economic conditions. He has a strong record of delivering on strategic ambitions in investment management, and I am confident his combination of commercial vision and pragmatic leadership will help transform how M&G delivers value to its clients and other stakeholders.”

Meanwhile Natixis IM has lined up Pinto’s replacement, Fabrice Chemouny, who will be promoted on 1 March. Chemouny joined Natixis IM in 2000 as a strategy analyst, before being appointed executive vice president, head of international strategy and marketing in 2003.

He has also been head of business development and affiliate coordination, and global head of institutional sales at the firm, and is set to be promoted from his position as head of Asia Pacific.

In a statement on Monday, H2O said it has sold part of its non-rated private bonds and reduced their aggregate market value to below 2% of its total assets under management.

It has also decided to remove entry fees across all funds until further notice and introduce swing pricing to prevent shareholder redemptions.

The measures come after an article by the Financial Times last week highlighted liquidity issues across six H2O funds – Adagio, Allegro, Moderato, Multibonds, Multistrategies and Vivace – which hold certain bonds connected to “controversial” German financier Lars Windhorst, described as a “flamboyant entrepreneur with a history of legal troubles”.

Morningstar suspended its rating on the H2O Allegro fund “given concerns on the liquidity and appropriateness of several holdings in the fund’s corporate-bond sleeve”, and the group subsequently saw €1.4bn (£1.25bn) outflows across the six strategies, according to the FT.

H2O’s statement added: “Following this mark down, triggered by press reports which dried up market liquidity and widened bid-ask spreads, H2O’s funds will be priced at a discount between 3% and 7%.”

H2O’s parent company Natixis said in a statement that it supported the action taken by H2O, adding the relevant assets are private debt securities relating to a variety of companies, none of which are currently in a default situation.

It added: “Considering the current environment, the H2O AM teams have decided to record these securities at their transactional value in case of an immediate total sale rather than recording them at their standard market value, it being specified that their transactional value has been determined with valuations obtained this Sunday from international banks which are independent from Natixis.

“Such securities represent a total exposure for H2O funds of less than 2% of the outstanding amounts under these funds. This will enable remaining clients and new investors to retrieve the long-term value of their securities.”

Natixis added that the measures ensured the liquidity of securities and will allow the firm to face potential withdrawals if clients decide to sell their funds due to the recent media coverage.

In a Q&A addressing exposure to non-rated private placements on its website published on Friday, H2O said current exposures of the Adagio, Allegro, and MultiBonds to non-rated corporate bonds amount to 4.3% 9.7%, and 8.3% of net assets, respectively.

Contribution of private placements to the performance of H2O Adagio, H2O MultiBonds, and H2O Allegro since 2015

Data as of 20 June ’19. Source: CACEIS & H2O

The deal will see McDonnell IM, which specialises in municipal and taxable bond strategies, integrated into Loomis Sayles in January 2019.

A statement from Natixis IM said the move will allow McDonnell, which has $11.7bn (£9.1bn) assets under management, to benefit from Loomis Sayles’ investing, research and operational capabilities.

Normality or pointless?

Darius McDermott, managing director at Chelsea Financial Services, said bringing these companies together makes sense.

He said: “It is of course continuing evidence of consolidation within asset management and a trend we think is likely to continue.”

Ryan Hughes, head of active portfolios at AJ Bell, said there is always the potential for mergers to occur in the underlying managers when a company operates an affiliate structure.

He added: “There are synergies to be had in overlapping areas and it is clear from the communication from Loomis and McDonnell that there are operational advantages to combining both businesses. This should ultimately enable fund managers to focus on managing money while creating the scope to reduce costs across the wider businesses.”

However, Jason Hollands, managing director at Tilney, said the investment capability overlap between these two business is minimal meaning the merger is essentially about achieving operational efficiencies.

“McDonnell doesn’t operate in the UK and the key Loomis Sayle fund distributed in the UK is its excellent US Equity Leaders fund, which is on our buy list,” he added. “I can’t see this having any impact on the fund whatsoever.”

Smooth transition

Following the integration, the municipal portfolio management team will remain intact and will continue to operate from the Illinois office.

The management of McDonnell IM’s core and taxable fixed income strategies will be moved later next year to the Loomis Sayles Relative Return team.

The firm said to ensure continuity for clients, chief executive and chief investment officer of McDonnell IM, Mark Giura, will lead the office and support existing client relationships, while managing the integration process.

Jean Raby, CEO of Natixis Investment Managers, said: “We fully support the decision by Loomis Sayles and McDonnell Investment Management to join forces.

“The combination of this pair of our investment affiliates further enhances our fixed income offering and unlocks natural synergies that will benefit the clients of both firms.”

Kevin Charleston, chief executive of Loomis Sayles, added: “We believe we can bring significant operational support to the McDonnell municipal investing effort, and free up the portfolio management team to focus on generating alpha.

“We also believe municipal investing is important to our clients, and we are pleased to expand our capabilities in that area.”

Natixis Investment Managers will transfer ownership of McDonnell IM to Loomis Sayles on 1 January.

Advisers expressed concern about risks inherent in passive investing.

Eight in 10 advisers believed the current market environment favours active management and that the length of the current bull market has made investors complacent about risk. Three-quarters of advisers felt retail investors had a false sense of security about passive investing and were unaware of the risks involved.

The survey surveyed 2,775 financial advisers globally, including 300 in the UK.

Bond worries

Ben Yearsley, director at Shore Financial Planning, said he agreed the market environment is moving in a direction favourable to active funds, after a period of several years where passive has done well.

Yearsley said this is particularly the case for bonds, stating it is an area “wholly unsuited to passive at the best of times” and today is “definitely not the best of times”.

“The easy money has been made over the last few years, in tougher times active management should shine”, he added.

“With massive difference in valuation between domestic and international stocks in the UK, for example, you could see the index moving sideways if this situation reverses yet active could make money in this environment.”

Investor complacency

Passive investments can lead to complacency, according to Investment Quorum CEO Lee Robertson, although he said the active versus passive debate is not a “binary argument”.

Three-quarters (74%) of advisers believe individual investors are unaware of the risks of passive investing, and 73% say individuals have a false sense of security about passive investing, according to the Natixis survey. It also revealed 79% of advisers believe clients don’t even recognise risk until it’s been realised in their investments.

“As we potentially enter more difficult investing conditions it can reasonably be argued that the potential for downside protection against risk is better served by active managers who deliver active share.

“Passive investing has, in some quarters, become conflated with less risk and this is just not true, the arguments for lower investment and the lack alpha managers deliver notwithstanding.”

Forward extrapolation

Wellian Investment Solution’s chief investment officer Richard Philbin said passive investors buy the index regardless of risks and also blindly follow weightings in the index, unlike active investors.

As a company grows, its weight in the index rises, which by default garners a demand for the shares and a higher share price, Philbin said.

He added: “Passive investors do not care for price discovery and will allocate regardless.”

“Investors are very good at extrapolating forward,” Philbin said. “Sure, over the last five or so years, the best investment has been in large cap – driven by QE, low interest rates, a weak currency and overseas earnings. If you are confident these issues will remain, then passive is surely the best route again.” But, if you disagree active is the best approach, he said.

However, they are split on the impact volatility has on their portfolios, with 39% who see increasing volatility as a threat, while 38% anticipate a positive effect on portfolio performance.

Among the other main findings of the study: professional fund buyers are turning to active management and as 78% of individual investors worldwide want their investments to align with their personal values, professionals are starting to see as much alpha benefit as risk management in ESG investments.

Natixis Investment Managers surveyed 200 professional fund buyers responsible for selecting funds included on private bank, insurance, fund of funds, and other retail platforms.

Matthew Shafer, head of global wholesale at ‎Natixis Investment Managers said: “The split in opinion over the impact volatility will have can be interpreted in two ways. The downside opinion is likely built on the view that after a long period of steady growth, we are due for a correction that will bring security prices back down to earth.

“However, on the upside, increasing volatility could signal higher return dispersions and greater potential to generate alpha. Interestingly, whatever the interpretation may be, overall professional fund buyers are turning to active management to diversify their portfolios, mitigate risk and enhance return”.

Evolving portfolio strategies

They may be split over the impact of volatility on portfolios but more than eight in ten (82%) of professional fund buyers are confident that their average return target of 8.4% in 2018 is realistically achievable, as they evolve investment strategies to meet the new market reality.

The most popular strategies for managing risk include diversifying by sector (91%), risk budgeting (80%) and increasing the use of alternatives (75%), among the professional investor community.

Two in five portfolio professionals (42%) say they will manage duration to mitigate principal losses in bond portfolios. However, three in five (62%) say that fixed income no longer provides its traditional risk management role, with 20% increasing the use of alternative investments and 18% reducing fixed income exposure overall.

Shafer said: “The survey results suggest that professional fund buyers are more likely to make directional shifts in where they invest, rather than wholesale allocation changes. In fixed income they will look to shorten duration on bonds and implement alternatives to enhance income.

“In equities we’re seeing a preference for European and emerging market stocks. With alternative investments, they turn to private equity to generate alpha and manage volatility with hedged equity and managed futures. They see the long-term value that can be generated by active management and they implement it through a broad range of strategies.”

Implementing alternative investments

Professional fund buyers are increasingly looking to diversify portfolio risk and 70% believe it is essential to invest in alternatives to do so.

More than three in five (65%) believe that traditional asset classes are too closely correlated to provide distinctive sources of return

A range of alternatives can help with broader portfolio diversification, with 52% highlighting managed futures, almost half (47%) commodities, 44% global macro, 43% infrastructure and 38% private equity.

In anticipation of increased volatility, half (51%) of those surveyed see the potential of hedged equity strategies to absorb market shocks while 36% say managed futures are well suited to an increasing volatile market environment

However, alternatives are not only being employed to help diversify portfolios. Over a third of professional fund buyers see alternative investments as an effective strategy for generating alpha:

Almost three in five (58%) report that their organization is increasingly using alternatives as a replacement for fixed income, with a clear preference for real estate (52%) to generate income

Four in ten believe infrastructure is well suited to addressing income objectives, while more than a third (35%) see private debt as an effective income generation vehicle

Over half (58%) identified private equity as an effective strategy to generate stronger returns, with a third (31%) also highlighting private debt

“Professional fund buyers are facing a range of portfolio objectives that are made challenging by the current market environment. Whether they’re looking to generate income in a low yield environment, obtain alpha while correlations are high, minimize the effects of volatility or enhance overall diversification, professional investors favour active management and expand their capabilities with alternative investments,” said Shafer.

20% loss

Data from Natixis’s Portfolio Research and Consulting Group (PRCG) found that in ‘moderate’ portfolios, while equity allocations account for slightly less than 50% by allocation weight, the risk contribution from this allocation is circa 83% – which could mean losses of c.20% in a significant market correction.

Even ‘conservative’ portfolios are subject to increased risks, with c.58% of overall risk coming from equity allocations of c.21%. As a result, in a significant risk event, ‘conservative’ portfolios could see losses exceeding c.10%.

Meanwhile, ‘aggressive’ portfolios are dominated by equity allocations, accounting for c.92% of annual returns and c.94% of risk – implying minimal benefits from diversification outside of equity risk.

The publication of the barometer coincides with research suggesting that informing clients of all of the risks, and not just the greatest ones, can skew the client’s perception of the overall risk involved in an investment.

Open to losses

Andrew Kinsey-Quick, senior consultant, PRCG for Natixis Investment Managers, said: “Clients may not expect a portfolio from the middle of a risk range and marketed as ‘balanced’ to have a possibility of losing c.20% in a significant market correction. In reality, ‘conservative’ portfolios are probably the most balanced in their approach to allocations and risk – to the degree that one could consider them as ‘moderate’ portfolios in their construction and approach.

“In ‘conservative’ portfolios we are seeing a demand for returns pushing investors towards higher risk assets and strategies, with current exposures leaving them open to levels of losses that they may not be prepared for, or fully comprehend.”

Shift from fixed income

Studying historical portfolio allocations from previous barometers, the PRCG found that, over the past three years, advisers have shifted exposure away from traditional defensive assets such as fixed income and into relatively riskier assets such as allocation strategies, alternatives and equities.

This is due to volatility in recent years being underestimated and crucially volatility associated with significant loss events (such as the 2008 Global Financial Crisis).

In the current unexpectedly calm market conditions, simplistic three-year volatility measures are currently much lower than they would have been at the start of the current decade for the very same portfolio construction.

For example, while a ‘moderate’ model portfolio is currently described by a three-year volatility of 6.3%, this same measure would have stood at 11.3% at this point in 2010.

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An easy challenge to levy at a high conviction, highly concentrated fund is that relying on just a handful of stocks increases a fund’s levels of risk.

Win Murray, a portfolio manager at Harris Associates, an affiliate of Natixis Global Asset Management, argues strongly that a global equity fund of 20 stocks may be more volatile but is not more risky as a result.

He argues that buying stocks that are discounted to what he feels they are worth is providing good value; paying more for a stock than he feels it is worth is increasing the risk.