Track to the Future – with Jose Cosio from Neuberger Berman
In the latest of our regular series, Portfolio Adviser hears from Jose Cosio, Head of Global Intermediary (ex US) at Neuberger Berman (in the picture below right)
What particular asset classes and strategies do you think your intermediary clients will be focusing on in 2023?
Customers take a conservative stance. In a way, they are spoiled for choice when it comes to investment opportunities, but mixed signals from the markets have most sitting on their hands. To be fair, with cash deposits returning 4% or more, it’s not a bad way to wait out volatility and uncertainty when there’s cash deposits or investment-grade fixed income – although we also have a desire to invest in deposits and fixed income Investment grade assets with alternatives to balance exposure to commodities, hedge funds and private markets.
There is also a subset of clients who are focused on shorter duration credit strategies, particularly given the current yield curve inversion. I suspect that in the next phase of risk appetite, broader emerging markets and global credit will gain prominence alongside allocations to high quality equities with attractive valuations and shorter duration yield horizons, the latter of course being value biased strategies. The small-cap space could also be an interesting opportunity as valuations in the asset class compare to large-caps.
Should end investors – and by extension wealth managers – think beyond stocks and bonds? Against what?
Yes – for example, just adding a little bit of active raw materials is enough. The ongoing tensions in supply chains, the secular shift towards renewable energy, and higher, more sustained inflation are giving commodities a tailwind to be a truly uncorrelated diversifier in portfolios. I also believe that private equity, real estate, infrastructure and private debt will continue to be an additional source of diversification for clients. Historically, commitments made at this point in the cycle and then gradually invested during an economic downturn have produced some of the best future returns.
“Historically, commitments made at this point in the cycle and then gradually invested during an economic downturn have produced some of the best future returns.”
To what extent do private wealth and markets fit into your thinking? What are the current pros and cons for investors?
Private market solutions are a crucial part of our value proposition. We are uniquely positioned to deliver in both public and private markets, allowing us to connect with clients in ways most other wealth managers cannot. We have been providing solutions to the public market for more than 80 years and solutions to the private market for more than 35 years. Therefore, we can discuss relative value across sectors, across capital structures, and across the public-private divide without bias. We work with clients to implement ideas that would otherwise require multiple meetings with many different managers.
What are the pros and cons? Outside of venture capital, private markets can offer very attractive returns with much lower volatility than public markets, and the longer investment horizon can be a useful offset to daily traded stocks, even for semi-liquid products. The downside is that clients must fully understand that access to invested capital will be limited and should therefore plan carefully and appropriately for anticipated and unexpected short-term liquidity needs.
With customer and regulatory pressure on fees, how does your company provide value for money for intermediaries and end customers?
Our product development process considers maximizing the value of the fees paid, whether in private or public solutions. We focus on fee transparency and are aware of all the embedded costs associated with the investment decisions we make and work to balance them responsibly. We are an independent, employee-run company, which allows us to focus entirely on the needs of our customers. You are our most important stakeholder.
“As a company, we believe ESG is used far more efficiently in an active investment proposition.”
How much of your sales is currently focused on ESG issues and sustainable investing? How do you see the responsible side of investing evolving?
The world is a little divided on this. On the one hand, some clients think they should maximize the impact of their capital with exclusions and thematic impact funds, where a declared sustainability outcome is expressed as equal or even more important than financial returns. Others view ESG as a process rather than a set of outcomes – an important part of the analytical and financial risk management process that may or may not be reinforced by a corporate engagement program.
We believe in placing engagement at the heart of our investment philosophy. Commitment to promoting and overseeing responsible transition is an effective way to effect change in companies with large market share and influence. The financial industry and its regulators will seek to better inform the investment community by making a clearer distinction between these approaches and the terminology used to describe them. As a company, we believe that ESG, sustainable, impact and corporate engagement investing can be used far more efficiently in an active investment proposition than passively. Passive exclusionary strategies have shown weaknesses in both performance and sustainability impact.
How do you balance in-person and virtual sales now? Have you identified aspects where one is particularly better (or worse) than the other?
We prefer to meet in person. My own view is that relationships are built better this way — but with a plethora of work-from-home policies now in place, it’s not as easy as it used to be. The key point is flexibility. Let’s not forget that digital meetings are better for budgets and carbon footprints. We’ve even held some customer meetings in the metaverse to add some excitement.
What aspects of your lockdown routine – personal or professional – have you continued as people migrate back to office work?
My process remained unchanged – I was in the office for most of the pandemic and walked or cycled to most places instead of taking public transport. I think the only thing that has changed is that I use public transport regularly again. I try to walk to work as much as possible as this has been a really positive new habit – my overall health is better as a result. I’ve also scheduled more quality time with my family, together or individually. That’s what I’m committed to after the pandemic!
How did you spend your winter break?
Luckily for me it was a quiet holiday break. I spent it in London with my family and friends and I thoroughly enjoyed their company without the stress of travel and a busy schedule of family events in Miami. Don’t get me wrong – I missed being with our parents and extended family, but it was nice to stay at home and enjoy the free time.
How do you see the wealth management industry developing over the next few years?
More and more companies that have traditionally focused on public markets will seek to break into alternatives—particularly private markets. We are fortunate that we made this transition many years ago and the two disciplines are now very integrated culturally. Believe us – it takes a long time for a company to adapt and educate itself in new specialties and channels, and growing pains will definitely be felt.
Private markets aside, the industry will continue to shift towards sustainable investing and more of the companies we invest in need to have a common interest and focus on improving their environmental and social standing while generating shareholder value. Eventually, the pendulum will swing back in favor of active management as the days of ‘easy money’ are all but gone and returns are likely to be much more diversified.
By Portfolio Advisor, 9 Mar 23