This session looked at the biggest risks that asset owners are facing in this environment over the next 2-3 years as a result of the major shifts to near-zero interest rates, coordinated monetary and fiscal policy (MP3), and heightened internal and external conflict. It examined how the move to MP3 has significant implications for how investors manage risk and construct portfolios going forward. In an MP3 world, direct government spending rather than mostly efficient markets will be a much larger influence on the investment assumptions we take for granted, the drivers of growth and inflation, the flow of liquidity and how it impacts the cash flows of each asset, the pricing of the assets, their discount rate and the currency they’re denominated in.

Click here to view Bob’s presentation slides

Speakers

Bob Prince is co-chief investment officer for Bridgewater Associates, responsible for managing the company’s investment process with Ray Dalio and Greg Jensen. During his tenure at Bridgewater, he has been a partner in developing all aspects of Bridgewater’s investment process and client strategies. Prince got to know Dalio and Bridgewater in the early 1980s when he headed the Treasury Department of First National Bank of Tulsa, in Tulsa, Oklahoma. Before joining Bridgewater, for three years Prince used Bridgewater as his off-campus research staff in managing the bank’s funding, asset/liability management, and investment portfolio. He holds a Bachelor of Science degree in Finance and Accounting and an MBA from the University of Tulsa.

Moderator

Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

  • Bridgewater’s Bob Prince explains the perils of MP3 and suggests shaping strategies around cash-flow yield and connecting equity cash flows to stable sources of spending in the economy.
  • Today’s MP3 world where monetary and fiscal policy work hand-in-hand has resulted in important secular shifts.
  • Under MP1, interest rates were the driver, used to change levels of borrowing and lending to alter spending habits. Under MP2 QE became the main tool whereby governments printed money to drive up asset prices.
  • Under MP3 the Fed borrows and directs money into the economy wherever it wants, supplementing incomes and raising spending.
  • Now governments are trying to suppress interest rates so as not to offset the stimulation from the fiscal side. It means that the goal has become to hold interest rates stable so as not to conflict with the “person on the accelerator”.
  • This shift in linkages has big implications.
  • Asset holders are on the wrong side. Holders of cash have lost their purchasing power. Cash and bonds are no longer a saving vehicle.
  • Central banks now only playing a support role to governments, heavily involved in markets.
  • Investors need to think differently and get returns through cash flow yields. It is possible to create a tracking portfolio of stable sources of spending in the economy.
  • Stable cash flow streams still get price volatility, but it is possible to hedge this.
  • Through this lens public and private assets are on the same plane.
  • However, zero interest rates, deficits and printing money, doesn’t exist in Asia. It makes investment in Asia another source of diversification and investors should move between east and west.

This session examined the structural trends in the financial sector that have been either amplified or altered by the COVID crisis. It also examined whether post-COVID trends in the sector, such as the increased debt that has built up in the system, are likely to reinforce the lower for longer growth, inflation and interest rate regime or act as a catalyst for regime change. The speakers highlighted the most important waymarks for investors, including the intersection with post-crisis monetary and fiscal policy developments, offer thoughts on the likelihood of regime change and considered what that would mean for optimal capital allocation. The session also discussed the extent to which the financial sector’s resilience will be affected by physical and transition climate risk.

Click here to view Jeremy’s presentation slide

Speakers

Thorsten Beck is currently Professor of Banking and Finance at The Business School (formerly Cass) in London. He is also director of the Florence School of Banking and Finance and will take up a Chair of Financial Stability at the European University Institute in September 2021. He is a research fellow of the Centre for Economic Policy Research (CEPR) and the CESifo. He was Professor of Economics from 2008 to 2014 and the founding chair of the European Banking Center from 2008 to 2013 at Tilburg University.
Previously he worked in the research department of the World Bank from 1997 to 2008 and, over the past 12 years, has worked as consultant for – among others – the European Central Bank, the Bank of England, the BIS, the IMF, the Inter-American Development Bank, the Asian Development Bank, the European Commission, and the German Development Corporation. His research, academic publications and policy work have focused on two major questions: What is the relationship between finance and economic development? What policies are needed to build a sound and effective financial system?
In addition to numerous academic publications in leading economics and finance journals, he has co-authored several policy reports on access to finance, financial systems in Africa and cross-border banking and he has research and policy experience across a large number of countries across the world. In addition to presentation at numerous academic conferences, including several keynote addresses, he is invited regularly to policy panels across Europe.
He holds a PhD from the University of Virginia and an MA from the University of Tübingen in Germany. He is also co-editor of the Journal of Banking and Finance and member of the Advisory Scientific Committee of the European Systemic Risk Board.

Jeremy Lawson has been a professional macroeconomist for 20 years and has held a range of senior positions in both the public and private sectors. He began his career at the Reserve Bank of Australia, where rose to the position of senior research economist. He then joined the OECD in Paris, where he worked extensively on European public policy and climate change issues and was the head of the Hungary/Slovenia desk. In 2010 Lawson joined the Institute of International Economics as the deputy director of global macroeconomics before moving on to BNP Paribas as a senior US economist, specialising in Fed policy, as well as fiscal issues and inflation. Lawson was the chief economist of Standard Life Investments before becoming the head of the ASI Research Institute. The Institute was founded to oversee and promote sophisticated conjunctural and scenario analysis, as well as fundamental research at the intersection of economics, politics, policy, ESG issues and markets. Lawson holds an MSc in Public Financial Policy from the London School of Economics and took a sabbatical in 2007 to advise the then Australian Opposition Leader, Kevin Rudd on economic and climate policy.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of conexust1f.flywheelstaging.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

Key takeaways

  • It is important that fiscal policy now rotates from support to long-term stimulus. Outside the US where large public investment plans are underway, there is a danger that policy mistakes of the past will be repeated.
  • Inflation will be subdued going forward, with European economies, Japan, Australia, Korea and China struggling to meet long-term inflation targets.
  • Although remote working in the services sector could push down prices, the pandemic has also pushed up pay levels amongst low skilled workers.
  • People are confident in the banking sector but while some firms can handle their debt levels, others may have to restructure, and others may not make it at all. Corporate insolvency laws vary across Europe with different levels of efficiency regarding restructuring
  • Although central banks have opened the door to changes in the payment systems, they are reluctant to cede control or decentralise finance because of concerns around financial stability.
  • Central banks are looking closely at digital assets and involved in their evolution to ward off disruption from the emergence of private digital currencies.
  • Any transition from a heavily banked system or signal of a changing dynamic will see investors re-evaluate how they value the banking sector.
  • Any transition is a complex exercise for central banks whereby they can’t halt the arrival of new technology but have to marshal its progress and ensure it doesn’t weaken financial stability.

China is a simultaneous threat and an opportunity for investors. This workshop looked at how to navigate a worsening geopolitical situation and what it means for economic growth. Is the current course a steady state, or are big shocks, for the better or for the worse, possible and even likely?

Speakers

Professor Kotkin received his PhD from the University of California, Berkeley in 1988, and has been a professor at Princeton since 1989. He is also a senior fellow at the Hoover Institution at Stanford University.

At Princeton Professor Kotkin teaches courses in geopolitics, modern authoritarianism, global history, and Soviet Eurasia, and has won all of the university’s teaching awards. He has served as the vice dean of Princeton’s Woodrow Wilson School of Public and International Affairs, and chaired the editorial committee of Princeton University Press. Outside Princeton, he writes essays and reviews for Foreign Affairs, the Wall Street Journal, and the Times Literary Supplement, among other publications, and was the regular book reviewer for the New York Times Sunday Business section for many years. He serves as an invited consultant to defence ministries and intelligence agencies in multiple countries. His latest book is Stalin: Waiting for Hitler, 1929-1941 (Penguin, 2017). His previous book was a finalist for the Pulitzer Prize.

Moderator

Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

  • The biggest threat to Chinese growth is the lack of education and skills of its people.
  • Unless China can improve its education system, the country will remain in the middle-income trap.
  • China, unlike neighbours in Taiwan or Singapore, has not invested in its people to the same extent with an estimated 70 per cent of the population uneducated and only 30 per cent passing through high school.
  • China needs to invest in its human capital in other areas too. For example, poor diet and health in rural areas are a blight on productivity.
  • Arguments that China’s SOEs are crimping productivity, weak investment in the private sector and over capacity have worn thin by new trends like state firms seeking private sector partnerships to make them more efficient and private firms participating in industrial policy.
  • China will have capacity to navigate some aspects of climate risk via its strength in engineering and infrastructure.
  • China can navigate its demographic challenge by encouraging older people back into the workforce in the same way Japan has done. Under the communist regime, the retirement age is low; a substantial population in China are able bodied and retired.
  • Chinese companies score well on governance but the government scores badly; investors should explore the difference.
  • Wall Street firms (Amundi, Goldman’s and JP Morgan amongst others) are rushing to capture the Chinese savings market.
  • One consequence of China’s education gap could be the emergence of value-add economies in cities and coastal areas but struggling interior economies.
  • Investment in China today comes against the backdrop of a hardening narrative between the US and China and the risk of western policy makers creating a barrier to investment.
  • It has been easier for China to throw money into construction than build an education system.

A lack of transparency and sound data remain huge challenges in many emerging markets. So how should investors assess the risk of investing in emerging markets given the inefficient access to information? How does ‘economic transparency’ affect asset prices? The panel discussed the link between governance principles, asset prices, trust in government and investment volatility and what investors can do about it.

Speakers

Joined AP1 in December of 2000 as quant analyst developing internal risk and performance attribution system. In 2006 he joined the external management team as analyst developing tools and analysis to monitor and evaluate managers in the equity, fixed income and alternative space and later became portfolio manager with responsibility of the emerging market portfolio at AP1.

In 2015 Chammas become head of external management team at AP1 managing the external assets within equities and fixed income. In December 2019 the team was incorporated into the external partnerships and innovation team at AP1. Prior to joining AP1, he worked as consultant at Tieto Enator. Chammas has a Degree in Electro Engineering from the Royal School of Technology in Stockholm and Financial Analyst from the Stockholm School of Economics.

Marshall L. Stocker is a vice president of Eaton Vance Management, director of country research and portfolio manager on Eaton Vance’s global income team. He is responsible for buy and sell decisions, portfolio construction and risk management for equity assets managed by the global income team, including an equity fund investing in emerging and frontier markets. As director of country research, he leads a team focused on analysing country-level political-economic policies. He joined Eaton Vance in 2013.
Stocker began his career in the investment management industry in 1999. Before joining Eaton Vance, he served as co-founder and managing member of Emergent Property Advisors, LLC. Previously, he was a portfolio manager with Choate Investment Advisors and Sanderson & Stocker.
He earned a B.S. and an MBA from Cornell University, where he was a Park Leadership Fellow, and a Ph.D in Economics at Universidad Francisco Marroquin. He is also a CFA charterholder and is conversant in German and Arabic. He is a benefactor of the Cato Institute, Foundation for Economic Education and the Atlas Network. In 2017, he became a member of the Mont Pelerin Society.
Stocker’s commentary has appeared in The New York Times, The Wall Street Journal, Barron’s, Financial Times and The Washington Post and Bloomberg. He has also been featured on Bloomberg Radio, Fox Business News and Nikkei CNBC Japan.

Moderator

White is responsible for the content across all Conexus Financial’s institutional media and events. She is responsible for directing the bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. She is the editor of conexust1f.flywheelstaging.com, the online news and analysis site for the world’s largest institutional investors. White has been an investment journalist for more than 20 years and has edited industry journals including Investment & Technology, Investor Weekly and MasterFunds Quarterly. She was previously editorial director of InvestorInfo and has worked as a freelance journalist for the Australian Financial Review, CFO, Asset and Asia Asset Management. She has a Bachelor of Economics from Sydney University and a Master of Arts in Journalism from the University of Technology, Sydney. She was previously a columnist for the Canadian publication, Corporate Knights, which is distributed by the Globe and Mail and The Washington Post. White is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program consists of 22 fellows and seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.

Key takeaways

  • Sovereign transparency helps improve the value of assets, enables countries to lower their borrowing costs and achieve a better credit rating.
  • The discount rate on assets shrinks as transparency improves resulting in assets going up in value.
  • Key points that help sovereign transparency include economic data being published in English and regularly updated.
  • Economic development and transparency are linked, making transparency crucial for emerging markets.
  • Transparency does not create more volatility but higher levels of sovereign transparency don’t necessarily increase levels of trust in a government.
  • Some countries (like Ukraine) have relatively high levels of transparency, but struggle to subsequently enforce rules and laws to deal with the challenges transparency reveals.
  • Asset owners have an important role in engaging on transparency.
  • Swedish buffer fund AP1 uses a corporate scoring process whereby more transparency increases a company’s weighting in its index investment.
  • AP1 has begun excluding fossil fuels from its entire exposure. The process has included launching some new funds and strategies with managers.
  • The decision was based on the fund’s climate and scenario analysis and the financial risk posed from fossil fuel groups.
  • In many cases, companies have the data investors want disclosed, but are often not aware of it.

Emerging markets are home to the world’s fastest-growing economies and their long-term equity returns have attracted investors. In the past several years, however, many investors may have been disappointed by lacklustre results from their emerging markets allocations. This session argued that investors should look to companies with strong secular growth to find alpha in emerging markets.

Speakers

Sara Moreno is an emerging markets equity portfolio manager and research analyst. She joined Jennison in 2011. She previously spent three years with Loomis Sayles as a research analyst where she covered stocks in Latin America and emerging Eastern Europe, the Middle East, and Africa. Prior to Loomis Sayles, she worked at Citi Global Markets, Goldman Sachs, and Moody’s. She received a BA in economics from Bryn Mawr College and an MBA from the University of Chicago.

Mark Walker is chief investment officer of Coal Pension Trustees Services (CPT), the in house executive responsible for the £21 billion of investments of the Mineworkers’ Pension Scheme and the British Coal Staff Superannuation Scheme.

Prior to joining CPT, Walker was managing director and global chief investment officer of the Univest Company, Unilever’s internal investment group. The Univest Company oversees the investments of Unilever’s pension plans in over 40 countries. Walker joined Unilever from Mercer where he was a partner and head of the London investment consulting unit.

Walker has over 25 years of experience in actuarial, pensions and investment work. He is a Fellow of the Institute of Actuaries and a member of the 300 Club.

Moderator

Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

  • A poll of delegates finds over 50 per cent of attendees are not currently skewing their emerging market allocations to China in a new show of caution.
  • An active approach to investing in emerging markets where investment is focused on bottom-up opportunities in companies exposed to secular growth reaps rewards.
  • Investors are less focused on market cap and more focused on a split between regions. If investors only look at equity market cap as a signpost to future growth opportunities, they are likely to be disappointed.
  • Looking at the data, carbon emission intensity in emerging markets comes particularly from China; China is bigger than other markets.
  • Digital transformation at ground level in emerging markets is driving opportunities. It is also behind financial inclusion across populations excluded by the traditional banking sector.
  • China led the revolution, using e-commerce to increase inclusion and allowing companies to market directly to consumers.
  • One of the most important secular growth trends in China is in healthcare where the aging population is also wealthier, with money to spend.
  • Regarding investment in private equity in China, the biggest risk is permanent loss of capital. Investors should focus on individual investments at a micro level.
  • Emerging economies are no longer export led. For sure, Chinese growth has fuelled commodity, export-led demand in many emerging economies but now the emerging markets need to focus on local growth.

Poll results

Is your emerging markets allocation skewed towards China?

The interruptions to work and the revolution of technological tools in 2020 have changed the way investors assess products, fund managers and stocks. What technological tools are investors using in a remote environment including more innovative ways to do due diligence? What behaviours and processes have changed because of COVID and lockdown?

Speakers

Rick Di Mascio joined the British Coal Pension Fund in 1979 and eventually held the joint roles of CIO and CEO. At that time the fund was one of the earliest adopters of a strategy that later became known as LDI. His career included spells at Goldman Sachs Asset Management, and an early European long / short hedge fund, Olympus Capital.
In 1998, di Mascio launched Inalytics to provide objective empirical measures of how fund managers generate alpha. Inalytics’ clients include some of the world’s largest and smallest fund managers, sovereign wealth funds, and pension funds. Di Mascio has co-authored a number of academic papers, including: ‘Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors’ and ‘Alpha Decay’.

Dev Jadeja leads LPP Investments’ selection and monitoring of external fund managers, working closely with the broader investment team and reporting to chief investment officer, Richard J Tomlinson.
Jadeja works across all the asset classes in conjunction with LPPI’s specialist portfolio management teams and is the functional lead for all external manager investment due diligence.
Jadeja joined LPP Investments from Cardano Risk Management, where he was deputy lead for the manager research team. Prior to that, he held senior research and portfolio management roles at International Asset Management, Key Asset Management and Old Mutual Asset Managers.

Luba Nikulina is global head of research at Willis Towers Watson’s investment business providing investment advisory and fiduciary management services to institutional investors around the world.
Her primary responsibilities are: pure investment (ensuring the quality of research and investment decisions as well as responsibility for the ultimate performance of client portfolios), business management (new products and services, team management, efficiency, resourcing) and working with some of the largest asset owners globally advising them on their governance structures, strategy, portfolio construction and investment selection.
She started her career in 1996 in Russia and joined WTW in 2005 working both in the New York and London offices. Nikulina attended the Advanced Management Program at Harvard Business School and holds an MBA degree from London Business School, a MS in Finance from the Finance Academy in Russia and a BA in Linguistics from the Linguistic University in Belarus. She has also completed the Financial Times non-executive director program in the UK.

Moderator

Tate has been an investment industry media publisher and conference producer since 1996. In his media career, Tate has launched and overseen dozens of print and electronic publications. He is the chief executive and major shareholder of Conexus Financial, which was formed in 2005, and is headquartered in Sydney, Australia. The company stages more than 20 conferences and events each year – in London, New York, San Francisco, Los Angeles, Amsterdam, Beijing, Sydney and Melbourne – and publishes five media brands, including the global website and strategy newsletter for global institutional investors conexust1f.flywheelstaging.com. One of the company’s signature events is the bi-annual Fiduciary Investors Symposium. Conexus Financial’s events aim to place the responsibilities of investors in wider societal, and political contexts, as well as promote the long-term stability of markets and sustainable retirement incomes. Tate served for seven years on the board of Australia’s most high profile homeless charity, The Wayside Chapel; and he has underwritten the welfare of 60,000 people in 28 villages throughout Uganda via The Hunger Project.

Key takeaways

  • A discussion on manager relationships via zoom finds positives and negatives in the new trend.
  • All panellists agree that allocators have tended to stick with existing relationships through the pandemic making it difficult for managers approaching investors for the first time to form relationships and win mandates.
  • Technology will play an increasingly important role in manager due diligence. Lockdown has made building manager relationships and trust more challenging.
  • Pension funds struggling to carry out due diligence on managers without the ability to “look them in the eye” can use technology to provide a valuable new lens.
  • Data plays a role by allowing investors to see from an evidence base where a mangers key strengths and weaknesses are.
  • Human judgement calls have an equal weight in the investment process. A qualitative overlay is important, and most data is available in public markets making the use of quant analysis in private markets trickier.
  • Asset managers availability has increased through the pandemic because travel has ended, increasing productivity. It is easier to set up meetings but remote meeting make it difficult to assess culture and other soft factors that shape investment decisions.
  • Due diligence on hard assets like infrastructure or real estate has been much more challenging over the last year.
  • • Data creates the environment to ask the right questions. For example, the insight it provides on emerging market managers’ performance ensures investors start with a strong cohort from which to base their selections, speeding up the process and avoiding any “hoodwinking” on track records.
  • • Small, start-up managers have struggled to get over the line during the pandemic. Many investors have stuck with existing managers because it has been more difficult to get comfortable with new teams.

 

Poll results

Do you use technology and quantitative tools to assist with manager due diligence?