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Bernstein’s regular ‘black book’ of investment research has been staple reading on some Wall Street desks for decades. In 2002, Fortune said they were “snapped up like best-selling romance novels”. Here’s the latest one.
The lead author is Inigo Fraser-Jenkins, an analyst at AllianceBernstein behind bangers like The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism, and previous black books including Are We Human Or Are We Dancer? 15 essays on the nature of investing.
This edition is sadly less catchily-titled, and simply called A Painful Epiphany: Investing in a Post-Pandemic, Post-Global World, and explores the recent regime shift in financial markets and its broader implications. Here’s Bernstein’s reasoning:
The “painful epiphany” referenced in the title of this black book is the prospect of lower real Sharpe ratios. This means different things to investors depending on what kinds of liabilities they have. For those with strictly nominal liabilities, the rebasing of yields over the last year has provided some respite. However, for those with real liabilities, such as defined contribution pensions, sovereign wealth funds, endowments, and individuals saving to meet their own goals, an adjustment in allocations is still to come.
The main point of this black book is to outline what we see as the key lines of debate for allocators and investors in coming years.
One is forced to conclude that strategic asset allocation now matters in a way it hasn’t for a long time. We’re all taught that it’s the most important investment decision, but investors have often just paid lip service to that sentiment for several decades. After all, public equities and public bond markets had handsomely beaten inflation, with a negative correlation between them.
While investors have been very focused on the near-term consequences of the recent inflation shock, the necessary change to strategic allocations to adjust to longer-run higher inflation has only just begun. This leaves us with a series of specific action points for investors to consider, and a series of deeper points in terms of methodology and the framing of investment decisions.
Anyway, check it out for yourselves. As usual there’s plenty of interesting stuff to get stuck into.
The report — authored by Fraser-Jenkins and colleagues Alla Harmsworth, Robertas Stancikas, Harjaspreet Mand and Maureen Hughes — explores topics like the links between ESG and inflation, the bond comeback, private markets, (sigh) digital assets and (SIGH) a “renewed case for active management”.
Anyway, the future of the Bernstein black book is unclear, after AllianceBernstein said last year that it would flip the venerable research outfit into a JV with SocGen, which the French bank has an option to acquire in full after five years.
FTAV would assume that as the flagship property of Bernstein (the black book was started by its founder Sanford C. Bernstein). But after being head of quant strategies at the research outfit, Fraser-Jenkins is now co-head of “institutional solutions” at AllianceBernstein.
Maybe they’re making a grab for it, or this is just for continuity purposes for now. We’ll let you know if we find out.
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