Taking the helm: Face to Face with Carl Hess
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Varagon Capital fills new business development role
      Fitch Group in deal to acquire CreditSights
      Credit managers’ outlook still gloomy but brightening – survey
      Digital Colony picks head of Europe capital formation
    • Will Martindale
      Cardano Group chooses group head of sustainability
      Meketa hires first chief marketing officer
      Nick Horsfall
      Redington names managing directors for investment consulting team
      Marsh & McLennan Agency sets sights on Compass Financial
    • New York State Common challenges Tyson’s dual-share stock structure
      Credit managers’ outlook still gloomy but brightening – survey
      Investors call for action on COVID-19-induced humanitarian crisis at sea
      U.S. jobs worker restaurant
      Job market slipped in December as virus surge hindered activity
    • Ascensus, Empower acquire Truist record-keeping business
      PCS Retirement acquires Alliance Benefit Group-Rocky Mountain
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • New law requires MassPRIM to increase diversity of managers, consultants
      Impact investors getting savvier, more efficient – report
      SSGA alum named head of ESG at Mirova
      Aegon moves to cut carbon from workplace DC business
    • Blackstone holiday video
      Blackstone would like to show you how things are done around the office
      Galina Churkina
      Building research earns honor from Aquila Capital
      MacArthur Foundation invests in women’s safe housing fund
      Robot illustration
      Thomas H. Lee Partners sees robots driving future returns
    • Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
      New hedge fund launches surpass liquidations in third quarter
    • New York State Common challenges Tyson’s dual-share stock structure
      A sign on the exterior of a Northern Trust Corp. branch in Chicago on July 13, 2017
      Northern Trust to cut 500 jobs
      Wells Fargo targets $8 billion in cuts
      Maine Public Employees boosts target to alternative credit
    • A sign on the exterior of a Northern Trust Corp. branch in Chicago on July 13, 2017
      Northern Trust to cut 500 jobs
      Wells Fargo targets $8 billion in cuts
      A sign at a China Telecom Corp. store in Shanghai on Jan. 6, 2021
      Managers make further divestments from sanctioned Chinese firms
      The Chinese flag flies in front of the Liaison Office of the Central People's Government in Hong Kong on May 22, 2020
      Standard Life Aberdeen JV to open mainland China pension insurance company
    • Maine Public Employees boosts target to alternative credit
      Los Angeles City Deferred Comp narrows list to 2 in manager search
      Connecticut pension fund CIO resigns
      Arizona State Retirement looking for CIO
    • Sharmila Chatterjee Kassam
      AIF Institute hires former Texas ERS deputy CIO as executive director
      Varagon Capital fills new business development role
      SSGA alum named head of ESG at Mirova
      Capital Group hires BlackRock executive to launch ETF unit
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
      CPPIB in deal with Greystar to develop U.S. housing
      Global real estate investments to hit $79 billion in 2021 – survey
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
      Investment consultants
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • San Jose Federated commits $11 million to real estate fund
      Essex Pension Fund on the lookout for private debt manager
      Lexington Contributory wants large-cap equity manager
      Fort Lauderdale fund scouting for large-cap manager
    • San Jose Federated commits $11 million to real estate fund
      Essex Pension Fund on the lookout for private debt manager
      Lexington Contributory wants large-cap equity manager
      Fort Lauderdale fund scouting for large-cap manager
    • International Small Cap Manager Services
      Financial Expertise
      Passive Index Manager Services
      Emerging Markets Equity Investment Management Services
    • U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
      Hedge funds warming up to financial sector, remain long U.S. equities
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
      Consultants cartoon
      Seeking an investment consultant? Caveat emptor
    • Climate change and emerging markets after Covid-19
      An Asset Owner's Guide to Multi-Manager Portfolio Management
      Research for Institutional Money Management
      The Future of the U.S. Dollar - Dominant currency or one of many?
    • Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
      Robert Raben
      Commentary: What the asset management industry must do to bolster diversity
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
      Sponsored Content By iShares
      For institutional investors, ETFs can make meeting liquidity needs easier
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
      Coronavirus and the S&P 500: 2020
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
    • POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
      POLL: The S&P 500 in the third quarter
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Graphic: U.S. stocks were 2020's comeback kid
      U.S. fixed-income returns post another positive year
      By the Numbers
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
June 23, 2008 01:00 AM

Taking the helm: Face to Face with Carl Hess

Watson Wyatt's Carl Hess talks about plotting a course through changing and volatile markets

John D'Antona Jr.
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Doug Goodman

    Carl Hess on July 1 will take on the title of global head of investment consulting. Mr. Hess, a 20-year veteran with Watson Wyatt, will replace Roger Urwin, who served 13 years in the global head position. Reflective of his new title, Mr. Hess believes that investing no longer needs to be limited by geography or traditional asset classes. Given plan sponsors' need to maximize return and the global economy, the current investment market paradigm of 60/40 allocations between U.S. equities and bonds has gone the way of the Ford Model T: No one size and variety fits all anymore. As the U.S. markets flounder amid rising inflation, stemming from rising commodities prices, recession fears and dwindling returns, Mr. Hess sees a greater variety of investment opportunities from overseas emerging markets and alternative investments. A runner in his free time, he recognizes how the basic tenets that make a good runner — proper conditioning, resolve and course evaluation — are applicable toward reaping higher-than-average returns in today's markets.


    How are clients responding to market turmoil? Clearly, with the recent volatility, we've seen unexpected effects. What were staid fixed-income vehicles have had quite a lot of risk underneath ... The first call to arms has been “what do I have, what do I own and what is it really going to behave like. Am I comfortable with the set of strategies I thought I had in place” ... And so that top-order review has been one of the top actions we've advised our clients to take. The market for risk is clearly in a different position now than 12 months ago.

    Carl Hess talks hedge funds, real estate, LDI and his outlook for pension funds interested in these issues

    [Listen now - click the play button above]

    Download Audiocast

    [right-click the link above and select "Save Target As..."]

    Carl Hess

    • Position: Global head of investment consulting at Watson Wyatt Worldwide, effective July 1
    • Age: 46
    • U.S. clients (full retainer/client relationships): For the investment practice of Watson Wyatt, about 200 retainer clients covering assets of $250 billion
    • Education/certifications: BA in logic from Yale University; fellow of the Society of Actuaries and the Conference of Consulting Actuaries; a Chartered Enterprise Risk Analyst
    • Personal: Married with 3 children
    • Interests: bridge, running

    How has diversification in alternatives panned out? To a large degree, diversification has worked well. If you run your mind through the list of alternative investment classes that funds have diversified themselves into ... “all-star” commodities (have) proved to be quite a good hedge against turbulent equity markets. We're not saying it will continue forever, but it's nice to have some market that's an all star ...

    On the other side of the coin you have property, although the commercial markets haven't been hit as bad as the securitized markets or the residential markets. Going forward, we think for funds that can afford to sell liquidity, (real estate) will be a good and attractive choice of returns ...

    The private equity markets — clearly with the cost of leveraging increasing — is one area where we do counsel a bit of caution. The best-performing private equity managers can continue to add quite a bit of value in excess of what the public equity markets have. But the typical private equity managers have been able to make money through leverage rather than through skill.

    Looking to hedge funds, with the cost of leverage going up, these will be more challenging times and we'll see further shakeouts in this market. Fees are very expensive and while it's not impossible for top-quality managers to add value, we'd rather they share a bigger portion of it with our clients rather than keeping it to themselves.

    Hedge fund returns have been weak this year. Are investors growing disenchanted with investments? I think perhaps investors may be concerned with particular investments, but not the asset class or strategy class. The fact is that most investors still are underdiversified. The concentration of reliance on equity risk premium is still paramount for virtually all funds and Watson Wyatt, among others, still is very much encouraging funds to better diversify their programs ...

    This is a difficult area. Skill is more transient than beta; the fact is that the equity risk premium we have has a positive value. Skill, on the other hand, almost by definition has zero or a negative value associated with it. So unless you're going to be a bit better than the average investor, you're not likely to succeed here.


    Is the trend to LDI picking up steam in the U.S.? We see LDI has moved past the stage of any controversy whatsoever and what you have is the internalization that this is the natural position for a fund ... most if not all larger funds have gotten to here. LDI doesn't mean exiting equities and just moving to all liability-matching investments, it's much more about a philosophy and a framework than it is about cash matching.

    We think LDI is here to stay; certainly as a framework and very much so as an investment style for a large number of corporate funds. But if there is some movement in (Governmental Accounting Standards Board) accounting, just you wait — there'll be sea change on behalf of the investment of government funds as well.


    The U.S. real estate market looks pretty glum. How are you advising clients on investing their real estate portfolio? The ability to strike quickly is pretty critical here. We look to our higher governance clients to be able to take advantage of individual opportunities as they arise. We do think this is not likely to resolve itself terribly quickly and so there will be opportunities for months, if not years, going forward. There are also opportunities abroad. Clearly, emerging market real estate — to the extent we can find good vehicles that give our clients access — is a play on emerging market economies that may be attractive.


    The era of the big deal in private equity is over. What's the outlook for this asset class? Over is a strong word. Asleep for a while; or perhaps taking a nap. This is a more difficult market for private equity than it was 12 months ago. We do think that the best private equity managers will be able to continue to add value going forward. A part of what makes them best is their ability to be nimble; they've built up excellent relationships and they have a very strong sense of what it takes to keep their best people engaged, occupied and adding value. At this point, we think there will be greater bifurcation in terms of the marketplace. The cream of the crop will continue to produce extra-normal returns but those generating normal returns using leverage will find it very challenging to make a good economic case for their efforts going forward.


    “Real assets” are very popular as inflation hedges. What do you advise clients? First, you want to make sure you have inflation to hedge. For many pension funds, inflation is great as you will be deflating fixed promises you have made to your retirees. For other investors, inflation hedging may make a lot of sense. What we would encourage is for the truly long-term investor to take a long-term view with regards to some of this. The thought of timber in particular is clearly (for) a long-term investor (only) — there's not a lot (to be gained) in the short term. So, choose your inflation hedge carefully, make sure it is in line with what you need to do and what you want to do, and pursue it as a strategic part of your portfolio.


    Some people think this could be turning point for the dollar. What's your view? As someone who goes overseas a dozen times a year, I hope so. One, against developed currencies the dollar has sunk quite a long way and probably a bit more than the fundamentals indicate. We haven't done anything really about the trade (imbalance). The consumer correction in the States has happened to some degree, but we have a farther way to go. Have they really (curbed) spending yet? No, they've not. Thus, while the dollar may be a bit oversold, it doesn't appear to be the world's biggest buying opportunity either.


    What do you think a McCain or Obama presidency would mean for retirement plans? Given how likely it is the Democrats will retain control of the Hill, an Obama presidency (may result in) more defined benefit favorable legislation actually getting passed ... A McCain presidency with a very Democratic Congress — it's just very unclear what we could see.

    Contact John D'Antona at [email protected]

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Climate change and emerging markets after Covid-19
    An Asset Owner's Guide to Multi-Manager Portfolio Management
    Research for Institutional Money Management
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    The Future of the U.S. Dollar - Dominant currency or one of many?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center