Sheila Patel, chief executive officer of Goldman Sachs Asset Management International, shares how her discussions with clients in Asia have changed since the election of Donald Trump, with a focus on trade, risk and the evolution of active and passive strategies in an age of technological disruption.
This podcast was recorded on February 10, 2017.
The views and opinions expressed herein should not be construed as an offer to buy or sell any securities and such views and opinions may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. This information may not be current and Goldman Sachs has no obligation to provide any updates or changes. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by any Goldman Sachs entity or individual to that listener, nor to constitute such person a client of any Goldman Sachs entity. No part of this podcast may, without GSAM's prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanges Goldman Sachs, where we discuss developments currently shaping markets industries in the global economy. Many mistakes,
you're gonna run. Corporate communications are common sex, my guest today,
You're Battelle is the chief executive officer of Goldman Sachs Asset Management, Asgard G, SAM Intern
she's here today to discuss where she sees opportunity in the biggest risk.
for emerging markets and beyond. Amidst today's political uncertainty while such
and trends in investment management, including a focus
Yes, she investing and other advancements in the space Sheila welcome to the programme thanks Jack
so Sheila, let's start with trade, obviously been a key focus of the Trump administration, and certainly probably the dominant issue in the part of the world where you set.
are the investing implications of changes to? U S: trade policy, including the? U S, leaving the teepee for the clients we work with the king,
since ran trade are pretty big deal. I think that clients have been looking to insulate
portfolios and unique ways, for example, looking for domestic stories in emerging markets raw
The van focusing on companies and
ass men set, are more trade leverage to potential changes in trade deals when it comes to teepee, p, wreath
king, what that means, Asia and the? U S is engage
it will be in thinking about more bilateral terms, country by country and what that means for their investments. I'd say,
that the tone is also change Tibetan you're, seeing a bit more confidence in where
headed on trade, a hope really from clients, from more pragmatism, from
This administration, in the? U S, verses,
some of the rhetoric and some the talk. I think, for example, the com
station with China has been much more constructive. Also, you could think about Prime Minister Albanian.
Tromp spending time together to talk about the EU as Japan, relationship and some of the early noises about have a conversation could go, are also seen as very constructive by our clients.
Emerging markets are going to face odyssey, some near term macro headwinds. As: U S, interest rates rise,
Stronger dollar. In this policy, some protectionist rhetoric at the least had of those factors- impact
your clients, and where are they sing opportunities in emerging markets, either jack? I think it such an inn,
listing time actually in emerging markets, and we may be at a good inflection point recently. Inflows have turned to the positive and we ve just past,
Three point: five billion dollars flowing
two merging markets, which is the biggest inflows since August. Two thousand sixteen divide between emerging markets tat neck. What it reflects a clients are starting to have more confidence in emerging markets because they see a softening of some of the issues.
India is a great example. Reform minded government with Modi some successes.
Like GS, Tee and a strong domestic story,
where you may not have as many impacts. Even if there are trade deals that are more.
Adverse to other,
trees in age,
our investors in emerging markets, just gonna hafta on their bills.
the differentiate rather than investing in the sector at large. Absolutely, and I think, emerging markets is a place where you see.
Of investing versus passive, investing really face, one of
Interesting challenges. If you look at the embassy, I indices
If you invested on an index basis in emerging markets, you are only
ass in an index that heavily weighted toward
financial and telecom the state on it.
as its components is quite high as well, whereas an actor
investor, as all eight thousand stocks to choose from- and you really see active investor
Generating real alpha emerging markets
of investors looking more growth rather than these sort of mature industries. Active investors
from our perspective are looking at both. I certainly think growth, and
key spaces like technology and the internet.
for example, look at the potential growth of mob
phones, mobile banking. Very soon,
This is over the internet in India and if you just take the path that say, China followed
and imagine those same companies in India. Imagine the investing opportunities, social
Do you think we're in for more volatile trading environment, and if so, what does that mean for investors? I do think two thousand.
Team will be more volatile trading environment. There are so many
is being negotiated so much going on for our investors. That means there
leaning towards more active management, so that
can Bob and weave a bit amidst the volatility there are thinking about the strong companies.
Can survive volatility and survive tough times if there,
changes in whether its trade or other issues, and they
also and volatile times have to be long term thinkers, and so we see clients, try
You look through volatility, although their anticipating it and saying what kind of
Estimates can weather the storm in both fixed income inequities, and how do I make sure
choosing the investments that have resilience for volatile time period. Volatility is generally a really great offer.
Many for active management we ve come through a few years with high correlations, makes it very hard to differentiate the best
Worst, everything goes to the macro. Now we ve
of two very different environment where those stocks, elections and selections in the fixed in
marketplace really matter, and we see clients paying a lot of attention to that
so as seal of Jason International, you have responsible for really all the clients outside the Eu S, including Europe, the Middle EAST and Asia, monsieur based in Asia, but
in all of those regions. Central banks are largely pursuing easing policies, while the US is heading in the opposite direction. Where did the rest?
vacations of this divergence in central bank policy. I think this divergence is fascinating in its again
backdrop of many divergences between what various countries want and what policies
are creating, for example, if you think about
your bank policy have met with many central bankers
as recently as well as an ally,
couple of months around the world, they look to the? U S, of course,
and what's been going on in the US dollar on the
hand, you see the new administration saying they'd like a weaker dollar. On the other hand, between
The actions of the FED, which looks poised to raise rate several times this year and potential for,
real stimulus by the Trump administration and potential terrorists.
oh indicate a stronger dollar when you think about a stronger
Traditionally it can be very difficult for
trading partners verses? U S purpose.
in emerging markets? So we see client
really looking at the backdrop of a stronger dollar and thing: where does it come from is coming from the fat and higher rates and this rate differential between central banks or is it come
from things that we think are harder to manage or potentially
we're damaging to the markets, like tariffs, are of books,
thinking their strategy or their places that are very dependent on. U S: dollar relationships there
thinking their own monetary policies today. A great example of that actually Jake is China, and so, when you,
think about cars,
see in China and a weaker
Stalin or an army,
from a long term perspective. China has a lot to do with its own currency and has been quite concerned about out flows and trying to
manage the situation through nimby when you think about
weaker? U S dollar. Today, though, that could be helpful and constructive to the extent that there
only strong position and can manage it. But when clients look at the dollar, one of the key places they have struggled with is what does it mean for China? One of the biggest risks that invest her face.
this year and how should they be thinking about
opportunities being opportunistic and the environment,
is no getting away from geopolitics, and you have many
things going on in the world about which clients are still uncertain, so our investors,
look at the new administration were only a few weeks since it will be a real question, whether the pragmatism in trade talks, around fiscal stimulus, etc,
investors are hoping for a that. Something invite
there's around the world, are paying attention to and will have an important. I
make a global markets. Investors
king abreks it how that process proceeds what it means
or the interaction again of the european markets with the UK
So there are many many cross currents these
be handled in ways that the market likes the mark
always likes a bit of predictability, whether it's the fad or
its administrations and political
around the world- and so is the shocks
investors, are worried about it's. The surprises us invest
is very focused on this new administration because of the? U S is wrong: how bout gee up
Developments in the asian region is there. I think, particular the people are focused on you know
asian region? Its all about
So when you look at whether it's more developed economy like Japan and you look at some of the Prodi
I'm in the efforts that
They saw and others are making in terms of where
they want to bring the japanese economy and the ongoing challenge that they ve had or
you think about China or India.
You see leaders who are both trying to
reform and you're dealing with quite
large economies that are tough to move, and so the pace of reform is something that clients within Asia are looking at country by country and a difference by country.
You ve, seen a huge anticorruption effort in China, but what does that mean for growth and so balancing these
says in each country has to be evaluated separately and that to some extent, what's driving
clients, country selection choices is their confidence in various governments, ability to drive reform and therefore drive growth.
Goldman Sachs. Politically G Sam is made yesterday, investing that's a form of factor based investing folks. I, environmental, social and governance of focus.
Your division, the investment management division,
Jesus employing. Yes, she investing in Asia because we hear about a lot in the: U S: contact in the european Car
Ex, but how does it look in that part of the world it such an interesting time and e g in Asia? Recently, stewardship codes have been,
promulgated, in both Singapore Porn Japan, decent
in early adopter of both of those just as we were in the UK, just as we were in
sign of you and Pr I and
think about its g really for us from investing perspective it.
all the things that embody. What we want to do is active managers anyway. Think about governance, and that's it
he factor in Asia and you think about
vesting in Asia, with its fixed income or equities governance. The way
a company's management is structured and the way their set to manage the growth that
hope for an emerging markets is critical. These stewardship codes focus quite a bit on governance, but of course, we also look at the
and the US, the environmental and social again. How topics in Asia, with airport
in becoming something that many popular,
since in asian countries, have become much more concerned about challenging in India Challenge
in China, as well as social
applications of rising wealth and how you make sure it's inclusive so,
g in Asia really has turned a corner in
of the engagement of large institutions and governments,
regulators in this process and ferocity salmon
the way we think about the markets anyway,
forcing changes inside companies that want institutional investors. Are they really at this stage,
in the? U S in early days, a lot of companies were pleased if they were included, but they wouldn't go out of their way to make these indices
changing behaviour and some of the companies that your tracking, it certainly seems to be impacting behaviour. Great example is Japan, the largest investor
in Japan, the state government pension as well as many other investors have said. Governance is a key factor in their investment process and has
put their money where their mouth is? And you see that in other countries, such as Singapore as well
and when investors are moving their money or judging companies based on that governance factor that companies have to stand
and take notice. When you think about the issue
that had been challenging in Asia, many of them
been about, governance have been about success.
founder has to hand down accompany potentially to the next generation or
fashion management and that
come a long way in Asia and hopefully continues to develop,
other interesting advancements. You see in investment management today, particularly looking at it from Asia or from a nation perspective, and more broadly, I think technology is such a huge
huge impact on investing in it may be too big buckets. One pocket is investing itself and when you think about big data- and you think about the kind of cool
to investing that, we can do such as governance, screenings,
Chaz, creating indices customized for clients in Asia that look for s factors or look at other factors. It
Jasper opportunity and big data doesn't get any bigger than China so
trying to understand macro trends in play,
like China and India, such as internet,
doctrine rates, mobile
option rates. What kind of transactions people are doing where large populations are going? The analytics behind that big data is critical to driving the best investment decisions on the flip side does have huge populations to
earth and so again, when you think that technology
great leveller of the playing field, to allow p
let our getting to invest that our middle income for the first time
a new generation are coming in
new income and wealth to in
and learn and make the right choices for themselves in their futures,
one of the questions in China is been the reliability sometimes of some of the official data. But when people look
this big data that their collecting from a host of different sources.
Allow them to get much fuller picture of. What's going on on the ground there. Absolutely I think
the data being collected in China so fascinating, for example, look at
Recent work done by our Gr Department on tourism and right now about four percent of the chinese population is passports. We estimated tenures, twelve percent will have passports,
millions and millions of people, that's more people travelling lending.
lesson Europe combined and where are they going of late? They ve been going
places like Hong Kong and Macao first, but its expanded. Now, it's Tokyo, its soul at Singapore, its increasingly
the Middle EAST in Europe and what are they doing their spending and they spend more than the average traveller so annulled.
seeing that data on understanding those trends and what those travel
and again this new Asian. Why
where their spending their money is again critical, finding the best places to invest too in the EU
press there's a ton of debate about active and passive, investing
a little bit about the need for particulate, emerging markets, more active screen, so all that,
they look like globally and housing different in Asia or anywhere else that you cover on the world are active managers fairing better in this
a good environment and how will the innovation? You talked about a lot earlier impact that debate, we say clients using a mix of both, and I think, there's places for both
in a broader sense, allocation and portfolio when you think about active in today's context, the increased volatility
we talked about certainly lends itself more to enact
style of investing when you think about past
And you think about the quantitative approach that that represents, it's been very simplistic and vat
free market capitalization index. Based today,
quite involved in active bait, which combines some of the same benefits of passive,
in terms of a more index, oriented approach and a very economical approach, but combines it with the active thinking that factory
Investing that using big data understand trends within the marketplace can add, and so, when you think about active beta, that's a play,
we ve seen a number of clients move from straight passive to say, there's a way to use data better and there are better indices per se. For my investment than a straight
market cap, passive investment that I might have done in the past and is the appetite for that product
wrong in emerging markets as it is in the? U S day, it is an
So what we ve seen clients do. An emerging markets is asked for more customization, so factors
or to them, there's an
of emerging markets within the emerging markets, unique as well as a different set of exposures, and so
really what we ve seen. The combination of this move to rethink passive and to incorporate the advances in
knowledge and quantitative analytics. What it's done in Asia and elsewhere is made people really
I can design for myself a bit. I can make my portfolio look like what I think it should be and combined the benefits
active and passive in new and unique ways.
socio. You been based in Singapore for four years now, there's a big hunt for
what right now in this industry in a lot of other industries, growth industries? How does that hunt for tat? Look like
in Singapore and in the rest of Asia. How we changing the way we recruit to our Singapore,
as our Hong Kong offers to Tokyo off some alike and
is the quest
for more diverse workforce, which is obviously very important in the. U and in Europe. Is that
powerful in the region, where you're sitting today
an earlier stage of development, many of them
The aims that we ve seen in recruiting in the? U S in Europe,
repeated in Asia is incredibly competitive, place to secure talent. We start early
getting to know people at the college level well before
senior year. We have internships and so on. I think from a diversity perspective that something that is
tap tremendously in the last couple of years in Asia, when you think about the talent pool, it would be crazy. Not to focus
on recruiting that women that are out there making them interested in finance
recruiting among many other diversity groups and its pervading all parts
of what's going on in places like Singapore, Japan, you here
Sir Abbaye talking about women are in Singapore. They formed a similar
focus on getting women on boards among corporate women just
this has been done in europe- in the U S, and so from top to bottom diversity has
a big issue, and things like the financial women's association in Singapore are very helpful from an industry prospect
help us bring more women into this business. So I think it's an exciting time, but it's also a time where
the next generation can really be trained and learn and hopefully have more future leaders of all Stripes Sheila. Those of
name towards the world. Thank you very much for joining us thanks Jake, for having me that conclude.
This episode of exchanges of Goldman Sachs, I'm Jake Seaward. We hope you join us again next time. This part Castro's
did on February tenth, two thousand. Seventy, the views and appeal
and expressed here and should not be construed as an offer to buy or sell any securities, and such views and opinions may differ from those of Goldman Sachs. Global investment, research or other departments are divisions of Goldman Sachs and its affiliates. This in
nation may not be current and Goldman Sachs has no obligation to provide any updates or changes. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice in the spot cast. In addition, the receipt of the spot cast by any listener is not to be taken as constituting the giving of investment advice by any Goldman Sachs Entity or
de visual too that listener nor to constitute such person appliance of any Goldman Sachs Entity. No part of this podcast may, without G Sam's prior written consent, be reproduced redistributed, published, copied or duplicated in any form by any means.
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