Alva Devoy, the head of Fidelity International Australia, says the coordination and sophistication of the global response to the pandemic and the Russian invasion of Ukraine show systems leadership.
This is when leaders understand that they are fused in an interconnected system and must work together to solve complex problems.
She applauds the strong, unified, and rapid action of western nations, that introduced unprecedented financial sanctions against Russia, including on the central bank.
And, she gives props to political leaders for the way they responded when the pandemic hit, "Countries and companies quickly shared information, found vaccines and got them manufactured, licensed, and into arms with unprecedented speed," she said.
Given her background in science and engineering, Devoy likes to draw parallels between natural and financial ecosystems.
"The foundation of a healthy and functioning ecosystem is diversity and balance. You don't want predators becoming so strong that the ecosystem gets out of balance," she argues. And from where she sits, the financial system is no different."
Five years ago, the big debate in funds management was over passive versus active investing. And it was adversarial. Now market participants have moved to a narrative of passive plus active with investment portfolios.
"In the end, behavioural change can be forcibly driven forward, by acknowledging this diversification, is in our client's best interest."
Funds are shapeshifters
Devoy concedes that the decision by asset owners to bring investment capabilities in-house was somewhat disruptive to the asset management industry.
In certain areas, the super funds bringing assets in-house placed Fidelity and other asset managers in an interesting situation, where clients could potentially become competitors.
Returning to the natural ecosystem analogy, she says changing one part of the system forced evolution in other areas. Since Fidelity was historically heavily dependent on Australian equities, internalisation by super funds forced it to shapeshift and focus more on assets that were less likely to be brought in-house.
"We are much less exposed today," says Devoy.
"We have been on a path to diversify, and by doing so, we have built a much more resilient business, reducing areas of concentration.
"While internalisation might be uncomfortable for periods, you ultimately get to a much better outcome."
Fidelity moved swiftly to expand the range of products and built out infrastructure to give clients more access points to its investment strategies.
It used to be the case that clients accessed strategies solely through unit trusts on platforms etc. or through segregated mandates. Now, investors can buy units in active funds on the exchange via active ETFs - or access actively managed strategies via their separately managed accounts on a third-party platform - as Fidelity can now transfer model portfolios to its partner platforms.
Moreover, Fidelity plans to extend access to selected offshore funds via a master-feeder structure, where local unit trusts can feed into offshore vehicles and strategies.
"By doing all of the above, we have also diversified our client channels, so our dependency on the big asset owners has lowered," she adds.
Meanwhile, it has become evident to Devoy that there is a certain threshold above which asset owners will be reluctant to increase their internally managed funds for each asset class although this will vary by super fund size.
For instance, AustralianSuper built an internal global equities team and now has around $50 billion managed internally. Devoy sees an appetite to grow external management of global equities.
"Pension funds will use internalisation to an optimum level for their funds and then potentially shift course," she argues.
"Rather than continuing to build, there is a point at which you stop achieving cost benefits.
"We are seeing signs that the pendulum is swinging back to outsourcing from some of the early adopters of internalisation."
From where Devoy sits, much like the passive plus active debate, super funds are settling into using the full range of investment options available across the financial ecosystem to benefit their members.
"There isn't a sense that one area wins to the detriment of another, but rather a rebalancing," she says.
"We have had this evolution with internalisation. Asset owners and asset managers have now moved beyond this debate to partner up and drive strategic alliances in key areas like decarbonisation of portfolios," she says.
"That imperative is driving us as asset managers to adapt to our current client needs quite quickly."
Notably, the pressures that have driven financial ecosystems to ever-increasing complexity are increasing.
Further, solving climate change risk through decarbonisation of portfolios while maintaining investment returns or solving for income and protecting against volatility in retirement will take a lot of collective know-how.
"These problems are bigger than all of us. We all have to bring our collective know-how into the sandbox to work this out together. Every part of the ecosystem can lend a hand."
Achieving net-zero is the biggest challenge facing everyone in financial services, currently. Her point is that these pressures are pushing super funds and asset managers to build a more collaborative financial ecosystem.
Already, she sees healthy dialogues and constructive debates with a higher level of humility around the table.
"When you compete, you are not collaborating or not talking to each other and we've all had to move past that phase."
"Asset managers have absorbed the shift to internalisation by many of our clients, our ability to relate to asset owners with internal investment teams is now embedded in our mindset.
"We are mirroring each other's businesses, so the level of understanding has increased."
Outsourcing provides a diversity of thought, which is another reason why Devoy believes most asset owners will want to keep outsourcing to external managers.
With market complexity shifting and deepening, funds must have even greater and more diverse investment firepower."
"Everyone worried that certain investment jobs were at risk of becoming obsolescent. Yet, the heightened complexity of geopolitical and climate events combined with new instruments and investment styles means the opposite is true."