Bloomberg Invest Global – Day 2
By Bloomberg Live
Even as a vaccine light at the end of the pandemic tunnel grows brighter every day, institutional investors are still predicting significant headwinds in the near term as social, political and economic upheaval continues to dominate headlines and roil markets. The economic effects of the pandemic in many ways significantly altered the financial landscape that faced investors at the beginning of 2020, and while the core issues—fee pressures, low rates, volatility—have not fundamentally changed, they have been greatly exacerbated. But among the uncertainty lies opportunity.
Even as many investors begin 2021 in defensive postures, there is a case to be made that those who adopt aggressive, active postures throughout the year may be best positioned to benefit the most from any significant economic rebounds. An increased risk appetite could mean outsized returns for those with the mettle to put money to work in sectors such as emerging market equities and alternatives, including Bitcoin, private debt and private equity.
At this year’s Bloomberg Invest Global we will again focus on the key issues driving institutional investment strategies, offering valuable insights from top investors on how smart money can safely navigate an uncertain and risky environment. We’ll take the measure of the recovery and put 2021’s most popular strategies under the microscope to see what has worked and what hasn’t as we look ahead to 2022.
Click here to view video of today’s event.
- Dr. Matthew Agarwala, Economist, Bennett Institute for Public Policy, Cambridge
- Michael Arougheti, CEO , Ares Management Corporation
- Betsy Cohen, Chairman, FinTech Masala
- Lord Davies of Abersoch CBE, Non-Executive Chairman, LetterOne
- Brian Dumaine, Business journalist, contributor to Fortune Magazine
- Dame Jayne-Anne Gadhia, Founder and Executive Chair, Snoop
- Peter Harrison, CEO, Schroders
- David Hunt, President and CEO, PGIM
- Jean Hynes, CEO, Managing Partner, and Portfolio Manager, Wellington Management Company LLP
- Greg Jensen, Co-Chief Investment Officer, Bridgewater Associates
- Sunita Kikeri, State Enterprise Consultant and Former World Bank Staff
- Kewsong Lee, CEO, Carlyle
- Kevin Njiraini, Regional Director, Southern Africa & Nigeria, International Finance Corporation
- John Rogers, Jr., Chairman and Co-CEO, Ariel Investments
- Julian Salisbury, Global Head, Goldman Sachs Asset Management
- Mr. Ottoniel Lobo Carvalho dos Santos, Angola Secretary of State for Finance & Treasury
- Dr. António Henriques da Silva, Executive Chairman, AIPEX
- Mrs. Vera Esperança dos Santos Daves de Sousa, Minister of Finance of the Republic of Angola
- Joana Rocha Scaff, Head of European Private Equity, Neuberger Berman
- Hanneke Smits, CEO, BNY Mellon Investment Management
- Reshma Sohoni, Co-founder, Seedcamp
- Pieter van Welzen, Senior Consultant, Financial Markets Africa, CMS
- Gina Martin Adams, Senior Equity Analyst, Bloomberg Intelligence
- Sonali Basak, Financial Correspondent, Bloomberg
- Romaine Bostick, Anchor, Bloomberg Television
- Silla Brush, Asset Management Reporter, Bloomberg
- Dani Burger, Anchor, Bloomberg Television
- Stephanie Flanders, Senior Executive Editor for Economics, Bloomberg
- Caroline Hyde, Anchor, Bloomberg Television
- Nicky Keefe, Global Director Government Partnerships, Bloomberg Media
- David Malingha, East Africa Bureau Chief, Bloomberg News
- Francine Lacqua, Anchor, Bloomberg Television
- Erik Schatzker, Editor-at-Large, Bloomberg
- Tim Stenovec, Anchor, Bloomberg Quicktake
- Crystal Tse, Deals Reporter, Bloomberg
To start Day 2, Powering Southern Africa’s Recovery: Can Privatization Drive Growth? focused on growth opportunities in the Sub-Saharan region.
A privatization drive in Sub-Saharan Africa that began in the 1980s yielded mixed results. The initiative was bold: the goal was to expand the private sector, provide better infrastructure and utilities as well as attract foreign investment.
But, African states were reluctant privatizers and the privatization drive met with varying degrees of success. Large chunks of the industrial and manufacturing sectors and most infrastructure projects remain in state hands. The stumbling blocks –opacity, restrictions and political stability remain concerns even today. In this special session, we convene regional leaders, economists, policy makers and investors and ask, is privatization the best way to power growth and create an inclusive future for the economies of Sub-Saharan Africa?
First, Mrs. Vera Esperança dos Santos Daves de Sousa, Minister of Finance of the Republic of Angola addressed investor concerns with Bloomberg Television’s Francine Lacqua. Sousa discussed Angola’s strategies for navigating the sale of Euro bonds: “We will ask the opinion of the IMF of the best moment to go, and we also count on the technical assistance of the IMF regarding this matter. The markets and the international community will always be more confident if they know that we are still working with the IMF.”
Angola’s biggest challenge, Sousa said, are vaccines: “We are still in the middle of the storm because we are not able to vaccinate people as quickly as we should. Access to vaccines in quantities big enough for our population at a good price is very hard.”
Next, we heard from Sunita Kikeri, State Enterprise Consultant and Former World Bank Staff, Kevin Njiraini, Regional Director, Southern Africa & Nigeria, International Finance Corporation, Pieter van Welzen, Senior Consultant, Financial Markets Africa, CMS, who shared strategies for driving a successful privatization programme with Bloomberg’s David Malingha.
Nigeria’s Nijiraini highlighted the powerful role the private sector has played through the example of telecommunications: “Whether it’s setting up communication towers, cables, mobile networks. While the money is substantial, it’s beyond the money. The liberalization helps connectivity to the most vulnerable communities to enable their access to basic services like education, health, and access to information in remote work.”
Kikeri shared conditions that might promote privatization programs: First, “strengthening country preparedness. There is often a lot of opposition to privatization. One of the key issues is building and preparing for privatization: putting together the key components that are needed: a clear legal, regulatory, institutional framework.” Second, “it’s much easier when the country has a market friendly policy environment.” She noted, though, that “speed matters. Some people say just privatize quickly, but once you rush through the transaction, you have to balance it, making sure that what is being done is right.”
Investment risk, van Welzen notes, should be acknowledged for Southern African clients as well: “Input of know-how for the government to find the right type of investor,” that is, “adequate legal arrangement that obliges investors to actually comply with their obligations. Quite often we look at this from the investor side, but it’s also important to look at it from the other side.”
Next, Michael Arougheti, CEO, Ares Management Corporation sat down with Editor-at-Large Erik Schatzker. As the private equity industry moves towards direct lending to compete with big banks, the loans being underwritten are increasing. “We’re already underwriting 2 to 3 billion dollar loans. And the market is very quickly moving to club loans in that 5 billion dollar range and I could see us continuing to be active there. I think once you get above that five billion, a lot of the benefits of public market execution will kick in and make the private market execution less attractive. The key for us has always been a middle market origination engine that goes all the way down to a five million dollar company up to a five billion dollar company.”
Ares recently announced a transaction of Apex Clean Energy, marking an important investment in wind infrastructure. Arougheti said that ESG efforts must go beyond the typical declaration of what companies won’t invest in and shift towards what they will.
Next, Greg Jensen, Co-Chief Investment Officer, Bridgewater Associates, spoke with Bloomberg Economic’s Stephanie Flanders about how hedge funds can respond to inflation and avoid stagflation–a.k.a recession-inflation. “The only reason the Fed will tighten is if they have to,” he said. “They will have to if nominal GDP continues at a rate that’s driving inflation higher. So you can hedge your portfolio more than most portfolios are by trying to lock in cash flows in the real economy and go short things like treasuries. Basically, arb the difference between the likely nominal GDP outcomes and the interest rate the Fed is currently giving–we don’t think they’ll be able to give it to you for long, so those assets are in danger when you go through the tapering and interest rates rise, but today, you can still get a good deal in hedging cash flows that are likely going to be higher than the interest rate. The risk, in our view, is not deflation. The problem is stagflation, that’s the real risk. And so many portfolios are in danger.”
We then heard from David Hunt, President and CEO, PGIM, Jean Hynes, CEO, Managing Partner, and Portfolio Manager, Wellington Management Company LLP, and Julian Salisbury, Global Head, Goldman Sachs Asset Management, who discussed the future of asset management with Bloomberg Television’s Romaine Bostick.
Hynes spoke about how asset management is evolving beyond stock and bonds alone: “This is a market where research-based asset management is going to have an advantage in comparison to the last 10-15 years. Whether that’s in liquid alternatives, long-short, private markets, long-only markets. We’re investing in attracting capabilities across the whole spectrum. If you look at the macro picture where yields are, there’s a lot of opportunity in where you want to be positioned from a research perspective–sustainability, ESG is going to have a huge impact.”
Salisbury spoke about regulation and what that means for accessing liquidity: “We would like more people to have access to the higher yields available, and higher returns available, in private markets, the democratization of alternatives. I think it would be a good thing to see, and one of the things that makes it challenging is the regulatory requirement to ensure liquidity is available to the investors in the vehicles. When you’re investing in an asset class, the underlying asset class is inherently illiquid. So you end up with this mismatch between the liquidity of the liability structure and the liquidity of the asset side. Liability mismatches or a liquidity mismatch is a dangerous thing. So I think we have to try and start to move towards a model where people who are investing in an inherently illiquid asset class understand that it’s inherently illiquid and are willing to accept lower liquidity provisions than might otherwise be the case. Otherwise, they’re almost guaranteeing themselves suboptimal returns.”
Finally, Hunt shared his perspective on SPACs as longer term vehicles for investment: “The main lesson we’ve learned here is just how difficult it is for companies to go public. We have almost half the number of public companies now than we did 20 years ago and companies…are more and more choosing to stay private. And I don’t necessarily think that is a good thing, partly until we get to the democratization of alternatives–that means that excess return is being captured by institutions. So at the moment, it’s very clear that the public market IPO process is not as efficient or as easy as people need it to be. We can argue whether SPAC was a good thing or a bad thing, but it certainly had a lot of demand and a lot of people have chosen to take that route. And I think the lesson there is, we do need to go back and make it easier for companies to go public. And I think that’s going to be critical for the health of our public markets.”
Peter Harrison, CEO, Schroders discussed the investor’s role in sustainability with Bloomberg Television’s Dani Burger. To navigate the ESG landscape, “Investors need to push for data. They need to push to understand the real underlying impact of the businesses in those portfolios. What impact is it having on society? Accounting profit is great, but we all know that doesn’t account for the cost of carbon, the real cost of diabetes, the real cost of tobacco. If you adjust profits for those you get to what the real impact of those companies are, that’s what they should be asking portfolio managers to put on the label of their funds to know what the impact is.”
Next, Gina Martin Adams, Senior Equity Analyst, Bloomberg Intelligence shared her equities outlook with Bloomberg Quicktake’s Tim Stenovec. Adams advised on how investors should consider margin pressure and equity returns if Democrats successfully raise the corporate tax rate. She reminded us of the tax bill that passed in December of 2018. “We have to have a repricing of the earning stream. We don’t know if we’re going to get a fiscal spending package that needs to be funded by tax reform, we don’t know what rates those taxes are going to come in at. But nonetheless we will have to price a tax increase if we see corporate tax reform, and that’s going to get reflected in a downdraft in net income margins, which we haven’t seen on the S&P 500 in quite some time.”
Betsy Cohen, Chairman, FinTech Masala discussed the SPAC market with Bloomberg Television’s Crystal Tse. In terms of the so-called “SPAC bubble,” Cohen said, “We’re coming to a middle, not to an end. Looking back over a 20-year period, IPOs and other instruments have had cycles, and I think SPACs are no different. The SPAC is made up of the public market, but they are also made up of private investors who are looking to establish blush positions without running up the price and therefore, participating in the pipes. If they believe the market is solved and they can buy on the public market as easily, that will cause a diminution in the number of pipes that will be completed. It will see some failures, and then the cycle will cleanse itself and move to a new point.”
Next, Kewsong Lee, CEO, Carlyle discussed the firm’s new ESG initiative to standardize ESG reporting with Bloomberg’s Sonali Basak. “What CalPERS and Carlisle are leading is not about any one firm. It’s about collective action in the industry because only if we can all come together, contribute data in a way where we can create common language and perspectives that are cut across in a standardized way, can we actually start to make real progress, track that progress and have benchmarks so that we can all improve. Over a hundred GPs and LPs have already contacted us and want to join and the more that do join the better this initiative will be, and so I invite all LPs and all GPs to want to take part. This is good for ESG, this is good for business, and it’s good for the industry.”
John Rogers, Jr., Chairman and Co-CEO, Ariel Investments discussed the importance of financial literacy amidst meme stocks and cryptocurrencies with Bloomberg Television’s Caroline Hyde. When any given person is asking about how to break into crypto, Rogers said, “that is a real sign that you’re at the top of a bubble. If you don’t learn early enough to maybe get away from chasing the hot new thing, when you’re burned, you will be reluctant to get back into the markets. So that’s what I worry about. So many people who got swept up in the internet bubble, you know, basically swore off investing in stocks for a long, long time. And so I hate to see young investors, new investors, getting into these meme stocks chasing quick profits on Robinhood. I worry that they might scar them and discourage them from participating in the market for the long run.”
On cryptocurrency and blockchain technology, Hanneke Smits, CEO, BNY Mellon Investment Management discussed how institutions are responding to digitization with Bloomberg’s Silla Brush. “We believe that at the highest level, digitization could represent the next frontier of the democratization of investing, whereby you could use the blockchain ecology. And to remove some of the friction, perhaps less liquid asset classes. We do currently offer a Blockchain Innovation Usage Fund which is an actively managed global equity strategy, but I would say on the whole clients are exploring what is possible.”
For the final portion of Day 2, we hosted a roundtable discussion on Long-term Investing in a Short-term World.
As businesses and investors recover from the pandemic, there is a renewed impetus for executives and policy makers to commit to rebuilding more responsibly, more sustainably, and with a fairer blueprint. From an investor perspective, there is a strong case to argue this approach must be synonymous with a long term investor view, rather than focusing on immediate returns.
At a firm level, investor pressure and volatile markets make prioritising long term performance and strategy more challenging for CEOs. Add to that, the acceleration of private equity with short turnaround scales and the pressure is exacerbated.
So where does that leave long term investing? While research may show it is ultimately more profitable, is it justifiable when short term returns are so readily available? Leaders from finance, business and academia shared in this dynamic roundtable discussion.
We heard from Dr. Matthew Agarwala, Economist, Bennett Institute for Public Policy, Cambridge, Lord Davies of Abersoch CBE, Non-Executive Chairman, LetterOne, Brian Dumaine, Business journalist, contributor to Fortune Magazine, co-author of Go Long – Why Long-Term Thinking Is Your Best Short-Term Strategy; Dame Jayne-Anne Gadhia, Founder and Executive Chair, Snoop; Joana Rocha Scaff, Head of European Private Equity, Neuberger Berman; and Reshma Sohoni, Co-founder, Seedcamp, who engaged in a wide-reaching discourse with Bloomberg Economic’s Stephanie Flanders.
Scaff spoke to the misrepresentations of private equity: “One [judgement] that wouldn’t be fair to make is that it is short-term oriented, because it is not. They are typically underwritten to a hold period of four to seven years. In our industry, you’re also seeing the advent of what I would call long-term, private equity funds or core funds, and they actually have a lifespan of over 10 years. So you’re underwriting investments with the 10- to 12-year hold typically. This cannot be dealt with with short-term pressures and goals in mind. If one doesn’t make technology investments, the company’s technology might become obsolete. If you don’t invest in the product, if you don’t invest in the brand, if you don’t invest in customer service, your customers might move to the competition. There are many criticisms about private equity, but certainly, the short-term orientation would not be the case.”
Agarwala offered his perspective on spurring long-term growth post-pandemic: “Not only coming back from COVID-19, not only really addressing the long-term productivity slowdown that we faced, but responding to the pressures we’re going to face from climate change and further environmental degradation. We have to take a long-term investment perspective, but it’s not just long-term. It’s also broad-based. So when I use the term capital, as an economist, and I’m explaining economic strategies, and how we might spur growth for the long term, I’m not just talking about financial markets-capital. I’m talking about real, tangible, physical assets, infrastructure plants, equipment factories, buildings, and the capacity that all of our physical supplies have to produce and support output long into the future.
“But it’s also natural capital,” he said. “A stable climate system, healthy clean air, that we can breathe without getting sick and then having to take time off work as a result and reducing cognitive capacity and labor productivity. It’s our social capital. The amount of trust that we have in each other, in businesses and in governments. If we cannot trust a government that’s making a NetZero pledge that we’re going to decarbonise, then we can’t plan to.”
Sohoni added to this perspective, offering her insight on crowding ESG investments. Being thoughtful around ESG also involves considering which funds are getting overcrowded, Sohoni suggested. This kind of investment in “hard-tech innovation” did not exist pre-pandemic, and Sohoni credits the “global collaboration around vaccines. It’s been an eye-opener for the tech investment industry.
Davies noted that when it comes to global investment, “GDP doesn’t take account of regional differences, inequality, etc. We’ve been looking at different ways of measuring economic growth and success. If we reflect on the last few decades, we’ve left a lot of people behind, and therefore, that form of capitalism won’t work.”
Ghadia added to Davies’ argument about the consequences of productivity growth. When it comes to pandemic recovery, Ghadia proposed pursuing new tracks. “I’m not saying to [young people] what I might have said 10 years ago, which is, join a big company. I’m saying, think about how you want to change things and think about setting up your own business. For example, I would never have suggested that to, you know, the kids ten years ago. And so I wonder whether we really do need to think even harder than we ever have about the right education for children against a background of such a change, the economic, social, and corporate environment.”
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