2021 Knowledge Brokers

Celia Dallas

As chief investment strategist, Celia Dallas is responsible for formulating Cambridge Associates’ global investment strategy. She “is an outstanding asset allocation and risk professional,” said a CIO for a foundation.

Since joining Cambridge Associates in 1996, she has contributed to research initiatives and publications covering a wide range of capital market and investment planning topics, including portfolio construction, endowment spending, liquidity management, and tactical asset allocation. She is the author of the firm’s quarterly publication, VantagePoint, in which she shares its in-house views and advice. She is a frequent presenter and discussion moderator at the firm’s roundtables and industry conferences.

Before joining Cambridge Associates, Celia was a consultant for Harlan Brown & Co., a competitive intelligence consulting firm. In this position, she researched, wrote, and presented market analysis commissioned by Fortune 500 clients on a variety of consumer and industrial products. She also worked for the Employee Benefit Research Institute (EBRI), where she conducted research on retirement income security issues.

Dallas has a Master of Business Administration from the Darden School of Business, University of Virginia, and a bachelor’s degree from the University of Pennsylvania. She also is a board member of the Virginia Environmental Endowment.

CIO: How have you adapted your investment planning process given the pandemic’s financial and economic impacts?

Dallas: The COVID-19 crisis has served as a stress test for our investment process. We didn’t know exactly what the next crisis was going to look like, but we had considered combinations of enterprise and portfolio stress with our clients, so organizations were prepared to evaluate the impact of COVID-19 and react. Every crisis has its unique characteristics and the hallmark of this one was the remarkable speed of portfolio recovery, coupled with the extended strain on business models of many industries and nonprofit institutions. The experience underscores the benefits of our use of enterprise reviews and stress tests as part of our integrated portfolio management process. It also reinforces the need to evaluate the resilience of portfolios under more varied environments.

Client outcomes in 2020 highlight the effectiveness and importance of understanding the key links between investment portfolios and the enterprises they serve in aligning portfolio construction with operational considerations. At Cambridge Associates, we revisited these enterprise considerations with clients whose circumstances were fundamentally altered to understand if their goals and objectives were modified by their experience and adapted investment policy accordingly. The experience also demonstrated the importance of strong governance and processes to efficiently execute on strategy. Investors that maintained best-in-class governance and processes were well-positioned with liquidity or could access it via lines of credit or borrowing and were able to move quickly to rebalance portfolios and make opportunistic investments. Further, advance deliberations on how to respond during a crisis proved beneficial in preparing investors. This included discussion of what a severe market correction looks like, the importance of rebalancing, and thoughtful stress tests of liquidity sources and uses. We will continue to emphasize these best practices.

The global fiscal and monetary policy response to the crisis has also elevated the need to make sure that stress test exercises include a variety of challenging high-inflation scenarios. Such scenarios have not been a concern for several decades, and while still a tail risk, they are appropriate to consider thoughtfully in the current environment.

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

Dallas: Since the onset of the COVID-19 pandemic, Cambridge Associates’ asset allocation advice has been driven by two factors: 1) evaluating where we are in the economic cycle, informed by the sufficiency of the fiscal, monetary, and medical policy response and 2) building resilience into portfolios in recognition of evolving market and environmental risk characteristics.

As the world went into lockdown, markets sold off sharply. We rebalanced portfolios in late March 2020 to policy targets (once we made sure that cash needs were adequately provisioned) as policymakers moved swiftly to support the private sector and sustain market functioning. As vaccine development progressed and economies opened up, we tilted portfolios toward assets we expected to benefit from reflationary conditions, such as small-cap stocks, value stocks, and non-US developed and emerging markets, and we reduced more defensive positions, such as high-quality stocks. We have also been opportunistic about investing in credit. Today, we are maintaining these reflation positions with an eye toward trimming as economic growth slows. For now, we believe that markets have overreacted to the slowdown in the rate of economic growth, which will decline from exceptional levels, but is poised to remain strong for at least the remainder of the year and probably longer. At the same time, we maintain exposures to high-quality equities, where valuations have improved, as a hedge on these more cyclical positions, should the economic cycle mature faster than we anticipate.

Portfolio resilience is always desirable, particularly if it can be done with limited opportunity cost. As yields on high-quality sovereign bonds have fallen and longer-term inflation risks have increased (although remain a tail risk, in our view), we have looked to move portfolios into a more resilient set of diversifying assets that have the potential to outperform during more varied economic scenarios than nominal bonds. In addition, we continue to focus on issues of sustainability and diversity and inclusion to improve long-term returns and the financial stability of portfolios.

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

Dallas: Necessity is the mother of invention. Asset managers are facing three main pressures today: 1) commoditization of an increasing array of investment exposures, 2) related fee pressures, and 3) customer demand for transparency and customization. These forces have led to bifurcation of the industry into low or no-fee index funds that are able to operate profitably through obtaining scale and efficiency, and alpha-oriented strategies operating in smaller markets or requiring more specialized knowledge and skill. Capital flows into passive strategies and private investments have both been exceptional in recent years.

Over the next decade, asset managers will increasingly adopt technologies to improve investment performance, enhance efficiency, and better meet clients’ needs in a cost-competitive way. We expect software as a service (SAAS), artificial intelligence (AI), and blockchain technology to become increasingly integrated into investors’ platforms. Further, one aspect of customization today—sustainability and environmental, social, and governance (ESG) considerations—will become pervasive and more systematically integrated into all successful managers’ portfolio evaluation processes given the growing recognition of their importance in generating strong economic results.

E_NOTICE Error in file footer.php at line 179: Undefined variable: auther_name