“Ryan has demonstrated the attributes necessary to go far in this industry. He is intelligent, technologically sophisticated and knowledgeable about investment matters. More importantly, he has the soft skills necessary to be an effective communicator and manager.”
—Craig Slaughter, Executive Director/CIO, West Virginia Investment Management Board
The CHIEF INVESTMENT OFFICER Editorial Team shared a dozen questions with all 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 Ryan Owens.
CIO: How are you dealing with interest-rate risk and economic uncertainty?
Owens: Volatility and uncertainty are constants in financial markets. I’m of the opinion that the best way to deal with both is through diversification and adherence to a strategic asset allocation. While both strategies are likely to continue to work going forward, it’s interesting to poke at the current environment and ask whether the shape of risk is different now than it has been in the past.
Over the last four decades, we’ve seen inflation and interest rates falling globally, while leverage has increased. There are compelling reasons to think this will reverse: aging populations, political pressure toward deglobalization and the re-emergence of a term premium. Should a reversal occur, it’s reasonable to expect fixed-income correlations to rise relative to risk assets and defaults to increase—especially among the weakest borrowers.
As an allocator, it’s unrealistic to think I’ll be sufficiently nimble to identify and capitalize on market fluctuations in real time. But by being conscious of where input assumptions may differ from the past in our portfolio optimization process, and paying for active management in areas of the portfolio that are exposed to skewed risks, I believe we can mitigate some of the downside risk.
CIO: How can allocators address the growing global headwinds of demographics, geopolitical tensions and changing supply chains?
Owens: Aging populations, geopolitical tensions and changing supply chains are clearly going to have important investment implications across markets over the next decade. Each will put new inflationary pressures on the global economy as a wave of retirees leave the labor force and old trading partners are de-emphasized in favor of less-efficient, “friendly” nations. To a certain extent, these headwinds should be addressed through the asset allocation process, by incorporating estimates of the effects of these trends into capital market assumptions. But these changing market dynamics will also introduce new and unpredictable stress across markets. While I think most would agree these changes will be headwinds for markets, they should also introduce new opportunities for active managers to outperform.
CIO: What roles do AI and large language models play in institutional investing?
Owens: I think it’s clear that generative AI and large language models are going to have a profound effect on the work that allocators do. Current models can summarize documents, extract data from unstructured content and produce code to automate workflows. On their own, these tasks represent the potential for huge productivity gains.
But the most exciting part of these models is how accessible they are. You don’t need any special skills or expensive third-party software to ask a model for help with a given task. This opens the door for individuals to explore and experiment with how to incorporate them into their workflows to enhance productivity. I believe that this exploration process is where the biggest productivity gains are found.
None of the above is to say that there aren’t important data security and reliability problems with existing models. But given the potential of these models and how quickly the ecosystem is evolving, I’m confident that we are going to see effective strategies for dealing with both in the near term.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Owens: Looking back over the last decade, we’ve all seen how quickly technology can change the work we do on a day-to-day basis. I fully expect this trend to continue, and I think one of the most important skills allocators can possess is the ability to think about how new technologies can be incorporated into existing workflows. This takes effort and an understanding that how work gets done right now may not be the best way of doing things.
Doing this effectively requires making an effort to learn about new technology, actively using it, and experimenting with incorporating it into existing processes. This all takes time, and it can feel like wasted time in the beginning, because the old way of doing this is often much more efficient in the beginning. However, when a new process is uncovered, it can be transformative for an organization.
CIO: What traditional and/or alternative asset classes do you think are most important for institutional investors, and why?
Owens: Public equities and treasury bonds occupy an important place at the heart of nearly every institutional portfolio, and rightfully so. These two asset classes create the foundation that determines what the broad risk/return characteristics of the portfolio will be. They set a high bar in terms of access, liquidity, transparency, history and stakeholder understandability.
While institutional investors have an awesome array of asset classes at their disposal, the decision to make an allocation to any other asset class in the portfolio has to be judged against what can be achieved in a plain vanilla stock and Treasury bond portfolio.
Like most other institutional investors, I’m a big believer in the value that everything from corporate credit to commodity trading advisor [hedge funds] can bring to a portfolio. But they all must earn their spot. For that reason, if I were to pick the “most important” asset classes, it would be public equities and Treasurys.
CIO: What asset classes offer the best options for avoiding or mitigating drawdown risk in an institutional portfolio?
Owens: I’ve always been a fan of interest-rate beta to hedge against equity market volatility. While 2022 was a painful year for fixed income, it reset rates back to a point where it wasn’t so hard to allocate to fixed income.
When you can earn 4.5% to 5% holding core bonds, it gets a lot easier to hit return targets without taking outsized bets in other parts of your portfolio. So not only do you get the diversification benefits of fixed income, but you can dial back risk in other asset classes.
