Black swan events can and do happen as COVID-19 has shown. As a result, investors are increasingly demanding assurances from asset managers that they have robust contingency plans in place to deal with all sorts of crisis situations. Top of mind right now is the prospect of looming energy shortages in Europe this winter, and what it could mean for business continuity at asset managers.
This comes amid growing concern that European governments – including here in the UK – could be forced to cut power networks for short periods if Russian gas supplies are further constricted. Such outages will likely hinder managers’ ability to trade, a scenario which could have serious consequences, especially if markets are volatile.
So what tangible steps are firms taking in Europe to minimise the risk of energy disruption on their business operations?
A number of financial institutions – including banks and asset managers – have been drafting up contingency plans to deal with the possibility of energy shortages. According to Bloomberg, some organisations are looking to learn from experiences in South Africa, a country whose businesses have been forced to deal with rolling blackouts for over a decade now.
Most asset managers have plans in place to either leverage regional disaster recovery sites or encourage staff to work remotely should London (or any other financial hub in Europe) suffer prolonged power outages. In many instances, these contingency plans will not be that dissimilar to what firms did during the beginning of the pandemic.
A handful of larger financial institutions have said they could relocate staff to different countries if a particular market suffers an acute energy emergency. For example, JP Morgan recently confirmed that it has plans in place to temporarily transfer employees from Europe to the UK or US in the event of severe energy shortages and blackouts on the continent. Given their relative size, this is not an option available to most boutique fund managers.
Some financial institutions are also looking to install backup diesel generators – which can provide up to three days’ worth of uninterrupted power – or even solar panels, at their offices and employees’ homes, to offset the risk of blackouts. This is something that boutiques ought to be actively considering.
In addition, asset managers should be conducting due diligence on their own critical service providers – including global custodians and fund administrators – to validate that they have solid contingency plans in place to deal with any outages.
And finally, asset managers should be thinking about ways they can reduce their own energy consumption. Such simple measures could include things like installing a smart meter, using less air conditioning or heating; and turning off the lights at night. Not only could these initiatives help mitigate the risk of blackouts if done collectively, but it will enable asset managers to reduce costs and burnish their ESG (environmental, social, governance) credentials.
With rolling energy blackouts a real possibility in Europe this winter, asset managers need to make sure that they have well-thought-out contingency plans to deal with this risk.