While APRA has asked big super funds and other institutions – and for them to ask their service providers – about their plans to deal with the pandemic, the big funds and their advisors are already on the case as much as you could expect them to be. No-one knows what’s going to happen next. Certainly not APRA.
The pandemic has caused some panic in the markets, although the coincidental oil price drama because of Russia’s move away from the major producers’ cartel also hit energy stock prices. But the share market was considered overdue for a correction, too. The longest bull run in history has to come to an end at some stage. It didn’t need to be this dramatic, though.
Representing a lot of big not-for-profit funds, and other investors, Frontier Advisors issued a note to clients late Friday (March 13), which spoke about the benefits of its “split workforce”, whereby if a person gets infected, he or she doesn’t bring the whole team down into quarantine. Frontier was already a family friendly work environment, allowing people to work from home when practicable, as its big competitors such as Mercer and JANA also do.
But Frontier has a rare advantage for its clients in the current pandemic. One of its senior investment consultants, Marty Thomson, also has a PhD in molecular cell biology and previously worked as a virologist. “He must have been waiting his whole life for these two worlds to intersect and so finally he can speak with authority on investing and virology at the same time!” one of his colleagues said.
In a recent podcast for clients and others, Dr Martin Thompson, the Frontier senior consultant, said there were three main scenarios: the first was where the measures to contain this were successful and we manage to exterminate the virus, which was happened with SARS, but that was becoming increasingly unlikely; the second scenario was what was being seen until a week ago with localised outbreaks and epidemics around the globe; and the third scenario was the pandemic, which had been declared of last week, where it spreads everywhere with community transmission.
The good news according to Dr Thompson is that the differences between the second and third scenarios are not a lot different in terms of how you can stop the virus. In both cases you end up with socially distancing measures, such as closing down schools, public transport and getting people to work from home. In terms of the economic impact those two scenarios may not be vastly different.
“When we send an ‘end in sight’, it will happen,” he says. “While there didn’t seem to be much opportunity at the moment there will potentially be opportunities for investors such as in distressed debt investing….The reality is there will most likely to be a number of companies which will struggle through this, especially those in areas like tourism or trade… Monetary and fiscal policies are probably not going to be very helpful going into this situation but can be as we come out of it in helping the economies to recover.”
Most big super funds are also big employers in the own rights, so their reactions to the pandemic are concerning both the protection of their hundreds of staff and the protection of the portfolios of their thousands of members. It’s a classic case which demonstrates the benefits of diversification.
Dr Thompson could also have mentioned a number of other industries, apart from tourism, which will badly affected. For instance, last week two major investment conferences and an important ESG strategy roundtable meeting were cancelled, because of the virus. They were: CMSF, a 1,200-person event, the smaller RIAA for “responsible investing’, and an Eaton Vance-sponsored ‘climate change’ discussion. John Streur, the chief executive of the Eaton Vance ESG-specialist affiliate Calvert, was due to speak at all three. He offered to do video conferencing, but the organisers of each event felt it would still be too risky to have a lot of people in the same from for a certain length of time.