[i3] Institutional Investment Podcast

In episode 99 of the [i3] Podcast, we speak with Julian McManus, who is a Portfolio Manager on the Global Alpha Equity Team at Janus Henderson Investors. We spoke about global equities, the role of the Magnificent 7, Japanese equities and hybrid cars. Enjoy the show! Overview of Podcast with Julian McManus, Janus Henderson Investors 02:00 Getting into Japanese equities fresh out of law school 04:00 We still invest in Japan 07:00 Abe’s reforms and book value quant trades 08:00 The Japanese government has woken up to the urgence to create national champions in strategically important industries 09:50 Japan is going to be one of the most important semiconductor manufacturing hubs globally outside of Taiwan 11:00 Toyota and the demand for hybrides 14:00 There is still a notion among some investors that you invest in US stocks and international is where you go on vacation 15:30 Tech companies outside of Magnificent 7, why haven’t they increased alongside? 16:30 Many investors have trouble paying more than 25 times, one year forward earnings for any European stock 19:00 Yes, there is geopolitical risk in TSMC, but TSMC is not living in a vacuum 20:00 We are of the position that China will never be able to invade Taiwan 22:00 Because we have a large position in (defence company) BAE Systems, that allows us to have a large position in TSMC as well. 23:00 We own three of the Magnificent 7 25:00 We believed for a very long time that Apple and Tesla were overvalued and avoided those 28:30 The uncomfortable question about AI is: Are you going to reinvest the productivity gains or let them flow down to the bottom line? 30:00 On the dangers of overdiversification 36:00 Rates are typically something we don’t want to take a bet on 37:00 Defence spending will need to catch up in Europe

In episode 98 of the [i3] Podcast, we are speaking with Will Liang, who is an executive director at MA Financial Group, but is also well-known for his time with Macquarie Group, where he worked for more than a decade, including as Head of Technology for Macquarie Capital Australia and New Zealand. We discuss the application of AI in financial services and wealth management, ChatGPT and how to deal with AI hallucinations. Overview of Podcast with Will Liang 02:30 When I was young I contemplated becoming a professional Go player 05:00 2016 was a life shattering moment for me; Lee Sedol was defeated by AlphaGo 07:00 I think generative AI will be a net positive for society 08:30 The impact of AI on industries will not be equally distributed 15:00 Brainstorming with ChatGPT or Claude 16:00 AI might help us communicate better 19:00 AI hallucinations are actually a fixable problem 22:30 Myths and misconceptions in AI 27:00 Most of the time when ChatGPT doesn’t work is because we are prompting it in the wrong way 28:30 Thinking Fast & Slow; AI is not good at thinking slow 29:00 Losing our jobs to AI? It is important to distinguish between the automation of tasks versus the automation of jobs 35:00 When implementing AI, look at where your data is and try to bring your application closer to the data 39:00 Don’t trust any third party large language model, instead deploy an open source model into your own cloud environment 43:00 You ask ChatGPT 10 times the same question and it will give you nine different answers. That is a problem. 45:00 Deep fake is a real problem 50:00 Future trends: AI agents 53:00 Generative AI will be more of a game changer for private markets than public markets

In this episode of the [i3] Podcast, we speak with Felicity Walsh, Managing Director and Head of Australia & New Zealand for Franklin Templeton about leadership, fostering a great work culture, mentorship and lab coats. Enjoy the show! Overview of Podcast with Felicity Walsh, Franklin Templeton 01:00 Hanging up the chemistry lab coat and safety specs, and joining Watson Wyatt 05:00 Defined benefit post GFC and getting into client acquisition work 07:00 Differences between UK and Australian pension systems 10:00 When I came to Australia there was no depth in the inflation-linked bond market 13:00 Joining K2, not as different from an asset consultant as you might think it was 17:00 Making my own glossary of hedge fund terminology 19:00 In the early days of K2, there was a clear separation from Franklin Templeton. We even had our own fridge 22:00 On leadership style: “I’m very keen on a flat structure, which is not always how fund management firms operate”. 24:00 In a small team, you need to keep the job varied and interesting 29:00 Culture is incredibly important when you work for a global company 33:00 On the importance of keeping distractions away from your team 35:30 There are certain people whose counsel I seek from time to time, but they are not people who I initially thought were going to be mentors 40:00 Removing the distinction between retail and institutional teams 44:00 Focusing on community this year 46:00 Integrating the acquisition of Putnam investments

In episode 96 of the [i3] Podcast, we speak with Maria Elena Drew, Director of Research – Responsible Investing, at T. Rowe Price about the challenges and opportunities of transforming investments into net zero portfolios. How does it affect your objectives and engagement with companies? Enjoy the show! Overview of Podcast with Maria Elena Drew, T. Rowe Price 01:00 When I was at school, I didn’t think this was a career path that was out there. At university I studied economics and geology. 04:00 As a young analyst I covered Enron and they had a very bullying approach to investors 06:00 I realised ESG was not about telling you what you can and can’t invest in, but to use information on governance and environment to get better investment ideas 07:00 I started to ask at least one ESG-related question in company meetings and without fail the answer was helpful to me 10:45 The ability to determine whether there is alpha generation from ESG is really difficult 15:00 What is your true net zero objective? Do you want to have no exposure to high emitting companies? Or do you want to help companies with their transition to net zero? Those are two very different portfolios 19:00 Track progress along the way: setting net zero status targets 20:45 We think the net zero status is a smart way of going about it, because it is forward-looking 23:30 If your objective is really just greenhouse gas emissions, then you really just incentives your manager to do sector selection 28:00 Divestment ultimately sits with the client direction 29:00 An exclusion list makes more sense for passive investors, than for active investors 31:00 If you don’t have a decarbonisation [plan], then you are making a very strong bet that all of this regulation is not going to come through 33:00 What if institutional investors leave it up to companies to sort this out? What risks do they face? 36:00 Do you allow companies to rely on carbon credits/offsets to achieve their net zero target? 40:30 Pushing companies to go too fast can be counterproductive Maria Elena Drew also spoke at the [i3] Equities Forum 2024 in the Yarra Valley, Victoria, on 20 February 2024

John Bowman is President of the Chartered Alternative Investment Analyst (CAIA) Association. In this episode we look back at the growth of the alternative investment industry, in particular private equity, discuss ESG and take a look at the upcoming paper on the total portfolio approach Overview of podcast with John Bowman, CAIA 02:00 I got involved in international equity investing through a few Boston wealth managers at SSGA. 6:45 I’m integrated by the power of capital allocation to solve some of the world’s problems 08:00 At the CFA Institute, I often found myself on the same stage as the CAIA executives 10:00 The term ‘alternatives’ is a term that CAIA wants to make extinct 16:00 On the growth of alternatives: We’ve got this ecosystem now where companies can stay private for longer or even permanently now, that investors can take advantage of 17:00 The first generation of private equity relied a lot on leverage, but that is not the case anymore. Investors won’t stand for financial engineering 23:00 Public governance models in the US tend to be pretty hands on…, even meddling if I might say 24:00 CAIA papers: 'Portfolio of the Future', 2022 (https://caia.org/portfolio-for-the-future) and 'The Next Decade of Alternative Investments', 2020 (https://caia.org/next-decade) 24:30 Most practitioners under 40, who analysis investments, have only operated in an environment where there was zero cost of capital, non-existent inflation and double digit capital market returns. But this environment was not normal 26:30 The best kept secret in investing 29:00 Knowledge management and operational alpha 32:30 AI is likely to be the next supercycle, but… 37:00 I don’t think we can outsource our fiduciary responsibilities to the machine just yet 40:00 Do we need to disentangle ESG and look closer at the underlying factors and how they affect clients, because you can’t average out ESG factors? 42:00 Upcoming paper on the total portfolio approach with input from CPPIB, Future Fund, GIC and New Zealand Super 46:00 Launch on 19 March 47:00 TPA changes the role of portfolio managers

Andrew Fisher is the Head of Investment Strategy at the Australian Retirement Trust (ART), a $260 billion pension fund in Australia. In this episode of the [i3] Podcast, we reflected on the merger with QSuper and the implications the larger scale of the fund has on the investment strategy. Enjoy the show! Overview of Podcast with Andrew Fisher, 2024 01:00 Merging two funds with different investment philosophies 04:00 YFYS performance had already started to impact QSuper’s investment management’s style 06:00 QSuper’s capital markets capabilities is top notch 08:30 You can look at the two funds and say how different they are, but you can also say how complementary they are 13:00 Ever considered using a reference portfolio? 14:30 I’m not sure whether a merger like this really ever is finalised 17:00 Any learning from the QSuper merger that you can apply in future mergers? 19:00 We consistently get surprised by our growth. We are essentially doubling every five years 23:00 You would expect traditional private market assets and infrastructure to have the best pass through of inflation costs, but it was actually the alternative private markets assets that turned out most resilient 25:00 Office and Retail Real Estate 30:00 The one thing people don’t speak enough about is how resilient equities have been during this whole inflationary period 32:30 I don’t think the job is done, but I think central banks have done a really good job 34:00 What we are trying to do with our decarbonisation strategy is to mitigate the risk from the trend towards low carbon without taking too much investment risk

In episode 93 of the [i3] Podcast, we speak with Michael Bonte-Friedheim, the Founding Partner and Group CEO of NextEnergy Capital, a firm that specialises in investing in solar energy plants. We talk about the role of subsidies, the growth of the sector and the fact that ESG in solar isn't just about renewable energy Overview of Podcast with Michael Bonte-Friedheim 01:00 The genesis of NextEnergy Capital 04:00 Solar is our choice of technology 05:00 The technology of solar hasn’t changed a lot, but the efficiency and the cost of components has changed dramatically. So much so that in most countries, solar energy does not require subsidies 10:00 What makes one solar plant more attractive from an investment perspective than another? 12:00 ESG issues in solar: integration of solar plant in landscape and community 16:00 On floating solar plants: water evaporation and birds 20:00 The impact of the Inflation Reduction Act 21:00 Solar in China 23:30 More and more institutional investors are breaking down what is in that infrastructure and real asset bucket 28:00 Solar Plus 30:00 Solar is expected to double in size over the next few years 31:00 Biodiversity – what happens to soil if you leave it alone for 40 years? 35:30 The NextEnergy Foundation receives five per cent of our group’s profits

Mike Comparato is Managing Director and Head of Real Estate at Benefit Street Partners, a credit-focused alternative asset management firm owned by Franklin Templeton. In this episode, we cover Mike's views on the turmoil that the commercial real estate market is facing and the impending debt maturity wall that could set off a hurricane. Overview of Podcast with Benefit Street Partners’ Mike Comparato 01:00 Our family has been in the real estate sector since 1946 04:00 There is a storm out there [in the CRE sector] and there is no question of its severity. It is just a question of when it is going to hit 05:00 Commercial real estate is a very credit and debt intensive asset class 05:30 The ‘debt maturity wall’ and its market impact 06:30 People are just not lending to hold liquidity 08:30 If you just waited in the past 40 years, thing just got better 09:45 “There is a lot of damage that is coming” 14:00 We are making equity-like returns in credit products. It is not often that you get to say that. 14:30 Multi-family real estate credit 16:30 The regional banks were the top credit providers for construction loans in the US 17:00 The banking space is in a much worse place than people think it is. It is very simple: if banks aren’t lending, then that means things are bad at the bank 19:30 The COVID-19 pandemic changed the demand for office forever. We are talking about a change that might not be recoverable 21:30 No one is making loans on office buildings right now. 23:00 Who knows how many young professional jobs, such as paralegals, will be replaced by AI 25:30 The data centre space is something that we have always avoided, because I’m always scared that we are going to wake up and someone has discovered a new technology that makes data centres completely obsolete. Whenever you have something in real estate that has a very specific use, it is very scary if it doesn’t have some kind of alternative use. 27:00 The retail apocalypse never happened. But why? 32:00 The number I would have to put on writing a loan for an office building would be so high that it basically means the asset is worthless

This year we celebrate 20 years of New Zealand Super. We speak to the fund's CEO, Matt Whineray, about the evolution of the fund throughout the years, do a deep dive into its strategic tilting program and cover responsible investing, AI and much more. Enjoy the show! Overview of Podcast with Matt Whineray, CEO of NZ Super on 20 years of the fund 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

In this episode of the [i3] Podcast, we speak with Jay Sivapalan, Head of Australian Fixed Income at Janus Henderson about the company's 2023 Australian Insurance Report, a survey of insurance companies and their plans for their investment portfolios. The survey found that no less than 9 out of every 10 insurers plan to change their strategic asset allocation! Overview of podcast with Jay Sivapalan: 01:00 Discussing the 2023 Australian Insurance Report by Janus Henderson Investors 04:00 Every 9 out of 10 insurers are revisiting their SAA 05:00 Top three concerns for insurers 05:50 Changes in the portfolios, especially life insurers look to add risk in the portfolio 09:00 Health insurers are now moving on to the LAGIC framework 10:00 Many insurers look to allocate more to unlisted infrastructure 13:00 Life insurers were most concerned about a recession. Why is that? 15:00 On tail risk hedging 18:00 Marrying investment objectives with regulatory requirements 22:00 Liability conscious investing 24:00 Insurers sometimes have to be counter cyclical investors 26:00 The different types of insurers look differently at ESG issues 30:00 The survey found that 74 per cent of insurers were planning to implement artificial intelligence. That seems high?