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Finding Value in Today's Investing Climate, from Emerging Markets to ESG


International Goldman Sachs Asset Management CEO Sheila Patel joins us in the studio to discuss key trends facing investors, from where opportunities remain in emerging markets assets to the growth of ESG investing to sovereign wealth funds' shift towards transparency. "Across the board [with both legacy and new sovereign wealth funds] what you've seen go on is an increase in transparency, a realization that the level of concern about their actions or what they might be doing could lead to a potential distrust or a disruption of their activities."

This podcast was recorded on August 2, 2018.

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. The portfolio risk management process includes an effort to monitor and manage risk but does not imply low risk.

Copyright 2018 Goldman Sachs & Co. LLC. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchange The Goldman Sachs, when we discuss developments currently shipping markets industries in the global economy, objects Ewart, global, head of corporate communications here, the firm this episode is all about the investing climate around the globe from tail wins and headwinds is in the asset management industry, to opportunities remaining for emerging markets to the growth of yesterday. Investing and much much more from you in today were joined by Sheila Patel chief executive officer of International Goldman Sachs Asset management. Chill welcome to the problem, but come back to the programme thanks Jack last Summer on back in early two thousand seventeen, you talked about your conversations with clients all around the world. Following present trumps election
Phyllis and on how those discussions have evolved over the past year and a half of this administration, particular in light of the trade tensions in all the GEO political uncertainty we witnessed what's been along here for clients. I'll say that, since we last spoke, I think really what's happened. Is concerns have become more concrete if the last we spoke people wondered what might happen now. People are still wondering, but they can point a finger at some more specifics. Their worried about trade tensions there worried about how it impacts global markets. They ve seen that even noise about some of these issues ends up creating disturbances in places where they found value. Up to this, points, such as emerging markets, and so the action we are seeing, is certainly not incredibly scared or dramatic, but it is much more focused on what the actual implications are of trumps policies and overall of the global climate, that seems to be a little less favourable towards globalism,
does that make a little buddies remodel though at some level like you know what industries might be impact or what regions might be impacted, I think people have tried. I think the issue is you can imagine one industries will be impacted, but this scope of trade issues that are mentioned versus the reality of action is where people. and a challenge you here, two hundred billion dollars, but maybe there's only actually action on fifty billion. You here a real rift between the? U S in Europe, for example, then there is a meeting in Washington that seems a bit more conciliatory, and so it's a challenge for people to really pinpoint and focus, because I think there is still some hope that the noise you here. Really about some renegotiations are realignments or shifts, rather than a wholesale disruption to global trade so beyond into big. Beyond, but beyond GEO political uncertainty beyond trade tensions or car challenges,
facing your clients were investing in the investment industry. More generally, look, I think the basic issues and challenges that kinds had are still there. We still have a very low yield environment and the largest institutional investors in the world are representing pools of assets that have traditionally been mainly in fixed income, and so with that kind of environment. Where did they go for return? In many cases they had gone to emerging markets. That's obviously been a harder place to be in the first half of this year. So that's another concern. Although we saw a pic of in July, which we can discuss, and then there are some broader issues, how should they think about technology both as a creator of value in terms of investing, but also as a challenge and a disruption to way that they might interact with their stakeholders of the way there?
This is might involve if you're running a pensioner thinking about DC and how you interact with those stakeholders and lastly, there dealing with new issues e g a few years ago, was only a thought that might have an implication for portion of your portfolio today for most clients, there's a real question as to how they can implement those kind of views, much more broadly, let's circle, back to a couple: those issues, starting with emerging markets, given the and volatility. Is there still opportunity laughed in emerging markets at this point in time in water, smart investors, thinking about right now, I think emerging markets are still an opportunity for investors, both in the debt and the equity space, really what you ve seen in the first part of the year in terms of deterioration in the equity space, and it's the first time e m is underperformed developed. market since two thousand? Sixteen is a deterioration in the p and also the effects challenges that the emerging markets have faced.
If you look at dividends, Likud earnings M is still continued to do mostly is dollar strength story or, if there's a dollar strength story, but really the p. Multiple is indicating a little bit of that transmission of the concerns about trade. But when you dig into the nitty gritty you really can find opportunities, because it is not a homogeneous marketplace. There are differences between countries; there are differences in terms of the domestic orientation of certain parts of emerging markets versus others. India's very domestically led story, so trade tensions Who is not as much of a problem for them. High commodity prices might be a problem, so there many nuances and it's legit very active. style, India being preferred, but that activism also leads one to try to look for those themes and extract value.
When you look at him, d, ve had some similar challenges from things like the effects moves, but also from the idiosyncratic nature of some of what's going on in certain countries and from the concerns over the trade side and in what you ve seen in: U S, activity concerns over rate, hikes, etc, but again any MD we finally started to see inflows July, and I think the reason for that is you found some value value yeah. That's the flip side somewhere, it's time that sovereign debt spreads have surpassed; U S, high yield, spreads and quite awhile dollars, sovereign debt, and so that's value for people, and they come back. So one group clients that you spend a lot of time within every year sovereign wealth funds and for a long time I think most sovereign wealth funds reconsider little opaque and mysterious. But if a ship now there operating and basically how they think about what their objectives are. Not such an interesting space, because, on the one hand, you have some institutions that have been around for DEC
thirty plus years in Asia and the Middle EAST and to some extent in the? U S in Europe, and you also have institutions that are forming right now, new institutions, I think, across the board. What you ve seen go on is an increase in transparency, a realisation that the level of concern about their actions or what they might be doing could lead to a potential distrust disruption of their activities. And so I think you see, from the both experienced sovereign wealth investors to the newest institutions, a greater focus on transparency on their objectives by processes around where they'll be investing and what they want to do in terms of making those investments, or public a conscious belief that in many cases there will be a J demands from their stakeholders and so the issues around governance or what they invest in and why have become much more important everybody's approaching it a bit differently, but I think really the lens being focused on that space has really up
anti? On that front, some of the biggest and most sophisticated sovereign wealth funds for a long time have done some direct investing, but he's journeys be more widespread. Absolutely that's, really part and parcel with what you're saying about private markets. Overall, first of all from returns perspective, private markets have been the place that many of those institutions have derived their best returns, the same in the pension space and then, secondly, you're seeing companies stay private for longer forty five percent of corporate governance in the. U S are coming from private companies and you don't want to miss out on that level of activity by being limited to the public market, so direct, investing as away in direct investing is also a way for these institutions to make sure that their at the cutting edge of some these spaces in the technology space, especially, but it's also health care and there's two angles, this question of: what's most cutting edge, what are the news,
pretend it is. Then there is also the question of what can that sovereign wealth funds bring back to the home country in terms of that expertise that might be applied, you mentioned the formation of new sovereign wealth funds. Where are we seeing new activity in that space both in Asia? and in the Middle EAST. You ve seen some new institutions forming and, to some extent it's really driven by the activity. That's been any, am more cash going towards companies, private stakes of government mistakes being sold in that driving funding for some new institutions and then is always there's a portion of sovereign wealth funds that are driven by natural resources and commodities, and so some of those funds in certain EU countries
Very new she'll be imagined e g or environment, social and governance. Investing that's been toppled by the industry for a little while, but a bit niece in your view, has that conversation and the practice of yes to investing involving today will, for example, Goldman Sachs Asset Management manages over fourteen billion dollars in dedicated he s, gee, that's money! That's absolutely focused on specific s, key principles as defined by our dedicated portfolios. We also managed over seventy billion dollars of portfolios within EAST she overlay or east. She considerations where we work with the Clyde, define and customize a portfolio to their specifications as their evolving view of e g can There's a bit of a push and a pull Nesg. On the one hand, absolutely stakeholders globally are more interested in whether you're in a country where you're concerned about clean air and you're, asking the major institutions and investors are something about this, a reflecting the need for
environmental concerns. and that we might have about climate change in the way you're investing our money, the money of your stakeholders and then there's a pull as well. Because I think what really has changed and evolved is the sense Is he s g about doing good reason about returns, and there is more comfort from some proportion of the investing base that there's a returns based reason that he or she makes sense not just a do good reason and what are those reasons, nobody really argues any more about governance being important in terms of finding the best companies getting the best returns. I think, when you look at environmental and social, obviously, there's always still more debate, but what's really interesting is the ways in which people are finding Return opportunities related to those two things so, whether its improving healthcare, the use of better technology. That also has a great implication from a social perspective, or whether its improving crop yields and using resources more effectively again
using technology or smarter utilization and planning those are ways to both. Way to return and improve the environment. So, generally, now, four and also responding stakeholders, when you talk to those clients, were interested, neither getting bigger and the space or just looking at their portfolio through that lends. What are they want from
investment adviser when they were probably, they want advice or both or its both and really depends how far along the institution is in their own definitions of these issues. So you know, for example, G7 manages about fourteen billion dollars. More than that, in dedicated e g- and by that I mean full on, we want a dedicated. He is cheap portfolio with very specific characteristics, but we also managed over seventy billion dollars with e g overlays. Or is she considerations where client has a specific investment objective, but they also give us a feeling of their list of criteria that their concern about free e g and we try to blend the to work on it with them to evolve what that definition might be because it such a space of change,
really it's a place when people look to their asset managers hissing. What can you tell me and let's debate together, what the definition should be right, but a lot of who spoke product frankly, absolutely alot of Facebook product and a lot of investment in expertise and growth teams. So we talk a little bit about private markets being focus. How do you see the opportune shifting with more demand for these private opportunities in this bigger pools of capital dedicated to it, especially in the tax base? that's just drive companies to stay private longer, particularly the start. We have seen some of that when you look at private space, you can ignore the amount of money that's been raised in that space, and I think that's probably what gives our investors and some of the largest institutional investors the world a bit of a concern that maybe you'll see returns go down with it. Maybe there's a challenge here, because now that we ve done well in the space more people are entering it is crowded. I think the offset that actually is
The hope that there are a lot of new areas to invest in and the growth of a larger segment in the private side means that there does have some correlation. There is a correlation between the size of the money being put to work and the amount of money that can be put to work because more please are staying private, which is the cause and which is the effect you could debate. So we don't go through a single park as we are talking about how technologies opting some industry on where the other self habit, the acid, judgment industry, what rules technology playing in changing the way investors invest. I'm tremendously excited I technology and asset management, both in the ways that gives us opportunities and even in the way, its challenges us, I think, from the opportunities perspective Weir's at such a unique moment for combining the fundamental work. That's been done really for decades in understanding companies, understanding industries and combining
with the quantitative skill set that allows analysis of data in ways that the old school fundamental analysis they can never could have imagined and have you couldn't do now. The computing power right, they D, never computing power, that data or the time, and if you think about today, the same source sales at people waited for him bated breath for retail to come out. Once a month now you could fit maybe on an hourly basis from credit card data, satellite feed, parking, lots and so on, but also think about the ways in which new things can be optimized. I mentioned crops agriculture, there are incredible things being done in terms of utilise rising land much more effectively via satellite, the drones. We could see improvements in spot pesticide verses, wide scale, sprang fields and so on or recognition of air
that would be better for grazing for cattle than others and the ways in which this technology is being applied and the people that are coming up with the best ways to do it we'll be alpha in future? On the flip side, the ways its affecting our industries absolutely in the ways we interact with investors, if you think about Robo, advising if you think about the ways in which people expect to know what their portfolios doing at any given time, ideally on their phone at the same time as they check something else. Maybe that's checking the portfolio but to all those who march as long term, investors has not considered, maybe not the best. How asked me racked has put its heart resists it's hard to resist its hard to resist, and I think we all have to adapt and adjust to the ways to make that the most effective positive force for people saving their money, to work in the best way and generating the funds that they need to live the best lives they can so with clients being able to see and why What you're doing with their assets in real time that change
nature. The relationship. Does it mean you're in contact more or are they still checking the time but letting long term focus prevail. I think it's still evolving and in general, they're letting long term focus prevail. At the end of the day, the level of technology is really just leading to better understanding of risk and that drives longer term questions that drives longer term discussions and advice that we can help clients with as to whether they have use on trade policy views on commodity prices, a realisation that may be across our whole portfolio. They have more exposure to oil or more exposure to volatility and effects than they realise, and so the key is to find the ways data gives them the insights to build the best possible portfolio and acid allocation that they can social over the past several years, really much more at the investment is reach really seen a big shift and rise and popularity of passive products and has been a difficult environment, especially with the correlation around in the wake of the financial crisis for
the managers? How do you see the industry in that debate developing going forward if we go back to the eightys? There are a great headlines in equities were dead and as soon as we were sure, something was finished sure enough. There was a whole new incarnation. I think that active versus passive debate is really moved on and technology has disrupted the whole thing the disruptor here is the question of how do we drive alpha for clients and had a client use any product, whether its Passover active structurally, to enhance, moreover, overturns? That's why you see quantitative portfolios taking hall? That's why you see the creation of new products like smart beta over the last several years, where people can get some of the best of both worlds. So I think the evolution here and the new wants here is so much deeper than the headline, and that's really where I see clients focused which are below but about robot visor, but where
Is that heading is a generational thing, or is that I think there's a perception, as is popular with young people who just beginning to get in space into cheap wave? to get in, but he's starting to see that with institutional clients as well, really not with institutional climate. The issue with rubber advising, as we have a long way to Go- and we certainly are working as well on trying to make this the best tools that possible, but at the end of the day, really what you have to replicate is great advice and if a robot visor is just about making a cheap advice or Looking simple advice that doesn't mean it's the best advice. So how do we make sure that the advice that's being three by algorithms, instead of an adviser, is taking the best of the best of the thinking for that person and there's so much that goes into a beyond just a mathematical formula of your age and where you live your passion about seeing other women succeed in finance? What are the keys to increasing the breadth and depth of women in this industry? It's really,
portent. We go from beginning to end and so whether its workers people and making people comfortable that this is a great industry to join suspending time with people. We ve been time with people as young as teenagers to try to tell him it's a great industry and there are ways in which, from measurement perspective, from an impact perspective, can demonstrate their adding value and really I have a great opportunity as a woman in the industry to thinking about people at different stages of their career, even people who took some time, ass for their own decisions, only basis or for whatever reasons and want to come back? I think it's really bout engaging women in the conversation, and I think it's essential, because on the other side of the divide is also an incredible generational transfer. That's about to happen millennials and really because of demographics too many women, knowing how to manage money and knowing how to think about a portfolio is something that requires a diverse set of thinking
we want to have that Goldman Sachs we also are covering the most diverse set of clients. We ever have talk a little bit about that. Our people, thinking about the challenge of passing on there's this wealth he may later with the generation that is beginning to move on and what's the next generation looking for when it comes to. This kind of advice was certainly the next generation or concerns about his gi. So I think the Thai into what we were just discussing. I think the next generation does expect great technology and access, but I do think there is also a question of education that they want to understand more and no more deep about what is long term thinking anyway in and why is checking my portfolio everyday online, not necessarily the healthiest,
or when should I do it? Why shouldn't I one of the things that, certainly from generational perspective or an organizational perspective, we look to invest in and we see clients to invest in, especially some the largest distributors and wealth managers. We know in the world that cover and serve millions of clients is to try to think about that education component and make it not just about. This is a solution, but how about the holistic view of? Why are we doing this in the first place as you're talking to clients all around the world where the dialogue is slightly different? How those cleanse thinking about the debate or the attention on these issues of gender equality what's wrong interesting, whether it's the number of movements were seen issues. We ve seen from a corporate perspective that many companies, with leadership suddenly being shown to have their own gender equality issues or whether it is the question of the diverse perspectives they expect to see sitting across the table from
we see much more interest in the topic from clients than ever before. They expect to see a diverse group of people sitting across the table from them at a client in Australia. Recently tell me that they walked out of a meeting where they had been with another manager for four hours and waited and waited and never saw a different face in that time, and so I think all aspects of diversity has become much more front and center for our clients, and we are, they too have a diverse team to put in front of them to bring them our best ideas. I worked with a woman who ran emanate a big corporate company and if a bank shored up without a single woman in the team, she didn't hire them so your recently named member of Goldman Sachs Management Committee. Congratulations that the management more or less runs the firm week in week out month by month out. What have you found,
a short time on the management Committee and that EU hookers other women to reach that point, their career will, of course, take em. Super excited to have joint, and I find it incredibly diverse, impressive group of leaders around the firm honoured to be part of it when I think about sitting around the table and having the discussions that we have with Lloyd with David and the rest of the group. Really. What I hope to bring to the table is a diverse perspective, not just from a gender perspective, but because of how much time I spend on the road travelling being in countries all the time. The last to three months had been, let's say three months: thirteen countries and, as you think about that, and you think about the global client base, that Goldman tries to serve we're really about bringing the globe and connect inclines to each other into the best opportunities, and so when I look at that group when I think about what we can bring to the table when I
to encourage more women to get involved but all manner of diversity, and that I think the best way the Goldman Sachs goes into the next decades is by that group representing our clients and our clients, and more diverse than ever was she'll. That's good. No, to close on thanks for joining today thanks for having me jack, we hope you come back again soon. You can be our most frequent visitor. That concludes this episode of exchanges. Goldman Sachs. Thanks for
listening and we'll be joining again next on the spot. Gas was recorded on August. Second, two thousand eighteen, the views and opinions 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 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 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 individual to that listener, nor to constitute such person appliance of any Goldman Sachs Entity. No part of this pod cast May without G Sam's prior written consent, be reproduced redistributed, published, copied or duplicated in any form by any means
Transcript generated on 2021-09-20.