Apr 30, 2020 · 21m · capital-allocators
Tim McCusker – Advising Through a Crisis at NEPC (Capital Allocators, EP.135)
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Tim McCusker, Chief Investment Officer at NEPC, examines how institutional allocators navigate crisis-driven market volatility through updated capital market assumptions, systematic rebalancing, and emerging distressed credit opportunities. He also details the operational evolution of remote due diligence, manager integrity evaluations, and the long-term outlook for institutional consulting.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 28.7% of the talking time here. How this is scored →
Ted as informed peer 4.0 Guest teaching 3.8 Guest disagreement 0.7 Ted pushing back 0.5
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 16:18 Condemnation of well-capitalized managers tapping SBA loans
Tim expresses firm moral disapprobation toward well-capitalized investment managers who access government small business loans, warning that allocators will view it negatively.
Hardest push from Ted ▶ 13:36 Ted presses on limitations of remote manager evaluationTed directly challenges how consultants can genuinely tease out subtle investment team dynamics in a purely virtual due diligence setting.
Biggest teaching moment ▶ 7:25 Tim explains the LDI positive basis mismatch benefitTim breaks down the precise mechanics of how corporate pension clients with LDI structures harvested gains from plummeting Treasury yields due to liability credit-spread dynamics.
Ted holds their own ▶ 15:39 Ted frames crisis lessons around gates and liquidity structuresTed demonstrates deep allocator domain knowledge by linking historical 2008 hedge fund liquidity lockups and gates to the emerging governance scrutiny of the 2020 crisis.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Transitioning to Remote Work and Setting Market Views | 3 | 4 | 1 | 1 | Ted opens with a simple conversational prompt about current work routines and market stance. Tim explains NEPC's capital market assumptions, pointing out the distinct divergence between long-term equity risk premiums and short-term tactical risks. | |
| Client Approaches to Market Volatility and Rebalancing | 4 | 5 | 0 | 0 | Ted asks how different client categories behave during sharp volatility. Tim delivers a comprehensive breakdown of institutional client segments, explaining how healthcare systems prioritized liquidity, public pensions adjusted to remote board meetings, and corporate LDI plans captured positive basis mismatches. | |
| Manager Inquiries, Distressed Debt, and Credit Opportunities | 5 | 4 | 0 | 1 | Ted demonstrates institutional investing familiarity by asking specific questions about manager capital calls, private equity pacing, and denominator effects. Tim details how NEPC advises clients to maintain commitments and look past short-term denominator distortions. | |
| Standardizing Virtual Due Diligence and Video On-Sites | 4 | 3 | 0 | 1 | Ted questions how virtual on-sites can capture subtle organizational dynamics and team body language. Tim explains NEPC's standardized video due diligence framework and enhanced operational checks. | |
| Scrutiny of Investment Managers Accessing SBA Loans | 5 | 4 | 2 | 0 | Ted references lessons from the 2008 financial crisis regarding fund terms and gate provisions. Tim highlights an emerging ethical issue, taking a firm stance against well-capitalized asset managers exploiting SBA/PPP government relief loans. | |
| Anecdotes from Early Office Restrictions and Cold Inquiries | 3 | 3 | 1 | 0 | Ted asks for lighthearted anecdotes and long-term workflow predictions. Tim shares a story about an opportunistic manager trying to exploit early pandemic office restrictions and provides a contrarian take that institutional travel will revert to normal faster than expected. |
Statements from this episode (13)
McCusker: NEPC 10-year assumptions project 6-7% equity returns versus 0.6% Treasuries
“We just went through a full rerunning of all of our assumptions, and we've got equity assumptions in the sixes, the sevens, even higher for emerging markets, and then a treasury assumption at . Six percent right in line with the yield right now. And you run th…”
McCusker: Credit yields are attractive enough to compensate for upcoming defaults
“And that's true for credit as well, where sure, again, just like equities, there could be another leg down, but the yield is pretty attractive and should compensate you fairly well for the default cycle that we're likely to go through.”
McCusker: Markets are more likely to experience a short-term downward snapback
“In the short term, I think it's just Really hard to look at things and say, all right, we're moving forward and markets are going up and we're going to buy more when it feels like the market's gotten a little bit ahead of itself and we're more likely to see a …”
McCusker: Healthcare clients paused rebalancing to prioritize liquidity during COVID-19
“So most of those clients have been Less focused on new opportunities, less focused on even rebalancing, just making sure that they have credit lines in place, that they have access to liquidity if they need it.”
McCusker: Corporate LDI clients saw the most direct benefit from rebalancing
“If they had an LDI allocation, which most of them do, They saw some of the biggest gains from fixed income, and they were probably the earliest to rebalance, because rates fell very quickly, and it was actually a positive basis mismatch for them if they had an…”
McCusker: Asset managers across strategies are exploring the TALF credit opportunity
“Everyone is looking at the TALF opportunity now, so we've got everything from long only liquid Managers talking about that.”
McCusker: 2020 Vintage May Offer Best PE Opportunities in Years
“This could be some of the best opportunities that come along in years for new private market funds.”
McCusker: Solve Denominator Effects Through Multi-Year Repacing, Not Sudden Cuts
“You work your way out of it over time through repacing year over year and not by making a dramatic move in one year.”
McCusker: PE Capital Calls Will Drop by at Least One-Third
“Our expectation is that calls and distribution will both be lower. I think when we analyzed it, calls and distributions were down by a third to half through the global financial crisis, and that's sort of our base case right now that we can expect At least a t…”
McCusker: Due diligence will stall briefly before surging in distressed credit
“I actually think it'll be slow right now, and right now being the next One to three months, call it. And then I think it's going to ramp up like crazy. One, it'll be a little bit of a backlog. And two, what we were talking about earlier, some of those credit o…”
McCusker: Allocators will negatively view well-capitalized managers taking SBA loans
“For a lot of well-established, well-capitalized managers, that's not an appropriate use of that pool of capital, and In some ways, they're taking from small businesses on Main Street that can really deserve it, and I believe that list is going to be made publi…”
McCusker: Business Travel Will Return to Normal Quickly Post-Pandemic
“While some are saying this is a breakthrough, and we're going to be a lot more flexible working from home, I think we're going to go back to normal pretty quickly, and we're going to be road warriors once again. So it's actually, I'm not answering the question…”
McCusker: Video calls reduce informal competitor intelligence gathered during manager meetings
“That may be one of the things that we lose by not having the in-person meetings in the office. I think that can often be part of the conversation at the beginning or end of a manager meeting, kind of the casual chit chat of, hey, what are you hearing from othe…”