I spent last weekend in Dublin and amid several jars of real Guinness (it tastes far better in Ireland, apparently) and live music in every bar, I was able to soak up some of the city’s other culture. As you’d expect in Ireland’s capital city many of the street signs are in Gaelic, which after a few pints of the Black Stuff in Temple Bar’s finest watering holes can get a bit confusing. Luckily however, the signs are also in English to direct the well-oiled or confused tourists where to go for that obligatory trip to the Guinness Storehouse or the Kilmainham Gaol. Dublin is not that big so navigating its vibrant streets was a breeze.
It’s a shame the same can’t be said for negotiating the investment landscape. Jargon has long been a millstone around the necks of trustees struggling with investment strategies. An example of this cropped up earlier this week when I chaired PI’s latest roundtable on smart beta. To start with the term ‘smart beta’ in itself is unclear so a significant part of the debate was dedicated to defining, or attempting to define, what it actually is. The consensus seemed to be that, in its simplest form, smart beta is a systematic way of achieving returns outside of using a traditional market cap index. Naturally, in order to come to this conclusion the discussion wandered into jargon territory, so in addition to smart beta we stumbled over the term ‘systematic alpha’ as if it was quite normal. Luckily the panel comprised top industry professionals so most people around the table understood. But a refreshing voice came from Evercore Pan-Asset Capital Management’s John Redwood, who said it was too confusing and the priority should be to make investment strategies like smart beta simpler for trustees to understand and access. Indeed, most trustees won’t have a clue what smart beta is, let alone systematic alpha. As Redington’s Pete Drewienkiewicz pointed out, all they want to see is that the strategy is giving them a return. Indeed, the other consultants on the panel said trustees do appreciate the benefits of smart beta once the strategy has been explained in layman’s terms. Just like a tourist in Dublin needs English language street signs to get around, trustees need trendy investment strategies explained and subsequently implemented in a way they can fully understand, otherwise they will never get to where they want to go.
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