GAMF Shanghai Summit – The World Economy and Key Industry TrendsGAMFShanghaiSummit–TheWorldEconomyandKeyIndustryTrends

>> At the beginning of every year I'm always asked about the biggest risks that face the economy and the markets. And this year I would say inevitably I'm asked about China. But here's the really interesting thing about China-- if you read the papers, you only really hear about some of the political difficulties, security difficulties, trade difficulties, and a general rise in tensions between the West and China. But what's fascinating is that on the ground, in the financial world, I see the opposite. When I meet with chief investment officers around the world, their major risk is that their underinvested in China. And they worry that with these tensions actually that that could become worse. And so, we are actually working with the remarkable number of leading investors to find ways of actually increasing exposure to China, of new ways of investing in both private and public markets in China, and of finding ways to ensure that globally sophisticated firms are accessing the alpha and the beta of growth in all countries, including China, around the world as we recover. And so, I do think that this question of risk around China is one of the most interesting because it's certainly there, but the risk is both on the downside but also on the upside if you're underinvested. Thank you.

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>> Greetings to all of you and thank you for the opportunity to speak to such an esteemed group of industry leaders at such an interesting time for our industry and for the global economy. My sincere gratitude in particular to the global asset management forum, for innovating me to speak today. And for its continued commitment to international dialogue and cooperation in the financial services industry. Organizations like yours are immensely important to all of us and in particular to global financial firms like Prudential and PGIM. Let me start with just a brief overview of PGIM. We're the investment management business of Prudential Financial, which is one of the largest global insurers. PGIM is a top ten global asset manager with over 1.5 trillion dollars in assets under management. We offer a wide variety of active management strategies across all the major asset classes. We have a leading public, fixed income business. We're the third largest real estate investor around the world. We have one of the leading private alternatives capabilities and we're a major equity investor particularly in technology and new growth companies around the world. PGIM and Prudential serve a broad range of clients around the world, including in China. PGIM recognized the attractiveness of the Chinese financial services market at an early stage and our presence on shore goes back to 2004. Today, PGIM and Prudential have a significant and growing presence in China and we have two main operating businesses, one in asset management which is a joint venture with Everbright Securities and the second an insurance joint venture with the Fosun group, which goes under the brand Pramerica Fosun Life Insurance Company. Today I want to highlight three topics. First I want to talk about the role of asset management in the broader mediation of global capital flows and how that's changed over the last decade. Secondly I want to talk about the allocation of capital and how we see that continuing to change as we view attractive sectors around the world. And then last I wanted to offer you some thoughts on the priorities we should all have as an industry going forward over the next year. So let's start with the first topic. It's one of the biggest changes that we've seen in the structure of global capital markets. Fifteen years ago you would have seen major flows of cross border lending coming through the banking system. You would have seen very large flows of foreign direct investments made by private companies and of course you would have seen money coming through the securities markets. However, since the global financial crisis, that has dramatically changed. Bank lending has plummeted, foreign direct investment has gone way down. And the major way that savings and investments are being funneled around the global economy today, is through the securities markets. And that's why we have the rise of asset managers and the leading asset manager has never been so important now in the allocation of capital and have largely taken on a role that historically was played by the banks. So let's have a review then of how well the asset management industry has done allocating capital given this enhanced role. I think there's a couple of things that have gone particularly well and maybe a couple of things that have not. In terms of the positive side of the ledger, I would say that the asset management industry had dramatically expanded the range and type of investing vehicles that are available in order to fund the world's needs. I would point in particular to the great expansion of both the public debt inequity businesses which have absolutely moved from the developed markets, directly around the world to encompass a robust offering for the developing economies. I would also say that the private markets have now become very much an investing class of their own. This encompasses real estate, private credit, private equity, secondaries and all of these have provided funding to private companies in ways that they would not have been able to access before. This is an important, I think an exciting development, in the industry. The second thing that I think has gone very well with the rise of the asset management industry has been the wide range of new technologies that have been invested. We have now a venture capital industry, which used to be relatively small and largely based in California, to one that now is large, robust, and global. And we now have early stage, mid-stage, late-stage and a wide range of private structures that is investing in technology company at other new biomedical firms in ways that we never had ten years ago. And so I think that this wide range is funding innovation in a really exciting, new way. But if we look more critically at it, some of the things perhaps that have not gone well. I would point first to the retail market. Over time retail investors, particularly in the last couple of years, have moved beyond what I would say are investable asset classes to a wide range of more speculative classes. And we've seen that in the meme stocks, we've seen that in cryptocurrency, we've seen that in some of the more speculative moves into sports and into gaming. And at least for those of us who take our fiduciary duties seriously, we worry that the retail investor enthusiasm for some of this is not good for the long term health of investing. And the second area that we worry about is the pension and retirement needs of the ever older societies that we operate in. We've done a reasonable job at some of the accumulation strategies that are necessary. But we haven't yet really grappled with the long term retirement needs of society and in particular the needs for retirement income products. So I think both of these challenges are things that the industry overall should grapple with and seek to improve itself over the coming years. And let me conclude my remarks with some thoughts about the future. The asset management industry has an important responsibility to the global financial recovery. And I think in particular there are four things that we as an industry need to strive to improve ourselves on. The first is to continue to support this globalization of securities. I've talked about how the banking industry has played less and less of a role in capital intermediation. I've talked a bit about how FDI has, I expect those trends to continue. So the securities industry overall will be evermore dominate in actually intermediating global capital flows. And so the asset management leaders need to take that responsibility seriously and we need to ensure that we're globalizing our perspectives, that we have the proper research groups on the ground around the world and that we have a global approach to risk management that is able to manage the complexity that comes with a global portfolio. The second priority is the continued support for the development of local capital markets around the world. We do believe that while the global capital markets are important, they can only succeed to the point that local capital markets become deep and rich and with a lot of independent price discovery. And so for us, the development in China of the equity markets, of the bond markets, of the real estate markets, is absolutely fundamental and we'll do everything we can to support those local developments, even as we develop our global capabilities. Third, we do need to get better at helping retail investors become long-term investors. All of us have an obligation to ensure that the kind of fiduciary mindset that we have with institutions are brought to bear for retail investors as well. They need to have the kind of security and protection in the kinds of products that they have that institutions do as well. And so, investor education is going to be absolutely at the forefront of what we need to do as an industry. And last, I mentioned the retirement challenge. Right around the world societies are aging. It's true in Europe, it's true in the U.S. and it is certainly true in China. We as an industry need to be much more innovative in terms of the kinds of solutions that we're able to offer for people who are about to retire and in retirement. And I think in doing so we'll do a great service to ensuring that people have a long, healthy, and financially secure life. So those are the four priorities that I really believe in over the next decade. We at PGIM take our role as stewards of these kinds of capital flows around the world extremely seriously. We're dedicated to continue to improve our performance and to working with all of our partners and economies around the world to improve theirs. Thank you for your time today and for your commitment to international dialogue and cooperation. I wish you all health, prosperity and happiness as we embark on the brave and intrepid year of the tiger.