Asia-Pacific Ideas Exchange Conference 2014

Transcription

1 Asia-Pacific Ideas Exchange Conference 2014 Research is meaningless if its implications are not shared or implemented. At Towers Watson, we are committed to sharing knowledge and ideas with institutional investors in a collaborative environment so that we learn and grow together. About the conference To help facilitate industry sharing, cooperation and innovation, Towers Watson runs a series of events globally under the banner of Ideas Exchange. In Asia-Pacific, we successfully hosted this signature event in Hong Kong on 17 October 2014 at the W Hong Kong Hotel. This year s full-day conference covered a range of topics from wider macro investment themes and trends to more focused portfolio ideas under the central theme "Tomorrow's World" how the future may look, what factors may drive the change ahead and how institutional investors should prepare for it. The conference gathered around 110 attendees, represented by a good mix of fund fiduciaries, investment managers and investment consultants. We also invited university students to participate in the event and meet the industry players. Photos above: Naomi Denning, Managing Director of Investment Services for Asia Pacific, welcomed attendees and introduced the main theme for the conference. Tomorrow s World Friday, 17 October 2014

2 Topics and speakers Below is the screen captured from the Ideas Exchange event app via ipad, showing the outline of the conference s agenda, topics and speakers. Virtual Reality Interactive case study Albert Einstein said: Any man who reads too much and uses his own brain too little falls into lazy habits of thinking. As the conference s morning sessions set the scene for the case study, Philip Tso (Director, Investment Services, Hong Kong) provided an interesting case study to think and invest thematically. Keynote Presentation Richard Watson, an engaging and provocative futurist speaker and also the author of a number of books and publications about current and future trends. Changing Investment for the Better Is the industry structured to deliver on its promise? Each participant in the investment industry forms part of the value chain and tries to add value. Natural evolution has brought us to the current value chain, but is it structured efficiently and in the best interest of all participants? Chris Ford (Global Head of Investment) took a step back to assess the industry value chain and shared Towers Watson s mission, vision and values. Looking Ahead Macro-economic debate Ed Francis (Head of Investment, EMEA) Recognise uncertainty argument and call to diversification Peter Ryan-Kane (Head of Portfolio Advisory, Asia Pacific) Make up your mind view with clear recommendations Back to the Future Thinking ahead and Towers Watson s thematic framework Improving our understanding of the future allows us to better assess the importance of developments and could thereby improve our investment decisions. Craig Baker (Global Chief Investment Officer) explained the research activities of Towers Watson and introduce the Towers Watson thematic framework. From 2D to 3D Putting thematic investing to work While many investors would subscribe to the importance of investment themes, in practice it may prove to be difficult to include these high-level thoughts into portfolios. Mark Brugner (Head of Manager Research, Asia Pacific) and So Yeun Lim (Investment Consultant, Private Markets Manager Research) bridge the gap, explained the process investors can follow and provided practical examples of how investors can implement investment themes. Free Your Mind Doing portfolio construction better History teaches us that today s portfolio construction practices are the result of an evolution. Paul Colwell (Chair of Asia Portfolio Construction Group) and Will Rainey (Head of Investment Strategy, Asia) took participants along this journey recognising that the current state of portfolio construction practices is unlikely to be the end point. What can we expect going forward? Artificial Intelligence Panel: Constructing an alternative investment portfolio Alternative asset classes have gained popularity in recent years and more and more investors are showing interest to consider making allocations to alternative investments in the future. A panel of Towers Watson consultants discussed real world experiences and shared typical pitfalls, moderated by Jayne Bok (Head of Sovereign Advisory, Asia). Panelists included Andrew Shin (Director, Investment Services, Korea), Janet Li (Director, Investment Services, Taiwan and Senior Investment Consultant) and Richard Tan (Head of Private Markets, Asia). Transformers Organisational change and transformation Preparing for the future requires more than observing trends and building better portfolios. Roger Urwin (Global Head of Investment Content) and Peter Ryan- Kane (Head of Portfolio Advisory, Asia Pacific) will discussed how investors should prepare their own organisation to ensure they can obtain or maintain their competitive edge in the search for investment returns in the future. 2

3 Summary of the conference For 40 years the BBC s Tomorrow s World attempted to predict how science would impact the world in which we live. Today, investors arguably face a tougher challenge when considering how factors (such as technology, public policy and the environment) will develop and influence portfolios. The objective for investors is not to try and predict the future, but rather to prepare for the uncertainty of what tomorrow s world will look like. At this year s Ideas Exchange conference, we considered what factors might drive the change ahead and how we might prepare for it. Is the financial industry set to deliver on its promise in shaping a more efficient and better world? Chris Ford, Global Head of Investment, argued that the financial value chain, from investees seeking capital to investors seeking returns, is costly, and not doing a great job in providing true value. The industry as a whole spends a large amount of resources on security selection and relatively less resources on capital allocation, yet that is where a significant part of the value is added. If the industry wants to be sustainable, relevant and provide good long-term returns for savers, it needs to change. As one of the agents in the chain between investees and investors, Chris stated Towers Watson s mission of changing investment for the better. to make a decision, and therefore having a clear view is needed. Peter showed that the fear of severe interest rate hikes is probably overdone and rates are more likely to remain low, while equities still discount reasonable low earnings growth. Peter set out more specific Towers Watson house-views and explained that Towers Watson is using these views to help clients in Asia make dynamic investment decisions, either as part of rebalancing strategies or within dynamic asset allocation strategies. Craig Baker, Global CIO, presented evolutionary processes within Towers Watson s research efforts. Firstly, manager research is evolving to better capture investment opportunities that are focused on absolute return, rather than assessing relative return propositions. As a result the old structure of Equities, Bonds, Hedge Funds and Private Markets has been changed to the new structure consisting of Equities (public, private and longshort), Credit (traditional long-only and long-short) and Diversifying strategies. Secondly, Towers Watson s Thinking Ahead Group has long challenged status quo situations in the financial industry and provided thought leadership on a range of long-term topics. In order to increase its impact on the industry, the Group is evolving into the Thinking Ahead Institute, which will work more closely with the Institute s members (asset owners and asset managers) to change investment for the better. One of the more recent efforts of the Thinking Ahead Group has been to establish Towers Watson s thematic framework with an identification of relevant investment themes that will play out over the next 10, 20 years. After the introduction of the twelve themes within the thematic framework, it was time for the audience to actively participate in the first stage of the case study. Philip Tso, Director of Investment Services for Hong Kong, introduced the TWIX endowment fund and asked the audience to express their views about the various investment themes at each table. The audience was asked to make a selection of two investment themes that will play out most favourably and two themes that will play out least favourably over the next 10 years. Chris Ford discussed what we need to do about Changing Investment for the Better, which is Towers Watson s mission. Turning to the macroeconomic environment, Ed Francis, Head of Investment for EMEA, explained to the audience the elevated uncertainty in today s world, which stretches beyond measurable risks. The central bank s response to the financial crisis led to lower borrowing costs and higher equity prices. However, it was also unprecedented, which means that investors are in a situation where they should be careful about relying on past experience in predicting future outcomes. In such a world, Ed argued, the optimal translation to an investment process is by adopting a scenario approach and making sure investors are prepared for a wide range of various market outcomes. At this point, Peter Ryan-Kane, Head of Portfolio Advisory, Asia Pacific, countered Ed s premise with the view that rather than navigating multiple scenarios investors need The case study app developed for collecting responses from each table 3

4 Following the high-level discussion on investment themes, Mark Brugner, Head of Manager Research, Asia and So Yeun Lim, investment consultant specialising in private markets manager research, showed the audience how thematic investing can actually be implemented in investor s portfolios. First, Mark introduced a multiple-step investment process. Starting with identifying the theme and the investment opportunity, the next step is to find a compelling product. Rather than betting on a single theme, Mark stressed the importance of diversification among themes and considering products with exposures to multiple themes. The valuation of themes often follows a cycle and should be an important consideration before allocating capital. So Yeun shared her thematic investing experience from her role as a private markets researcher. For example, based on the themes of resource scarcity, emerging wealth and population growth, an investment in Asian energy infrastructure was identified and subsequently implemented via a private market asset manager. In addition, ageing and intergenerational equity themes led TW clients to consider healthcare property investments via a real estate manager. In the second part of the case study, Philip Tso, asked the audience to change the asset allocation of the TWIX endowment fund based on the investment themes chosen in the first part. Not surprisingly, the discussions at each table shifted from the high level discussions to more practical asset allocation and valuation. After lunch, external keynote speaker Richard Watson, futurologist, fascinated the audience by sharing his views on tomorrow s world. Within his five-force framework (demographics, globalisation, connectivity, sustainability and new technologies), Richard put current trends and topics into a broader context, analysed the implications of major trends such as demographics, and shared his secret of being a good futurologist: having an open mindset. Paul Colwell, Chair of Asia Portfolio Construction Group and Will Rainey, Head of Investment Strategy for Asia, philosophised about retiring and, in order to do so, constructed a best-in-class portfolio showcasing Towers Watson s latest thinking on portfolio construction. Paul explained that while the universe of asset classes can be complex, categorising the investments into equity, credit and diversifying strategies can provide clarity in considering investor s objectives and strategy. More granular capital allocation decisions can be considered along beliefs and implementation routes. Will presented various portfolios corresponding to different governance levels. The main idea is that diversification among asset classes is a powerful way of reducing risk and may, compared to a simple equity/bond portfolio, reduce risk by up to 45%. Will also set out his portfolio construction ideas for tomorrow s world: increased use of tools, easier and better access and more tailored portfolios. Subsequently Towers Watson s consultants shared their experience on alternative investments in a live panel session moderated by Jayne Bok, Head of Sovereign Advisory for Asia. Andrew Shin, Director of Investment Services for Korea, stressed the importance of investors investing in alternative investments for the right reasons. The underlying reasons are often strategic in nature and have less to do with market environments. Richard Tan, Head of Private Markets for Asia, explained to the audience the benefits of including private markets in a portfolio and how the practical challenges in a portfolio construction process can be overcome. Janet Li, Director of Investment Services for Taiwan and Senior Investment Consultant made the point that many investors in Asia face restrictions when it comes to alternative investments. Restrictions on derivatives usage or liquidity requirements may make it difficult, though not impossible, to invest in alternative markets. Mr. Richard Watson, external keynote speaker, presented his interesting thoughts about the future and what s next. From left to right: Jayne Bok (moderator), Richard Tan, Janet Li and Andrew Shin 4

5 Finally, Roger Urwin, Global Head of Investment Content, and Peter Ryan-Kane, Head of Portfolio Advisory, Asia- Pacific, discussed organisational change and transformation processes in western and Asian organisations. Roger has spent a significant amount of time designing and implementing change processes for major institutional investors such as CalPERS, PGGM and Railpen. Often these funds recognise the need for change and transformational processes may even start at the top with investment committees. Compared to Europe and the United States, Peter observed notable differences. For example, funds are often younger, have pressure to deploy capital and do not directly compete on performance. This makes their focus more bottom up and transformational change processes are therefore unlikely to start at the top. Hence, Towers Watson s support for these organisations has been more to help them with their internal direct asset management process. Conference technology Our approach to all our conference activities is highly engaging and participative through roundtable discussion with interactive case studies and games, thanks to the use of the latest conference technology, At the Asia-Pacific Ideas Exchange Conference 2014, we delivered the conference experience to clients using an event app via ipads. The event app functions as an electronic delegate kit, a polling device, an answer sheet for case study, and also provides forms for feedback and questions. We felt good about saving some trees. Peter Ryan-Kane (left) and Roger Urwin (right) discussed organisational transformation and process consulting work for institutional investors. The discussion between Peter and Roger marked the end of a successful Ideas Exchange. Naomi Denning, Managing Director of Investment Services for Asia Pacific highlighted the key ideas that were shared throughout the day and thanked all delegates for their attendance. The contents of this article are for general interest. No action should be taken on the basis of this article without seeking specific advice. Technology allows us to create a more integrated event experience and engage attendees at our Ideas Exchange conferences. Towers Watson has been using conference technology, for example, Electronic Audience Response System (EARS), in our conferences since By taking advantage of conference technology, participants are engaging rather than merely listening to a speech. EARS is an interactive tool in collecting responses, particularly from those audiences who are reserved and quiet. For more information Please get in touch with the consultant who normally advises you at Towers Watson, or Towers Watson Investment Services wwic.hk@ EARS/Mobile Apps also help us generate quizzes and scores during the event so that attendees enjoy the interactions with others. 5

6 Event Summary Asia-Pacific Ideas Exchange Conference 2014 About Towers Watson Investment Services Towers Watson s Investment Services is structured as one global line of business and has around 800 investment staff worldwide. These include dedicated professionals with expertise in risk management, strategic asset allocation, portfolio construction and investment manager selection. Globally Towers Watson serves sovereign wealth funds, pension funds, reserve funds and other institutional asset pools as clients. Its clients include some of the world's largest and most sophisticated asset owners. Regardless of the size of the asset pool, Towers Watson offers a flexible range of research-driven investment services to meet the specific needs of local institutional investors. What is Ideas Exchange? Backed by Towers Watson s deep knowledge and global expertise, Ideas Exchange, a series of professional investment forums, is created to provide state-of-art investment strategies, cutting edge insights and innovative investment ideas for institutional investors around the globe. Ideas Exchanges events are one of the pioneers in employing an interactive format for delegates to exchange their ideas. In the conference, delegates can enjoy a unique experience for sharing of knowledge and experience and networking amongst industry decision-makers and authorities. Each Ideas Exchanges event will focus on selected topics, which are tailored for delegates of specific countries or regions. About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 15,000 associates around the world, we offer consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at. Copyright 2015 Towers Watson. All rights reserved TW-INV January