Mark White

Mark White has worked at Albourne since 2008, when the consultancy approached him to direct research and help build out its real assets practice. White was an apt pick for the firm: Not only has he worked on the capital allocator side of the fence at the Nova Scotia Association of Health Organizations (NSAHO) pension plan, but he has also spent more than a decade working with large forestry and mining companies while he was at the Ministry of Natural Resources in Canada.

He said the experience on both sides helps him speak with project managers, who he finds more knowledgeable than speaking with executives higher up the food chain: “Once they find out that I have a resource background, the conversation changes dramatically,” he said. His understanding of the terminology, as well as which questions to ask, helps him ascertain the actual risk profile of different investment opportunities.

White believes that all allocators who invest for long-term horizons should consider real assets, preferably those that he considers “boring.” He and his team of 10 analysts have a bias toward assets that are going to have a long life, have strong cash flow characteristics, with high barriers to entry and a reliable client base.

CIO: What (actionable thing) have you learned over the course of your career that has proven itself this year?

White: This has been a challenging year so far, and one that many will want to forget for numerous reasons. Institutions that are struggling are likely those that focused on the short term and looked backwards rather than forward. Often one would read about dramatic shifts in direction due to “underperforming” whatever was hot last quarter or last year. Institutions often lose sight of their fundamental objectives over time as complexity, from both investment allocation and risk analytics, alter the course of portfolio development. Looking through the rearview mirror rather than the windshield will often lead to evolving portfolio dynamics that can lead to unforeseen performance outcomes, as was the case in the spring of 2020.

Risk emulates from policy; strategic and tactical decisions shape that risk, but allocation decisions still must revert to the policy objective. Understanding the “objective” goes hand in hand with understanding your “limitations.” Maintaining a firm grasp of this objective has served many institutions well through this crisis and shone a light on the role of alternatives such as private equity and real assets in meeting the longer-term objectives of institutions. The fact that “factors” are challenged for most of these assets should be seen as a positive, and that the measurement of risk for most Real Assets are multidimensional rather than linear volatility, helped investors make more-informed decisions since the GFC and proved to preserve capital during COVID-19. Policy should be revisited often and understood, what are your impairment thresholds, liquidity requirements, and risk paradigms and assumptions, and what will help build a portfolio that meets or exceeds policy. Institutions that held to this approach have done well.

CIO: What investments (specific securities or sectors) look good to you now? And why?

White: Across real assets, we are moving through a short-term (hopefully) event that will have long-term implications. Government response through support programs will likely be at a scale greater than the GFC (with a wider reach across the economic spectrum) and societies’ behavior will alter the investment environment at least into the medium term. With this in mind, we are focusing on “slow and steady wins the race” with an eye on risk analysis and the characteristics of performance drivers relative to the resiliency of cash flows. Inflationary concerns are keeping me awake at night, not only the medium- and long-term implications but the response of traditional assets in a low interest rate reality as we try to move the economy forward. Thus, strong contracted cash flows of quality infrastructure, IP, or resources is appealing. 

Understanding key success factors of sub-strategies relative to the financial distress that we have seen thus far in 2020 and anticipate to continue, is key to understanding opportunities going forward. Looking beyond bottom-line valuations and focusing on the quality of cash flow characteristics is leading us towards quality asset-based opportunities in the broader resource, infrastructure, and what Albourne categorizes as esoteric strategies. It is not a matter of investing in yesterday’s structured opportunities but looking forward to the future as infrastructure and resource sectors evolve. The importance of telecommunications and vulnerabilities of transportation is very apparent. Deconstructing infrastructure opportunities is highlighting a number of emerging sub-sectors and support strategies with reasonable valuations (not the higher valued core assets). This is leading investors to focus on the delineation between “demand-” and “availability-”based strategies, but also the additional aspects of counterparty, regulation, and operating partner risk. Full analytics of risk will drive allocations, but structure creativity is also becoming a growing consideration and can better align risk between GPs and LPs.

Subcomponents of the mining and agriculture sectors are also appealing. These opportunities are forward-looking as we realize the changing environment from a regulatory and utility perspective. A transitioning economy from fossil fuels to electric will need a shift in infrastructure and increased demand for metals. Food security and now apparent supply chain issues will drive sub-strategies in agriculture as stress creates opportunities.

Many esoterics will continue to stand on their own, however this is still a very nascent opportunity set for institutions. Content royalties and the value of IP are currently seeing fresh interest, but quality operators are an issue.

CIO: What ones don’t? And why?

White: From a real asset perspective, it is easy to pick on energy, but this would be too simplistic. There is a combination of economic and social factors that are at play. COVID-19 has placed stress on the sector and provided a window into the future, as the dynamics of modified demand due to social as well as economic conditions would be at play if we see a disruption in the transportation sector due to electric vehicles (EVs). Thus, a rationalization of the sector will emerge, and investors will have to be selective. Commodity valuation will not be a primary driver, business fundamentals will be more important in asset selection, and investors will have to consider terminal value in their underwriting. Hold till depletion could become the new trend as the growth theme will be questioned.