Applications of blockchain technology and the role of cryptocurrencies in a diversified portfolio
Global Investment Insights
with Lukasz de Pourbaix, Chief Investment Officer, Lonsec
Lukasz leads the Lonsec Investment Solutions business as Executive Director and Chief Investment Officer. He is also the Chair of Lonsec's Asset Allocation Investment Committee and is a member of the Manager Selection and Direct Equities Investment Committees.
Lonsec is an Australian research and portfolio construction organisation that connects financial advisers, superannuation funds, fund managers and individuals with the tools, data and thought leadership to make better investment decisions, grow their funds, create better engagement with members and meet their best interest obligations.
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Clients are increasingly specifying investment preferences and beliefs as to how their money is invested.
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Currently, the main area of focus for Lukasz in his role is the expansion of Lonsec’s portfolio suite, more specifically, the sustainable managed portfolios.
“We have observed a material shift in investor behaviour over the past two years where end clients are increasingly specifying investment preferences and beliefs as to how their money is invested. I have spoken to a range of financial advisers with diverse client bases and the common theme is that between 20% to 30% of new clients will actively communicate their investment preferences relating to the environment or societal beliefs, which is a significant change compared to two years ago. Lonsec has invested significant resources to analyse funds based on their alignment to the UN Sustainable Development Goals (SDG) and, with the growth of product in this area, we have been able to build a diversified portfolio which not only factors in fund manager ESG processes but also broader alignment to SDGs”, Lukasz highlighted.
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We have built a diversified portfolio which not only factors in fund manager ESG processes but also broader alignment to SDGs.
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Separately to this, in an environment where central banks have been actively driving bond yields down since the global financial crisis, the debate as to whether bonds will continue to be the diversifier to equities is an interesting one, in Lukasz’s opinion.
This said, he believes that equities will continue to be the place to be invested in over the medium-term. While there is increasing debate as to whether we are heading into an inflationary period, while bond yields remain relatively low and inflation remains under control, you are still being rewarded for taking on equity risk.
“Within equities, emerging markets continue to look attractive over the medium-term relative to developed markets, specifically from a valuation perspective”, Lukasz remarked.
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We are only at the tip of the iceberg when it comes to the possible applications of blockchain technology.
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Lukasz also sees the growing interest in cryptocurrency by institutions such as Mastercard and Tesla and some large investors as something that warrants further exploration. He explained, “my sense is that we are only at the tip of the iceberg when it comes to the possible applications of blockchain technology and we will also see significant developments in cryptocurrencies that operate off blockchain protocols. The fact that it polarises people is of interest to me. There are many questions yet to be answered and more work needs to be done as to what role, if any, cryptocurrencies may play in a diversified portfolio.”
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More work needs to be done as to what role, if any, cryptocurrencies may play in a diversified portfolio.
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From an organisational and governance perspective, and as an outsider observing the institutional market, Lukasz thought it will be interesting to see and monitor how institutional investors balance the ever increasing ‘peer risk’ they are exposed to with the introduction of measures such as the APRA Heat Map and the ability to add value by taking active positions away from the peer group or benchmark in a quest to deliver better risk adjusted outcomes to clients over the long term.
Finally, in terms of career, the global financial crisis served as a significant learning for Lukasz where the adage ‘buy when there is blood on the street’, held very true. “I recall at the time having calls with some notable investment banks and coming off the calls wondering whether they will be around in a month. That experience was immensely valuable during the COVID-19 sell off where assets were being over sold as fear set in”, Lukasz explained.
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It will be interesting to monitor institutional investors’ ability to add value by taking active positions away from the peer group with the introduction of the APRA heat map.
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