April 18, 2021 • 27 mins
Welcome to the New Fund Order. An Orwellian journey into the Darkside, the Frontier and the Fringe of Finance.
On the air you can hear the strings begin to play, as clouds roll off the Swiss Alps and Lake Geneva ripples on a gentle breeze.. The sun shines on Switzerland in a way rarely paralleled by any other market and there is much to be thankful for. European fund selection more broadly, as it is inextricably linked with the growth of asset management, too has enjoyed a beautiful renaissance over the last 20 years but is that Belle Epoch about to darken, will reflection give way to requiem?
I am joined by arguably Europe's most famous fund allocator, Mussie Kidane of Pictet. Join us, as two old soldiers of fund selection, as we reflect; on our careers, how fund selection and asset allocation has changed, the impact of ROBO and whether professional fund investing has a future. One retired; the other very much active. How then to keep tempo in an ever changing world?
Time is ever-unrelenting yet, 13 years on from the Great Financial Crash (GFC) and the awful realisation of the Bernie Madoff Ponzi scheme, many things continue to haunt us as fund allocators. Our history is littered with blow-ups, crashes and poor risk management. On the news of Madoff's passing; and as the fall-out of the Archegos scandal continues, is today's generation of fund allocators equipped to appreciate the risks in the system? Many of whom had no first hand recollection of the GFC let alone the dotcom bubble. In an age of complex social media, Crypto, asset bubbles, momentum, indexation, digitalisation, automation and tokenisation, Mussie and I debate the implications for asset allocation in this very special episode of New Fund Order.
Together with left-field opinion, global market news and latest views, direct from my dystopian bunker. In the Air, on the Ground, on the Street and around the corner of Debate. Watching, listening, in the Shadows and on your Airwaves. For Fund Selectors, distributors, wealth managers and investors.
In association with my sponsor Allianz Global Investors (AGI) one of the world's leading active managers. My thanks to my guest Mussie and Pictet.. and you dear listener.
Please LIKE, SHARE and SUBSCRIBE. Please leave a REVIEW and let me know what you think and what topics you would like for future episodes. Until then... stay safe and.. keep it left-field!!
That's 20 episodes, 20 Guests, every 2 weeks... each episode is 25 minutes!
Join the NFO Army Citizen, https://www.patreon.com/newfundorder
Left-field Finance.
#newfundorder
Credits;
George Orwell 'Nineteen-Eighty Four', Public Domain 1.0.
Audio clips: Archive.org. General Douglas MacArthur address to Congress (1951). Public domain.
Music: Wolfgang Amadeus Mozart, Requiem in D Minor, 626, by Slovak Philarmonic Orchestra. 2008. Public domain.
Sound effects by Soundbible.com. Creative Commons Attribution 3.0 and Public Domain 1.0.
All additional Music used by Silvermansound.com Attribution 4.0 International (CC BY 4.0)
Active is: Allianz Global Investors.
Disclaimer: This post contains affiliate links. If you make a purchase, I may receive a commission at no extra cost to you.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Computer (00:00):
podcast 007
[Clip] Douglas MacArthur (1 (00:06):
The world has turned over many times
since I took the oath on theplane at West Point.
And the hopes and dreams of havelong since vanished. But I still
remember the refrain of one ofthe most popular power ballads
(00:32):
of that day, which proclaimedmost proudly, never gone.
JB Beckett (00:51):
Salutations... Dear citizens as we peer into the new
fund order to discover theimmutable truth for asset
management and wealth managers,The lowdown from the dark side,
the frontier and the fringe ofasset management and fund
research.
(01:15):
A podcast for wealth managersfund selectors, distributors and
investors. Bring it to you thePeople's Republic podcast on
finance, in association with mysponsor Allianz global
investors, capturing the latestmarket news views and interviews
with leading minds in ourindustry.
(01:40):
Allianz global investors is oneof the world's leading active
managers.
And I'm very pleased to announcethat today's guest is musika day
in off peak day he is managingdirector Global Head of fund and
manager research and has beenwith Pictet for almost 15 years
Computer (01:57):
Market news,
JB Beckett (01:58):
CNBC on the story that Bernie Madoff masterminded
the biggest investment fraud inUS history ripping off 10s of
1000s of people as much as 65billion has recently passed at
the timeout of was serving a 150year prison sentence for his
scheme, which investigators saiddefrauded as many as 37,000
people in 136 countries overfour decades. The question next
(02:18):
is what have we learned sincethe middle of Ponzi
Independent runs a story cryptomarket overtakes world's most
valuable company. Bitcoin aloneis now valued at more than $1.2
trillion more than MasterCard,PayPal and visa combined.
Adrian Whelan at BBH publishedthe latest liquidity update with
a focus on European money marketfunds, particularly around the
EU money market fund regulationand review it or notes that BBH
(02:42):
had previously highlighted thatin the United States, the
Securities and ExchangeCommission has moved to reframe
its money market fund rulesthrough a public consultation
where they outline 10 possiblerevisions to the regime.
And lastly, ahead of ourinterview with moosey about the
changing perception of risk inour industry since the great
financial crisis. FT runs with astory Credit Suisse cuts bonuses
(03:04):
following the Archegos loss, themagnitude of costs will be
revealed with Swiss lendersfourth quarter results next
week. Credit Suisse has cutbonuses for staff by hundreds of
millions of dollars after theSwiss lender lost $4.7 billion
from the collapse of familyoffice Archegos Capital
according to people familiarwith the situation
tag, #newfundorder and let meknow which stories you want to
(03:26):
hear about
Computer (03:26):
Interview.
JB Beckett (03:27):
And in these strange pandemic lockdown times. Rest
assured that all guests arecalling in remotely
..and welcome to thenewfundorder Mussie. And let's
talk about some of those bigvexing questions relating to
fund selection, the macrochanges and I guess, the asset
allocation universe and ofcourse impacts on fund
(03:49):
selection. It's great to haveyou aboard.
Mussie (03:51):
Well, thank you, JB, thank you for having me. It's
good to be here.
JB Beckett (03:54):
And I'm just going to throw us straight into it.
You know, you and I have beendoing fund selection probably
for more years than we care tobe here to mention.
Although.. you're definitelyageing far, far better, like a
fine wine, whereas I'm more likea vodka. I'm not ageing terribly
well. But anyway..
I'll put that aside.
(04:15):
And I guess it seems pertinentto ask you about your
reflections on how you thinkSwiss fund investing has changed
over the years. Do you see muchchange in terms of European
standards, among other, youknow, fund gatekeepers? And I
guess that leads us nicelyonto.. is education still key to
our profession.
Mussie (04:34):
Yeah, well, again, the fund investment has changed in a
significant way. And also inSwitzerland in a way. For
instance, the search for and theuse of cheap liquid vehicles,
both in the active and passivestrategies has exponentially
(04:57):
increased over the years to thedetriment of full force
traditional mutual funds andhedge funds with the advent of
MiFID2. And this means thatinstitutions are now more
reluctant to hire senior peoplefor these roles, especially in
small and mid sizedinstitutions.
So yes, I would say education isimportant, but practical
(05:20):
experience is even more so. Youhave now gatekeepers in
important institutions that havenot even lived through the
Global Financial Crisis letalone the dotcom bubble and
burst, you know, you can imaginewhat the implication of that was
the good and the bad implicationof it, by the way?
JB Beckett (05:40):
Yeah. And does that.
I mean, that's, that's a greatpoint in as much as.. our and I
mean, you and I, and I guess,you know, fund selectors and
allocators of our generation,you know, we're, we're very
versed with risk, we've seen itfirsthand, close and personal,
and it is ugly, and it can, youknow, ravage its way through
through the portfoliovaluations. Right, so we, you
(06:02):
know, we were, we were we cameinto the industry, I guess, in
that kind of crucible, as yousay, you know, many fund
allocators haven't had thebenefits of that perspective,
you know, how, how do you thinkthe approach to risk in fund
allocation is changing over theyears, and, you know, if it is
changing, if so, how, and why?
Mussie (06:27):
I have young members in the team, people that are three,
five years in the business, andwhen I talk with them, they they
seem to have a particular viewof risk.
Again, on the quantitative side,they would check and look at the
same sort of risk metric is thatwe, we used to do, but with time
(06:51):
I have become, and for me, ithas become a dominant factor.
When faced with new strategiesor solutions, the urge to
understand and quantify them,...risks far outweighs, in my
case, at least, the enthusiasm Imight have for unheard of
strategies. So the differencethat I see is simply how
(07:14):
enthusiastic they might be withsome of the numbers and the the
strategies that they see, on theback of my mind, you always have
this 2008.. 2009 crisis inmind. So yeah, that that's where
I see where risks have changed.
And again, there's alsoespecially in the fixed income
(07:34):
space, there are generations offund selectors that have never
seen rates going meaningfullyhigh. I'm not talking the 1994
type scenario. But simply a lotof fund selectors in our
business now have nothingmeaningful weight risk cycle,
(07:56):
like the one we had in the USbetween 2004 2005 up to 2007.
And I'm not talking about the1994 experience, people have a
very cavalier view of risk.
Again, the latest episode in thein the Greensil and Credit
Suisse issue illustrates thatbasically this desperate need
for uncorrelated city returns,which is a myth for me, in
(08:23):
financial markets, especially inthe public market. And and it's
becoming an issue, a seriousissue, multi billion issue,
actually.
JB Beckett (08:34):
Absolutely. And I had Jerome Tagger on recently on
the podcast show, and we talkeda lot about the, I guess, the
existential and yes, I mean, theblack swans are, unfortunately,
they're the things that alwayswill get us because we can't
know the unknown. But he wastalking very much about also
those 'grey rhinos', which wecould kind of see from a long
(08:55):
way. Yeah, coming.
Mussie (08:56):
Exactly. Exactly.
JB Beckett (08:58):
And they still get us but you know, we have
opportunity to do somethingabout it. But But often than not
the industry, just as eitherslow or just doesn't react,
right. So and with all that.
Right. So your bond conditionsare very different on a decade
to decade basis that we've seenbefore. Equity momentum, I mean,
wow, I mean, equity momentumthat you and I probably could
only dream of, in the 90s or the2000s. You know, that and
(09:23):
sustained momentum, broad marketmomentum, not just little
spikes, right. I mean, it'swhole new thing. And on top of
that, as fund allocators know,we're also asked to broaden our
perception of risk to considerenvironmental social governance
factors, to considersustainability, to consider
(09:43):
climate risk, and somehow find apremia for that and make that
work in our portfolios as well.
How challenging is that for youas a portfolio allocator and of
course, you know how od you dealwith all that rampant
greenwashing that we see?
Mussie (10:04):
Yeah, very interesting question. And again, I think as
much as we are, I am pleased, weare pleased to see that the
industry's eagerly jumping onthe ESG trade; we have to be
also mindful, and also honestwith ourselves. Everybody is
just trying to drive the car, orthey are constructing it, you
(10:28):
know. So, in a way, it's, it's aprocess. It's a process from
here and people have to bemindful that what's important is
simply to understand what youwant to do, why, and how. The
(10:50):
industry that we like theindustry that we love, is very
much prone to short cuts. Sowhen you talk about
'greenwashing', it's really mindboggling. And we know this is
coming our way. And it's our jobto understand who does what, and
(11:12):
how in this domain to.
Fortunately, there are a lot ofconvincing and convincing asset
managers that they say what theydo, and they do what they say.
So we try just really to firstand foremost, understand other
firms.. as gatekeepers tounderstand 'what's important for
(11:34):
our clients and for the firmthat we work fo?' And then just
try to find the same sort ofcontinuity with external
managers, knowing fully wellthat this is a process and not a
destination. So in a way, we arehappy to know that people are
(11:55):
doing one thing or another, butit's, it's a continuous
improving in that in thatjourney. I personally like
clear, simple, factual, approachthat are supported by data and
with tangible results.
JB Beckett (12:12):
Let me throw your question about, I think one very
contentious point right now, ifwe agree between us that
portfolio allocation isessentially a way to delineate,
to distil a variety of views ofwhere we think markets and the
world and the economy is goingto go tomorrow. One of the key
(12:37):
areas that I see hugedisagreement right now is
whether we will remain in a 'lowyield' environment, or whether
we will see spikes in inflationand is going to lead to
sustained, you know, higherrates going forward? How do you
reconcile that for your clientsfor your portfolios? Does that
(13:01):
create any areas of innovationor indeed does that create new
risks that you have to try anddeal with?
Mussie (13:08):
For sure.. again, so your typical '60:40' portfolio
for endowment asset allocationis challenging, because again,
as I said before, the bond partof it, especially the high
quality bond, part of it, inthis low yield environment, is
(13:29):
mostly risk without return. Soin a way, how do you then
construct a portfolio towithstand if not a low yield
environment or in the worst casescenario, a sustained higher
yield 3,5,10 years down theroad? Again, I think somebody
(13:54):
said 'diversification isprobably the only free lunch in
finance'. So in a way, to theextent that he can identify risk
factors that are less correlatedto each other, and diversify
away your risk and that thatwill stay now for, for private
(14:16):
clients. And that's what I see.
There's no way most of ourprivate clients would hold only
equity portfolio. But thenagain, that would assume what to
decide whether how much equitiesyou're comfortable with and the
volatility that goes with it,and then find a volatility
dampening or a drawdowndampening strategies, be that
Cash, be it diversification intocurrencies. This is including
(14:42):
gold and for the youngergeneration cryptocurrency in
Bitcoin, maybe, but you'reright. We have to be a little
bit innovative, away from the'6040' type of scenario because
a big chunk of what we used torely on for dampening risk and
volatility. By that I mean highquality rates and bonds are, are
(15:04):
unavailable or less availabletoday than they were a few years
ago.
JB Beckett (15:14):
And you see companies like Tesla taking on
almost these secondary exposuresto things like crypto assets.
Right. I mean, that, you know,Elon making his chief financial
officer 'Master of Coin', I meancompanies are essentiall
reinventing themselves. I thinElon has probably always seen h
s company as fluid, you know, hes not just seen himself, I thi
(15:37):
k it was one of the first to se is not an auto manufacturer is
a digital company. But it makest incredibly hard to then try a
d allocate something like Tesl, because what are you allocati
g against, and I've read, it taks us on to, onto that theme
f allocation and looking at, yu know, a typical, say, mul
i-asset portfolio today, we migt have, you know, 40 to 5
(15:59):
% invested in the US, ad obviously, you know, quit
, quite often quite concentratd around those Big Techs. Do
ou see that trend continuing?
nd so where then do you see theole of emerging markets? And
guess, particularly China, in aportfolio over the next deca e?
Mussie (16:16):
Yeah. It seemed quite interesting you mentioned about
Tesla, and the CEO and CIO, todecide to invest.. the liquidity
of the company into this assetclass, no matter how much they
are convinced it? I would, Iwould assume that this is how it
(16:39):
this fits with the fiduciaryduty that you have is that with
your investors, yourco-stakeholders? I wonder about
that. And again, curious aboutthis, this move basically, for
me, it's very much important tounderstand what you're doing.
Investing and speculating arenot the same thing. And by the
(17:03):
way, you can do both. There's noharm in both, but they don't
just sit well in the sameportfolio. So it all depends,
why do you want to do, if youwant to speculate there are a
lot of things you can speculateon, can be in the public equity
market, but it can also be in acasino. But to be investing,
your first and foremostresponsibilities is the
(17:27):
fiduciary responsibility vis avie the clients and the people
that entrust you with theirassets. So I don't know how much
you are dealing in their bestinterest when you engage
yourself in speculation.
But coming back to this weirdsorts of things that we see now,
(17:49):
and again, for a lot of us, it'sbecoming a challenge, then, how
do you... I will give you justTesla, I saw this tweet that
really talked to me. So in 2020,Tesla, and this are the actual
numbers sells 500,000, electricvehicles. And VW sells 231,000,
(18:16):
this is 2021, they estimated2021 numbers is 750,000 vehicles
for Tesla, and 1 million for VW.
Tesla has a multiple of what 900times; VW multiple is 12. So
again, you can you can give mewhat every other aspect values,
(18:37):
if we are talking about electriccars, and only about electric
cars, and as far as I know,Tesla is doing that very well.
But it to say simply, if youstick to the Warren Buffett type
of, you know, downstairsinvestment site, again, you have
to struggle with some of thesevaluations that we see, maybe
(18:59):
we're wrong. We'll be provenwrong. Like many investors have
been with Amazon, for instance,back in before the crisis, but
then ..it's faith, an act offaith that you have to make.
But coming back maybe to whatyou said about innovation and
(19:21):
emerging markets. Well, again,for me capital eventually flows
to where innovation is and theUS remains the centre of large
scale innovations and as such, Iassume or I expect it will
continue to attract the bulk ofthe global capital. Not to
mention that the US has alsofavourable demographics compared
(19:42):
to challengers. Even China. Anarea where the US may be lagging
in the innovation spectrum it'sfor me, it's all this climate
change and the the relatedinnovation to mitigate that risk
in that space. probably, the USis not the leader, but
elsewhere, I think the US is ina very good place, and it will
(20:07):
continue to attract thesignificant portion of the
global capital. Sure, otherdiversification and to tap in
some of the mega trends, forinstance, the consumption story,
investors would be well advisedto allocate money to emerging
markets, in China in particular,that offers a great potential.
But then again, I think the USis going to dominate the capital
(20:33):
attractiveness, I think the US,the US is really a magnet in
terms of attracting talent, andcapital, because it's an
innovative economy. And foryears to come, this I expect the
US to lead the innovation wave.
And if you if you look at thegame changing innovations that
(20:57):
we have had over the last 30years, it's mostly from the US
and it continues to be to thisday, if if you believe that, for
instance, blockchain technology,if you believe in the sort of
big data analysis and otheraspects in the biology backed by
(21:19):
but by chemical biotechnology,the US remains really the leader
of innovation.
JB Beckett (21:26):
So my last question Mussie is okay, we've been
talking about Tesla, we've beentalking about the technology, I
guess, in terms of theinvestment side, but flipping
that, I guess back on to thefund selector. How do you see
the role of the professionalfund investor in years to come?
And, you know, how is technologychanging the tools available to
(21:48):
your research team?
Mussie (21:50):
Yeah. Regulation, fee compression, and of course,
technology, how can we continueto shape the scope and the shape
and the scope of our role asprofessional fund investors and,
and basically, I'm veryrealistic about it, then this,
(22:12):
this role may not exist,.. atleast in its current form with
the next five or 10 years. Butas far as investing and
investment products are alive, Ithink there will be a need for
some guidance, especially to nonprofessional investors in one
form or another, so forthtechnology has has and will
(22:35):
continue to shape the scope andthe scale of our role as
professional fund investors.
And I'm quite realistic, I wassaying about it, and this world
that's mine may not exist in itscurrent form in five or 10
years. But as far as investingand investment products are
alive, there will be a need andguidance for non professional
(23:01):
investors for unbiased advice inone shape or form to go through
this this the investmentdecision, so I think the role
will survive but maybe not inits current form.
JB Beckett (23:18):
Yeah, I think that's that's a fair point. Mussie I
think that's a fair point.
Okay, so before I let you gomercy, we have my little 10
second rapid fire round. Ifyou're ready, we will begin?
Mussie (23:31):
Let's go.
JB Beckett (23:33):
Question number one, bull or bear?
Mussie (23:37):
Bull.
JB Beckett (23:38):
Question number two, Bogle or Buffett?
Mussie (23:43):
Buffett.
JB Beckett (23:44):
Question number three, profit or planet?
Mussie (23:48):
Planet.
JB Beckett (23:50):
Question number four, divest or engage?
Mussie (23:53):
Engage
JB Beckett (23:55):
Question number five, lower cost, or better
value?
Mussie (24:00):
Better value
JB Beckett (24:01):
Question number six.
One of my favourites: supertankers or boutiques? (24:01):
undefined
Mussie (24:07):
Boutiques
JB Beckett (24:09):
Question number seven star managers or team
players?
Mussie (24:14):
Both!
JB Beckett (24:16):
You are not going to pick one?
Mussie (24:20):
No, ... investing is I would say star managers.
JB Beckett (24:25):
Question number eight, public or private?
Mussie (24:28):
Public
JB Beckett (24:28):
Question number nine, high growth or stable
income?
Mussie (24:31):
Stable income
JB Beckett (24:32):
..and Question number 10. socialism or free
markets?
Mussie (24:36):
Free market for sure.
JB Beckett (24:37):
That just leaves the bonus round, if you can pick a
number between 11 and 40?
Mussie (24:43):
23.
JB Beckett (24:43):
Question 23, oh it's a good one deregulation or more
regulation?
Mussie (24:48):
Better regulation
JB Beckett (24:52):
No, that's no fair.
Okay, I'll let you off.. betterregulation. Okay. Not more. Not
deregulation. Okay. It's It's agood question, right?
Mussie (25:01):
Yes, very good question.
The thing is simply you force itto go one way or the other. And
things I'm out in the extreme,but it's very good. Exercise.
Actually,
JB Beckett (25:10):
Life isn't binary and neither as as asset
management, it's great because,you know, people people seem to
enjoy this.
Mussie (25:17):
Yeah, you have to position yourself in a way.
JB Beckett (25:20):
Absolutely. So that marks the end of our interview,
you have survived the new fundorder Mussie. I just want to say
thanks very much for coming onthe show. It's been a real
pleasure.
Mussie (25:29):
Thank you, JB. I enjoyed it. Despite the constant
technology issues.
JB Beckett (25:34):
Yes, technology.
It's the the AI is out to is outto kill us as you as you know, I
preoccupy my mind with the newfund order, and how technology
is going to undermine humansover the long term. And this is
just another great example.
Mussie (25:49):
Yeah, the one thing that I know is ROBO advisors are not
going to replace us anytimesoon.
JB Beckett (25:54):
Please don't forget to like and share and subscribe
you know, click the subscribebutton, a new podcast every two
weeks with a new guest. Staytuned.
A big thanks to you, dearlistener for tuning in. Brought
to you by my sponsor, AllianzGlobal Investors. A warm thanks
to today's guest. Legally, I amcompelled to remind everyone
(26:14):
that all views of this podcastare independent, and do not
belong to any affiliation ororganisation. Just in case that
was in any doubt...
Tune in for the next podcastevery two weeks from...
Computer (26:30):
the new fund order.
JB Beckett (26:32):
Please subscribe, share, like and comment. Let me
know what you think and whatyou'd like covered in future
episodes. Until then, stay safeand keep it left field.
[Clip] Douglas MacArthur (1 (26:47):
And like the old soldier of that
Ballad. I now close my militarycareer and just... fade away. An
old soldier who tried to do hisduty as God gave him the light
(27:07):
to see that duty... goodbye.
podcast 007
[Clip] Douglas MacArthur (1 (00:06):
The world has turned over many times
since I took the oath on theplane at West Point.
And the hopes and dreams of havelong since vanished. But I still
remember the refrain of one ofthe most popular power ballads
(00:32):
of that day, which proclaimedmost proudly, never gone.
JB Beckett (00:51):
Salutations... Dear citizens as we peer into the new
fund order to discover theimmutable truth for asset
management and wealth managers,The lowdown from the dark side,
the frontier and the fringe ofasset management and fund
research.
(01:15):
A podcast for wealth managersfund selectors, distributors and
investors. Bring it to you thePeople's Republic podcast on
finance, in association with mysponsor Allianz global
investors, capturing the latestmarket news views and interviews
with leading minds in ourindustry.
(01:40):
Allianz global investors is oneof the world's leading active
managers.
And I'm very pleased to announcethat today's guest is musika day
in off peak day he is managingdirector Global Head of fund and
manager research and has beenwith Pictet for almost 15 years
Computer (01:57):
Market news,
JB Beckett (01:58):
CNBC on the story that Bernie Madoff masterminded
the biggest investment fraud inUS history ripping off 10s of
1000s of people as much as 65billion has recently passed at
the timeout of was serving a 150year prison sentence for his
scheme, which investigators saiddefrauded as many as 37,000
people in 136 countries overfour decades. The question next
(02:18):
is what have we learned sincethe middle of Ponzi
Independent runs a story cryptomarket overtakes world's most
valuable company. Bitcoin aloneis now valued at more than $1.2
trillion more than MasterCard,PayPal and visa combined.
Adrian Whelan at BBH publishedthe latest liquidity update with
a focus on European money marketfunds, particularly around the
EU money market fund regulationand review it or notes that BBH
(02:42):
had previously highlighted thatin the United States, the
Securities and ExchangeCommission has moved to reframe
its money market fund rulesthrough a public consultation
where they outline 10 possiblerevisions to the regime.
And lastly, ahead of ourinterview with moosey about the
changing perception of risk inour industry since the great
financial crisis. FT runs with astory Credit Suisse cuts bonuses
(03:04):
following the Archegos loss, themagnitude of costs will be
revealed with Swiss lendersfourth quarter results next
week. Credit Suisse has cutbonuses for staff by hundreds of
millions of dollars after theSwiss lender lost $4.7 billion
from the collapse of familyoffice Archegos Capital
according to people familiarwith the situation
tag, #newfundorder and let meknow which stories you want to
(03:26):
hear about
Computer (03:26):
Interview.
JB Beckett (03:27):
And in these strange pandemic lockdown times. Rest
assured that all guests arecalling in remotely
..and welcome to thenewfundorder Mussie. And let's
talk about some of those bigvexing questions relating to
fund selection, the macrochanges and I guess, the asset
allocation universe and ofcourse impacts on fund
(03:49):
selection. It's great to haveyou aboard.
Mussie (03:51):
Well, thank you, JB, thank you for having me. It's
good to be here.
JB Beckett (03:54):
And I'm just going to throw us straight into it.
You know, you and I have beendoing fund selection probably
for more years than we care tobe here to mention.
Although.. you're definitelyageing far, far better, like a
fine wine, whereas I'm more likea vodka. I'm not ageing terribly
well. But anyway..
I'll put that aside.
(04:15):
And I guess it seems pertinentto ask you about your
reflections on how you thinkSwiss fund investing has changed
over the years. Do you see muchchange in terms of European
standards, among other, youknow, fund gatekeepers? And I
guess that leads us nicelyonto.. is education still key to
our profession.
Mussie (04:34):
Yeah, well, again, the fund investment has changed in a
significant way. And also inSwitzerland in a way. For
instance, the search for and theuse of cheap liquid vehicles,
both in the active and passivestrategies has exponentially
(04:57):
increased over the years to thedetriment of full force
traditional mutual funds andhedge funds with the advent of
MiFID2. And this means thatinstitutions are now more
reluctant to hire senior peoplefor these roles, especially in
small and mid sizedinstitutions.
So yes, I would say education isimportant, but practical
(05:20):
experience is even more so. Youhave now gatekeepers in
important institutions that havenot even lived through the
Global Financial Crisis letalone the dotcom bubble and
burst, you know, you can imaginewhat the implication of that was
the good and the bad implicationof it, by the way?
JB Beckett (05:40):
Yeah. And does that.
I mean, that's, that's a greatpoint in as much as.. our and I
mean, you and I, and I guess,you know, fund selectors and
allocators of our generation,you know, we're, we're very
versed with risk, we've seen itfirsthand, close and personal,
and it is ugly, and it can, youknow, ravage its way through
through the portfoliovaluations. Right, so we, you
(06:02):
know, we were, we were we cameinto the industry, I guess, in
that kind of crucible, as yousay, you know, many fund
allocators haven't had thebenefits of that perspective,
you know, how, how do you thinkthe approach to risk in fund
allocation is changing over theyears, and, you know, if it is
changing, if so, how, and why?
Mussie (06:27):
I have young members in the team, people that are three,
five years in the business, andwhen I talk with them, they they
seem to have a particular viewof risk.
Again, on the quantitative side,they would check and look at the
same sort of risk metric is thatwe, we used to do, but with time
(06:51):
I have become, and for me, ithas become a dominant factor.
When faced with new strategiesor solutions, the urge to
understand and quantify them,...risks far outweighs, in my
case, at least, the enthusiasm Imight have for unheard of
strategies. So the differencethat I see is simply how
(07:14):
enthusiastic they might be withsome of the numbers and the the
strategies that they see, on theback of my mind, you always have
this 2008.. 2009 crisis inmind. So yeah, that that's where
I see where risks have changed.
And again, there's alsoespecially in the fixed income
(07:34):
space, there are generations offund selectors that have never
seen rates going meaningfullyhigh. I'm not talking the 1994
type scenario. But simply a lotof fund selectors in our
business now have nothingmeaningful weight risk cycle,
(07:56):
like the one we had in the USbetween 2004 2005 up to 2007.
And I'm not talking about the1994 experience, people have a
very cavalier view of risk.
Again, the latest episode in thein the Greensil and Credit
Suisse issue illustrates thatbasically this desperate need
for uncorrelated city returns,which is a myth for me, in
(08:23):
financial markets, especially inthe public market. And and it's
becoming an issue, a seriousissue, multi billion issue,
actually.
JB Beckett (08:34):
Absolutely. And I had Jerome Tagger on recently on
the podcast show, and we talkeda lot about the, I guess, the
existential and yes, I mean, theblack swans are, unfortunately,
they're the things that alwayswill get us because we can't
know the unknown. But he wastalking very much about also
those 'grey rhinos', which wecould kind of see from a long
(08:55):
way. Yeah, coming.
Mussie (08:56):
Exactly. Exactly.
JB Beckett (08:58):
And they still get us but you know, we have
opportunity to do somethingabout it. But But often than not
the industry, just as eitherslow or just doesn't react,
right. So and with all that.
Right. So your bond conditionsare very different on a decade
to decade basis that we've seenbefore. Equity momentum, I mean,
wow, I mean, equity momentumthat you and I probably could
only dream of, in the 90s or the2000s. You know, that and
(09:23):
sustained momentum, broad marketmomentum, not just little
spikes, right. I mean, it'swhole new thing. And on top of
that, as fund allocators know,we're also asked to broaden our
perception of risk to considerenvironmental social governance
factors, to considersustainability, to consider
(09:43):
climate risk, and somehow find apremia for that and make that
work in our portfolios as well.
How challenging is that for youas a portfolio allocator and of
course, you know how od you dealwith all that rampant
greenwashing that we see?
Mussie (10:04):
Yeah, very interesting question. And again, I think as
much as we are, I am pleased, weare pleased to see that the
industry's eagerly jumping onthe ESG trade; we have to be
also mindful, and also honestwith ourselves. Everybody is
just trying to drive the car, orthey are constructing it, you
(10:28):
know. So, in a way, it's, it's aprocess. It's a process from
here and people have to bemindful that what's important is
simply to understand what youwant to do, why, and how. The
(10:50):
industry that we like theindustry that we love, is very
much prone to short cuts. Sowhen you talk about
'greenwashing', it's really mindboggling. And we know this is
coming our way. And it's our jobto understand who does what, and
(11:12):
how in this domain to.
Fortunately, there are a lot ofconvincing and convincing asset
managers that they say what theydo, and they do what they say.
So we try just really to firstand foremost, understand other
firms.. as gatekeepers tounderstand 'what's important for
(11:34):
our clients and for the firmthat we work fo?' And then just
try to find the same sort ofcontinuity with external
managers, knowing fully wellthat this is a process and not a
destination. So in a way, we arehappy to know that people are
(11:55):
doing one thing or another, butit's, it's a continuous
improving in that in thatjourney. I personally like
clear, simple, factual, approachthat are supported by data and
with tangible results.
JB Beckett (12:12):
Let me throw your question about, I think one very
contentious point right now, ifwe agree between us that
portfolio allocation isessentially a way to delineate,
to distil a variety of views ofwhere we think markets and the
world and the economy is goingto go tomorrow. One of the key
(12:37):
areas that I see hugedisagreement right now is
whether we will remain in a 'lowyield' environment, or whether
we will see spikes in inflationand is going to lead to
sustained, you know, higherrates going forward? How do you
reconcile that for your clientsfor your portfolios? Does that
(13:01):
create any areas of innovationor indeed does that create new
risks that you have to try anddeal with?
Mussie (13:08):
For sure.. again, so your typical '60:40' portfolio
for endowment asset allocationis challenging, because again,
as I said before, the bond partof it, especially the high
quality bond, part of it, inthis low yield environment, is
(13:29):
mostly risk without return. Soin a way, how do you then
construct a portfolio towithstand if not a low yield
environment or in the worst casescenario, a sustained higher
yield 3,5,10 years down theroad? Again, I think somebody
(13:54):
said 'diversification isprobably the only free lunch in
finance'. So in a way, to theextent that he can identify risk
factors that are less correlatedto each other, and diversify
away your risk and that thatwill stay now for, for private
(14:16):
clients. And that's what I see.
There's no way most of ourprivate clients would hold only
equity portfolio. But thenagain, that would assume what to
decide whether how much equitiesyou're comfortable with and the
volatility that goes with it,and then find a volatility
dampening or a drawdowndampening strategies, be that
Cash, be it diversification intocurrencies. This is including
(14:42):
gold and for the youngergeneration cryptocurrency in
Bitcoin, maybe, but you'reright. We have to be a little
bit innovative, away from the'6040' type of scenario because
a big chunk of what we used torely on for dampening risk and
volatility. By that I mean highquality rates and bonds are, are
(15:04):
unavailable or less availabletoday than they were a few years
ago.
JB Beckett (15:14):
And you see companies like Tesla taking on
almost these secondary exposuresto things like crypto assets.
Right. I mean, that, you know,Elon making his chief financial
officer 'Master of Coin', I meancompanies are essentiall
reinventing themselves. I thinElon has probably always seen h
s company as fluid, you know, hes not just seen himself, I thi
(15:37):
k it was one of the first to se is not an auto manufacturer is
a digital company. But it makest incredibly hard to then try a
d allocate something like Tesl, because what are you allocati
g against, and I've read, it taks us on to, onto that theme
f allocation and looking at, yu know, a typical, say, mul
i-asset portfolio today, we migt have, you know, 40 to 5
(15:59):
% invested in the US, ad obviously, you know, quit
, quite often quite concentratd around those Big Techs. Do
ou see that trend continuing?
nd so where then do you see theole of emerging markets? And
guess, particularly China, in aportfolio over the next deca e?
Mussie (16:16):
Yeah. It seemed quite interesting you mentioned about
Tesla, and the CEO and CIO, todecide to invest.. the liquidity
of the company into this assetclass, no matter how much they
are convinced it? I would, Iwould assume that this is how it
(16:39):
this fits with the fiduciaryduty that you have is that with
your investors, yourco-stakeholders? I wonder about
that. And again, curious aboutthis, this move basically, for
me, it's very much important tounderstand what you're doing.
Investing and speculating arenot the same thing. And by the
(17:03):
way, you can do both. There's noharm in both, but they don't
just sit well in the sameportfolio. So it all depends,
why do you want to do, if youwant to speculate there are a
lot of things you can speculateon, can be in the public equity
market, but it can also be in acasino. But to be investing,
your first and foremostresponsibilities is the
(17:27):
fiduciary responsibility vis avie the clients and the people
that entrust you with theirassets. So I don't know how much
you are dealing in their bestinterest when you engage
yourself in speculation.
But coming back to this weirdsorts of things that we see now,
(17:49):
and again, for a lot of us, it'sbecoming a challenge, then, how
do you... I will give you justTesla, I saw this tweet that
really talked to me. So in 2020,Tesla, and this are the actual
numbers sells 500,000, electricvehicles. And VW sells 231,000,
(18:16):
this is 2021, they estimated2021 numbers is 750,000 vehicles
for Tesla, and 1 million for VW.
Tesla has a multiple of what 900times; VW multiple is 12. So
again, you can you can give mewhat every other aspect values,
(18:37):
if we are talking about electriccars, and only about electric
cars, and as far as I know,Tesla is doing that very well.
But it to say simply, if youstick to the Warren Buffett type
of, you know, downstairsinvestment site, again, you have
to struggle with some of thesevaluations that we see, maybe
(18:59):
we're wrong. We'll be provenwrong. Like many investors have
been with Amazon, for instance,back in before the crisis, but
then ..it's faith, an act offaith that you have to make.
But coming back maybe to whatyou said about innovation and
(19:21):
emerging markets. Well, again,for me capital eventually flows
to where innovation is and theUS remains the centre of large
scale innovations and as such, Iassume or I expect it will
continue to attract the bulk ofthe global capital. Not to
mention that the US has alsofavourable demographics compared
(19:42):
to challengers. Even China. Anarea where the US may be lagging
in the innovation spectrum it'sfor me, it's all this climate
change and the the relatedinnovation to mitigate that risk
in that space. probably, the USis not the leader, but
elsewhere, I think the US is ina very good place, and it will
(20:07):
continue to attract thesignificant portion of the
global capital. Sure, otherdiversification and to tap in
some of the mega trends, forinstance, the consumption story,
investors would be well advisedto allocate money to emerging
markets, in China in particular,that offers a great potential.
But then again, I think the USis going to dominate the capital
(20:33):
attractiveness, I think the US,the US is really a magnet in
terms of attracting talent, andcapital, because it's an
innovative economy. And foryears to come, this I expect the
US to lead the innovation wave.
And if you if you look at thegame changing innovations that
(20:57):
we have had over the last 30years, it's mostly from the US
and it continues to be to thisday, if if you believe that, for
instance, blockchain technology,if you believe in the sort of
big data analysis and otheraspects in the biology backed by
(21:19):
but by chemical biotechnology,the US remains really the leader
of innovation.
JB Beckett (21:26):
So my last question Mussie is okay, we've been
talking about Tesla, we've beentalking about the technology, I
guess, in terms of theinvestment side, but flipping
that, I guess back on to thefund selector. How do you see
the role of the professionalfund investor in years to come?
And, you know, how is technologychanging the tools available to
(21:48):
your research team?
Mussie (21:50):
Yeah. Regulation, fee compression, and of course,
technology, how can we continueto shape the scope and the shape
and the scope of our role asprofessional fund investors and,
and basically, I'm veryrealistic about it, then this,
(22:12):
this role may not exist,.. atleast in its current form with
the next five or 10 years. Butas far as investing and
investment products are alive, Ithink there will be a need for
some guidance, especially to nonprofessional investors in one
form or another, so forthtechnology has has and will
(22:35):
continue to shape the scope andthe scale of our role as
professional fund investors.
And I'm quite realistic, I wassaying about it, and this world
that's mine may not exist in itscurrent form in five or 10
years. But as far as investingand investment products are
alive, there will be a need andguidance for non professional
(23:01):
investors for unbiased advice inone shape or form to go through
this this the investmentdecision, so I think the role
will survive but maybe not inits current form.
JB Beckett (23:18):
Yeah, I think that's that's a fair point. Mussie I
think that's a fair point.
Okay, so before I let you gomercy, we have my little 10
second rapid fire round. Ifyou're ready, we will begin?
Mussie (23:31):
Let's go.
JB Beckett (23:33):
Question number one, bull or bear?
Mussie (23:37):
Bull.
JB Beckett (23:38):
Question number two, Bogle or Buffett?
Mussie (23:43):
Buffett.
JB Beckett (23:44):
Question number three, profit or planet?
Mussie (23:48):
Planet.
JB Beckett (23:50):
Question number four, divest or engage?
Mussie (23:53):
Engage
JB Beckett (23:55):
Question number five, lower cost, or better
value?
Mussie (24:00):
Better value
JB Beckett (24:01):
Question number six.
One of my favourites: supertankers or boutiques? (24:01):
undefined
Mussie (24:07):
Boutiques
JB Beckett (24:09):
Question number seven star managers or team
players?
Mussie (24:14):
Both!
JB Beckett (24:16):
You are not going to pick one?
Mussie (24:20):
No, ... investing is I would say star managers.
JB Beckett (24:25):
Question number eight, public or private?
Mussie (24:28):
Public
JB Beckett (24:28):
Question number nine, high growth or stable
income?
Mussie (24:31):
Stable income
JB Beckett (24:32):
..and Question number 10. socialism or free
markets?
Mussie (24:36):
Free market for sure.
JB Beckett (24:37):
That just leaves the bonus round, if you can pick a
number between 11 and 40?
Mussie (24:43):
23.
JB Beckett (24:43):
Question 23, oh it's a good one deregulation or more
regulation?
Mussie (24:48):
Better regulation
JB Beckett (24:52):
No, that's no fair.
Okay, I'll let you off.. betterregulation. Okay. Not more. Not
deregulation. Okay. It's It's agood question, right?
Mussie (25:01):
Yes, very good question.
The thing is simply you force itto go one way or the other. And
things I'm out in the extreme,but it's very good. Exercise.
Actually,
JB Beckett (25:10):
Life isn't binary and neither as as asset
management, it's great because,you know, people people seem to
enjoy this.
Mussie (25:17):
Yeah, you have to position yourself in a way.
JB Beckett (25:20):
Absolutely. So that marks the end of our interview,
you have survived the new fundorder Mussie. I just want to say
thanks very much for coming onthe show. It's been a real
pleasure.
Mussie (25:29):
Thank you, JB. I enjoyed it. Despite the constant
technology issues.
JB Beckett (25:34):
Yes, technology.
It's the the AI is out to is outto kill us as you as you know, I
preoccupy my mind with the newfund order, and how technology
is going to undermine humansover the long term. And this is
just another great example.
Mussie (25:49):
Yeah, the one thing that I know is ROBO advisors are not
going to replace us anytimesoon.
JB Beckett (25:54):
Please don't forget to like and share and subscribe
you know, click the subscribebutton, a new podcast every two
weeks with a new guest. Staytuned.
A big thanks to you, dearlistener for tuning in. Brought
to you by my sponsor, AllianzGlobal Investors. A warm thanks
to today's guest. Legally, I amcompelled to remind everyone
(26:14):
that all views of this podcastare independent, and do not
belong to any affiliation ororganisation. Just in case that
was in any doubt...
Tune in for the next podcastevery two weeks from...
Computer (26:30):
the new fund order.
JB Beckett (26:32):
Please subscribe, share, like and comment. Let me
know what you think and whatyou'd like covered in future
episodes. Until then, stay safeand keep it left field.
[Clip] Douglas MacArthur (1 (26:47):
And like the old soldier of that
Ballad. I now close my militarycareer and just... fade away. An
old soldier who tried to do hisduty as God gave him the light
(27:07):
to see that duty... goodbye.
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