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UK investor risk appetite surged in December - Industry roundup: 10 January

UK investor risk appetite surged in December

UK investors were brimming with confidence at the end of 2023, according to the latest Fund Flow Index from Calastone. December’s improvement in sentiment was evident across all asset classes: inflows to equity funds soared, fixed income funds saw increased inflows, buying of safe-haven money market funds (MMFs) dropped sharply and outflows from out-of-favour mixed asset and real estate funds pared back significantly.

Inflows to equity funds soared to £1.19bn in December, making it the best month for equity funds since April 2023 and the second-highest level in almost two-and-a-half years. Investors were especially enthusiastic on US equities, where net inflows more than doubled in December to a record £968m. But the most significant turnaround came in European equities. Having withdrawn capital from the sector every month since January 2022, investors added a net £476m to European equity funds in December, the second-best month on record behind only December 2020 (£509m). Global funds and emerging markets all also saw inflows. Among geographical categories, only perennially unloved UK-focused equity funds saw outflows, though the £418m withdrawn was well below the monthly average for 2023 (-£667m).

December’s inflow to equity funds was not enough to prevent them from suffering annual outflows for a second consecutive year, however. Volatile market conditions and economic uncertainty drove net outflows from the asset class in eight of 2023’s twelve months. Throughout 2023, investors withdrew a net £1.24bn from equity funds. This was a significant improvement compared to 2022 (-£6.3bn) but meant that 2023 was another challenging year for the fund management industry. Some categories have fared worse than others – 2023 marked the third consecutive year, and December the 31st consecutive month, of outflows from UK-focused equity funds. Without the £8.01bn of outflows from UK equities in 2023, all other equity funds between them attracted £6.77bn of new capital combined.

ESG funds saw an eighth consecutive month of outflows in December, though at just -£54m, the net selling was the least severe since investors first turned negative on the ESG industry in May. Income and specialist sector funds also shed capital in December. With £2.39bn of outflows during the year, ESG equity funds reversed just over one-tenth of the inflows they have enjoyed during the ESG boom that began in late 2019.

Money market funds were big winners in 2023, absorbing a record £4.38bn of capital, more than in the previous eight years combined - where 2015-2022 saw £3.53bn of inflows. High interest rates and low risk attracted investors to money market funds in 2023. In December, when sentiment towards riskier assets rose sharply, inflows to money market funds fell to £294m, well below the average monthly inflow of the previous six months (£480m).

Fixed income funds saw inflows rise in December to a net £283m as investors became increasingly convinced that the interest-rate cycle in the US, Europe and the UK has now peaked. The full-year picture was mixed, however. A very strong start saw inflows of £4.67bn between January and July, putting 2023 on course to be a record year for the asset class. But this petered out over the summer and early autumn. Investors only returned with relative caution to fixed income funds in November and December, and for the second half of the year overall, almost no new money flowed into the asset class. £4.78bn of inflows in 2023 were exactly in line with the long-run average in the end.

Among other asset classes, mixed asset fund outflows reduced to £466m in December, down from £1.59bn in November. 2023 was the first year on Calastone’s record to see net outflows from the asset class – totalling £4.82bn. Property funds also fared badly with a fifth consecutive year of outflows. 2023 saw them shed £601m.


Corporate and investment banks devote 20% of spending to technology

Technology investments by corporate and investment banks increased 5.4% last year and now account for approximately 20% of overall spending, according to a report from Coalition Greenwich. Revenues for the top 12 corporate and investment banks have grown at an average compound annual growth rate of 5.2% for the past four years. Revenues peaked in 2021 helped by government stimulus and the pandemic recovery but slowed in subsequent years as inflation and interest rates rose.

Over that same four-year period, overall spending rose by 12.1%, putting total outlays for the 12 leading corporate and investment banks at US$139bn in 2022. About half of that spending (48%) was allocated to the front office, primarily on people (compensation and benefits), and the other half (52%), or US$72.2bn, was devoted to functional expenses, including operations, technology, control, and other support functions.

Over the past 12 months, spending on technology has increased the most, at 5.4%, and now accounts for approximately 40% of all functional area spending and 21% of spending overall.

“Corporate and investment banks are balancing the need to grow their business with the need to invest in systems to create efficiencies through automation that enhance the client experience and accommodate new regulations,” said Stephen Bruel, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of ‘Corporate and Investment Banking: Spending Priorities’.

An ambitious slate of regulatory proposals and rule implementations has made regulatory compliance and risk control increasingly important cost centres for investment and corporate banks. Not only do firms need to spend on the expertise to manage new regulations, but they must also invest in the systems required to ensure compliance and effective risk management.

“Investing in obligatory projects like compliance may not always generate excitement, but banks are required and increasingly incented—through the reputational risk of non-compliance—to keep these initiatives front and centre,” added Bruel.


BofA launches data-driven tool treasury management

Bank of America has announced the launch of CashPro Insights, a digital tool that analyses information flowing through its CashPro platform. Through data-driven intelligence, the bank says that clients are presented with insights that empower them to make more informed treasury decisions and drive cost savings and efficiencies.

CashPro is Bank of America’s digital banking platform accessed by more than 40,000 corporate and commercial clients worldwide to manage their treasury, trade and credit operations and perform self-service requests. CashPro Insights is the latest development of the CashPro Data Intelligence product suite, which includes CashPro Forecasting and CashPro Search. The CashPro platform facilitated 340 million client payments in 2023 – an 8% increase year-over-year – with each carrying a robust amount of transactional data.

One of the first features of CashPro Insights, available through the CashPro App, is the Security Insight. Displayed as a ‘security meter’, the tool assesses and then recommends how users can improve their security controls. Users can complete a recommended task directly within the platform by clicking the “CashPro Click to Action” commands.

“The amount of data we can now tap into using CashPro Insights is jaw-dropping,” said Angela Brown, Assistant Treasurer, Continental. “We had been creating these KPIs internally and it took us many steps to get to these same valuable data points. Now they are right at our fingertips.”

CashPro Insights is designed to break down a client’s data into digestible segments, delivering learnings that enable users to respond faster to events and make proactive business decisions. It includes industry benchmarks that compare a company’s working capital and payment efficiency to peers in the industry and deposit balance notifications that alert the user when a balance is forecasted to fall above or below a predetermined threshold. Dynamic graphical representations of data in the tool aim to help clients visualise their operations better and where they need to take action. CashPro Insights also includes measurements to help assess payment efficiency, supplier payment optimisation, strategic cross-border payment flows and account fraud protection.


NTT DATA and Armstrong Wolfe target innovation in financial services

NTT DATA UK&I, an IT services provider, and Armstrong Wolfe, a global financial services advisory firm, have announced a strategic partnership to drive innovation in the financial services industry. The partnership will focus on knowledge sharing across both firms’ communities and expanding insights around critical topics, including operational resilience, non-financial risk, emerging risk assessment and horizon scanning.

NTT DATA UK&I and Armstrong Wolfe are committed to diversity, equity, and inclusion. The partnership between both organisations originated from discussions around the synergies between the two organisations’ Women’s Business Networks and Ad Centrum, Armstrong Wolfe’s DEI initiative, which strives to support minority groups by leveraging the influence and goodwill of the under-represented global COO community. In cementing this partnership, NTT DATA UK&I and Armstrong Wolfe have demonstrated a solid commitment to driving innovation and diversity in the financial services industry.

“This collaboration will leverage our combined expertise in technology and business transformation, underpinned by our belief that innovation is driven by diversity, to deliver good outcomes for our clients in the financial sector,” commented Andy Nelson, Head of Banking and Financial Services at NTT DATA. “As the sectors under the umbrella of banking and financial services continue to rapidly evolve with emerging technology, our partnership comes at an opportune time to provide innovative solutions and leading advisory.”


NBO and PayMate partner to offer B2B payment solutions 

PayMate India SPC, a B2B digital payments company, has signed a memorandum of understanding (MoU) with the National Bank of Oman (NBO) to digitise, automate, and streamline B2B payments using Visa business credit cards.

Through PayMate’s B2B payment automation solutions, NBO will offer its corporate and SME clients the ability to use their Visa business credit cards to make supplier payments. This eliminates the need for suppliers to have a dedicated payment system, streamlining the process by transferring funds directly into their bank accounts through the NBO Visa card.

“Through our partnership with PayMate and the National Bank of Oman, we aim to modernise B2B payments, making them more efficient and less time-consuming for businesses in the Sultanate,” commented Manish Gautam, Country Manager, Oman, at Visa Inc. “This significant move aligns with the local government's agenda to digitise local businesses and the economy, and we believe this partnership will lead to greater financial inclusion and economic growth in Oman.” 


Temenos and Deloitte US join forces to accelerate bank platform modernisation

Temenos and Deloitte have announced a partnership agreement to provide technology solutions to help US financial institutions accelerate core banking and payments modernisation in the cloud. Through this agreement, the pair aim to help financial institutions deliver modern digital experiences faster and at lower cost and take advantage of new business models and market opportunities such as instant payments and banking-as-a-service (BaaS).

Building on close international cooperation between the two firms, this agreement enables a joint go-to-market strategy in the US, opening a new channel for Temenos to accelerate market penetration in the large banks segment and large-scale payment players.

The two companies will jointly offer large bank customers a modernisation approach to address competitive, regulatory, cost and innovation drivers. Deloitte will work with Temenos to implement their solutions using standardised, process-driven best practices for faster, low-risk deployment. 


China’s XTransfer announces global launch of international trade services 

Following the first launch of international services in Hong Kong in April last year, Chinese trade payment platform XTransfer is now actively expanding its business to over 200 countries and regions worldwide to serve local micro-, small and medium-sized Enterprises (MSMEs) in cross-border trade.

The company says it has built a data-based, automated, internet-powered and AI anti-money laundering risk management infrastructure which has gained the trust of international financial institutions such as J.P. Morgan Chase, DBS, and Deutsche Bank, enabling MSME clients to open accounts with financial institutions through the XTransfer platform.

This enables the company to offer services such as cross-border collections and payments and efficient foreign exchange, allowing MSMEs to have the same level of cross-border financial services as large multinational corporates. When both buyers and sellers use XTransfer accounts, they can achieve 24/7 payment settlement and expect to save 95% of remittance fees and 20% of currency conversion costs. 


Qashio and CredibleX launch business financing in MENA

Qashio and CredibleX have announced the launch of ‘Qashio Financing’. This initiative aims to provide flexible and accessible financing to businesses of all sizes in the MENA region.

The financing proposition is designed to help businesses accelerate growth, bridge cash flow gaps, and enhance operational efficiency with ease. The service promises quick access to funds, competitive rates, and a streamlined, user-friendly process for Qashio’s SME customers, powered by CredibleX.

The 2023 Mastercard SME Confidence Index indicates a positive outlook in the MENA region, with 72% of SMEs expecting stable or growing revenue with 92% emphasising the need for access to a wider range of financial services. In response to this, Qashio and CredibleX note in a statement that the financing offering stands out with its key features designed to meet the diverse needs of businesses. It offers quick financing options, ensuring timely access to funds when businesses most need them. 

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