A key driver for us is to never forget why we do what we do. And that’s making sure FM Global can deliver value and protect the purpose of our clients for the long term.
A global citizen, born in India, educated there and in the United States, with professional stints in Singapore, India and the United States, Sanjay Chawla, executive vice president and chief investment officer, knows that a steady approach is what often wins the day. He’s settled into his role as the architect of FM Global’s investment strategy and his philosophy is that, while we proceed with confidence, we always remain prepared for a future that holds uncertainty.
How would you describe your investment philosophy?
Our investment philosophy at FM Global incorporates a very long-term-focused set of building blocks. We look to very strategically and thoughtfully construct the portfolio with the same resilience as we do on the insurance business strategy side.
This means we build an all-weather portfolio for the long term, that does very well on the upside and limits the detraction during periods of market downside, such as in 2022. I’ve always believed it’s much better to preserve our capital strategically in downside scenarios, which may cost us small incremental gains on the upside. Our laser focus on results is what really drives our team to do the best we can for FM Global and our clients.
Considering last year’s volatile market, how did FM Global do?
2022 was an unprecedented, very volatile year for global financial markets. Equities were down a lot and even fixed-income bonds were down at the same time. We haven't seen a correlation breakdown with that magnitude since the Great Depression era.
FM Global had a relatively strong year on what we call a measuring performance basis. And we did way better than the market did on that front. At the end of last year, we were just under US$22.5 billion in assets.
I believe that we're set up to continue to navigate every year very prudently through the construction of the portfolio with diversification and with the top talent, subject matter expertise-based, collaborative team we're building.
How do you manage the portfolio from a resilience standpoint?
We're constantly monitoring the long-term structural and cyclical trends in the global economy and financial markets, as we navigate through the economics and geopolitics-led markets’ volatility. Our long-term portfolio construction strategy is designed to generate a higher probability of strong absolute and relative results over the long run, including portfolio adjustments as needed.
Historically, our portfolio was set up to primarily include large cap U.S. equities and core U.S. fixed income, and cash. We had minimal other diversifying strategies when I joined in 2018. And that's why I talk about, “Be ready and prepared well in advance as markets, events and volatility unfold.” We had already built out an optimal allocation to diversifying strategies including multi-asset, opportunistic fixed income alternatives, with half of that allocation in liquid alternatives. These high-conviction absolute return strategies are expected to generate positive returns in various market conditions. And they certainly delivered strong positive returns in 2022.
How has your diversification strategy produced a winning portfolio?
Every quarter is different, every month is different. On that front, we try to make sure there's enough diversification so that we're not just focused on one bucket. Diversification in our portfolio takes place at the asset class level, and at the strategies level as well. Let's say, if you were heavily focused on technology last year, that sector significantly underperformed in absolute and relative terms compared to other sectors, right? So, within equities, other sectors play the diversifying role, therefore while we like technology for the long term, set on differentiated innovation, other sectors help dampen that impact in the near to medium term. The sizing of positions is extremely critical from a risk management perspective too.
Now, the United States has been the best place to invest in for the last several years but, at some point, the valuations for international assets become so attractive that you've got to have some allocations built out to take advantage of upside in those markets as well. While diversification is critical, it is equally important to not over-diversify, so that the portfolio-level strategy of capitalizing on the upside, while minimizing the downside risk, generates the intended long-term optimal performance.
Are there any trends you’ve observed in regard to climate that will influence the investment strategy in 2023?
The last few years have seen a visible increase in global capital supporting climate-related investments. We’ve added climate-related strategies to the portfolio selectively and prudently, and our approach rests on thorough diligence on these strategies.
How does your team help clients protect their purpose?
With very diverse specialized subject matter expertise backgrounds at strategy and portfolio, the Investments team looks to invest prudently for positively differentiated long-term results. We are extremely focused on maintaining optimal liquidity and seamlessly enabling the insurance business teams to innovate and adapt to new technologies and engineering advancements, which help to improve loss prevention and risk mitigation for our clients in the long run.
Who has influenced your career?
I grew up in India, where education, particularly math, was a big part of the whole value system that drove us persistently. My dad worked in banking and my mother was an English teacher at a public school. Watching them work so hard is what inspired me and my siblings during school and beyond. And, throughout my career, I've been very fortunate to have worked with some of the sharpest and most thoughtful minds, leaders in global financial markets and respective industries.
What does resilience mean to you?
A key driver for us is to never forget why we do what we do. At the end of the day, we're ensuring that FM Global, from an insurance company standpoint, can run a very resilient business strategy to deliver value and protect the purpose of our clients for the long term. And to do that we're further enhancing and protecting the financial strength that gives FM Global the power to take on the optimal level of business risk.
Sanjay and his wife, Ritu, are parents to three daughters and a son, and they have one dog. They currently reside in the greater Boston area of Massachusetts, in the United States.