It is sometimes said that the investment world is based on anecdote: we use certain processes because that is the way we’ve always done it. But market conditions haven’t been favourable to the techniques of the old. There are various disruptive forces at play that may or may not be secular:
- The effects of quantitative easing programs are still being felt everyday as cheap money has created conditions that are arguably more favourable to private markets than public ones.
- The dominance of technology companies, with their capital light models, has lured investors to the promise of growth over sensible cash flows assessments, creating dire circumstances for value investors.
- In Australia, the search for yield and sudden changes in commodities has caused havoc in portfolios of local active managers, raising questions about fiduciary responsibilities.
- Meanwhile, investment strategies have also been influenced by the continuing growth and consolidation of the superannuation industry.
This disruptive climate comes with heightened and sometimes new risks. How do we survive in this world? Perhaps, we should take a leaf out of the book of the humble jellyfish.
The jellyfish is a deceptive creature. Having no brain, heart, bones or eyes, its body is largely made of water, with some species consisting of up to 99 per cent of water. It gives the jellyfish seems a somewhat delicate, almost ephemeral, appearance.
But this appearance belies the devastating arsenal it has acquired during its long evolutionary process. Some jellyfish species are highly poisonous, which make them responsible for up to 30 times more deaths each year than all shark attacks worldwide.
And despite their fragile appearance, some species have developed lifecycles that render them practically immortal, a feat that has been eagerly studied by medical scientists. These strategies has allowed them to survive from well before the age of the dinosaurs until today.
Perhaps we can draw inspiration from the persistence of jellyfish and future-proof our equity portfolios with flexible but robust strategies to withstand the turbulence of today’s world.
In this 5th annual forum for equities and alternatives professionals, we explore this theme and more.
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