GC: What else is there in a multi-asset portfolio besides equities and bonds?
SM: Alternatives. The new kids on the block have an absolute return approach. Things such as market-neutral, long/short equity funds to ratchet down your beta.
DHR: You have to look carefully when you buy these alternatives because what you are seeking is genuine diversification from fixed income and equities.
SM: We also spend time trying to mix styles of manager. We are never going to go all-in for growth or value. You get a blend and tilt it, throw in a few pragmatic managers and strategies, so you do not hitch your wagon to a specific style. All of that helps to diversify within an asset class, too.
BT: I spent time looking at catastrophe bonds. Part of the reason the team were against it was because the return profile is a straight line, but I was fascinated because they are genuinely independent of the economic cycle. However, they are illiquid and the market structure is that there is one single risk that dominates, such as a hurricane in Florida.
MP: We do not own any offshore at the moment because my London colleagues own Catco, investment trust cat bonds. Catco is more diversified, it has different buckets of risk and is kicking out at an annual coupon of 5%. It is completely uncorrelated to anything but can be completely wiped out.
GC: They are called ‘catastrophe’ for a reason. And on that bombshell, thank you all for your time.
