A Global Perspective Focused on You
In this edition we highlight our colleague Christian’s trip to the Chartered Financial Analyst (CFA) Institute conference in London and our exciting news in Europe – the opening of our office in Amsterdam. Nico will tell us more details about it, but first, here is Christian to describe the conference:
This year’s CFA conference was themed “Disruption”. Three topics dominated the sessions and workshops during the four days: Geopolitics, Artificial Intelligence (AI)/Machine Learning (ML), and Environmental/Social/Governance (ESG) investing.
Christian at the CFA conference
Since the gathering was held in London, conversations about the outlook on Brexit were omnipresent with the hope of an orderly exit of the UK from the European Union (EU). However, the geopolitical topics were broader. On the future of the EU, speaker opinions ranged from “it will implode” to a more optimistic view by Mr. Smaghi, a former executive board member of the European Central Bank. He noted that the United States has more room to maneuver in monetary policy via interest rate cuts, which have a quicker impact on the economy. The EU has more room in its fiscal policy, especially Portugal, Germany, Netherlands, and Ireland, which has a slower but longer lasting effect on economies.
While there is always hope that Europe’s fiscal policy becomes more flexible, reviewing the European equity market over the past 12 years can bring the analogy of a Japanese-style “lost decade” to mind. The underperformance compared to the US equity market can be explained by lower corporate sales and earnings growth as well as a different sector composition of the markets. Europe has a higher weight in the more regulated sectors Utilities, Telecoms, and Financials, and a lower weight in Technology.
Another debated issue was the level of excess private debt in China. Mr. Tooze, a history professor at Columbia University, compared China’s credit boom to other credit bubbles that ended badly. He noted, however, that the Chinese have shown an ability to massively restructure their banking sector in the past, in 1998-2005, for example, and more recently to shrink their shadow banking segment. Another speaker highlighted the interdependence of state-owned banks and state-owned enterprises and estimated therefore that the Chinese government can cancel out 40% of the debt.
Mr. El-Erian, chief economic advisor at insurer Allianz, offered an interesting viewpoint that many current geopolitical developments can be summarized by a bimodal distribution, a curve with two peaks and a hollowed-out belly.
In societal context, it can describe a reduced middle class, in politics less center and more radical views, in economics the change from the synchronized global expansion we had in 2017/18 to more divergent growth, and even on a firm level the declining numbers of mid-sized companies. Larger tails from an investment perspective also mean higher volatility or risk, which can offer attractive opportunities.
The concept of Artificial Intelligence (AI) and Machine Learning (ML) is not new, however it failed due to the lack of computing power and data in the 1980s. Since then, computer processor speed and network scale grew exponentially while cost fell. Also, the volume, velocity, and variety of data increased – big data started to rise. Additionally, the algorithms and statistical models used in machine learning became better. In 2012, AI had a breakthrough as the accuracy of image recognition started to improve and came closer to that of humans. By 2016, AI exceeded humans in accuracy, which was around the same time when the Korean master player in the game of Go was beaten by the AlphaGo program developed by DeepMind (owned by Google). Applications of machine learning are expanding in recent years; in the financial industry examples are virtual assistants for bank customers (chatbots), sentiment analysis of financial text such as earnings call transcripts, or analysis of trades for behavioral patterns. While initial results are promising, the tenor among the speakers was that financial machine learning, such as recognizing sustainable investment patterns, is an especially difficult problem due to various real-world conditions. Professor Bostrom from the University of Oxford generalized it by saying that the near-term potential of AI is overhyped, but its long-term potential is underestimated.
Environmental, social, and governance (ESG) investing started in Europe in the 1960s, particularly in the Netherlands, when pension funds began to take an active role in corporate governance. Three investing concepts can be identified: integration in the investment process to supplement the security analysis; screening to exclude/include companies with particular ESG characteristics; and impact investing where direct investments are made to drive ESG-related objectives. Ms. Richards, CEO of Fidelity International and a strong proponent of ESG investing, commented on the difficulty of implementation: the will exists, but one unique framework of characteristics is missing. She counted around 232 individual ESG initiatives. At Noesis, we invest in companies led by respected and honest management teams with a proven track record. Therefore, we indirectly include social responsibility and good corporate governance.
After the informative days in London, I traveled to Amsterdam to meet our Dutch team. The goal was to better understand how they operate in order to more effectively align our research and investment process. It was a productive start and we are looking forward to the transatlantic collaboration. The Dutch and European financial markets have different rules than the United States, but the opportunity for the business model of a Registered Investment Advisor (RIA) is vast as it aligns client and firm interests to form a true partnership.
Left picture: Christian, Michiel and Ester outside the Netherlands’ office Right picture: Huub Peters and Jerry Spitzberg with his wife and children
It was serendipitous for not only Christian but also Jerry Spitzberg and his family to visit our new office in Amsterdam recently. Jerry also visited with clients in the U.K., Belgium, and Germany. Now, Nico shares the fulfillment of our plan to open Noesis B.V. in the Netherlands.
Take it away Nico!
In our July 2017 newsletter, I mentioned Noesis’ bold goal to introduce the RIA model to the world. If you would like to review that newsletter, please visit our website.
I am proud to announce that after a long process, Noesis B.V. received a license in The Netherlands from the Autoriteit Financiële Markten (Dutch Authority for the Financial Markets) and De Nederlandsche Bank (Dutch Central Bank).
We opened an office in Amstelveen, just outside of Amsterdam. It’s there where I started my career on the Amsterdam Stock Exchange, the oldest stock exchange in the world – founded in 1602.
Amsterdam Stock Exchange, The Netherlands, print maker: Claes Jansz. Visscher II, P.C. Hooft, 1612. This building still serves as the Exchange today.
Our European office is staffed with experienced people. I have known and worked with Michiel Scholten, the Managing Director of our Dutch office, for more than 25 years.
Michiel wrote a few words to explain why he joined Noesis:
“It was a little over a year ago when Nico Letschert and I were having a telephone conversation about developments in our industry. During that conversation, Nico suggested that I should fly over to Boca Raton, Florida in order to attend the annual Noesis Summit. I attended the 3-day summit and all in all spent a week in the Noesis office where I met with the highly professional, motivated, and well educated Noesis Family. It was during these days that I learned about the Noesis goal of opening a European office.
Back home I reflected upon the Noesis request to set up a subsidiary in Europe. I talked about the proposal with my close associate Huub Peters, with whom I have been involved as a colleague for almost 10 years now. Although conveniently working under the umbrella of a 200-year-old independent asset management company, we both agreed that the prospect of working closely together with the Noesis family would be to the benefit of our clients.
The aspiration of the Boca team, their knowledge and original research will be of great value to European investors. Understandably we can offer European knowledge to the USA team in return.
Huub and I have an extensive background in the financial markets. Huub has been a director of asset management companies in the past and has more than 20 years’ experience in the asset management industry. My experience goes back more than 30 years. I started with a trading firm in equities and derivatives. For this company I worked in Amsterdam and also set up offices in Philadelphia, London, and Paris. In each of these cities I lived for about 2 years. After Paris I moved back to Amsterdam where I joined the board.
It was on the 24th of June 2019, with a big smile on my face, that I could tell Noesis that we are finally approved by the Authorities.
It is with great pleasure that my Dutch colleagues and I will be joining the Noesis family. I will tell you more about our values in future quarterly newsletters. Wishing you all a healthy and prosperous summer, with warmest greeting from Amsterdam.”
You may ask why Noesis has opened one of the first RIAs (Registered Investment Advisor) in Europe and how this international expansion may benefit you and your family. Noesis has clients in many European countries, as well as in Latin America and Asia. Many of you are American professionals working overseas, or own and manage family businesses.
- In the July 2017 newsletter, we wrote that we registered Noesis as an RIA in the USA in the mid-‘90s. It was a fairly new model in the investment industry at that time.
Now 20+ years later the reason for this expansion is similar. We want to introduce this model of fiduciary responsibility, full transparency, and a relationship built on trust to international clients.
- The title of this newsletter is A Global Perspective Focused on You. You have seen this line in our newsletters and web site for some time now. In order to have a global perspective, we should have global presence and knowledge. Noesis means the process of understanding and as you probably know, our staff is from four different continents. The addition of the European staff to the team will enhance our ability to strive for knowledge in international financial planning and wealth management.
- The world is becoming more complex. The internet and digital age we live in gives us access to information from all over the world in split seconds, 24 hours a day, seven days a week. This influences people’s emotion and decision-making process/discipline. A better understanding of what is important economic and fundamental information versus the daily/weekly noise should support us in making better investment and asset allocation decisions. The European team will add their local expertise and insights into the decision-making process. This reduces risk and increases overall portfolio performance in the long term.
- Since the great recession, the United States’ economy and markets have performed well versus most international markets. There will be times when international diversification is a prudent strategy to managing risk and meeting your families’ lifestyle goals. Moreover, clients will have the capability to own investments in other currencies than the US dollar.
All of us at Noesis, wherever we are located, will work as one team to deliver on our Vision Statement:
”To be the Most Trusted Advisor Providing Financial Peace of Mind”
We want to be your partner in life goal management: portfolio management, retirement and legacy planning, and ongoing execution of your plan.
Please take a look at our “fresh” website.
I want to finish by wishing you and your family a good summer, or winter in the southern hemisphere. Thank you for your trust, friendship, and the many referrals.
Christian Paterok, Nico Letschert, and Michiel Scholten
Form ADV is available upon request