2016 knowledge brokers

Justine O’Connell

As head of innovation at one of the most innovative consulting firms in Australia, O’Connell is consistently working on how to help clients in new ways. It’s not about innovative product development, she says, but about thinking creatively: “We want to be seen differently from our competitors within the alternatives sector.” 

How do you defend investment consultants in face of critics? 

Some of the criticisms are fair, but I believe consultants can still play an important role. The current investment environment presents a number of challenges, but it also creates opportunities for new capabilities and tools to better serve clients. I couldn’t imagine working with some of the capabilities currently at Frontier five or ten years ago. The relationships with our clients have also changed into more of a partnership and we work closely with internal teams—both positive changes for the industry that should result in better end returns.

Describe the weirdest interaction you’ve ever had with a client or potential client. 

At a previous consulting job, I served as the primary consultant to the firm’s internal pension fund. I wasn’t used to working daily alongside members—especially such investment-savvy ones.  

Design a hypothetical portfolio: An existing foundation in your home country has been invested in a 60/40 portfolio since its inception and is looking to clean the slate. The fund has US$3 billion in assets with an annual target return of 7.5%. The annual spending rate is 5%, and the fund receives an average of $70 million in annual inflows. Given today’s markets, how would you allocate the assets?

Before allocating the assets, I’d be keen to understand the client’s risk tolerance. The target return and spending rate are challenging given treasuries are around 1.5% and cash rates are historically low or even negative. Maintaining these targets could mean taking on excessive risk or eroding the asset base. However, a more diversified portfolio including some illiquid assets and alternatives should enhance the risk-adjusted return profile. Specifically, I’d recommend allocating from bonds to low-risk unlisted core property and infrastructure—a moderate allocation given the fund’s liquidity requirement. Second, include a downside protection strategy to hedge the equities allocation. Finally, increasing diversification to more liquid alternatives such as floating-rate debt and multi-asset strategies should diversify return drivers and deliver reasonably solid returns.

What is your least favorite part of being a consultant? 

When an investment or a manager doesn’t perform as expected—and the consequences impact the beneficiaries. It’s disappointing.

What is the single most exciting investable idea you see in the market right now? 

It’s hard to get excited about anything in the current market—most assets are over or around fair value. Any pockets of value appear not without meaningful risks.

Name your favorite food & drink. 

Chocolate and coffee.

The trend of consulting firms moving into OCIO is… 

The outsourced model is not common in Australia, but it’s not unexpected given it’s a higher margin business. It can be a neat solution for some, but can also come with conflicts of interest. 

What will be the biggest innovation in your industry in the next 10 years? 

The consulting advice delivery model will change meaningfully in the next 10 years. Consultants will likely advise more directly with more sophisticated tools and systems—but
it will always remain a relationships business.