Author: Maha Khan Philips
Mike Zelouf, CFA is Director of International Business and Head of London Operations, Western Asset Management.
What keeps Mike Zelouf, CFA, up at night?
When I ask the question, he pauses. Then he talks about the multiple challenges facing the asset management industry, from the growth of passive and indexed strategies, the differentiation of private and real asset strategies, and the pressure on traditional long only active management fees. He mentions increased regulatory burdens, and the need to invest further in technology, systems, and in people. And of course, then there’s Brexit. Brexit is creating a set of challenges for firms like Western Asset Management, he says. Firms which use London as a hub for their European activities, and for marketing and distribution of clients in the European Union.
But Zelouf is also quick to point out that this is a time of opportunity as well. “I don’t want to paint a completely dark picture. The next five years are going to be less forgiving, and it’s going to be important to have the right solutions and distribution strategies in place, but times of transition are also times where if you get things right it can be very rewarding,” he says.
For Western Asset Management, transition has included shifting its investment portfolio away from liquidity and short duration strategies towards long term assets, and to grow its unconstrained suite of strategies. The firm’s unconstrained strategies are designed to maximise return relative to a risk budget. “We’ve always been able to apply our fundamental value based investment philosophy to diversified strategies, and now we’ve redeployed existing team members to the management of these strategies. The key is the underlying research into what constitutes fair value in the different market segments that we invest in,” he explains.
The last time Zelouf talked to Professional Investor (Summer 2012), he argued that there were good reasons to question whether traditional bond indices were meeting their objectives as benchmarks. “There’s been a lot of traction of people saying if I manage according to a traditional index, I’m essentially contributing to the beta of that index,” says Zelouf now.
He also says his firm works closely with clients to ensure that their solutions meet specific requirements. “In Europe, the requirement has been to minimise the overall level of drawdown or volatility, and we’ve been able to work with clients on a strategic basis. With banks moving away from accommodative monetary policies, rising yields could have a significant negative impact on returns from traditional long-only bond strategies. We’ve seen this shift into a total return, unconstrained type of approach. When beta is king, this approach may not generate the same level of return but it does give you more flexibility. Managers also have to have flexibility to invest where they see value, and take concentrated positions where they have conviction.”
As a veteran of the profession, Zelouf believes that investment professionals coming into the business now need to have a deep understanding of the underlying foundations of financial markets, and their purpose, as well as to understand how that purpose is applied across the various parts of the financial services industry, from traditional commercial banking, investment banking, through to asset management. “It is absolutely critical before you start to add value to end investors that you understand this. Investors are looking for trusted advisors in our industry, and understanding the client and their specific challenges is really important. When you are dealing with institutional investors, it’s also really important to understand that one size does not fit all. Do your homework. Have a base knowledge. Understand the whole picture.”
In his free time, Zelouf is a keen cyclist, who rides for charity and commutes to work on occasion. He also loves badminton. He is married with two sons, one has just graduated from university, and one is completing his A levels.