Author: Maha Khan Phillips
The Covid 19 crisis has fundamentally changed things, not least for the asset management industry. Whether it is about focusing on their social purpose, highlighting the importance of staying calm, emphasising leadership, arguing about the need for active management, the development of a systems framework for investing, or stressing the need for sustainability and other key factors, senior leaders tell Professional Investor what the crisis has highlighted for them.
Saker Nusseibeh, CBE
CEO, International, Federated Hermes:
Through this deeply concerning and challenging period, it has become clear that companies with strong ESG factors have outperformed those that do not. Therefore, what we have been saying for a very long time - that active investment selection in companies which take a sustainable approach returns superior performance – is proving to be true in the most testing of times.
What has also become clear is that, as stewards of capital, we will need to alter how we approach engagement with investee companies when we emerge from this crisis. We will sharpen our focus on sustainability risks, like pandemics, and operational resilience in the face of extreme situations, like those most companies are facing today. Moreover, we have seen throughout the pandemic the far wider role companies can play in the context of their contribution to society. This reinforces to me that a social license to operate will be fundamental for all institutions in the future and something we will scrutinise closely in our company engagement.
Andreas Utermann, FSIP
Advisor, Allianz Global Investors:
Firstly, a big proviso: it’s a bit early to talk about ‘learnings’ while we are still in the middle of this crisis. That said, it is once again clear that ‘black swans’ are difficult, if not impossible to predict. Preparing for the unknown, however, pays off, as markets and policymakers have proven quite resilient so far in the face of an unprecedented challenge to the global economy.
Without the work on bank solvency etc, in the aftermath of the Global Financial Crisis this may not have been the case. As was the case with the global supply chain and just in time delivery, it must be hoped that one of the lessons of this crisis will be that running too lean an operation might not be in the best long term interests of shareholders and other stakeholders, and that perhaps markets should accept lower returns in exchange for greater resilience in the face of crises.
Colin McLean, FSIP
Founder and CEO, SVM Asset Management:
The crisis has shown investment professionals that investing is best conducted in teams, with personal interaction – unfortunately proving more challenging in remote working.
And we have learned that company share buybacks ‘grow’ earnings per share, but little else, undermining business resilience. Responsible investing has a bigger role.
Head of EMEA, Northern Trust Asset Management:
People are everything. As leaders, we need to assess our teams, empower those who are willing and able to help in a crisis, and look after those who need support.
Crisis makes leaders. In an industry with well-thought out processes, best practices and governance procedures, we are in new territory. You can learn a lot about a person during the good times together, but you learn everything about them in crisis. Diversity matters. Getting the most out of a diverse team’s myriad of perspectives helps you come to better decisions. Focus on what’s important. Zoom out and prioritize rigorously using the best available facts. This situation is unprecedented, and keeping the long term in mind while staying true to core values can centre us on what’s important.
Rick Di Mascio
It's vital that fund managers remain focused and do not succumb to the pressures that markets and performance inevitably bring.
This is particularly true in some cases where we have noted decision-making under extreme pressure can be particularly poor and makes the problem worse. I know it's a cliché to say stay calm, but resilience under pressure is a personality trait shared by the best.
Andrew Drake, ASIP
March 2020 was the craziest month in investing history. The wild swings in major markets reminded us that, ultimately, the only truly safe asset class is the one between your ears - but only if you can chase away emotion with cold, hard logic.
Co-head of the Thinking Ahead Institute:
Now more than ever, we believe that investors need to move towards a systems framework for investing which recognises that our businesses and portfolios cannot be considered as independent from wider society or the environment.
A systems-theory chain of thinking starts with the creation of investment policies that work directly on the sustainability of the system and its impacts on real-world outcomes, and then links this to investment results. We believe this is a central paradigm to support more purposeful investments.
Noel O’Halloran, ASIP
CIO, KBI Global Investors:
Having managed money for over 30 years and witnessed many market crises, one thing to yet again learn is how fruitless it is to speculate on or answer the much posed question of what ‘catalyst’ will end a market cycle or economic expansion.
Rainforests have been destroyed predicting what would end the post Global Financial Crisis expansion and lo and behold it’s a pandemic and not some great market or economic event! It is also clear that it is always wise to recognise we are close to the end of any expansion and that ultimately ‘trees don’t grow to the sky’.
CEO and founder, Impax Asset Management:
In the wake of Covid-19, asset managers should continue to back resilient businesses with effective strategies. Companies with low levels of debt, redundancy in supply chains, diversified customer bases and effective business continuity plans are attractive.
Equally, to underpin success over the rest of the decade, business plans need to address risk from environmental damage, social inequality, political dislocations and demographic change, including urbanisation, but also address countless new opportunities, for example personalised healthcare, smart materials and Fintech.
Alexandra Haggard, CFA
Global head of equity product management and head of strategic pricing EMEA, BlackRock:
I have been both struck and encouraged by how the crisis has highlighted the social purpose of asset managers. As we engage daily in the markets, we both seek to help our clients with the resilience of their portfolios, and through the investment decisions our portfolio managers make, we seek to support and grow companies that will help us build a better future.
Both our clients and the companies we invest in support consumption, power economic growth around the world, create jobs, and innovation.
David Ric, CFA
Co-founder Resco Asset Management:
Adjusting to new investment regime: A decade of suppressed volatility has created a false sense of security. As during the last crisis some economic books will have to be re-written. Modern Monetary Theory (MMT) for example is here to stay and a new investment regime is now upon us which favours active unconstrained investment styles.
Where there is risk there are opportunities: For those who have lived through previous crises will know that following through on your investment process is of upmost importance. While it is hard to stay calm in the middle of a storm, it is the knowledge that your risk and investment process is designed to weather adverse situations which will help your decision making during turbulent times.
The learning curve isn’t linear: Experience, both on an individual and team level during the crisis will test the robustness of any organisation and will make it hopefully less fragile going forward. Plenty of lessons to be learned from this.
Chief Global Strategist
Nikko Asset Management:
Have some convictions but don’t hold religiously to them. Thus, test the logic in them occasionally. Times change and thus, investment styles and methods must too, but not with wild swings.
CEO, Whitehelm Capital:
In this time of heightened market volatility brought about as a result of the coronavirus, investors need to be vigilant. The crisis highlights the importance of investing with a long-term perspective. With market reaction to the coronavirus expected to eventually stabilize, infrastructure remains a long term, low risk, yet attractive and income generating opportunity for investors.