In today’s economic landscape, global markets continue to be volatile, despite massive interventions by central banks to ease market strains. In the U.S., the Down Jones Industrial Average, the S&P 500 and the Nasdaq Composite all closed last week with steep losses as the coronavirus pandemic is expected to cause a sharp downturn in the global economy. The Dow even saw its worst week since October 2008. For asset managers, business continuity plans are being stressed like never before.
So, we wanted to know: How do institutional investors and investment consultants react to a global situation like this? What is the best thing an asset manager can do to reassure their clients? In this episode of The Source, a podcast by eVestment featuring conversations with industry leaders about the latest trends and data driving the institutional investment marketplace, we sat down with a few industry experts to get their opinions.
Robert Noe, Managing Director of Wilshire Associates:
“Really, communication is key here. So, first of all, high level, what are they doing to keep their employees safe? Their business continuation plan where the A and B team and people working from home – and, are they restricting travel? Things like that. We want an understanding of what they’re doing to make sure they’re proactive in keeping their employees safe.”
“The other thing is, we want them to discuss their portfolio – how are things looking from a risk perspective. There are different exposures in their portfolio. Maybe there is a lot of exposure to energy travel or leisure, things like that, which are getting hit pretty hard right now. Just understanding those risks and what are they doing about it.”
“It’s more on our side about the communication and the thoughtful discussion, and less about them making a ton of changes. If this is a manager that has a long-term investment focus, three to five years, it’s okay if we see some changes because risk has been repriced here to a certain extent; but we don’t want to be seeing full-scale changes. We don’t want to see them just put 50% in cash, making sure that they are sticking to their process. They’re cognizant of the risks, they’re mindful, they’re communicating with their clients, but they’re sticking to their process.”
Charles Van Vleet, CIO of Textron:
“One thing for sure I don’t want to hear from them is that they’ve decided to go to cash. I hire managers and expect them to stay in this one lane and stay fully invested. If there’s a move to cash or an asset allocation rebalancing, that’s my job. I do not have any multi-asset managers because that is my job to decide where my asset allocation should be.”
Kweku Obed, Managing Director of Marquette Associates:
“The honest answer here is we will find out in the coming weeks how effective some of these continuity plans are. When we do conduct our on-sites with managers, we will go through these plans. The plans pretty detailed. They will walk through where backup servers are, for example. They will talk about having the ability to work remotely, and so on.”
“Ultimately, I think in the coming weeks we’ll really get a sense of just how little disruption has been caused through a good backup plan by companies. It’s my way of just trying to deal with this issue in a sensible way. And again, just giving managers enough time to get their resources together, be able to work remotely. And as we’re drawing to the reporting period and getting attribution on portfolios, getting information on themes, trades, bets within the portfolio that have either helped or hurt, I think how quickly we’re able to get that information, how thoroughly we’re able to go through that information will be a sign of how prepared our partners in the industry have been during this difficult period.”
When asked whether Obed believes evaluating the manager’s continuity plan will become more important going forward:
“Yes. Absolutely. I would say that particularly for our investments, that’s something that we’ve standardized within our due diligence, and even within our own firm, we talk about cybersecurity, we talk about, recovery plans. That’s something that, again, we, the firms we work with, the managers we work with, take very seriously. So yes, I think that will be more scrutiny on it. But I do feel that I’m an optimist. I feel that firms are hopefully a lot better prepared than we want to give them credit for.”
As the source for institutional investment intelligence, eVestment strives to keep you up to date on the latest trends and insights that matter most to you. If you have any questions about the content shared today, or want to know how eVestment can help you win and retain assets, reach out to us at firstname.lastname@example.org. To hear the full interviews with these industry leaders, follow our podcast, “The Source,” on Anchor or Spotify.