The Exchanges

Q there have been a couple of things that have changed. So you are now the CEO, not the CIO. And there are two pieces that I've seen you put together that sort of was the impetus for this, the fifteen-year letter of the history of the fund, and then last year's piece on the death of portfolio construction. Maybe we should start with, how do you feel about being CEO?

A Yeah, what an interesting question, and what an interesting time, and a lot has changed in the world. I think COVID was a real catalyst for a lot of things, and it just so happened that right in the middle of, I changed jobs and became the CEO. It wasn't something I was really looking to do. I was happy being the chief investment officer, and I was quite passionate about that. But what happened was that the role was vacant, and there was a market crisis. From a future fund perspective, we were turning 15. I had a lot of ideas about things I thought we needed to do to pivot, to double down on. I started talking to the board about that, and eventually someone on the board said, why don't you go for the job? And I thought, oh, that's an interesting idea. I hadn't thought about that. So I thought, what could go wrong? So I did. And here I am.

AI assessment note: “It wasn't something I was really looking to do. I was happy being the chief investment officer”

Q And have you done enough of it to be able to measure whether it's been value added relative to just giving that same manager more money?

A Sure. I guess the other part of it is you do get quite a good insight into the manager and their process, so it does help us re-underwrite the manager if that's what we're intending to do. We've done probably 20 or 30 co-investments in private equity over the years, so it's not an enormous number, but it's enough to have a view. We also co-invest in the venture portfolio, and we've done about 40 there as well, and so I would say that, broadly speaking, the performance is in line. It's a little bit younger portfolio, and so we don't really have the same data yet that we do in the, in the fund book, but certainly we don't think there's an ad selection happening.

AI assessment note: “broadly speaking, the performance is in line”

Q Why don't we start with how someone comes to be the chief investment officer of a sovereign wealth fund?

A Sure. Well, it's an interesting journey in my case. It certainly wasn't something I planned from early in my career. I actually started by studying civil engineering and economics and started life as a civil structural engineer, spent some time in the UK with a consulting firm and ended up designing oil platforms of all things. And then came back to Australia and decided that the future career in engineering while it was there for me was probably not stimulating enough compared to what I was interested in. And because I'd done economics and a bit of finance, and at that time in the early nineties, Australia was just starting down a path of privatizing infrastructure assets and working out how to procure Government services jointly with the private sector. I became quite interested in, I guess, what we might call private infrastructure.

AI assessment note: “Well, it's an interesting journey in my case. It certainly wasn't something I planned”

Q And what are the metrics that you think about when you try to determine whether it's a good environment to take risk or not?

A Well, the first thing to make clear is we certainly don't believe that we can time markets. It's not a, not an exercise in market timing. It's not a short term strategy. We've got plenty of macro hedge funds that do that on our behalf, and we don't think we can do it better than them. But we do think if you Draw a line today and look forward. It's possible to predict, for example, what is the implied equity risk premia? Because we can have a view on long-term growth, on corporate margins. We can sort of work out what we think the earnings are going to be. We can take the long bond rate or some forecast beyond that and say, disaggregate that and say, what is the implied equity risk premia? And that's actually a pretty good predictor of future returns over 10 years so. And so, In terms of the expected return drivers, that's probably the main one, but obviously there's things like term premier and other things in other asset classes that come into it. And then in terms of risk, I would say it's quite a qualitative process. So we debate the issues of the day, but today we're quite focused on the, uh, the healthy economy in the US. However, that probably indicates a return to the normal business cycle. And that means that as interest rates rise slowly, eventually that will start to impact on what is still a reasonably indebted economy and slow economic activity, and usually markets …

AI assessment note: “what is the implied equity risk premia? Because we can have a view on long-term growth”

Q And have you done enough of it to be able to measure whether it's been value added relative to just giving that same manager more money?

A Sure. I guess the other part of it is you do get quite a good insight into the manager and their process, so it does help us re-underwrite the manager if that's what we're intending to do. We've done probably 20 or 30 co-investments in private equity over the years, so it's not an enormous number, but it's enough to have a view. We also co-invest in the venture portfolio, and we've done about 40 there as well, and so I would say that, broadly speaking, the performance is in line. It's a little bit younger portfolio, and so we don't really have the same data yet that we do in the, in the fund book, but certainly we don't think there's an ad selection happening.

AI assessment note: “enough to have a view... broadly speaking, the performance is in line”

Q Yeah. So what is that view on China?

A Well, it's probably one of the oldest civilizations in the world, so we've got a lot to learn from them just in that respect. It's an enormous country with an enormous population, and it rightly deserves to be the biggest economy in the world, and it no doubt will be before too long. And the Chinese government, whether you, whatever you think of the political structure and regime in China has done a really amazing job in improving the life of the average Chinese person in the last two generations. So that we've had this huge and one off tailwind to investment markets and global economies, but from the creation of the middle class in China and the very aspirational, the very, very clever. The policy makers are very clever and they have a plan. And so one of the things I'm most excited about actually in the world at the moment is the opportunities that the creation of that middle class consumption generation and an investing population. There's a huge internal domestic investment markets, and they haven't really been opened up to the world yet, but they will be. The currency has become tradable and will become more tradable over time. And so someone who's interested in the longterm really needs to be aware of that and learning about it and thinking about what is their strategy.

AI assessment note: “it rightly deserves to be the biggest economy in the world, and it no doubt will be”

Q What have you learned post-COVID as you're able to travel around and meet other people in similar senior leadership roles?

A Everyone has the same sort of issues. I think they change a little bit depending on your stakeholders, most importantly, and your governance models, but mostly everyone has the same issues. And so I find that speaking to my peers is the best way to learn because some of their organizations have been around a lot longer than ours. And they've confronted most of those issues before. Fortunately or otherwise, when you're an asset owner, most people you speak to either work for you, and so it's always hard to know if they're really telling you what they think, or want a mandate off you. And so usually they agree with you wholeheartedly. I'm always very skeptical about that. So peers are the best way to learn. No organization's exactly the same, but there's great things that you can learn from others and adopt for yourself.

AI assessment note: “Everyone has the same sort of issues.”