What the investment chief at America’s oldest private bank has to say about the future of US markets
Founded in 1818, Brown Brothers Harriman arranged America’s first initial public offering and once held a monopoly on mail delivery to Great Britain.
Scott Clemons is BBH’s chief investment strategist, and a 26-year veteran of the bank.
Business Insider caught up with him to talk markets, monetary policy and the changing nature of asset allocation.
The bank has $26.9 billion in assets under management in private banking, approximately $58.6 billion in AUM in investment management and $4.1 trillion in assets under custody in the investor services business, according to the company.
What follows is an excerpt from the conversation, which Business Insider has edited for length and clarity.
Tina Wadhwa: Can you tell me your view of the markets right now?
Scott Clemons: Equity returns are likely to remain modest until corporate earnings rebound and “refuel” the market. With earnings in retreat and valuations at historically high levels, equity prices are also likely to remain volatile, overreacting — both on the downside and upside — to external developments. What is true of the overall market is, however, not necessarily true of every stock within the market, and our managers continue to find opportunities to put capital to work.
Wadhwa: How do you view asset allocation in a negative/low interest rate environment?
Clemons: In an environment of low to negative interest rates, we are relying on fixed income as a source of price stability and liquidity, not a driver of return. The downside risk to bond prices in a rising rate environment (even if that rise is modest) poses unacceptable risk. Within our fixed income portfolios we are pursuing some excess return through credit risk, but not through duration risk.
Wadhwa: What do you see as the impact of Brexit on asset allocation, if any?
Clemons: Brexit is a process, not an event, and the uncertainty surrounding the process is likely to create price volatility and therefore opportunity for disciplined, value-based investors. We have not altered asset allocation in anticipation of those disruptions, but we do expect that our non-US equity managers will find opportunities to invest in companies with exposure to Brexit uncertainty.
Wadhwa: What is the future of monetary policy? It seems like Central Bankers have exhausted their options.
Clemons: The real culprit of constrained economic growth in the US is the household deleveraging that began in the wake of the 2008-09 financial crisis. Monetary policy has enabled that dynamic by keeping interest rates, and therefore debt service levels, low. We question the ability of central bank policy around the world to solve economic problems, while acknowledging that easy monetary policy buys time to put the right policy solutions in place, and those differ from economy to economy.
Wadhwa: You have over 26 years of experience at BBH. What are the biggest changes you have noticed through the years? What are the major challenges?
Clemons: The biggest opportunity facing BBH’s private banking business now is helping our clients transition wealth and values to younger generations. This isn’t necessarily a new or unique circumstance, but the scale of the wealth undergoing this transition, coupled with the complexity of tax and estate laws, makes it more challenging. Prudent portfolio management is part of the solution, but it only works when integrated with careful estate planning, family communication, and education of the next generation.
Scott Clemons joined BBH&Co. in 1990, and has held a variety of investment roles at the firm over the past 25 years. His career began in international equities, where he was an analyst and portfolio manager of European and Asian equities, working out of the firm’s New York and London offices throughout the 1990s. In 2001 he broadened his responsibilities into domestic equity management and research as well, and then from 2005 through 2010 managed the New York office of the firm’s Private Wealth Management business. In 2010 he was appointed Chief Investment Strategist, and is today one of the firm’s primary writers and speakers on topics related to the economy, financial markets and investing. Scott is a frequent contributor to print and broadcast media.
Scott is a CFA Charterholder and a member of the New York Society of Security Analysts and the CFA Institute. Outside of his professional interests, Scott serves as the President of the Grolier Club in New York City, and as Chairman of the Research Corporation for Science Advancement, the oldest foundation in the United States dedicated to basic scientific research.
Born and raised in Florida, he is a magna cum laude graduate (Classics) of Princeton University, and lives in Manhattan with his wife Karyn, a music teacher at the Brearley School. They are proud parents of young twins.
“We question the ability of central bank policy around the world to solve economic problems, while acknowledging that easy monetary policy buys time to put the right policy solutions in place, and those differ from economy to economy.”
thats probably not good..
“With earnings in retreat and valuations at historically high levels, equity prices are also likely to remain volatile, overreacting — both on the downside and upside — to external developments.”
more likely downside than upside..