The Exchanges

Q And how do you do the due diligence to figure that out?

A Well, it's quite analytical. So in most cases, we would like a manager with some track record, and we would like to understand the underlying performance data at the asset by asset level. So we would We take the use of debt out, because usually just using more debt gives their LPs more risk and more upside for the manager, but with a lot of downside risk, and we take the market timing out by doing something called a public market equivalent analysis, which is really just saying, if we take the cash flows that go in and out of this private equity account and put them in the equivalent equity market index with the same timing, what would the return have been, and then compare those two things.

AI assessment note: “we take the market timing out by doing something called a public market equivalent analysis”

Q And how do you do the due diligence to figure that out?

A Well, it's quite analytical. So in most cases we would like a manager with some track record and we would like to understand the underlying performance data at the asset by asset level. So we would deliver the returns, would take the use of debt out because usually just using more debt gives the LPs more risk and more upside for the manager. But with a lot of downside risk, and we take the market timing out by doing something called a public market equivalent analysis, which is really just saying, if we take the cash flows that go in and out of this private equity account and put them in the equivalent equity market index with the same timing, what would the return have been? And then compare those two things.

AI assessment note: “understand the underlying performance data at the asset by asset level”

Q And so today you had mentioned what sounded like a, let's say a cautious macro view. How are you thinking about the flexible positioning of the portfolio?

A Well, we've built a lot more process, um, in the 10 years since then, which is both good, but also we need to be careful not to let that lock us into a position that isn't the best position. So we run a couple of tests. We suffer like Many Australians from a very volatile currency, and so it also tends to be correlated with risk, or more particularly risk-off scenarios, so that as someone with a large global portfolio, we have to worry about liquidity in those type of scenarios quite a lot. So the first thing we do is run a sort of a crash test or liquidity test every night through the portfolio, where we expect a currency fall and a equity market fall to be correlated and make sure we can survive that. And that test is somewhat worse than the financial crisis overnight. So we've been somewhat cautious appropriately around that test. The second thing though, is if we have not, not quite so severe an event, but something close to it, we, we actually want to be able to buy cheap assets and the option value of flexibility is not something that traditional portfolio theory really takes into account. And so that's why you see us sitting with sort of a bit over 15% in cash. And why we manage a liquid asset pool carefully, because while you would hope you get an illiquidity premium from those assets, it also means your portfolio isn't as flexible as it might be in those sort of scenar…

AI assessment note: “that's why you see us sitting with sort of a bit over 15% in cash”

Q Yeah. All right. Let's, let's move on a little bit to private equity. And now, so it's now it's the opposite. Now we have a real problem of, of scale and access to high quality. How have you approached that investment area?

A So you're right. And I think that we approach everything in the same way. The question is, what can this asset class do for the portfolio as a whole? Under what scenarios will it pay off? Under what scenarios will it be penalized? How does that compare to some combination of equities and cash or equities and bonds? And so why are we doing it? So again, we don't set out to buy a diversified portfolio of private equity. I guess the typical portfolio construction would be 60 or 70% buyout, for example, and then a bit of growth and maybe a small amount of venture. Our portfolio has no large buyout at all, because we think that, well, that makes the capacity so much harder, by the way, but we think that large buyout is really just levered equities, typically. And if there's skill added on top, and there might be, then most of that goes away in fees. So we don't think it adds a lot for the portfolio. So our private equity portfolio is about half venture and growth equity, and the rest is small buyout. And what we're really looking for in private equity is two things. One is a clear, sustainable outperformance over equivalent equity indices after adjusting for market timing ability by the managers. So we're not interested in people who can just time markets, putting capital in and out, because if we, if we're doing that, we're probably putting the money in equities when it's not sitti…

AI assessment note: “our private equity portfolio is about half venture and growth equity, and the rest is small buyout”

Q Yeah, you know, the Futures Fund started investing the capital in 2007. What was it like in those first two or three years?

A So I think we were very, very lucky with timing. I actually joined right at the beginning of 2008. I signed on at the end of 2007. And in the second half of 2007, the board was under immense pressure to get started with the investment program. They literally had tens of billions of dollars of cash being rolled overnight. And as you know, markets were running very hot. And so they made a decision to start to put an exposure on just through index positions and to just steadily step into the market over a period of time. And David Neal, when he was hired as CIO and the person who was in the head of strategy role at the time, Tony Day, came on board before I joined. And the very first thing they did was look at markets and say, we're not sure what's going on, but we think the equity risk premium is negative. Something's wrong, and we should just stop investing, and they did, which was a very brave call, and I would say really set up the DNA of the fund ever since, which is if you have a very high conviction in something, then you should act on it. And so when I joined, it was really just prior to the crisis, and I was really confronted with this problem in the infrastructure where everyone said, how will you ever get set? It's a crazy job. Assets are really expensive already. Nothing's available. And I started writing a strategy. And as I spent more time here, I ripped up that stra…

AI assessment note: “the board was under immense pressure to get started with the investment program”

Q Yeah. How do you apply the top-down view to your public market investments?

A It's quite similar. So firstly, equities are our key lever in terms of how much risk we want in the portfolio, and we can dole that up and down relatively easily. From a portfolio construction point of view, for example, we have a significant overweight to emerging market equities when you just look at, for example, the MSCI All Countries Index. Why? Because we have very little emerging market exposure in private equity, property, infrastructure, hedge funds, and so from a total fund perspective, we think we need a bigger exposure because they're probably misnamed these days, but these economies are More than half of the global GDP are gonna continue to grow faster than the developed markets or traditional markets, but are not as accessible in terms of the development of their financial markets. We also bring a factor lens, and so we do invest the portfolio to target, for example, quality or value type opportunities, but we've chosen not to, for example, chase momentum strategies because we have a lot of momentum in the rest of the portfolio.

AI assessment note: “equities are our key lever in terms of how much risk we want”

Q Yeah, you know, the Futures Fund started investing the capital in 2007. What was it like in those first two or three years?

A So I think we were very, very lucky with timing. I actually joined right at the beginning of 2008. I signed on at the end of 2007. And in the second half of 2007, the board was under immense pressure to get started with the investment program. They literally had tens of billions of dollars of cash being rolled overnight. And as you know, markets were running very hot. And so they made a decision to start to put an exposure on just through index positions. And to just steadily step into the market over a period of time. And David Neal, when he was hired as CIO and the person who was in the head of strategy role at the time, Tony Day, came on board before I joined. And the very first thing they did was look at markets and say, we're not sure what's going on, but we think the equity risk premium is negative. Something's wrong and we should just stop investing. And they did. Which was a very brave call, and I would say really set up the DNA of the fund ever since, which is if you have a very high conviction in something, then you should act on it. And so, when I joined, it was really just prior to the crisis, and I was really confronted with this problem in the infrastructure where everyone said, how will you ever get set? It's a crazy job. Assets are really expensive already. Nothing's available, and I started writing a strategy, and as I spent more time here, I ripped up that str…

AI assessment note: “I think we were very, very lucky with timing. I actually joined right at the beginning”

Q So that sounds like you're the general top down case of what you're looking at. Do you start with that and then bottom up and then marry it? How does that work?

A Yeah, that's exactly right. So we start with that view. All of our bottom-up sector team leaders are involved with that conversation, and then, um, the way we would translate that, for example, in property, in real estate, would be that no view is ever certain. We've got to be humble in our abilities, but let's say we thought it was. Then assets with long duration, Would be at risk, because if we think interest rates are rising, and that's not fully priced in, or economic growth might roll over, and that's not fully priced in, or inflation might break higher than expectations, and albeit that real estate might have some ability to pass that through, or be limited by the capacity of the economy to carry it, then actually your core long duration real estate assets should be seen as quite risky from a valuation point of view. A bit like long bonds in that type of portfolio, whereas shorter duration strategies that are more skill-based For example, we're doing aged care development in the US at the moment because the demographics are such that there's just a definite need for more facilities in that space, or infill housing in places where, because of the impact of the financial crisis, people stayed at home longer and the millennials are now moving out of home and need places to live near a university, near a hospital, near employment centres. Those sort of skill based shorter dur…

AI assessment note: “Yeah, that's exactly right. So we start with that view.”

Q And how have you gone about thinking through that?

A We concluded that we need better inflation protection. There's many, many reasons why we think inflation will be sustained. It doesn't mean it will stay double digits or high single digits. It will come back down, then it will go up again, then it will come back down, then it will go up again. This is the path from history. Certain types of real assets, particularly infrastructure assets, that can pass through inflation look quite attractive, but not, for example, regulated utilities, which you might in theory say should be, because there needs to be a social contract. If you're buying an essential service, you can't just charge anything you want, you can't put the price through the roof, and so we look at those assets, it's quite risky in this world. But there are other things, mobile phone towers, fibre, data centres, Renewable energy infrastructure that are quite attractive. We think commodities are one of the few things that have worked through stagflationary periods and inflationary periods, and we see no reason to think the future will be different, but you've got an added tailwind now that in the decarbonized economy, a lot of commodities become very valuable, not the petroleum ones, but the rare earths, certain types of minerals and metals, and so we've put that exposure on in the portfolio. In 2020 we put gold into the portfolio for the first time because we saw that m…

AI assessment note: “We concluded that we need better inflation protection.”

Q Yeah. So let's, let's start with your initial entrance and the creation of the fund in the first place. What was the strategy?

A Yeah. So I would say I came in part way through that process. The fund had been established through an act of parliament in 2006. The board had been appointed And the board was just getting down to appointing a team that hired a CEO, a person called Paul Costello, who also had been involved in establishing New Zealand Super, and very wisely made the decision that it was better to build the back office and the custody system and the legal approach first before you start hiring investment people, because, believe it or not, investment people want to start investing straight away. So it wasn't until around the middle of David Neal was appointed as the CIO, and he came from an asset consulting background, and so I think he, he's very good at strategic thinking, and he, he really had a very strong philosophy that he built together with Paul, which was, let's look around the world at other large funds, many of whom are tremendously successful, but figure out what constrains them and how we can address that, and there were just a few simple ideas. One was, To think about what many people today call total portfolio approach, but we called it one team, one portfolio. We're all in it together. We won't worry about diversifying individual asset class portfolios. We'll just do what's right for the whole portfolio. It's a very simple concept, but actually it's very hard to do in an existing…

AI assessment note: “what many people today call total portfolio approach, but we called it one team”

Q Yeah. And how often can you change a view like that? So if you're just talking about infrastructure, real estate, they're fairly illiquid assets. So you, rates could move meaningfully over a year or two, but it's not so easy to turn the portfolio.

A No, and nor do we try, but we're taking a three year plus view. If we thought something was going to happen for three years and then revert, we probably wouldn't move an infrastructure portfolio, but We know today that asset prices implied on those core assets are well in the single digits, probably low, low to mid single digits, and we just think there's a lot of risk around that, so the first thing you do is stop buying them, and because we're not setting top-down asset allocations, there's no need for the team to go and buy assets to fill a bucket. In fact, we'd encourage them to come back To the investment committee and say, we think we should sell our assets and give this capital over to someone else who's got better opportunities. So all of our alignment and all of our culture is designed around those types of interaction.

AI assessment note: “we're taking a three year plus view... the first thing you do is stop buying”

Q Have you thought about marrying off a pass-through separate account through a fund of funds, or a large multi-manager hedge fund?

A Well, we have some of those, so our manager list is on our website, it's quite public, and we have, for example, Citadel as one of those managers. So I think it's the same thing, it's just when we aggregate those things up, what are we getting, what are we paying for? Those large hedge fund, sort of multi-strategy hedge funds, many of them have delivered significant beta, whether it's equity beta, or credit beta, or other sort of momentum type exposure. And that is not something we want to pay for. So I think it's just a matter of, again, in the same way, analyzing the track record of these managers, regressing it against a whole variety of factors. In this case, things like carry and commodities, as well as bulk asset beaters. And understanding where is the skill, where is the return coming from, and only paying for the part that's valuable.

AI assessment note: “Well, we have some of those, so our manager list is on our website”

Q Yeah. And how, how have you thought about allocating when your domestic economy can be tied to what's happening in China, then you have a whole sort of Chinese market opportunities. How have you, have you brought that together in the portfolio?

A Yeah, so, so you're right. So the first thing is, you know, if you're Australian, you have an exposure to China, just in the Aussie dollar and the local economy. So we're, we're not setting out, for example, to play commodities, because we feel like we've got enough of that exposure already. And if we look at, we sort of loosely call it old China and new China. So old China is the investment driven wealth creation Building roads and buildings, particularly property investment. There's all sorts of debates about whether that was over capitalized and whether capital allocation was efficient. We don't get into that. All we would say is we don't see that as a particularly attractive investment opportunity right now. But the new China, the creation of significant demand for healthcare, for education, for entertainment opportunities, as people become middle class, the trading up in terms of the types of goods and services that people buy, those opportunities are absolutely tremendous. And so we've been playing them a little bit in the equity market. Um, we're working on some further strategies there, but significantly in our private equity program, where we have quite a bit of onshore Chinese exposure, really playing those themes. And then the tech space in China is really interesting at the moment too, and there's, they're really market leaders in a lot of cases, and so we have a ve…

AI assessment note: “we're not setting out, for example, to play commodities... significantly in our private equity program”

Q Okay. How have you thought about co-investment opportunities?

A We think that's an important tool in our toolkit. We do do quite a bit of co-investing in all the private market asset classes, and also a little bit in, alongside the hedge funds and credit managers. But particularly in private equity, the issue with co-investing is, well, firstly, you want the manager focused on their strategy first and foremost in their fund. You don't want them worrying about, are they keeping their LPs happy? You know, have they sized it right, or do they have to undersize it in the fund to allow some co-investment? So we don't demand it. We want first and foremost the manager to be good at investing the fund, but where they would have a situation where they might otherwise bring a competitor in alongside them, for example, we'd prefer them to bring us in and other people who are like-minded. We don't try to re underwrite the deal. We've already underwritten this manager. We've already backed them and we trust them. So our due diligence process will be focused on, is it in their skill set? Firstly, secondly, Is there alignment with the manager? Are they putting enough capital in? Are they underwriting and selling down in a secondary, which we typically would avoid? Or are we coming in the primary deal? And then are we tied to them so that we go in when they go in, we go out when they go out. And then lastly, more of a portfolio risk point of view, what is …

AI assessment note: “We think that's an important tool in our toolkit. We do do quite a bit”

Q Yeah. So let's, let's start with your initial entrance and the creation of the fund in the first place. What was the strategy?

A Yeah. So I would say I came in part way through that process. The fund had been established through an act of parliament in 2006. The board had been appointed And the board was just getting down to appointing a team that hired a CEO, a person called Paul Costello, who also had been involved in establishing New Zealand Super, and very wisely made the decision that it was better to build the back office and the custody system and the legal approach first before you start hiring investment people, because, believe it or not, investment people want to start investing straight away. So it wasn't until around the middle of David Neal was appointed as the CIO, and he came from an asset consulting background, and so I think he, he's very good at strategic thinking, and he, he really had a very strong philosophy that he built together with Paul, which was, let's look around the world at other large funds, many of whom are tremendously successful, but figure out what constrains them and how we can address that, and there were just a few simple ideas. One was, To think about what many people today call total portfolio approach, but we called it one team, one portfolio. We're all in it together. We won't worry about diversifying individual asset class portfolios. We'll just do what's right for the whole portfolio. It's a very simple concept, but actually it's very hard to do in an existing…

AI assessment note: “what many people today call total portfolio approach, but we called it one team, one portfolio”

Q And so today you had mentioned what sounded like a, let's say a cautious macro view. How are you thinking about the flexible positioning of the portfolio?

A Well, we've built a lot more process, um, in the 10 years since then, which is both good, but also we need to be careful not to let that lock us into a position that isn't the best position. So we run a couple of tests. We suffer, like many Australians, from a very volatile currency, and so it also tends to be correlated with risk, or more particularly risk-off scenarios, so that as someone with a large global portfolio, we have to worry about liquidity in those type of scenarios quite a lot. So the first thing we do is run a sort of a crash test, liquidity test every night through the portfolio, where we expect a currency fall and a equity market fall to be correlated and make sure we can survive that. And that test is somewhat worse than the financial crisis overnight. So we've been somewhat cautious appropriately around that test. The second thing, though, is if we have not quite so severe an event, but something close to it, we, we actually want to be able to buy cheap assets, and the option value of flexibility is not something that traditional portfolio theory really takes into account. And so that's why you see us sitting with sort of a bit over 15% in cash, and why we manage our illiquid asset pool carefully, because while you would hope you get an illiquidity premium from those assets, it also means your portfolio isn't as flexible as it might be in those sort of scena…

AI assessment note: “that's why you see us sitting with sort of a bit over 15% in cash”

Q How often can you change a view like that? So if you're just talking about infrastructure, real estate, they're fairly illiquid assets. So you, you, rates could move meaningfully over a year or two, but it's not so easy to turn the portfolio.

A No, and nor do we try, but we're taking a three year plus view. If we thought something was going to happen for three years and then revert, we probably wouldn't move an infrastructure portfolio. But we know today that asset prices implied on those core assets are well in the single digits, probably low, low to mid single digits. And we just think there's a lot of risk around that. So the first thing you do is stop buying them. And because we're not setting top down asset allocations, there's no need for the team to go and buy assets to fill a bucket. In fact, we'd encourage them to come back to the investment committee and say, we think we should sell our assets and give this capital over to someone else who's got better opportunities. So all of our alignment and all of our culture is designed around those types of interaction.

AI assessment note: “No, and nor do we try, but we're taking a three year plus view.”

Q Yeah, great. Well, Raph, I want to leave a little time to turn some closing questions. But I think before we dive in, as you know, from the first time we spoke a number of months ago, my historical first closing question was this question about what's your favorite sports moment? And you told me you didn't like that question. Why don't you explain why?

A I don't think it's an appropriate question. We've done a lot of work internally on how to get Diversity of thought into decision making, and we've done a lot of work educating ourselves onto unconscious bias, and I think the problem with the sports question is, I would hazard to guess that more males than females are probably interested in sports, although I'm not saying females aren't. And that your listeners are probably thinking about, at least a chunk of them are thinking about, how can I get to be a CIO or a portfolio manager or some type of lead consultant? And the point I'd like to make is, you don't have to be a sports fan to get there. You know, all people are different. Some are sports fans, some aren't.

AI assessment note: “I don't think it's an appropriate question. We've done a lot of work internally”

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: “I actually started by studying civil engineering and economics and started life as a civil structural engineer”

Q wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. And what do you find as you look at a group of managers compared to your sense of how the industry looks at the same group of managers?

A Well, there's a lot of brand names we don't have, and it varies why, but one of the most significant reasons is because they just use leverage we found to juice up their returns, and we don't think that's attractive. And we're really focused on the smaller managers that have a tremendous amount of skill in how they can improve the business. It's not just Where they listed or delisted or selling off bits or buying other companies to merge in. It's actually helping the management team access a new market, grow to a new industry that they've got some experience in providing capital to help them grow where they can't get that capital from the market for some reason. It's those types of managers and those types of skills.

AI assessment note: “there's a lot of brand names we don't have... they just use leverage”

Q Yeah. What do you think are the core differences between a US based kind of US focused investor and an Aussie based investor?

A It's very luxurious to be a US investor these days, because you don't have to worry about currency, you know, and that's probably the most important thing, the most important difference, I think, that there's so many opportunities in the US market, in US dollars, and you don't even have to think about it, and if you decide to go offshore, then suddenly that's a big decision, whereas if you sit here in Australia, we don't have that luxury, and As I said before, the Aussie dollar is very volatile compared to the US dollar, so that is a big impact on portfolio construction. But there are other differences too, I would say, and it's easy for me sitting on the other side of the world, but I would say that the US investors largely are quite introspective. You know, they, I think we have a very different view of the rise of China and the impact China's having on the global economy than most people I speak to in the US who rarely talk about it. And we've probably got a much more open mindset to the benefit of exposure to emerging markets than a lot of the US investors I speak to.

AI assessment note: “you don't have to worry about currency... that's probably the most important difference”

Q This idea that credit looks interesting. Couldn't you just put all your money in credit? Well, you can't do that. Oh, this infrastructure is interesting, but it's a liquid. How do you get to the sizing of all these different buckets of opportunities?

A Well, firstly, I'd say we can put all our money in credit. That's a decision not to. And the reason we don't is because we might not be right, or maybe the market capacity and the size of the fund over the time period would restrict it. But we wouldn't start from the attitude that we can't. And so most of the conversations around the investment committee are, we like this idea, why can't we do more? Usually the investment committee is pushing the sector team to do more of a good idea rather than less. And that's what the whole portfolio investing really comes to. It's sizing issues at the whole portfolio level appropriately. But of course, we do have an existing portfolio, and we can only have one portfolio, and so there are multiple future scenarios in the world. No portfolio will be great in all the scenarios. We could have a low-growth stagflation. We could have a productivity shock where everything's fine. We could have anything in between. We could have geopolitical conflict that means that certain geographies get impacted more than others, and so we do think about true diversity in the portfolio. I don't use the word diversification because we don't assume asset classes behave differently in a particular way. We try to look through that in a more granular way to say, well, these subsets, let's say, of real estate in these geographies will behave this way, but some other t…

AI assessment note: “and then we try to run it through forward-looking scenarios”

Q So as you're looking at over the next couple of years, what are the most important initiatives you're working on?

A The first one is just maintaining that flexible way of thinking and culture, because the world will keep changing. And we can't predict what will happen. In the next five years, we might have a hot war. We might have a cold war. We might have a cyber war. But even if we park that, we'll certainly have major political change in a lot of important places in the world. Next year, the US election, I think it's very hard for anyone to predict which way that will go. But it seems quite clear that whoever wins might make some changes to how policy is made and where the US sits in the world economically. We've got new technologies emerging, AI, potentially new energy forms, not just renewables, but nuclear fusions coming along, quantum computers coming along. So it's very, very hard to predict what's going to happen. And that's quite exciting for an investor, because what we need to do is make sure we stay elastic, flexible, nimble in our thinking, and also that we have the portfolio approach and the governance model to allow us to act on it. That's really the biggest challenge. To do that in a joined up whole portfolio way, we need much better tech data about what's in the portfolio, and so we've spent more than a half a dozen years now building a system that can look into the portfolio, look through the private funds to understand the underlying assets that we can ascribe our own inf…

AI assessment note: “The first one is just maintaining that flexible way of thinking and culture”

Q So this concluding paper you titled The Death of Traditional Portfolio Construction. Why don't you discuss your thesis of that paper?

A Sure. So finance is really based on observations on how financial markets And economies have worked, and ascribes, quote, laws or behaviours to these actors in the economy, assuming that people in the future will act like they have in the past. But when you start to think about it, most of the data we have comes from the era post-World War II, and in many cases, really only the last 30 or 40 years. And so we've been in a particular part of the cycle during that period. We've had Demographic and economic tailwinds. We've had the emergence of middle classes in Europe and the US post-World War II. We've had increasing debt in the world, and that was a positive thing mostly because it brought forward consumption and wealth from the future, but we had a fast-growing world. Pretty good efficiency, productivity type effects, globalization, global trade. Mostly Economic rationalist government policy makers through a lot of that era. Not solely, there were obviously bumps on the way, but mostly. But actually, when you look back at hundreds of years of history, the world hasn't normally been like that. It's certainly gone through those cycles before, and so the question was, why will it continue? Why should it continue forever? Ultimately, it boils down to is capitalism performing a useful service for society at large, and if it is It will continue, and if it isn't, then someone sometime…

AI assessment note: “most of the data we have comes from the era post-World War II”

Q It always feels like something is changing in the world, especially in markets. Things are tops and bottoms. How do you develop the conviction, looking at cycles, looking at these ideas that your team developed, that you should make a significant change in a substantial portfolio?

A I guess it boils down to expressing a form of leadership, because you can overanalyse something to death and come up with a million reasons why you'll revert to the mean, or our models will tell us something will be. I guess it was a career of reading and thinking and being influenced by different things I'd read that really went to the fact that finance is people's behaviour, and whether it's quantitative or not, People program the algorithms, and so people change. I was pretty influenced by a book I read back in the nineties called The Fourth Turning. That really went to how generations think differently and how the world actually does change quite profoundly. I've done a little bit of reading and thinking around the Great Depression and the 1929 market crash when the financial crisis happened. I could see a lot of parallels with the world that existed then, and I just had such high conviction in it, I engaged the team and got them to read up about it and talk about it to the point where they thought that was a pretty interesting project, but it was really the process of going through the project, which took a year, which ultimately engaged the entire investment team, so they broke up into work groups, and at that time we had maybe 70 or 80 people, they all worked on the project. We produced probably 30 papers internally and for the board through the whole thing to build view…

AI assessment note: “it was really the process of going through the project... to build views and conviction”

Q Yeah. What do you think are the core differences between a US-based, kind of US-focused investor and an Aussie-based investor?

A It's very luxurious to be a US investor these days because you don't have to worry about currency, you know, and that's probably the most important thing, the most important difference, I think. That there's so many opportunities in the US market in US dollars, and you don't even have to think about it. And if you decide to go offshore, then suddenly that's a big decision. Whereas if you sit here in Australia, we don't have that luxury. And as I said before, the Aussie dollar is very volatile compared to the US dollar. So that is a big impact on portfolio construction. But there are other differences too. I would say, you know, and it's easy for me sitting on the other side of the world, but I would say that the US investors largely are quite introspective. You know, they, I think we have a very different view of the rise of China and the impact China's having on the global economy than most people I speak to in the US who rarely talk about it. And we've probably got a much more open mindset to the benefit of exposure to emerging markets than a lot of the US investors I speak to.

AI assessment note: “that's probably the most important thing, the most important difference, I think.”

Q And across your portfolio, roughly how much would you say you've achieved that objective where what you're paying today is really a good fair assessment of value add?

A I think we're there in every part of the portfolio to a point, to a point, but I think there's always room for improvement. And I think as technology improves, You know, I would aspire to look at those infrastructure or property assets and regress them against the broad factors, just like we do with the equity managers and the hedge fund managers in the more liquid space and say, how much of this return is due to discount rate compression or changes in economic growth assumptions or inflation? How much is due to your actual skill? And I think the, the industry has a way to go To evolve to that model. But I think what's happening in infrastructure and properties, the big funds, rather than doing that, they're internalizing, as you pointed out, and that is creating pressure on the industry. And that will force change. And I think the same is true in equities and hedge funds, but in a slightly different way.

AI assessment note: “I think we're there in every part of the portfolio to a point”

Q That's great. What's your biggest investment pet peeve?

A I think it's probably a couple of things. One is just people who assume the future will be like the past, and I don't think that's a valid assumption. You know, there's a whole lot of things over the last 50 to 80 years, a huge leveraging cycle, a huge demographic boom post-war that have meant that certain things behaved the way they did that I just don't think are likely to continue. So I think we have to go back to first principles now. And someone who says, well, I've done it before and it worked, so therefore it will work again, I'd just get irritated by that approach. And linked to that, people who just don't understand why something works. Like if, if something's a great investment idea, there's got to be a reason. And if you don't know the reason, don't do it.

AI assessment note: “One is just people who assume the future will be like the past”

Q That's great. What's your biggest investment pet peeve?

A I think it's probably a couple of things. One is just people who assume the future will be like the past, and I don't think that's a valid assumption. You know, there's a whole lot of things over the last 50 to 80 years, a huge leveraging cycle, a huge demographic boom post-war that have meant that certain things behaved the way they did that I just don't think are likely to continue. So I think we have to go back to first principles now. And someone who says, well, I've done it before and it worked, so therefore it will work again, I'd just get irritated by that approach. And linked to that, people who just don't understand why something works. Like if, if something's a great investment idea, there's got to be a reason. And if you don't know the reason, don't do it.

AI assessment note: “One is just people who assume the future will be like the past”

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: “I actually started by studying civil engineering and economics and started life as a civil”