This year’s Annual Conference, the 2021 Alpha Summit by CFA Institute, took place on May 18, 2021. This was the second CFA Institute Annual Conference to take place virtually as the world combated the COVID‑19 pandemic. Yet the 2021 conference was distinct from the previous year’s events in its delivery format, its themes, and its proactive and forward thinking.

A demonstration of forward thinking

This year the conference was rebranded as the Alpha Summit. “Alpha,” a well-known industry term, means active return, or excess return of an investment relative to the return of a benchmark index. It is the ultimate goal and measure of an active manager’s performance.

As the first letter of the Greek alphabet, “alpha” also refers to the beginning of a new era. Globally, while nations were battling the COVID-19 pandemic and working to begin their economic recoveries, participants of the Summit were already looking far ahead. Compared to the 2020 conference, which was largely reactive in nature and focused on equity valuation methods and stress management under the pandemic circumstances, the 2021 Alpha Summit looked beyond the pandemic. This year, although the pandemic was also a topic, participants demonstrated a much longer time horizon in their thinking. Sessions focused on emerging trends, such as environmental, social, and governance (ESG) and sustainable investing, blockchain and decentralized finance, and inclusion and well-being in the workplace.

In addition to asset managers and academic researchers, who have been traditional speakers, this year’s Summit included a broader range of keynote speakers, including former country leaders, the founder of one of the largest cryptocurrencies and networks, the chief well-being officer of a top consulting company, New York Times best-selling authors, and an award-winning filmmaker, among others. This array of speakers brought a diversity of viewpoints to the discussions, which touched on the impacts of policymaking, geopolitics, and new technology. “Changemakers” and “trend makers” were key words throughout the day.

Climate risk, net zero, and sustainable investing

Climate risk was by far the most prominent theme of the conference. Speakers agreed that there should be a sense of urgency among all stakeholders. Some called it a “race” to combat climate risk. With an undertaking of such a global scale, making steady progress is key. One panellist, Mary Robinson, former President of Ireland and former United Nations Special Envoy for Climate Change, quoted Nelson Mandela: “It always seems impossible until it’s done.” Government actions are critical, but grassroots movements, community involvement, and bottom-up advice are also important. In short, reaching net zero emissions will require collective effort from everyone.

Enter the investment communities. Speakers agreed that finance is an important lever to reach net zero. Long-term investors play a special role in impacting sustainable investing. Many invest in passive funds, so how do passive fund managers influence choices made by corporations? Through “active ownership and stewardship,” according to panellist Hiro Mizuno, UN Special Envoy on Innovative Finance and Sustainable Investments. Mizuno used the example of Government Pension Investment Fund (GPIF), Japan’s public pension system and the largest pool of retirement savings in the world, in which 70 to 80 percent of the portfolio is managed passively. Traditionally, passive managers of GPIF have not utilized their voting power to influence corporations to adopt ESG principles. GPIF has recently gone through reforms, including fee structure changes such that fee incentives are now rewarded to passive managers if they meet certain ESG standards in stewardship and index selection.

Keynote speakers also shared some advice for investment professionals who would like to play a positive role in fostering ESG investing:

• Follow data and science. There is now a much richer array of alternative data, which the CFA community can leverage to make better investment decisions.
• Advocate for transparency. There is still a lack of transparency, standardization, and consistency in what both public and private companies report in terms of their climate footprints. If you are integrating climate into your investment decisions, you should advocate for more transparency in ESG reporting from companies.
• Make it a “just transition.” Do not forget the human factors, such as the impacts of the transition on workers and communities. As Robinson, author of Climate Justice, pointed out, “Climate justice is the people-centred approach to the climate crisis.”

Blockchain and decentralized finance

One session examined the potential impacts of decentralized finance, or “DeFi.” The session featured Vitalik Buterin, Founder of Ethereum, and Mona El Isa, CEO of Avantgarde Finance and a former hedge fund manager.

The panel discussion broadened the audience’s understanding of blockchain beyond the typical focal point of the CFA community. According to Buterin, blockchain has many applications beyond currency. His ecosystem is “a general-purpose blockchain, a blockchain that supports a programming language, so whatever thing you want to build, you can write the rules of your application as a piece of code, and the blockchain will write your code for you.”

This view was shared by El Isa, a former trader and fund manager who started her own hedge fund but “failed” because she was not well prepared for the “inefficiencies” in the industry and the resulting operational barriers. She said, “The future of assets is tokenized, and if you can take that assumption, you can totally reimagine the infrastructure which finance is built on and imagine it to be totally automated, operational, administrative infrastructure, which doesn’t have the same barriers to entry in the same way traditional finance does.” In short, “on-chain” asset management infrastructure is her solution to the traditional problems she has observed.

In the crypto world, what does an alpha-generating strategy look like? Panellists pointed to yield. Because of the shortage of digital dollars, investors can enjoy attractive lending rates on cryptocurrency. This strategy works in various market environments and holds up well in a volatile environment. Of course, as the crypto world scales up, this effect may diminish, and higher yields may not be sustainable unless investors are willing to turn to riskier assets. Risk management will be critical.

The conference enabled audience participation through online chats. During this session, there were several active debates among audience members, but the major question revolved around the suitability of cryptocurrencies as investments due to the extreme volatility of their prices. One attendee questioned how speculating in assets that have no cash flows and whose values are demonstrably unstable was consistent with fiduciary duty. Another attendee responded by pointing out that gold and other precious metals also have no cash flows and are volatile, but that they can be acceptable asset classes for investors with the right risk tolerance.

Panellists acknowledged that in addition to price volatility, the blockchain and crypto ecosystem bears other risks too—namely security, governance, and technology—but these issues could be solved with enhancements in technology. The usability and cost of technology also need to be acceptable for average users. As Buterin pointed out, he is working on reducing the energy consumption of his cryptocurrency by a factor of more than a thousand. With that statement, this session linked back to the overarching theme of the Summit: combating climate change and ensuring a sustainable future.

Summary

The Alpha Summit impressed attendees with its rich content on sustainable investing, blockchain, and other trend-setting topics such as inclusion and diversity in the workplace, lessons learned from the rise and fall of a global fintech, geopolitical risks and the changing global order, and the role of technology and artificial intelligence (AI) in propelling finance forward. It was truly a forward-thinking conference that challenged everyone to become a changemaker and encouraged all participants to think hard about generating alpha by reimagining the future world.