The end of the year is often a time of lists. It is also a time to look back as well as ahead and wonder what of 2015 will recur in 2016. Each year brings its own particular crop of words and vocabulary which reflect events or particular themes – in short, the prevailing ‘Zeitgeist’. As avid followers of what’s going on in the financial services industry and asset management in particular, here are some of the buzzwords that strike us as reflecting the events and themes of 2015 in asset management.
Of course, this is purely our list of buzzwords. Yours may be – completely – different. Do let us know. You can contact us at Publication Centre: firstname.lastname@example.org.
Robo-advisory – coming soon, thanks to the digital revolution, robo-advisors are a type of financial adviser that provides portfolio management services online with minimal human intervention. They reflect of course the automated future of work that according to Martin Ford (author of the ‘Rise of the Robots’ – this year’s FT book of the year) means a ‘fundamental restructuring of our economic rules’ may be needed to mitigate the impact of the advance of robotics and automation.
Blockchain – a blockchain is a sort of digital ledger on which buyers and sellers can log transactions. No single group has control over another. As a decentralised system, it eliminates the need for intermediaries, such as in the case of transferring money instantly without a central clearing house. Blockchains could potentially transform central clearing, back-office operations and cross-border payments.
Exit strategy – redundant now that the US Federal Reserve has undertaken its first rate increase for nearly 10 years. This term accompanied us throughout 2015 as markets struggled (at times) to understand whether the Fed had a strategy for exiting its close-to-zero interest rate policy.
Normalisation – after seven years during which the US Federal Reserve’s main policy rate was held at a level close to zero, it might be legitimate to ask what constitutes ‘normal’ monetary policy. However, we human beings in asset management (as opposed to the robo-advisors) are nostalgic creatures, yearning for the days when the fed funds rate was at 3%, yields of 10-year US Treasuries ranged between 4 – 8% and the digital revolution was confined to fingerprint testing. Those days are long gone of course but still we hanker after the ‘normal days’ before negative bond yields and the zero lower bound….
Unicorn – a term in the investment industry and in particular the venture capital industry, for a start-up company whose valuation has exceeded USD 1 billIon. The idea being that such entities are rare – just like unicorns.
In 2015 some pundits, not unreasonably, suggested that the appearance of unicorns may reflect animal spirits getting out of hand. On that basis they may be the forerunners of a speculative bubble bursting. Fortune magazine publishes a quarterly list of unicorns (there were around 80 at the last count).
Decacorn – another buzzword, used for companies valued over USD 10 billion, which includes companies such as Airbnb, Dropbox, Pinterest, Snapchat, Uber and WhatsApp.
Inversion – tax inversion, or corporate inversion is a transaction whereby used by a company such that it becomes the subsidiary of a new parent company in another country for the purpose of falling under beneficial tax laws. Nuff said.
Fintech – financial technology is the business activity that uses software to provide financial services. Fintech companies are reckoned to be on the brink of pulling the rug from under the incumbent, traditional IT-operated financial systems and corporations.
Sharing economy / Gig economy / Sharing services – you probably know already all you want to about these terms. Let’s just say they are part of the new economic model replacing the world of jobs for life, defined benefit pensions and a welfare state enjoyed by the previous generation.
Lowflation – a term, first coined by the IMF in defining an environment of disinflation with an attendant risk of deflation. Lowflation was omnipresent in 2015 and problematic because a prolonged period of ultra-low inflation potentially weakens the anchoring of inflation expectations. When consumers start anticipating persistently low rates of inflation, they may postpone purchases – a first step on the slippery road to deflation. And as Ben Bernanke noted, long ago, the best way to get out of deflationary troubles is not to get into them in the first place.
Global inflation – the concept that in a globalised world, domestic economic conditions have faded as the main source of inflation and instead global factors increasingly determine inflation. This term became more common in 2015 as it became apparent that in a globalised economy, there may be limits to the impact individual central banks can have on inflation rates.
Monetary dominance – on 3 December, the European Central Bank announced an expansion of its programme of bond purchases and cut interest rates even further below zero. However, these measures fell short of expectations in financial markets. Questions were asked about whether ECB President ‘magic’ Mario Draghi was losing his touch. The next day, the magician responded. In a short speech to the Economic Club of New York, Draghi reminded his audience that the ECB “operates under a clear framework of monetary dominance”. In other words, the ECB has the means and the mandate to do whatever it takes to avoid the risk of stagnation and deflation. Watch out, here comes Mario the lowflationbuster…