Author: Lynk – lynk.global

“What a year it has been!” is certainly the sentiment that can be shared among most of us as we finally approach the end of 2020. From a global pandemic, oil prices going negative for the first time ever in history, uncertainty around the US presidential election to the daily occurrence of having to tell someone in a virtual meeting “I think you are on mute”, a lot has changed in a matter of just one year.

Work from home went from being an item that had always been sitting on the agenda of work life balance discussions to now the new norm for almost all workplaces. The pandemic, devastating natural hazards and racial unrest have also acted as facilitators that helped the ESG (environment, social, and corporate governance) investment theme establish itself as a mainstream way for investors to capture gains while reflecting certain moral values – attracting record inflows to ESG-focused exchange traded funds this year.

While no one is certain what 2021 holds in store for us, we asked female leaders featured in our Buyside Power Women series what has piqued their interest in 2020 that could also serve as indicators as for what institutional investors will be focusing on next year:

Kimberley Stafford – Pimco Managing Director and Head of APAC

“You could think about ESG really as an important risk factor, particularly in fixed income where we come from at Pimco. Companies and issuers who are not taking notice and integrating E, S, and G factors into the way that they run their businesses are going to be less competitive, and frankly, are going to expose themselves to risk. This means that the return that you derive from those companies who are not considering ESG properly will actually be lower than those companies who are taking a serious stance on ESG.

We see this already. There’s a lot of winners and losers across the industry in terms of how people view these things. So one is on the issuers’ side where we already see rating agencies looking carefully at ESG risk, and how companies are monitoring these factors and applying industry ratings on those issuers that directly impact their cost of capital. This will hit their bottom line if they ignore the rising importance of ESG, and in turn this is going to impact their business models negatively.”

Virginie Maisonneuve – MGA Consulting Founding Partner and CEO

“One part of the policy of China as a result of the trade war with the US is to focus on itself with the new strategy of dual-circular economy, and its impact on the world could be traumatic. According to a study by McKinsey, it is estimated that China’s self-reliance strategy can affect 15 to 26 per cent of the global GDP by 2040. So, that would be another huge headwind for companies or countries.

The geopolitical Darwinism based on this race for artificial intelligence is going to be a major long-term shaper of foreign relations. There will be countries siding with the US to form alliances. If we look at the new trade associations that have been created, the Trans-Pacific Partnership (TPP) and more, there is a trend of fragmentation and we see globalisation is moving to a regionalisation model in some areas where new international winners will emerge.

The other sectors that are important particularly in light of climate change is agriculture and food. Farming is becoming more difficult in some parts of the world, and some other areas are also going to become better for agriculture because they might have more sunlight and rain as weather patterns shift. The previous normal is not the next normal. The world has changed, and there’ll be more and much newer things and collaborations at the global level going forward.”

Adesuwa Okunbo Rhodes – Aruwa Capital Founder and Managing Partner

“Our investment strategy is not going to change dramatically. I think the only thing that we will have to prioritise in terms of the effect that COVID has had on our markets is just making sure that we’re prioritising companies that are providing essential goods and services to the rapidly growing population in Africa. So we want to be focusing on things like healthcare, food and agriculture, and technology solutions that are bringing convenience to the people.

We will prioritise the deals or target companies in our pipeline that are thriving in this new normal because they have business models that could be adapted to this new normal even prior to COVID-19.

While Africa is not hit as hard by the pandemic as some of our other more developed counterparts, there have still been disruptions in global supply chains and the oil prices. So we want to make sure that we’re investing in companies that are uncorrelated to some of these market shocks, and those that are providing essential services that people will always need.

We’re not really interested in companies that are pivoting just to address the new normal. We want companies that already have a proven track record of delivering a strong business model before the global pandemic, and manage to continue thriving in this new normal.”

Debora Bannon – BNY Mellon Head of Institutional Sales APAC ex Japan and Consultant Relations, APAC

“A lot of firms, including our own, are reassessing what a normal workplace should look like. Whether or not people have to be in an office between the hours of 8am and 6pm. How much do people have to travel for business development? What productivity looks like in this environment we’ve all been living in the past year. Out of that, we will generally see some shifts in behaviour that could be very positive.

What COVID has highlighted is the importance of applying ESG and making sure that is firmly embedded in your investment process and philosophy. The question is no longer “should I” but “why wouldn’t I”. And if I haven’t, why haven’t I? How quickly can I do it? What do I need to do to get it done?

We have seen our clients specifically looking at longer-term, sustainable strategies, impact investing, areas like that. We’ve seen some of the few larger, more sophisticated funds taking advantage of their location in the market. We saw earlier this year that they were looking at structured credit and asking how can you help us here. We’ve seen a huge focus – because of the environment – on internalisation and questions such as “how is my portfolio going to perform during this time”, “what do my volatility and liquidity look like and what do I need to do about it”. So there has been a huge amount of that happening.

I have to say it’s been a really interesting time to just make sure you can continue to engage with your clients. Because, quite frankly, when we all first went into this, everybody was thinking this was going to be a couple of months and we will be going back to normal, and we’ve all realised that’s not the case.

In terms of investment themes, there have been a few things people are looking at. Things on the credit side, whether it is private credit or investment-grade credit, really looking at asset allocation and seeing if their longer-term strategic asset allocation put in place makes sense, do they need to be a little more tactical in this environment, and what does that look like? And definitely ESG has come out as a part of this.”

Jamie Mitchell – Inherent Group Managing Director, Business Development

“From what we observed, it’s continuing the S in ESG. We saw massive swings in terms of how corporations responded to the pandemic. Did they commit to not laying off employees, did they reinvest in their community, did they move the needle the right way on ESG? Their stock price benefited if they did it right, and then they got punished if they did massive furloughs or anything that wasn’t supportive from a social perspective. For example, how do you treat your customers? How do you treat your employees? You could really bifurcate between winners and losers, and the difference was stark during that period of volatility.

We talked about buyside marketing: the shift to virtual. It’s so much cheaper and arguably more productive, you can definitely do more meetings by video in a day, and save time and money not organising trips and spending so much time on the road. But then what do you lose from that culturally is the question. One-on-one meetings seem to work well. But with larger meetings, it becomes harder to “read the room”.

We have also been seeing telehealth pulling forward – which was a long term trend that we had already been investing in before the pandemic. Medicare reimbursement for virtual treatments is happening. So, this is a long term trend that just got pulled forward because of the pandemic. What we are trying to understand more broadly is where has demand been destroyed versus just delayed because of the pandemic.”

Radhika Gupta – Edelweiss Asset Management Managing Director and CEO

“2020 has been a tough year. I think on the equity side, most Indian investors have seen 2008. So, they have a fair degree of maturity and knowledge. Debt has been really tough because Indian investors are fixed deposit investors, they don’t understand fixed income. And 2020 has seen significant events in terms of credit. So I think Indian investors are sort of re-thinking the whole fixed-income space, really running towards safety and products, understanding that high yield is not necessarily yield. So that is a big trend in 2020.

The other interesting one that is coming up is Indian investors’ new interest in investing abroad. We have always been a very home-biased market as a country, and that’s because the home market has done well. Now Indian investors are having that conversation, international markets have done much better than India in recent years, and that drives investor behaviour, much as I want to believe it doesn’t. But hopefully, people are looking at it at least in part for the right reasons.”