Featured Expert: Navigating crisis and volatile markets “a part of life” for IMCO’s CIO

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Featured Experts / Featured Expert: Navigating crisis and volatile markets “a part of life” for IMCO’s CIO

Investing against a backdrop of a global pandemic is challenging enough. For IMCO, it has also meant that the organization is taking its first steps as a full-service global asset manager in one of the most volatile and uncertain period in recent history. We spoke with Jean Michel, IMCO’s Chief Investment Officer, to get his insights on the unique challenges and opportunities posed by the current environment.

This is a formative period in IMCO’s history. How are you thinking about your strategy for the next three to five years?

We’re building a full-service, multi-client investment organization from the ground up, and our goal is to be best in class. Strategically speaking, we believe we’re differentiated because we can offer our clients great portfolio construction advice and access to investment products and opportunities that they can’t get on their own. When we overlay that with great risk management, a total-portfolio point of view and a customer-centric approach to client service, we think we have a really compelling formula.

What about the impact of the COVID-19 crisis? Is this a difficult time, a time of opportunity or a balance of the two from your perspective?

I think it’s a balance. On the one hand, we’re seeing challenged businesses struggling to navigate the pandemic, whether because of health and safety, cashflow or other impacts of the pandemic. On the other, the dislocation has created some great opportunities for us, and you’ve seen us take advantage of these in recent weeks.

Generally speaking, because we invest for the long term, we accept volatility and the fact that we will see down markets and moments of crisis as a part of life. That means we spend a significant amount of time stress-testing our portfolio and the businesses and assets within it. Long before COVID-19, we shared some of these results to our board and our clients, so that they could see what might happen in the event of a serious crisis. Our intention was to set clear expectations ahead of time, so that if and when a crisis hit, we could focus all our energy on finding opportunities. And that’s exactly what we were able to do when COVID-19 arrived.

The other important component of navigating a climate like this one is sufficient liquidity. It can be quite costly to have too much, but it’s even more costly when you don’t have enough liquidity in a down market, so we’ve always worked to be really sophisticated when it comes to managing it.

Because we invest for the long term, we accept volatility and the fact that we will see down markets and moments of crisis as a part of life.

You’re building IMCO at a time that has demanded a lot of flexibility from businesses everywhere. How are you positioning the organization for the future?

First of all, we’ve got great people. We’ve been able to attract very talented investment professionals from some of the best asset management shops in Canada. IMCO might still be a relatively new organization, but our teams have an incredible depth and breadth of experience across the full spectrum of investment expertise and a track record of delivering returns for clients.

The other advantage of being new is that you don’t have to manage legacy processes, systems and technologies. We can leapfrog others thanks to cloud technology, which also lets us stay flexible, nimble and agile. This has really helped us in the pandemic, where we’ve seen only a very small reduction in productivity, enabling our teams to stay 100 percent focused on sourcing and executing on opportunities that fit our appetite.

What’s your view on the future of global economic growth? What trends should investors be paying attention to?

I think several key things are happening concurrently, and they’ve been accelerated by the COVID-19 crisis.

First, the trend of slowing globalization has been around for quite some time. COVID has created more pressure around that, but even more around diversifying and strengthening supply chains for corporations. Deglobalization as nations closed borders and looked inward could have negative implications for global growth but I believe the supply chain transformation could be positive and will certainly create opportunities. For example, countries like India and Vietnam could benefit from it.

Second, the crisis is also accelerating the strain being placed on government balance sheets. The amount of debt being accrued at the central bank and federal levels as countries launch pandemic relief programs means that taxes are likely to go up in the future. That type of spending are also not very productive which isn’t good for growth over the long term, and we have to remember many governments already were heavily indebted heading into this crisis.

As a long-term investor, all of that taken together is obviously worrying because it foreshadows that rates may stay low for a long time to come, productivity likely will not grow meaningfully and, as a result, we are likely to see low expected returns for most asset classes.

There are other trends that have been accelerated like e-commerce penetration or the work from home dynamic but I think what is important at the end is that instead of simply spotting these trends, we’re spending a lot more time on understanding them, determining how they translate into investment opportunities and what impact they might have on our portfolio.

The implementation and use of environmental, social and governance (ESG) factors in investing is another long-term trend for the industry. How is IMCO looking at the ESG space right now?

We really think we’re at an inflection point when it comes to ESG. It’s been around for years, and there has been much discussion around it, but we believe only now we are starting to see it reach critical mass.

We’ve been using ESG factors as part of our approach for some time and want to see those considerations implemented everywhere, across all asset classes. ESG is also high on the list of priorities for our current and potential clients, so we want to ensure that we continue to address it in a really meaningful way that makes a difference.

There’s a tremendous amount of ways that investors are using ESG right now. So we are being planful and careful in how we incorporate ESG into our client offering and our portfolio. But there’s no question that in the next two to three years, ESG will become table stakes in the industry.

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