TODAY WE ARE TALKING ABOUT WHAT IS GOING TO COME IN
MARKETS AND HOW WE ARE GOING TO SEE IT LAST MONTH YOU TOLD
TRADERS TO ACT IN A CONTRARIAN WAY. WHAT DOES IT MEAN TO BE
CONTRARIAN FOR A $1.3 TRILLION FUND THAT IN SOME WAYS IS THE
MARKETS. NICOLAI: CONTRARIAN MEANS TO DO THE
OPPOSITE OF EVERYBODY ELSE AND THAT'S WHERE ALL THE MONEY IS.
IF YOU ARE RIGHT IN A CONTRARIAN WAY, YOU WILL DO
MUCH, MUCH BETTER AND THAT'S THE PHILOSOPHY WE TRY TO
INSTALL INCREASINGLY AMONGST OUR TRADERS AND FOR FULLY
MANAGERS.
>> DOES THAT MEAN IN TERMS OF SPECIFICS?
WHAT COMMON THOUGHT FUELING AGAINST? NICOLAI:
IT WAS EASIER LAST YEAR TO BE CONTRARIAN BECAUSE THERE WAS
NEGATIVE RATES AND THERE WAS ONE WAY THEY COULD GO.
A LOT OF PEOPLE SELLING OUT OF THE INTEGRATED OIL AND ENERGY
COMPANIES. THAT SEEMED LIKE A GOOD PLACE
TO BE. EQUITIES AT THE HIGH-LEVEL ALSO.
NOW IT IS MUCH MORE DIFFICULT NOBLE CONTRARIAN IS.
THERE IS LESS OF A CLEAR TREND AND THERE'S LESS OF A CLEAR
POSITIONING IN THE MARKET.
>> YOU MENTIONED ENERGY EQUITIES WHICH DID INCREDIBLY
WELL AND LED THE RALLY THAT WE SAW LAST YEAR.
YET YOU HAVE A COMPLICATED RELATIONSHIP WITH FOSSIL FUELS
BECAUSE IT IS OUR MANDATE NOT TO INVEST IN COMPANIES THAT
HAVE BIG CARBON FOOTPRINTS. HOW HAVE YOU MANAGED A RALLY
THEY LET PEOPLE SAY WILL CONTINUE AT A TIME WHEN IT KIND
OF GOES AGAINST SOME OF YOUR MANDATE? NICOLAI:
SINCE THE FUND IS BASED ON REVENUES FROM OIL AND GAS, THE
PARLIAMENT DECIDED THAT WE SHOULD NOT INVEST IN PEER
UPSTREAM OIL COMPANIES. WHAT WE DO IS INVEST IN THE
INTEGRATED ENERGY COMPANIES. I THINK THAT'S A GOOD PLACE TO
BE. THEY ARE PLAYING A VERY
IMPORTANT ROLE IN THE ENERGY TRANSITION, AND SO WE CONTINUE
TO HAVE BIG INVESTMENTS THERE.
>> HAVE YOU INCREASED ALLOCATIONS ON THIS WAGER THAT
THEY WILL HAVE AN EVEN BIGGER ROLE AS PEOPLE REALIZE IT WILL
TAKE FOSSIL FUELS TO GET TO THE OTHER SIDE THAT PEOPLE THINK OF
AS A CLEAN ENERGY FUTURE? NICOLAI:
FOR THE MOMENT WE HAVE EQUAL WEIGHT TO THEIR.
>> A LOT OF PEOPLE ARE TALKING ABOUT A POTENTIAL DOWNTURN IN
EQUITIES. WE HAD BRIDGEWATER ON YESTERDAY
TALKING ABOUT A 20% INCLINE AND EARNINGS BUBBLE IN STOCKS.
SINCE YOU ARE SUCH A BIG INVESTOR A PUBLIC EQUITIES
GLOBALLY, HOW ARE YOU PLAYING THIS?
DO AGREE WITH THAT ASSESSMENT? NICOLAI:
I THINK IT'S A FIRST TIME THAT I'VE SEEN SUCH POTENTIALLY VERY
DIFFERENT OUTCOMES. NORMALLY I HAVE A ONE STRONG
VIEW. HERE I THINK THERE IS POTENTIAL
THAT THE WHOLE THING COULD MUDDLE THROUGH AND THE REASON
IS BECAUSE PEOPLE ARE ALREADY SO CAUTIOUS IN THEIR SO MUCH
TALK OF A RECESSION. TYPICALLY, THE MARKET WANTS TO
DO ONE THING WHICH IS STILL YOUR MONEY IN THE WAKE AND
STEAL YOUR MONEY NOW IS TO ACTUALLY GO UP THERE AT HAVING
SAID THAT, I THINK THE BIG, BIG UNCERTAINTY THIS YEAR IS WHAT
WILL HAPPEN WITH THE GLOBAL INFLATION WHEN CHINA KICKS IN.
I THINK IT WILL BE INFLATIONARY, AND THERE IS A
RISK THAT WE COULD SEE AN ACCELERATION OF INFLATION AGAIN
ON THE BACK OF THAT. THAT WILL BE REALLY BAD FOR
MARKETS.
>> WILL BE THE DIVERSIFICATION THAT COULD HELP FROM INVESTOR
STANDPOINT IN THAT SCENARIO? NICOLAI:
THE PROBLEM IS YOU ARE NOT GOING TO MAKE MONEY ANYWHERE IN
THAT KIND OF SCENARIO. IF THAT HAPPENS, YOU WILL LOSE
MONEY PROBABLY IN THE BOND MARKET AND EQUITY MARKET AND
THE REAL ESTATE MARKET. I JUST TILTING THERE'S A PLACE
TO HIDE THERE.
>> WHAT ABOUT CASH ARE YOU INCREASING SOME YOUR CRASH TO
BE NIBBLE -- CASH AMENABLE IN SOMETHING LIKE THAT? NICOLAI:
NO IT IS NOT OUR MANDATE TO BE HAVING A LOT OF CASH.
>> IS KIND OF A FRAUGHT MOMENT THEN IF EVERYTHING COULD DO
BADLY? NICOLAI:
WE ARE A LONG-TERM INVESTOR AND WE INVEST IN 40 TO 100 YEAR
TIME HORIZONS AND WE SIFT THROUGH SOME OF THIS VOLATILITY.
THAT'S LIFE.
>> PEOPLE ARE TALKING ABOUT A SEAT CHANGE IN TERMS OF THE
ECONOMY GLOBALLY WITH A HIGHER INFLATIONARY ENVIRONMENT.
HUBLEY THAT INFLATION IS GOING TO BE HIGHER FOR LONGER EVEN
AFTER WHATEVER DOWNTURN OR DISRUPTION THIS YEAR? NICOLAI:
I THINK DEFINITELY THERE IS A RISK FOR THAT.
WITH THE GLOBAL FINANCIAL CRISIS, WE HAD THE BIGGEST
EASING THE WORLD HAS SEEN. WITH COVID, THE BIGGEST STIMULI
WE'VE EVER SEEN. A WORLD RECORD ON WORLD RECORD.
A LOT OF THAT HAS TO BE TAKEN OUT.
THAT IS NOT DONE IN 10 MINUTES. THIS COULD GO ON FOR QUITE SOME
TIME AND JUST THE REVERSAL OF THE GLOBALIZATION COULD
POTENTIALLY HAPPEN AND MAY BEAT ONE PERCENTAGE POINT TO
INFLATION. IT IS MORE EXPENSIVE TO PRODUCE
CLOSE TO HOME.
>> DOES THAT CHANGE YOUR 60-40 OR 70-38 FOR EQUITIES AND BONDS?
NICOLAI: WE ARE HAPPY WITH 70-30.
>> ASSET ALLOCATION WILL LEADERSHIP COME FROM BIG TECH
AS WE HAVE SEEN IN THE U.S.? IS APPLE STILL GOING TO LEAD?
NICOLAI: IT CERTAINLY HAS A LEAD LATELY.
-- HASN'T LEAD LATELY. WE DON'T KNOW WHAT IS GOING TO
LEAD GOING FORWARD.
>> IT RAISES THE QUESTION IS AN INDEXING MOMENT OR YOU CHANGE
YOUR INDEX? NICOLAI:
NO, WE RUN CLOSE TO THE INDEX BECAUSE THE FUND IS SO LARGE.
WE HAVE TO DO THAT. WE ARE NOT CHANGING THE INDEX
ON THE BACKLESS.
>> WHATEVER HAPPENS IT IS WHAT IS.
HOW DO YOU AFFECT CHANGE FROM A SHAREHOLDER PERSPECTIVE AND GET
VISIBILITY IF YOU ARE SUBJECT TO WHATEVER HAPPENS IN THE
GLOBE ECONOMY? NICOLAI: THAT IS THAT THE RIGHT.
WE ARE SUBJECT TO WHAT'S HAPPENING IN THE GLOBAL ECONOMY.
THERE IS NOT REALLY ANY PLACE WE CAN HIDE.
WE HAVE TO TAKE THE LONG-TERM HAT ON AND TRY TO BUY WHEN
OTHER PEOPLE ARE SELLING AND VICE VERSA.
>> WITH RESPECT TO THE ALLOCATION TO LESSER PUBLIC
ASSETS, REAL ESTATE, SOME OF THE PRIDE ASSETS, DO YOU THINK
IT IS A TIME TO INCREASE THAT JUST IN A HEDGE OR IS IT TIME
TO DECREASE THAT BECAUSE OF THE RECKONING THAT HAS NOT HAPPENED
IN THAT POCKET YET? NICOLAI: WE HAVE A GREAT REAL ESTATE
PORTFOLIO WITH BIG HOLDINGS AND IN LONDON AND NEW YORK AND MANY
OF THE MAIN CITIES AROUND THE WORLD.
WE THINK IT'S A GREAT PART OF THE PER FOR LEO TO HAVE IN
PARTICULAR NOW. WE ARE BIG IN LOGISTICS AND WE
THINK TO BE A BIG DIVERSIFIED PLAYER IS THE RIGHT THING TO BE.
>> IF YOU TRACK THE MARKET AND ARE SUBJECT TO THE MARKET, THAT
HOW YOU GET OUTPERFORMANCE? WHAT DOES OUTPERFORMANCE MEAN
TO YOU AT A TIME OF POTENTIAL LOSSES EVERYWHERE? NICOLAI:
WHAT WE TRY TO DO IS GET RETURNS.
SINCE A FIRM IS VERY LARGE, YOU ONLY NEED TO TWEAK A TINY BIT
TO GET A BIG, POTENTIALLY BIG ACCESS RETURNS.
WHAT WE HAVE DONE IS BE OVERWEIGHT IN ENERGY COMPANIES
AND HAVE HAD SHORTER DURATION. WE HAVE HAD A PORTFOLIO ON THE
BOND SIDE WHICH HAS BEEN LESS RISKY TO RISING INTEREST RATES.
WE HAVE HAD SOME UNDERWEIGHT WEENIES.
WE WERE UNDERWEIGHT AND SOME RECENT IPOS BECAUSE WE DIDN'T
THINK THEY WERE A PARTICULARLY GOOD QUALITY.
THOSE ARE THE TYPE OF THINGS WE CAN DO THEM AND YOU COMBINE ALL
THESE KIND OF THINGS, YOU GET POTENTIALLY ACCESS RETURNS.
>> HOW ARE YOU TWEAKING THE BOND PORTFOLIO IN TERMS OF LONG
OR SHORT DURATION? ARE YOU SHIFTING IT AROUND IN
ANTICIPATION OF A POTENTIAL DOWNTURN EVEN IF INFLATION IN
THE NEAR RUN IS OVER? NICOLAI: NO, WE ARE NOT DOING THAT.
WE ARE QUITE CLOSE TO THE INDEX THAT WE HAVE ON THE BOND SIDE.
>> THIS IS YOUR FIRST YEAR AT THE WORLD ECONOMIC FORUM.
VOYAGER COME THIS YEAR? NICOLAI: WE HAVE A VERY STRONG MESSAGE.
THE BOARDS GENERALLY NEED TO SHARPEN UP AND NEED TO BE MORE
ON THE BALL WHEN IT COMES TO THE CLIMATE.
WE WILL INCREASINGLY VOTE AGAINST A BOARDS WHICH DON'T
HAVE A PARTICULARLY CREDIBLE PLAN FOR REDUCTIONS.
WE ARE VOCAL ON EXECUTIVE PAY. WE THINK IN PARTICULAR IN THE
U.S. THE CORPORATE GREED HAS GONE
TOO FAR. WE ALSO ARE VERY STRONG ON
INCREASED DIVERSITY AT BOARD LEVELS.
THAT'S A MEAN MESSAGE WE HAD THIS YEAR.
>> HOW RECEPTIVE OUR PEOPLE TO THAT MESSAGE PARTICULARLY
EXECUTIVE PAY? NICOLAI: VERY MUCH SO.
I THINK COMPANIES DO LISTEN. WE HAD SOME AGAINST A VOTE LAST
YEAR AND FOLLOWING WHICH, THE COMPANIES WANTED TO HAVE A
DEEPER CONVERSATION WITH US AND WE SEE FX IN TERMS OF DIFFERENT
PACKAGES THIS YEAR. PEOPLE ARE TALKING ABOUT
LEANING INTO ESG AND CONTINUING TO PUT AN EMPHASIS ON ITS AND
YET BEHIND CLOSED DOORS, PEOPLE ARE INVESTING MORE IN FOSSIL
FUEL'S. GERMANY INVESTING IN COAL ONCE
AGAIN IN ORDER TO FORTIFY THE NATION AHEAD OF POTENTIALLY A
DISRUPTION IN ENERGY SYSTEM. YOU GET ANY MORE PUSHBACK NOW
THAN PERHAPS A YEAR AGO? NICOLAI:
WHAT WE ARE SEEING WITH THE ENERGY MARKET NOW IS THAT IN
THE SHORT TERM, THERE IS BAD NEWS FOR THE CLAIMANTS BECAUSE
THERE'S MORE COAL PRODUCTION AND SO ON.
UNGER TERM, I THINK THE CRISIS WE ARE SEEING NOW WILL
ACCELERATE THE MOVE INTO RENEWABLE INFRASTRUCTURE AND
RENEWABLE ENERGY. I DO THINK LONGER TERM THERE IS
A POSITIVE DEVELOPMENT. YOU HAVE THE WHOLE THING ABOUT
THE BACKLASH AGAINST THE USG
AND WE -- ESG AND WE THINK IT'S REALLY, SERIOUSLY BAD.
WE THINK THAT ESG IS NOT POLITICS. IT'S COMMON SENSE.
TAKEN TO THE EXTREME IN AN UNINHABITABLE WORLD, THE VALUE
OF IT IS ZERO. IT IS CLEAR THE CLIMATE IS
IMPORTANT FOR FINANCIAL ASSETS.
>> PEOPLE ARE TALKING ABOUT THE BIPOLAR WORLD, THE IDEA OF THE
WEST VERSUS CHINA AND THE QUESTION ABOUT RISING TENSIONS.
DOES THAT FACTOR INTO ANY OF YOUR DISCUSSIONS WITH BOARDS IN
TERMS OF SECURITY ISSUES IN LIGHT OF WHAT HAPPENED WITH
RUSSIA AND THE INVASION OF UKRAINE?
IS THAT ALSO PART OF THOSE KINDS OF ESG CONVERSATIONS?
NICOLAI: I DON'T THINK IS PART OF ESG AS
SUCH AND IT'S PROBABLY AN AREA WHERE BOARDS ARE DOING QUITE
WELL. I THINK ABOUT THE SUPPLY CHAINS
AND SO ON.
CLEARLY, A REVERSAL OF GLOBALIZATION IS NOT GREAT
GENERALLY.
>> INVESTORS I HAVE BEEN SPEAKING WITH ARE OBSESSED WITH
CENTRAL BANKS AND WHAT THEY WILL DO NEXT AND WHETHER THEY
WILL RAISE BY 25 OR 50 BASIS POINTS. DO YOU TRACK THAT?
IS THAT SOMETHING ON YOUR RADAR? DO YOU CARE WHETHER THEY DROP
TOO SOON ARRAYS EARLIER? YOU HAVE TO CARE ABOUT HOW DO
YOU FACTOR THAT INTO WHAT YOU DO? NICOLAI:
IT'S A VERY BIG QUESTION FOR US. IT IS WHAT WILL HAPPEN WITH
RATES AROUND THE WORLD. THERE IS A RISK THAT THEY WILL
STAY HIGH FOR LONGER IN A RISK THAT WHEN CHINA COMES BACK IN,
IT COULD BE ACCELERATE. THE ART -- THESE ARE RISKS THAT
WE LOOK AT HAVE TO TAKE INTO CONSIDERATION.
>> DO YOUR TRADERS TRADE EVERY DAY? NICOLAI: [LAUGHTER]
WE HAVE A LOT OF REBALANCING IN TRADES AND PMS SO YES, WE TRADE
EVERY DAY. I DON'T TRADE PERSONALLY, BUT HEY.