AMUNDI 10-YEAR 2010 - 2020: The End of Traditional Asset Management ABOUT AMUNDI Amundi, the leading European asset manager, ranking among the top 10 global players1, offers its 100 million clients - retail, institutional and corporate - a complete range of savings and investment solutions in active and passive management, in traditional or real assets. With its six international investment hubs2, financial and extra-financial research capabilities and long-standing commitment to responsible investment, Amundi is a key player in the asset management landscape. Amundi clients benefit from the expertise and advice of 4,500 employees in nearly 40 countries. Created in 2010 and listed on the stock exchange in 2015, Amundi currently manages nearly €1.6 trillion of assets3. Amundi, a Trusted Partner, working every day 2010 - 2020: The End of Traditional Asset Management Asset End of Traditional The 2010 - 2020: in the interest of its clients and society www.amundi.com 1. Source: IPE “Top 500 Asset Managers” published in June 2020, based on assets under management as at 31/12/2019 2. Boston, Dublin, London, Milan, Paris and Tokyo 3. Amundi data as at 30/06/2020 Amundi Asset Management, French “Société par Actions Simplifiée” - SAS with a capital of AMUNDI 10-YEAR €1,086,262,605 - Portfolio management company approved by the French Financial Markets Authority (Autorité des Marchés Financiers) under no.GP 04000036. Registered office: 90, boulevard Pasteur, 75015 Paris - France - 437 574 452 RCS Paris A Decade of Sharing Expertise AMUNDI 10-YEAR 2010 - 2020: The End of Traditional Asset Management A Decade of Sharing Expertise TABLE OF CONTENTS AMUNDI 10-YEAR 2010 - 2020: The End of Traditional Asset Management p. 09 FOREWORD: A DECADE OF SHARING EXPERTISE Yves Perrier, Chief Executive Officer of Amundi p. 13 2010 - 2020: THE END OF TRADITIONAL ASSET MANAGEMENT Philippe Ithurbide, Senior Economic Advisor at Amundi INTRODUCTION p. 15 10 YEARS, 10 THEMES CHAPTER 1 p. 21 POST-2008 CRISIS: A DECADE ALMOST LOST p. 22 What is left of the 2008 GFC? p. 26 What have we learnt from the 2008 GFC? p. 30 Debt deleveraging is incomplete: are there risks in the foreseeable future? p. 32 Conclusion CHAPTER 2 p. 35 LOW RATES, SECULAR STAGNATION, JAPANISATION OF EUROPE, COVID-19: A DECADE OF CONTINUAL REGIME SHIFTS p. 36 From the golden era to stagflation of the 1970s: constantly changing regimes p. 38 From the 1970s to the Great Financial Crisis of 2008 and 2019: different facets of the same evil p. 42 2020 onwards: Covid-19 adds new risks, new momentum and new regime p. 44 COVID-19: uncertainty about economic growth, but a severe recession to come p. 48 The return of nations and borders and the pursuit of de-globalisation p. 48 The return of state interventionism and the creation of an “industry of war against viruses” p. 50 The changes from the pandemic in in investment, consumption and saving behaviour p. 51 The intensification of financial repression and the real start of debt monetisation p. 52 Moving beyond the logic of cost/benefit analysis to accepting the precautionary principle p. 52 What choices for economic policy? p. 56 The persistence of low rates, disinflation, declining potential growth, and high asset valuations p. 60 The Japanisation of Europe: a danger, a fatality or not? p. 64 Conclusion 4 I AMUNDI 10-YEAR AMUNDI 10-YEAR I 5 TABLE OF CONTENTS CHAPTER 3 p. 67 ULTRA-LOW RATES AND QUANTITATIVE EASING: A NEW GENERATION OF CENTRAL BANKERS p. 68 Emerging challenges for central banks p. 72 Is inflation really dead? p. 74 Monetary policies have reached their limits: the example of the ECB p. 74 The foundations of ECB policy p. 74 Assessing the impact of ECB monetary policy p. 76 QE and negative interest rates: what dangers? p. 78 Inflation targeting: is it illusory? p. 82 Low inflation and rates; the paradoxes of tranquility and credibility: some dangers to come p. 84 Low inflation and high debt: is central bank independence at risk? p. 88 Monetary policy versus fiscal policy: Modern Monetary Theory and debt monetisation p. 88 From orthodoxy to heterodoxy: helicopter money, modern monetary policy p. 90 Debt monetisation: a solution? p. 94 Conclusion CHAPTER 4 p. 99 GEO-POLITICS AND GEO-ECONOMICS: ONGOING CHALLENGES p. 102 The rise of populism p. 104 Europe disorientated by Brexit p. 106 The migration shock: revealing differences p. 110 Globalisation, de-globalisation and China: what consequences for the United States? p. 112 United States - China: chronicle of an announced war? p. 112 The Thucydides trap p. 116 The Kindleberger trap p. 120 The Herodotus trap p. 120 The Tacitus trap p. 122 The Chamberlain – Daladier trap p. 122 The Cold War trap p. 124 A question of balance p. 125 Conclusion CHAPTER 5 p. 127 US, CHINA, EUROPE, INDIA, RUSSIA, AND OTHERS: NEW POWER STRUGGLES p. 128 What is a power? Hard power versus soft power versus smart power p. 140 Different kinds of power coexist p. 141 Digital economy, energy transition and rare-earth metals: a component of the power of China p. 143 Conclusion 4 I AMUNDI 10-YEAR AMUNDI 10-YEAR I 5 TABLE OF CONTENTS CHAPTER 6 p. 145 PROTECTIONISM, DE-GLOBALISATION: WHAT WAY OUT? p. 146 Declining world trade: the determinants p. 152 A new era of protectionism since the 2008 Great Financial Crisis p. 152 The causes of the China-US trade conflict p. 156 Is Trump an isolationist? p. 156 2018: a landmark year p. 158 Defining the impacts of trade disputes on growth p. 164 Deglobalisation: what are we talking about p. 169 Conclusion CHAPTER 7 p. 173 USD VS. EUR VS. RMB, FIAT MONEY VS. CRYPTOCURRENCIES: WILL THE US DOLLAR CEASE TO BE THE PRINCIPAL INTERNATIONAL CURRENCY? p. 174 The currency war: EUR, USD and RMB competing for an international role p. 174 Lessons from the recent past p. 178 The public and private use of currencies p. 178 International currencies: advantages and disadvantages p. 180 Central bank reserves in retrospect p. 182 Is the international role of the Dollar at risk? p. 186 Will the Euro and Renminbi compete more with the Dollar? p. 186 Upheaval since 2009: the emergence of cryptocurrencies p. 188 Different types of medium of exchange p. 190 Digital currencies: more financial assets than currencies p. 192 Cryptocurrencies first generation versus cryptocurrencies second generation p. 194 Central banks’ digital currencies: the major development to come? p. 196 Conclusion CHAPTER 8 p. 199 MEGATRENDS AND DISRUPTIONS: A REALITY NOW UNAVOIDABLE p. 200 Demographics p. 202 Increasing and aging population, but slower growth p. 202 Life expectancy, fertility rates and the ageing population p. 204 Working-age population, urbanisation and the middle class: three major trends p. 204 Migration: a major component of population change in some countries p. 206 A growing labour pool p. 208 Infrastructure - a megatrend of megatrends: real assets, emerging markets, demography p. 212 Adaptation of the business model to the technological upheavals of the fourth industrial revolution p. 218 Conclusion: Megatrends, disruptions, and asset management CHAPTER 9 p. 221 CLIMATE CHANGE CHALLENGES: THE COUNTDOWN p. 222 From the necessary to international agreements: back to history p. 230 Greenhouse gas: Where do they come from? What are the impacts? 6 I AMUNDI 10-YEAR AMUNDI 10-YEAR I 7 TABLE OF CONTENTS p. 234 Global warming: serious and inevitable consequences p. 236 The energy of tomorrow: a key issue p. 236 Greenhouse gas emissions p. 238 Respecting the Paris Agreement: lessons from different institutions p. 242 The main low-carbon solutions p. 246 Green Bonds and monetary policies: two major assets for the energy transition p. 246 Green Bonds p. 246 • Increasing diversification p. 248 • How to encourage the growth of green bonds? p. 250 • Green Bond Principles and Climate Bonds Standard: standardisation has become necessary p. 250 Central banks and climate challenges p. 252 • Central banks in face of the risks from the energy transition p. 253 • Should central banks get involved in climate issues? p. 254 Conclusion CHAPTER 10 p. 257 INEQUALITY: THE CAUSES AND THE CHALLENGE p. 258 Taking stock p. 260 There are multiple causes of inequality p. 262 Is there a relationship between inequality and growth? p. 264 Sometimes the problem is not inequality but poverty p. 268 Income inequality, inequality of opportunity, and social determinism p. 268 Inequality in corporations: gender balance and executive pay p. 268 Gender balance: more effort needed p. 272 Pay equity ratio: huge disparities between businesses and countries p. 274 Myths that die hard p. 278 Conclusion CONCLUSION p. 281 ASSET MANAGEMENT: THE CHALLENGES OF CONTINUOUS ADAPTATION p. 282 Face the fierce competition p. 284 Adapt asset allocation to the low interest rate environment. p. 286 Bypass porosity between traditional asset classes p. 286 Take advantage of megatrends and survive disruptions p. 288 Play an active role in the ESG trend p. 294 Understand behavioural changes p. 300 Anticipate and adapt to potential regulatory changes p. 302 Implement active and effective diversification p. 304 Conclusion: The end of traditional asset management p. 307 To find out more p. 316 BIBLIOGRAPHY p. 329 AUTHOR’S BIOGRAPHY p. 330 AWIF KEYNOTES SPEAKERS AND PANELISTS Author and chief-editor : Philippe Ithurbide - Project coordinator: Claire Ombredane (Amundi) - Editor: Oliver Griffith (EuroBusiness Media) - Design and Layout: Ghislaine Plougastel 6 I AMUNDI 10-YEAR AMUNDI 10-YEAR I 7 AMUNDI 10-YEAR I 9 FOREWORD: A DECADE OF SHARING EXPERTISE YVES PERRIER CHIEF EXECUTIVE OFFICER Ten years! Amundi is already ten years old. During this time, we have built a diversified company, combining performance and responsible asset management to serve more than 100 million customers in 35 countries across the globe.