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Enduring investment themes

Global systemic risks
Image: Liesa Johannssen-Koppitz/Bloomberg

In response to the global pandemic and a rapidly changing macro-economic environment, policymakers have been summoned to help stabilise markets. They have struggled to manage the economy, society and environment in a way that affords balance.

The real experience feels as if we are living in extremes.

Global systemic risks:

  • Climate change
  • Water security
  • Geopolitical stability
  • Technological evolution
  • Demographic shifts
  • Low and negative real long-term interest rates[1]&2

These may well have been with us before the pandemic, but are accelerating with pace. In response to the states of flux experienced globally, we believe that regulatory and policy reform will be ushered in, enduring over the decades to come. Clients, trustees, investors and fiduciaries should proceed with eyes wide open, as the days of plug-and-play solutions are numbered. Partnering with specialists will be critical for turbulent markets.

Navigating long-term themes allow us to be constructive at managing savings that have the same long-term investment horizon. They have an added benefit of being supportive of local and global regulatory reforms.

Alternative assets boon

He believes that the alternative assets boon is inevitable and supportive of the systemic risks. The persistence of low interest rates globally following Federal Reserve banks stimulating economies means that the hunt for yield is upon us. Research suggests that global revenue projections of asset managers will rise significantly in the next five years, with specialties and alternatives exceeding 50% of the market.

Private equity

Private equity is also well positioned to capture secular or non-economically sensitive trends before they are accessible through listed stock markets. Private equity of tomorrow will be paired with outcomes to achieve increasingly important ESG and impact-related objectives in addition to financial objectives.

Energy sector

The energy sector, in particular renewable energy, remains in focus for investors. Emerging market populations already make up 65% of the global population and are growing rapidly. This creates considerable demand for the development of infrastructure that must be met sustainably.

Survival of the fittest businesses

In this period of business unusual, Darwin’s “survival of the fittest” theory applies to businesses as they face the greatest market uncertainty in the last 80 years. The consolidation of asset management has not been spared in the natural selection outcome.

When raising assets to manage, the following tide is proving a challenge:

  • regulatory reform
  • compliance costs
  • specialist skills (alternatives, ESG, compliance)
  • market volatility

The businesses that are fit merge and live to fight another day. Traditional benefits of scale will endure, while small and medium enterprises will require deep but much-needed skill to survive long run economics.

Regulatory onslaught

Investors seeking to mitigate risk should brace for transition. When meaningful action lags or when matters are of prudential importance for countries, their citizens and a minimum viable life, regulatory reform arrives. In the quest against the climate emergency, a regulatory onslaught in green finance taxonomies from the UK, EU, USA (green new deal) amongst others will lead the regulatory reform of global pensions and investment industry.

National Treasury’s draft technical paper on sustainable finance taxonomy has been released in 2020, with an update to include social outcomes to arrive in middle of 2021. The Code for Responsible Investment Practices in South Africa (CRISA) has already begun a review process. The Glasgow Climate Summit in November 2021 will attempt to take stock on the commitments made in Paris 2015 in relation to climate change management of risks. The 193 United Nations members, including South Africa, will present a path for a just transition of the economy.

Corporate reporting

Corporate reporting practices are firmly under the public microscope. ESG risks and United Nations Sustainable Development Goals (SDGs) outcomes will be required for corporate reporting and holistic portfolio management. Whilst the SDGs have been created with a much broader purpose in mind, they do have relevance for corporate reporting and investments. Fiduciaries will embrace the debate of value (traditional risk and return) against values (purpose) as new pension fund members seeks to understand if their fund will cater for the world they retire into.

Failing to consider ESG issues is a failure of fiduciary duties. Fiduciary 2.0 is the term coined to define the changing responsibility of fiduciaries which includes all participants in the pension fund value chain.

Woke investment professionals

It’s going to matter partnering with those investment professionals who have a history of experience behind them but are woke enough to embrace long-term challenges loaded with stamina.

Premal Ranchod is head of ESG at Alexander Forbes Investments.

1 Mercer, COVID-19 – Investment Governance and Strategy to Navigate a Market Crisis, 2020.

2 World Economic Forum, The Global Risks Report 2020, 15th edition, 2020..

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Wonderful advise on the level of :
You will win in the lottery if you punt the right numbers …

Are real long-term interest rates really low and negative??

You can get 7.6% on USDC (USD stable Coin linked 1:1 with USD)???

There are plenty of investments paying “guaranteed” high returns. The only issue one needs to consider is the risk i.e. just who is the guarantor. The investment you mention pays a lot more than a US treasury (~1.7%). Why then would one buy the latter ? Surely money would leave treasuries and pour into USDC (USD stable Coin linked 1:1 with USD) whatever that may be? This would dive the price of USDC (USD stable Coin linked 1:1 with USD) up and the yield down. The only reason USDC (USD stable Coin linked 1:1 with USD) pays a higher yield is because of risk. One thing and one thin only.

Hello Richard.
I know you and I don’t always see eye to eye on climate matters, but you are absolutely correct here, risk is is giving rise to these yields.

Or it could be something a little more sinister, anyone can get access to stablecoins with very little effort, people that would otherwise be denied access to the traditional banking system and the real dollar (criminals) can now get access to a proxy for the US dollar, and in exhange they only need to pay 7% interest, that is chump change in that world.

What in heavens name is an ‘alternative assets boon’?

What you are noting is that the investors have run out of investment options and all the low hanging fruit is gone.

Wait till the real inflation and correction comes Q4 2021.

Funny thing, but literally none of the doomsday predictions of the climate fearmongers has come true. Not a single one. So although weather-related risks – hurricanes, the Dust Bowl of the 1930s, etc – are a fact of life in this universe and on this planet, the risks clearly haven’t gotten worse. There have always been hurricanes and typhoons.

So right, lets keep breeding like flies, burn the coal, burn the oil, ignore the science.
Thanks, the boomer comments on here make me feel more “woke” than I am, im guessing lets add anti vaccine.

If you seriously cant see the collapse in our natural world with the years youve spent on it you are blind or ignorant

End of comments.

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