Julius Baer’s chief investment officer: Lessons learnt from the pandemic
From the year’s biggest financial stories to ESG and recommended reads, Yves Bonzon, group CIO at the Swiss wealth manager tells it all
In conversation with Yves Bonzon, group chief investment officer at Swiss wealth manager Julius Baer:
Shortly before the 2008 financial crisis, you pulled out of equities. Surely you could not have seen the Covid-19 pandemic on the horizon?
That’s correct. I would describe the 2008 crisis as an endogenous mechanism. It had drivers you could track, monitor and understand. We were able to understand the kind of policy response that needed to be implemented to stem the contagion effect in the system.
The pandemic was of a different nature. The economic system at the time was solid and stable. The world economy and financial markets were hit by something that some have compared to a natural catastrophe. By definition, you cannot predict earthquakes reliably. You know they can happen, but it’s the strategic structure of your portfolio that protects you against these unpredictable events.
How do you respond when they happen after all? And what have we observed last year?
Though we did not predict the pandemic, we navigated it well and, to a certain extent, took advantage of opportunities in market. We understood what was needed from governments to stabilise the economy and shield the private sector from permanent losses, including the negative wealth effect of falling asset prices.
The policy response has been rapid. In the 1930s, during the Great Depression in the US, it took a few years for the government to develop the correct policy response, including debasing the dollar against gold. In 2008, it took about a year and a half until we got the right policy response from Washington. Last year it took three weeks. It’s tremendous progress.
What was the biggest financial story to come out of the pandemic?
It’s all about acceleration. Digitalisation in the economy was accelerated. The transition towards a new approach to macroeconomic policymaking, including the use of fiscal deficits, was accelerated.
The combination of the technological uncertainty plus the regulatory unknown make the future of crypto extremely hard to predictYves Bonzon
Right in the middle of the pandemic, cryptocurrencies were hitting their all-time highs. What does it mean for the financial industry?
There is a lot to say about crypto. In fact, I don’t like to call them cryptocurrencies because I think essentially, they are crypto assets of various kinds.
Some are currencies, including the stable coins, some are assets of the equity kind, some are assets of the fixed-income kind, some are hybrids of all of this. I think it’s a disservice to the case for crypto to call them currencies.
Having clarified this, I think the impact is difficult to grasp for these two reasons: There is a technological issue and we know that cryptocurrencies can have dramatic disruptive consequences for the centralised financial system. However, all of this is a function not just of technology, but of what governments will allow and how regulations will evolve.
The combination of the technological uncertainty plus the regulatory unknown make the future of crypto difficult to predict.
One aspect closely related to crypto is in the environment. Bitcoin prices dropped as soon as Elon Musk said he wasn’t interested any more because of the environmental impact. Thinking back to the pandemic, sustainability and the environment was everybody’s concern. How important is environmental, social and corporate governance (ESG) for investors now?
I think ESG, unfortunately, has in some instances been leveraged for storytelling and commercial purposes. However, it’s a topic of utmost importance.
The industry realised we should not just talk about this subject, but be concrete. In the sustainability board at Julius Baer we have coined: “We want to do good, we don’t want to feel good.”
Investors should look for how their adviser approaches ESG and ask themselves “What matters to me?” Finance cannot solve all of the problems of the world, but at least the industry is trying to move in the right direction.
Whether it’s the climate, social responsibility, inequality ... There are many areas in which you can have an impact. It’s fascinating, but you want to do it out of the true conviction that your investments can spark positive change.
What were your big reads during the pandemic? Which books do you recommend?
I’ve read Artificial Intelligence Superpowers by Kai-Fu Lee, discussing the difference between Silicon Valley and China. The book is interesting in the wake of the regulatory crackdown on digital business models and data collection that has recently happened in China. Compared to when the book was written, it’s a potential significant game-changer for China and Chinese assets.
I’m reading Noise by Daniel Kahneman, Olivier Sibony and Cass R. Sunstein. The discussion is about distinguishing the noise from what really matters and understanding that our decisions can be polluted by noise. I believe Thinking, Fast and Slow, by Kahneman is also a must-read for investors to understand how we react to news.
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This article was paid for by Julius Baer.
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