For most clients, interaction with those overseeing portfolios is a key factor when choosing a fund house, says Daniel Gamba, president of Northern Trust Asset Management.
While investment firms are digitising at a fast pace, Daniel Gamba, Northern Trust’s recently appointed president of asset management, wants to emphasise the human factor.
Proud of the “machine driven” factory which fuels the $800bn passive slice of his firm’s $1.2tn in managed assets, it is however the $470bn active business he wants to grow and emphasise. “You need humans to improve what you do with the machines from a quantitative perspective,” he says.
One of the key lessons of economic history is that technology alone cannot determine investment performance, believes Mr Gamba, previously at BlackRock, citing the global financial crisis of 2008, when black box models struggled to keep up with active managers. “I’ve grown up in that space and I understand models don't work in the most difficult times, and people need to intervene, particularly when there’s a crisis.”
In uncertain times, relates Mr Gamba, clients often tell him: “Give us humans.” These clients want more, not less, interaction with portfolio managers, belying belief that wealthy families and institutions are happy dealing with a digital dashboard.
“You have to have humans directing requirements and at the same time, clients want humans talking about their portfolios,” he says, drawing attention to increasing granularity. “They want to know what they own in their portfolios and that requires people to explain it,” says Mr Gamba, who has dedicated the first year of his tenure to “foundation” of the business, co-ordinating with other parts of Northern Trust, including asset servicing and wealth management.
Private platform
His “second, third and fourth year will be more focused on adding resources to the human part of the equation”, particularly in private markets, today’s most popular sphere for large-scale asset managers. Currently, Northern’s private platform is only for US clients, but he plans to expand this globally, adding dedicated staff. “This is a platform run by humans and the alpha is created by humans,” he stresses, to avoid doubt. His firm manages $11bn in alternative assets today, a figure he feels can be significantly boosted.
“You have to have humans directing requirements and at the same time, clients want humans talking about their portfolios”
But he is also recruiting to the more mechanised ETF side, where passive funds can best express thematic calls, such as currently favoured exposure to natural resources, infrastructure and technology.
It is a key priority for the asset management firm to draw a healthy balance between equity ($736bn) and bond ($152bn) business, with fixed income once more in demand today, as it was before the Covid-19 pandemic hit. With interest rates having peaked and the Fed in cutting mood, he talks about achieving annual returns of 5 per cent plus from selected bond classes.
The renewed bond bias also recognises that highly concentrated US equity portfolios, deriving returns from the Magnificent Seven stocks, software specialist Nvidia in particular, may have already enjoyed their finest days.
Living on the sidelines
“That’s a very narrow market for equities,” admits Peruvian-born Mr Gamba. “We expect it will revert back to normalcy, meaning mid cap and small cap stocks actually growing faster.” A more “normal” market may even tempt back clients living “slightly on the sidelines”, concerned by equity market over-exuberance.
“A lot of money is in cash,” he reveals. “Many clients haven’t really overly invested in equities.” Private markets have similarly been avoided by those concerned with liquidity risk, nervous to have “exceeded their levels of comfort” in portfolio exposure to alternatives.
“I think technology and data are core building blocks of the asset manager of the future”
“I think 2023 was a difficult year for fundraising into private equity and venture capital,” although private credit, for many, is looking more attractive. Real assets are also interesting to this increasingly discerning client base.
Yet despite his focus on personal dialogue, technology also remains important for Mr Gamba, who joined the Chicago company partly because it combined several different yet complementary disciplines. “To be successful in asset management, you need to deliver performance for clients,” helped by technology-intensive asset servicing, allowing staff to break down returns and their sources, he suggests.
Inspired by his Latin American roots, Mr Gamba is particularly keen to take technology from the developed world and deploy it in emerging markets.
“I think technology and data are core building blocks of the asset manager of the future,” he says. “Scale is very important in this market, and you have to be able to use both humans and machines.”
