Developing a long-term approach to investing for the new normal
Global Investment Insights
with Jessica Melville, Head of Strategic Advisory, Investments, Willis Towers Watson
Jessica is the Head of Strategic Advisory, Investments at Willis Towers Watson. Her current focus in this role primarily centres around assessing the impact of COVID-19 on both investments and business strategy and thinking about how to develop a longer-term approach that is robust to whatever the new normal will look like as we emerge from the crisis.
“We tend to focus on short and medium-term actions, but I have found what our Thinking Ahead Institute terms, ‘scenario learning’, to be a helpful framework for thinking through long-term issues”, Jessica remarked.
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COVID-19 has possibly triggered a paradigm shift. I am increasingly convinced it will be very difficult to go back to doing what we used to do, in the way we used to do it.
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“Around the world, colleagues and clients have been in different stages of lockdown. I am increasingly convinced it will be very difficult to go back to doing what we used to do, in the way we used to do it.
COVID-19 has possibly triggered a paradigm shift – we are testing the zero bounds of interest rates, and governments around the world have shown they are prepared to do whatever it takes to cushion the real-world impacts of the pandemic. Consequently, the investment management industry is asking itself some tough questions – what does this situation mean for the fundamentals upon which we have built our portfolios – our belief in mean reversion, the value premium, and the principles of diversification?
Against a backdrop of legislative changes, I do not think it has been more challenging to stay focused on long-horizon outcomes. We must have conviction in our beliefs and comparative advantages which underpin how we take risk to deliver returns for our clients. That is something we should never lose sight of generally, but the consequences of not doing so now are potentially higher.”
Despite the challenges COVID-19 has presented, Jessica is also excited about the opportunities it has brought about.
“From an internal viewpoint, we can consciously redesign our ways of working, putting our colleagues front and centre – to ensure their safety, wellbeing, and ultimately empowering them to bring their best selves to work. The events of 2020 and beyond have also accelerated the expectation that, as an industry, we are required to do more than deliver financial returns to our members or shareholders. Society expects that we invest for a world worth living in and that has increased the focus on our environmental impact, including climate change, and issues such as social injustice”, Jessica explained.
She continued, “no one will be surprised that I see sustainability as a growing opportunity, as asset owners and their end savers increase their focus on how their money is invested. The industry is taking its cue from the leading global investment organisations, what we at Willis Towers Watson have termed the ‘universal owners’, who are long-term focused and leadership minded. Private market assets particularly align with this long investment horizon and sustainability focus. Asset owners are demonstrating a heightened interest in contributing to initiatives benefiting society, while remaining consistent with financially sound fiduciary principles.”
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With China’s onshore capital markets opening up to Western investors, there is a great opportunity from the perspective of returns, as well as diversification.
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Aside from impact and sustainability focused investments, Jessica sees growing interest in the other great investment opportunity, China. “I grew up with the US as the world’s economic superpower, but the rise of China’s influence and importance raises a significant possibility of a multipolar world. With China’s onshore capital markets opening up to Western investors, there is a great opportunity to generate strong returns, as well as to add diversification”, in Jessica’s opinion.
The other key focus for Jessica in her role has been on helping clients improve their governance. Investment committees are often the epicentre of key decisions and there is a growing desire to look at the effectiveness of group decision making.
Further, culture remains an ever-important aspect of building strong investment teams, large and small; an interesting development has been the growing interest in measuring the key attributes of culture to organisational and investment outcomes.
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Investment committees are often the epicentre of key decisions and there is a growing desire to look at the effectiveness of group decision making.
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Jessica left us with a story her colleague once shared with her that struck a chord and that acts as an ongoing reminder to her about why we do what we do in our roles as fiduciaries and investors of long-term capital.
She recounted, “earlier in his career, he was an actuary calculating a member’s end benefit balance. He was meeting with a teacher who had just retired and wanted to know what her leaving benefit would be. Engrossed in triple checking his calculations, he finally handed her the balance on a piece of paper and she immediately started to cry. He panicked – had he miscalculated? He was sure he had checked thoroughly! He asked her why she was crying. She replied simply that this was not enough for her to live off in retirement, and she did not know what she was going to do.
The lesson for me, and I hope for all the people working in our industry, is that it is a privilege to manage other people’s money. In this case it was about empowering a person with the financial means to live with dignity in retirement, but irrespective of whether we work in super, wealth, insurance or endowments we have a truly noble purpose. I feel lucky to pursue this purpose every day.”
Disclaimer
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