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A star performer

Richard Sarsfield, European head of insurance at Morgan Stanley Investment Management, discusses the investment manager's approach to equity and fixed income investing, its holistic ESG approach and the 2020 economic outlook

What is Morgan Stanley's philosophy for equity investing, and how does this differ for fixed income?

Richard SarsfieldWe are high conviction active managers and we offer a diverse array of investment solutions, which are based on a philosophy of adding value through active management grounded in sound fundamental research and analytics. Morgan Stanley Investment Management's (MSIM) investment strategies span the risk/return spectrum across geographies, investment styles and asset classes, including equity, fixed income, alternatives and private markets. Via independent teams, MSIM offers a range of equity strategies, while the firm's global fixed income capability is executed by a cohesive, and interdependent global team. For example, our Global Opportunity equity strategy (that formed the basis of our Equity Manager of the Year award win), seeks long-term capital appreciation by investing globally in high-quality, established and emerging companies.

What is MSIM's economic outlook for 2020?

The global spread of Covid-19 has continued to increase exponentially, causing substantial and sustained market volatility. The virus has now spread in 170 countries, as of 18 March. At the beginning of the outbreak, we saw global equities fall as the impact on China became visible. This led to opportunistic buying, which pulled markets back up, only to have them turn down again sharply as the contagion spread globally, hitting prospects for global growth in 2020. We now envision global growth to be closer to that of the OECD's "domino" scenario of broader contagion, where the virus's negative impact could lower 2020 global GDP growth by at least 1.5% from pre-virus levels in 2020. Under the scenario, we see a more extended, U-shaped recovery. This scenario would lead to technical recessions in many regions, such as Europe and Japan and possibly the US.

In the ongoing low interest rate environment, what asset classes can help insurers generate strong yields?

Given the pressures of low rates, European insurers continue to be increasingly active in all areas of the investment landscape. We observe a trend towards active management from passive management, given entrenched volatility, ongoing disruption to markets, and constantly evolving macro risk. And we note clients increasingly seek to improve yield through diversification, exploring new asset classes, leveraging external manager expertise. In fixed income, we tend to support insurance clients as an extension of internal fixed income capabilities, complimenting with a global breadth and depth of market access to generate yield. In equity, we provide clients with an array of strategies to suit respective needs, including a Solvency II efficient (SCR minimised and downside protected) equity premium strategy. In private markets and alternatives, we offer a range of solutions, including European, US and global private credit strategies, which offer enhanced returns via niche, origination and/ or illiquidity premiums.

How is MSIM integrating environmental, social and governance (ESG) factors into its investment practices?

MSIM takes a holistic approach to integrating ESG in ways that promote long-term value for our business and clients. ESG integration at MSIM is investor-led with each investment team setting its own differentiated approach for incorporating ESG factors into the investment process. MSIM empowers investment teams to design ESG approaches that best suit their strategies and investing styles. This investor-led approach allows for greater flexibility and enhances our ability to respond to clients' varied needs with a wide range of approaches – from screening out unwanted sectors, to ESG integration and thematic and impact investing. Our investment teams lead this process with support from the MSIM Sustainability Council.

How does MSIM plan to innovate this year?

The first thing to say is we are really proud of winning both of these Insurance Asset Risk awards. Looking ahead, we continue to support insurance clients with innovative capabilities. And we remain focused on supporting insurance clients in accessing origination, niche and illiquidity premiums. For example, in developing new private credit capabilities. We also increasingly work with insurance clients through a partnership approach. We find the better we know our clients, the better we can support their objectives. Morgan Stanley Investment Management is well positioned to support insurer investment activity.