I am in Hong Kong. Not only am I visiting Chinese factories to taste the potential of Asian growth stocks, as my Asian equity manager and host explains, but I have also learned about what the new year might hold. If you turn left out of the back of the Mandarin Hotel and walk for 10 minutes you find a market that boasts its very own type of analyst. One that nestles between two stalls where the first sells fast food and the second, pearls.This analyst is a fortune teller. There are many of them - all plying their trade.
“Hello, please will you sit down.” I sit. “You pay dollars?” I nod and wonder if the dollar has recently hit its low point. “What do you do?” “I invest.” A smile. “What do you invest in?” “Equities, bonds, property, hedge funds and other alternatives.” “Too much. You need to sell and focus.” “So you understand investment?” “No, I understand you.” “But I am just the investment director of a Dutch pension fund, part of a company which specialises in making watertight compartments.” “Not important. I know you make decisions based on what other people say, not what on what you really know.”
“So if I just stick to fixed income investment, which is what I know, where does that leave me?” “It leaves you better off.” “But different asset classes help return and diversify risk.” “Who says?” “CAPM and experience.” Another smile. “Besides, if I just invest in bonds and my friend in equities, and my grandmother in hedge funds, where will we be then?” “That is not the point. You accept other people’s wisdom too readily, and that is why you have a complicated mix of investments. The more you have the more you lose touch with what is important.” “OK, so with 2010 upon us, what do I do?”
“Mr Watertight, if you want to play you need to decide three things - the rules, the stakes and the quitting time.” “I think I know that, and with a near 100% funding ratio the pension fund has been managed well.” “Perhaps, but in 2010 you will re-evaluate your rules, your totems of investments, such as CAPM and diversification. You will learn to understand the risks of participation in the alternatives you do not really understand and you will learn to better asset allocate in various volatility environments. You will do things more simply and not rely on someone’s ready-made solution.”
The next morning, en route to yet another electronics factory, I sit next to the client service director. “So Pieter, do you think Wasserdicht Pensioenfonds might now allocate more to the portfolio?” I look up. “Just invest more, sit back and wait for the promised riches you mean?” “Yes.” “Probably not. But I will analyse more myself. I learned last night that in China a man who waits for roast duck to fly into his mouth must wait a very, very long time.”
Pieter Mullen is investment director at Wasserdicht Pension Funds