Conversations with Institutional Investors

Investment Innovation Institute [i3]
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Conversations with Institutional Investors is your gateway to in-depth discussions with the masterminds behind leading global investment firms, including key figures from pension funds, insurance companies, and sovereign wealth funds. Our podcast explores the evolving landscape of asset allocation, portfolio construction, and investment strategy, offering you firsthand insights from industry experts to inspire smarter, more innovative investment approaches. For further insights go to i3-invest.com. You can also subscribe to our complimentary newsletter at: i3-invest.com/subscribe/

  1. 2d ago

    141: From the Archives – NZ Super's Matt Whineray

    In this interview from November 2023, we speak with Matt Whineray, then CEO of New Zealand Super, to celebrate the fund's 20th anniversary. Established in 2003, with an initial contribution of NZ$2.4 billion, the fund has achieved an impressive average annual return of 9.5 per cent over this 20-year period, adding NZ$40 billion in value. We delve deep into the fund's strategic tilting program, which has been a significant contributor to its success, and this interview contains the startling admission that NZ Super once held a short position in the NZ dollar that grew to 40 per cent of the net asset value of the fund. Overview of Podcast with Matt Whineray 01:00 NZ Super started investing in September 2003 and now has a 20-year track record 03:00 One of the key starting points was to get the risk position right and get the board to understand this position 04:30 The 20 year track record: the country is about $40 billion better off as a result of the creation of the fund 07:00 The fund invested in private equity only two years after the beginning. 8:30 The strategic tilting program; the philosophy behind it and the early days 14:00 There are times when you get tested and 2013 was one of those times 15:30 I borrowed this one from [AQR's] Cliff Asness: 'Don't size a strategy so that when it goes wrong you are dead'. 18:30 The amount of risk that we allocate to our strategic tilting process is definitely the highest of all of our internal strategies 20:30 The strategic tilting program has evolved from trading once a month to trading every day, sometimes multiple times a day 22:00 Introducing the reference portfolio; the beauty about the reference portfolio is that there is real clarity about the decisions that are being made 26:00 Since inception the decision was made that we always hedge the reference portfolio 100 per cent back to NZ dollars, and that is one that is always debated at reference portfolio reviews 28:00 Managing NZ equities in-house 31:00 What else do we do internally? Portfolio completion credit strategies, direct investment and strategic tilting 33:00 Embracing responsible investing 36:00 There is no downside to us helping our friends in the region 37:00 Preparing for the drawdown period 41:00 New Zealand Super has been experimenting with an AI portfolio. What is this? 44:00 Leaving the fund after 15 years and Matt's favourite moments with the fund 45:30 Early 2020, I had a radio interview where I was telling the interviewer that we just went from $48 to $35 billion. The fact I could say that is a testament to our stakeholder management and the education we've done along the way Full Transcription of Episode 141 Wouter Klijn 00:11 Welcome to the [i3] Podcast. I'm here today with Matt Whineray, who is the Chief Executive Officer of New Zealand Super, and today we're celebrating 20 years of the fund. Matt, congratulations on this milestone! Matt Whineray 01:26 Oh, thank you very much, and thanks for having me. Wouter Klijn 01:29 Excellent. So there's a couple of dates that we can take for these 20 years. I think the New Zealand Super Innovation and Retirement Income Act was passed in 2001, and that set up the structure of what is now New Zealand Super. But it wasn't until 2003 that the fund received its first contribution, which I thought was 2.4 billion New Zealand dollars, and started investing later that year. So it's actually in I think October this year that we have a 20-year track record of the fund is that right? And can you share some of the learnings from that period? Matt Whineray 02:08 That is right. Yes. So it took a bit of work between the passing of the legislation and 2001, and and kicking off. So getting a team, getting the team together, and those those board and those first few people that were were involved. That's right. We got the money on 30 September 2003. I understand it actually. We we invested almost straight away, some of it anyway, and had got set up to to be ready to do that. So yeah, it's been a big a big moment for us taking over 20 years and an opportunity at that point to sort of reflect on on how we've changed since then, and we've changed quite significantly, but also what we've learned. So, from a from a lesson perspective, I guess probably the most important ones are get the get the long term risk setting right, understand how you think that might perform along the way, and then spend as much time as possible making sure that stakeholders understand that. And so, how it might, how it, why you've done that, and and how it might operate. As as an investor, we think about our as a long horizon investor, we think about our our key risks as being two big ones: liquidity. So running out of liquidity is pretty terminal, and stakeholder support. And so we spend a lot of time thinking about how we manage those in order to be able to get to the long term. Because if you're a long horizon investor, you care about what the return is over the long term, but if you cannot survive the journey, the destination doesn't matter. So, so we think hard about those. And the other one of the other critical foundational things that we've done is is being really clear about what our advantages are as an investor. So we call these endowments. We don't have a lot of advantages, but they are important. So things like long horizon, our operational independence, our governance, our strong governance model, and our sovereign status are all critical. And aligning our investment strategy with those endowments and with really clear investment beliefs is really important as well. So those those are sort of the big things that we've we've learned along the way. We didn't. We certainly didn't know them all at the start, and we found out as as we've gone along. Wouter Klijn 04:27 New Zealand Super always has a strong focus on on governance, but of course we also would like to know the numbers. Have you crunched the numbers for the 20 year track record? Matt Whineray 04:35 Yeah, we're about 9.5 per cent per annum over that over that 20 years, and I guess most critically, from a from a national perspective, the the country is more than $40 billion better off as a result of the creation of of the super fund. So, if you think about the alternative use of our of the contributions we have received, would have been to pay down government debt. We have we. Beaten that benchmark by more than $40 billion, and within that 40 billion, we've also added about $16 billion of value over our risk equivalent benchmark, our reference portfolio, which we'll get onto later on. But yeah, so we've we're very happy with how those how those numbers have turned out. Wouter Klijn 05:17 Excellent. Of course, governance is really important, but when we look at sort of the investment approach, can you tell us a little bit about, you know, the early days in terms of the asset classes that the fund started with and how that has evolved over time? Matt Whineray 05:32 Sure. So in our in our right at the outset, we were a pretty traditional SAA approach. We had in that global equities, New Zealand equities as a separate asset class, and global was both developed and emerging markets, global fixed income, and then we we also had a reasonable, reasonably significant allocation to private market assets. So those were in those days, private equity, timber, infrastructure, property. When I turned up in 2008, we had this other category that was called other private markets, which was kind of whatever else we found that was kind of interesting. And so we had a pretty big allocation to that to that private markets in that early SAA. But I think right from the outset, we've had a pretty growth-oriented portfolio. So it might have started at about sort of 7030, moved to 8020, and then our reference portfolio has been 8020 since since we implemented that, which was about seven years into our into our operation. So we've always we've always sought to take advantage of our long horizon and our relative lower need for liquidity, and allocated across those broad range of asset classes. Wouter Klijn 06:49 Yeah, is is that why the fund started relatively early investing in private equity? Because I think I looked it up, and it was only two years after the fund started investing that the first private equity investment was was already made. Matt Whineray 07:03 Yes, so we had some small private equity funder funds earlier on, and some secondary secondary fund and a more traditional GP commitment. That was part of that that SAA allocation. So we, as a result of that that original construct of the SAA, the team was focused on on private markets. That that allocation to private markets was about 35 per cent in the in the early versions of the SAA. So a pretty chunky one. And so the team the team got on with with thinking about how we could how we could gain that exposure. Wouter Klijn 07:37 So what was the inspiration for that? Was that sort of you know, a lot of the the Australian funds look at the Canadian peers, and they obviously have a very heavy allocation to private assets. Or was it more that long term investment Matt Whineray 07:51 horizon? Well, it was definitely a long term investment horizon. But I think early on, the some of the the people in the or investment people in the organisation certainly also looked at not just the Canadian peers, but also some of the U.S. endowment models as well, which had significant significant exposure to private equity in particular. And I think right at the outset as well, we were we were almost we were entirely outsourced. You know, when we kicked off, we're obviously using external managers, and that was the approach that that was taken to get exposure to some of those different asset classes that were included in the SAA. Wouter Klijn 08:27 I think one of the things that really sets New Zealand Super apart is the strategic tilting programme. That is not

    141: From the Archives – NZ Super's Matt Whineray

  2. Aug 2

    140: Frontier Advisors' Charles Wu and Elie Saikaly – Launching an ICIO Business

    In episode 140 of the [i3] Podcast, Conversations with Institutional Investors, we speak with Charles Wu, Director of Investment, and Elie Saikaly, Head of Liability-driven and Government Investors at Frontier Advisors about the recently launched Independent CIO service, not to be confused with outsourced CIO services. We delve into the background of establishing the new service, the backing by State Super, the potential market size and why this services is needed now. Enjoy the show! __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  __________ Frontier Advisors: ICIO Podcast – Overview [00:15] Introduction – Wouter Klijn frames the episode around Independent CIO (ICIO) services vs. outsourced CIO (OCIO), with guests Charles Wu (Director of Investment, Frontier Advisors, formerly State Super) and Elie Saikaly (Head of Liability-driven and Government Investors, Frontier Advisors). [02:00–06:37] Origins of the deal – Charles explains that State Super's investment team joined Frontier in a "win-win-win" arrangement: State Super de-risks by handing over portfolio management while retaining continuity; Frontier gains institutional-grade implementation capability and people. He details why State Super's situation is complex – a 100+ year-old scheme in decumulation, with average actuarial cash outflows around 7 per cent annually, creating major liquidity forecasting demands. [06:45–10:34] Frontier's motivation and custody issues – Elie discusses Frontier's 31-year history adapting to client needs, and why smaller asset owners struggle with key-person risk, operational risk, and custody access (partly due to the closure of NAB Custody Services), creating an opening for Frontier's expanded service. [10:34–13:35] Defining ICIO vs OCIO – Charlie distinguishes ICIO by its independence and non-conflicted, tailored approach (no predefined product suite), contrasted with more standardized outsourced models. Governance benefits like stock lending and balance sheet management are passed to clients. [13:35–16:43] Service integration and structure – Elie describes the combined offering (strategy through implementation) and lessons learned from merging Charlie's tactical asset allocation process with Frontier's advisory teams. They discuss the managed discretionary account structure and the governance partnership with Ironbark, including an investment management committee. [17:19–20:09] Target market – Referencing KPMG research showing a fragmented market (no player over ~10 per cent share), Elie outlines target clients: insurers, universities, charities, endowments, small-to-medium super funds, and family offices – emphasizing deeper transparency on reporting and costs as a differentiator. [20:09–22:45] Japan expansion – Charlie discusses a recent trip to Japan, Frontier's local office (established ~4 years ago) and partnership with Mitsubishi UFJ Asset Management and interest in partnership models rather than full portfolio outsourcing. Expansion plans remain APAC-focused rather than global. [22:45–24:35] Current status – State Super is confirmed as the first client, with regulatory steps nearly complete and significant inbound interest from prospects citing key-person risk, operational risk, and performance/custody concerns. [24:35–27:26] Scope of services – Charlie explains services extend beyond portfolio construction to strategic guidance (e.g., specialist help building hedge fund or real estate platforms), tailored case-by-case to each client's governance maturity. [27:26–28:11] AI capabilities – Charlie confirms new clients can request an AI roadmap/governance framework, drawing on State Super's earlier AI work. [28:11–29:23] Sydney office – Charlie discusses the new Sydney office (with room to grow) supporting Sydney-based clients, plus light banter about Melbourne/Sydney rivalry. [29:23–31:17] Next steps – Elie outlines finalizing regulatory approval, change management efforts (a December immersion day, training sessions, governance/risk work groups) ahead of official launch. [31:17–33:25] Insurance sector potential – Elie notes insurers are a strong candidate client base, particularly those without the resources or desire to fully in-source investment management risk. [33:25–35:00] Addressing suboptimal portfolios – Charlie acknowledges it's a widespread issue that off-the-shelf products don't suit varying risk appetites, and notes Frontier is investing in internal technology to balance scalability with tailored service. Full Transcript of Episode 140: Wouter Klijn  00:15 Welcome to the [i3] Podcast. Today, we're going to talk about Independent CIO services as opposed to the outsourced CIO services, and we'll go into this distinction later. But I'm here today with Charlie Wu, who is the Director of Investment for Frontier Advisors. So Charlie leads the former State Super investment team that joined Frontier Advisors at the end of last year, and established the ICIO office. We also have Elie Saikaly, who is Head of Liability-driven and Government Investors at Frontier Advisors. Charlie, Elie, welcome to the show.  Charles Wu  01:57 Happy to be here.  Elie Saikaly  01:58 Great to be here.  Wouter Klijn  02:00 Excellent. So, Charlie, maybe we start with you. From what I understand, the conversation about this started a few years ago, and and we're partly tied to sort of you know projections about the future of State Super. State Super is in runoff. Obviously, over time, this this will pose some issues. Can you walk us a little bit through why State Super was interested in this partnership?  Charles Wu  02:24 Yeah, sure. Well, maybe let me put that in a bit of the context. I think if you look at State Super, it is not unusual. State Super actually has a really long history of coming up with innovative structure. So all the way back in the 1980s 1990s we're talking about Stay Super being one of the in in house investors. The funds manager like DB Reeve and Axiom is all coming out from State Super. So this is, I guess, the most recent iterations of the the innovation that has been in STC's portfolios for a very long time. And just to again set that context correct, so the way to look at this is State Super effectively has exchanged the investment team and I to Frontier or an equity stake. Subsequently, hire Frontier to manage Stay Super's DC portfolio, and this is really a rare win-win-win situation. And what I mean by that is, in many ways, State Super wins by de-risking the portfolio management activity by appointing Frontier, and you get that continuity of services. Frontier wins because this acquisition brings on board an institutional grade implementation and operational capability, and the people for the people that's involved is actually really the core component that the discussion that we're talking about. We win because we get we now get to expose either in my term horizontally, like the breadth, such as like me being exposed to different client segments, or vertically going all the way from the formulation of investment strategy down to the implementation, and those are all group potential. So the outcome of this is, like you said, ICIO offers that provides a non-conflicted service offering. There's a strong synergy between the two different investment teams, which we're in the part of bringing them together and the growth potential for everybody.  Wouter Klijn  04:25 So, at the announcement of this transaction, I spoke with John Livanas, the CEO of State Super, and he told me a little bit about the importance of sort of retaining access to adequate resources from an investment perspective, and he partly related this back to the fact that State Super is in runoff, but it has quite a complex sort of structure in place that you know you can't just have like one or two guys looking after it and take care of it until it's completely run off. Why is that? What what's sort of the complication there?  Charles Wu  04:59 Yeah. So for most people that don't know, State Super, State Super is one of the oldest schemes in New South Wales state government. I think the inception. I still use the word "we" every now and then. Like you know, the inception for State Super is back in the early 1900s and so it's more than 100 years old. The scheme was closed in the later end of the 1990s, and so what that created is a very aged member demographics. It has a very complex scheme dynamic. We're talking about various conditions, including reverse due spouse and so on and so forth. But the key thing from an investment perspective is it created a portfolio that is the in decumulation mode, and I'm not just talking about you know one or 2 per cent that you that that's in line with the the state the spending policy of an endowment. We're talking about on average, it's a 7 per cent actuarial projected cash outflow every year, and depends on where you draw that line because, like I said, we have age member demographics, so depends on where you draw that line. That instantaneous liquidity shock can be quite high, and so it's not a simple. By no, I mean it's not a simple investment, but in this particular case, because it is unique, we have to pay a lot more attention in terms of ensuring that the liquidity there, like we we do forecasts not just the member in our flow, so to speak. We're also talking about how do we ensure that we have enough liquidity to pay the member benefit payments. We have sufficient liquidity to meet the investment drawdown, so on and so forth. And all of those isn't as straightforward.  Wouter Klijn  06:37 Yeah, yeah, for sure. So Elie, State Super obviously had some incentive to look at this deal. What's in it for Frontier?  Elie Saikaly  06:45 Yeah, great question,

    140: Frontier Advisors' Charles Wu and Elie Saikaly – Launching an ICIO Business

  3. Jul 12

    139: Neuberger's Steve Meier – Do You Know the Risks You Own? TPA at NYC Retirement Systems

    In this episode of the [i3] Podcast, Conversations with Institutional Investors, we speak with Steve Meier, who is the Vice Chairman of Neuberger's Institutional Client Group. Before joining Neuberger, Steve was the Chief Investment Officer for the New York City Retirement Systems, the third largest public pension plan in the US, consisting of five different plans. There, he implemented the total portfolio approach (TPA). Steve recently published a paper about the lessons he learned from implementing TPA at the fund, titled 'Case Study: Implementing Total Portfolio Thinking at NYC Retirement Systems', which we will explore in this conversation. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of podcast with Steve Meier of Neuberger  03:00 I knew we were heading in the direction of TPA but I didn't want to freak people out with a certain nomenclature 06:00 I think an SAA is compatible with a total portfolio approach 07:00 There has been a lot of work done by CalPERS CEO Marcie Frost to get support from the board for TPA 09:00 My experience is that an SAA is more granular than a reference portfolio 17:30 We hired external managers that could be tactical on our behalf. With a US$300bn portfolio it is hard to be tactical at scale 21:00 We didn't have an incentive compensation pool at NYC, so that wasn't one of the levers that I could pull 25:30 We had five plans that each had their own consultant. The firefighter plan had a funding ratio of only in the 80s, and that was largely because of 9/11. We lost 346 firefighters that day. 28:00 At the heart of TPA, there is an element of being very factor aware 31:30 We put together the BAM university so trustees could learn about how we made better decisions and we had a thought leader speaker series where I interviewed senior figures in the industry, including voting members of the Fed. 43:00 The case of Irene Triplett, the last remaining survivor of a Civil War pension plan. That is 155 years later and the plan is still paying out a benefit. We are long-term investors. 46:30 I do believe we are seeing a convergence of public and private markets Full Transcription of Episode 139 Wouter Klijn (00:00): Welcome to the i3 podcast. I'm here today with Steve Meier, who is the Vice Chairman of Neuberger's Institutional Client Group, and who was previously the Chief Investment Officer for the New York City Retirement Systems, the third largest public pension plan in the US, consisting of five different plans. Today we're going to talk about the Total Portfolio Approach (TPA), and in particular, the NYC Retirement Systems' version of it. Steve recently wrote a paper titled "Case Study: Implementing Total Portfolio Thinking at NYC Retirement Systems." So, let's talk about that. Welcome to the show, Steve. Steve Meier (00:42): Great, Wouter. Thank you for having me. It's a pleasure to be here. Wouter Klijn (00:45): So, when you were at NYC Retirement Systems, you didn't quite call it TPA—that seems to be a bit of a later name or interpretation. Can you tell me a little bit about your thinking around this system and how you referred to it? Steve Meier (01:01): Sure, absolutely. When I first joined the New York City Retirement Systems—and just to be clear, there are five separate and unique investment plans with five boards of trustees totalling 68 trustees, five separate investment policy statements, five separate general consultants, and a matrix of nine specialty consultants. There's a level of complexity just in terms of the organisational structure around managing the public pension plans for the city of New York. We had about 800,000 beneficiaries and participants, so it was a real honour to actually work in and lead that organisation for a little under four years. When I first joined, my first observation was that there was not an appropriate amount of collaboration across the teams. I tried to implement more of a non-siloed mindset to get people to work together, integrate the teams, and flatten the organisational structure. I wanted to give everyone a voice and open up the investment committee. Prior to my joining, the only participants in the investment committee discussions were the asset class heads. I opened it up to the entire 130-person organisation to really get more brains in the game and use it as a developmental tool. I did a number of things organisationally to force the integration of the teams, get the very best out of our tremendous individual talent, and challenge people to think more holistically about the portfolios and exposures. I wanted them to think: if they were the CIO, how would they want to see the portfolios positioned and presented? More importantly, for each incremental investment we put into the portfolio, how would that impact our overall exposure? Wouter Klijn (02:56): Yeah, so in hindsight, when did you start to realise that this is pretty similar to what is now called the Total Portfolio Approach? Steve Meier (03:04): Well, I suspect that all along we were moving on that path. I didn't want to freak people out by giving it a certain nomenclature or name. For us, it was really a journey and evolution of our thinking and capabilities. What I truly focused on when I first joined is the Japanese concept of Kaizen, which means a focus on continuous improvement with the ultimate goal being excellence—which you never really reach. But as fiduciaries, I tried to challenge my teammates into thinking we have an affirmative obligation to eke out every last quarter of a basis point in terms of performance. At every turn, there's a way we can improve how we interact, how we think, how we behave, and ultimately how we invest. Listen, the markets are dynamic, things are constantly evolving, and technologies change. We're certainly in the midst of reincorporating a revolutionary, transformational technology into our thinking and practices, but it was really a recognition that we could always do better as a starting point. Wouter Klijn (04:11): Now, I think your case study is quite interesting because there are a lot of similarities with Australian pension funds here. They have different investment options that they more or less have to stay true to, so a lot of funds here can't get rid of a Strategic Asset Allocation (SAA). Getting rid of the SAA is a model implemented by sovereign wealth funds that embrace TPA, but you can't really do that in a pension plan. I think you had a similar situation where you still had to have an SAA. Can you tell me a little bit about your thinking around that, and how you went about implementing TPA with an SAA still in place? Steve Meier (04:56): Yeah, absolutely. As an American, I'm a bit embarrassed to admit that America seems to think they come up with all the good ideas, but the Total Portfolio Approach—or total portfolio thinking—has been around for decades and has been widely and successfully adopted abroad. For the US, it's more along the lines of an evolution and an awareness that there's a better way to do things. As I said, part of it is artificial intelligence supporting more analytical rigour and quantitative tools. I think about framing decisions analytically versus using an inherited narrative. First principles thinking asks: what can we know that's objectively true about the portfolio? What can we state as a fact, and how can we use that as a building block for constructing and managing portfolios differently? Wouter Klijn (05:54): And in your experience, looking at implementing that in an SAA environment, are there any lessons learned or quick wins that you can share? Steve Meier (06:04): To answer your question more directly, I actually believe that a Strategic Asset Allocation can be, and is, compatible with the Total Portfolio Approach. There's a full spectrum and a bunch of different flavours of TPA that any institutional investor can implement. What's really interesting right now in the United States is the largest public pension plan, CalPERS—which is about a $640 billion plan. They've moved down a path where they are adopting, I believe at the beginning of July, a more full-blown, pure form of TPA. They have a very talented Chief Investment Officer named Steve Gilmore, who has been successful in implementing TPA at the New Zealand Sovereign Wealth Fund and, before that, the Australian Future Fund. There's also been a lot of work done behind the scenes by their Executive Director, Marcie Frost, to win the trust of the boards, secure a high degree of delegated authority, and ensure the right infrastructure is in place to bring in good talent and incentivise them to perform. A lot of eyes are on that, because not only is CalPERS the largest public pension plan in the US, but it also has a great history of being innovative. A lot of folks, myself included, are watching CalPERS implement that pure form of TPA, and to be honest, I'm rooting for them. I believe TPA is the best operating model for institutional investors today for many reasons. Because it's happening in a very visible way with the largest public pension fund in the States, many are watching to see if they're successful and if it can be replicated in different degrees by other US institutional investors. Wouter Klijn (08:12): That's an interesting example, because Stephen Gilmore has been in organisations that have all embraced TPA over the last couple of years. I think one element of the version of TPA he's bringing to CalPERS is that they are looking at a reference portfolio, and we just had a discussion about SAA. The reference portfolio is a big part of the New Zealand Super model. What is your thinking around that? Can you still do TPA without having a reference portfolio in place

    139: Neuberger's Steve Meier – Do You Know the Risks You Own? TPA at NYC Retirement Systems

  4. Jun 28

    138: From the Archives – JANA's John Coombe

    In this episode, we're revisiting a conversation originally published on 6 March 2019, with John Coombe, one of the true veterans of investment consulting in Australia. John joined John A. Nolan and Associates – now known as JANA Investment Advisors – back in 1988, as the firm's very first employee. Over three decades, he helped grow JANA from a single client into a business advising on hundreds of billions of dollars for institutional investors across the country. Investment specialist Daniel Grioli sits down with John to talk about the early days of investment consulting, the art of backing fund managers before anyone else will, the biggest asset allocation calls of John's career, and what really separates a good fund manager from a great one. It's a conversation full of hard-won lessons from someone who's seen more than one market cycle up close. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  Overview of Podcast with John Coombe Overview John Coombe Podcast 3:20 Got a job in superannuation, because I was the only one who knew how to use a PC 4:30 Spent most of my early days selling equities, because the market was so rampant. 6:30 Meeting some of the great investors two days after the '87 crash 9:00 Backing start-up fund managers 10:30 What went wrong with those managers that didn't make it? 17:00 The biggest asset allocation call in the firm's history 18:40 Shifting 15 per cent out of equities into property 21:23 Allocating nothing to US equities 29:00 If 95 per cent of risk is due to asset allocation, then why do we spend so much time on manager selection? 32:00 Never bet against the central banks 36:00 Do consultants add value? 40:00 Regulatory scrutiny of consultants; "throw them in the Thames and let them all drown" 45:00 Consulting is about making educated guesses. 49:00 Consulting is relationship management; don't kill it with being dogmatic 53:30 90 per cent of returns are driven by a manager's investment philosophy 58:30 There was a ton of money in hedge fund land being run on quant 1:01:00 Do performance fee ever make sense? 1:03:45 Tips for fund managers in dealing with consultants 1:08:00 Discussing the different consultant models. 1:12:00 Is consultancy getting too concentrated in Australia? 1:13:00 John's tips for institutional investors 1:14:00 Are CPI targets set today achievable? 1:17:00 The biggest challenges for instos today 1:18:00 A word of warning Full Transcript of Episode 138 Daniel Grioli  01:12 Welcome to the i3 Insights podcast. My name is Daniel Grioli, and today I am joined by John Coombe. We first met back in 2011, when I interviewed for a job with John at JANA. Fate intervened, and it wasn't to be. My first impression of John was that he's more than happy to call a spade a spade, so I'm really looking forward to this chat. For listeners in Australia, John probably needs no introduction, but for the rest of you, here's a brief intro. John is a 30-year veteran of the investment consulting business. He joined John A. Nolan and Associates – now more commonly known as JANA Investment Advisors – back in 1988, as John Nolan's first employee. JANA has grown from a single client to around 100 institutional clients, with over $350 billion in client funds under advice. The firm also oversees a further $90 billion in implemented consulting portfolios for its clients. We cover so many interesting topics in this conversation, including what investment consulting was like in the early days, the traits the best fund managers share, whether asset allocation is an art or a science, and much, much more. So, without further ado, I'd like to welcome John to the podcast. John, thanks for joining us today. John Coombe  03:14 Thank you, Daniel. How are you? Daniel Grioli  03:16 I'm great, I'm great. So, we usually get started by asking our guests about their background and how they got into their career. How did you get started as an investment consultant? John Coombe  03:28 Well, I started as an accountant at the SEC (State Electricity Commission in Victoria), and I was very fortunate that a good friend of mine, Terry McCreadon – who I think you know, who's now on the board of MLC Super but was also CEO of Telstra Super and UniSuper – phoned me up one day. I'd worked with Terry in the Treasury Department, and he said, "Coombsy, come and have some fun in the superannuation fund," because he was CEO of the SEC Superannuation Fund, which at that time was, I think, something like the fourth- or fifth-largest super fund in Australia. So I joined the superannuation fund, not knowing anything about investments but knowing a lot about a thing called a personal computer. The SEC ran everything off a big mainframe, but the superannuation fund had just bought a new investment management system that required a personal computer, and as I was the only person at the SEC who knew how to use one, Terry thought I'd be ideal for the job. So I started working with Steve Thompson, who's now at Cooper Investors and is a terrific equity investor. Steve taught me a lot about equities, and I used to do some of the bond investing too. Daniel Grioli  04:57 Do you remember what that first piece of software was? John Coombe  05:00 I can't, but it's the one all the custodians used for a very long time as their bolt-on to do Australia, because it had a tax module on the side. I honestly can't remember the name of it, but it was a very interesting time to be in the markets. I joined in '85 or '86, and we were selling equities all the time because the market was so buoyant, trading at all-time highs. I still remember Steve and I used to get told off – we'd go to an investment committee, and John Niland was the chair. John would say, "I told you guys to sell X percent of the share portfolio," and we'd say, "We did, but the market had recovered, and we're back at the same level as before." I think I spent the first two or three years just selling shares all the time. We had a big portfolio, and we got involved in things like the takeover of Fosters by Elders, and all the corporate shenanigans that went on in the late '80s. It was actually quite insightful as a young man doing that. Daniel Grioli  06:27 So you clearly weren't working in a fund that delegated investment management out. Sounds like you were doing everything in-house. John Coombe  06:33 That's the start of – oh, John A. Nolan and Associates. John left the SEC – he was head of finance – and started up John Anthony Nolan and Associates, or JANA, in 1987. It started the day after the crash, and I was fortunate: two days after the crash, John and I went up to Sydney to interview managers, because the SEC had decided to outsource part of their Aussie equities to external managers. I met Rob Maple-Brown two days after the crash, and I met some of the great names of the time – Sedgman and a few others. Two days after the crash, and a 40 per cent drop in the market in one day – we've not seen it again, thank goodness. I can assure you it wasn't much fun that day. Daniel Grioli  07:42 Do you remember what you were talking about at the time? Was it just the crash, or– John Coombe  07:46 No. We talked about philosophy a lot, and John, as you know, has a strong belief that corporate culture and corporate structure matter a lot in investment management – he learned that from Budge Collins in the United States. So when JANA started, we had two relationships: one with Intersec in Connecticut, who were the first to do global surveys of equity managers, and the other with Budge Collins and Associates out of Newport Beach. Budge ended up becoming PIMCO – well, Collins Associates ended up becoming PIMCO – and essentially they used to fund up start-up managers. They always said that was where all the return was, and they'd fund a lot of young start-ups, which eventually led into the hedge fund world for them, though not for JANA. But that's how their business evolved. Daniel Grioli  08:55 Okay, so you mentioned backing start-ups early – that was going to be one of my questions later on, but you raised it, so let's cover it now. John's been quite active over the years in identifying managers early. Do you think that's been a big part of your success? John Coombe  09:14 Without a shadow of a doubt. I think we've helped a lot of managers get started – they've done fantastic jobs for our clients and the members who benefit from that – and it's been really interesting to see the growth in the market, in guys (and ladies, sorry) willing to back themselves and have a go. It started very slowly. Andrew Sisson was one of the first, at BT – well, I suppose Robert Maple-Brown really was the first, wasn't he? Initially we had money with Maple-Brown Abbott. As I say, I think I'm the only consultant who's sacked them twice – there's a long story behind that, we won't go into it – but it has been a big part of our success. Budge was right: if you can get good talent early, when they don't have much money, they make a substantial amount for your clients in the early days. Daniel Grioli  10:28 One of the criticisms often levelled at consultants is that they're afraid to back managers early, because they're putting their reputation on the line when they take an idea to a client, and also that they want managers with a lot of capacity, because they need to get 20 consultants into a manager to get scale on their research. What is it about JANA that allowed you to do something other consultants were afraid to do? John Coombe  10:57 John's very entrepreneurial himself – remember, he started JANA with a little bit of backing from Bruce Cook. John is a starter of small businesses, and he understands that. I think the most important thing from ou

    138: From the Archives – JANA's John Coombe

  5. Jun 14

    137: Aware Super's Simon Warner – Investment Strategy as a Perspex Box, TPA and the Changing Role of CIO

    In this episode of the I3 Podcast, Aware Super CIO Simon Warner joins us to discuss how his unusually broad background across fixed income, equities, public and private markets shapes his approach to investing. Simon explains the realities of implementing a total portfolio approach within Australia's DC superannuation system, balancing risk, liquidity and cost while empowering specialist teams rather than imposing top‑down macro calls. He also talks about Aware Super's evolving organisational structure, its global expansion via London, and the changing role of CIO in today's superannuation industry.   Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of podcast with Simon Warner, CIO of Aware Super [02:00] Simon's career path: Simon outlines his journey from JP Morgan balance sheet risk management (rates and FX) to AMP Capital and then to Aware Super, spanning fixed income, equities, multi‑asset, and private markets. [04:36] From trader to investor: He reflects on moving from being a trader in highly liquid markets to a broader investor, stressing how this built a rigorous risk‑management ethos that underpins his work today. [05:50] Total Portfolio Approach (TPA) in super: Discussion of TPA and why implementing it is different for Australian super funds (with member choice and labels) compared to sovereign funds like the Future Fund or NZ Super. [06:55] Constraints of the Australian super system: Simon explains key constraints: DC structure, direct B2C member relationship, liquidity for switching/redemptions, and dual focus on net returns and costs in a competitive market. [09:30] "I sometimes wonder whether commentary on TPA isn't code for top-down decision-making?" [10:33] Practical TPA and risk premia vs idiosyncratic risk: He describes building a common language and philosophy around risk premia vs idiosyncratic risk, using infrastructure as an example to think about embedded factor exposures across the whole portfolio. [15:33] Active vs passive and future of data in private markets: Simon talks about using analytical frameworks to separate what should be cheap beta/factor exposure from what is truly idiosyncratic alpha worth paying for, and how better data in private markets will enable more scientific portfolio construction. [17:14] Restructuring the investment team: He explains recent organisational changes: grouping property and infrastructure under private markets, creating dedicated accountability for liquidity and implementation, defensive assets, and having public equities report directly to the CIO. [23:31] Internal vs external management: With ~30% of assets managed internally, Simon discusses when Aware chooses internal management versus external managers, stressing competitive edge, proximity to assets, and reserving higher fees for true idiosyncratic opportunities. [28:48] Global expansion and the London office: He outlines the rationale for the London office—access to deeper global markets, managing domestic capacity constraints, building trusted co‑investor relationships, and carefully embedding Aware's purpose and culture offshore. [31:00] "We are at our SAA in terms of illiquid asset classes, so there is no urgency [to increase]"   [35:29] Role of super funds and member expectations: Simon positions Aware as already vertically integrated, with large non‑investment teams focused on member engagement and advice, and discusses balancing performance, cost, and responsible investing for a diverse 1.4m‑member base.   [40:18] Lessons, mentorship, and the CIO as 'director': He shares lessons from mentors like Mark Beardow and Adam Tindall on process, humanity, and psychological stability, and describes the modern CIO as akin to a movie director: setting vision and culture while empowering specialists rather than micromanaging decisions.   [41:30] Make your investment process a perspex box that you can describe to yourself, to people around you and to the people that will occupy your position in the future   [49:00] The role of an CIO is somewhat akin to a [movie] director: you have to have some level of consistency of vision and consistency of what you are trying to achieve Full Transcript of Episode 137 of the [i3] Podcast Wouter Klijn  00:00 Welcome to the [i3] Podcast. I'm here today with Simon Warner, who is the Chief Investment Officer of Aware Super, which has now become a 235 billion superannuation fund. Simon, welcome to the show.   Simon Warner  00:14 Thanks, greatly appreciate it.   Wouter Klijn  00:17 So, you took on the CIO role at the end of last year, and I was looking at your background. I spent a long time at AMP Capital, long time at JPMorgan Chase, but you have both had very senior roles in the equity side and the fixed income side. That is kind of unusual for a CIO. Can you tell me a little bit about how that came about?   Simon Warner  00:41 Yeah, well, so a lot, a lot of my career is a story of serendipity, and maybe me being active about making loads of opportunities that have come my way, but a lot of it is about a embracing the path that life has put out for me. I started, I started my career at JP Morgan, as you say, or one of the prior banks that now makes up JP Morgan, and my first job there, and the job that I had for 11 years was working on a on the balance sheet, managing the strategic interest rate and currency risk of the bank, which in many ways was sort of an internal hedge fund, so operating in, you know, the world's most liquid, most highly arbitraged markets to try to add value that then parlayed into a move into the buy side where I worked at AAP Capital, first within the fixed income team, and then my last job at AMP Capital was running equities, fixed income, and the multi-asset area, so the part of that business that used to manage the superannuation monies, but the last job I had there included the front office, but it also included all the support staff and all of the distribution product technology, etc. I then took a break and re-entered in this role under Damian Graham, my previous boss, and the old CIO here, where I took a role for him, looking after private equity, public equities, infrastructure, and property, and so over the course of that journey, I've been very lucky to have been either a direct practitioner or very proximate to decision making across pretty much everything that we do here now at Aware, that certainly I would emphasise, has not made me an expert at all of it, arguably an expert at not any of it, but it has given me a level of proximity and a level of understanding and a breadth that I do think is like you say, it's a bit unusual.   Wouter Klijn  02:36 Yeah, so do you see yourself today as more of an equity guy or a fixed income guy?   Simon Warner  02:41 You try not to label yourself, because they tend to be a little bit of rivalry between those two simple camps, and I think one of the things that I would, I would probably frame it differently, I think, I think you know my time at the start of my career operating in those markets that I described, I think that creates a level of rigour around risk management that is a really strong foundation for any individual within investment within the investment industry, and so I made not only have I made this journey from fixed income into equities from the public side into the private side, but I suppose I've had a bit of a journey from being a trader to being an investor, and that training I do think creates a very strong risk management ethos that to my mind is a critical pillar for a great investor as well, and so I would not proclaim myself to be a great investor, let me be clear, but I do think that foundational skill or foundational approach has been one of the things that I do hold on to.   Wouter Klijn  03:50 So that's interesting. So there's the equity side, the fixed income side, and then the trading side as well. And I was sort of thinking of it. You mentioned briefly JP Morgan was sort of like an hedge fund type approach. All of those roles seem to filter quite well into, you know, what is very popular today is the total portfolio approach, where you know you look at the total portfolio and see where the gaps are, and we've looked into this recently a bit. Obviously, within a super fund environment, it's very different to implement that than say the future fund to New Zealand super, where they can get rid of a strategic asset allocation. Super funds can't really do that, they have to be true to a label in their investment options. So, what we've seen is that funds try to do more of sort of an overlay, or completion, as Canadians call it, and that seems to translate sometimes in a little bit of a hedge fund type of techniques, and we see relative value, we see global macro trade, is that something what you're thinking of as well, and what are your thoughts on TPA in general?   Simon Warner  04:55 Yeah, yeah, so as you allude to there, I think. Think understanding our context and understanding our task within our context is sort of foundational for understanding about what the best way of going about our business is, and without wanting to repeat what you said, one of the features of the Australian superannuation industry, or the two features that I think are really salient, is one is that we are a DC system, and secondly, we are B to C entities, and so we operate with a direct relationship with our customer base, or our member base in our case, and they can switch at any time. We have a, we have a really tactile and close relationship with the beneficiaries of our capita

    137: Aware Super's Simon Warner – Investment Strategy as a Perspex Box, TPA and the Changing Role of CIO

  6. May 31

    136: Circle the Square – Environmental Risk and the Repricing of Stability

    In this special episode of the  [i3] Podcast, we're partnering with the University of Technology Sydney for the Circle the Square roundtable discussion. Today's topic focuses on environmental risk and the repricing of stability. For most of financial history, the environment was treated pretty much as a given, stable enough to model around, reliable enough to insure against, and predictable enough to build on, but that assumption is now under pressure. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Key Takeaways The foundational assumption is breaking. Finance, insurance, and infrastructure planning were all built on 12,000 years of environmental stability. That stability can no longer be taken as a given, which undermines actuarial models, long-duration asset valuations, and infrastructure design. Insurance is the canary in the coal mine. Insurers were among the first to feel climate risk directly through claims. APRA has flagged that one in four Australian households may soon be unable to afford home insurance — effectively making the taxpayer the insurer of last resort. Disclosure isn't the same as resilience. Reporting frameworks like TCFD are a useful starting point, but simply mapping risks doesn't mitigate them. True resilience requires collective, systems-level investment — not just individual firm-level action. Short-termism is a structural problem. Pension funds have long-term liabilities but face peer-comparison pressures that punish near-term deviation, creating a mismatch between the time horizon of the risk and the incentives of the managers. The Monday morning question: Are the assumptions underlying your portfolio — on insurability, asset longevity, and gradual linear change — still valid, or are you already running on outdated models? Speakers Martina Linnenluecke, Director, Centre for Climate Risk and Resilience, University of Technology Sydney Kristy Graham, CEO, Australian Sustainable Finance Institute Rob Prugue, Lecturer, University of Technology Sydney, Anchor Fund Wouter Klijn, Host, [i3] Podcast Overview of Circle the Square podcast 06:00 The world has seen a stable climate for the last 12,000 years. What happens when we move into a new regime? "We've assumed that environmental stability was a freebie, but the last 20 years has shown that is not necessarily the case. And the markets are beginning to take notice." 09:00 "Climate and environmental risks are no longer abstract externalities; they are felt across sectors." 11:30 We are seeing that in some countries, climate change is factored into infrastructure planning. Does that happen in Australia? No, but it should 13:30 "Climate science has become a political debate. As a result, policy is set based on the political climate not the science itselft." 16:00 We are seeing increasing standardisation of tools or frameworks across asset classes and providers and that matters because it enables you to look across your portfolio 17:00 "It often starts in an ESG function, which develops a centre of expertise, but in the organisations we work with now it sits right across the whole organisation." 24:30 There seems to be a disconnect between the way in which the investment industry assesses climate risks compared to how climate scientists assess it. "We do see more sophistication around how scenario modelling is used. But there is certainly a communication issue" 25:30 "It certainly is not just a temperature increase; it is a much broader, systemic issue." 29:00 "For a pension fund, to walk away from your long-term liabilities when it comes to climate risk doesn't really add up." 35:30 "APRA is concerned that one in four households will not be able to afford insurance in the future. In coastal towns, it is 50 per cent." The rise of insurance deserts 37:30 The silver bullet is building models that support resilience, rather than the current model, which is disaster recovery after an event has occurred. 50:30 "We don't have DCF (model) for opportunity cost" Full Transcription of Episode 136 Wouter Klijn 00:00 Welcome to the i3 podcast. In this special episode, we're partnering with the University of Technology Sydney for the Circle the Square roundtable discussion. Today's topic focuses on environmental risk and the repricing of stability. For most of financial history, the environment was treated pretty much as a given, stable enough to model around, reliable enough to insure against, and predictable enough to build on, but that assumption is now under pressure. Environmental risk is moving through the financial system in a way that is becoming harder to ignore. Insurance premiums are rising and cover is narrowing. Infrastructure built to last decades is now decommissioned ahead of time, and capital is being asked to fund a transition whose policy settings keep on changing. So, this is not an ESG conversation. It's a question about the structural foundations that finance has always taken for granted, and what happens when those foundations start to reprice. Today we have three speakers who are well placed to assess where the pressure lands in this discussion, who absorbs it, and what the response could look like. We have Martina Linnenluecke, who leads the Centre for Climate Risk and Resilience at UTS, and has spent a career examining how environmental change reshapes companies, industries, and financial markets. She was also a key contributor to the Intergovernmental Panel on Climate Change's sixth assessment report. We also have Kristy Graham, who is the inaugural CEO of the Australian Sustainable Finance Institute, an independent body that works with Australia's largest financial institutions to realign the finance sector and ensure capital flows to activities that will create a sustainable, resilient and inclusive economy. Kristy, I think you were also involved in the establishment of the first Australian Government Impact Investment Fund. And, of course, we also welcome back Rob Prugue, who is honorary industry lecturer at UTS and one of the driving forces behind the UTS Anchor Fund, an educational investment fund managing real money managed by students. The question we're here to explore today is, what does finance do when the assumption it was built on is no longer holding? Rob, maybe I can ask you to set the scene. Has environmental risk moved from externality into something that investors now have to price, underwrite, and perhaps insure? What do you think? Rob Prugue 02:37 Thanks, Wouter. And thank you for this opportunity. I guess, like the rest of us, I too have been wondering for quite some time now about the impact on the environment, not just in my everyday life, but as an investor thinking about capital markets, pension funds and superannuation, and how they manoeuvre around these highly heated discussions around environmental science. What triggered it for me was some years back when I did the Camino de Santiago, and had the good fortune of meeting many people, one of whom was a professor at Oxford, a palaeontologist and climatologist, which is an interesting mix. Naturally, it raised a few eyebrows, and I asked, "Please explain." He said, "Well, we study the environment through studying Earth's history," and he reminded me that, of Earth's 4.5 billion-year history, roughly the last 12,000 years have been the most environmentally stable, and humanity, as we know it, thrived and flourished under that stability. Of course, we had storms, of course we had volcanoes erupting, of course we had floods, but for the most part the environment and the seasons were predictable. That allowed farming, agricultural growth, town growth, and a level of prosperity that humanity had not necessarily seen before. So that got me thinking. If that's true, what happens if we start moving into a new regime, and how will we adapt? We're so accustomed to that stability and predictability that it flows through everything from actuarial science and the pricing of insurance products through to assumptions on long-duration real assets. The generator is going to be there. The airports are going to be there. The assets are not necessarily going to be damaged in ways we haven't priced. For many decades, if not centuries, we've assumed that environmental stability was a freebie, a free get-out-of-jail card. The last 20 years, or even 15 years, has shown that is not necessarily the case. So, while politicians and others debate the science behind environmental science, there are movements afoot. The markets are beginning to take notice. Wouter Klijn 05:22 Yes, Martina, if I can move to you, do you already see a realisation of this entire strategy and potentially more on the operational side of businesses? Martina Linnenluecke 05:35 Yes, I think we are definitely seeing that climate risks are increasingly factored into decision making, and the science is clear. We are going to see very fundamental changes in environmental conditions. We are going to see massive shifts in temperature. We are going to see changes in extreme events, which are going to be very impactful, and in the conversations that we have with leaders in industry, we can definitely see that these risks are already felt. Certainly not across every sector to the same degree or extent, but we do see that some sectors are starting to be very concerned, especially when we look into changes in extreme events and how that affects everything from supply chain, cash flows, asset values, insurability, financing costs and operations, but also strategic viability. So, there's now a real question around where should we invest, how are we investing, and what can we do to protect these investments in the long run. In many sectors, especially those with long-lived assets, these are very difficult considerations, because some asset

    136: Circle the Square – Environmental Risk and the Repricing of Stability

  7. May 13

    135: Funds SA's Con Michalakis – TPA Lite, The Comic Con of Asset Allocation and my Best & Worst Investment

    In this episode of the [i3] Podcast, Conversations with Institutional Investors, we speak with Con Michalakis, Chief Investment Officer of Funds SA, which is a $50 billion investment manager for South Australian public sector superannuation funds and other approved state authorities. Con is well-known in the Australian investment industry, not in the least, for his outspoken views on a variety of investment topics, including gold, crypto and asset allocation, much of which has historically been disseminated through his notorious Twitter or X feed. We trace back to Con's roots as a quant and value investor, and discuss how this continues to shape his current investment philosophy, despite the fact that he calls himself now an ex-quant. We discuss the changes in governance and the implementation of a TPA lite framework at Funds SA, while we also touch upon the turmoil in private credit. Finally, Con admits that he was wrong about innovation and disruption being the most dangerous words in investing, while he stands firm on his dislike for crypto and dynamic asset allocation. Enjoy the show! Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of Podcast with Con Michalakis, CIO of Funds SA 03:00 I'm more of an ex-quant these days 05:00 In my heart, I'm still a value person and a contrarian; I like to invest in areas that are unloved or where capital is scarce 09:30 When I joined Statewide, the GFC hit. It was the worst I'd ever seen and Statewide was in trouble 12:00 By the time we merged with Hostplus, we were one of the top performing funds in the country, but that first six to nine month period was hell 13:30 Covid was short in terms of the market bounce back. What was hard was early access to super 14:30 Governance changes at Funds SA; "There were a lot of meetings here at Funds SA" 16:00 Having a risk management lens and no more siloes is a key part (of the new governance structure) 16:30 You used to have a photo of Trump on your desk to remind you of risk. Do you still have that? "No, I see enough of him!" 18:30 Making changes to the investment committee 21:30 We cut our tracking error budgets for Australian and global shares down by half to almost two-thirds. We've introduced passive, we've introduced quant systematic, and we have an active sleeve. You can't be full one or the other. 23:30 The world has changed: there is faster money, there is pod shops (fund managers that distribute capital across numerous semi-autonomous teams (pods) led by individual PMs) and there is instant reaction 24:00 You have to embrace dispersion across styles and managers 27:00 Implementing "TPA Lite". 27:30 "The idea that you are going to do dynamic tilting, or that you are some sort of macro guru, I call that a Comic Con of Asset Allocation. Everyone dresses up in their favourite character." 30:00 There is a slight survivor bias in the group of TPA proponents that the added value is based on 35:00 You said previously that innovation and disruption are the two most dangerous words in the industry? "I was wrong". 39:00 There was a shoe company in the US that was going bankrupt and pivoted to AI and the stock price went up 5x. Clearly, there is some nonsense going on. 43:00 Crypto; if you want to have it as a digital Ponzi scheme, go for it. 45:00 At Funds SA, we have zero Australian private credit 46:00 Some sort of global small/midcap manager, who has never done private credit in their life, is saying it is going to die. What do they know? 52:30 My worst investment? Probably, single strategy hedge funds. 55:00 Con's Twitter/X presence   Full Transcript of Episode 135 Wouter Klijn  02:56 Con. Welcome to the show.  Con Michalakis  02:57 Good to be here. Thank you for inviting me.  Wouter Klijn  03:00 No worries. So I want to take you back all the way to the beginning to get sort of a sense of your thinking on investments. And I believe you studied mathematical science in Adelaide, then went on to do a Master's in financial economics in London, and ended up at the Oxford Said business school. So there's sort of a combination of, you know, purely mathematical thinking, but also strategic thinking. How has that shaped, sort of, your outlook on investments?  Con Michalakis  03:28 Yeah, sure, so I would say I'm more of an ex quant now. I mean, it's a long time ago since I did option pricing and was a quant So, but still, you know, numbers guy in terms of how I think about it, and to be, to be honest, you know, the younger people that I've worked with, whether it was at Statewide, Hostplus, at Funds SA, to say they're brighter, they're more technical, they're more up to speed, so they've way taken over. So I would, I would call myself ex-quant. I still think in terms of numbers, still, you know, pretty Stemmy. And there's a bias across all three firms that I've worked for for sort of STEM type thinking, you know, science, technology, engineering, maths, the but you can't just all have one I have now believe that you can't just be one grade. I still think you can take stem people and teach them finance. It's hard to take finance people and teach them stem but you need, you need all sorts. And some of the best thinkers are not necessarily the way they think and critical thinking. They're not always just stem types. I've learned to embrace more diversity in that and interesting some of the managers that we've invested in, you know they come from interesting historians. So you got a critical thinking is more important. But, yeah, definitely bit of a buy. As the stem.  Wouter Klijn  05:01 Yeah. So how would you describe your investment style now? Then, because, of course, you mentioned three firms you you worked at Pezna for a while, which is a value shop, a deep value shop. Do you still have some of that thinking as part of your DNA, or are you looking more as sort of a contrarian investor.  Con Michalakis  05:22 I think in my heart, in my heart, I'm still a value person and a contrarian like to invest at the margin in areas that are either unloved or where capital is scarce, because highly likely the risk is that hasn't been priced in, and therefore there's a trade off. But definitely call it the maturity cycle, diversification, the ability to invest long term and make sure you have investments across a broad, strange range of strategies and asset classes, and not being sort of, you know, across the cycle, not having one dominating I think, is very important. I've learned that lesson, and it's a lesson that I know, but in my heart of hearts, if it's contrarian in value, it's probably my kryptonite.  Wouter Klijn  06:19 Yeah. So, so you learned those lessons. Can you give an example of some of the things, some of the trades? Maybe that taught you those lessons?  Con Michalakis  06:28 Yeah, probably bond allocation, fixed income, you know, like, if you look at the Japanese bond market, you know, it was the widow maker, you know, you didn't like it at four. Didn't like it at 3,2,1,or 0, it's come back now. So, you know, maybe the mean reversion took 30 years, but it's coming back. You could just got to be a bit you got to be a bit more smarter than naive mean reversion. Value Investing. There's been a value, statistical value, risk premium over 100 years, but you know, arguably, it's been very chopping. Hasn't worked since the GFC or prior to the GFC. If your portfolio, if you're running a diversified, multi strategy, strategy, multi asset portfolio, and you've let one style dominate your over a cycle, you're going to outperform or underperform because you're too biassed to that at the margin, though, you know, at the margins, I remember you're running a world diversified fund. Occasionally you get thrown these strategies and ideas where either the market has unloved it or there's an opportunity to extract return. That's pretty good. So, you know, we were a bit late to that at state. Well, I definitely noticed. Plus, when we did the sort of insurance link strategies with quota shares, we did that last year here too, at funds SA, and that's that's done really well, you know, in the small and mid cap, you know, where managers can probably do a little bit better. Venture capital, when that was unloved 15 years ago, we were late to that at Statewide, but Hostplus was very good. So you want to, you want to be diversified, but you want to go to early areas and adopt that if you can.  Wouter Klijn  08:11 So looking back on that, what does that mean for portfolio? This, is there still a place for value, or are you more style neutral guy?  Con Michalakis  08:20 There's a place for value and be conscious. If you're going to use a combination of passive, quant, systematic and traditional fundamental, you want to be conscious of what your and how your managers managing that. Some are core. Some identify as value. Some are kind of fighters, quality or growth. You want to be conscious of what you're carrying into that portfolio, except particularly in this incredible market movements that we've had, probably since Covid, for lack of a better word, that you're going to have dispersion. And that gets down to beliefs. Can you ride the cycle. Do you have the ability to, if you have good relationships and you trust your managers to reinvest when there's…, their style or, you know, there's always a style that they've had an issue with a couple of stocks, do you have the backbone to just stay in the game with them and reinvest?  Wouter Klijn  09:18 Yeah, you just mentioned that Covid period. Do you have any sort of lessons from that? Did you change anything in the portfolio to deal with sort of that volatility?  Con Michalakis  09:28 You know, when I joined statewide, it was a GFC, so, so I left Pzena,

    135: Funds SA's Con Michalakis – TPA Lite, The Comic Con of Asset Allocation and my Best & Worst Investment

  8. May 3

    134: JANA's Jo Leaper – Risk as a Source of Alpha

    In this episode of the [i3] Podcast, I'm speaking with Jo Leaper, who is the Head of Operational Consulting at asset consultant JANA. We talk about the next evolution of risk management, where risk doesn't reside just with a dedicated team, but is addressed by all functions, including the investment team. When implemented well this form of holistic risk management is not simply a cost, but can lead to operational efficiencies and even alpha. Afterall, investors need risk to produce returns, but how you manage that risk is the key. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  __________ Overview of Podcast with Jo Leaper, JANA 01:30 Why is operational due diligence important? 06:00 What I'm seeing is investment governance getting more involved and almost acting like a bridge between the investment team and the risk team. 13:30 Hopefully, we will get to a world where risk is not a cost of business, but it is an enabler of outcomes 17:00 New regulation will always cause a little bit of friction and in all honesty it should 19:30 There is already a strong focus on valuations and risk in unlisted assets, but it will get more intense 23:00 We talk about 'risk sensible' a lot; funds still need alpha 23:30 Is there such a thing as operational alpha in risk? Absolutely. 25:30 Managing risk in a $2tn organisation. Employing multiple custodians and services providers Full Transcript of Episode 134 Wouter Klijn Jo, welcome to the podcast. Jo Leaper Thank you for having me. Wouter Klijn So today we're going to talk about operational risk and operational due diligence. Why is that so important?  Jo Leaper  01:36 Operational due diligence, it's always important for investors to know what they're investing in, and if you're not doing operational due diligence, you're not necessarily understanding what that actually understanding what that actually is, because the risk is important to the portfolio. You need the risk to generate alpha. But if you don't know what those risks are, if they're hidden, then that's where you fall into a trap.  Wouter Klijn  01:52 Yeah. So what are some of the main challenges in managing this? Jo Leaper  01:57 Really the complexity and a lot of the investments that clients have, and the market has, are investments that have come up over time, and in those spaces, historically, you had a pretty good idea about what you were investing in. But assets are getting more complex. Structures of operating funds are getting more and more complex, and so none of them can know everything. So really for us, getting them to look at the operational risk is getting them to say, I can work with that, or I can mitigate that, or I can accept it. It's when you don't know what those risks are that the complexities really come into play. And I think particularly if you look at the current world, with geopolitical issues at the moment, even managing some of the structural issues and challenges in the industry, there are unintended consequences to those actions. So understanding what your managers are doing a it's a really good learning place, because they're doing this, and a lot of our clients are starting to invest internally as well. But it's just, it's a good way to say, You know what, that's commensurate with what our members and our beneficiaries are looking for. And we do want risk in the portfolio. We need risk in the portfolio. But if you don't know what it is, that's a problem.  Wouter Klijn  03:02 So yeah, it's right. The world is increasingly becoming more complex. I mean, you mentioned geopolitics, but you know, we also see AI and machine learning and so many different things.   Jo Leaper  03:10 It's a really challenging time from a risk perspective at the moment, because you've got a lot of participants in the market, not just investors, but a lot of market participants with legacy instruments, legacy technology, and the market is moving at a faster pace. The regulator is expecting more. Members are expecting more. And we've got a lot of data, but sometimes, unless you've got the right guardrails around how you're looking at it, how you're using it, are you going to get the right outcomes. It's the right intention. But you know, the end of the day, it's members best financial interests, not ours, not anyone else's, it's the member.  Wouter Klijn  03:44 Yeah. So you took recently a look at CPS 230 operational risk management approach guideline, and you, you sort of indicated that it signified a little bit of a shift in thinking about risk management. Can you? Can you walk us through that  Jo Leaper  04:00 Of course. So APRA has always been Prudential, like that's literally in their name, and they try not to be prescriptive in the way that they do this. When CPS 230 came across the desk, it really was to bring back a larger view of resilience and resiliency. And I think a lot in the industry are still wanting APRA to be a lot more prescriptive. And that's not going to happen. That's not what they do. It's not their nature. And so when you look at it, and you will look at what APRA is trying to achieve, their ultimate goal is really the same as the industry's members, best outcomes. That's what we want. And if you can do that by shoring up the system and the structure, APRA can't enforce particular investment styles, but they can try to make sure that the system has the right controls and the right mechanisms to manage turbulence when it happens.  Wouter Klijn  04:46 So I mean, clarity is always, you know, a key issue around regulations. I was recently at a conference where I think the word clarity and taxonomy were the two most used words, yeah, during the conference. But. But, yeah, in this complex environment, it can, cannot always be, you know, that straightforward. You can't describe it. So, so how sort of do you deal with that? And I think part of the shift in the risk management is also around integrating risk management so that you don't have separate silos with just investment risk or just operational risk. So you're working towards more of a holistic risk. To what degree do you think that investment team should take this on board in terms of the non investment risk? So Not, not, you know, the investments, the business side of things,  Jo Leaper  05:38 I think they have to be part of the conversation. It doesn't matter. And I've always said in public, it doesn't matter what investment strategy you come up with. If you can't implement it, if your operational teams, your custodians, your administrators, can't manage it, there's no alpha there. It's dead money. And so they do have to be part of the conversation. What I'm seeing, and what I'm liking seeing in the market, is this rise of investment governance being more involved and almost being as the bridge between the investment team and, say, the risk team, so that it's a much more holistic conversation members best financial outcomes is always the bottom line. If that's your guiding principle, you're doing well in the industry. But if you had two managers side by side that looked very equal, would you take the one with the lesser risk on I would Yeah. And so I think they really do have to be in there, but it's also about improving the communication and the decision making processes, and that they're part of the broader discussion. So if we go back to your previous question in terms of APRA and what they're looking for, they still want the same goal, same as what the investment teams want, which is members best financial interest. And so I think with CPS 230 and then, as you say, going into the businesses, by looking across the risk spectrum, they're going to end up with an overall better outcome, because the cost to member isn't just the risk in the portfolio or the fees. It's legal, it's admin, it's it, it's audit, all of those costs come in too. And so if you can find a way to structure or manage your investments to ensure that you're looking at those things as well, that's your true cost of investment. So the more you can find, I'm going to say strategic alliances, a synergy, whatever you want to call it, but the more you can get some cohesion there in the decision making and some understanding of each other's process, I think the better it will come together.  Wouter Klijn  07:20 So is it more a degree to a degree about communication, or do you think should it be a new function within the investment team?  Jo Leaper  07:32 A risk function that is one person responsible for line one risk has always been part of it. So I don't think that's any change really. In particular, I think the main change is actually coming through the FAR legislation, the financial accountability regime, because that's designating individuals as being specifically responsible for particular parts. And when you think about it, the board is absolutely responsible at the top, but they have to delegate. The board can't do everything. They can't know everything. The IC can't. The audit and risk committee can't, and each of those C suite executives or others who are designated accountable can't know everything about everyone else's role if they're not communicating, if they're not exchanging knowledge between teams, if they're not talking in advance of an investment, they're letting themselves down. The better ones will have their operational and risk teams separate to investments, but we'll talk to them regularly in terms of we've got this coming up. This is what we're thinking. Is that doable? Is that not doable? What? How long will that take the custodian? What will it cost me? And it becomes part of the process, not an add on at the end.  Wouter Klijn  08:29 Yeah. So do you think that this will change, then structures within organisations? Because I sort of had the

    134: JANA's Jo Leaper – Risk as a Source of Alpha
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