Thoughts on the future April 2020

By Matt Halperin

Some  thoughts on the future

1.       Key man risk has moved further down in the organization. Risk managers historically would worry about having too many seniors managers on a plane. Now you will worry about groups of people being incapacitated for weeks or longer from a virus.  Cross training of operational staff and regular drills on this will now become part of disaster recovery(DR) and it will happen on at least a quarterly basis to keep skills sharp. 

Portfolio managers and analysts will have knowledgeable backups as well.  If your firm has an overweight on Apple, a few people will be able to work the model.  Firms with global offices may think about having the ‘second’ on every company to be in a different office.  (If portfolio managers can get by for a few months  without an analyst, then  ask if the analysts really add value.  ) 

Resiliency will manifest itself in the ability for a person to perform more than one technical role- they stand in for their team mates.    Employees will be required to update work process in detail on a regular basis.  Videos have become cheap to produce and will become part of the package.                                              

Firms will also look at the ability to outsource functions as a backup. Take for example State Streets trading function.  A firm would have in place a plan to use them in the event their trading team became indisposed.    A checklist will be necessary for how crucial tasks will be handled if staff becomes incapacitated.  The actual exercise of building these plans will reveal  key vulnerabilities and will allow for more geographic distancing.

2.       We will need to rethink default options, company matches into 401k in light of  what looks like many employees inability to maintain an emergency fund. This is both a product and a risk issue.

Forward thinking firms will look to help employees create emergency funds. It may take the form of  an agreement  to bank part of your future bonuses including sign on bonuses. I will have more to say on this in a future post.

3.       Liquidity.  Fund Boards, managers, 401k fiduciaries will need to re-examine daily liquidity.  While the product and sales people insist on it, it is a feature that needs re-examining. Why do I a buy and hold investor have to put up with short traders, RIAs thinking they have better model etc. selling stocks.    Some amount of liquidity makes sense so people can re-balance.   I will write my ideas here in a future post. What should Boards being asking:

a.       First, how well did the liquidity and redemption models perform in the first quarter?

b.      What will change?

c.       Are there any funds that we now think should not be daily liquid funds?

d.      Have we identified clients that have a ‘proclivity’ to sell into trouble- particularly RIAs.

                                                               i.      Should we getting the data at the broker level to identify the weak players. (Yes, it is available.)

e.      Do we have the products that the money went into? If not- should we.

f.        What are the expectations on LOC renewals. What is the alternative.

g.       Intra fund lending. If you are using did it work.

                                                               i.      If not, can you table top a what if you did and see if it would have helped.