Corospondent - April 2019

Corospondent - April 2019

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Navigating Complexity - April 2019

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Kirshni Totaram

Kirshni Totaram

Kirshni is global head of institutional business. She is a qualified actuary and a former manager of the Coronation Property Equity Fund. Kirshni joined Coronation in 2000.

The Quick Take

  • Longevity risk is key to retirement planning, measuring biological age as opposed to chronological age provides us with more insight into how many years we need to plan for
  • AI is changing the future of what work looks like – no job or task is safe from computerised disruption
  • Eskom is the biggest headwind to South Africa’s economic recovery 

In February, I hosted our annual Talking Investments with Coronation event, which brought together a team of local and global experts who shared knowledge on a diverse range of topics in key areas impacting our world.

GLOBAL THEMES

We had three global speakers join us this year – Moshe Milevsky (Professor of Finance, York University, Toronto), Dr Vivienne Ming (renowned American theoretical neuroscientist and one of America’s most celebrated experts on artificial intelligence [AI]) and Jeremy Bowen (BBC Middle East Editor – veteran war correspondent) spoke on seemingly unrelated themes but the commonality is they all gave us a greater understanding of the world in which we operate today.

Moshe has fascinating insight into the intersection of wealth management, financial mathematics and insurance – all presented in accessible language and with humour – while Vivienne reflected on the various ways in which many aspects of tasks and work done today will eventually be programmed and executed by a computer. Bowen took us to some infamous hot spots as he shared his first-hand experience of the geopolitical state of the world, gained from a lifetime spent reporting from the frontlines.

These are some of my key takeouts after reflecting on their collective insight:

Biological age will increasingly become the focus of the retirement investment conversation

Scientific advances now enable us to measure true biological age – as opposed to our chronological age, which merely reflects the numbers of years that one has been alive. When it comes to retirement planning, one of the biggest challenges is understanding the period of time during which a person needs to earn an income. This is what biological age looks to address – the longevity risk. Stats often show that the gap between biological age and chronological age can be as large as 15 to 20 years. Longevity has economic implications on retirement financial planning and investment asset allocation. The ability to draw sufficient income in retirement is one of the biggest challenges facing the global pensions system, and concepts such as biological age can potentially lead to some interesting and innovative product designs.

The future of work is changing

Another area that is evolving quickly is AI and its impact on the future of work. At the mention of AI, most of us still flash back to visions of Skynet – the AI computer in Terminator that torched the earth. However, the reality today is that more and more routine tasks (no matter how complex) are replaceable by appropriate machine-driven algorithms.

We have seen AI used in many fields and a wide range of industries have been disrupted as a result. In financial services, we cannot ignore the changing rhythm in the markets. How much of this is driven by the prevalence of ‘algos’ or quant-like strategies is difficult to determine, but the impact is certainly not inconsequential. No human can do what we are seeing happen from time to time when share prices move seconds after news alerts.

It was fascinating and scary listening to Vivienne. She reminded us that no job or task is totally safe from computerised disruption. The key is for each industry to develop and evolve people and processes such that machine + human together results in far better and more efficient outcomes.

A challenging geopolitical environment

The issues facing the world today are enormous and have an impact on the outlook of investment managers and the decisions they make in managing money. One person who understands the political and economic vulnerabilities of conflicted regions first-hand is Jeremy. As a veteran war correspondent and Middle East specialist, he has riveting anecdotes from a lifetime of reporting from the frontlines of some of the world’s most fraught conflicts. To have someone like Jeremy’s deep insight into some of the most complex geopolitical tensions in the world is not just interesting, but invaluable.

When asked why he keeps doing this, the answer was very simple. He is driven by a desire to shine a light into the nasty, dark corners of the world to help people understand what is going on. The sad reality about the tensions in the Middle east is that after more than 30 years of working in the region, he hasn’t seen any improvement. While there have been some positive developments over the years, the world today is more dangerous and confused than ever. There is more uncertainty. Part of the challenge of any investment manager is to unpack this newsflow into what is most relevant and meaningful economically. This is not always easy and in a highly uncertain world, one thing is clear – the risks are incredibly high.

SOUTH AFRICAN OUTLOOK

Complementing our global speakers were four local experts.We started the morning with views from Coronation portfolio manager, Neville Chester, and economist, Marie Antelme. . With all the political and economic noise, its often hard to see the bigger picture, but they provided insight and context as they set out the economic and investment outlook for 2019. The key take outs were:

Yes, the biggest risk to the South African economy/recovery is Eskom

The continued mismanagement at Eskom was clearly highlighted as the biggest threat to growth recovery, to the fiscus, and to confidence. And subsequently the threat manifested itself with the sudden recurrence of load-shedding. A constructive, committed plan to deal with Eskom is needed urgently. You can read more about our views on Eskom in Neville Chester and Mauro Longano’s articles.

Being in an election year will keep political noise and risks high

The National Election on 8 May will be landmark event in South Africa. Our guest speaker was an expert political analyst and unpacked the lay of the land outlining the various scenarios that could unfold when we go to the polls. He is of the view that once the elections are out of the way, government is likely to be less defensive, and that there will hopefully be greater attention to structural issues, and a concerted push by the governing party for economic and institutional reform. But political risks include a continued resistance to the reform agenda and potential pushback from organised labour to structural reforms, as well as an outside possibility of an outperformance by the EFF. 

The outlook for long-term returns is more positive after a bruising 2018

Despite all the noise, at Coronation we are optimistic about the long-term opportunities for our clients across our portfolios, which are underpinned by compelling valuations.

To end the day on a different note, social media law expert, Emma Sadleir, gave us some sobering advice on navigating the world of social media.