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Impact Investing

IPE special report May 2018

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Economic situation mirrored by gifts

"Some of my clients are doin' real good, some not," said a Texan attendee at this year's CFA Annual Conference. "But we are proud to be Americans."

Some of the most interesting stories at this conference, as at many others, came not from the main stage but during frequent coffee breaks from the audience. These are hard times for middle America, college funds have been depleted, retirement plans put on hold. "How are we going to afford anything with so much debt in our economy?" asked another attendee.

The CFA Institute has a deservedly high reputation for what it does; training professional and private investors in the broad rudiments of investment analysis. But like any other mature luxury brand grown in the developed economies, it is evident it has realised where their best future prospects lie. A small but growing number of attendees are industry professionals from Hong Kong, China, the Middle East, Africa and South America.

Some are wealth advisers, some money managers, some manage pension and sovereign wealth funds. "Here it is cheap to buy luxury products," observed a Chinese fund manager, who had just returned with several very large Louis Vuitton shopping bags, "I will visit again." The Institute has opened offices, and is looking for custom, all around the emerging economies. Two-thirds of its members are from the US; within five or 10 years this is likely to be reversed.

Meanwhile, a succession of speakers did little to raise the audience's spirits. Liaquat Ahamed, Pulitzer Prize winning author of ‘Lords of Finance', opened proceedings with a summary account of the banking crisis that led to the Great Depression. FT pundit and moderator John Authers explained to the audience just how "creepily relevant" this might to our current circumstances but did not draw all the conclusions he might have done; re-armament before World War Two did much to curtail the depression.

Next morning, David Blanchflower gave us a polished but very familiar analysis of why, as a labour economist, he thinks that cutting too soon might yet precipitate disaster. "A lot of my clients are Republicans," responded one listener, "I don't know how welcome Mr Mayflower might be in Texas."

Blanchflower, who once sat on the UK's Monetary Policy Committee, and once predicted the banking crisis, received scattered applause, unlike Willem Buiter, now out of the academic world and chief economist for Citi. Buiter has an advantage over many rival commentators; he understands not only the theory and but also the implementation of fiscal and monetary policy in the EU. His exposition of global imbalances lingered over the danger of default by euro members like Greece and Portugal won a round of strong applause.

Then there were the showy, high conviction speakers, selling a book or trying to attract investors. Pippa Malgrem, the only female main speaker, warned us that Chinese investors had bought up an "unknown amount" of Greece's olive groves, and that we could expect the price of cold pressed virgin olive oil to shoot up any time soon. Her main message boiled down to the efficacy of buying stocks with good, unencumbered cash flow; this will doubtless come as welcome validation to value investors. Jim Rodgers wound up the conference literally and metaphorically with smooth rehearsal of his oft repeated views that our children should all learn Mandarin Chinese as "this will the be the world's most important language". Commodities, he added, were a better bet than stocks, and he would soon be shorting US Treasuries.

The truth is that we have heard all this before, whether at other conferences or on TV business channels, and it is hard to believe that such well-rehearsed opinions, if they are worth anything, have not already been priced into the markets. As one Scottish Widows fund manager whispered: "Last year the speakers were sure the euro was finished and bonds would go into freefall, but the opposite happened." If you are contrarian, go long on US Treasuries, dump your commodities and stick to your Italian evening classes; Tuscany is still looks a better holiday destination than Tientsin.

Nevertheless, the overall mood in conference was sombre, laden with a sense that there might yet be worse to come in the global economy. Many of the smaller afternoon sessions were about risk, and how to better measure it. Speakers warned that the sluggish will be steamrollered flat by events. Asset allocators need to be more nimble, ready to look past conventional wisdom. Once again, we've heard all this before but American attendees confirmed that their clients were now moving money into non-domestic assets at a pace.

The clearest indicator of where we stand economically could be found in the giveaways offered by exhibitors at the conference, including some of world's largest banks, and service providers. Every stand carried the same disappointing collection of pens sporting logos, notebooks and jars of breath freshening mints - a long cry from the beach balls, binoculars and baseball caps of a happier, wealthier, pre-crunch world.
 

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