2021 Knowledge Brokers

Martijn Vos

Nominated by a well-respected CIO who has been working with him since 2015 for his solid advice on risk and strategic asset allocation, Martijn Vos has advised more than 300 asset allocators during his career with pension plan redesign and consequences for the investment portfolio. Specializing in risk management, asset/liability management, and investment consulting for both defined benefit (DB) and defined contribution (DC) plans, as chief operating officer (COO), he is also responsible for the climate and environmental, social, and governance (ESG); economic scenario generator; and performance attribution teams at Ortec Finance.

Vos also served as chairman of the pensions committee of the Royal Dutch Actuarial Association from 2013 to 2016 and has chaired the Chartered Financial Analyst (CFA) Society VBA Netherlands’ annual conference on asset liability management since 2015.

Vos has a master’s in financial econometrics from Erasmus University Rotterdam and started his career with ORTEC in 1995. He is a registered investment analyst and an academic scholar of the Center for Retirement Initiatives (CRI) at Georgetown University’s McCourt School of Public Policy in Washington, D.C. He often speaks at conferences and teaches risk management at institutes such as Nyenrode Business University in Breukelen, Netherlands.

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

Vos: A key quality that has always been important is a sound and disciplined investment philosophy and consistency over time. In general, in periods of crisis, institutionalization of early warning, emergency planning, preparedness, and quick responses is very relevant. What we look for is a manager/service provider that delivers a portfolio/strategy and adds early warning and emergency planning. These elements are the core of what we do at Ortec Finance: scenario analysis and scenario planning. We look for managers and service providers that can translate the goals of the asset owner to a (dynamic) strategy.

Or, stated differently, a CIO of any asset owner should be able to assess the key investment decision by analyzing (or receiving an analysis of) the relevant risk and return metrics of various (dynamic) investment strategies for appropriate horizons and test the robustness of these investment strategies under different economic conditions/scenarios. In a COVID-19/post-COVID world, this is even more important.

Goal-based investing is important for asset owners and, for many of them, the goals go far beyond a fixed target return for a long horizon. Cash flow and liquidity planning is key for many DB plans and should be part of the process of the manager. The better the service provider understands the context of the liabilities, the (local) regulatory environment, and the governance of balance sheet decisions, the better positioned he is to really help the asset owner. This brings us to a final point: We take good notice of the governance at any manager of the service provider, as we strongly believe that good governance adds value.

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

Vos: Central to our asset allocation advice is a risk/return trade-off in the context of the specific goals of the asset owner. Climate change and ESG are included consistently in this trade-off. Traditionally, the strategic asset allocation (SAA) defines the large chunk of risk and return, which is why we consistently propose a top-down approach to asset allocation. With climate and ESG integration, top-down is still relevant (the Canadian economy is impacted differently than the UK economy), however this is not enough: Bottom-up elements should be included as well to assess, for example, the physical impact of climate change of a specific investment.

So we add bottom-up “alignment” to the approach. As many DB plans are getting cash flow negative and return considerations make illiquids more relevant, a liquidity planning and analysis is added to asset allocation advice as well. As mentioned previously, scenario analysis is an integral part of any advice. Finally, we always assess what can be improved by conscious performance attribution/analysis of the portfolios.  

Next to the advice, we focus on the governance and implementation of this advice:

  • As a CIO/trustee: Generate options and avoid behavioral pitfalls when you need to select an option;
  • Be a leader (not only a manager) and take difficult decisions as early as possible—do not delay changes in your portfolio; and
  • What governance is best used for these decisions and what can be improved?

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

Vos: Over a 10-year horizon, strong underlying trends are more important than market conditions. Innovation will be linked to those trends (mostly adjacent and core innovation), but we will also see innovation that comes from other industries.

Core innovation will be linked to smarter/faster data gathering and data analysis. The CIO will be more and more supported by machines to receive early indicators or early warnings from artificial intelligence (AI)-type models. This addresses another important point: data availability and data quality.

This is linked to the second trend of climate change and ESG in general. We expect major innovation in how ESG is integrated in the decisiomaking process, especially if more data becomes available. This can be by the traditional data providers stepping in, but we also see merits in the open-source initiatives where asset owners and asset managers share their information/knowledge openly. Although the focus is now on climate change, you already see the next waves coming: biodiversity, clean water/water supply, corporate governance, etc.

Finally the trend of DB to DC will not stop and requires innovation to cost-efficiently manage individual portfolios (or at least qualify the individual goals and then group members) and to communicate. We expect innovation to follow recent developments in the banking industry that is, in our view, ahead of the pension industry when it comes to serving individuals.

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