Investment Management 2.0

pigs_0When people use pension funds to tuck away money for their retirement  their savings gets sucked into a kind of giant global casino. They have little choice or visibility on what the money is being invested in and the money will most likely not be applied to projects in their own communities.

But what if the average person could have a real say in what happens to the vast pools of capital in pension funds?  What if they could use the power of the Internet and social media to decide what they want to improve in their own communities and elsewhere and could make it happen with money they already own? That’s the thinking behind Investment Management 2.0, a scheduled topic at Sibos, an annual conference that attracts over 8,000 banks that took place this year in Dubai Sept. 16 to 19.

Stephen Richards, an Australian fund manager who is scheduled to co-lead the Sibos session along with Smarter Companies’ Mary Adams, is out to create an alternative structure that operates in a more democratic, participatory and transparent  manner. “Rather than dealing with the day to day minutia of managing money we should focus people on the governance, the purpose and the objectives,” Richards said in an interview with Informilo. “Leave all the weeds to the fund managers. We need to reinvent fund governance. People should be able to determine how their money is invested and in what and align that to some sort of North Star vision of the world we want to create.”

Richards foresees a global social movement that would attract people to invest their savings into a new type of social minded, socially led investment fund rather than in financial instruments managed by traditional institutions. “It will be online and it will probably use some of the existing intermediaries the current systems uses but how it is going to be designed is still a work in progress,” says Richards, who wants to recruit people with skill sets in banking and finance to help him realize his vision.

Richards is CEO of an Australian financial product innovation firm called Ability Capital, operating in both mainstream and ‘New Economy focused’ segments of the investment management industry. Ability Capital has designed and implemented an Australian equities fund delivering free downside protection for institutional superannuation funds and their members.

Now Ability Capital, together with a range of multi-disciplinary global and Australian institutions, want to leverage progressive 21st Century technologies such as those used by Avaaz, Peers.org and Getup to integrate consumer and investor advocacy in an integrated fashion and at massive scale.

The goal of this new movement is to incorporate social factors into investment. For example, it might follow the example of Buycott, which enables people to scan the barcode of a product and trace the ownership and the structure of the company that produces the product and then link eventual purchases to a set of causes that they care about. The new movement could adapt that idea, allowing consumers to scan products and encourage them to only buy a product if it is in their investment portfolio- not just to maximize the profits of the companies they invest in but because all of the companies they invest in will be linked to causes they believe in.

What’s more, the new movement could act to transform the centralized, highly globalized system that today defines the current form of capitalism and help rebalance it to create resilient, local economies. “We already have these vast pools of institutional pension funds but none of the capital gets used on community oriented investments,” says Richards.  Under a new structure a percentage of the pension funds could be used for locally owned enterprises. “This will enable communities to come together and decide what they want to do and make it happen with their own money,” he says.

“I see myself as an activist,” says Richards. “There are deep, deep problems in the financial system and a lot of them relate to profit maximizing.  The objective of the investment management industry is to suck as much money out of the value chain as possible- basically a pigs at the trough mentality. I participated in it so I know the game. What I am trying to do now is to make a difference at the global level to the problems the world is facing and make the finance industry part of the solution. I want to re-imagine how pension fund capital can be used to accelerate the transition to a new economy.”

Like it or not change is coming. “Capitalism is in a crisis,” says Richards. “It is part of its model to be in a crisis periodically and then go reinvent itself – that is what capitalism does and we are now in the midst of a transition to the next capitalist organizing principle.”

The old models are already crumbling.  Fund managers are used to earning a fixed percentage of a large asset base as revenues but the business model is vulnerable to fixed cost pricing innovation. “It is already happening  so the challenge to the mainstream providers is they have got to think about how they are going to adapt,” he says.

Real change will only come when customers start voting with their feet. “We have to create a new, credible viable platform or process that attracts their customers and then traditional financial institutions will stand up and take notice,” says Richards.

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