The PODfolio

We are joined by the three hosts of the “Oh No You Didn't!” podcast to explore three “pub debate” topics for both the music industry and the investment industry: 1) Were things really better “back in the day”? 2) Is the gap between amateurs and professionals narrower than before? 3) Are there too many people involved in the industry?

How do you solve a multi-layered problem like sustainability? With so many connected parts, addressing one aspect at a time can result in your earlier good work coming undone. Drawing strategic inspiration from the Rubik's Cube, Monique talks about the use of organisational processes and how solutions can be socialised across the industry with systems-level thinking. Just as it is satisfying when all the coloured squares line up, she describes how investors and organisations can see satisfying and lasting progress despite fast-changing sustainability needs.

Marisa and Tim introduce the Fundamental Attribution Framework developed by the TAI, which breaks down manager performance into elements that are based on skill (and hence repeatable) and those that are largely outside of the manager's control. The underlying calculations are being released as open source code for free access by all industry participants.

Going beyond the usual headlines around digital assets, we discuss the wide-ranging uses of crypto-currencies (wider access to banking facilities, international remittances) and crypto-tokens (ticketing, royalties, decentralised finance). What are the things to think about from an investment perspective?

Dany Lemay, Head of Investments Montreal, talks about his long involvement in competitive short track speed skating. How has this experience shaped him as a finance professional, and what parallels can be drawn - in terms of risk taking and dealing with uncertainty - between skating and investing?

Sarah Hopkins and Arun Singhal talk about index investing, and the emergence of smart beta strategies that blur the line between active and passive approaches. We also discuss a new index incorporating the Climate Transition Value-at-Risk (CTVaR) metric to increase exposure to the predicted “winners” in a transition to a greener economy.

We examine the tension between our heart (our personal and professional values) and our head (hard-nosed finance and economics) when it comes to making investment decisions, and how their interaction is driving the key investment themes for 2022 and beyond.

Eleanor Huish, Abbie Knight, Harry Keay, Josh Naylor (Investment Consultants at Willis Towers Watson) are all based in our Reigate, UK, office. They are amongst the “rising stars” of our investment practice, each with around 5 years of investing consulting experience, working with both advisory and fiduciary clients. They're always up for a laugh and super brave for taking part in our quiz!

An excerpt from Nicolette DiMaggio's book Stock Explore. Elle learns about her first stock with the help of Sam the magical owl. Later on her journey, Elle will go on to acquire five investment superpowers.

An excerpt from Will Rainey's book Grandpa's Fortune Fables. Gail tells her new friend Boris one of her Grandpa's stories to help him understand that earning money is not solely about working hard.

To kick off Season 2, Nicolette and Will talk about the power of storytelling in explaining investment concepts within a professional setting. They also tell us about their children's books - Nicolette's Stock Explore and Will's Grandpa's Fortune Fables - and the wider work they are doing to educate children via Stock Explore LLC and Blue Tree Savings.

In the concluding part of our asset class mini-series, Craig Baker, Global Chief Investment Officer at Willis Towers Watson, discusses best practice portfolio construction under a Total Portfolio Approach, and why it's expected to deliver better returns than the traditional Strategic Asset Allocation Approach. He also addresses a number of related questions around active vs passive, simplicity vs complexity, and conflicts of interest.

Ben Leach and Joseph Bassey-Duke, senior members of WTW's Private Markets Solutions team talk about private equity investments. Companies are increasingly choosing to stay private these days, given the ready availability of private funding and greater freedom to pursue a long-term vision. We discuss the opportunities for generating enhanced returns, and the mechanics of getting into (and exiting) these investments.

Sara Rejal and Victoria Vodolazschi discuss how hedge funds have moved with the times, and play a useful defensive role in a well-rounded portfolio. Have they really shaken off their “Wolf of Wall Street” reputation to embrace Inclusion and Diversity? And do they still have the “magic sauce” that simpler / more mechanistic approaches cannot replicate?

Sara Rejal and Victoria Vodolazschi talk about alternative beta strategies as a way of diversifying away from mainstream market exposure (or “beta”). Examples include risk premia funds and strategies based on investor behaviour, often “systematising” approaches previously seen in hedge funds. There's been a lot of innovation in this space in recent years that's still under the radar.

In the third of our asset class mini-series, Duncan Hale discusses the case for investing in illiquid assets, including the additional returns available. We go through interesting examples especially in the area of Secure Income Assets. For the right investor, these assets boast very attractive features including attractive yields, long-term inflation cashflows, strong security and positive ESG impact.

Kate Hollis and Eunice Han talk about bond investing in the second of our asset class mini-series. How can an institutional investor get to grips with so many different ways of investing in credit, and the attractive opportunities in areas outside of the mainstream markets? We also talk about the importance of considering sustainability in both avoiding downgrades and seeking returns linked to ESG themes.

Heidi Liling and Stuart Gray talk about equity investing in the first of our mini-series exploring different asset classes, starting with a look behind the headlines around the market rally and the Gamestop “short squeeze”. We then consider the potential pitfalls of both passive and active investment – the former is challenged by increased concentration and structural changes of climate change, whereas the latter should mean more than hiring a good manager and hoping for the best.

What sorts of new year resolutions should we be considering for our investment portfolios? Our three guests are cautiously optimistic about future returns, especially in the near term. We talk through three key macro-economic themes – central bank and government policy shift, China's financial opening and long-term sustainability – and translate these into portfolio actions. And how well have our recommendations from last year fared through the Covid crisis? About our guests: Martin Jecks, Senior Director Asset Research, Willis Towers Watson Tessa Mann, Equity Portfolio Specialist, Willis Towers Watson Katie Sims, Global Head of Multi-Asset Solutions, Willis Towers Watson   Martin and Tessa are part of our asset research team, between them they have more than 25 years' experience translating capital markets views into portfolio actions. Katie leads our Multi Asset Growth Solutions business, with c$5bn of assets invested across equities, credit, liquid alternatives and private markets.

Adam Gillett, Head of Sustainable Investment, and Shahrazad Khan, Sustainability Specialist, both at Willis Towers Watson talk about the regulatory momentum behind sustainable investment and the actions that investors can and should take on this front. Institutional investors have great power to influence change – the time has come to exercise this power and in particular to stop ignoring the impact investment decisions have on the wider world. In dealing with climate change, a “carbon journey plan” could be a useful framework for setting a strategy and putting actions into context.

Adam Gillett, Head of Sustainable Investment, and Shahrazad Khan, Sustainability Specialist, both at Willis Towers Watson, discuss sustainability, ESG and stewardship, including what lessons Covid-19 has taught us about ESG-integrated strategies. Looking ahead, to what extent do they think sustainability factors will influence investment returns, and what are the dangers in doing the bare minimum? They also look at different ways of investing sustainably, from tilting and exclusions to positive impact investments.

We pose some challenging and sensitive questions for our two experts. What's wrong with a simple meritocracy? How much does a strong culture really add to returns? How do we make sure we get true cognitive (rather than superficial) diversity? And should we look beyond gender and ethnicity, to consider socio-economic class and other factors? Chris Redmond and Nimisha Srivastava are responsible for overseeing our manager research efforts across the world. The manager research team aims to identify skilled asset managers and engaging with them to create optimal investment vehicles for clients. An assessment of the Inclusion and Diversity culture forms a key part of this research.

Liang Yin, Director, China Manager Research at Willis Towers Watson discusses the possible paths for US-China geopolitics and continued globalisation – how might these forces shape our future, and what size of allocation to Chinese investments is sensible as a result? Paul Colwell, Senior Director and Head of the Advisory Portfolio Group Asia at WTW, then goes into the practical aspects of investing in China – is now the right time, is China the right place, and who are the right people to do it for you? In this episode, we will cover the major opportunities and risks (and some Chinese proverbs).

Tim and Becka focus on longer term considerations. The future is VUCA (volatile, uncertain, complex and ambiguous) and we need a way to make sense of it so that we can act now or prepare appropriately. Can we take advantage of the “inflection points” resulting from the seemingly inevitable shifts like a huge leap in technology and artificial intelligence, climate change, or more speculative shifts, for example in how financial industry participants reconfigure themselves in response to changing consumer preferences? And what of the “unknown unknowns” that even sci-fi film makers fail to foresee?

Rebecca Bannan, Governance and Organisational Effectiveness, and Tim Mitchell, Global Head of Governance Consulting at Willis Towers Watson, describe how investors should think about the inter-related issues around governance, investment, operations, clients, people and business across different time horizons. How much attention should those at varying levels of seniority devote to these timeframes? We also discuss some specific examples over the short and medium term, including taking into account “externalities” and “having the right people on the bus”.

Nimisha Srivastava, Global Head of Credit Research at Willis Towers Watson, explains what has driven the downturn and subsequent recovery in credit markets during the COVID crisis. With a varying outlook across different areas of the credit landscape, she also sets out her views on different ways of lending money, in terms of the type of borrower, loan structure, securitisation, liquidity, and looking for “bargains” in fallen angels and distressed credit.

Katie Sims, Global Head of Multi-Asset Solutions at Willis Towers Watson, continues to explore innovative investment ideas. In this Part 2, she covers investments linked to the themes of technology (including cyber security and developing a vaccine for Covid-19!) and meeting the needs of vulnerable members of society. She also considers how incorporating these ideas can provide long-term downside protection and deliver more stable outcomes for the whole portfolio.

Katie Sims, Global Head of Multi-Asset Solutions at Willis Towers Watson, explores some of the more innovative investment ideas we've been putting forward. In this Part 1 of our conversation, she covers investments linked to the theme of long-term climate change: solar power, agriculture and forestry. Within this overarching theme of climate change, different investment structures are available, across the full spectrum of risk and return.

Jess Melville, Head of Strategic Advisory Australia, Willis Towers Watson, talks about good and bad examples of decision making by asset owners. How could a chairperson deal with the loudest and quietest voices in the room? How do the Australian Superfunds operate, and do they get better results? Should the rest of us stick to our comfort zone instead? And how are things different now that meetings are conducted remotely?

Luba Nikulina, Global Head of Research, Willis Towers Watson, describes what culture means in the context of asset management, and how this is a key consideration in the manager rating process. Why is the common model of relying on an individual star investor no longer suited to the modern investment environment? Can different cultures be equally good? And how has ESG thinking been elevated by the current situation?

Josh Hall, Global Head of Operational Due Diligence, Willis Towers Watson,  judges how well the asset managers are doing with handling a financial crisis whilst working under unusual conditions. What is the worst thing that can happen when operational processes fail, and how close is he to giving an “ODD fail” to an asset manager? The conversation also touches on risks that have wider relevance given the prevalence of home working, including concerns around cyber security.

In this episode, Craig discusses what asset owners should be thinking about and doing in this environment. Would he ever recommend less diversification? And what is the one thing he would “impose” on investors if he didn't have to answer to to anybody?

A continuation of our conversation with David Hoile, on how things may develop from here. David's team have prepared a number of future scenarios for the battle against Covid-19, and the likely implications for investment markets. The team are also launching a Covid-19 dashboard linking medical indicators with economic indicators, to shed light on which scenario is more likely to come to pass.

David Hoile, Global Head of Asset Research, Willis Towers Watson, summarises movements in the investment markets up to the first week of April against a backdrop of the Covid-19 outbreak. Find out how far the level of economic activity has fallen, how recent equity falls compare to historic bear markets, and why government bond prices have been so volatile.