Columbia Threadneedle has been managing financial assets for Norwegian Hull Club for more than 20 years. Since 1999, Dave Chappell - Senior Portfolio Manager with Columbia Threadneedle - has been responsible for managing those funds. He is based at the company’s office in the City of London.
As we mark 20 years of The Club’s relationship with him, we spoke with Dave to discover how both Norwegian Hull Club and Columbia Threadneedle Investments have evolved over the past two decades, together with the financial markets themselves.
CLOSE RELATIONSHIP: Pictured above from left to right, Per Gustav Blom – Chief Financial Officer at Norwegian Hull Club, Dave Chappell – Senior Portfolio Manager at Columbia Threadneedle, Eugene Dimitriou – Head of Insurance Solutions at Columbia Threadneedle and Jon Henrik Bruvoll – Investment Director at Norwegian Hull Club
Many thanks for joining us here at Norwegian Hull Club’s office in Bergen, Dave. To start, we understand that you invest money on behalf of Norwegian Hull Club under a ‘discretionary mandate’. Could you briefly explain what a discretionary mandate is, plus tell us what kind of assets you are managing on behalf of Norwegian Hull Club?
"A discretionary mandate means that the client, in this case Norwegian Hull Club, gives the fund manager full responsibility when deciding what financial instruments to buy, and how the portfolio will be positioned within a pre-agreed set of parameters and risk appetite. At Columbia Threadneedle Investments, I manage a US dollar-based portfolio of high-quality corporate bonds and government securities for Norwegian Hull Club.”
Could you tell us a little bit about Columbia Threadneedle, yourself and how you manage the portfolio?
“Columbia Threadneedle Investments is a leading global asset manager that provides a broad range of actively managed investment strategies and solutions for individual, institutional and corporate clients around the world. With more than 2,000 people including over 450 investment professionals based in North America, Europe and Asia, we manage £368bn ($468bn) of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives (as at 30 June 2019).
“I’m a Senior Portfolio Manager in the firm’s Government bond team. I run various US, UK and Global rates strategies and have been managing insurance portfolios for over 20 years, through bull and bear markets, during expansions and recessions, including the Global Financial Crisis. A highly experienced team of more than 100 research professionals dedicated to finding original, actionable insights assist myself and the other portfolio managers in gaining a deeper understanding of the outlook for economies, policies and companies across the world.
“As the portfolio manager, it is my job to construct a portfolio which captures our strategic views, within the client’s agreed investment parameters, and is best positioned to outperform over the medium term.”
The working relationship between Columbia Threadneedle and Norwegian Hull Club has been going for more than two decades. Your tenure as manager for our portfolio has just passed the 20-year mark - a very long period in financial markets. During your tenure, the markets have experienced the internet craze of the late 1990’s, the credit crunch and financial crisis in 2007-8 and - more recently - the era of extraordinary monetary policy and negative interest rates. The greatest uncertainty and volatility in the markets was during 2007/08, a period in which you steered Norwegian Hull Club’s portfolio into calm waters and strongly outperformed the general market. It would be interesting to learn something about the changes that have taken place over this period. Are there any particular aspects you would highlight?
“There have been many changes over the years but by far the biggest have been the death of inflation and the ‘normalisation’ of Central Bank policies once considered unconventional. Following the Global Financial Crisis, it has been impossible for economies to reach a sustainable level of growth required to create inflation, which has in turn inhibited Central Banks from removing emergency measures. This has led to a persistently low, even negative, rate environment - one which I believe we will remain in going forward.”
You manage a portfolio of bonds for Norwegian Hull Club. Are there any issues regarding changes in the bond market that are of particular interest?
“Shallow expansions and subdued inflation have led to low level of yields. Quantitative easing, a monetary policy whereby central banks buy government bonds or other financial assets in order to boost the economy, has driven investors further along the credit curve in search of return. Low yields and uninspiring investment opportunities have driven a huge expansion of the credit market, where companies have funded stock buybacks and dividends. This long-term process has been to the detriment of the debt/equity ratio, leaving many companies more vulnerable to stock price declines when the cycle finally ends.”
You also manage money for other insurance entities. Are the mandates very similar or does each insurance company have its own ideas on how this should be done? Does Norwegian Hull Club differ in any way from the general approach?
“Insurers take a wide range of approaches when it comes to investments. Some are very focused on matching the liability cashflows as precisely as possible, others are very focused on their regulatory or rating agency capital requirements. A handful see the investment side of the balance sheet as a core skill - for example private equity or illiquid debt - which is reflected in higher allocations to these asset classes.”
On the institutional side, are there any changes to asset management or Columbia Threadneedle that you consider particularly important or interesting, such as compliance, ESG (Environmental, Social and Governance) issues and ethical guidelines?
“Indeed, a focus on ESG is on the rise among all investors and insurers are no exception. Many clients now expect an explicit commitment to ESG from their asset managers. Others take this a step further and have explicit requirements in the form of exclusions, such as coal, tobacco or arms; the most proactive are beginning to adopt more forward-looking strategies where they invest in companies which show ongoing progress towards ESG goals. Insurers have shown a particular penchant towards the ‘E’ in ESG (environmental/climate). Perhaps this is unsurprising as the industry has reasonably large exposures to weather-related risks.
“At Columbia Threadneedle, being a responsible investor is integral to our business proposition and defines how we act in the marketplace. Core to our investment philosophy is the belief that engaging with companies and effective stewardship benefits them, investors and the economy as a whole. Well-governed companies are better positioned to manage the risks and challenges inherent in business and are better able to capture opportunities for growth.”
On a more personal level, has working in the City of London changed much over these past 20 years? If so, how?
“The City of London has completely changed over the past 20 years, and mostly for the better. Technological advances have improved the transparency of trading and regulatory improvements have protected investors. On a personal note, the increase in diversity of both colleagues and clients has been my favourite evolution.”
Looking ahead, are there any trends or developments that you expect will have a particular impact on your part of the financial services industry? For instance, technological disruption is a hot topic.
“Technological advances have been improving efficiencies across many industries, leading to lower product costs or fees, and have therefore been a predominant force working against Central Banks’ attempts to create sustainable inflation. There is a negative side as always, and that has been the erosion of employment opportunities.”
Dave, many thanks for your time today and for all your work managing Norwegian Hull Club’s portfolio for the past 20 years. We look forward to maintaining this valued relationship with yourself and Columbia Threadneedle in the years to come.
“You’re very welcome!”
30. Aug. 2019