Investors should prep portfolios for 'profound' US fallout
http://www.moneyweb.co.za
30 August 2011
Sharon Wood is a Communications Strategist at SIM
America should brace itself for the next liability-related shoe to drop-one
that is likely to have a "profound" fallout. That is according to former
Harvard Business School Professor André Perold. Perold, a South African
who has become an esteemed financial expert in the US, will give the opening
keynote address at the second annual African Cup of Investment Management,
to be held in Cape Town on 1 and 2 September.
He says while America's debt crisis is not yet as dire as that of Europe
and Japan, the situation is deteriorating. "It is a matter of time, he says,
something has got to give. It is like driving towards a brick wall - you're
either going to hit it, or you're going to have to swerve out of the way.
Either way the outcome will be profound."
Perold says Europe is the immediate problem, followed by Japan, but the
US down the road will face huge headwinds from pension liabilities and healthcare
spending. Eventually, these will escalate the country's financial obligations
by tens of trillions of dollars.
In his keynote address at the conference, which is hosted by IMN and lead
sponsor Sanlam Investment Management (SIM), Perold will offer his views
on how a fund or investment manager should deal with a portfolio in this
new investing environment. The presentation is entitled 'Next Generation
Asset Management'. He says, "The macro environment is sometimes very risky
and wild, and other times fairly calm. So in a world where asset class volatilities
and correlations are moving around, you need a framework for adapting a
portfolio to changing risk circumstances."
He says the key to dealing with this volatile investing environment is thinking
through the lenses of risk and knowing how much downside exposure an investor
is comfortable with. "Risk analysis is all about what might happen, not
what will happen. You need to try to quantify how bad things can be, and
what tolerance you have for loss." He recommends investors look at risk
in a "measured" way - by assessing and measuring it, and reacting accordingly.
"It's a mistake to be complacent or for the typical investor to think they
can time markets. If things are riskier today, you probably should be more
cautious (in your portfolio construction). It is critical in investing that
you protect capital sufficiently to let you fight another day."
Perold, a South African by birth, was the George Gund Professor of Finance
and Banking at the Harvard Business School until June this year. He worked
for Harvard for 33 years. The school lauded Perold for his ability to research,
write and teach about the practice of investing. He developed MBA electives
in investment management and capital markets during his tenure. He was highly
acclaimed for his research, particularly on asset allocation. This includes
how asset allocation should reflect changing risk levels, as opposed to
the classic static policy portfolio, which many investors employ.
Perold is now working fulltime as chief investment officer at the endowment
management firm he co-founded in 2004, HighVista Strategies. HighVista currently
has $4-billion of university and college assets under management. It is
based in Boston, where Perold lives with his American wife.
Despite his successful financial career in the US, Perold has maintained
his South African ties. He served on the board of Sanlam for several years,
and currently serves on the board of Rand Merchant Bank. He also travels
to South Africa between four and fives times a year. Perold says, "I love
coming back. I'm always excited to be here every time I come to South Africa."
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