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Trends this year
The fact that fixed income — both public and private — is giving us good recurring income for the first time in decades has many investment ramifications. We are now reexaming our SAA, and assumed returns for public fixed income capital markets are now only a touch lower than equity returns — this is more prevalent when we consider the overvaluation in U.S. equities. Currently, U.S. equity risk premiums are at decade lows.
Whether you are a pension fund, an endowment with a 5% spending rate, or even a government agency who just needs to meet your cost of capital, you will need to rethink the value-add of having too much equity exposure — simply because there is no need to. We are seeing the same for individual investors and family offices who are performing SAA.
However, as long as the equity markets are strong, there could be resistance to change.
Regarding the key investment trends to watch out for, instead of citing the usual suspects, I prefer to consider the perspective that a crowded trade will always have ramifications, be it the Magnificent 7, Japan revival, private credit, or secondaries funds.
We saw this in the Environmental, Social and Governance (ESG) sector three years ago and have witnessed the deflating of this bubble along with its declining allure. It will be interesting to see how far some of the investment themes I have identified will take us.
The role of technology
Sun Venture embraces the following principles when it comes to technology:
Technology thrives with capital. This principle applies even in venture capital, private equity, public markets, family offices or asset management firms.
When it comes to investments, information is power.
Start early.
We have a well-resourced Technology and Data Solutions Team, with whom the Investment teams collaborate closely to bring together technological infrastructure and tooling driven by strategic direction and business needs. Our company has invested in technology from the outset to create valuable data-driven success with the following tools:
We know the state of our investment program and its asset classes allocations at the click of a mouse.
We have built a monitoring dashboard for all our private markets investments that captures our allocations across market segments, geography and vintages in a single dashboard. We can view the latest figures for Internal Rate of Return (IRR), total value to paid-in capital (TVPI) figures of the private funds in a single screen, as well as track the evolution of the TVPI marks over time for any private markets’ funds.
In addition, our cashflow funding model for the private markets helps us with our cash management operations by leveraging automatic cash-needs alerts to the relevant team members.
Automation is the name of the game in this industry. We are automating our operations process and internal reporting process more broadly by building a data lake, a metadata repository, and leveraging fit-for-purpose downstream data products.
There are already plenty of applications of artificial intelligence (AI) for investment firms, not only in investment-related functions, but also in HR, finance, operations and compliance. Not many firms in our industry see the benefits of technology the way we see it. However, to stay ahead in the game, it is crucial for firms to embrace AI.
Family offices and impact investing
Impact investing in Asia is often associated with high risks and high rewards. In most cases, it can be high-risk with low financial rewards. After all, impact investing has a social dimension that goes beyond just financial returns. For asset owners that embrace ESG investing, there needs to be buy-in from all levels of the organization, including the Board, the Chief Executive Officer, the senior management and the investment team.
The definition of what success in the investment program looks like will need to be redefined and agreed upon within the organization before—and not after—ESG-related investments are implemented. Taking the first step of choosing which fund(s) to invest in is easy but ESG investing goes beyond this relatively easy step to develop into a multi-faceted endeavor.
My observation is that most family offices in Asia have not reached the next stage of this journey, and that it will take some time before the concept and implementation of ESG investing resonates with them.
International Women’s Day
Advocating for diversity and inclusion … and for yourself
We recognize that diversity and inclusion is an important initiative that goes beyond gender diversity, extending to diversity in culture, experiences and perspectives. People from varied backgrounds can bring different perspectives to the organization and in turn bring about effective change and solutions to the issues at hand.
I have not personally encountered any gender-related challenges at work, and have instead been blessed with positive experiences in my workplaces at ING, Mercer and Sun Venture, where meritocracy is valued and performance determines how far one can go.
Even though I embrace diversity across all races and genders, I am mindful that we do not promote gender diversity in management and leadership roles just for the sake of fulfilling a diversity quota, especially if these staff do not possess the requisite skills to begin with.
I prefer to mentor the younger generation of female leaders by getting them to question if they have done enough to network and build their own brand – both internally and externally. Women possess many qualities that make them good leaders, being naturally hardworking, focused and self-driven; possessing high emotional intelligence; displaying unrelenting tenacity and very importantly, having an empathetic and nurturing nature.
Women should know their strengths and proudly display these qualities more clearly to key stakeholders. Remember, we are our best advocates.
Advancing investment literacy for women
According to Mercer, 76% of women—compared to just 42% of men—will be the main caregiver for an elderly relative. This same research shows that one in five women takes time off work to deal with menopausal symptoms, while younger women are also more likely to take career breaks for childcare, thereby disrupting their ability to earn and save for retirement.
All these factors, coupled with the longer life expectancy of women as compared to men, means that there is an urgent need to ensure good financial and investment literacy among women.
However, simply having an awareness and sense of urgency are not enough to galvanize action. Financial institutions such as private banks and fund management companies are in a unique position to equip their female employees with enough financial knowledge and empower them to actively plan for their financial and retirement needs.
The information and opinions expressed herein reflect the opinion and views of the interviewee at the time of writing; they are not necessarily representative of the views of BNP Paribas.
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