This month, our Money Fund Intelligence newsletter quotes from our recent Money Fund Symposium keynote speech with Martin Flanagan, CEO & President of Atlanta-based Invesco. We discussed a number of important topics in the asset management, money fund, and product development spheres. An edited transcript from the session follows. This interview is reprinted from the July issue of our flagship MFI newsletter; contact us at to request the full issue.

MFI: Tell us about your history? Flanagan: My family had been in the commodities business for many, many years ... so the markets and international business were always an interest.... I ended up at Templeton way back when, and I've stayed [in investment management] ever since. I think for all of us, it's a great industry. It's a dynamic industry, and it's just a fascinating time. I think the advice I would give is to continue doing what we do. We are fiduciaries to our clients. As long as we keep our clients first, we're all going to do well.... Atlanta is a phenomenal place.... It is a fantastic city, very dynamic, an incredible business community, arts, sports community, and very welcoming.... So, come on down.

MFI: What's the current state of asset management? Flanagan: It's an incredibly important industry. There is an absolute need for what we do.... It's a growing industry. But we all know it's going through dramatic changes right now. It has signs of a maturing industry and the competition that comes along with [that].... The winners will probably look different in 5 years than they were 5-10 years ago. But that said, I think it's a great industry.

Flanagan continues: You've seen this big move into passive, and an extended period of time of [this] low-rate environment. So that's really caused a lot of firms to do self-reflection.... I think if you look at it today and ask the question, 'What do you really need?' Clients are moving much more towards achieving outcomes, and this really [calls for a] combination of active and passive alternatives, and this whole array of solutions. So to be a firm, you have to be broad, you have to be deep.... It is an environment that if you can't invest where the market is going right now or where the clients are going, it's been really difficult.... You need a suite of capabilities, you need to have deep relationships ... clients are wanting to work with fewer people.

MFI: What about the new Administration and regulatory relief? Flanagan: First of all, I think what is really important is good, thoughtful regulations that protects our clients and all of us.... My personal view is post the crisis ... over regulation and multiple layers of regulations ... has been just stifling [and caused] unintended consequences.... So I think to step back and take a look at the regulations that are in place and [to see where] we could create relief [is a] good idea.... Just the notion of a slowdown of new regulations I think is really important. I don't see the elimination of a lot of regulation, but [a reduction would be a] positive for us as an industry. Some of the regulations, I think some of us would say are not very helpful. If you could eliminate them, that would be a great thing. But I don't know if that's going to happen.

MFI: What about rising rates in general? Flanagan: We have some of the short duration funds and the ultra-funds that are coming out. I think that [this] is a pretty [good space] to be right now. Not knowing, but sensing that rates are going to go up, things like bank loans are [probably] very appropriate right now. [Other] opportunities [include] things like real estate and commodities.

MFI: What have been your keys to success in the money fund industry? Flanagan: Everybody [here] is committed to the money market industry. There is an absolute need.... That has not changed. I think it has been hard for all of us with the regulations [first] in the United Stated [that has now] moved to different parts of the world. I think we all, collectively, are starting to get a handle on it, which is good. It has forced all of us to look more broadly at the capabilities that we offer, and I think that is not a bad thing. It was a nice to have just funds in the past. Now, that is not going to work. We have the notion of private accounts, SMAs, ETFs, these ultra-shorts. So, the industry I think continues to be really quite thoughtful and deliberate in meeting those evolving needs.

He adds: These [changes] are not limited to the States. We have some pending regulation in Europe, obviously. But again, it feels like all of us should be able to navigate it based on what's happened in the States. And there are opportunities in markets like China which is really quite fascinating. [It's a] little nerve wracking [due to the] the lack of regulation. [But] I think for a lot of us that have global businesses, being able to follow our corporates around the world in different markets ... those are really good opportunities for us.

MFI: Tell us about your history in the money fund space? Flanagan: We as a firm recognized the client need and the importance of it, and we continue to evolve. As the firm became more global in nature, we built a global liquidity business off the back of it. If you're here today in this room, if you're in the liquidity business, it's a very different business than it was pre-crisis. The costs have gone up, the demands have gone up, the capabilities have gone up.... If you look at the numbers ... there were 150 providers before the crisis, there are like 70 today. It's become concentrated because of the risk and the investments that you need to [stay in the business]. Again, I think that it is a very good opportunity, but because of the regulatory environment the players have narrowed.

Flanagan states, My view is: I think we all thought we had it right before the crisis. [But] I'd say Round One of the money fund reform probably ... was enough. I think Round Two was a mistake. Just look at what's happened since it's been implemented. We have lost a trillion dollars on prime funds.... Yes, it strengthened the industry, and I think that is a healthy thing. But borrowing costs have gone up [for] commercial paper ... and municipalities.... That's my personal view.

MFI: What was the toughest part of the reforms? Flanagan: You had to ask, 'Are we in or are we out?' If you were in, you knew you signed up for a lot of hard work.... What I admire about the industry is everybody here locked thumbs and asked, 'How do we do this? How do we get this right?' I think that is one of the strengths of this industry.... I personally found it much more difficult when we were going through the [pre-]reform periods because it was a moving target what the end game was.... I just found it hard from the standpoint of Round Two -- it was regulation with no purpose.

MFI: Do you think Government assets will return to prime? Flanagan: I think we all have the common wisdom that no time soon is that going to happen. What could really change is it might change at the retail level. If yields get attractive, and people understand what it means with fees and gates, and you could actually see some money going in there. Not an avalanche, but.... It's still too early.

MFI: What about global issues? Flanagan: I think European Regulations are [sort of] the same thing ... [reacting to] perceived risk in the market. I think the good news is they've picked up some tips from here. There's a framework and it's somewhat different on the margins, but that's probably a good thing.... Brexit's another topic. So many of the funds are domiciled in Ireland, but it's unclear what the ultimate answer will be. You'll probably have to incorporate your funds back into the U.K.... But this is not, I promise you, this is not the top [concern] right now [of European and U.K. politicians], which is probably a good thing.

MFI: Any thoughts on money funds in China? Flanagan: We have a very strong local money fund business in China, and it's been something that our other team has gotten [involved] much more recently. It was growing rapidly, and [regulations maybe haven't kept pace]. If you apply regulations like the United States, you basically are not competitive. We try to strike the balance and engage with regulators, and that's what we've done. So I so think that the regulation is going to start to move and be helpful.... But China for us is a very interesting market.

MFI: Any last thoughts? Flanagan: As much as [the business] changed, it's not changed. It's a great opportunity [for] I really think all of us who are working to meet the client's needs. Yes, it's more costly, yes it's more expensive. But the opportunity is there. It's no different than any other parts of our business, if we are thoughtful and understand what our clients want [we'll do well]. So we want to do well, collectively, for our clients.

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