Barry Kenneth – Interview


are slightly underweight our benchmark. It’s not that I don’t believe equities will go up again, I just want to see more evidence of a road towards the lockdown ending.


Have the alternatives in your portfolio off- set some of the volatility we have seen? The valuations in private markets are not happening in real time as they are in the public markets, but that does not mean that prices have not moved. It just means that you have not been informed that prices have moved. There are some things in a private markets portfolio which are not linked to global GDP. If you look at things like infrastructure, farmland, tim- berland and agriculture, they are not tra- ditional investments that correlate directly with equity or credit markets. But we expect our private equity portfolio to act similarly to the public-listed equity portfolio, albeit that we might not get the end of March mark until June. It might be that they are a bit more mark-to-model than mark-to-markets and ultimately if risk assets are linked to the economy, then generally, over time, you should get a remarking of these assets. I don’t buy it that private assets necessarily protect you more from volatility.


But they were sold as that and people might be holding them to diversify. I guess I am a bit more realistic than that, or I’m an opportunist, perhaps. There are certain private market assets that should not act the same way as credit and equi- ties, but that comes down to the diversifi- cation across asset type.


Providing equity to companies is not nec- essarily that much different from provid- ing equity through listed markets. You might get some more operational improvements but if demand goes down the toilet for companies in that sector it should have an impact on both.


If you look at the bigger picture across all asset classes, where do you see the key risks for investors?


Issue 93 | May 2020 | portfolio institutional | 19


If I look at the bigger picture, you can throw away a lot of the models. People that wed themselves to models in terms of how this is going to play out will face difficul- ties. Experienced market intuition, being able to be nimble and forward thinking is going to be important. Nobody knows how we will come out of this crisis. Recessions that have been caused by bank- ing events, like 2008; by the economy overheating or by change in government policy have a playbook in how it is going to end. We do not have a playbook which shows whether this is going to end in a V shape, U shape or L shape. It is uncertain how we are going to come out of this. The one thing I do know is that we are going to have a lot more unemployed peo- ple. There is not going to be a day where everything goes back to normal. We are relying heavily on the medical science in how we come out of this rather than econ- omists and government. This is some- thing we have not seen before. We saw Spanish Flu in the 20th century but we have not had this kind of pandemic in a developed market before.


There are milestones and certain triggers we are looking at to get more confident


and establish if we want to be more aggressive, but we are certainly not run- ning to buy the equity market or be over- weight on risk assets. We are 10% to 15% lower than we were at the start of March and there is a good reason for it.


Presumably, you are not the only one. Should we be 15% lower, 30% lower or 5% lower? It is difficult to know. We are risk management focused so when we make decisions, we take them with risk in mind. We are deliberate in how we allo- cate money in what risk we are taking. This is not only about assets; we look at our balance sheets and make sure we get the returns we expect.


I feel pretty good about where the portfo- lio is. At the moment, we are slightly cau- tious. We are running overweight cash, government bonds and a little bit of credit and underweight equities. But if we reach one of our milestones next week, we might change that. The good thing about the PPF and the way we are set up is that because we manage half the assets internally, we can react an awful lot quicker to market changes.


From a risk-reward perspective, we chose not to rebalance into equities as the market fell but more into credit.


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