2023 Knowledge Brokers

Eileen Neill

Eileen Neill, a managing director and senior consultant at Verus, provides a broad range of consulting services to institutional public funds with assets ranging between $2 billion and more than $200 billion with respect to the successful development and implementation of their investment programs; these services include risk management, strategic asset allocation, investment policy development, manager selection and ongoing board education.

She holds a B.S. in business administration from the University of Arizona, an MBA from Chapman University and the Chartered Financial Analyst designation. Neill serves as a board member of WAVE [Women’s Association of Venture and Equity] and is a mentor for the CFALA [CFA Los Angeles] Career Mentorship Program.

CIO: What changes are you making to your asset allocation advice, given the current state of monetary policy in a post-COVID, deglobalizing world and considering the impact of inflation and rising interest rates?

Neill: While it’s important to keep abreast of short-term economic and political trends, asset allocation advice requires a long-term view. Where these variables manifest impact is in the capital-market assumptions that support asset allocation advice. Best practice is to update these assumptions at least annually, and more frequently if large shifts occur in the key economic drivers of rates, inflation and economic environment. For example, this year, my firm produced a mid-year capital markets assumptions update to our suite of assumptions that reflected the large movement in both rates and valuations since year-end 2022.

Since we entered a higher inflation environment, the attractiveness of public markets fixed income has increased to the point of warranting a higher allocation, where the impact to long-term expected returns is positive given clients’ unique asset allocation objectives. I think the march to single-digit fixed-income exposures may be reversing as a result. Some clients are growing concerned about increased geopolitical risks, particularly with respect to China. However, at this point, there does not appear to be a compelling case for abandoning the prevailing theory that the broad global market offers the highest risk-adjusted returns versus a home-country-biased portfolio structure.

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

Neill: Regarding the consulting industry, I believe the biggest innovation will be integration of AI. Required timeliness of responses to clients’ needs involving analysis to support recommendations and reporting have led to dramatically truncated turnaround times over the past decade. At the same time, as investment strategies and data proliferate, the amount of information required to support clients’ needs has grown exponentially. I expect these trends to continue and accelerate. Under this expectation, it will be necessary to evolve the consulting services delivery model to facilitate quicker assimilation of information to provide clients with solutions that continue to remain customized to their unique investment goals and risk preferences.

Pivoting to an evolved service paradigm will force consultants to consider embracing an increased use of technological resources—which will be costly—while maintaining narrow margins under persistent fee pressure from clients—which will not abate. Additionally, how well consulting firms succeed under this service paradigm shift will be a function of firm culture and how they currently view, and budget for, technological tools and resources. Firms farther along this curve will fare better and take market share from those that lag. Further industry consolidation will probably result from this expected evolution.

CIO: What macro themes will drive the most volatility for institutional investors over the next 10 years?

Neill: The two biggest drivers of capital market volatility are economic growth—typically represented by GDP [gross domestic product]—and inflation. It is difficult to predict both of these variables over any short- or long-term time frame with accuracy. However, they are both heavily influenced by underlying fundamentals, such as general supply and demand conditions or central bank/government policies. Over the next 10 years, global economic growth is going to be impacted by the pace and depth of utilization and integration of AI by varying economic and industry sectors.

We already see this issue here in the U.S. as a factor in the negotiations between the Writers’ and Actors’ guilds and major streaming entertainment services and studios. Growth is the dominant factor risk behind equity returns, and equity returns already have a high associated volatility. Thus, over the next 10 years, I expect equity volatility will reflect historical experience. Inflation is a key factor risk underlying most asset class returns, but especially income-oriented investments. Inflation will likely be higher over the next 10 years given the end of rate-easing activities by central banks, which dominated the past decade until 2021. Higher rates are usually associated with higher volatility.

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