Russ Ivinjack, Global Chief Investment Officer of Aon Investments, discusses, among other topics, his management of Aon’s investment manager research teams, the discipline of selecting active managers and investment strategies, and the strategic and tactical dimensions of building portfolios to perform under a range of macroeconomic outcomes. The latter include a “dark-sky” scenario more severe than the Global Financial Crisis. DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau spoke with Mr. Ivinjack on May 23, 2023.
In his role as an outsource CIO to pension plans and other institutions (4:23), Mr. Ivinjack assesses how much volatility, illiquidity and other forms of risk the client is willing to bear in the portfolio as a starting point for building a strategic policy. The next level is how to implement the strategy in the asset classes suited to the client. Mr. Ivinjack notably oversees manager research teams in equities, fixed income, liquid alternatives, private equity, infrastructure and private credit.
In terms of the current opportunity set (9:21), Mr. Ivinjack notes that in the wake of the spike in interest rates in 2022, the markets offer “a better base to build portfolios from,” with “cash earning 5% and core fixed earning about the same.” He expresses concern that, amid higher inflation than experienced in decades, economic data used to guide investing “is far less reliable than it was just three, four years ago. I joke that we used to worry about the 0.1% difference in GDP or inflation, and now we’re worrying about one, two, or three percentage point differences in the reads that come out, and that causes much more volatility in portfolios.”
This necessitates (10:26) “numerous strategic studies with our clients, walking through those scenarios we call blue-sky scenarios, recessionary scenarios, stagflation or even dark-sky scenarios so they can gauge what’s the right portfolio to implement.” He defines a dark-sky scenario as “more or less a depression” involving “significant negative growth,” causing “significant impairment on financial assets in clients’ portfolios over a fairly short period of time.”
Mr. Ivinjack describes his teams (21:44) as “very disciplined about rebalancing, so we set targets,” rebalancing back within allocation ranges when they are exceeded. This is key in the direction of cash flows. “And we’re market aware about where valuations are. We will take that into account in terms of where to deploy new cash coming or where to take money out. That disciplined, I would say somewhat boring, approach has worked incredibly well over the last 10 years.”
Another issue Mr. Ivinjack calls to investors’ attention (23:57) is the concentration of risk in today’s financial markets. “If you pull back the S&P 500, it’s far more concentrated than what is five or 10 years ago. Pull back the investment-grade indices, you’ll see they’re more concentrated than they were years ago. Investors need to recognize where their unintended risks lie. People like to wring their hands about a 25 basis point position in certain securities when, frankly, their exposure to Apple is five times that, 10 times that in some cases.”
On the subject of manager research and hiring managers (25:26), he looks for stable firms, philosophy and approach, “but the key thing is they’re matching up with their philosophy and process and what their advantage is – so making sure those two stick together. Obviously, we spend a lot of time understanding the people who manage the money. It’s a lot of time on Zoom calls, in-person meetings. It’s monitoring portfolios even before we invest with them to know what they’re saying matches their actual actions.”
Managing liquidity (31:08), Mr. Ivinjack says, has become much more challenging in today’s environment. “Many clients or investors thought the fixed income markets are always super liquid, and they could tap that market for liquidity to meet their needs on a monthly, quarterly basis. What we’ve observed is as we need to raise money, the fixed income markets aren’t always as liquid.”
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As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.