“In a very short period of time, Bernhard has proven himself more than capable at handling the responsibilities of a CIO. In his role overseeing the assets aligned with the company’s many European defined benefits plans, he has to do it all! Given a Dutch plan, two UK plans, two Belgian plans, a Swiss plan and German plan, suffice it to say he has seen every combination and flavor of governance model and worked with regulators, trustee boards, advisors and consultants from across the industry. He is a trusted partner with our HR colleagues and external actuaries and, importantly, has assembled asset managers who are outperforming benchmarks. He is running assets in risk-seeking and a few different LDI frameworks. An added complexity is setting policy and coordinating FX hedging strategies and coordinating collateral management across the ocean as one, single virtual back-office team. An unassuming and truly humble leader, paying attention to and truly living Dow’s values as a company, Bernhard puts himself last behind the needs of the participants, the community in which he lives, his team and the company. He deserves a little recognition and a moment in the spotlight for all he does and especially how he does it. He’s earned it.”
—Robert M. Sparling, CFA, CIO, Portfolio Investments
Bernhard Schmid is the director of Portfolio Investments Europe at The Dow Chemical Company, where he is responsible for managing the assets of various Defined Benefit pension plans, including the aspects of complex asset allocation decisions and operational aspects.
Schmid’s 20-year career has spanned a broad array of disciplines within corporate treasury, with distinctive positions relevant to financial and commodity risk management, financial planning, funding and real estate, and portfolio management. He gained a substantial amount of experience in these different treasury disciplines, especially highlighting his time in funding by working and running a Pan European Accounts Receivable Securitization Program, negotiating bank loans, guarantee lines and leases, working on project finance or issuing commercial paper.
Notably, during the 2008 financial crisis, Schmid managed a team of relatively inexperienced new hires in EMAI risk management team in Switzerland, and the team had ambitious targets during that time, which they met with success under his leadership.
Schmid speaks with CIO on his experiences, helping to illustrate his successful career.
CIO: What did you think you understood before the COVID-19 crisis … and if, during the crisis you were proven wrong, what did you learn from it?
Schmid: Despite having experienced different crisis before while managing risks (eg GFC 2008-2009, or the Euro debt crisis or several local currency crisis) the speed of the crisis and the market crash and also its recovery since was again a lesson that “everything” is possible and nothing should be ruled out as a scenario.
CIO: What took you by surprise during the Covid-19 crisis? What worked?
Schmid: On the equity side, it was surprising that there was not much differentiation in the early parts of the crisis and the selloff was across industries and sectors. This was then corrected in the March period where the selloff was more differentiated. So, finally it worked that different investment styles yielded different results (for example, “value” or “yield” underperformed “quality” or “growth”). Another surprise was the significant difference on the outcomes of the various investment styles.
On the fixed income side, it was surprising to see that the majority of the active managers in the investment grade universe were underperforming versus the benchmark.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
Schmid: Because of the huge daily volatility collateral and liquidity management was a serious challenge. We review our portfolios and strategic asset allocations every few years and that is the basis for important changes. Current changes are more tactical and of shorter term nature.
CIO: ESG has been a tidal wave force behind recent innovative investment framework in our industry. How do you see the ESG framework and effort be influenced by the recent event?
Schmid: ESG has been and will be an evolving topic with an increasing importance over time. I expect that ESG will become part of the day-to-day investment framework, the same as other financial measures. The recent events will amplify the role and importance of ESG factors in the future as a risk mitigation tool and to be more resilient for future challenges.
CIO: What’s your view on the “perfect storm” that is currently impacting the oil markets, and how will that change how you invest in upstream energy?
Schmid: The current low oil prices likely destroy a meaningful part of the higher cost oil production capacity. This will increase the political weight and sensitivity of the major oil producers on the supply side. The current demand shock and the longer-term consequences of the crisis with lower demand will not offset the supply side “control” and oil prices will likely increase again in the mid and long term.
Given the high event risk nature of the oil market and energy I would be cautious on the energy sector in general.
CIO: What’s your view on the fate of the Euro and the EU?
Schmid: The economic divergence and the different needs between the north and the south region of the EU will continue to the pressure the Euro and the EU. With Brexit and the increasing importance of populists in several EU countries, the EU has reached a pressure point where disintegrating forces become a real threat and it has to be overcome by either more federalism or further integration. In the past the EU development was shaped by integration only, this led as well to an extensive bureaucracy. The EU member states all have an interest to have a strong EU in the global context, however, have many diverging views on the EU. Therefore, more federalism instead of further integration might lead to a more unified and stronger EU. However, that would be a real test for the Euro currency not to break up.
CIO: What do you think will be the impact of COVID-19 on developing economies?
Schmid: I think that one has to differentiate between the short term implications and longer term consequences. The short-term implications might be similar for all developing economies, with a sharp drop in economic activity like everywhere else in the world. However, in the longer term, the answer differs substantially, depending on a country’s dependence on different sectors (industry, services, agriculture) and sub-sectors (for example, tourism versus business process outsourcing), the trade partners and the structural damage from the lockdown. So, it will be a case-by-case and not a general outcome.
CIO: What are the new creative/innovative strategies that you are researching right now?
Schmid: We have recently invested in a fund with a quant strategy based on “big data.” The strategy works with machine learning, internet search, and social media, among others, and is able to analyze a richer and timelier dataset than a traditional investment manager.
CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities over the coming years?
Schmid: With the unprecedented support from Central Banks and governments, some of the opportunities disappeared almost as fast as they arose. Nevertheless, I expect that the current situation will have some longer lasting impacts on behavior and favor some sectors. On the one hand, travel or office space might be very different compared to today and offer less attractive investment opportunities, on the other hand, business related to logistics, technology or health care have a more positive outlook.
And the outlook on credit can offer some opportunities in the below-investment-grade credit markets.
CIO: Professionally, where do you see the most exciting areas to specialize further over the coming years?
Schmid: In the pension space, liability management is gaining more and more focus, as well as the evolving regulatory environment, which will require a fresh look at pensions.
CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?
Schmid: As I am working for a multinational company, we are used to working as a team from different locations, and virtual meetings have been part of the corporate culture. The main difference now is working from home, and this has its own challenges. Each individual case can have a different situation and a more individual approach is sensible.
CIO: What exercises have you found useful?
Schmid: Given that the day-to-day contact in the office is missing, it was important to keep this information flow among the team going. We established a daily virtual team meeting where every team member can bring up issues, exchange ideas, give updates etc. In general, video meetings worked very well and were effective, be it inside or outside the company.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Schmid: An hour with Warren Buffet would certainly be a unique experience.
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
Schmid: In the Swiss Mountains, St. Moritz, would be a beautiful venue for such a meeting.
CIO: What asset class or investment troubles you most right now—and why?
Schmid: Nothing particular standing out.
CIO: Name your four-member investment dream team for your own family office.
Schmid: It would be my current team.
CIO: What should be an investment trend, but isn’t (yet)?
Schmid: A profitable recycling industry.
