The current investing environment seems more unpredictable than at any time in recent memory. Yet market dislocations arising from these uncertainties represent a major opportunity for multi-asset managers with global reach and the ability to opportunistically select markets and underlying strategies.
For well over a decade, the PineBridge Multi-Asset team has navigated through ever-changing conditions, seeking to outperform irrespective of the economic, political, or market backdrop. Our process seeks to embrace the right markets at the right time, with a focus on attractive underlying strategies and managers and incorporation of environmental, social, and governance (ESG) considerations at each stage.
How do we do it? With an innovative investment culture built around diverse points of view, collaboration with colleagues, and partnerships with clients. This keeps us connected to the challenges facing investors across and within markets.
One of the greatest strengths of PineBridge’s Multi-Asset team is its diversity. With approximately 230 specialists on the ground in six locations around the world, our team brings a range of fundamental expertise, languages spoken, and even scientific backgrounds to the table. Our expansive network provides an edge over larger but less cohesive competitors. As Global Head of Multi-Asset Michael Kelly puts it, “We function both as a team of approximately 24 and a team of approximately 230.”1
We believe our midsize footprint and collaborative culture drive better outcomes for our clients. Compared with multi-asset firms that may be huge, yet siloed, we’re able to identify opportunities that purely top-down managers might miss – and we can also compare the best-of-the-best ideas across asset classes with potentially greater objectivity than pure specialists, who may have biases toward their own asset classes.
1 As of 30 June 2022. Investment professionals include portfolio managers, research analysts, traders, portfolio strategists and product specialists, and are subject to change. Includes investment professionals at the senior vice president and managing director level.
Our network enables us to synthesize top-down views with bottom-up perspectives through active debate, which can thrive only when people know each other well and bring many different perspectives to the table. Our network and portfolios are global, with experienced specialists in EMEA, Latin America, the US, and a particularly strong base across Asia – where the world’s most significant changes are occurring.
“We have many feet on the street throughout Asia,” says Kelly. “Our numerous China watchers helped us build conviction to make a significant investment in mainland China during a challenging time for markets at the end of 2018.”
Our clients often visit on-site to gain deeper insights from professionals across the firm, helping them navigate areas where they’re seeking additional perspectives.
At PineBridge we believe having different opinions represented at the table is crucial to gauging change, and this philosophy is integral to how we work. Our unique culture does not espouse a “house view.” Instead, we encourage people to express their own views on how they see the world evolving through regularly scheduled meetings within and across investment teams.
Big market moves – and opportunities – are born out of uncertainty, and sharing the information and diverse views arising from our global footprint brings clarity through the noise. “Given the breadth of skill sets and geographic perspectives at PineBridge, the right answer is almost always in the room, on the phone, or on the screen. We just need to get it out in the conversation, have a process that compares all the potentialities to ferret out the truth, and then know it when we hear it,” says Kelly.
Chief Economist Markus Schomer draws on a solid basis of research and fundamental and macroeconomic analysis to inform his top-down views, leveraging PineBridge’s large network of local experts to develop probable macroeconomic scenarios.
Schomer and the team focus on both the intermediate-term horizon, an outlook over nine to 18 months, as well as a longer-term view looking out up to three years.
Strategy meetings and forums inform the construction of our Capital Market Line, a five-year view of risk and return across the investment spectrum. These quarterly sessions provide an opportunity to tune out market noise and think clearly together, and are supplemented with seven monthly strategy meetings that focus on current developments.
The Multi-Asset forums are open to all of our investment professionals, who can participate and hear the latest from our subject-matter experts on what’s moving markets and asset classes, from currencies to rates and everything in between. Our unique culture enables a continual dialogue, not only through these meetings but through everyday interactions. This “organized familiarity” is a cornerstone of our firm’s culture that sets us apart in the industry.
The regular meetings that inform our Capital Market Line enable the Multi-Asset team to assess the most compelling opinions from across asset classes and distill them to form our forward-looking view of risk and return.
Our Dynamic Approach Adjusts Based on the Unique Opportunities of Each Market Cycle
For illustrative purposes only. We are not soliciting or recommending any action based on this material. Any views represent the opinion of the investment manager and are subject to change.
At other asset managers, the equity team may decide what the equity market return will be, the fixed income team decides its own return, and so forth, with the multi-asset offering merely combining these inputs. But this can result in an overall portfolio with inconsistent, incoherent views. As Portfolio Manager Hani Redha explains, “At PineBridge, our team assesses the most convincing arguments and combines them to form the Capital Market Line, which informs our portfolio construction.”
These investment forums also enable the team to respond dynamically to market volatility by ensuring that all stakeholders are regularly exposed to different perspectives on the data, helping to glean fundamental signals and inflection points from the noise. This can be highly valuable, both in terms of spotting new opportunities and conducting risk management.
“We can only have an edge if we communicate very effectively with our bottom-up specialists,” Redha says. “So when volatility spikes, we can de-risk because of the trajectory we – as generalists and specialists working together – see unfolding for those fundamentals.”
This ability to be nimble, and adjust as market conditions dictate, is critical to helping our clients meet their specific objectives.
As part of this approach, we often identify new thematic ideas for our portfolios, which reflect the changing environment by combining top-down and bottom-up analysis. We employ a high-conviction, dynamic approach, where we size our positions to reflect the strength of our convictions. This is another key differentiator from our peers.
To benefit from the trend in companies spending to improve productivity, our Multi-Asset and Equity teams collaborated to identify stocks with the highest potential revenue exposure to this theme – for example, stocks in cloud computing and cybersecurity – ultimately creating a thematic basket to express this development.
The team’s productivity basket was recognized by Chief Investment Officer magazine, which named PineBridge’s Multi-Asset team as the most innovative multi-asset manager of 2018.2
At the same time, not every thematic idea will make it into the portfolio. As Michael Kelly says, “You need to be selective and surgical. And the only way you can do that is by looking through the noise and identifying the fundamental driver and how it will affect those select markets over time.”
We can be highly flexible, and go deep quickly, through collaboration between the Multi-Asset and specialist teams at PineBridge.
One example is in collateralized loan obligations (CLOs). “The firm has great depth of capability in CLOs,” Kelly says. “Our fixed income team is a prominent issuer of CLOs, and having that expertise at the firm allows us to identify the most potentially valuable portions of the capital structures of other CLOs in the market.”
2 The CIO Industry Innovation Awards are split into two general categories: asset management/servicing and asset owners. The CIO editorial team makes the final decisions as to finalists and eventual winners with input from their awards Advisory Board, as well as surveys and data where applicable. Third-party rankings and recognition from rating services or publications are no guarantee of future investment success. Working with a highly rated advisor does not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.
This broad perspective is also critical when it comes to applying ESG screening, something the team has been committed to for over a decade and that PineBridge takes seriously as a signatory of the UN Principles for Responsible Investment.
“Environmental, social, and governance issues present risks as well as opportunities,” says Portfolio Manager Paul Mazzacano. “As a team, we incorporate ESG within our investment process rather than relying on an exclusionary approach.”
We believe that a company’s improvement on ESG metrics is at least as important as its ESG status at a given point in time. Academically focused studies are bearing this out, showing better risk-adjusted returns for firms that are improving upon their ESG practices, irrespective of their starting points, relative to those that score high but are not improving.3
Evaluating forward-looking improvement on ESG grounds may be best attempted by managers who already possess a forward-looking view of a company’s trajectory, as well as that of the broader industry and region. “ESG principles and policy know-how are also critical for successful engagement when encouraging companies to commit to improvement, but these strengths are easier to acquire,” Kelly notes. “Asset owners are likely best served by an advisor who brings all of these perspectives to the table when engaging on their behalf.”
3 Among the studies discussing these themes is a Harvard working paper titled “Corporate Sustainability: First Evidence on Materiality,” published by Mozaffar Khan, George Serafeim, and Aaron Yoon in 2015.
“We go out of our way to be transparent and understandable to clients,” Kelly says. “We think the industry has a lot of heterogeneity in the way multi-asset strategies are delivered, which clients and consultants sometimes struggle to understand. When we speak to clients, they recognize that our alpha source comes primarily from opportunistically selecting about 10 to 15 high-conviction markets in a portfolio construct, and then secondarily, how we express this with a mix of underlying strategies.”
He adds, “Most multi-asset managers will only utilize a set menu of internal strategies. But we are committed to results for our client portfolios, and allocate flexibly across passive, enhanced, and internal or external active strategies, whichever our manager research reveals should add the most value.”