NextWealth Live 2026 – Shape of future flows

Shape of Future Flows

RRL: Are flows going to come through partnerships or products?

Heather Christie:  I think probably decisively it’ll be partnership. Even if you look at some of the shape of the UK domestic and cross border flows on the active management side, £500 billion is out of the active fund management business typically going into index mutual funds, into solutions, into exchange traded funds. But what we are seeing, resoundingly, is that partnerships, solutions or separately managed accounts of active management products are here, and they are driving a lot more of the flow. And I think, I think it makes sense, right? Because if you think about Consumer Duty and consolidation, one of the best ways to build solutions for those specific customers of that specific firm and those specific target markets is by building something specific to their needs. The only way you really do that is by partnering with  an asset manager or asset managers who can deliver that.

RRL: So that’s what we’ve been hearing today about building scale. But Dennis, do you agree with that? 

Dennis Pellerito: 100% we can see that the growth is going to come from partnerships, certainly in the B2B space of the market. But I would also counter that in the direct to consumer marketplace that brand will be also a powerful driver and we’re seeing that in some other markets across the world, where atrong brands and trust will drive flows. It might necessarily that asset managers can go direct to consumers to attract those flows. But I’m completely with Heather, the majority of the flows will come from partnerships.

Matthew Lamb: I think that perversely, some people go for a product. They actually go to firms like yourselves, because they’re huge shops. We’ve built a business that only does solutions, which was a word three years ago that everybody talked about. But tech on its own is a product. Secret sauce or investment management on its own is a product. Without a client you haven’t got a solution, and the solution is the marriage of what the client wants alongside technology and deep investment expertise. And if you can put all of those three things together, you get a solution. They don’t come to Pacific Asset Management for another product. They come because we’re unencumbered by legacy, and we can sit and work with them and deliver something that’s tailored and relevant to them. So it’s our raison d’etre.  

Casper Rock:  So there’s a Latin phrase, timeo set donor ferentes, which is, I fear the Greeks and those, which I will paraphrase is, I fear asset managers promising partnerships. But what I will say is, we don’t talk about product. We talk about capability, and a capability is an expertise of someone that we may want to use as part of a solution. So I’m not buying a structure. We need capabilities to put in our structures that we use. So the asset manager comes along with this lovely structure, and you can catch it and put in your clients’ portfolios, and we say, “Sorry, that doesn’t work. We can’t catch that structure.” And that’s where I’m allowed to say the partnership word works. I’m really keen on capabilities.

RRL:  So you want the skill, but not the gear that it comes in. That evidence is the shift that I think has been referred to, and people were sort of thinking about in years gone by, just in terms of what people are doing now. There’s been huge flows over the last 10-15, years into passive, narrow markets, bringing price down,   and driven by poor returns from active. Do you see that continuing, or do you see that changing?

ML:  I think that what  everybody wants is a year where active management smash it, and then you hear the headlines which says, like, passive down/active back. We’re big believers in passive  —  it’s more than 50% of what we invest in through our solutions business. But you get real changes when stuff creeps up on you  and you don’t really realise.  So over the last three years and five years, in sterling terms, the FTSE basically done the S&P. The last 12 months, the FTSE has outperformed the S&P, just at a time where very large asset managers are reducing their domestic biases. You start to see some of these things. World Value has outperformed Market Cap. World Government Bonds are down over five years.

So if you’ve got two levers, it’s going to be much harder to deliver sort of sustainable and persistent returns. Multiple levers don’t just give you, hopefully, better future returns. They give you more predictable returns. Volatility is just a word for predictability, and if you can reduce volatility, you can increase predictability and then it’s easier for people to do the advice.

The biggest differentiation between investors’ outcome is their risk appetite, and we don’t choose that risk appetite – the advisers do. And that means the vast majority of the alpha is in the advice during the process. Our job is to sensibly and cost efficiently compound those assets over time, and to do that, you need as many building blocks as possible, because that increases predictability. Harry Markovitz (sic?) he said diversification is the only free lunch in investing, and he actually shared his Nobel Peace Prize with William E Sharpe, who invented the Sharpe ratio, which was all about risk-adjusted returns. And these pure passive, multi asset portfolios now over one and three and five years, are not the top-quartile freebies that people thought. That surprises people. I don’t think people have actually quite recognised it. A decade ago, people thought a 60/40, portfolio was unbeatable, and net of fees, there’s many, many active and multi-asset managers that are beating them. It’s not just active and passive – it can also be factor investing and different things.

RRL: So Heather, what’s the experience you’re seeing across the globe from BlackRock? Is there anything you want to pick up on?

HC: I want to pick up on Matt’s point that the nature of active management is changing. So what we used to see in this country and across the world, as an individual fund manager was picking which stocks are going to go up and which stocks are going to down. What Matt just described is the picking of individual building blocks that may be World Equity Value or World Equity Growth, or say, a series of tech stocks. Those decisions to invest in, those ostensibly passive building blocks are active management decisions. So you can be building a very, very active portfolio, but using those index blocks. Same thing in the way that AI is being incorporated into active management.   Our systematic team has been running portfolios that use AI-type techniques for 25 plus years, but they’re crunching like 15,000 data-sets every single day. You know, that’s active management, but using technology and AI to do it. I guess your direct question, Richard, on what we’re seeing on that active/index portfolio construction debate, there is absolutely still a place, and always will be a place for active management.  But how it looks and feels is changing rapidly.

RRL: Caspar, how do you involve yourself in this apart from being cynical about enhanced index strategies?

CR: I quite like them actually! They work pretty well for the right portfolio and the right strategy. Actually more and more of our client base are really getting to understand them – whether technology enhanced or an active strategy with a tech overlay to control the risk. You can get passive for free and you can get these for 15-20 bps, which is pretty good  compared to full-fat active.

ML: The big problem is what are the structures you can use to access these products? Because of the proliferation of UK platforms and the ability to rotate portfolios quickly, that’s extremely difficult in an MPS structure.

CR: Exactly my point – if you’re running a fund of funds and you want to buy a JPMorgan fund on a JPMorgan administered platform, it takes 8 weeks to set up that fund whereas you can buy an active ETF the same day and you don’t need to do KYC and AML to buy that. So it’s just a much more simple way of getting the plumbing to work.

RRL: So Dennis what are you seeing in terms of the types of active strategies that people are asking for now?

DP:  At the start of today we talked about trying to get end-customers out of cash and into investing. So some of those low-cost solutions that we’re seeing around the world actually are not a bad thing for starters who want to get into the stock market and provided they are managed solutions that are managed in an appropriate way. We are seeing a lot of growth around the world into that type of solution. I agree with Casper – it is about capability. We as a business are wrapper-agnostic. So the client decides how they want to access the capability and then we have to be able to deploy it. Sometimes the timelines are a bit tight because we need to do it quickly but we are seeing the continued growth of passive investing.

Again, if we look at the UK over the past four years, we’ve seen over £120 billion come out of active funds. That’s extraordinary. £65 billion net flows have gone into passive funds. The only active sector that continues to take flows is fixed income. Equities are suffering because of the way that markets are evolving and the way we need to deliver our investment capabilities to the market – and that could be enhanced strategies or it could be systematic. But the client really decides how they want to access that.

So where we are seeing the flows today are into what I would call normal core building blocks that may be delivered in a slightly different way to end-clients. Some of them want segregated mandates, others want them in ETFs, some are happy in traditional fund structures. Second we continue to see flows into active fixed income funds. And during periods of market volatility, we are starting to see a pick-up in diversified assets such as liquid alternatives where people are looking for something that could be market-neutral for this stage of the market cycle.

RRL: How do you see investors wanting to use different structures – is it going to be more fragmented? 

DP: It is going to be more fragmented. The client is going to decide how they want to access capabilities. We have to centre around the capability first and then be wrapper agnostic. We’re also looking to the future and the fact that  capabilities don’t necessarily have to be in a fund construct. The ETF wrapper is certainly bringing far more innovation to the market and the speed to market is far better so we’re seeing that innovation really come through. The traditional wrapper for people who want to invest and hold it for, say, five years, still has a phenomenal place in portfolios. But then we’ll come onto what technology means for the future and how does tokenization potentially revolutionise what we do  -and we don’t know.

ML: We all talk a lot about this stuff – active ETFs, tokenization – -but none of it ever seems to materialize. Also, this audience is constrained by their order system – not ours – such as Transact, Novia and Hubwise. But currently the technological innovation of the platforms isn’t fast enough for them to do all the exciting things that everyone is talking about. It’s a crazy idea that there are many platforms that can’t follow a drifted model so we are rebalancing models every quarter to bring clients in line because otherwise Client A ends up looking too different from Client B.

So perversely with all this innovation, what comes back is unitization and we end up using unitization capabilities to access the really interesting cool stuff. So while everyone talks about tokenization and all this fancy jargon, in reality what’s going to happen is that we’re going to adopt MPSs where you can buy the simple stuff on a platform and use unitization to do the tactical, more interesting tax-efficient stuff.

CR: I’m going to pre-empt a question you might be about to ask which is what we are seeing is this convergence of investment solutions and tax structuring. Different solutions work in different environments. So if you have an investment with an IRR of 10%. In a trust you want it to be 9% growth and 1% income. In a family investment company you want it to be 9% income and 1% growth – and that’s a completely different thing. So we have 150 families that have their own private unit trust for their own stuff  – very bespoke. Then if you look at other structures there’s a convergence between yield and inheritance tax mitigation. More and more these issues are going to converge  – whether we’re building the structures or manufacturers think “This is a structure we really need”. And if you look at the way the active ETF sector really took off in the US, it was because it was tax driven. You don’t get the same tax advantages here but so much more of this is going to be tax-driven.  

Audience: Matthew – you said one of the biggest factors outside of your control is the end-investor’s attitude to risk. What would you change about how firms approach that?

ML: The world has changed a lot but historically but what we are selling in the asset management community is educated guesses. We’re selling intangible outcomes. What financial advisers do is sell tangible outcomes. The industry massively undersells this influence it has on people’s future outcomes – e.g. the right tax advice n a property can do more than investment returns ever can. Casper is in a unique position because he’s talking about the stuff he can deliver for people with huge wealth such as family OEICs etc. But the technology infrastructure in the UK doesn’t support people who don’t have £1 million or more but the people who are supporting them are in this room. As an asset manager what we want to do is –

as Stuart Phillips of TPO put it – I want to have a fag paper’s width between my advice proposition and my investment proposition. That is what I want you to say to clients.

CR: The one quick line I would add is, I say, the better the financial planning, the less risk I have to take in that portfolio. So your point about lots of active bond funds, we own almost no active bond funds but we own lots of low-coupon gilts, because the after-tax return is way better than owning a high-yield fund outside a wrap structure.

RRL: So the point here is the flows are going towads more personalization, more lined up with advice, more personalization, which actually stands to deliver better outcomes for investors, and then better stories going up, promoting collectively, what we all do.  

Audience: So Matt, you mentioned that we are potentially moving towards this world where it’s unitized structures, as opposed to maybe more technologically advanced MPS where you can rebalance to individual clients on a daily basis. So one comment at my previous company, we built that so we were rebalancing model portfolio services of 10s of 1000s of clients on a daily basis. So the technology does exist. And the question for me is, how would we deliver hyper personalization, if we are kind of stuck with ETFs, UCITS and mutual funds, and we can’t move towards that MPS world where you can have an MPS portfolio per client, and they can, like, say, you know, I want this sustainability tilt. I want that value tilt  or that growth tilt and go down all the way to individual stocks. How would we deliver that in a unitized world?

ML: I think hyper-personalization is something that you don’t need. All the stuff that Casper has been talking about is the hyper-personalization of the tax plan. It’s about their structuring – I think that needs to be hyper personalised. And until you can find a robot or an AI that understands the UK tax legislation, which I think is basically impossible, there’s not enough computing power, then hyper personalization has to be done by you guys. Our job is actually to deliver our best ideas in the right risk bucket at the right price for the right level of risk. Volatility, just to say it again, lots of people ask whether volatility is a measure of risk. It’s not. Volatility is a measure of predictability. And advisors should think about that word when they’re talking to their clients. You don’t go, I’m going to Dubai –

the weather’s super low vol, you know. You say I’m going to Dubai because the weather’s very predictable. And depending on what their hyper personalised tax plan is, you then have to tell them whether they’re going to have to take less or more predictable outcomes, and that will depend on their time. And if it’s very long time, it might be pure passive. If it’s a very short time, you might want to work on much more active, because you don’t want to watch equities and bonds fall off a cliff and not be able to do anything about it. So the personalization, for me, unless you’re at the very high worth end, is not actually at my side –  it’s in the advice piece. Unitization just makes models more flexible.

HC: I’d agree with that. I’d say, I’d say the hyper personalization in this country now is at the advice level. And I think that’s right. And advice feel is a personal endeavour. I think the key piece that’s missing is at scale. So I think being able to do hyper personalised models at scale is a reality in the US. There’s a significant business out there in separately managed accounts, where we do have the technology, where you can deliver hyper personalised portfolios, whether it’s for tax, whether it’s for, you know, particular preference on which types of stocks to invest in or not. That technology is not yet a reality within the UK advised platform market. Not to say that it can’t be but given the significant challenges that we have in delivering exchange traded funds on advised platforms that aren’t in a unitised structure, I think having that reality of separately managed accounts on advised platforms today in the UK is probably not a three to five-year thing, I would say. Within the realms of ultra high net worth, absolutely you can do it. But you don’t need the technology to make that a reality.

RRL: Dennis, managed portfolio services everywhere. Is that challenge to continue to grow, is that where flows are going to be channelled through? Or do you see that peaking?

DP: Well, we’ve just entered the market very, very late, and the day before Vanguard!! So there’s a couple of things there. So we are seeing the growth of managed portfolio services across Europe as well. We’re seeing the continued growth across the US, actually, in terms of the way that we can deliver this. And again, we got to go back to basics. We have come into this market because a particular set of clients has said “We would like to access this capability in this manner. Would Fidelity, consider offering it?” So we are client-led, and ultimately we deliver what the clients have wanted. What we have tried to do is try to deliver that service in a slightly different manner, where we may be able to overcome some of the tax issues that a normal model portfolio services may offer outside of particular tax wrappers. So we have tried to think about the future and how we can address that, and how we can get access to some of those other capabilities, which are non-Fidelity from other groups, into those in the most efficient way, and deliver that for the clients that want it.

RRL: I last time NextWealth counted it was £190 billion in managed portfolio services in the UK. How much are in active exchange traded funds across the whole of Europe?

DP:  £90 billion. And so when people ask us, Why are we entering this market, and clients want the capability, you have to really consider it. It’s huge.

RRL: But surely the difference there is managed portfolio services are designed to be specific to the advice process or to the customers, whereas exchange traded funds are a mechanism for accessing a strategy that typically you guys have asked for or created?

 HC:  But I think it is the case that virtually all of the asset management innovation in the last couple years has occurred in an exchange traded fund wrapper. So whether that’s more granular exposures within fixed income, whether that’s different currencies, whether that’s any sustainability exposures, that has all come through an exchange traded fund wrapper, because it’s easier for large asset managers like us to be able to scale that quickly and efficiently across Europe. It’s really hard to do that or to see if there is enough client demand if you’re only going to build that in a UK Unit Trust, that’s hard. Whereas, if you’ve got a European exchange fund range, you can generate demand across the entire continent, which just makes it easier and more economical for us to launch.

ML: There are signs and models that passive is not accelerating in the same way. If you look at NextWealth’s own research, a decade ago, there was very little passive in MPS – it now seems to be around 50%. So it is not moving. If the industry is growing at 25% or 30%, passive within that is decelerating as a percentage of people’s portfolios. And I think the difficulty for a financial adviser is if you’ve moved the entirety of your clients into passive, purely sold on a price-value story, you’ve effectively boxed yourself into a corner with zero optionality. The problem with passive is, you can’t outperform because you’re just doing passive. So you’ve lost that optionality, you’ve put yourself into a corner. And if active managers started to outform and passive start to underperform, the only way out of that corner is to put fees up for the client. And yet you, as a financial adviser, have sold those low fees to them. So it becomes difficult. “I got that wrong. I’m now going to move you now into some active. By the way, your fees are going to go up.” The client might suggest to the adviser that he or she puts his fees down! So, I think I can see it reaching peak passive.

RRL: So to give you some support on that, in our experience across the book of business that we run, which is £6-7 billion now, it’s about 75 to 80% flows into the blend, which is a combination of active and passive, which goes back to what you’ve all been saying already about how you achieve the returns within the risk profile from that point of view. So that seems to be consistent with that point of view.  

I want to move on to private markets or alternatives. So how much do you think will flow into liquid alts  and where will we see flows into what we call illiquid and more private markets?

 

HC: There are very good reasons to include private markets, liquid alternatives, diversifiers in a portfolio. Because I think especially over the last couple years, what we’ve seen in markets is the correlations that equities and bonds used to have, which made a portfolio of 60% equities, 40% bonds, a really resilient has really broken down, given a lot of the turmoil that we’ve seen over the last few years.

 

What an allocation to private markets does is create more resilient portfolios that have a bit more ballast against the sort of the buffeting that we’ve seen. I think what the challenge can be is who is able to take that level of illiquidity. Is it compatible the UK technology platform infrastructure? Is it in the right wrapper? And what is underlying it? It that compatible with the liquidity of the wrapper itself? So if you’re investing in something that you have to wait six months to sell, but your wrapper’s is daily dealing, that mismatch, as we’ve seen over, you know many cycles can create issues.

 

That being said, I think what all of the consultancy shows is that we’re likely to see more private markets within UK wealth management, and Global Wealth Management from here on out. Is that going to be a kind of a completely smooth ride? Few things are, but I think there is a big impetus from first the portfolio perspective, but also the industry itself, providing access to things like the AI infrastructure build-out. Most governments aren’t going to be able to be able to finance that. Or the green technology revolution, again most governments don’t have the pockets to be able to fill that. That tends to stay in the hands of private companies. So providing people access to those returns that are some of the biggest secular trends of our generation, the only way you’re going to get access to those is through private markets.

 

CR:  A couple things on private assets. I think you’ve got to believe in yourself that there’s a premium return for private assets. If you agree with that thesis, how do you access it? And I always say there are three different ways of accessing it and each of them have a compromise. You either go into listed private equity, which trades at a premium or discount, and that’s your compromise in liquid listed private assets. At the other end of the scale, you lock it up and leave it for a 12-year fund – so “lock up and leave” is the compromise. The one in the middle – the binary liquid, which I talk about, but my employer prefers to call it semi liquid –  there is a compromise. You don’t get the full fat exposure to private markets, because they have to manage liquidity. So each way, there is a compromise. And what we do is that for over $5 million of investable assets, you’re in the full-fat private assets, unless you’ve got a very good reason to not be. We’ve done discretionary private assets for 10 years nearly, and it’s added 200-230 basis points compound since we’ve been doing it, relative to a global equity tracker. So that’s probably about 20 or 30% outperformance.

 

RRL: Casper’s been very clear, different types and then full-fat private markets is for the ultra wealthy, right? have a different view to any or all of what he said?

 

ML: I’m very cynical. I think there’s no premium for complexity. The more complex something is, the more usually it tends to go wrong. I think we’ve reached the end of the private market cycle. All the institutional investors got the most amount of exposure, and now everyone’s lobbying to get the next person to buy it, which is poor old Mrs Miggins, and I don’t think she needs it. Do I think the money will flow there? Absolutely not, because no one’s bought it yet.

 

DP: Honestly, it really depends on the client. I sit on the board of our funds, and I certainly sleep far better at night if I know Casper is buying the private markets than, let’s say, deep retail, where there is potentially a liquidity that they’d like. And I also see that if you look at default pension funds, the allocation to private markets is increasing, but again, you have a professional investor overseeing that and having a professional glide path for the individuals underneath that connects that particular strategy. Access proves that you get the returns (but you’ve got to compromise one way or the other).

 

HC:  I think probably where we are actually seeing flow is from large banks that have ultra high net worth businesses. They’ve always bought private markets, they continue to, and then also large wealth managers that serve similar sets of clients. But what we haven’t yet seen in the UK, and the long-term asset fund wrapper is still very new, what does that mean for model portfolios? What does that mean for advised clients? That hasn’t yet been seen.

 

Audience: For those of us that aren’t dealing with people with £5 million generally, to my mind, the close-ended structures are the way that you can access this for retail clients. If you want to take your point out that maybe there is a price complexity. But certainly they seem to give the best match between liquidity and access to these structures.

 

ML:  100% — so you’ve got the discount premium, but 100% agree. We’ve got a wrapper that’s been around for over 100 years. The regulators try its hardest to make it the most expensive thing in the world, so that no one buys them. But it gives you  real-life pricing. People talk about private equity as another asset class, but the clue is in the name, it’s just equities but private. It’s not a different asset class.

 

RRL: This is a yes or no answer:  Will the investment trust market grow significantly from here or not?

 

ML: I would love it to grow. I’m gonna say yes, a resurgence.

 

DP:  There’ll be more consolidation and the trusts that consolidate will grow!

 

CR: I think the trusts that have listed equities are going to struggle. I think the ones that have private equity and alts should do better, but they’re in a bit of a mess at the moment. I run a book of £2.5 billion in listed alts, and I spend my life trying to sort them out, because there’s so many punch-ups going on. But I think that will grow eventually

 

Shivan: I wanted to ask, if you were to bet on one asset class over 10 years, what would it be and why?

 

ML: I think you’ve got to say value equities

 

DP: Global Small Cap

 

HC: I mean, I think you got to say S&P500 all the way to the bank, you know. Oh, no, Standard and Poor’s 500

 

CR: We’ve got this chart that has run for my entire career so far  since 1987 and there are only six occasions when global equities have been down. On a 10 year view. You might have one bad year or two bad years over the 10 year period 85% of the time, you’ll make money and you’ll beat inflation. But just don’t open the statement in the meantime. Vanguard did an amazing piece of research on 401K’s in the US, and the best-performing 401K’s was a very small subset of clients who didn’t know they had an account!

 

RRL: Now, last question very quickly. We’re talking about the future. Is there anything in particular that you think will attract assets or make a difference over a five-year view?

 

ML: We talked about solutions. We are heavily invested in technology. We process 300 million data points a day, 121 billion a year. We have a brand called IPX, which is looking at helping other people execute their own IP so co-manufacturing, helping unitization, helping deliver solutions that are tailored to the output of the advice proposition. So we’re doing 25,000 factsheets a year for other people at the moment using technology, and I think that’s what we’re really excited about, is giving a little bit more control to financial advisers to define that solution and working with them in a much more  collaborative way.

DP: We continue to not break the trust that we’ve built with clients over many, many years, deliver what we say we do in our capability, and they can access it as they want to. In the meantime, we have got areas where we are experimenting for the future. So we are doing tokenization, we are practising it, but it’s outside of the ether where no one can get hurt, and we can test it and see how technology works so we can deliver our capability in that format, and that might reduce some of the friction we were hearing about earlier today.

 

HC: One thing that hasn’t come up yet on this panel is about the next generation of investors. That group of investors who are aged 21-43 tend to be buying far more exchange traded funds. It’s growing at 27% every single year. They tend to be buying more cryptocurrency. They tend to invest in pretty risky assets. But they also need the help of this industry. Typically, their asset balances aren’t probably big enough to get to an advisor yet. Maybe some of the work that’s happening around targeted support could get them into the advice industry, to get that better advice, to get into propositions which are maybe scaled more with digital tools and AI. So how do you make sure that you’re serving that growing cohort of people that probably aren’t getting face-to-face advice at this stage is certainly something that we think really deeply about.

 

CR:  Two things:  the conversions of tax and investment solutions definitely. The other one is that we’re having a lot of thought the balance in charging between discretionary investment management and financial planning swaps around. And how do you get there and how do you charge for it?

 

RRL: In summary, that partnership of people that are brilliant investors working together with people who are brilliant advisers to bring a more joined-up outcome and solutions and services to customers is what will drive flows, overarchingly, over coming years. There’s going to be fragmented, different wrappers, different delivery mechanisms, depending on the company you’re working with, the customer needs, the tax situation, and so on. This is about the industry growing up and working together on behalf of the client.

 

I think terms of what goes in there, there’s lots of different bits, whether it’s active or passive, and actually it’s what’s right for the client, and it’s going to be easier to access all of that over time. Alternatives or private markets seems to remain the preserve of people who have got the time, the understanding or the assets to deal with that. But if you’re a youngster, and if you’ve believed some of the stuff we said today, put your money in equities and don’t worry about it over the shorter term.