On a golden afternoon after a heavy downpour, Stacey Parrinder-Johnson wears a stoic expression... She is sitting at a boardroom table on the fourth floor of Investec’s City of London office, where she has been in the role of chief investment officer of Investec Wealth and Investment Management for close to a year. Her calmness is notable amid a backdrop of market chaos.
Two weeks after Opto’s visit to Investec’s office, Wall Street briefly slid into bear market territory — a distinctive sign of investors’ pessimism about the global economy. Despite the challenging market conditions, Parrinder-Johnson’s first few months in the role have seen the firm’s assets under management leap to a record £44.4bn. As an amateur cross-country skier — a version of skiing that doesn’t involve taking a mountain lift — she is not one to take the easy route, and has unflinching conviction when discussing how to prepare for a market shock.
Investors need to be able to anticipate the markets’ knee-jerk reactions, Parrinder-Johnson says, adding that this is done based on probabilities. “You don’t mobilise to act immediately. You mobilise to figure out how to deal with the aftermath,” she tells Opto. “If I think about Ukraine, there is a very clear immediate effect, which is that oil prices, inflation and food prices are all rising. You can do some relatively quick calculations on that. But when I think about what’s going to happen in the future, the geopolitical consequences of this are going to be huge.”
At the beginning of 2022, Parrinder-Johnson proclaimed in her first annual forecast as CIO that instead of making a prediction for the year, she would promise to be brave. While Superforecasting: The Art and Science of Prediction by Dan Gardner and Philip Tetlock may be her bible for forming an outlook, she says that geopolitics will be at the front and centre of her mind for the next 10 years.
“You don't mobilise to act immediately. You mobilise to figure out how to deal with the aftermath” - Stacey Parrinder-Johnson
Stepping into crisis
Many CIOs’ investment philosophies are shaped and defined by the market cycles that they experience. In the case of Parrinder-Johnson, her tenure has been characterised by a market downturn and war. She took the top job at the firm’s investment division in August 2021 at a time when markets were still reeling from the pandemic. The global economic climate hasn’t improved much since then. Equity markets have been teetering on the brink of collapse as the Russia-Ukraine conflict tips western economies dangerously close to a recession.
A crisis isn’t anything new to Parrinder-Johnson, though. Growing up in Barnsley during the height of the UK miners’ strike in the mid-1980s was a tough environment. Not one to shy away from conflict, the South Yorkshire student had initially considered joining the Royal Navy after school. But after exploring the idea at the Navy Recruiting Centre in Sheffield Parrinder-Johnson eventually decided to study European business at the University of Portsmouth. She went on to do a master’s degree in European integration at Durham University, leading to a placement at a European political advisory group.
The catalyst that prompted Parrinder-Johnson to transition to the investing profession came in the form of an advert in The Yorkshire Post that asked, ‘Would you like to be a fund manager?’. As someone who had been indecisive about the line of work they wanted to pursue growing up, Parrinder-Johnson was attracted to the idea of joining an investment firm as it had the flexibility of covering a diverse range of industries and sectors. “Investing offers the opportunity to be able to go and get interested in a million different things, which really appeals to me. One day you can be looking at healthcare, the next minute, you can be looking at green energy,” she explains.
Before taking the c-suite position last year, Parrinder-Johnson had held several titles at the firm. She joined Investec Wealth and Investment Management in 2005 as a trainee investment assistant. Later that year, she had become an investment manager — a position she held for close to eight years at the firm’s Leeds office. The first account that Parrinder-Johnson managed was a sustainability-focused fund, which is an area she has continuously focused on throughout her time at the firm. In 2013, she moved to the research team where she focused on the UK and Europe. She also went on to manage thematic and global investments, specialising in environmental, social and governance (ESG), for close to four years. “The three things that helped me as I stepped into the [CIO] role was that I’d managed portfolios, I knew what a good investment looked like and the third thing is that I’ve been able to bring 16 years of ESG experience in an environment where sustainability is more and more important,” she considers.
Founded in 1974 as a small leasing and financing firm in South Africa, Investec has since grown to become an established name on the banking and wealth management world stage. During the period that Parrinder- Johnson has headed up the division, the UK office has seen net inflows of £1.2bn in the year since reaching its peak, lifting funds under management by 6.6% in the 12 months to £44.4bn by 31 March 2022, according to the company’s financial results.
Under her leadership, the firm has launched the Investment and Research Office, which combines Investec’s portfolio construction and research teams. The UK equity team, which is headed up by Guy Ellison, uses a bottom-up growth-focused equity selection process to identify the top companies in each sector at a fair price. Speaking to the Opto Sessions podcast in May, Ellison named Diageo [DGE.L] and AstraZeneca [AZN.L] as two examples of global leaders that meet its research criteria, which include having a competitive advantage and robust balance sheet. “Delivering a good investment philosophy isn’t just about what you offer in terms of risk-return. It’s about something much bigger. What I mean by that is that we have a goal and that is to find very good quality companies that you can hold for the long term with great cash flow and management,” Parrinder-Johnson asserts.
With 13 offices across the world, from Johannesburg to Zurich, Parrinder-Johnson has architected the global investment firm to be adaptable and agile. “We’ve got a funds team and specialists within the rest of the team that can go out and find ideas that help us build portfolios that do something different,” she says. One of the ways the team stays abreast of market cycles is by investing in a range of styles through its third-party funds. “For example, we’ve got a long-term, high-quality equity philosophy, but in a time like this, we pivot to being more cyclical and so we find a manager, or third-party manager, who invests a little bit more cyclically and looks at things that we just naturally wouldn’t. We’re confident that we can have that in our portfolio as just another way to either get access to a theme or to market timing.”
“Our goal is to find very good quality companies that you can hold for the long term with great cash flow and management” - Stacey Parrinder-Johnson
Rather than focusing on the short term, which Parrinder-Johnson thinks the industry often has a habit of doing, she always relates an investment back to the firm’s long-term motto: to create enduring worth. It’s why she’s obsessed with the word ‘worth’, “because it can mean so many different things from an investment point of view,” she says. “To me, it’s about the number of ways that we can use our skills to deliver that worth to clients and what that actually looks like. You can come out with a strong philosophy, but an investment philosophy has to be holistic and balanced because not all market environments are the same. If you can be thoughtful while you’re doing it, not dogmatic, that is what a successful business looks like.”
The firm’s motto of ‘living in society, not off it’ forms a major part of Investec Wealth and Investment Management’s stewardship focus. The firm has become such a leading voice in the area that Parrinder-Johnson reveals it’s become a member of the University of Cambridge’s Institute for Sustainability Leadership - Investment Leaders Group. Sustainable investing is where she believes it gets a little bit of hidden alpha — above benchmark market returns — which she admits is hard to prove. “Our investment due diligence is quite demanding — we ask a lot of questions.” For example, the firm’s ESG questionnaire is roughly 14 pages long and includes questions like ‘describe how and when ESG considerations are incorporated into each element of the decision making process’ and — Parrinder-Johnson’s favourite — ‘can you demonstrate your firm’s culture facilitates your ESG approach?’. The firm’s listed equity exposure shows that it’s underweight in oil and gas as a result of not aligning with its ESG framework.
The qualitative aspect of the firm’s investment strategy, which in a nutshell is a long-term (18 months or more) high-equity approach, is what gives it alpha to Parrinder-Johnson. “One of the things that that we used to say on the finance team — they probably still do — is that performance is the outcome. It’s not something that you put in first. It’s not just about identifying the opportunity and what comes next, it’s about really controlling that risk. How do you challenge one another? These are the kinds of questions we want to ask. We might not pick the first best thing, but we know that we’re not picking the last thing and I think that is where our alpha comes from.”
Distributing worth
Investec Wealth and Investment Management thinks thematically in terms of major developments such as the energy transition, while also tapping into smaller consumer trends such as millennials buying plants. Parrinder-Johnson divulges that it’s not easy keeping an eye on all the changing investment patterns that are influencing market movements. “Thematic investing is tough because there are so many. I remember — probably about four years ago, maybe a little bit longer — we sat down with a whiteboard and wrote down all the themes that we could think of.
Understanding the influences and nuances of so many different themes as well as the interlinkages between them in a criteria-based framework is a core part of Parrinder-Johnson’s role. She says that “sometimes the best kernel of an idea comes from the most unexpected place”. “As CIO, it’s my responsibility to create an ‘ideas funnel’ to take in as much information as possible that can then be used to inform our investment decisions. I see my role as creating the conditions — cultural, organisational, social and functional — that facilitate not only the gathering of information but an interpretation of that information in a way that is both differentiated and effective.”
One of the most encompassing themes that Parrinder-Johnson highlights is the distribution theme, which she describes as an example of thinking about something outside a boundary. The distribution theme is rooted in the idea that tech companies are much more than simply content distributors that rely on ad revenue. “These companies don’t just distribute products,” she says, adding that these businesses influence broader cultural factors such as societal and investor sentiment shifts. It’s the theme that she thinks about the most. “We tend to start with the geographical. For example, when people say, ‘we buy tech’, they mean ‘we buy the US’, and what they’re talking about is buying distribution. It’s this concept of who we are and how we do things that I think is an interesting theme. It’s why some of these big companies have done really well. Tech companies [are not simply part of a sector; these businesses are] facilitators of how we do things in our lives. It’s a big subject that bypasses the idea of these businesses just being tech companies that are based on advertising revenue. It’s not about that. [It’s about] understanding the distribution aspect. That’s a big one.”
When Parrinder-Johnson thinks about investing for the coming years, she doesn’t just focus on obvious influences such as inflation. Instead, she encourages her team to understand “the dynamic that it brings into play”. It’s how the research team approaches every theme. “Instead of speaking about thematics, it’s about characteristics, which capture a broad range of things.” Characteristics, she explains, can be found in two types of themes called structural and tactical — the latter of which takes a more short-term asset allocation related approach. “One of those big characteristics is going to be the energy transition,” she says, describing it as “persistent and of magnitude”. “However, it’s not confined to just one sector. Structurally we can see the building of infrastructure. Tactically, we can see the issues of demand affecting energy pricing.” She expects secular trends, such as the energy transition and healthcare, to remain persistent in the face of an uncertain business landscape that favours cyclicality. As a result, the firm is invested in mainly structural themes.
Charting a course
For Parrinder-Johnson, the best way to approach investments in any market condition is to think about questions in a different way. It’s a lesson she came across while learning about 20th-century art during a course that her boyfriend had bought her and the reason why the firm is “known in the industry for asking really strange and interesting questions”. While the CIO doesn’t consider herself an art connoisseur, she recognises that the ability to view a question from multiple angles is integral to having a fresh perspective of the financial landscape. It’s what makes the investment team’s approach so distinct. “They spend quite a lot of time working on the process, asking questions such as, ‘why does this third-party fund look like this?’ What’s the outcome? How is it going to perform? What does it need to be good?’. That creates a much more enduring set of questions and outcomes,” Parrinder-Johnson says.
As a sustainable investor, one of the biggest questions that she’s tasked the team with answering is how the firm can align its investments with its morals and ethics during such a crisis-stricken climate. It’s one that the team gets asked quite a lot by asset managers. “The answer, frankly, is we’re like everybody else, which is we’re trying to figure it out. At the minute, we’re focusing very much on the risk and opportunity side of it. Because, obviously, if something is a massive moral issue that is a risk.”
Investec Wealth and Investment Management navigates such debates by relying on its strong purpose and values, as well as Parrinder-Johnson, whose unflinching stare shows a determined investment prowess. “I remember coming in and what the research team used to look like. The questions that we used to ask and how we used to look at things. I look at where we’re at now as to where we were, and the change is huge. The thing that keeps me here is that we’re doing something that has a little bit of a higher purpose. Because you’re helping a system as well as helping yourself within that system. Ultimately, I want us to be emblematic of the financial system’s good workings.”
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