2021 Knowledge Brokers

Federica Cazzaniga

In her role as a portfolio adviser at Aksia, Federica Cazzaniga helps institutional investors across Europe, the Middle East, and Africa (EMEA) to design, implement, and manage their customized alternative investment portfolios, with a focus on private markets. She is also a member of Aksia’s ESG Working Group, responsible for the implementation and development of firm-wide environmental, social, and governance (ESG) projects and initiatives globally. Her nominating CIO said she’s a “rising star in the hedge fund space.”

Prior to joining Aksia in 2019, Cazzaniga was a portfolio manager for global credit strategies at JPMorgan Asset Management; she started her career within JPM’s Endowments & Foundations Group, managing discretionary multi-asset class portfolios on behalf of those institutions.

Cazzaniga graduated summa cum laude from Università Commerciale Luigi Bocconi (Italy) with a bachelor’s in economics and finance and a master’s in finance. She is a Chartered Financial Analyst (CFA) charterholder and has earned the Chartered Alternative Investment Analyst (CAIA) designation; she also holds the CFA UK Level 4 Certificate in ESG Investing.

In her free time, you can find her hiking in the mountains, reading about anthropology, or looking for a new restaurant to try. A passionate wine lover, she is currently studying for the WSET [Wine & Spirit Education Trust] Level 3 Award in Wines.

CIO: What new qualities do you look for in a manager/service provider given the pandemic’s financial and economic impacts?

Cazzaniga: I would not say the pandemic has changed my approach to managers, nor revealed new key areas of focus for the portfolio construction processes.

Having said that, the pandemic has represented for many managers and many portfolios—especially in private credit—the first post-2008 test in terms of going through a real economic and market crisis. COVID-19 has therefore shed more light on the importance of managers’ ability to credibly manage their existing exposures in time of crisis while continuing to source new investment opportunities and consistently deploy capital. This, in turn, is only possible for managers who not only have a solid investment team, but also extensive operational/business insights and workout capabilities, which are characteristics Aksia emphasizes, even in good times.

In addition, the pandemic has certainly reminded many of us, and indeed myself, of the importance of one element that investors should never underestimate when reviewing a manager: the level of transparency offered. In my view, COVID has highlighted the value of high-quality, detailed, and timely reporting, as well as the importance of having open and frequent interaction with managers. This is especially important in private markets, where managers are typically not subject to disclosure requirements. Only with timely and accurate information can investors form a good understanding of their exposures and take the appropriate actions in terms of manager engagement, re-ups, and—potentially—exiting a position.

Aksia has long focused on obtaining granular data from managers for private market funds in our portfolios, and this has certainly helped in getting good visibility on COVID impact at the portfolio company level, guiding discussion with managers and investors. We continue to build out our reporting capabilities to incorporate more information, on ESG, for example, aiming to bridge the existing gaps in standardization and to provide investors with the greatest possible transparency.

CIO: What changes are you making to your asset allocation advice?

Cazzaniga: One of the best pieces of advice I received at the beginning of my career was “become a specialist in something: Get that edge and that will make you (almost) indispensable.” I’ve always tried to live by that, and I now clearly see its relevance in the context of private market portfolio advice, too. As both the private equity and private credit spaces have matured and become more competitive, I’ve been encouraging investors to consider specialist managers/strategies who have the resources and knowledge necessary to unlock the “complexity premium” often available in less traveled areas of the market.

While 2020 fundraising trends benefited larger, more established managers with broader platforms, I believe there is value in allocating to specialist strategies focused on narrower and perhaps nichier segments, certain regions or countries (e.g., Asia), and industry sectors (e.g., tech, health care). This approach could bear benefits in terms of higher potential returns, but also increased diversification, as many of these strategies are less correlated with the broader market.

Another factor that is increasingly driving both asset allocation and manager selection advice, albeit one where it is more difficult to generalize, is sustainability. While investors’ views, needs, and sensitivities on ESG can greatly vary, I believe sustainability and diversity considerations will play a growing role in the design and implementation of institutional private markets portfolios—with investors increasingly looking to drive positive, tangible, and measurable social and environmental change through their investments.

CIO: What do you think will be the biggest innovation in your industry in the next 10 years?

Cazzaniga: The flexible and more agile nature of alternative investment strategies often puts them at the forefront of innovation, compared with other asset classes which may be subject to more regulatory or structural constraints. Moreover, the pandemic has created the need for new products, services, and approaches, as well as accelerated innovation trends which were already underway.

Ten years can make a big difference in financial markets and there are many trends I could mention, including tokenization and cryptos, fintech, and disintermediation. However, one of the biggest changes I am seeing is the increasingly blurred lines between public and private market strategies within alternatives. The rise of special purpose acquisition companies (SPACs) is just one headline-capturing example of financial innovation at the intersection of private and public equity markets. And one that may represent a valid option for private equity or venture capital exits, but also one that often penalizes unwitting investors. More broadly, many alternative managers now offer hybrid funds and investment solutions with many public-focused strategies taking a longer-term approach, and many private funds seeking to take advantage of more short-term opportunities.

In the corporate credit space, some of the most successful managers over the past year have been those able to pivot between public and private markets, taking advantage of liquid market dislocations and of the illiquidity premium at different points in time. On the equity side—traditionally an area with a clear distinction between private equity managers and equity hedge fund managers—we can now find hybrid equity strategies too, especially in certain geographies and sectors.

This growing overlap brings significant opportunities for managers who have the experience, resources, and access to allocate across the (il)liquidity spectrum. From an investor perspective, however, it highlights the importance of understanding the implications and risks associated with this flexibility, and it also reiterates the critical aspect of having the proper liquidity structure in place at the fund level, to minimize the risk of asset-liability mismatches.

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