Asset Allocation Forum 2019

Asset Allocation Forum 2019

Is winter coming?

In “The Major Economic Cycles (1925)” written by Soviet economist Nikolai Kondratieff, recessions have been usually been associated with winter.

There is strong consensus that markets are in late cycle mode, with storm clouds for the next recession gathering steam. This is further exacerbated by liquidity tightening measures by the US Federal Reserve and other central banks. Simmering trade tensions, fuelled by unpredictable geopolitical flashpoints, may escalate into a financial crisis perfect storm.

Survival

“For the emperor penguin, the most uninhabitable place on earth is a place called home”
– The March of the Penguins

The penguin’s fur and feathers are the most efficient insulators when on land but less effective when wet. In the near freezing water, it relies on its layer of fat to keep warm.

In the depths of the Antarctic winter at temperatures of -30°C with wind speeds exceeding 200 km/h, waddles of penguins resort to “huddling” as an extension to surviving the extreme cold.

Crowding for good

This “penguin huddle” is central to the birds’ ability to conserve heat and survive the harsh environment that would decimate most animals.

According to scientists, penguin huddles constantly rotate, with those on the outskirts regularly making their way inside the huddle. This dynamic movement prevents any individual penguin from facing the full onslaught of the relentless cold, while sharing some warmth and protection.

Such social behaviour allows the emperor penguin to achieve its objective of maintaining a steady 38°C body temperature throughout.

What’s more, it also allows for breeding to take place in the depths of the Antarctic winter!

Portfolio resilience

Regardless of the market cycles, pension fund members desire stable retirement income. The same expectation applies to sovereign funds contributing to fiscal budgets, endowment funds funding scholarships, or charities making good on commitments.

How can funds deliver consistent performance to achieve their long-term objectives despite the unfavourable market conditions? Conversely, is there an opportunity to outperform and excel?

As part of the 8th annual Asset Allocation Forum, we will endeavour to:

  • Define good governance and organisational decision-making frameworks
  • Assess the value of dynamic asset allocation and active management
  • Ascertain defensive strategies and their roles in the portfolio
  • Evaluate idiosyncratic risk and alternative sources of alpha
  • Consider holistic approaches to sustainability and climate risk modelling
  • Integrate private assets into the portfolio