In May, the SBAI hosted its annual SBAI North American Forum, featuring senior industry leaders from Blackstone, BofA Securities, Bridgewater Associates, CDPQ, CPP Investments, Dymon Asia Capital, Goldman Sachs, Martlet Asset Management, New Mexico Public Employee Retirement Association, Prosek Partners, Raytheon Technologies, RockCreek and Two Sigma. This year’s forum focused on investment outlook in China, owning the alternatives narrative, and how to increase diversity in portfolios.
2021 The Investment Outlook in China
Allocators are usually underweight China relative to the size of its market and, according to our panellists, there are plenty of sources of alpha. Topics covered in the panel discussion include:
Owning the Alternatives Narrative
- Exposure to China should be considered as part of a diversified portfolio
- Alpha opportunities come from factors, such as market inefficiencies caused by a relative lack of transparency and low coverage of institutional research
- Chinese Bond markets: China is one of the few remaining countries operating a conventional monetary policy
- Whilst not seen so far, deterioration of alpha is likely coming as local institutions are becoming more sophisticated and successful investment strategies are being replicated. Alpha opportunities; however, will remain for some time.
- Market access is opening but there are still some barriers to allocation, such as a language barrier that may require a boots-on-the-ground approach.
The narrative of the hedge fund industry is often negative, and this can impact both the industry’s reputation and that of individual firms. The panellists discussed the “emerging market of marketing”, including challenges and key takeaways for communication strategies:
Culture and Diversity – Building a Diverse Portfolio
- Have a combined strategy for communication, marketing and branding. Know what your message is and make sure you use it consistently
- Tailor your messages to specific target audiences by understanding who your end audience is and what they want
- Your employees are your biggest ambassadors, ensure you have an authentic and caring employee relations strategy.
- Embrace modern communication channels, otherwise you are letting someone else control your narrative.
The benefits of diversity in the investment process have been well documented, but more progress need to be made. The panellists discussed practical ways to increase diversity in portfolios:
- Start the process by using data to understand the baseline of your portfolio where it stands today and socialise this within your organisation. Annual reassessments can then be used to track progress.
- Assessing diversity in underlying managers uses criteria such as equity ownership and who the risk takers are, as well as discussions on policies and philosophies.
- Tweaking the manager selection process to ensure diverse managers are properly considered, could help find new sources of uncorrelated alpha. For example, addressing bias in track record reviews by considering policies similar to removing names from CVs during the recruitment process.
- Diverse managers may not want to be allocated to through dedicated programmes, as this can be perceived not being able to compete within the main portfolio of the allocator.
- Allocators may fall short of their own diversity standards – don’t forget to look inside as well as outside.
We would like to thank our panellists for their contributions to all three panel discussions.
Event Summary: Data Science Innovations in the World of ESG Investing
ESG and Data Science are often discussed separately, but with the growing interest in ESG and the increasing availability of alternative or unstructured data sets, our panellists from IMD Global Board Centre, Martlet Asset Management, Radiant ESG and State of Wisconsin Investment Board believe there is plenty of scope for the two to overlap. Key takeaways:
- The role of New Data and Techniques at its core is to supplement more traditional structured data sets. This could be to plug gaps in the mostly voluntary self-reported mainstream data, provide additional insights, validate traditional data by using alternative data that is outside of the company’s control, or provide different and potentially more effective metrics for areas such as governance.
- Finding ESG Alpha may be getting more difficult and what was once considered alpha may now be viewed as alternative beta. But true alpha may still be found in less efficient markets, such as structured credit, private markets and emerging markets.
- Developing a forward looking perspective on companies requires an assessment of the credibility of forward looking (ESG-related) statements by company management: The use of multiple techniques and data sources may give a broader view and provides an understanding of a company’s decision making process, personalities of decision-makers, and what ESG related decisions might look like in the future.
- ESG investing should not become a tick-box exercise, especially when companies (and asset managers) begin to understand how to make their ESG scores look better. Use of unstructured data or techniques such as Natural Language Processing (NLP) may help to paint a more complete picture of a company.
- Most new data sets and techniques are almost entirely available in the English language only. Culture and language barriers make it difficult to assess them in different regions without local staff with the relevant experience. There are now increasing vendor options outside of the English language looking to fill this gap in the market.
We would like to thank our panellists for their insightful contributions to the discussion.
Please reach out to us if you would like any further information on this topic. A replay and a written summary of the event is available to stakeholders upon request.
As It was reported recently on the ransomware cyber-attack that led to the shutdown of one of the biggest gas pipelines on the US East Coast. The Colonial Pipeline ransomware incident highlights the huge fallout cyber-attacks can have on critical infrastructure. This attack also highlights the ever-present need for everyone, including asset managers, to ensure their cyber security controls are fit for purpose. Our SBAI Toolbox can help with guidance on cyber security frameworks and specific guidance on cyber security and your cash handling processes. The Toolbox can be found here
Vacancy: APAC Coordinator
The Standards Board is looking to hire an experienced staff member to support its efforts in the APAC region, including the work of the SBAI APAC Committee
- Strong knowledge of the alternative investment industry
- Rich network of contacts built-up over the past 10-20 years within the investment community
- Ability to oversee the progress of the Standards Board’s various APAC working groups
- Understanding of current regional regulatory developments
The position particularly would suit someone with 10-20 years of experience gained from working in alternative investment management, investment banking and/or investment consulting with a clear understanding of industry issues (including the regulatory environment).
The successful candidate will work closely with the Standards Board’s APAC Committee
and interact with the Secretariat to build and lead the Standards Board’s efforts in the region, including outreach to prospective stakeholders, preparation of events, overseeing progress of working groups and regulatory engagement. The position is an excellent opportunity to help drive good industry practice and collaborate with leading institutional investors and investment managers on key industry issues.
This is a part-time position (up to four working days a week), location is flexible, occasional travelling in the region will be required. Fluency in Mandarin is a requirement. A more detailed job description is available upon request at email@example.com.