A panel of global investors discusses market recovery and planning for volatility.
Driven by the uncertainty of the global coronavirus pandemic, long-term investors are now focused on the critical issue of building resilience to weather future volatility. As we look forward, investors’ leadership and capital allocation decisions play a crucial role in supporting sustainable economic recovery and growth.
On 18 August, FCLTGlobal led a webinar with Suyi Kim (CPP Investments), Chow–Kiat Lim (GIC), David Neal (IFM), and Lei Zhang (Hillhouse Capital Group) to discuss the potential impact the pandemic will have on several facets of long-term investments.
Moderated by FCLTGlobal CEO Sarah Keohane Williamson, the panelists covered key issues, including driving a low-carbon recovery, recapitalizing the economy, and rebuilding trust in leadership in a post-COVID-19 era.
David Neal, CEO of IFM Investors, emphasized the importance of, “building back better,” in a post-coronavirus world. To do so, Neal asserted, we must not lose sight of climate change and other long-term risks. “We should be looking at these decarbonization opportunities. Now is surely the time to be building those assets that the economy, and the world, needs,” Neal said.
Neal explained that, though IFM is looking at new, greenfield investments, the most feasible decarbonization opportunities can often be found within existing assets. Naturally, with these opportunities come risks, and Neal asserted that risk assessment work, though difficult, is absolutely necessary. “It’s clear that physical and transition risks are very real,” he explained, “and I think we all need to be looking really hard at those risks, creating detailed assessments of those risks, and understanding what actions we need to be taking. This is a good time to be doing that, because deploying new investment to help resolve those risks will help us with the recovery.”
On recapitalizing the economy, Chow–Kiat Lim, CEO of GIC, stressed that the immediate policy effort to bridge short-term loss is most certainly not a long-term solution. The low interest rate levels, Lim emphasized, bring with them three main risks regarding the recapitalization of the economy: the distortion of economic decisions, more debt adding to fragility, and the heavy reliance of financial markets on the low interest rates.
“There needs to be more innovation in terms of how to get dollars into productive uses,” Lim stated, “for example to get the dollars into infrastructure, which can produce long-term economic return, I think those are the kind of actions that I hope to see more from policy makers.”
Neal concurred, emphasizing that involving long-term, patient capital in large government projects, “requires a different mindset from the government. It requires them to think more about partnering with long-term capital than trying to offload all the risk.”
In light of the constantly shifting public health situation, investors around the world are now presented with a plethora of new opportunities. When asked about investing alongside the pandemic, Lei Zhang, CEO of Hillhouse Capital Group, highlighted the importance of striking the right balance.
Zhang spoke about the duality of investing in technology companies and investing in traditional businesses that are able to embrace technology: “I think finding a way to help people leverage technology to catch up with [large corporations], making technology more than a creative disruptor, but also an equalizer that helps people do better, could also be equally exciting,” he said.
Suyi Kim, Head of Asia Pacific at CPP Investments, explained that her organization’s investment thesis has been supported by their belief in Asian consumers. She explained, “whether it’s an established company investment or early stage company investment, when we are putting the lens of the consumer in Asia, the growing middle class, urbanization, essentially a pickup in consumption in China, behind it, then you can make sense out of it.”
Kim also noted that the huge success of technology companies in Asia, particularly in China, and their strong performance over the past few years supported CPP’s continued investments in that field. “Our investment team has been continuously studying various sectors, not only the e-commerce where we started, but in payment, healthcare and education to really understand long-term structure changes,” she said.
When discussing the economic and corporate recovery process from this crisis, all four panelists shared one common goal: to rebuild trust in leadership. Chow–Kiat Lim identified the alignment of interests as being a main factor that contributes to trust.
Lim also emphasized the idea of prioritizing stakeholder needs. “In the past, the concept was more [about] shareholder value for companies,” he explained, “As we know, many organizations now, around the world, have recognized that it really goes beyond that. You have to take stakeholders – employees, suppliers, partners – into account.” He continued on to assert that companies’ governance structures need to be updated accordingly with stakeholder interests being a top priority.
Suyi Kim emphasized that companies should balance their optimism with realism and preparedness, especially in regards to the uncertainty of the coronavirus. “Despite this unprecedented support from the central banks and the governments around the world, we all know that the real economy is still very much struggling, and that the speed of recovery is slowing down after that initial pick-up,” she explained, “Long-term investors, like us, are expecting the companies and leaders to understand and prepare for the pandemic’s effect on business under various ‘if and then’ scenarios.”
Lei Zhang stressed that, regarding the long-term effects of this crisis, “the only thing that matters is the duration.” He explained that, naturally, a short-term view of the fiscal future may look morose, but, “there is much less conflict when you are able to think for the long term.”
To conclude the discussion, the panelists also addressed several questions from viewers on a range of issues.
What are things that we can do to support sustainable capitalism coming out of this crisis?
Chow–Kiat Lim: “It has to be collective. This is a global problem, so no single party can solve the problem. It does really require not just different countries, but different kinds of stakeholders. Investors are a part of that, companies are a part of that, and [there are] tools that we have to embrace.”
Globally, there’s a lot of common ground to work together on climate change – leaving aside the policy differences, are there ways that we could foster business cooperation across countries in a way that is beneficial for the climate?
David Neal: “The ability to take insight and knowledge and understanding from one jurisdiction and one asset, and deliver it into another, is, I think, one of the great advantages of these global platforms that big investors have. Across our space, in particular the infrastructure space, we see that happen all the time, and I think it’s a really helpful, healthy part of the industry.”
What are your thoughts on the current state of U.S. – Chinese relations, and particularly the way that it might affect technology going forward?
Suyi Kim: “I would say that that is not only about technology investment in China, but it applies to a lot of investments, globally. Political risk in the past wasn’t a key part of the discussion for investors, but now it squarely became part of the discussion for every single investment.”
Chow–Kiat Lim: “Geopolitical tensions and fragmentation are a real challenge for investors, to be able to navigate this. As Suyi said, everything that you looked at is not just between China and the U.S., but many other spheres as well. You have to consider the implications of that. I would say, any setback to the free flow of capital is a challenge.”
Thank you to the panelists for joining us for a fascinating discussion. Developing these key areas further will be crucial as we continue our mission to rewire global capital markets toward the long term. To learn more about the topics discussed here, view our library of resources on fcltglobal.org or follow us on social media @FCLTGlobal.
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