Fahad Kamal, chief investment officer of the private bank
Kleinwort Hambros, is closely watching where we are in the business cycle when
making his decisions. Economic data can
be choppy and contradictive, and market swings can cause investors to be
perpetually reactive, but understanding the cycle and the economic regime can
be more indicative, says Fahad Kamal. Oftentimes, the toughest part of being a
chief investment officer is that, “decisions
need to be made with imperfect information about an unknowable future,” he
said. The
chief investor was appointed to his role in 2020, after working for the firm since
2012. The
bank is owned by Société Générale and offers financial services from offices
throughout the United Kingdom, Channel Islands and Gibraltar. It has a keen
focus on responsible investing.
During this interview, Kamal and Markets Group’s Andres
Ortiz discuss his investment philosophies and where he is placing his
priorities.
Kamal credits his nonlinear background with helping his
investment perspective, having spent his childhood in Pakistan, attended university
in the U.S. for his undergraduate degree and London for his MBA. Before
becoming an investor, he spent time working for US
Aid to the US Agency for International Development, as a program manager,
strategizing ways to increase exports and employment across the cotton value
chain in Pakistan. He also served roles as well as a specialist at the executive recruitment firm Egon Zehnder in
Boston and in Washington D.C. as a proxy advisory analyst for Institutional
Shareholder Services’ RiskMetrics Group.
He currently chairs the Kleinwort Hambros Investment Committee and sits
on the Société Générale Private Bank Global Investment Committee. He holds an
Economics degree from George Washington University and an MBA from the Cass (now
Bayes) Business School. He is also a member of the Chartered Institute for
Securities & Investment.
Andres Ortiz
Let’s start with your role and then your career
progression.
Fahad Kamal
My role as chief investment officer is quite wide-ranging, but effectively
centers on two major things: One is the creation and development of our house
view, in terms what it is that we like, don’t like, how we’re investing, and
why we’re investing in it.
The House view encompasses huge
amounts of material: our macro views, our analysis, our research, our process,
our lens through which we look at everything. So that’s sort of part one: the formation and creation of the House view.
The second part of my role, loosely,
is to make sure that that House view is being applied evenly and widely
throughout our strategies, and communicated with all of our internal stakeholders:
our private bankers, our entire staff — everyone from compliance to the sales
team, investment managers inside portfolio managers, etc. And then to all
external parties as well, including clients, media, prospects and anyone who
would ever come across Kleinwort Hambros, so they know what Kleinwort Hambros stands
for in terms of its investment view. Because we are an investment house.
To sum it up: It’s the efficient
execution of our house view throughout the book and then the communication of
that to all the parties internal- external.
Ortiz
Can you tell us a little bit about how you got here?
Kamal
In a very nonlinear fashion. I was
born and raised in Pakistan, I went to the US when I was 18 for university, I
graduated from George Washington, and my first job was in in a company called
ISS Institutional Shareholder Services. Within the M & A-Team advising
Institutional shareholders on how to vote their proxies for or against a
strategic transaction, but particularly where the strategic transaction was
controversial or contested. I did that for four years, then did a whole series
of things.
I worked at a headhunter called Egon
Zehnder, then moved over to work for US Aid to the US Agency for International
Development, moving back to Boston. I worked for the US government implementing
a sort of International Development program.
By this time I was 30 and ended up doing my MBA in London and basically have
been effectively unmoved ever since because my first job was at Kleinwort as a
junior. I started off as an intern and I’ve been here ever since. I kept
climbing up and ended up as CIO, [feeling] very lucky, very honored, very
grateful.
It was very helpful to have not been in the same industry my whole life. I’ve
had a lot of varied experience until I was 30 with very little to do with asset
allocations or investments, but I honed a lot of skills that have been very
helpful. So you know, obviously having a wide perspective, being really
cognizant about risk, understanding sort of the human element of what moves
markets.
And obviously there’s been a lot of Economic Research along the way in various
roles. So I had no idea I would end up here, but it’s all been very helpful. I
have been doing the same thing now for 11 years.
I think that that’s the modern world. I
don’t think people are going to be necessarily doing the same role for the rest
of their career. There’s going to be a lot of nonlinearity in people’s career
trajectories.
Ortiz
So going back to talk more on finance and investments: How have you and your
team approached the changes in the markets and are you doing anything different
for 2023 and beyond?
Kamal
So that’s a really good question and it’s really important, I think, for any
investor to really first understand what it is that they believe. It may sound
silly, but you need to have some philosophical underpinning. Otherwise, all
you’re doing is reacting to the news, sometimes in different ways — You know,
today you’ll react to the news, you know with A and then tomorrow based on the
same exact inputs, you’ll react with B. That’s basically because if you don’t
have a philosophical underpinning to your investment views, you sort of are a
bit just reactive and non process oriented.
So effectively, the first thing that
we did was ask: what is it that we believe as investors? And, 11 years ago, [using
a] blank sheet and a pencil, we asked it
and just listed things down.
[It was centered on] what we think
about the economic regime, which is very different than the economic data. The
economic data is choppy. It’s full of noise. We’re not really concerned about
whether today’s inflation print was one basis point higher. That’s too choppy
and noisy. We want to know where we are in the business cycle. Because we know
that if you think about the business cycle as a circle, and if you are in a
expansion or recovery, a slowdown or recession, asset classes have very, very
different behaviors.
So really, much more important than the latest data on market movements in one
day is: where we in the cycle and that should basically help decide your risk
stance — being overweight risk, neutral risk, or underweight risk. And that’s
sort of the most important factor. And then the other three are valuation,
momentum and sentiment because we believe that these things matter. Doesn’t
matter what the news is, it doesn’t matter whether you’ve got one in 100 year
pandemic or not, these are philosophical underpinnings that lead us to an
investment process as well as valuation, momentum, and sentiment. We combine
all four of those factors to guide us in how we invest.
So no matter what happens, we ask the
four questions: how are those four factors reacting. And in a very process-oriented
way, decide, most importantly, whether we’re risk on or risk off and then make sub
asset allocation decisions within the same framework.
Ortiz
Continuing with that philosophical approach, can we talk a little bit
about ESG and what you guys are doing in order to incorporate it into the
framework of your investments and asset allocation?
Kamal
We absolutely are. It’s very, very critical for us. I mean, in fact, our stated
aim at Kleinwort Hambros is to be a leading responsible bank, being responsible
across every meaning of that word. It’s not just what we invest, how we hire,
how much energy we have, the whole the whole thing. But basically when it comes
to investing, we are doing a whole series of things. One is that we have an out
and out ESG and responsible investing set of investment strategies.
So they basically follow the same Hambros
and economic regime framework, but all the implementations are green for lack
of a better word. That’s our best foot forward when it comes to ESG. But even
across the rest of our book, for all clients who are not specifically invested
in our responsible strategies, we have a whole series of things that we’ve
done. So we have a lot of big solutions.
We won’t invest at all in in companies that, for example, have a business, or even
part of their business towards cluster munitions. We won’t touch anybody that
does anything with coal, we even have a strict limit on energy production. So
an oil and gas company who primarily does fracking, or who are involved in the
Arctic, we will exclude those things from all of our portfolios blanket, no
questions asked. And in the past, companies like Shell have been a part of our
exclusion list and you can imagine that that’s quite a big deal for a UK-based
private bank, given that Shell is obviously the biggest sort of company on the FTSE
100,etc. So we do that and we really put our money where our mouth is.
Not all clients are on board, but we
get that, that ESG means a lot of different things to a lot of different
people. But it’s part of our corporate identity and our corporate ethos that we
want to keep pushing the bar. And one day, I don’t know when this will be, but
we would like to have no differentiation between classic strategies and
responsible strategies, but they all just look responsible by default.
Ortiz
As a CIO, what is the most difficult thing when you are talking to
your team and managing your team, while being in charge of the investment team.
What are the challenges that you face daily?
Kamal
Well, by nature, it’s an impossible job because the job is effectively trying
to understand what’s going to happen in the future. It’s not possible for
anybody to do that. And obviously, you’ve got really smart people, really
intelligent people who can see the same set of data and have totally different
outlooks as a result of that. And you can see that today, where everybody’s
looking at the same data, but nobody’s sure if we’re going to have a recession
or not. You know, nothing is clear. It’s a very, very unusual sort of time
where a lot of the data is conflicting still as a result of the pandemic
hangover where we’ve got manufacturing data that looks really weak, service
data that looks really strong. Usually they go together, so how do look at
that?
The hardest part of the job, I think,
is basically the decision making, right? You’ve got to make decisions about an
unknown future with an imperfect set of inputs. With different views that can
very reasonably and rationally be formed. You’ve got to follow your process as
best as you can. It’s not like some black box that perfectly answers every
question. It just gives you a framework from which you look through, and then
you’ve got to make a decision, you’ve got to live with it. Some of them are
right, some of them are wrong.
There’s no CIO on Earth that has no regrets.
And I’m no different. And that’s the big difference, right? There are lots and
lots of incredibly smart people, great strategies, great analysts, etc. I think
where the CIO role is possibly different is, in the end, decisions need to be
made with imperfect information about an unknowable future. And you just have
to go with that. That’s the job basically.
Ortiz
Making decisions about everything might be really challenging,
but for our readers who are on the asset management side — GPs and fund
managers, maybe you can tell us a little bit about how you and your team manage your
research and manage your selection for your external strategies?
Kamal
We’ve got quite an extended team internally of fund analysts. They specifically
work on that. We’ve got about 200 different variations of our portfolio. So if
you think about the entire range of our products, investment products, we go
all the way from an entirely fixed income portfolios to entirely bond
portfolios and a few variations and flavors in between equities and risk. And then
we do we do all of those in three different currencies. And then in different
implementations, which is funded and then direct, so, direct stocks, direct
bonds, etc.
The biggest part of our business is
funds. We’ve got a whole team of fund analysts. We have about 10 full-time fund
analysts that select across asset classes: everything from hedge funds to
equity funds to bond funds, to real estate funds. And they’re incredibly,
sophisticated, highly-trained professionals that also do a very difficult job, because we make
the big decisions but ultimately for the implementation, we rely on our fund
selection team and they are adopting a very process-based approach similar to
us. Fund managers are viewed through a lens of not just their track record,
which I think is what many people focus on, but we’re much more concerned about
their process. So we don’t care if somebody has had a bad year or bad two years
or whatever. It’s really, for us, looking forward to make sure that do we buy
into and believe in what it is that they’re doing, into their process.
And we’re not shy about using ETFs. If we think that an ETF adds value and it’s
really difficult for a manager to outperform a certain market. For example, the
US is one. We have no qualms about that.
You know there’s an old-style thinking
in some private banks that you need to have active management because clients
don’t want to pay for ETFs. I don’t believe that. It’s not a binary decision
for us. It’s very much a buffet. Whatever makes the most sense we’ll go with.
And if that happens to be an ETF, we’ll pass on those cost-savings to our
clients.
Ortiz
There’s been a lot of talk about a potential slowdown, or some people even use
the word recession here in the U.S. Is that what you are expecting as well, or
are you a little more optimistic?
Kamal
No, I’m more optimistic. I don’t think a
recession is coming. And if it comes will probably be mild. I still think
there’s a lot of momentum in the labor market. Things are pretty well anchored,
consumption remains pretty strong and there’s no foregone conclusion of why we
should have a recession.
Obviously, rates have gone up a lot.
And you know, and at some point it’s been the expectation that it will sort of
derail consumption. But I think it’ll slow things down, but it’s not necessary
that it leads to a recession. Balance sheets are still pretty strong for
households, balance sheets are still pretty strong for corporations. Both of
those segments have managed, so far, to take the hit from higher rates
relatively in stride. We’ll see. I mean I think that, no doubt, there’ll be a
slowdown in growth, but that slowdown doesn’t have to fall into some deep recession,
not at all.
Ortiz
What keeps you awake night, Fahad? What worries you?
Kamal
Lots of things, obviously. Our performance, all the various
positions that we’ve got, open markets, that complete unknowability of the
future. But honestly, you’ve got to turn off. I can be up forever with worry
about everything. But the reality is that you know you’ve got to trust your
team, you’ve got to trust your process, you’ve got to trust in your own
instincts and you’ve got to decouple away from the markets at night and try to
go to sleep and realize that that there are other things other than work. And
actually that make you better at your work when doing it.
I am obviously worried about anything
that could be a risk. But the key point is that when it comes to investing, you
can’t really do anything about a crisis in real time. Because the markets have
already moved. It’s too late. You can’t buy insurance when the house is on
fire. So we always, always, make sure that, across our risk bands, we have
plenty of shock absorbers in our portfolios. It may cost us a little bit on the
upside, but it definitely helps cushion our downside. For our particular client
based private clients, etc. we think that that is a sensible place to be.
We’re not trying to outperform in a
hedge; that’s not our game. We want to make sure that we are participating in
upsides meaningfully, but having reasonable shock absorbers on the downside. So
as a result of that, honestly, the fact that I know that we are reasonably well
hedged, quite well diversified, and we’ve got plenty of risk protection in our
portfolios, is really the reason why I’m able to sleep. Because no matter what
happens, as I said, things will come out of nowhere — a war, a crisis, a
pandemic. But you’ve got to make sure that you’re prepared for those in
advance. You can’t do it when it’s happening.
Ortiz
To end on an optimistic and positive note, what gives you hope for the
future, not only regarding your positions and investments, but generally
speaking?
Kamal
Well, look, over the last 150 years, over the last 400 years, the optimists
have always triumphed. Humans are massively ingenious. Entrepreneurship will
always be part of our DNA. There will always be some exciting growth
opportunity. There will always be some companies that are doing incredible
things and we want to make sure that we’re well exposed to that kind of thing.
So as long as you have people and there’s huge
amounts to be optimistic about, and if you think about where we are today,
versus 75 years ago, it’s an amazing story of human progress. We’ve really
slashed poverty. We’ve really cut down on infant deaths, had no major wars. It’s
been an unparalleled period of prosperity, and hopefully, that’s a sign that
we’ve learned from some of our past. There
are always questions about whether war is going to happen. But by and large, the
last 75 years have been the best of humanity and long may it continue.
Ortiz
Fantastic. Thank you so much for answering our questions.
Kamal
Anytime. Andres. Thank you and have a very, very good week.
Interview by Andres Ortiz