2019 Knowledge Brokers

Maggie Ralbovsky

Title: Managing Director / Senior Consultant
Firm: Wilshire Associates
Assets under advisement: More than $1 trillion in assets under advisement; $65 billion in assets under management.
Number of consultants at firm: 31 consultants; 269 employees; 78 professionals.
Client type: Corporate and public pension plans, defined contribution plans, insurance companies, government-related institutions, endowments, foundations, and health care companies—providing advisory and discretionary services.

With a consulting career spanning more than 17 years, Maggie Ralbovsky now serves as a managing director and senior consultant at Wilshire Consulting. She is also a member of the board of directors at Wilshire Associates, a firm founded by Dennis Tito, a former JPL/NASA rocket scientist and the world’s first space tourist. Armed with multi-dimension optimization/simulation models developed as a trajectory engineer, Tito founded Wilshire 47 years ago, on the notion that computer-based simulation and risk management tools that the space agency used could help design and stress test investment portfolios that are similarly influenced by numerous independent while interconnected variables.

“Some of the technological methods the scientific community used at the time became Wilshire’s first products and evolved into innovative risk analytics that we still use today,” Ralbovsky tells CIO.

“With this genesis, Wilshire’s DNA has the roots in studying why investors are getting paid for taking certain risks and how to get the biggest bang for the buck. Decomposing returns to attribute to the different risk factors can help us understand which risk factors pay what over time. We want to have a portfolio that is informed by that insight, so we can adjust strategic asset allocation on a forward-looking basis in a more responsive way to the evolving investment paradigm that we may enter.”

Getting an Informational Edge

Ralbovsky’s clients are diverse, ranging from public pensions like the Government of Guam Retirement Fund, to sovereign wealth funds including the Federated States of Micronesia and Native American tribes, including the Morongo Mission Indians.

One of Ralbovsky’s key focus areas in her work is to understand how the risks and opportunities technological advances impact the status quo, as they’ve been disruptive to many of the old practices, Ralbovsky says. “When I first started my investment consulting career, one could have an information advantage with an optimization model for a portfolio. Those days are over. Today, information is instantaneously available to investors, large and small.”

To possess information advantage, one must work harder to uncover unstructured data that can be analyzed by increasingly sophisticated algorithms. At Wilshire, the research team has focused on using technological tools to gain insights to efficiently construct portfolios from risk factor exposures—and to put together a portfolio factor by factor. Examples of this include building smart beta and alternative beta portfolios that are able to outperform at a lower total cost.

Ralbovsky says these are exciting natural progressions for Wilshire’s practice, since its inherent strengths are the use of analytical tools and the cultural focus on studying how risks are getting paid, as well as identifying which asset classes/factors are providing more benefits during a particular phase of the market cycle.

Another interesting development that Ralbovsky notes is the blurring of the lines dividing public and private markets, which has significant implications to asset allocation decisions. When Wilshire constructed the Wilshire 5000 index in the 1970s, there were roughly 5,000 publicly traded stocks in the US. Fast forward, and that number has dropped to somewhere over 3,200 today, with a greater concentration of mega-cap companies than ever before.

“After 2008, many different iterations of regulatory changes took place, leaving public companies with a lot of burdens that many newer companies do not wish to shoulder,” Ralbovsky says. Innovations in blockchain and initial coin offerings (ICOs) have also played a part in blurring the lines with new companies raising money/seeking liquidity that way instead of going public.

“You cannot ignore ICOs—the technology is there and billions of dollars have been raised on that platform,” Ralbovsky contends. “For now, we are only monitoring that market and we try to understand whether they may or may not fit in an institutional portfolio. Right now, it is not feasible to invest in ICOs for institutional portfolios.”

Another emerging trend Ralbovsky is focused on is Chinese on-shore shares. She says they may play a bigger role in client portfolios than they have in the past as investors rethink their approach to that market. “I think China is a puzzle that the institutions need to crack for the future because it represents both risks and opportunities. I don’t think the trade tension is simply about trade—it’s a challenge for the economic order that was established by the West, and it’s China’s way to let the world know there’s a competing economic regime that can also work in lifting the developing countries from poverty. As the population of the West continues to age, China is aiming to capitalize on the future growth potentials of the emerging world in its own favor.”

Indices such as the MSCI equity indexes have been gradually adding China on-shore shares into their main indexes, but for investors who look to take into account the entire investment opportunity set, “it’s probably a great time to consider Chinese on-shore shares that are not currently included in the standard global indexes. As the index providers gradually add them in the index, index fund investors will participate—try to get in early before those passive flows occur,” Ralbovsky notes.

While managing investments in China or elsewhere, Ralbovsky stresses the importance of understanding the implications of portfolio liquidity to the long-term health of an institutional investment portfolio. “After all, if you cannot survive the short run, the long run is irrelevant,” she says. As a result, Ralbovsky and her team have expanded their use of stress testing as a means of safeguarding portfolios.

By Steffan Navedo-Perez

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