Turbulent times should not mean turbulent investments
By Sonja Saunderson
It’s a difficult and disturbing world for retirement fund trustees and their advisers at the moment – locally and globally.
In a time of ratings downgrades (to ‘junk’ status), the Trump presidency and other events, it’s very easy to be overwhelmed. A sense of panic can lead to poor, fear-based and short-term decisions, which could have disastrous long-term effects on the financial wellness of retirement funds and their contributing members.
It’s precisely in turbulent times like these that the value of the outcome-based investing is even more evident. Outcome-based investing ensures investments are made with an eye on what matters – a reassuring journey to a comfortable and secure retirement for members.
The concepts of outcome-based investing (also often referred to as goal-based investing and liability-driven investing) have been around for a while but Momentum Investments has a long track record to really deliver on the true essence of it, which means a complete overhaul of the way the company has integrated investment decision making with client dialogue and the structure of its investment business, where the retirement fund’s goal is the only benchmark that matters.
Too much current investor behaviour is proven to be driven by counter-productive behavioural biases, such as fear and greed, with the focus on short-term and peer investment returns, as opposed to long-term drivers that should create successful outcomes for retirement fund members. The industry, in turn, is product-driven, as opposed to solution-driven, and this often leads to a vicious cycle of sub-optimal outcomes for members.
Momentum Investments has re-organised its investment business and the various capabilities to align with its investment philosophy and portfolio construction approach. This includes having passive and smart beta, fixed interest and liability-driven investments as well as alternative asset classes like private equity, property, commodities, hedge funds and others. There is also a belief and willingness to partner with other investment providers, which can complement and enhance its approach to harness diversification benefits. Momentum Investments’ diversified capabilities are needed to focus on the investment outcome and risk budget sought by the investor, and then deliver on that in a seamless and re-assuring way in an optimal portfolio.
There are broadly five key steps to an outcome-based investment process:
- Understand the member profile of the retirement fund and its specific needs as well as set the desired goal or liability clearly
- Formulate an appropriate matching investment strategy through Momentum Investments’ outcome-based construction approach that will robustly deliver on the objectives
- Regularly assess progress and whether the plan is still appropriate to get to the outcome
- Manage risks continually and appropriately
- Frame all communications to the trustees and assess ongoing success, solely in terms of the desired outcome
Outcome-based investing means an emphasis on growth with control, something that can be achieved through crafted solutions that are diversified across multiple asset classes, investment strategies and mandates, matching the specific objectives that have been set.
This does not mean an increase in costs. Momentum Investments can deliver choice and appropriate solutions in a cost-efficient manner because of its model of evaluating investment opportunities and their merits on the basis of after-cost value-add to clients.
This also is not a cover for poor investment returns. It resets the adequacy of returns solely in the context of the liability or required goal set at the beginning without being distracted along the journey.
Right now, there are a multitude of distractions everywhere – politically, socially, economically and militarily. However, the markets have remained relatively buoyant and the rand, to date, has been surprisingly resilient in the wake of downgrades and political turbulence.
Trustees and their advisers need to keep a calm and focused view on the retirement needs of their members and should resist trying to time the markets. That, together with diversification, is the very essence of outcome-based investing.
Sonja Saunderson is chief investment officer at Momentum Investments
Ogilvy Public Relations
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