Marianne O is an entrepreneur in investment management with a deep passion to promote the huge talent pool of women in finance and diverse entrepreneurs globally and help young females to join this never-boring and knowledge and skills-based industry. She is very excited to be in a team-building an innovative investment tool for wealth institutions and asset managers.
A Principal and Co-founder of Lumen Advisors LLC in March 2002 and Lumen Global Investments LLC in 2018, she has 20+ years of experience investing in global and emerging markets economies, debt, stocks, and currencies. She oversees the implementation of the proprietary cloud-based investment application. She started out in buy-side investment management working with Simon Nocera at LGT who launched the first SEC-registered Emerging Market Debt mutual fund in the U.S. Before joining LGT, she has worked in Citicorp, Hong Kong in loan origination and syndication in Asian capital markets for 5 years.
The opportunity to study Economics at Cambridge University, Newnham College, U.K., and later her MBA at UC Berkeley sowed the seeds of her finance and investment journey.
She is most proud to be a steering committee member of 100 Women in Finance in Northern California and a co-organizer of the annual 100WF West Coast Allocators-Female Fund Managers (FundWomen) Conference in San Francisco, which has now gone global and virtual!
When not looking at investments, she enjoys data visualization (Tableau), event organizing, piano, and singing, learning about new productivity tools and no-code/low-code, Lunchclub, practicing wellness including Yoga!
Q.1. Tell us your life story, how did you go from studying at Berkeley to co-founding Lumen Advisors and Lumen Global Investments?
After my university graduation, I started working in Citicorp, Hong Kong, as a Management Trainee in the Merchant Banking Group and then grew to become an Assistant Vice-President. I discovered that arranging syndicated loans for Asian borrowers while giving me great exposure to Asian companies in diverse industries ranging from auto, food, banks to aircraft leasing and lots of traveling opportunities was not my life passion. I wanted something more stimulating intellectually and more dynamic. I wanted to get into investment management, analyzing markets, and securities.
I started my CFA (Chartered Financial Analyst) journey and had a choice to work in Hong Kong, where I am originally from, as an investment analyst, or go to UC Berkeley for my MBA. I chose to go to Berkeley to complement my Cambridge (U.K.) undergraduate education and get out of my comfort zone.
Back in 1994, when I was about to graduate from MBA, finding a job in the U.S. was not easy, not to mention a foreign student like myself who had only three months of U.S. working experience (as a summer intern with Prudential) and no Green Card. I was very lucky to be helped by a fellow Berkeley MBA who graduated one year ahead of me. He handed my resume to his friend, a trustee at a fast-growing and successful U.K. mutual fund company, G. T. Global, investing in global and emerging markets. Its U.S. headquarters happened to be in San Francisco. Due to my U.K. university background, I got two interviews, one with the Head of International Equity and the other with the Head of International Fixed Income.
Luckily, I got an offer from the Fixed Income side, embarking on my journey as a Fixed Income Analyst. I first analyzed Japan’s and Canada’s economies and bond markets and soon after became an Emerging Market Fixed Income Analyst working under Dr. Simon Nocera, who is my mentor, teacher, and my current partner at Lumen Global Investments. At G.T., we launched the first SEC-registered Emerging Markets Fixed Income Fund in the U.S., managing close to $2 billion of assets in EM debt.
G.T. merged with various companies and was eventually absorbed by Invesco. I then went to work for a hedge fund and later an institutional account fund manager. After a few more M&A situations, Simon and I decided to form our own hedge fund and advisory company, Lumen Advisors, LLC, managing hedged portfolios. We recently founded Lumen Global Investments, a FinTech company, and asset manager that is building a digital investment solution to empower wealth managers, family offices, and institutional investors to identify investment opportunities globally, do asset allocation, construct personalized and optimized portfolios with institutional-grade risk management, all at their desktop.
Q.2. What is your approach towards investments? How do you measure intrinsic valuation?
Since I started my buy-side career as a Fixed Income Analyst in Emerging Markets, I learned to focus on the downside risk and valuation of an investment to make sure we have enough “Margin of Safety,” to quote Benjamin Graham, and avoid investments that are too expensive or too close to our target price.
Because of my Economics and Emerging Markets background, I came to realize that investment and growth opportunities abound in the developing markets, where each country goes through its phases of development, sometimes moving back and forth, from less-developed economies to developing/emerging market economies, to developed markets, offering many exciting investment opportunities to “exploit” the market (information) inefficiencies along the way.
The best way to understand intrinsic valuation is what Warren Buffett said here. For any business or investment, the intrinsic value is all the future cash flow being discounted at the appropriate interest rate back to the present value. The cash flow is like the coupons received by a bond till maturity. Investment values can be ranked and compared based on their intrinsic valuations.
At Lumen, we stick to this golden valuation principle with our value-metric, the Lumen Global Value Compass, which extracts from the market the implied expected return of an investment and is forward-looking, objective, and without subjective forecast.
Q.3. How has your investment thesis evolved over the years? How important is intrinsic valuation given the rapid growth of P/E multiples, especially in tech companies?
Our investment approach has always been value-based, relative value, and long-term focused. Value metric to us does not simply mean low price-to-book or low price-earnings ratio. These are momentum indicators and not value indicators; rather, the gold standard of valuation remains the Discounted Cash Flow methodology (see Equity Multiples: Myths, Mania and Alchemy.)
Sticking to intrinsic valuation is even more important now as innovation and technological development, including internet, cloud, AI/ML, biotech, means that innovative firms nowadays do not necessarily have lots of equipment and fixed assets but are “asset-light” and have higher intellectual capital and R&D spending. One cannot just rely on multiples to gauge investment valuation but has to understand how future growth, profitability/margins, and capital returns are helped by technological change and R&D spend, and how these affect the future cash flow of the business and whether these innovative changes are priced into the market.
Q.4. Given the current environment in Q2 2021, which asset classes are overvalued or undervalued compared to their intrinsic valuation?
Our Q2 2021 analysis based on the Lumen cost of equity and the Residual Income Model found that most of the developed equity markets except Japan are at fair value while Nasdaq is over-valued. Nevertheless, with zero interest rates, large equity risk premium, expanding margins, and good MOATs, many of the mega-cap tech/growth stocks can continue to perform. In this growth scenario, the cyclical sectors are still well-supported by massive government infrastructure investment spending, including new technology such as EV and national grids.
Brazil and LATAM in general, as well as the larger Eastern European countries, including Russia and South Africa, are very expensive. We do like the Emerging ASIA region (for growth) and, in particular, South Korea, China (A share), and India.
We see very little value in Fixed Income either as an investment or safe haven but think cash is a better protection against market drawdown.
Q.5. Why detailed and global asset allocation is a better model of money-making than stock picking?
There are two primary models of money-making: (1) security selection and (2) asset allocation and portfolio construction.
Given the pace of innovation, the speed of computer processing power, Big Data availability, AI/ML, information can be quickly arbitraged and priced into the market, and so making money from stocks often relies on surprises (earnings, events, catalysts, etc.) The evidence is in the mutual fund industry, where close to 90% of the U.S. mutual fund (or active) managers do not beat their benchmarks over the last 20 years. Also, financial innovations, including ETFs, smart beta, and even decentralized finance, have grown quickly.
Asset allocation is a portfolio technique where investors distribute and diversify their money among different asset classes (e.g., equities, fixed income, real estate, cash), regions, countries, sectors, industries, factors, etc., where each of these assets has different expected return and risk profile. With the wide availability of Exchange-Traded Funds (ETFs) across multiple asset classes that trade like stocks, granular asset allocation has become the more reliable way to make money long-term.
Q.6. What will surprise other family offices about emerging markets?
Emerging market is not a homogenous asset class just like Europe is made up of individual member which has very different investment characteristics and opportunities. Treat each emerging market as a unique investment case. Also, the MSCI Emerging Markets Equity Benchmark is heavily concentrated in 3 Asian countries (China, Taiwan, and South Korea) and not representative of all emerging market opportunities.
Emerging Markets are not (just) a commodity play. Within the MSCI Emerging Markets Equity Index, the biggest sector is information technology (20%), followed by financials (18%) and consumer discretionary (17). The consumer discretionary sector is larger than the combined materials and energy sectors (13%). In fact, Emerging Markets are both a “growth” and “value’ story.
Emerging markets have been the engine of world growth for decades and not the other way round. Between 2000 to 2020, Emerging and Frontier Markets contributed 53% to world growth, while between 2010 to 2020, 60.6%.
Emerging markets are a lot less leveraged than developed market with the EM non-financial credit (non-financial corporate plus government debt) as a percentage of GDP at around 1.6x while that of the developed countries at around 3x in 2020.
Emerging markets are not small and illiquid. In fact, emerging markets’ market capitalization is larger than that of developed Europe and more than twice the market cap of the Eurozone.
Emerging markets are less risky and volatile than many developed markets! Looking at the rolling 200-day historical volatility, the Emerging Markets Equity Index volatility matches that of the Euro 600 Index at around 14 to 15%, compared to 16% for the S&P 500, 22% for the Nasdaq, and 23% for the U.S. Small-Cap Stocks.
Q.7. What’s your long-term vision for women in finance? How far are we from there? How can other allocators and managers get involved with the FundWomen conference?
As I mentioned in this piece, women and minority-owned firms manage 2% of the assets in mutual funds, hedge funds, and real estate and about 8% in private equity. Women make up only 2.4% of the founding partners in VC firms although nearly 60% of university and college enrollment are women.
However, a big wealth transfer to women is happening, with an estimated $30 trillion of wealth to be controlled by women by 2030. Increasing visibility is also given to women in finance and women entrepreneurs by organizations such as 100 Women in Finance, All Raise, and How Women Invest. At the same time, there are more pipelines going into the finance industry with the efforts of non-profit organizations, including Girls Who Invest, Girls are INvestors, and 100 Women in Finance, to mentor younger females and provide good female investment role models.
In fact, asset allocators can help drive diversity and inclusion in the investment industry and improve the gender gap while discovering new alphas by joining the 100 Women in Finance Global FundWomen virtual conference, the largest capital introduction event connecting female fund managers with asset allocators. Having served on the Global Committee of the conference last year, I have seen first-hand through virtual one-on-one meetings, small-group discussions, and networking how meaningful connections are being made and capital is being allocated to female fund managers. For the 2021 conference on September 20 to 24, we have already received hundreds of female manager’s applications – we encourage institutional investors, family offices, and investment consultants to register here. When the pandemic subsides, the FundWomen conference will be in-person again in the U.S. (East and West Coasts), London, and likely APAC.
Q.8. How is Lumen digitally transforming the investment and wealth management landscape?
Money management is moving from being a niche service for a small group of wealthy investors and large institutional investors to more automation with the rise of robo-advisors, digital advice, data availability, and trading platforms including Robinhood and Schwab.
At Lumen, we are building an intuitive, user-friendly, and well-integrated digital investment and risk management system to empower the wealth advisors, family offices, and other institutional investors. We leverage large data set, a quant valuation algorithm that rank expected returns, cloud technology, an enhanced portfolio construction method, and a risk management system informed by AI to help wealth managers and institutional investors to identify investment opportunities globally and construct highly personalized and best-outcome portfolios (higher return per risk) that are aligned with their risk capacity, goals, and values. We provide pre-defined portfolios or allow users to customize their own.
It is like having a virtual Chief Investment Officer at your desktop but without a high-cost investment function, high fees paid to third parties, or operational challenges.
Q.9. How can interested family offices and venture capitalists reach out to you?
We welcome investors to visit our website at www.lumenglobalinv.com, read our research, subscribe to our blog, and visit our LinkedIn page. Please feel free to contact us at email@example.com for any questions and let us know when you visit San Francisco! Also, find us at industry conferences, including Bloomberg and 100 Women in Finance.
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