Institutional investors need a willingness to explore global opportunities
Global Investment Insights
with Martin Goss, Director of Investments, Australia, Willis Towers Watson
Martin is the Director of Investments for Australia at Willis Towers Watson. Based in Melbourne, which has been under strict lockdown conditions in response to the COVID-19 pandemic. Martin shared how he and his team are managing through the current crisis and reflected on lessons learned from past crises encountered throughout his career.
“I remember working as an insurance clerk during the 1987 crash, cancelling policies and dealing with the fallout, which was very personal as I was corresponding directly with the impacted policyholders. It taught me that knee-jerk reactions in a crisis are a recipe for disaster. Rather than being reactive and changing course in response, staying invested is a much better way forward,” he remarked.
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Knee-jerk reactions in a crisis are a recipe for disaster.
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Volatility is a fact of life, particularly amid a crisis, however markets do not stay down forever. For those who look to time the market, it is usually the people who can least afford to lose out that in fact do and end up suffering the most. “As an industry, we can play a better role in helping them to help themselves,” Martin commented.
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Volatility is a fact of life, particularly amid a crisis, however markets do not stay down forever.
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Currently, Martin’s primary focus is leading the Willis Towers Watson team and their clients through and out of the COVID-19 crisis.
Throughout the turmoil faced so far, the team has managed to continue training and sharing knowledge as a collective and they have made sure to maintain social contact with each other and to check in regularly on each other’s mental health, while also staying close to clients and the market. Although personal interaction with team members and clients has been missed, technology has enabled the team to retain, and in many cases increase, one-on-one communication with clients.
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For those who look to time the market, it is usually the people who can least afford to lose out that in fact do and end up suffering the most.
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Ensuring a strong pipeline of great investment ideas is always a high priority for the team and the conditions created by the COVID-19 crisis have not reduced the number, nor the quality of investment ideas being generated.
Martin sees private markets offering strong opportunities for investment over the coming three years, particularly those where a sustainability lens can be applied. Further, alternative forms of credit and some real assets, in alternative sectors, which tend to be less sensitive to the economic cycle offer attractive opportunities. For example, healthcare, real estate and social infrastructure.
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Australian institutional investors need to be aware of, and accept that, a large proportion of the best investment ideas are going to be domiciled in offshore markets.
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Australian institutional investors need to be aware of, and accept that, a large proportion of the best investment ideas are going to be domiciled in offshore markets. Investors need a willingness to explore global opportunities, because there will continue to be significant competition for investment ideas locally.
We often see this competition for capital eroding potential investment returns (and increasing risk), as ideas move from being new and niche to something more mainstream, held widely in institutional investment portfolios.
It takes a global research team to recognise this and have conviction to invest in new ideas, but equally, to know when to walk away from those that have run their course.
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Australian institutional investors need a willingness to explore global opportunities.
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Chinese capital markets have continued to become more accessible to global investors. Chinese equities, particularly A-Shares, offer compelling diversification and excess return benefits. Mainstream indexes such as MSCI ACWI have a country weight to China of just below 5%. Martin believes this is anchored to the past and not forward-looking. Martin views the attractiveness of Chinese equities warranting at least a doubling of current exposure levels, with rising US-China tensions and the de-globalisation trend reinforcing, rather than weakening, the investment case for allocating to China.
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The attractiveness of Chinese equities warrants at least a doubling of current exposure levels.
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US-China tensions, the de-globalisation trend, coupled with the prolonged low interest rate environment and a host of other uncertainties have led to an increasingly complex investment landscape for institutional investors to navigate.
This backdrop has paved the way for increasing allocations to active management and greater real diversity in investment portfolios to deal with a very uncertain future.
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Increasing complexity in the investment landscape has paved the way for increasing allocations to active management and greater real diversity in investment portfolios.
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While navigating these complexities is an immense challenge for institutional investors, it is further complicated for superannuation funds by the regulatory and competitive pressures they face.
In response, Martin and his team spend a lot of their time revisiting roles, responsibilities and resourcing of asset owner organisations with a particular focus on assessing how investors can best manage their internal resources and how they can delegate and outsource to get the best value for their money. This is particularly a challenge for governance-constrained investors, which is why Martin’s work has focused on delivering best-in-class outsourced solutions at a total fund and asset class level to help clients retain their competitiveness.
At the other end of the asset owner spectrum, work is being done with Boards of large, sophisticated funds on their governance arrangements, particularly as their internal teams grow and the role of the Board and investment committee and the advice they require evolves.
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Investors have a greater awareness of the importance of culture as a core driver of strong long-term outcomes.
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Reflecting on his work with clients, Martin sees investors having a greater awareness of the importance of culture as a core driver of strong long-term outcomes, with sustainability gaining greater traction and becoming increasingly important, to the point where it is becoming mainstream. “These are two areas I strongly believe in and, when implemented well, will benefit investors and the wider community,” Martin remarked.
Lastly, heightened volatility has seen investor focus revert to accessing the benefits diversification offers. While achieving a truly diversified portfolio is not easy, the benefits are worth the effort, Martin highlighted.
Disclaimer
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
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