On May 8, 2019, Neuberger Berman hosted its annual Investment Leaders Summit from the conference center atop its global headquarters in New York City. The firm welcomed 54 institutional decision-makers from across the investment spectrum—from insurers to corporates to consultants—representing diverse perspectives and over $1 trillion in assets under management. As in years past, we were delighted to assemble such a respected group of professionals for a day of lively discourse about the key issues facing institutions as they seek to navigate an increasingly complex and nuanced investment environment.
The Head of our Institutional Client Group and Global Insurance Solutions, Matt Malloy, kicked off the day by welcoming attendees and highlighting the firm’s commitment to partnership with our clients and to the development of investment solutions suited to their particular needs. He outlined the agenda for the day with general sessions and breakouts touching on geopolitics, macroeconomics, alternative investments and the challenges facing investors today. These informative sessions were punctuated with numerous networking opportunities and capped with a dinner event featuring poker champion Annie Duke, who gave her perspective on how to get comfortable with uncertainty and make smarter decisions. This year we also hosted an inaugural women’s breakfast leading into Investment Leaders Summit. The purpose of the session was to give women in the industry an additional opportunity for peer-to-peer discussion and networking.
The consensus among Summit attendees was that a recession is still a year or two in the future. In a live survey, our purpose-built app tallied 75% of votes cast for a recession in 1-2 years (0% voted for a recession in the next 12 months). This view is shared by many at Neuberger Berman based on the idea that accommodative central bank policy, momentum in the U.S. economy, and a brightening outlook in some other corners of the markets have strengthened the prospects for a “soft-landing” where global economic growth slows but a recession is averted for now. Trade and geopolitical tensions, of course, tend to swing, producing market volatility as we’ve recently experienced. In 2018, each major asset class spent some time in negative territory before the public markets rebounded sharply in early 2019.
See you next year
We’d like to thank all those who attended the 2019 Investment Leaders Summit and invite anyone interested in attending the 2020 edition of our annual gathering of institutional investors to contact us for more information.
Summary of Our General Sessions
Michael Hirson, Practice Head, China and Northeast Asia, Eurasia Group
On a day when uncertainty around U.S.-China trade negotiations was weighing on the markets, Michael Hirson, a former U.S. trade official and author, forecast higher baseline tensions between China and the U.S. for the foreseeable future, regardless of whether the two countries are able to reach a near-term deal on tariffs. The rivalry will play out in capital markets with what he calls a “China shock:” Chinese financial integration coming in line with its global trade presence and Chinese securities representing a substantial share of global indexes. According to Hirson, the Sino-American rivalry will also be apparent in a “tech cold war” with the Chinese government focused on greater self-reliance in critical technologies, such as Artificial Intelligence.
Investing in a Late-Cycle World
Moderator: Aisha Haque, Client Advisor, Neuberger Berman
Panelists: Joseph Amato, President and Chief Investment Officer Equities, Neuberger Berman
Brad Tank, Chief Investment Officer Fixed Income, Neuberger Berman
Anthony Tutrone, Global Head of Alternatives, Neuberger Berman
With the general belief in the room that the current business cycle has probably passed its peak but could still run a while longer, a panel of Neuberger Berman CIOs reiterated what they view as the value of re-balancing portfolios, being opportunistic in periods of volatility and maintaining a quality bias. Equities CIO Joseph Amato suggested investors pay attention to “through-cycle themes” such as thematic investing in long-term technology disruptions, secular growth in emerging markets, and uncorrelated strategies. Fixed Income CIO Brad Tank mentioned the appeal of combining investments in public and private markets. Private Equity Head Tony Tutrone talked about partnering with private equity managers who have performed well through cycles and have favored sturdy capital structures. In conjunction with the Summit, attendees received the firm’s latest white paper titled “Survive and Thrive: Robustness, Flexibility and Opportunism in Late-Cycle Investing” which delves into portfolio positioning in times like these.
The Evolving Global Private Market Landscape
Moderator: Lesley Nurse
Panelists: Kent Chen, CFA, Head of Asia Pacific Private Equity, Neuberger Berman
Susan Kasser, CFA, Head of Private Credit, Neuberger Berman
David Stonberg, Global Co-Head of Private Equity Co-Investments, Neuberger Berman
From year-to-year, Summit attendees continue to express interest in increasing their exposure to private markets. David Stonberg of our Private Equity group described a proliferation of investment products tied to private markets. He noted that in twenty years the number of private equity firms grew from around 1,800 to nearly 8,000.1 In light of competition for deals, Stonberg recognized that PE firms are now underwriting to lower rates of return (19.5 - 20% now vs. 22% formerly) at higher valuations. In terms of private debt, Susan Kasser framed the competitive set for private debt to include the syndicated loan market, not just private debt issues. Bringing the perspective from Asia, Kent Chen described the potential for acceleration in Asia, which currently represents 36% of global GDP but only 20% of global private fundraising2. He believes Asia is much more investable than 5-10 years ago and, from a return perspective, may be catching up with Europe and the U.S.
Diversity and Inclusion
Moderator: Heather Zuckerman, Chief of Staff, Neuberger Berman
Panelists: Jerry Albright, Chief Investment Officer, Teacher Retirement System of Texas
Andy Johnson, Senior Diversity and Inclusion Leader, Neuberger Berman
CIO Jerry Albright of the Teacher Retirement System of Texas explained how important the commitment to diversity and inclusion is for his organization in promoting diversity of thought and problem-solving. Texas Teachers serves diverse beneficiaries, touching 5% of Texans directly and up to one-third indirectly. To help cultivate young professionals, his organization is partnering with Howard University in recruitment and training. Neuberger Berman’s Andy Johnson explained how filling intermediate and senior level positions may seem more challenging than junior level positions. The pipeline of diverse candidates may at first seem less full, but it provides ample prospects if you define positions by the needed skills and talent, rather than by potentially more constraining metrics. Albright agreed that having diversity at the top of an organization, lets people know it is possible to get there.
Chief Investment Officer Insights
Moderator: George Walker, Chairman and Chief Executive Officer, Neuberger Berman
Panelists: Doug Brown, Chief Investment Officer, Exelon Corporation
Eric Kirsch, Chief Investment Officer, Aflac Global Investments
Leslie Lenzo, Chief Investment Officer, Advocate Aurora Health
Aflac’s Eric Kirsch kicked off the discussion by positing that we are late in the cycle, but it is hard to predict when it will end. Economic growth is off the charts, he added, which makes it hard to see it getting better. Advocate Aurora Health’s Leslie Lenzo chimed in noting, “Cycles don’t die of old age.” She feels you cannot predict exogenous events, like asset bubbles and inflation, although she doesn’t see either in the near term. Exelon’s Doug Brown agreed that you can’t argue we’re not late in the cycle, but it is risky to get overly defensive because the cycle could go on for a while. He thinks volatility will increase, and to weather volatility you have to continuously rebalance. All expressed involvement in ESG investing. Lenzo noted that as a faith-based organization, Advocate has had values-oriented investing guidelines for a long time.
A summary of our breakout sessions
Insurers – Late-Cycle Credit Considerations
Moderator: Jean-Paul Sursock, Client Advisor, Insurance Solutions Group, Neuberger Berman
Panelists: Baffour Abedi, Managing Director, Private Credit, Neuberger Berman
Ashok Bhatia, CFA, Deputy Chief Investment Officer of Fixed Income, Neuberger Berman
Jennifer Gorgoll, CFA, Senior Portfolio Manager, Emerging Markets Debt, Neuberger Berman
Steve Smith, CFA, FSA, Head of Insurance Analytics, Neuberger Berman
Panelists and session attendees discussed the current late cycle environment and its implications for insurers. Topics of discussion included BBB rated fixed income, the evolution of the covenant-lite space within private debt, and the emerging markets corporate debt market, as well as opportunities and thoughts on when and how the cycle will end.
Corporate DB Plans – Current Topics in Private Markets and Liability-Aware Investing
Moderator: Chris Crevier, Client Advisor, Neuberger Berman
Speaker: Erik Knutzen, CFA, CAIA, Chief Investment Officer, Multi-Asset Class, Neuberger Berman
As a backdrop for current investment trends, Knutzen reviewed the 10-year history of average corporate DB plan funded status, which has shown some improvement in 2019 as risk assets have rallied, yet remains in the low 90% range for pensions sponsored by S&P500 companies, up from 78% in 20083. The resulting discussion revolved around two themes at opposite ends of the risk spectrum that corporate DB investment teams are focused on: innovative liability hedging strategies and increased allocations to private markets.
Quant Investing and Preparing for Volatile Markets
Moderators: Robert Croke, Client Advisor, Neuberger Berman
Panelists: Ray Carroll, PhD, CFA, Chief Investment Officer, Neuberger Berman Breton Hill
Hakan Kaya, PhD, Senior Portfolio Manager, Quantitative and Multi-Asset Class Investments, Neuberger Berman
Vanessa Rosenthal, COO, Quantitative and Multi-Asset Class Investments, Neuberger Berman
Neuberger Berman’s Quantitative and Multi Asset Class (QMAC) platform covers diverse global strategies, including Breton Hill and Risk Parity. Carroll described how long-term strategic consistency is used to tackle short-term challenges. Session attendees contributed to an in-depth discussion of quantitative strategies, including alternative risk premia (ARP) and risk parity.
Natural Activists: The Real Opportunity in Investor Activism
Moderator: Clay Khan, CFA, Client Advisor, Neuberger Berman
Panelists: Joseph Amato, President and Chief Investment Officer, Equities, Neuberger Berman
Charles Kantor, Senior Portfolio Manager, Kantor Group, Neuberger Berman
Benjamin Nahum, Senior Portfolio Manager, Small/SMid Cap Intrinsic Value, Neuberger Berman
Kantor and Nahum discussed their approaches to activism and how they work with management teams at the investment companies in which they invest as they seek to affect change in constructive, long-term oriented ways that differ from typical activist managers. They also explained how activism fits into a holistic investment process. Amato also provided insight on the impact of U.S. trade policy on specific industries.