Richard Tomlinson on Strategy, Risk & Performance | Allocator | Ep.31

Summary

• Investment Strategy: Richard Tomlinson discusses the importance of a long-term, liability-aware investment strategy, emphasizing a portfolio that resembles an endowment style with a focus on real assets and equities.
• Market Outlook: Tomlinson suggests that the next decade will likely feature higher inflation and interest rates, geopolitical tensions, and thicker asset return spreads, necessitating a broad and thoughtfully managed portfolio of risk assets.
• Private Markets: He highlights the growing importance of private markets and the blurring lines between public and private investments, suggesting that tokenization and other innovations could disrupt traditional financial intermediation.
• Risk Management: The conversation emphasizes the need for a balanced approach to risk, including the use of diversifiers like macro and CTA strategies to manage volatility and liquidity in the portfolio.
• ESG Considerations: Tomlinson frames ESG within the context of stewardship and real-world outcomes, focusing on financially material impacts rather than political posturing.
• Manager Selection: The importance of integrity, credibility, and alignment with stakeholder goals is stressed in the selection of both internal and external managers, with flexibility in criteria based on the specific needs of the portfolio.
• Structural Trends: Tomlinson identifies the growth of global asset owners and the integration of private and public markets as key structural trends, alongside the potential for significant changes in financial system efficiency due to technological advancements.

Transcript

[Music] There's a lot of change coming there. There's a lot of inefficiency in the financial um intermediation or the way that the plumbing of the system and I'm not smart enough to know exactly how it plays out but to see that you know whether it's stable coins or tokenization of assets. I think that's coming and I think that that could lead to you know certain businesses more precisely just disappearing just suddenly that their reason to exist just goes because if you can directly own assets via a token well that might change things. Imagine spending an hour with the world's greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged. The place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level. Before we begin today's conversation, remember to keep two things in mind. All the discussion we will have about investment performance is about the past and past performance does not guarantee or even infer anything about future performance. Also understand that there's a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their product before you make investment decisions. Here's your host, veteran hedge fund manager Neils Krup Larson. Welcome or welcome back to another conversation in our series of episodes that focuses on markets and investing from a global macro perspective. This is a series that I not only find incredibly interesting as well as intellectually challenging, but also very important given where we are in the global economy and the geopolitical cycle. We want to dig deep into the minds of some of the most prominent experts to help us better understand what this new global macrodriven world may look like. We want to explore their perspectives on a host of game-changing issues and hopefully dig out nuances in their work through meaningful conversations. Please enjoy today's episode hosted by Alan Dunn. Thanks for that introduction, Neils. Today I'm delighted to be joined by Richard Tomlinson. Richard is chief investment officer of Local Pensions Partnerships Investments in the UK. He leads an investment team responsible for about 27 billion pounds of assets. Uh has been in the industry uh for many years across the hedge fund side, multiasset side and consulting side before joining LPPI. Richard, uh great to have you on today. How are you doing? >> I'm very good. Thanks. Thanks for having me, Alan. >> Um good stuff. Well, um we like to um hear a bit about people's background u straight away, you know, just just to kind of suppose set the scene. Um I know you studied engineering before before getting into markets. How did that come about? >> Yeah, I think I think partly it's a time based thing as well. I left university around the turn of the century. So back 25 years ago and at that point in time engineering wasn't such an appealing place to to work. Very very different now. People with engineering skills they similar. Uh and I almost to be frank fell into working for a small hedge fund touch manager. um a personal friend said, "Here's an interesting job. We're going to have a look at it." I spoke to the recruitment person and the rest, as they say, is history. >> Good stuff. And so, you've been on kind of the hedge fund side, the multiasset side, consulting. Um any I mean, you've worked at some some some well-known names, GI Fund Management, Auburn, um Old Mutual, and I mean through anything stand out or I mean, what's kind of been the the progression for you? Yeah, I think if I if I if I look back and there obviously have to take a little pinch that we'll rewrite history with a with the future with our what the views and what we know today, but there was a little bit of a of evolution through how the industry evolved. So I think I said earlier almost by accident ended up working in at GNI where someone put me in contact with a recruitment person. I took the role and that was good. And at that point then it became clear the how interesting what was going on within that call it managed accounts, hedge funds, liquid markets type uh of activity and and I learned a huge amount and that then essentially evolved. I grew into um working for old mutual asset managers because they were both owned by the same parent company. And through that then I learned an awful lot about how to build and manage portfolios, how to interact with clients, how to think about portfolio construction. And that was that was hugely helpful working mutual uh back then over that era which would have been 2004 to 2007 was a broad multiasset business and I was relatively young relative to my peers. Huge number of mentors to people to learn from and hugely helpful experience. So that was that was really great. And then in you know how about I put it delicately the world changed in 2007208 um and I left left all mutual um to to think about other things because you they restructured the business frankly. I did my own thing for a year or two and did some work um advising on managed accounts as independent consultant and if I'm really honest I did a little bit of what you might call independent trading which I think I'd probably say was the most I learned the most in a year in my career during that window I think I've learned in any other >> year or three year windowing I thought I had the bright idea of running my own little book starting in May 2008 and I was bearishly positioned so I made some money um and then I gave it all back when markets turned earned in early in the following year and that that I look at that experience and I took I've taken you took a lot of scar tissue but also things I think about now when it's your own money and you're highly levered as your whole net worth it it bring it brings a clarity of thought and experience so I I learned a lot then >> um at that point then I thought oh this is quite a difficult way to live and pay the bills >> um and I and I moved back into a different role and at that point uh it was clear that the world had changed um you know this whole funding industry was quite different 2009 2010 and I didn't particularly fancy to try and step back into that kind of work. So I I took the view to go to move um in I joined Aubornne partners which was you know again somewhat fortuitous. I I spoke to the key people there and they they very helpfully very fortunately but I'm very grateful for they hired me. Um I worked there for until 2017 and that was a hugely beneficial learning experience a hugely rich environment. So you know again I didn't at the time I joined I didn't realize what a great opportunity it was I don't think but looking back the opportunity to work with some of the world's smartest biggest most global you know institutional investors and asset owners was phenomenal and then work in an environment where loads of smart people high integrity people who tried were genuinely trying to do the right things for the right reasons and then and serve your clients and understand you know to to deal with some of the challenges let's just say that that the industry faced or has faced and to to really you know a hugely rich learning environment. >> Interesting. Yeah. And then obviously since then I think 2017 joined LPPI. So I mean I guess people in UK are probably very familiar with that model. Maybe everywhere else is less so. I know it's kind of based on on the kind of the Canadian model but how would you describe what LPPI are doing and and maybe how you differ from some of your peers? >> Yeah. So if you go back that around about 2015, the then chancellor George Osborne um took had a policy or a view that he wanted to see they the government then conservative government wanted to see um to make some changes to how the local government pension scheme was run and they proposed the idea of pooling and they started the journey that we're on. So the idea was they wanted to aggregate assets and I think you know if you look at what they were saying early on they I think there was certainly an element of looking at Canada and seeing what had worked there and they had a you know they had a handful of goals at that point in time which was invest more in domestic infrastructure reduce fees and costs improve governance or evolve governance let's say and build scale so you can you could see how that was was going and then the the business I worked for LPPI was formed actually at around the same time but not necessarily very purely driven by that um pooling agenda where two funds uh Lanasher County Pension Fund and LPFA came together integrated their investment teams because they felt that that the model that was being described was a better way to manage their assets and you know LPPI has evolved significantly since those early days and I joined in uh I joined in 2017 the business was founded in 2016 um so yeah the you know if I think about what the LPPI is trying to achieve it's to bring bring scale benefits and and essentially look internationally for best practice for what good looks like as the optimal way or what we see as the optimal way to run a large portfolio of assets on behalf of underlying partner pension funds and and drive benefits that align absolutely with those stakeholder goals. So that at its very highest level means creating a call it a platform or an aggregator that is that is very focused on at the highest level yeah paying pensions as they fall due affordably and efficiently. >> Yeah. >> So if you frame it amongst that it's then look at the liability profile design a group to do that and so everything flows back from that. But it is you as I say there is an awful lot of commonality between what we're doing and what the the Cana the Canadian model let's say in inverted commas what that means. >> Yeah obviously it's clear there are those benefits of scale in terms of I guess extracting kind of cost efficiencies and fee efficiencies etc. I mean but you didn't mention you know working in Auburn and having that access engagement with high highly sophisticated international organizations. I mean, is bringing a a greater degree of sophistication to the investment process also, you know, part of what you're the I suppose what you're trying to do and part of the pitch to doing it that way as opposed to leaving it to to smaller local um local local governments. >> Yeah. And there there is definitely an element of us trying to what we would say as I say it's I'm always slightly cautious when you say sophisticated because sometimes our industry is a habit of building sophistication that doesn't always serve the stakeholders or the clients or whoever you you want to but ultimately it's looking at what is the optimal way to do that and there's a great I think it's from Keith I'll get I can get his name right Keith Ansbach here the the guy that writes extensively the on the Canadian system the founder of CM and I forget he quotes his his view on like They need to be complex enough but not overly complex or or it's something like that. I got that slightly wrong but it's it's that idea. I think I think it's from it's an Einstein derivative actually quote but it's that idea. It's getting it you've got to be sophisticated enough to do the job properly. But you absolutely don't want to build in sophistication for the sake of sophistication because that then creates complexity that can create additional risks that you might not want. But ultimately it's designing a um a platform, team, process, business, whatever word you want to use that is able to execute um portfolios in the optimal way for align with client goals. But in more practical terms that means building a very solid, you know, investment due diligence, operational due diligence process, a portfolio construction process, risk oversight, governance. you know, building these things in in a way and managing them in a way that we believe aligns with accepted industry best practice. So, we're not trying to reinvent the wheel. >> We're not trying to be super smart. We're just saying well, you know, like many areas, you do a little meta survey. You think this is what we're trying to achieve. These are different ways of doing it. This is what we think good looks like. This is the optimal way of doing it. And how do we implement that in a costefficient controlled way? So, >> yeah. So, obviously, it's pingion money. It's long-term investing. I guess the the underlying clients are local authorities and the benefits are are their employees. Is that fair to say? >> The partner funds we work with who also own us are local government pension schemes. So So I think that in you know forget what the US would call they call them um municipal schemes. I guess they would probably call them state pension schemes would be the equivalent I think in the US. The beneficiaries of those schemes are the members themselves. But then you get you get quite a bit of debate over who actually because the specific structure of the way the LGPS operates >> the the contribution from the members are fixed by parliament >> okay by statute essentially by by the ministry >> the central government and it's the employers who have the essentially the financial risk that hold the performance count if that makes sense. So contributions from members are fixed contributions from employers can flex. So it's the the key risk constraint and the thing you're optimizing for is actually managing the contribution level. So the goal I think in the say in the in the regs we'll talk about um stable contributions, affordable contributions. I forget the exact wording now. Um but it's essentially you're managing that contribution affordability for for the employers. Um so if we do a great job, contributions go down and it's more affordable. If you do if you don't do a good job, they go up. And that then has direct line of sight through to local authority budgets. So, you know, people I I have I've been known to say that if you do a good job, that means you can improve services or less cuts to services or whichever way you want to view it. >> Yes. >> Um so there there is real purpose and mission there. >> Yeah. Very good. Um and then obviously I mean from from um that feeds into how you think about I guess portfolio construction and the investment philosophy. Um I mean it's it's I guess it's it's a long-term mindset. Would you describe it in diamond style or what would you describe the uh investment approach and the investment style or or philosophy? >> Yeah, absolutely. It's so it's absolutely long-term. I would describe it as liability aware. Um I think people get in the pensions world get very hung up on is it LDI liability matched etc etc. I and I often will say to people if I look at the UK corporate defined pensions pension the framing of that I totally get why people do did LDI and do LDI and all that matching piece because you have a very precise definition of liabilities but within the LGPS the liability and the discounting there's it's much more open-ended let's say much more open to interpretation so you don't have this direct very precise matching of liabilities therefore you have more scope therefore you have more ability to run a liability aware um long-term approach which then means thinking looking almost like over the horizon and being much more strategic about it. So the way I'd think about it is you have it's it's you I love my job. It's a great job. You have a a very open-ended and actually quite complex thorny um set of goals to meet which is building and if I had to really summarize it, you got to build capital invest to build capital for the long term to pay pensions of the future whilst managing liquidity and cash flow to pay pensions of today. And the portfolio we believe certainly is LPPI that we think is optimal looks a lot more like an endowment style portfolio in base to max. If you think what I've just described that sounds a lot more like an endowment management than a very heavily hedged UK star DB corporate pension scheme. >> Yeah. Yeah. So obviously let's just say uh the portfolio is drawing down to pay benefits at the moment. Um so what kind of percentage of the of the portfolio is kind of drawn down every year? >> Yeah. So the and if you went back 10 years, the majority of LGPS schemes were cash flow positive. So i.e. contributions were greater than the outgoings in any given month or quarter. Now it's it's increasingly rolling over as the schemes mature. But at the moment, as I say off the top of my head, I haven't quite got the numbers to hand, but it's it's low single digit percentages in terms of cash funding needs, but that will accelerate through time on average. So there is a need for increasing cash funding as the schemes mature. >> Yeah. Um and and the way you're set up, you basically manage distinct pools in different asset classes and the underlying uh partner um pensions can can choose the or you can work with them to set the asset allocation. Isn't that right? >> Yeah, that that's exactly right. So the we the model we use which is a little different to some of the other pools uh we provide advice >> to our partner funds and say this is what we suggest asset allocation is but they own that decision and give it back to us essentially. to say and for example they might say we want 45% in listed equities. >> Yeah. >> 10% in credit or whatever it will be. We then have investment broad investment what we call investment pooling vehicles which then you can invest to meet those to meet the asset allocation. However, the the structure we're using is we we've always run with a what you might call a we call it uh whole portfolio management a whole scheme management so I should say where we take the whole portfolio and manage that on a fiduciary basis. So we are managing all the the cash flows. So we do have some assets in pooling vehicles and then we'll have some which we would say we would call you know balance sheet assets which are directly from the schemes balance sheet which may be legacy or it may be something that's not uh common to our other partner funds. So maybe a bespoke investment directly for them such as a local investments relief. So it that's how the portfolio comes together but we manage all of that for them take do the heavy lifting of implementation. >> So in that sense you're probably like an OCIO. Is that fair to fair comparison to draw? >> Yeah, it's um it is. So um I I had a funny I had this debate a few earlier this week with one of the the very large bold bracket banks in the US banks who I won't name but they they have to do some head scratching to define a little while back what OCIO meant because different people um means different things to different people. I would define the activity one take as an OCIO and by that what I specifically mean is you I'm using the definition that now seems to been evolved by the CFA institute and others which is you can provide advice to an underlying asset owner on the strategic asset allocation they give you the asset allocation you implement the portfolio and you report back to them but they still own the SAA decision which is a little different to the fiduciary management language that we use in the UK where that means you just get given some goals meet this liability profile so that's that's the definition I would use and I so I to describe us as no CIO in that context >> and obviously um as you say you you advise the underlying schemes or or partner groups and it's up to them to to set the strategic asset allocation. I mean are is it quite similar across the different groups you work with or notable differences? >> It's broadly similar. They're not all the same. They are there are differences. So we have we have two two of our partner funds have um funding levels below 100%. and we have one who's a little bit lower let's say. So they they have slightly different dynamics in terms of how they are um the sort of risk appetite let's say. So our our process would be to start with risk appetite frame that and then put that into an ALM model. And when you and so the two that have sort of let's say higher funding level have more similar asset allocations. The one that's slightly lower has a slightly different but broadly you've got to get quite granular to start seeing the differences to be honest with you. Those are the big levers. They are they are all, you know, in the 45 50 60% type equity risk levels or allocation. Sorry. >> Yeah. And Okay, that's interesting. So, if they're long-term investors, but they're not 100% equities. I mean, how do you think about what's the right allocation? How much equities, how not, what else goes into the mix? >> Yeah. So, something we've we've done a lot of work on over the years and actually we've published we published a paper on this, our smile paper. Okay. Let's say six months ago. And we we've got something else quite similar coming out soon. Uh talking about the the role of um illquids and alternative assets in a broad pension portfolio. You know, is it a feature, is it a bug, is it volatility laundering, is it not type thing. So, and I think we put that in we're trying to put that in context and have that broader conversation around that. So, in broader terms, you know, if you're a long-term investor, you need and you are you care about long-term affordability, you need to be running risk to to get the right trade-off because with any any process, there's the uh what's the word? The trade-off, let's say, between shity or security of returns and uh affordability or quantum of return. And that's exactly the same for us. So, it's all very well saying drisk because you're above a certain funding level. And if you do that, you're then putting more of the workload in the future onto contributions. So you're asking from future generations to pay. Whereas we would probably argue you want to run the capital you've got appropriately, not over be overly risky, but try and find that sweet spot where you can hit a, you know, call it an efficient portfolio where you're managing future contributions, but you're also sweating the capital you've got today. And in our mind, that means a portfolio that really again goes back to looks more like an endowment portfolio. healthy healthy risk of equity uh risk in there to to because you know that's a whole different conversation as to why equities might return more than risk-f free over the long run and what the risks are of that. Uh but balance that off then with a range of other assets but fundamentally a relatively low stroke low weight to traditional fixed income um in and duration direct duration. So to to put some meat on those bones, what I'd say is what we'd have, we've got something like 20% circa real assets, maybe actually near 25 in some cases, a reasonable slice of credit, but it'll be shorter duration and a slice and a decent chunk of that will be private credit. Um we have we do have some exposure to hedge funds at times. Um so but it has been a smaller part of what we do. There's a bit of private a small amount of private equity in there. Um but think in the 5% range, I think that's everything, isn't it? um that and within the real assets of real estate and infrastructure >> and obviously it's long-term so you're not too hung up on markets this year next six months etc. But when we're at a point in time like we are at the moment where you know a lot of people will say well valuations are on the higher side for equities and you know if you look at the studies and everybody sees you know uh you know current valuations versus uh historically what it's been realized in terms of 10ear returns etc. It's somewhat sobering I guess. Um so how much do you worry about you know a loss decade for equities or you know a prolonged period of of a subdued real returns in equities? >> Yeah and that was something you definitely think about but there's also the question of if you don't own equities and other thing and sort of call it risky in inverted assets what do you own? >> Yeah. So I think there's it's it's I think betting the farm on what equities will do in the next decade and trying to put a number on it. I'd be very retent on that. And what I often say in this conversation is I said I don't know if equities will beat fixed income over the next decade. Not just now said, but what I do know I think is if you build a have a sensible investment principles and you invest and you manage the portfolio appropriately, a portfolio of risky assets with positive carry and spread on it is likely to outperform running less risk in the medium term. And I think and and the here and now the thing I worry about is that interaction of valuations are quite high but that could be for a reason. If I look forward, do I think inflation is likely to print at 2% or maybe more like three or maybe even a bit more in the next decade? I think I'm going to go for that latter view. I think about deficits. I think about what the reaction function of fiscal and monetary authorities and I think about the geopolitics. All that stuff. It doesn't make me want to own a lot of sovereign bonds or similar. So you go back to what do you own? And then I think you know if we're going to segue potentially slightly into a you know the more volatile risky environment where you probably want to be a bit more tactical and so there are there is clearly risk to the equity thesis you have to own more but I'm I'm deeply unconvinced you just want to own a big pile of and what's the word I want passive fixed income. Yes, sure. And obviously that's it is approach a lot of people in the private sector obviously private pension scenes have gone down the LDI uh route and you know in many cases were encouraged to do so. Um I mean obviously you you don't have that constraint uh and you're you're trying to manage a different way but it does sound like that that macro uh conditions are part of your thinking. You know it's not that this is constructed in isolation from what's going on in the world. I mean, it's it sounds like you're a believer that we're into an environment of structurally higher inflation. Um, I mean, is that um I mean, the the points on this, I suppose, have been well talked about uh higher government spending, etc. I mean, what's your particular lens on that that's going to likely drive it? >> Yeah, absolutely. So, and and within the way we frame things is like we don't we don't try and be too cute on short-term macro calls. Um there's there's there are a couple of people on earth who have got edge on that but I'm not one of them and nor is our team. We don't try. Um however in the in the long term I think there are some things you can think about and look to and especially where our long horizon is investment and you know how do I put this? You know we can warehouse volatility. We don't have to be deeply hedged. We can we can run risk. So when I look through that and I think I think what what is likely to happen the different scenarios that are likely to happen in the next decade and you got to think what would you need to believe to think that we're going to have low inflation long-term interest rates are back to 2% um everyone starts playing nice the peace dividend goes back to being a dividend not a tax whatever you want to call it >> you've got to make quite a lot of assumptions some of them are herculean so I think balance of probability um you know for example I often say this if I'm going to own I've got no issue with owning duration But I'd rather own second order duration rather than direct duration. So I'd rather own second order duration through owning um real assets because there's an implied discount rate in there. >> Okay. >> So because then you got some some asset backing and you got something real and I think inflation is you know I got on a slight segue I've been thinking about quite a lot but you think everyone in the UK I can't comment on I'm not so everyone in the UK is upset with house prices. You see these charts going like this and they say has prices have gone up loads and but then you go but that doesn't that analysis doesn't make any sense to me. You got to disagregate land value from what's on the land cost of construction. >> Yeah. >> And now you start looking at cost of construction of an average house in the UK. It's not that similar to the average price of a house in the UK. >> So you can start thinking through that that has changed a lot in the last 5 years and the value of the land is a long duration asset ultra long duration asset may be the ultimate long duration asset. Huge disc impact on interest rates. Your cost of building bricks and mortar is absolutely linked to inflation and the cost of doing it. So again, when I think about the next decade, is it going to be cheaper to build a house in a decade or so or a building or a shed than it is today? Find that hard to believe. Really hard with the demographics. So that's kind of underlying the thesis. It's that >> looking over the horizon, what's likely to maximize our probability of paying pensions as they fall due over the next decade or two. And I think it's a you know something with a real asset style portfolio and that's including high quality equities and things that are defensible cash flows all that sort of stuff. >> Yeah. >> So yeah as you say it kind of leads you towards more of a risk growth oriented portfolio. Um obviously the composition of that is still up for for discussion. I mean you touched on private equity um at 5% I think you said which is not not extraordinarily high relative to some of the numbers you hear particularly in the US. So, how do you think about that debate? Public versus p private. Is there an illquidity premium or not? Or what's the attraction or or the uh unattraction of of private equity in that sense? >> Yeah, it's interesting. So, I I'll go straight off with something that sometimes gets me in trouble as a statement, but I absolutely reject this idea of illquidity premium and then yours get paid for it. It's it's a really neat marketing thing. If I was selling a credit private credit fund, I'd be using it all the time. But what does it really mean? So in my mind, if you be a bit more sophisticated, you step back, people say liquidity premium. Most people know that that what does that really mean? You know, the academics would break it down into a whole series of things. But to a practitioner, you'd probably say, well, there's some complexity premier in there. There's some kind of sourcing premier. It's a whole series of other things. And that can be positive and negative. So I would say I would absolutely agree there is a spread between public and private. It's time varying. It can be positive and negative. I absolutely kick back on the idea that you had say five 10 years ago where pension funds were saying the narrative we're underfunded therefore we've got to invest heavily in private markets and private equity I would reject that absolutely I've got no issue with owning a lot of private equity but don't just do it because you think it's going to be a return kicker because it might not be and in private markets in general I would say there are really good reasons to own a portfolio of private markets that may not be a good return it may just be you want pure play exposure >> to certain things there's certain things we we want pure play exposure to for whatever reason um you can only do it in the private markets and a and a really obvious example >> is um local investing. Local investing is very important to both our partner funds and government as well, central government is pushing the future in that direction. It's stated well if you want to invest if you're a pension fund in the west country or wherever you want to invest in something you're probably not going to be able to do that via listed markets. So there are lots of reasons to think about private markets but I I the idea that it's just about excess return is is one that I think is flawed and dangerous frankly. >> Yeah. And then on the public side obviously you know historically I guess you had kind of home country bias for for in lots of cases and I get the impression that's changing. Um but it been I suppose a UK doiciled um um plan and you have to think about currency risk etc. and if you benchmark yourself versus the global index, you end up picking up a lot of US exposure. So, how do you think about all of those factors? >> Yeah, that's a well that's a really interesting one and a pertinent one at this point in time. Um, so we've certainly as part of the broader government, you know, call it policy backdrop, we've certainly thought long hard about how much we have in the UK as is everybody else because government is has made some very clear policy signals and are implementing that. So, we have top it's going to be the 20 25% of our portfolio in the UK. Um, something like that. the bulk of it in the private markets. Um, and the challenge from a if you talk about it from a political point of view or from people looking at the thing, people will say UK pension funds have very little in the UK. We're double benchmark weight in equities in the UK, but it's still only 6% because the benchmarks got three. So, the it's all about that lens. But I think the more the really interesting one is the um a how domestic assets help you meet your long-term liabilities because our liabilities are linked to UK CPI inflation. So there's some good reasons why owning a degree some UK assets >> can help you meet that longdated liability because there's either direct linkage or indirect linkage to CPI. Two, you've got the currency transmission channel back to inflation. Um, you know, weak sterling tends to drive inflation. So there's a little bit of a currency hedge. You'll own some overseas assets to your real liabilities long term. So I think there's an element of that. But then obviously the question is you do end up with and we have international benchmarks. We have a reasonable exposure to the dollar and that has been a little bit painful this year you know as as is well known for people. We do run um we do offer our clients advice on FX. So we do offer a range of options so our clients sorry partner funds make the choice on uh how they want to approach FX. So we can do different versions for them and some of them do um do some degree of hedging and we also hedge in the investment vehicles for nominal assets. So I'm not sure I've quite answered the question but as a that gives you an indication we do but we do have a degree reasonable degree of overseas um non- sterling non- hedged exposure. >> Yeah. And then in terms of the kind of security selection and we should say some of the um trading and uh investing is done inhouse and some is done externally. Is on the equity side is that more in-house? >> Yeah it's about half and half. So of our cl our clients have or sorry our partner funds have around >> 45 50% of their portfolios in global equities and around half of that equity piece is managed in house >> and the other half is uh with external managers so to to complement or to build on the internal piece and I think the way we've approached this is again if I go back to what we're trying to achieve if I think about the goals compound it's quality compounding really when you think about paying pensions long term you want to compound quality in inverted commerce over time. So, i.e. build, you know, build have a strong capital position with contained risk as much as you can. Um, risk is obviously unknowable, but you try and you try your best to do that. >> Yeah. >> And in our view, the way you've got different ways of investing in equities, but part of that is owning that quality approach, quality to reasonable price, whatever you want to call it. So, that's the backbone of what we do. >> And it's that then maps very neatly against those longdated liabilities. Um, internal strategy focused on, as I say, a sort of buffet style quality compounding. And then there's some there's a handful of external managers. One or two have also got that quality type of approach to it. And one or two are a little bit more um do something a little bit different let's say. >> Yeah. So that's um it's it's very much driven by that factor lens if you want to call it factor or style lens as opposed to being more benchmark uh driven. >> Absolutely. >> Um so presum that that leads to a slightly different orientation in terms of exposures to to the to the Mag 7. some of which I guess are quality but some maybe not at a reasonable price. Um do you tend to be quite different from the from say the Msei world would you say? Yeah, we do. I think and I think if I'm honest, it's been a being a being being an asset owner who's got active equities managed has been quite difficult the last few years. I know we're not alone. We are behind MSR world in uh global equities. I think many others are as well in our position and that is you know if you start thinking about that factor lens you just most people didn't own enough in Nvidia. Um so Nvidia went up a lot and it was a very heavy weight in the thing in the index. Yeah, time will tell how that plays out. Who knows? The AI has been a huge thematic in listed markets and generally much much more than just Nvidia. Uh so we have been underweight that factor um which thus far has been has you know had performance implications let's say. [Music] Obviously, you know, going back in your career, you have started off on the hedge fund side and so you are very familiar with hedge funds, multiasset, all of that stuff, active strategies. Um, and you mentioned you have had that in some of the portfolios over time. I mean, you obviously can still see a place for those uh strategies in in a long-term portfolio. Um, >> yeah, I can actually. Um, and I think it goes back to this this sounds like portfolio construction 101, but it's what role you're looking for looking for. And you I keep going back to it sounds I've done this for a very long time and I still find myself going remind myself to say is this an equity type substitution product or is this something because I don't want to own bonds in the more balanced part of the portfolio. And I think that depending on and and you know I' my view would be hedge funds is people use this generic term. It's a nonsense. Yeah. to use the the nicking this from my old employer all it hedge fun is a business model not an asset grouping so it's what what is that and I and I actually I take this one step further I go you start looking at what the big multifunds are today >> I I was still in you know I was born in the mid '70s but so I don't I I wouldn't have seen what Goldman sort of those banks were and Solomons in the 70s but I can imagine they probably didn't look that dissimilar to the way the large multifunds operate today which is just a slightly different version of a set of pool of capital and then you start linking that back to um what is the purpose of that trading strategy or activity and then you got to think about what the costs are running it and what is the who's wearing what uh rewards and the reason I say that is because people get quite heads up sometimes about fees on hedge funds so you know I mentioned the big multifunds they look horrendously expensive I'm not saying anything I shouldn't say there but then you got to think about what activity is driving that outcome the yeah >> the stream of returns and how does that work and the same for each other strategy so I think there is a role for these things it's just a case of putting them is this an equity substitute. It's a fixed income substitute. What role do I want it to play? And what's it and is the fee structure and the split of economics fair between the capital provider and the the manager and sometimes it hasn't been in the past. Let's be honest. Uh but that's not to say it can't be in the future. And I think there's a much more mature conversation on that now >> than there may have been in the past. So, >> and what about I mean some strategies obviously are generally um I suppose considered for their diversification uh benefits. So if we talk about things like global macro or CTAs, you know, they have that had that propensity or ability to deliver performance in um major down years like 2008 or 2022 etc. But at the same time they're you know they're not they're not necessarily fixed income and equally fixed income can sometimes be down with equity. So I mean it it it things can defy you know be very much being jammed into these kind of either growth or defense buckets and then depending on what level of volatility a strategy is running out it can be could be a revenue or sort of a return generator or return driver as well. Um you know as you say it's important to simplify things as much as possible but not too much. Uh how do how do you kind of balance that simplification where there are these uh complications? >> Yeah it's interesting. So one maybe this is I'm sure you probably have this debate where you you you you take a CTA trends portfolio people will throw the words around it's long vault VIX spikes correlations jump and it goes down and they go you failed and it's like well didn't quite mean so I'm really careful now and I I'd be like I'm defining long volatility as generalized economic or market volatility and over a time frame and see so what I'm getting is you got the complexity of how a trend follower works what time horizon what contracts their trading all of that sort of thing because the but the idea of a macro or a CTA strategy something that can be genuinely short generalized risk in inverted consy things with my um that is is incredibly powerful in the portfolio because you do get times where any risk asset gets hammered liquidity gets washed out and everything's going down and you've probably only got one or two things you own that might just be able to stand up you know cash might be one of them um or potentially macros CTA then not to get completely caught in the oh it's gone down for the first three days because you know I get trying to get keep it as simple without getting too technical you get the big correlation spike you get the big um vol spike everything blows up everything correlates when everything goes down but then when that unwinds and in the coming days and weeks suddenly you get a reversion and that is when you find that you can actually that's when that decorrelation piece can really help. So it's being quite precise on how you talk and frame things. So, as I say, I think personally there is a it's all very well said we're going to be 100% risked on and we're not going to worry about some things to hold up the portfolio when everything goes out the window. And then there's if you want to get to the next level, which I think is really fascinating is then thinking on the liquidity side is having things in the portfolio that provide you cash and liquidity when everything else is getting hammered. Because there are times when, you know, take a simple example, you can say we've got liquidity in global equities. Yeah, sure. But you really going to want to start liquidating global equities when they're down 40%. Now you don't want to use a CTA as a cash machine obviously, but finding things of ways you can structure bits of the portfolio that might give you an automatic payout. Either that's a derivative position or similar, but finding ways that you can manage that liquidity because it's not just market, it's also cash is a really um interesting piece of work to do, let's say. >> Yeah. So it sounds like some of the clients have used kind of diversifiers like that at some point, but not everybody. I mean, if if if it was down to you or if you had a blank canvas, what do you have a kind of asset allocation model? How how much would you prescribe to allocate to alternatives or is that too much of a loaded question? >> No, it's fine. I'll happily Yeah, as I said, I don't own the SAA for our for our partner funds. They tell us. Um, however, if you know, I I'll use the obvious get out that you've got to go back to goals about what someone's trying to build. But let's if we start on the assumption that you're running an endowment type portfolio where you got you want to manage risk but you're not um you don't have to be crazy short-term or have some kind of VA limit. You can look over the horizon but you want to be thoughtful how you do that. I would probably argue that you you know there there is an you're going to want to have a reasonably hefty chunk of equity risk. So what can you do do around to diversify some of that? I think there's then a thoughtful degree of thinking about real assets and duration and then you move into the stuff that is genuinely different and that might be insurance link strategies which some people may or may not put into the the hedge fund bucket. You've got the sort of more market neutrally type equity strategies, fixed income strategies, which I think have a place, but just be aware of the volume and correlate or VIX and correlations sensitivities short-term on those, but fine. And then you move into stuff that I think you can genuinely put your hand on your heart and say you can really make money when everything else is going down. And that is predominantly macro, CTA, GTAa type stuff. And I I think I would probably in in there's there's many versions of the world I'd rather be invested in that than sovereign fixed income at times. It's looking forward, you know, are you going to put 50% of your portfolio in it? No. But one or 2% doesn't really matter and doesn't move a needle. So, you know, if you're thinking in my mind, you'd probably be thinking somewhere in the region of 5%, maybe up to 10. But then that's then back to a question of scaling risk. um you know if it's a 30 volt CTA you might position you might size your position a bit lower than if it's a 5vt CTA. So >> yeah no exactly um I mean that's that's the important point that that's often lost in the in the debate. It's it's at what level of volatility. Um and um I mean in terms of kind of portfolio construction obviously you've kind of mapped out an asset allocation. How are you thinking about kind of risk and portfolio construction? Do you translate this into okay this will map into a portfolio that runs at about 12 or 13 VA and that means it'll might have a draw down of 25 30% over time or do you or do you have a kind of a different framework for for thinking about risk? Yeah. No, we we certainly think about that. We're not uh the way I said to just a little bit more detail. So our primary constraint is the trial valuation in terms of risk framing. So we every 3 years we have our partner funds will talk to actuary who will then look at the portfolio and define what contribution levels that will set. So then you're thinking we got to build an SA run a portfolio that means that works and makes pensions affordable in the long run and has sufficient liquidity. So it's quite a complex process. But in terms of that, absolutely. You know, I I would probably in some ways in my mind I'll just look at it relatively simplistically. But if you're thinking if you're 100% equities, you could you could cut you you could be down 50% in a in a not very long period. Let's say a quarter or two quarters. That's that's plausible. So obviously that would be very very very challenging for a DB pension fund such as ourselves for so many reasons. So you're going to come back from that level. Then you're going to try and say what at what level of you know if we're talking volume or draw down does it feel more reasonable? You're probably going to try and bring that down as you not to crazy levels but you know volatility levels of 8% 10% are manageable. You know if you're running at the fours and the fives you're not running enough risk probably to to meet the liabilities long run and if you're running in the 2025s you're you're going to blow yourself up. Um, as a as a slight curious aside, which is one thing I observed, I spent an early part of my career when I was at GNI uh building models to look at structured products and running specifically CPPIs and things like that. And when I started looking at the maths of the defined benefit pension schemes, uh, it's quite similar the stochastic framework, but it's also this what a trader on a a structure would call gap risk. Uh, a defined benches fund defined benefit pension fund. it's your funding level, the gap between your assets and liabilities, which in a CPPI or similar is your bond floor. So therefore, that defines how much risk you can run before you you hit the knockout. So it's interesting you can you and it's very much like running 11 CTAs. It's exactly the same idea. So you you can you can draw those parallels. So then you start thinking in that way, but there is a um oh god, going back to the stuff I looked at many years ago, you got this inverse relationship between expected return and leverage. So at some point the leverage gets too high and your risk of blowout goes through the roof and you blow yourself up. If it's too low you're not running sufficient risk to defer the costs. >> What about I mean obviously uh you know inflation protection is a key part of it and you obviously have a healthy allocation to real assets and you know in theory he gets that via the equities as well. What about commodities uh you know not just precious metals which are obviously toxil at the moment but more generally you know managers giving traded liquid exposure to commodities. Is that something you you consider? I think what we try and think is what risk factor it builds and you people a lot own commodity because of the inflation participation and I think if you start breaking down the inflation conversation I talk about you got to think what sort of inflation you can you can own something that supposedly correlates inflation and you get a b inflation that gives you zero benefit benefit because it's the wrong sort of inflation i.e. supply side versus demand side, monetarism versus, you know, um cost driven type inflation. And you look at history and people will tell you that um owning oil is good because that tended to lead. But that was like when you had an economy that where in oil was a huge part of the inflation basket and drove inflation. The world's changed. So you got to be quite mindful of that. But the idea of owning things that are participating in inflation for the long run is is helpful. Owning oil has been more challenging at times people because of some of potentially climate and ESG type considerations. The way I would think about it though is I have to say is goes back to trend following or some form of active management of commodity exposure. So if you do get a breakout in the commodity complex something that can then start um giving you con convexity into that and that again would bring you back to some form of trend some form of CTA type exposure. Um, I'd probably rather go down that route than learning oil or any of these commodities directly. >> Yeah, fair enough. And I mean, is that something I mean, you touched on ESG. Are is that a big focus or do you do you tailor that depending on on the underlying client? >> So, the way I'd frame ESG is one of those things where it's a word that it's quite difficult to talk about at times because now set words that it's got politicized rightly or wrongly. It was maybe it was always maybe it was always politicized. Who knows? I think you have to start breaking out the ESG first of all and actually I would well first of all there's two two points key points I make. One I I would I normally talk in terms of stewardship in real world outcomes not ESG and two even if if you're going to drop into ESG talk about them as an E and S and a G. So on the first point um I think your job as any fiduciary or owner of an asset is you got to be a good steward of it. You know you wouldn't buy a house and then kick holes in it and then think you're going to sell it for more if you've knocked around all the walls or something. Yeah. You're going to be a good steward of it. You repair it. you maintain it. You're trying to maintain financial value um from the assets. So I think a lot of it comes back to that stewardship on the real world outcomes. Everyone wants to see better outcomes in the real world, but that might mean affordable housing for for the less well-off sections of the community or whatever. I I don't think that's particularly ESG. I think that's just being especially for a quasi sovereign group, you're thinking about the world that we live in. It's that type thing. So it's to me it's about to do a and I think in terms of ESG, it's got it's got a challenge. that certainly the way we've always looked at it, we've defined it as financially material materiality. So where you think about these things is where they have a financially material impact on the investment portfolio. So it's risk management. It's not really it's not it's not about political posturing or or woke or anything like that. It's about if if if there is a financially material impact on our investment, then we care. And then you break down the ES and the G. The G is about governance. Well, you speak to any hedge fun manager say in the equity world, they're going to they're going to care about the governance of the business they invest in, right? One way or the other, they're going to say, I want to be able to remove the chief executive if they're not doing a good job. I want my governance rights. So, that's the governance piece that's always been there. The S, I think, links to the real world outcomes. It's about that social fabric of, you know, it's probably going to be value damaging for your business if you pollute a rip um sorry, you know, demolish a load of houses in lo local backyard and put something there that people don't want. You got to be mindful of that interaction that that political piece. The bit that's more difficult obviously is the E cuz that's then dealing with the externalities and who pays and that's what so that's the bit where I think we're having the debate. Um and I that that's a political question. My I view my job I'm an implement. I'm an instrument of implementation not a politician. So >> I'll do what my political masters tell me basically on that one. >> Yeah. Yeah. Fair enough. Um just going back to the kind of the hedge fund side and you did touch on kind of multistrats high fees etc. But I mean I guess the the proposition from the multistrats and and and the larger ones have definitely been able to deliver it. kind of high singledigit returns fairly consistently and you know some years maybe a bit better but but I mean it's more around that consistency obviously by blending many strategies they're able to boost the sharp ratio and achieve that kind of high single digit with with low draw downs etc. I mean nothing to say that they will always be able to do that and that's the bit the big question but from your perspective does that not look attractive um or is it just the fees means it's an it's a nogo uh as a conversation. >> So you know every time you think you look back at the history and you think surely at some point the big multis must fall over and and the returns must stop and yet they keep going. So I think you'd have to be somewhat either idealistic or naive to say the return stream doesn't look very appealing. Okay. The challenge for people like us is is the cost. So you know it's the fees are very very high on optically when you look through and say how much you're paying on capital when you look at the activity that's taking place going back to why you're running a business comment. Well, is it silly? Because there's, you know, I jokingly say about equities, you know, you you're going to be in that low latency HFT space, you need to spend hundreds of millions of dollars a year on tech and trading firepower. So, that's not free. So, I I put it in that context that there are challenges around the multimodel. I absolut and and I and I I would, you know, I would frame exactly like you. I'd say look, you know, what's your source of value? It's the ab it's the running your own hedge funds is difficult. You can people can join and make a very good living. Let's just say that's putting it politely. Um in these things a lot of the pain of running a business gets taken away. Yes, they run very high leverage. They counter that with very aggressive risk management and all this other stuff and they have strong relationships and they and they've made the pools of capital are running less liquid. So and they have significant market footprint which gives them an edge. So you add all that up, you can see why that might make money in the long run. Um so but this for for us it's fe fees is the big one really for us. >> Yes. >> And maybe moving more broadly in terms of uh manager selection obviously you mentioned some strategies internal strategies external and I guess you know you you got anything you're running internally you got to be comfortable that you have the in expertise you got that the infrastructure is suitable for the strategy. any other consideration that would help determine what goes in house versus external. >> I think the big one for me is at the the top level it's got to serve stakeholders. It's got to have it place in the portfolio. It's got to be to the benefit of our stakeholders. That means you partner funds, client capital, that type of thing because you know someone gives you unlimited funds, you can probably do anything. But why why would you? So I would always come back to what's the investment case? How does it benefit stakeholders? And then does it is it coherent? And I'm a I'd probably just go back to a little bit, you know, my my degree. I studied Michael Porter and five forces and that sort of management consulting type approach. I would take a I tend to take a very simple make versus buy, you know, back to the production engineering type stuff of doing things in house. So you you would only make something in house if there's really strong strategic reasons for doing so and it's within your risk appetite and you can do it appropriately. being blunt that you know certain pay rates for certain people just don't fit within what our risk appetite what we can do because they're just a the amount of incentivization that's needed to get the best people we just can't do that and in the risk appetite of the organization so and then most important just as importantly actually I'll say it very openly that there are certain strategies where you can pay a third party a very very very competitive fee to suck up a lot of the operational risk that you would have to wear yourself and you're never going to do as well as How is that serving your stakeholders by trying to do that in house? >> And and then other considerations when it goes to external managers. Obviously, you've been on the hedge fund side. You know, you've you've been deep in the weeds on on manager selection so you know all of the ups and downs and the behavioral biases etc. So how do you think about you know starting with the top of the funnel narrowing it down to managers you actually allocate to? >> Yeah. So so top level it's rolling portfolio. what do we want to find is there you know starting with the need portfolio need and how that fits together you then move into you know we don't I don't you know just to be clear I don't think we're doing anything particularly revolutionary um stating the obvious that you're looking for you know edge you're looking for um credibility the the principles having good you know call it 5 whatever you want to call it but it's the the team process um credible platform um you know when the performance for me is one where people get hung up on performance to me whenever I look at a track record could be good or bad. It's it's always there. How is it driven? And then the way I would look at it is I've frame what the manager tells you, frames what they say they're doing. And then you look for evidence that that is true. Reasons to believe in the track record. So if they tell you they're you know they're running a certain positioning with regard to volatility or whatever and you see that it just doesn't correlate with when they make or lose money. Um that's what that to me is where the numbers come in. And then obviously you try you do your bit better and risk assets but for me it's fundamentally portfolio fit credibility edge um and then risk profile >> and I mean in terms of kind of edge credibility team you know obviously they're all qualitative factors. Is there anything that stands out? I mean is there a label you put it or or a thing you like to see in terms of the focus or you know some people don't like big firms asset gatherers. are now focused on Alpha, you know, some like smaller firms, anything like that? >> Yeah, really interesting question. So, from from you know, and being being candid, I'm slightly further away from the manage selection piece now. My deputy dev to Jada um is is much more in the weeds on this than I am now, but the to my mind because we're running multiasset portfolios. We have different um portfolio sleeves, let's say. You have a slightly different feel in different areas of the portfolio. So, we've been really careful not to have blunt um rules like say minimum three track record, minimum AUM. We're very flexible on that. But there there'll be different parts of the portfolio where you prioritize different things. So as an example, if you're looking for someone to run multiasset credit, you're probably going to lean more towards a global platform because it's about breadth of opportunity set and depth and that institutional platform. And there are elements of, you know, as a large allocator, we need people to be able to take the volume of capital we've got. But there are other areas where we can and and will work with much smaller management groups who have a very different OD risk profile, let's say. So again, the OD we take it in context. We got we have a very detailed process very senior mature team on that side and we can take a view on that to say well we can we can accept risk accept that because that's coherent with the manager the one for me personally that I would hold dear is integrity so it's a really important one the business you know integrity of the principles integrity of the business that if we perceive there is lack of integrity that is genuine then that's a big that is a big issue um because you know ultimately public public funds are So we will hold people to a high bar when and as a in my mind if if we sense there's improprietary we are aggressive we're very aggressive on that. Um >> um in terms of the governance and evaluation of LPPI I mean obviously it's not an easy task to assess if you guys are doing a good job or not. I mean um and I'm sure there are plenty of people tasked with with with examining that but I mean what do you think is the right way to evaluate uh the success of of an organization like yours? >> Yeah, it's really interesting. So I think I said at the start when George Osborne and the Den government put in place pooling they set out these four goals. We've we smashed through them frankly we we we we delivered them. I think we've had two million of cost savings since inception. Uh performance has been good. We've done sign we've built an infrastructure manager frankly a direct infrastructure manager with in with in partnership with um Greater Manchester and some of the northern pool. So we've done we we've done very well on that but there's there's more to it than that and what we found is evaluating performance just just like hedge funds actually you compare two equity long short managers the higher returning one could have done a bad job and the lower returning one could have done a great job because it's all about you know the strategy what they told you and our context is very similar to that. So where we've got to if I'm honest is we're we're we're very close to agreeing what we've called a balance scorecard with our partner funds and cloud which looks across multiple dimensions. So break break scorecard into four quadrants essentially. So again you know an idea that's not similar to production manufacturing or engineering that sort of idea. Um I guess right performance risk um sort of non-financial factors and sort of contribution-y type stuff. So if you think about what matters if you if you look back in 10 years time you wanted to have it that scorecard if it's in if if all those things are green you think yeah we've done a great job and that so it's not just relative return it's relative and absolute return it it's the cost of the pension the funding the income oh there's there's many dimensions so short answer to bring it together balance scorecard key KPIs and then report on that on a quarterly basis um on that basis we're looking we're looking good >> it interesting the balance scorecard idea when you say tends right but then I guess investors invariably put 80 90% of the weight on performance you know which rightly or wrongly but it is funny how we kind of default to that where it does make sense to kind of think in that kind of balanced scorecard >> well is is it not if I invert that that statement a little bit if I think about you um you know I'm sure you many times like me have run a Marovich style optimization and you crash straight into corner problems if we were building a hedge fund portfolio 20 years ago it would say put let's get my date right maybe 20 odd years ago yeah 2005 put all your money in convers completely missing the fact that at that point I think 75% of the world's converts were owned by a handful of the converts managers the risk profile was there but you were just selling the left selling the tail just get right around yeah selling sign the left tail so that is what I'm getting at so we could I'm sure we could find ways to and want that pure performance dimension there's all cost for example know as I've jokingly you know there's different ways you can do this so you have to think holistically and and how it meets the mandate because it's multi-dimensional. um conscious of time. We're coming up to the hour and we do like to get a bit of perspective from our guests before we finish off about um maybe advice to people both from a career perspective, investment perspective and also like when you've done a bunch of different things uh consulting, hedge funds, multiasset which probably has yielded benefit, but I mean um what have what's been influential or helpful in terms of things you've done or things you've read or people you've worked with and anything that's been hugely helpful for you? Well, I think the thing I' the advice I give people, I speak to youngish people at Gleon University. What I what I'd say is that it's this idea of the wind at your back and it's in both the investment portfolio and your career. So don't try and push water up hills of a cliche you could use. So when you're thinking about what your next steps are, make sure it's a growing industry or growing space in the industry. So if you're in that space, you can be a lower performer and still do well um as opposed to being amazing and still not be able to get a job and struggling. So and thinking about your career dynamically and pivoting through that. So it's that and then in the you know on obviously the parallel in the investment portfolio is if you've got the structural growth you can make mistakes on the way or in the right strategy you can make mistakes and you still do okay. Um so it's that that type of idea. The other thing I'd talk about is just you know hold keep integrity and that type of thing that it can be really tough at times in your career to to do the tough thing in the short term that is painful and hard but if you fold and people people find out people see it and then it can be very painful to fix it later down the month you know it's the idea of a reputation takes a lifetime to build and heartbeat to lose that type of thinking >> I got this question from somebody recently uh in kind of career context you know If you were to identify the structural themes and trends that are likely to continue if people were trying to position with a wind on their back is it you you might have said private markets but then there's extent of well is that gone too far but I mean if you were to identify two or three what would you say? So I've got one clear bet on which is the um growth in importance of global asset owners sort of global asset own asset managers that that was the view I took for when I joined LPPI in 2017 it's worked I think that trend is still in place that you're seeing more larger pools of sovereign capital growing and being run you know as we talked at the very start of the podcast in a more structured way with using industry accepted best practice all that type of thing. So I I see that continuing. I think private markets will continue. But I think the more important piece is the blurring line between private and public and the hybrid securities and the breakdown that what was traditionally public and private I think is being blown apart and the holding structures and that sort of bleed maybe slightly into tokenization crypto. There's a lot of change coming there. there's a lot of inefficiency in the financial um intermediation or in the way that the plumbing of the system and I'm not smart enough to know exactly how it plays out but to see that you know whether it's stable coins or tokenization of assets I think that's coming and I think there that could lead to you know certain businesses more precisely just disappearing just suddenly their the reason to exist just goes because if you can directly own assets via a token well that might change things so I I'm not expert on that but I can see there's a lot happening there and what would the third one Um, I think it would be strap on seat belts for, you know, I wouldn't be betting on the next 10 years looking like the last 10 or 15. I think, you know, if I'm going to put it into context, I think rates will be higher, inflation will be higher, geopolitical tension will be higher, asset returns, spreads will be thicker. You need to be compensated for that risk. The risks have been wrong. I think to be materially higher and you know to to nick the black rockck idea that we are potentially in this unanim world where, you know, I don't think inflation's going to nice nice around 2%. I think central banks have got a game on to try and hit that and I think you know if I had to put one word in it fiscal dominance type thinking I think so be very aware of risk and be mindful but to counter that what I'd say as well owning a broad risk a broad ass broad portfolio of risk assets that you manage thoughtfully and be sensible with I think will outperform in the long run as well. So don't be scared and run to you know Bitcoin or whatever wholly just >> could just be a rocky ride. Yeah, just might be a bit bumpy. >> Very good. Well, very much appreciate you coming on today, Richard. It's been great. We've covered a lot of ground. So, very much appreciate it. So, for our listeners can obviously follow uh the growth of LPPPI and and your work over time. Uh but from from us here at Top Traders Unplugged, thanks for uh tuning in and we will be back again soon with more content. >> Thanks so much for having me on. >> Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you. And to ensure our show continues to grow, please leave us an honest rating and review in iTunes. It only takes a minute and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged. [Music]