“The launch of Nebo marks an important next chapter in deepening our relationships with RIAs through investment-led solutions. In recent years we have expanded advisors’ access to GMO strategies by making more GMO funds available on custodial platforms. The introduction of Nebo’s novel approach will help advisors improve their clients’ financial well-being and achieve their financial goals.”
We are excited to announce that the shortlist for the With Intelligence Private Asset Management Awards has been released! The quality of entries was of an incredibly high standard this year, and we would like to congratulate everyone who made the list! For over two decades, these Awards have provided a platform for top investment professionals, wealth advisors, legal firms, consultants, and other key service providers operating within the sector, to showcase the incredible achievements they have accomplished.
The key to Nebo’s success is its signature feature – a return to sanity after a 70-year departure. Nebo’s defining premise is that risk is not volatility, it is “not having what you need, when you need it.” This frees it completely from the conventional but senseless approach, the search for the level of volatility that is “right for the client,” to pursue a mean-variance-optimized asset allocation, and then to maintain that same asset allocation mindlessly through “rebalancing.”
Premium placement for exhibitors was just outside the main ballroom, with a few notable newcomers, including, Jeremy Grantham’s GMO asset management firm fresh off the launch of Nebo. Nebo (for Needs-Based Optimization) bridges the gap between financial planning and asset management. Nebo is built on the idea that clients' chief investment risk is not short-term market volatility, but rather not having the financial resources needed when needed.
The advisors who are listening to this podcast will start a financial-planning process with a risk assessment for a client. That exercise will evaluate how much volatility the client can tolerate. It will serve as input to constructing a portfolio that optimizes returns given a client’s risk tolerance.My guest today is here to explain why that is the wrong approach. The problem is not to minimize volatility, he says, but to figure out how much money a client needs, when they need it, and to solve for that problem.
Most notably, Jeremy Grantham’s GMO asset management firm did so with the launch of Nebo, a technology-driven asset allocation and portfolio management platform for RIAs that streamlines and automates the process for delivering custom and personalized portfolios. (Nebo stands for needs-based optimization). Nebo and other vendors had good traffic from advisors eager to learn and sample the latest innovations — while seeking shelter from the warm California sun.
Martin Tarlie at GMO discusses the firm's research looking at how to properly deal with sequence-of-return risk, the condition many older investors are facing now as they look at retiring into a stock market that is struggling.
This year's 'Wealthies' winners were honored last Thursday at a 500-plus-attendee, black-tie awards gala in the Ziegfeld Ballroom in New York City, after roundtable discussions and networking at the InterContinental Times Square. GMO won the 'industry' disruptor award for its Nebo platform.
GMO's approach can help clients that are at risk of having insufficient funds during retirement, said Tom O'Shea, a research director at Cerulli Associates, which does not work with GMO. O'Shea, however, said Nebo is the first tool that solves for the problem of a 'sequence of return risk 'within a personalized separately managed account.' Yes, you outsource this cumbersome problem to solve, but the main benefit is it helps you allow the client's money to last longer in retirement,' he said.
Ben Inker, GMO's co-head of asset allocation, and asset allocation team members James Montier and Martin Tarlie, have just published a paper that is likely to ruffle plenty of feathers. 'Investing for Retirement III: Understanding and Dealing With Sequence Risk' argues that retirees can lower their risk of running out of money by including some market timing in their so-called 'glide path,' meaning the path by which their portfolio is expected to evolve as they move through retirement. Right now, the retirement industry's typical advice is that retirees should pretty much ignore temporary market conditions, and follow a predetermined optimal 'glide path' from risk to safety, stocks to bonds, as they age.
Sequence of return risk is different from most other forms of risk borne by investors. It is not a risk inherent in an asset class, nor can it be seen in any portfolio analysis that looks at a single period of returns. As a result, it is not much of a surprise that sequence of return risk is entirely ignored in much of academic finance. But it is a meaningful risk for the vast majority of investment portfolios and there are useful tools that can mitigate its effects. We believe a portfolio construction framework that takes into account the lifespan of the portfolio and its expected cashflows can account for sequence of return risk better than any standard single-period optimization. And by dynamically reallocating portfolios in light of the returns assets have actually delivered and the consequent impact on their expected returns, portfolio managers can substantially further improve outcomes for their clients. Adopting these tools can be difficult, as both require combating natural human behavioral tendencies. But investors and their advisors would be well-served by at least understanding the ways those tendencies lead to sub-optimal longterm outcomes and determining whether it is worth some of the emotional pain involved in taking a different path.
The eighth-annual event featured 105 awards presented to 84 companies and individuals from a pool of 225 finalists.WealthManagement.com celebrated the winners of the 2022 WealthManagement.com Industry Awards (the “Wealthies”) Thursday night during a black-tie awards gala at the Ziegfeld Ballroom in New York City.
In development for almost a decade and with three years of early-adopter feedback and input from fiduciary financial advisors, the global investment manager GMO announced today the launch of what it calls Nebo, which is short for Needs-Based Optimization platform. Nebo was also a winner in the 'Industry Disruptor' category of the WealthManagement.com Industry Awards, the winners of which were announced Thursday.
Nebo (for Needs-Based Optimization) bridges the gap between financial planning and asset management, helping advisors ensure clients have the financial resources they need to achieve their goals. Nebo is a new, technology-driven asset allocation and portfolio management platform for Registered Investment Advisors (RIAs) that streamlines and automates the process for delivering custom and personalized portfolios to their clients.
Grantham, Mayo, Van Otterloo & Co. — the investment manager led by Jeremy Grantham — on Thursday introduced asset allocation and management technology to help RIAs provide personalized portfolios to their clients. The Nebo, or 'needs-based optimization,' platform automates and streamlines client portfolio customization, according to GMO. The firm based Nebo’s approach on the idea that clients’ main investment risk, rather than short-term market volatility, is lacking the financial resources they need, when they need them.
All across America, retirees and near-retirees are reeling. They were assured by simplistic “McMoney” financial advisers that bonds were “safe,” that bond returns were steady and predictable, and that a portfolio balancing stocks and bonds would be fine in all circumstances. And in the first half of this year they have discovered to their shock that none of these things is necessarily true. So it is timely that James Montier and Martin Tarlie, strategists at white shoe money management firm GMO, have produced a paper showing why these assumptions are wrong, why they may be endangering our retirement plans, and what we can do about it.
Standard financial industry practice builds retirement portfolios using mean variance optimization and validates them using Monte Carlo simulations that assume asset returns are a random walk. To put a finer, more brutal, point on it, managers construct portfolios using anachronistic technology from 1952 and then have the temerity to check the results using assumptions from 1970. The unsurprising result of a process stuck over 50 years in the past is portfolios that burden future retirees with an unnecessarily high risk of financial ruin. As one of us points out relentlessly, risk isn't a number, rather it is a notion or a concept. In the past, we have talked about the permanent impairment of capital as being the true risk you want to avoid. We have also highlighted the three paths that can lead to this outcome: Valuation risk. Buying an asset that is expensive means that you are reliant upon
Amid a weak stretch for value strategies, the asset-allocation specialist discusses why GMO remains pessimistic in its outlook for U.S. stocks. Our guest on this week's installment of 'The Long View' podcast is James Montier. Montier is a member of the asset-allocation team at Grantham, Mayo, Van Otterloo & Co. Before joining GMO in 2009, he was co-head of global strategy at Societe Generale. A prolific and incisive writer, Montier has authored several books, including Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioral Investing. He's also a regular contributor to GMO's library of white papers and research studies on topics ranging from productivity, strategic asset allocation, contrarianism, and more. In addition to his duties at GMO, Montier is also a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts.