“A Collection of Short Essays on Productivity in Practice”
Volume 1, September 2024. Article 3.

Re-defining Productivity Among Financial Institutions

Wai Kuen Elysia TSE, Fellow of WAPS, SINGAPORE

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We live in an interesting time characterized by a confluence of economic forces, including high inflation, supply chain disruptions and labor shortages. These forces contribute to high costs of living and doing business. No central bank is in an enviable position to tackle these challenges while protecting economic growth and financial stability. As the global population continues to enjoy longer and healthier lives, it would be beneficial for societies to reflect on a number of key questions, including: 1. how countries around the world might provide social safety nets to their populations; and 2. how retirees’ hard-earned savings might be better protected and grow during retirement, given the complex economic environment.

It would be remiss of us not to acknowledge the significant role many financial institutions, particularly pension funds, insurance companies, sovereign wealth funds and investment management companies play in addressing the aforementioned questions.

· Pension funds typically accumulate capital through defined contribution or benefit plans and invest in private and public capital markets with the objective of providing retirement income for employees when they reach their retirement ages.

· Insurance companies typically invest the capital from accumulated insurance premiums with the goal of paying out liabilities when life annuities are due or claims (e.g., medical, accident, etc.) are made.

· Sovereign wealth funds are state-owned investment funds comprised of capital generated by the government, often derived from a country’s surplus reserves. They are invested by a country’s government with the goal of generating economic benefits for citizens.

It is also worth noting the role played by investment management companies in providing strategic investment guidance and investing on behalf of their clients, including financial institutions such as the above. The cliché of investment personalities is to ruthlessly pursue profit. Conversely, Benjamin Graham who is widely known as the “father of value investing” and was one of the most successful money managers on Wall Street said, “successful investing is about managing risk, not avoiding it.” An effective investment manager is a company or an investment professional who assesses investment opportunities and invests on behalf of their clients, taking into account the potential for profit, the level of risks involved and seeking to mitigate those risks in an appropriate manner. Despite the stereotypes about finance or investment personalities echoed among our informants, an effective investment manager’s role is not only to generate returns, but also to contribute indirectly to society. When investment managers work with financial institutions such as pension funds, insurance companies and sovereign wealth funds, they should focus, among many other objectives, on preserving and growing the savings of retirees (such as teachers and firefighters) and the insured in times of need, as well as providing financial means to indirectly support better social safety nets.

Investment management companies typically implement asset selection and portfolio allocation strategies in order to align with the client’s desirable risk-return objectives. This may include a variety of asset classes, such as stocks, bonds, private equities and other investment alternatives. Throughout the investment process, investment management companies monitor, rebalance (i.e., buy and sell investments when necessary), manage risks, oversee the performance of the portfolio, and report results back to their clients. The most prudent investment decisions are often reached through a process of rigorous analysis conducted by investment professionals and constructive debate among investment committee members who may espouse differing perspectives as pessimists, realists or optimists. Therefore, the performance of investments can be attributed to the capabilities of the individual investment management company or investment professional. Nonetheless, the fundamental economic conditions and the capital market environment at the time of investment and throughout the investment horizon are of equal importance. As Benjamin Graham insightfully observed “in the short run, the market is a voting machine but in the long run, it is a weighing machine. Those who do not remember the past are condemned to repeat it.” As the finance/investment industry continues to evolve, it is evident that the insights gained from past cycles retain their value, and thus remain relevant in the present context. It has been observed that investment management companies which demonstrate robust performance are often those led by investment committee members who possess a diverse range of investment experience across multiple cycles and disciplines.

The future of productivity in the finance/investment industry could be enhanced by the establishment of a platform or a channel that facilitates the interaction between two distinct groups: seasoned investment professionals and the next generation of investment professionals. The former group can disseminate their insights acquired from a range of experiences, including successful, unsuccessful and challenging ones. The latter can contribute cutting-edge ideas and innovations derived from fields such as artificial intelligence (AI) and emerging ESG studies. This collective endeavor has the potential to enhance productivity.

About the Author

Ms. Wai Kuen Elysia Tse began her career in 1998. She has worked for a number of Fortune 500 companies and some of the largest investment banks in the world. Tse’s experience includes serving on various investment committees and overseeing the investment strategy and research function in the U.S. and Asia Pacific for several multi-national investment management firms.

Tse is a trained economist and investment strategist. She holds a master’s degree in real estate from Cornell University. Tse is a regular speaker on Bloomberg, sharing her views on the financial and real estate markets.

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World Academy of Productivity Science
World Academy of Productivity Science

Written by World Academy of Productivity Science

The World Academy of Productivity Science (WAPS) is comprised of individual members who support the goal of WCPS and wish to contribute to its work.

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