Susan Webb is founder, CEO and chief investment officer of New York-headquartered Appomattox Advisory, which she launched in April 2005. Appomattox is a woman-owned investment advisory business, providing comprehensive OCIO services for institutional investors among endowments, foundations, pension plans and family offices.
The firm’s investment team has a particular expertise in alternative asset management including derivatives and private credit, differentiated by a forward-looking approach to managing risk and return. Webb has a substantial background in derivatives trading and structuring. Appomattox is proud of its longstanding focus on supporting emerging and diverse fund managers. Alternatives Watch asked Webb to share her outlook on the current investment environment, and on alternative assets at this time.
AW: Susan, speak to me about how you are managing client portfolios during these unique times.
Webb: At Appomattox, we specialize in bespoke portfolio construction, emphasizing actively managed multi-asset resilient portfolios; we don’t take a ‘set it and forget it’ kind of approach. Many types of allocations can be beneficial for a time but not indefinitely. When the paradigm is shifting in the markets as in the current reality, investors can no longer depend on passive investing as the dominant portfolio approach. Once an asset achieves its intended goal, we remove it from a portfolio and opportunistically re-allocate.
To capture current market opportunities, we are increasing allocations to areas we think continue to offer value to investors. The asset pricing may have been depressed in sectors such as private credit and secondaries focused on private equity and real estate. In addition, we are picking up discounted growth equities, particularly mid-cap and small-cap.
They are under-followed and have traded down substantially, especially in late 2022.
Our proactive forward-looking approach is not new to Appomattox; it’s how we operate. We act as stewards for our clients. Our investment team actively positions, monitors, and adjusts client portfolios to handle risk and optimize resilience. Bespoke portfolio construction with an active overlay approach enables our clients to be closer to their own investments.
As investment policy guidelines along with goals and needs differ across clients, we provide guidance and develop strategic asset allocations to optimize resilience.
AW: As investors can achieve approximately 4.5-5% in cash and cash equivalents right now, how do active managers provide value to remain competitive?
Webb: Active managers need to carefully identify and evaluate the risk and return profile for opportunistic additions to their portfolio. Risk management is essential. Most of the major hedge funds possessing a deep bench on the risk side performed very well in 2022. So far, 2023 is bringing mixed messages from the markets, but on a positive note, the Fed’s choice to not manage the markets this time around allows for true price discovery to occur.
Credit managers that are well versed in structuring a capital stack will surely have an advantage, as that asset class has evolved markedly since the global financial crisis of 2008 when banks stopped lending en masse and the private credit asset class emerged more substantially. It wasn’t a $3 trillion industry before the new bank reserve requirements were put in place after the global financial crisis. Private credit strategies tend to be very collaborative, and positions often have many sponsors, distributing the risk. Private credit performance is likely to rival private equity.
AW: What sectors look interesting to you right now?
Webb: Healthcare and energy stocks look the most interesting. A good equity manager can find some real value in those sectors right now. I’d say 75% of the market correction we saw last year is complete. Tech companies that are down 70-75% won’t return to flat for another 3 years.
We continue to see commodities as a profitable area for sector allocations.
AW: Talk to me about the current state of fixed income.
Webb: Liquidity in the bond market is poor right now, leading to a variety of debt mispricing. Patient buyers can find real value investing in credit strategies.
AW: What about non-performing loans as a subsector of private credit?
Webb: Although the non-performing loan asset class remains a specialized niche, given the need for a diligent experienced workouts team, 14-16% percent performance targets with a portfolio duration of less than 18 months is very compelling. I love the managers that do this well. There’s a legal component to executing this strategy effectively and it’s not necessarily a sexy strategy, but it’s compelling when it comes around every 10 years or so.
AW: What has technology done to effectively evolve the asset management business?
Webb: Although our business is known to be a tech laggard in some ways, AI and data management are here to stay. Managers that access better data and can leverage and analyze it quickly will attain an advantage.
AW: How does Appomattox approach diversity in asset management?
Webb: As founder of a women-owned business, DE&I is always a part of the discussion for us. We have a longstanding focus on supporting woman-owned and diverse investment managers. Appomattox is a pioneer in this space. Our team maintains a strong commitment and risk tolerance for innovative and diverse yet viable business plans. We allocate to these managers whenever the right fit occurs.
Unfortunately, despite many initiatives around diversity in our business, the percentage of assets run by women hasn’t changed markedly, in fact some recent indicators show a decline. The barriers are real. Diversity focused conferences are not actually making enough of a dent in overcoming the huge gaps.
AW: What was the last book that you read? And what were your takeaways?
Webb: I’m in the midst of reading Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy by James B Stewart and Rachel Abrams. This book provides a sobering window into boardrooms that contain no women. I’m inspired by Shari’s account of how she tried to do the right thing in the context of this family and media saga. She was treated as a second-class citizen simply for being a woman. The book highlights the real need for board diversity as an integral aspect of good governance among all businesses and institutions.
