Joe Nankof

Title: Principal
Firm: Rocaton Investment Advisors 
Assets under advisement: More than $641 billion 
Number of consultants at firm: 60 employees, including 14 consultants
Client type: Defined contribution and defined Benefit plans, financial intermediaries, insurance general accounts, endowments and foundations, and health care companies

A senior consultant and head of asset allocation research at Rocaton Investment Advisors, Joe Nankof is a 17-year veteran at the firm and is responsible for strategic research initiatives and overseeing the design and maintenance of the firm’s asset class forecasts. He is a lead consultant to some of Rocaton’s largest clients, working with their fiduciary committees to advise them on the management and oversight of the retirement plans and other portfolios they oversee.

There are a few key overarching secular market forces that are influencing Nankof and his team to consider strategies and adapt their clients’ portfolios to withstand potential market turbulence and take advantage of return opportunities.

“One is slow and slowing economic growth in the developed world,” Nankof says. “Whether it be Europe and the challenges they’re facing, Japan struggling to grow for multiple decades, and in the US, slower economic growth today and in the foreseeable future than we’ve experienced in many years.”

Troubles brewing in emerging markets are compounding issues among developed nations that Nankof must be aware of when advising his clients.

“Emerging markets, which have generated significant growth in the last few decades—while still expecting better growth than the developed world—are also experiencing decelerating growth,” he tells CIO. “Slower growth globally has been driving central banks to ease and governments to provide fiscal stimulus, which certainly has provided support to economies and stabilized financial markets in the last few years. However, there may be a limit to what monetary and fiscal policies can achieve.”

The team at Rocaton has historically supported and is making a strong effort to be proactive considering a recession or economic shock in constructing portfolios by researching strategies with diversifying characteristics.

“If you’re an investor in the bond market, return expectations are much lower than we’ve ever seen, and it’s encouraged investors out on the risk curve to generate returns,” Nankof says. “Today, we’re moderating our expectations and client expectations going forward, given where markets are trading— across fixed income and equity globally.”

“The other thing we’re doing is looking for ways to diversify portfolios, and possibly add deflation-sensitive assets as a way to protect against the next market downturn. Whether it’s a pension fund, endowment, or insurance company, looking at high-quality, investment-grade fixed income, despite historically low yields today, has provided one of the best measures of diversification in global portfolios that we’ve seen.”

Idiosyncratic Strategies 

Nankof and his team are also looking outside of traditional investments such as stocks and bonds to brace their clients’ portfolios for any potential market decline. “Given valuations across the public markets in the US, we are looking for strategies that are more idiosyncratic—things that are not as tied to public market valuations, and more immune to a downturn or a recession. Some of the things we’re looking at include consumer-based lending, or asset-based lending, including parts of the commercial real estate market less exposed to an economic downturn or cap rates, which appear to be stretched across much of the market today.”

“Broadly speaking, we’re looking for opportunities less tied to valuations in the credit and economic cycle,” he says. “Within the buyout and growth equity space, we’re looking for firms that can create true operating leverage and add value through growing revenue, EBITDA, and enterprise value, as opposed to approaches which rely on financial engineering.”

He also talked about his experience with private credit, noting “we like a global strategy that can allocate to a variety of types of lending and credit across geographies, especially in the current environment where direct lending to corporate borrowers has become quite competitive. There’s a whole range of things they could do in addition to corporate-based lending. If there’s a downturn in the corporate credit cycle, they can take advantage of that dislocation as well.”

China is another hot topic that Nankof and his team have been studying. “It’s certainly receiving a lot of headlines recently, but it’s one of those very long-term secular trends that we’re seeing, the growth of China’s presence and the direct and indirect impacts on global financial markets. We recognize that, given the weight that China represents in client portfolios, it has a disproportionately low weight relative to its influence on the global economy and financial markets. We’re thinking about how we approach asset allocation going forward to adequately allocate capital and risk in client portfolios to China, given its prominence globally.”

By Steffan Navedo-Perez