Research Provides an Avenue to Test New Ideas in an Unconstrained Environment

In this month's interview, we speak to Albert de Wet from FirstRand Group Treasury about the creation by FirstRand and EDHEC-Risk Institute of a research chair on the design and implementation of welfare-improving investment solutions for institutions and individuals. Albert de Wet also discusses the role of research in FirstRand's overall business strategy, the changes and challenges in the domain of investment management and the position of FirstRand in the current environment. He finally explains why they have decided to partner with EDHEC-Risk Institute on this research chair.

FirstRand and EDHEC-Risk Institute have announced the creation of a research chair on "Designing and Implementing Welfare-Improving Investment Solutions for Institutions and Individuals". Could you tell us about the concept of goals-based investing and investment solutions as conceived by FirstRand?

Albert de Wet:

Goals and objectives are generally formulated within a specific context and are based on knowledge and resources available at that point, however over time they can become stale whilst the demand on limited resources (financial and other) continues to increase.

Given the dynamic nature of the world in which we operate, one should immediately caution against applying a rigid definition to goals-based investing. This is especially true given FirstRand’s diverse client base and rapidly changing operating environment. We have therefore opted to use the awareness created through the goals-based investment narrative to re-align our institution’s abilities to more effectively service our clients’ needs.

We continue to focus on a framework underpinned by trust and strong disciplines such as: understanding the measures by which success and failure are defined from the perspective of the asset owner; clearly articulating the reasons why a specific investment strategy is effective when combined with limited financial and other resources; consciously constructing pay-off streams through efficient use of risk premia (rewarded risks); harnessing our unique attributes and abilities to add sustainable and accessible value; and ongoing evaluation and adjustments to changing circumstances.

Applying these principles over many years to our own balance sheet, we have been able to create significant value for our own shareholders and we believe we can continue to contribute to the welfare and sustainability of the broader system.                       

To what extent is research important to FirstRand's overall business strategy?

Albert de Wet:

FirstRand has invested extensively in people, technology and research to ensure we are fully informed on leading practices relevant to the entire business portfolio. Our research efforts have spanned global and domestic markets and range from opinion pieces to the sponsorship of in-depth academic research initiatives such as the EDHEC-Risk Institute research chair partnership.

We have developed strong internal expertise and capabilities related to financial and investment product development, credit risk management, asset-liability management and systematic trading strategies. This is supported by a fundamental, research-orientated risk management process. Research also provides an avenue to test new ideas in an unconstrained environment. Through this process we not only help to design the future we would like to participate in but create pathways to help get us there.  

Whether geared towards banking, insurance, asset management, wealth management or fiduciary balance sheet management activities, research is a critical lever in unlocking and enabling FirstRand’s strategic objectives.

The 1st year will focus on a detailed analysis of the interplay between diversification and insurance, could you tell us more about your hope for the chair?

Albert de Wet:

In a world of limited resources, it is becoming increasingly likely that even a “well-diversified” investment portfolio will not be able to satisfy all asset owners’ requirements. For example, global retirement saving systems’ funding levels remain low despite the long-term nature of these savings and the current application of the principles of diversification in both asset and liability pools. 

Within the overall long-term vision of the Research chair – “Designing and Implementing Welfare-Improving Investment Solutions for Institutions and Individuals” – the first year’s project challenges the status quo regarding the application of and interplay between diversification and insurance.

Technology has significantly advanced the ability to generate affordable convex pay-offs by changing the mix of individual assets on a consistent basis. The hope is therefore that we will be able to identify scenarios and environments where “insurance before diversification” leads to more effective long-term wealth creation.

What are the main changes you've noticed in the world of investment management over the last few years? How well positioned is FirstRand in Africa and more generally with respect to both sides of the Atlantic?

Albert de Wet:

Asset owners have become acutely aware of the gap between their current financial positions and their future financial wellbeing. This has spurred an intense re-evaluation of the reward and/or value added contributed by the many role players in the financial and investment industries. On a wholesale level the industry is challenged to redefine itself and contribute more strongly to the global economic system.

There have been some great advances made in the democratisation of new generation investment styles and technology, led by institutions such as EDHEC-Risk Institute. Whilst there is a realisation in the local industry that work is needed to enable mass customization of strategies, this space remains wide open for FirstRand to play a meaningful role in creating value for clients.

Elsewhere on the continent, strides have been made over many years on asset diversification, and whilst banking remains at the forefront of discussions with local regulators, there is a definite shift towards in-country fund managers starting to play a more active role in driving financial market reforms. We will continue to actively contribute to market development in all the markets we operate in, as they gravitate towards best practice.

FirstRand has an established developed market presence and we remain focused on our sustainable niche capabilities to international investors predominantly in the EU and the UK, with longer-term plans to broaden our offering to other regions.

What made you decide to partner with EDHEC-Risk Institute on this research chair?

FirstRand’s strategy remains focused on delivering better outcomes for our clients and stakeholders and the group has a track record in innovation, particularly challenging the prevailing status quo in a responsible manner. Our current asset management strategy is designed to disrupt the financial and investment management industry and provide real alternative investment solutions for our clients.

EDHEC-Risk Institute has established itself as a leading think-tank with respect to global investment research. The scope of their academic expertise and acumen has made them a global force for “pushing the envelope” of existing investment thinking.

By combining EDHEC-Risk’s academic rigour with FirstRand’s healthy bias for action and client centric approach we believe we can tackle some of the most important unsolved challenges in investment management.

About Albert de Wet

Albert is a senior portfolio manager within FirstRand’s Group Treasury. He has been integrally involved with the Group’s Investment Pillar the last 6 years, having fulfilled the chief operating investment officer function within the FirstRand Investment Management Office. On behalf of the Sponsor he has also overseen the office of the investment committees for the Group’s Retirement Funds’. He is currently owner of the FirstRand Group’s Post-Retirement Medical Aid Portfolio (PRMA) with end to end responsibility for the PRMA. The balance sheet is managed on an integrated basis to ensure that the investment, capital and funding strategy effectively satisfies the promise to policy holders within the constraints of all internal and external stakeholders.

Albert is a CFA® charter holder and has a PhD-degree in Econometrics. He is happily married to Mia and they are blessed with two lively sons of 11 and 9 years and a daughter of 7. The family is founders of the Tshwenyega Non-Profit Organization who have partnered with their Church and various multinational companies to provide affordable health care in their community.