Among the key lessons that Lim Chow Kiat, chief investment officer of Singapore sovereign wealth fund GIC, has learned is the importance of sticking to your investment discipline and resisting peer-group influence.
"If, as a CIO, you are fortunate to be given sufficient autonomy, you must apply your investment discipline strictly and without emotion," Lim told AsianInvestor.
This is perhaps even more important now, with investors desperate for yield and therefore readier to consider new types of assets, in a prolonged environment of low – and in some cases negative – interest rates.
The pressure to follow market cycles is strong and represents a major investing landmine, Lim said. “Investing history is full of examples of pro-cyclical victims who bought at the top and sold at the bottom.”
He is among the most influential investment professionals in the region, as deputy group president (since 1 June) and CIO of GIC, which has some $350 billion under management according to AsianInvestor data.
His view is that Asian CIOs are well advised to guard against being pro-cyclical in investing. It requires independence and the ability to ignore those who would say the market is always right, he argued. Those who avoid this pro-cyclical mentality will come through fine, said Lim, and those who are consciously counter-cyclical "will prosper tremendously".
There’s no foolproof method, but differentiating price from value is a critical part of investment strategy, says Lim. Investors need to be clear about why they are buying at a particular price level. “As the saying goes, ‘Price is what you pay, value is what you get’. Stick to price discipline.”
This is challenging for asset owners to practise, because not only is it difficult to determine value, it’s even harder to withstand psychological and organisational pressures, that stem from short-term negative moves, such as mark-to-market losses and opportunity costs, noted Lim.
Investors also need to guard against undue iunfluence from their peer group. He said a concern about being seen to be ‘wrong’ could lead to investors abandoning discipline and capitulating at the worst points of the price cycle. "It explains why many investors are forced to be pro-cyclical in the hope of surviving the volatile journey, but most, ultimately, end in ruins.”
So what’s the secret to holding firm to a counter-cyclical strategy? Lim says the best investors try to create the conditions to allow price discipline. They do so by sticking to segments where they enjoy an analytical and organisational edge; adopting practices aligned to that edge; and regularly examining and reinforcing these practices.
In GIC’s case, all this boils down to creating the conditions for practising a long-term value approach. Lim said: “We recognise it takes time for price to reflect value. In particular, we emphasise long-term orientation in our investment philosophy, governance framework, investment mandates, performance evaluation and reward system – and, importantly, communication. We believe these help us to stay disciplined.”
Lim was appointed deputy group president in addition to his position as group CIO, as part of a management reshuffle that became effective on June 1. At the same time, Jeffrey Jaensubhakij became deputy group CIO in addition to his role as president of public markets. Lim Kee Chong remains deputy group CIO alongside his post as director of the integrated strategies group.
This interview forms part of a feature that appears in the June edition of AsianInvestor magazine, ‘Key lessons from experienced investors’.