Embracing change in fund governance

The message from speakers at the recent Fund Governance 2025 conference was clear: best-in-class change management is key to the future of the fund industry

By Penelope Rance

5 minute read time

While weathering a period of volatile economic activity, with geopolitical upheaval undermining investor confidence, the fund industry is also having to adapt to ongoing technological and regulatory shifts. To protect customer outcomes, firms must respond by committing to flexible change management programmes and doubling-down on good governance and operational resilience. Regulators, industry bodies and market disruptors alike reiterated these imperatives at NatWest Trustee and Depository Services’ Fund Governance 2025 conference

Best practice in operational resilience

Within an environment defined by ongoing disruption, having the right processes and structures in place to manage change is critical. In the funds sector, change is currently being driven by evolving and volatile markets unsettled by geopolitical events. Rapid regulatory developments alongside commercial demands and cost pressures, plus rapid technological transformations, are also playing their part. In meeting these challenges, there is a critical role for governance which requires strong leadership, robust regulatory oversight, and rigorous information management among firms.

The FCA’s operational resilience guidance recommends scenario testing, identifying vulnerabilities and developing remediation plans, and was backed by a clear theme arising at the conference of the correlation between accountability and senior management engagement on the one hand, and achieving strong governance and organisational resilience on the other.

Managing change on a large scale – while encompassing external and enterprise-wide drivers – requires a holistic approach which goes beyond individual firms’ internal change management. The needs of clients, third-party providers and end investors all have to be considered, because client and consumer outcomes are a critical aspect of any change management process.

A duty to consumers

This focus on putting clients’ interests first is the central tenet of the Consumer Duty. “We’re here to deliver the best risk adjusted returns to investors to improve their financial futures, to deliver better long-term outcomes,” underlined Miranda Seath, Director, Market Insights & Fund Sector, The Investment Association. Pointing out that consumer understanding is a key pillar of CD, she shared The IA’s latest research on changing investor profiles and demands, noting both better financial education among younger generations and rising familiarity with investing options across the consumer base.

Investors are consequently seeking a greater range of information to make fund selection decisions, with risks, fees and past performance all key considerations. “There are generational differences in investor preferences over language and information – older demographics want simple, clear descriptions and are turned off by jargon. Younger generations want detailed information,” explained Miranda. “But they all want it all in one place.

However, with 60% of documents related to fees and charges deemed not fit for purpose, the funds industry needs to start providing better disclosure. “Consumer Duty is a foundational regime which allows us to look at how we can continue to promote both consumer access to investing, but also consumer understanding,” summed up Miranda.

Giving investors purpose

Alongside consumer calls for more detailed reporting is an ongoing demand for purposeful investing options. The opportunities and challenges around this were raised during the discussion of a new fund for nature-driven climate solutions. Kirsty Wilman, COO of Rebalance Earth, outlined the financial drivers for the project, saying: “By 2050, it’s estimated drought will cost the London economy £500m a day, and that the impact of nature loss on UK GDP will be 12%.”

Investment in nature-based solutions which can help businesses mitigate climate impacts should therefore inform change management planning. “This is not just about doing good. This is about operational resilience,” added Kirsty. “Nature-based solutions are often more cost effective, self-sustaining, and powerful than man-made defences.”

Such projects are complex, with a huge number of stakeholders involved. In order to roll them out at a scale to make a material economic difference, a new asset class is needed. One of the major obstacles to this, said Rahel Haque, Sustainable Finance Advisory – Funds & Sponsors Lead at NatWest, is that with nature investing in its nascent phase, there is a lack of data and expertise for investors to draw on.

“GPs are looking for nature-oriented strategies, but it’s not clear how to commercialise them,” Rahel explained. “A typical illiquid private investment strategy has a seven-year time horizon. But for nature-based investments to be a genuine asset class, there needs to be a longer timeframe, a robust methodology and framework. The operational structure and commercial contract need to evolve.”

Adapting to a changing market infrastructure

Meeting evolving investor demands for new asset classes, however, is not the biggest challenge in fund governance. That remains how to ensure investor protection and regulatory compliance in the face of rapid change to financial market infrastructure, particularly around tokenisation and digital assets.

“We need to be agile, to move as quickly as the marketplace is building settlement systems and introducing products that we need to oversee and ensure are safe for investors,” said Jamie Green, Portfolio Insights Lead, NatWest Trustee and Depositary Services. “Investment is required, but so are different perspectives, because the way native digital assets work is different to the way traditional assets work.”

The shift from materialised securities that are electronically represented in a ledger system to a completely native digital securities environment is technologically simple, but regulation of digital assets will be slower to adapt, with some territories moving faster than others. “Regulation is constantly evolving. And while this technology is ideal for assets that are transferable globally, we’re already seeing regulations diverge and the need for local instruments and local custodians,” outlined Martin Watkins, CEO of Montis Digital.

“We’ve talked about how the markets might change and how settlement might change, and how asset managers might choose to use new instruments in new ways,” concluded Jamie. “As an industry, we need be change-ready, have good change management processes, be proactive in reaching out to regulators early, and identify what to do in order to take advantage of these changes.”

If you’d like to talk about any of the topics discussed at the conference and how they might impact your organisation in the future, please contact your relationship team.

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Embracing change in fund governance

By Penelope Rance

5 minute read time

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