“Our investment team is very small, consisting of five people, including myself. For that reason everyone on the team needs to be experienced and professional. So, when Trent Gregory was hired three years ago we did so in anticipation that he would step in, take over one of the major asset classes and run with it. We put Trent in charge of the public equity portfolio, which meant he was responsible for the implementation of a China A-Share mandate that we had just approved as well as critically reassessing the rest of the public equity portfolio structure. We were not disappointed. Trent has brought a broad range of experience to the task, having evaluated managers and structures in multiple assets classes and styles, including hedge funds. He immediately became an important contributor to team discussions on the direction of the total portfolio. I think Trent is an outstanding investment professional and we consider him to be one of the next generation of leaders at the West Virginia Investment Management Board.”
—Craig Slaughter, CEO and CIO, West Virginia Investment Management Board
The CIO Editorial Team shared a dozen questions with all of our NextGen nominees and asked them each to pick six to answer. Their answers informed our decision to include them as a NextGen. Below are the answers from Trent Gregory.
CIO: What is the best way to bring more diversity to the financial industry?
Gregory: This is a good and important question. I believe that the most effective way to attract a more diverse group of potential industry practitioners is to increase awareness. In my experience, most of society believes that the investment industry is composed of only stockbrokers and retail-oriented financial advisers.
Throughout my career, as I have explained my various roles to friends, neighbors, new acquaintances, etc., I have found that institutional investing is an almost unknown concept to the average person, and certainly to the younger college-age generations that are looking to build careers. I can admit that in college even I had no idea of the vast variety of roles and opportunities that were available to an independent-thinking, analytically minded type of person, such as myself, in the investment industry. I think I am fortunate to have started my path in a good corner of the industry where my skillset and work ethic could lead me to where I am today. However, there are important and lucrative roles in the investment industry that require different skillsets and character types to be most effective, and this is why diversity is crucial.
The idea of being responsible for someone’s financial future is daunting to many people I have spoken with, and this would immediately cause them to shun a career where the perceived opportunities are limited to being a stockbroker or financial adviser. As experienced investment professionals and decisionmakers we know that we rely on a much larger group of staff and individuals to provide data and information, administration services and various support services to implement the changes as a result of the higher-level decision making. Each of these are critical to the long-term success of any investment program, and many roles require different backgrounds, skillsets and ways of thinking.
I believe if there was a more concerted effort by the investment industry to educate younger generations, and society in general, of the vastly wide range of roles available to those looking to build professional investment careers, this would lead to a larger and more diverse pool of potential talent for investment firms to select from.
CIO: Is cryptocurrency an institutional asset of lasting value?
Gregory: Maybe, at some point in time. Currently, in my opinion, cryptocurrencies have not established a large enough legitimate dependency within the financial system to support widespread institutional adoption. Until recently the most compelling though weakly supported argument for cryptocurrencies in institutional portfolios was their potential to be a diversifying asset. However, given the nascency of the asset class there is no significant correlation data that can support this notion. More recently, crypto has been anything but diversifying and any crypto investor or affected investment board will likely remember the recent “crypto crash” for quite some time.
At this point in time, cryptocurrencies have no calculable intrinsic value and have been more of a speculative gambling venue rather than an investment based on data with a strongly supported economic rationale. Furthermore, since the inception of cryptocurrencies, the legalities and financial positions of many crypto currency exchanges has been questionable—fraught with regulatory shutdowns and bankruptcies.
Without robust regulation and infrastructure to ensure that cryptocurrency investments can be protected and freely exchanged, institutional investors should have a hard time justifying the associated risks. Perhaps in time a regulatory system will be created to minimize the current transactional risks allowing the dependence on cryptocurrencies to grow within the financial system, but that is still likely years away.
CIO: Which component of ESG investing do you think will have the most influence on institutional investing going forward, and why?
Gregory: Governance always has and always will be one of the most important components within the construct of ESG parameters. Management’s view and treatment of minority shareholders is of utmost importance to investor preferences and long-term returns. However, both environmental and social issues are rapidly gaining in importance, while the environmental factor might see the most growth in importance over the next several years. Many countries and regions have agreed to multinational agreements of various types to systematically reduce the environmental impact each may have on the planetary ecosystem.
Such environmental changes will rely on the cooperation of individual companies and industries to adhere to mandates controlling environmental goals and regulations. There has also been a shift in preference by some investors who prefer to reward environmentally responsible companies with their capital as investment, which to date may have had some but limited impact on stock prices.
The WVIMB has an economic responsibility to our plan participants, not a social responsibility; therefore, we require our investment managers to use their best judgement to determine how much emphasis to place on ESG considerations in regard to their analysis of performance expectations for a particular stock. It is our expectation that over time ESG implementation will continue to gain more consideration in our portfolio as environmental regulation is likely to continue and may become an increasingly important factor in stock performance.
CIO: What should be an investment trend, but isn’t (yet)?
Gregory: I have found the carbon credit investing space to be very interesting given the structural asymmetry the asset class is expected to offer. However, liquidity is an issue. I find the most interesting area within the carbon space to be carbon allowances. The carbon allowance space is the part of the market that includes regulated carbon industries and producers within specific regions such as fossil-fuel-based electricity producers in California, the U.S. northeast, the EU and the U.K., for example. These regulated companies must purchase and retire a specific number of allowances on a scheduled basis as specified by the regulator.
The regulator is the creator of the allowances, which are sold by auction on a quarterly basis, and they programmatically create less allowances each year. Interestingly, the regulator is also a participant in the auction for the purpose of manipulating supply to control pricing. While pricing in the short term between auction periods can be volatile and headline driven, the structure of the system is designed to cause allowance prices to appreciate over the long term, thereby making carbon producing technologies less profitable to make innovative cleaner technologies more financially attractive. A purely speculative investor can take advantage of this dynamic.
This is a relatively new market, and it is not well known or understood by most investors. The space requires a significant amount of education to get comfortable with it and it is still capacity-constrained, making this a harder asset class for larger investment programs to access. Currently, this is an area of higher priority for me, but some creativity will likely be necessary to manage around the liquidity and capacity constraints in order to implement within our large program at the WVIMB.
CIO: Which asset manager (exclusive of their firm) has most influenced your growth as an institutional asset manager?
Gregory: In my career I have been fortunate to work with several highly experienced CIOs that have vastly different backgrounds and investment philosophies from which I was able to learn. I can’t say that I value any experience more than another but having created close relationships has been very important for me. I would encourage early career stage investment professionals to spend time cultivating their formal and informal relationships with their CIOs and senior investment team members and perhaps inquire about a mentorship type of arrangement with key members of their teams to enhance their learning and development. I have found that on-the-job training and working alongside very experienced professionals cannot be replaced by any degree or certification.
It is just as important to learn from management philosophies as it is to learn from investment philosophies. Delegation is a crucial function to running a successful investment team and career progression ultimately leads to delegatory responsibilities. Learning from the management strengths and weaknesses of others has provided me with a diverse range of styles I can choose to implement or not implement based on the situation or team dynamics I am presented.
As professionals in this industry, most of us can attribute at least some part of our success to one or more influential people in our careers. I believe it is our responsibility to continue in this fashion and provide guidance to other deserving individuals who show the desire and capability to one day be leaders in their own right.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Gregory: I think up and coming allocators need the ability to learn and effectively use technology resources discernably and efficiently. In this day and age, information is more widely and rapidly available than any time in history, and this trend will only continue. However, with more sources of information it is harder to discern the quality of data and information that is being distributed and consumed. With younger generations being more reliant on and sometimes unconsciously influenced by social media content, it is important that investment professionals constantly evaluate and scrutinize the information they are receiving to distinguish what is a signal versus what is noise. While both the number of value-adding signals and noise are growing, the level of noise is expanding at a much greater rate.
As investors, we rely heavily on data and information. Using prudent judgement as to what information is valid and important will determine the quality of investment decisions and recommendations and ultimately the strength and potentially the career trajectory of the allocator.
