Asset Allocation Forum 2024

Optimisation

Unglamorous as it may be, dung beetles play an important role in helping to clear up all the dung left by other animals in an environment.

Its primary objective is resource optimisation. Akin to the role of a CIO/strategist striving to optimise risk, return and capital allocation for the portfolio, dung beetles efficiently convert waste into valuable nutrients.

Innovation & Problem Solving

For many years, Australia faced a serious problem with its livestock and the prevalence of disease.

Since the first cattle were introduced to Australia with the arrival of the First Fleet in 1788, this livestock has grown nationally to some 28 million. But with it comes unintended consequence: The proliferation of cow dung, which attracts countless flies, leading to the rampant spread of diseases.

While there are some 400+ native species of the dung beetle in Australia, they seem more adapted to marsupial dung, finding the dung from these ‘foreign animals’ unpalatable!

It wasn’t until the 1950’s that Hungarian entomologist Dr George Bornemissza, under the auspices of CSIRO, rectified the problem by importing dung beetles from South Africa and southern Europe.

While this solution sounds simple on hindsight, it took persistence, innate curiosity and innovative thinking to figure out. Not least, the need to dirty his hands (pun intended)!

CIOs and strategists are constantly challenged in a complex environment influenced by global macro trends such as:

• Deglobalisation & Geopolitics
• Decarbonisation & Energy Transition
• Digitisation & Technological Disruption
• Debt & Government Deficit
• Demographics & Ageing Populations

 

How do these impact growth, inflation, rates and valuations in the short and long term? Can there be a simple solution to such complex and interconnected issues?

How can the investor inject more dynamism into the portfolio, with active strategies anchored by a robust governance framework?

Navigation

The dung beetle’s celestial navigation skills, using the sun and moon as guides, allow it to enrich different habitats by dispersing nutrients from dung to various areas. This enriches the diversity and health of local flora and fauna, creating a positive impact on ecosystem dynamics.

This parallels the importance of effective asset allocation and portfolio diversification, based on understanding macroeconomic factors and regime shifts. While the dung beetle is able to accurately navigate its surroundings, investors are often challenged to make such decisions under uncertainty.

Nevertheless, will the advent of artificial intelligence, large language models and machine learning facilitate better decision-making for the total portfolio?

Sustainability

In essence, the dung beetle exemplifies nature’s ability to enrich ecosystems through its resourceful behaviours and essential role in nutrient recycling.

The integration of ESG factors in equities, fixed income/credit and real assets are well underway. But adopting these factors at the overall asset allocation level remains difficult and complicated. No doubt more work is required.

Interconnectedness

As the dung beetle diligently contributes to enriching its surroundings, it serves as a testament to the interconnectedness and balance of the natural world.

Similarly it remains incumbent for CIOs/strategists to consider all facets of portfolio construction – from governance, to asset allocation, to implementation; complemented by strong execution, risk management and responsible investment practices.

We look forward to unpacking these interrelated issues at the 12^th annual Asset Allocation Forum in Terrigal NSW.

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