The Exchanges

Q And how long did that last before you found your way to PJ?

A I was at Credit Suisse for about five years, and we transitioned from moving out some of our smaller, long-only businesses that we sold to Aberdeen into more of an alternative-centric boutique in the U.S., and focusing our European efforts mainly on private banking in Switzerland and Germany. And I had a great run there. I think I, again, learned a lot around product development disciplines. It's not just about launching new products, but what is the tale of products that haven't worked? Be proud of your failures, but also end them when you need to. And PGM was at a very compelling point when I joined roughly seven years ago. It had weathered the global financial crisis, but was still a very US centric business in terms of mainly serving defined benefit pension plans in the US. A few of our underlying multi-manager businesses had stepped into other regions. And there was a real desire by the senior leadership team to globalize the business and make it a truly international business. And that's not just about sourcing clients in other countries, but about where our talent was, the investment strategies we offered. And that seemed to be an extremely exciting growth journey, and I wanted to be part of that.

AI assessment note: “I was at Credit Suisse for about five years”

Q Some of this change in digitization and automation, there's been this big wave towards just-in-time inventory management. How have you thought about that lens on supply chains and running businesses?

A So we divide the world into two kinds of goods, perhaps somewhat simplistically, but I think usefully. We think on the consumer good sides, the goods you and I and others listening to this podcast might purchase, there is a lot of substitutability. So you can use Office grade toilet paper, residential toilet papers in short supply. If you can't get your beef burger, maybe you can get a lamb burger. If you can't get Diet Coke, maybe you can get Diet Pepsi. So there is a lot of substitutability in the consumer side, and there we think just the increasing use of big data and data analytics to predict consumer demand and actually reduce the amount of inventory will be a more powerful force than the fact that there were shortages in certain areas. Further up the chain in manufacturing and capital goods, where substitution is much harder, you can't suddenly find another door handle for the car you're manufacturing if your door handle manufacturer has supply chain issues or is under lockdown. We do feel that the parts that are used to manufacture the end product will get more robust, and perhaps companies are thinking they went a little too far down the just-in-time spectrum. And they need to be a little further on the just-in-case spectrum as well.

AI assessment note: “companies are thinking they went a little too far down the just-in-time spectrum”

Q Well, here's a new one. What new habits have you developed during the pandemic? And we can go good and bad. And when we get to bad, just To be open about it, I have developed a daily habit of eating Froot Loops, which is my Corona vice, if you will.

A We've probably all developed a few coronavirus, but in the same spirit, I would say one has been a slight obsession, which sadly is not unique when I look at people's Instagram feeds of baking banana bread and experimenting with different versions pretty much every second or third day. So I've made one with hazelnuts instead of walnuts. I've had rum-infused raisins. I've crushed the walnuts to create a walnut flour instead of normal flour for a gluten-free version. So I think it's getting a little dangerous as a habit. And then a little bit of binge watching of television on weekends, particularly when it was a little cloudier and rainier in, in March. And my latest one is a book that I could never read called My Brilliant Friend, but that's been turned into an excellent HBO series about female friendship and two women growing up in a small Neapolitan town in the 19 fifties. And then it continues beyond that, that is just brilliantly done.

AI assessment note: “one has been a slight obsession... of baking banana bread and experimenting with different versions”

Q Well, timer, I want to turn to a few closing questions before I let you go. What's your favorite hobby or activity outside of work and family?

A So one of the little projects I'm doing is typography. I'm designing my own font, and living in New York City, one of the great benefits is there's a whole host of typographers, I didn't even know there existed, communities that meet to critique fonts over beers in Brooklyn bars, and can help you learn it. Typography is brilliant because it's all digital these days, but what really distinguishes a font is the ability to bring that human frailty into that digital font. Which means it should have the same strokes as the initial original calligraphic instrument that created it, a broad nibbed pen or a chalk or an etching device, and it must have imperfections to not look superfect and therefore capture the human eye, and what really matters is not the black of the letter, but the counters, the spaces between the letters. So I find great aesthetic beauty, digital perfection, the shape of the curves of each letter, the N, the A, Really matter. And I'm devising my own font.

AI assessment note: “one of the little projects I'm doing is typography. I'm designing my own font”

Q Yeah. Why don't we just start with your background and how you got to the seat where you are today?

A I've been, uh, in a bunch of places. I spent about 40% of my life growing up in Pakistan, then spent the next 20% in the UK, in England, and then I've been in New York since about 2001, so the last 40%, so straddled all continents. And I had a whole different career before I came to asset management and, and Wall Street. As a, I was a lecturer in economics, At Oxford, I was doing a PhD in development economics. I was studying extreme destitution, how the poorest of the poor rise up, and is it the marriages and the demographics of where they're growing up? Is it the decisions they make? The entire other end of the spectrum between poverty and wealth. And made a transition or a transformation almost at some point from that world of academics and Oxford and tutorials. To McKinsey Consulting Asset Management and where I am now at PJ.

AI assessment note: “from that world of academics and Oxford and tutorials. To McKinsey Consulting Asset Management”

Q And what was that first step outside of McKinsey?

A The first step outside of McKinsey was Lehman Brothers, an interesting choice in 2006 when I joined them, but a company that had both asset management and Neuberger Berman in those days that had the capital markets business that had investment banking and had a team strategist that were doing quite a lot of interesting work going into emerging markets. If you recall, back in the day, Lehman had For the first instance, nearly had a liquidity crisis when Russia happened in long-term capital management, and therefore there's a wariness around emerging markets, which of course have come a long way by 2006. And we spent a lot of time thinking about what do we do in China? What to do in emerging markets? How do we structure joint ventures around the world? And that seemed like an interesting growth journey at the time.

AI assessment note: “The first step outside of McKinsey was Lehman Brothers, an interesting choice in 2006”

Q And what are some of the ones you think are the most impactful?

A I mentioned board seats as one, but an interesting anecdote is that QMA, our quant business, did some great analysis on what is considered a linear relationship where, you know, very mature boards are considered to be less dynamic than new boards. And in reality, when you explore the valuation relationship between board length and tenure and valuation, it's a curve relationship. Where very new boards might reflect a lot of flux and change, and indeed very long tenured boards may affect a lack of ability to move, and there's an optimal sweet spot. So these relationships of a nonlinear governance, I think, is a good example. I think the longer your horizon, so private equity, infrastructure, real estate, these things become much more obvious. There are many things like, you know, safety standards in our buildings, the kinds of tenants you have, How much energy efficiency have you created through being more aware of climate change? Are you thinking about flood risk versus your portfolio of infrastructure and real estate investments? Those are some of the obvious ones. There are many more that work in a nuanced manner. And I think increasingly the ESG effort is really focusing in asset managers to really think very thoughtfully about each of those and how it moves value versus those that haven't yet been priced in.

AI assessment note: “I mentioned board seats as one, but an interesting anecdote is that QMA”

Q describe your investment management tech, request a demo at ridgeline.ai. And now back to the show. Have you seen, you know, and some of your clients and a lot of the people I talked to on the show have multi-asset class portfolios. How does that transition of more capital getting deployed in the private markets and fewer public companies turn into potential shifts over the years in asset allocation structures?

A Well, it's interesting on the less listed public companies. Again, it is a US and perhaps European phenomenon. You are still seeing lots of IPOs and new companies. Accessing public markets in China and emerging markets, and we think that's good. It's good for the democratization of equity markets and capital, and part of the answer to some of the inequalities in wealth that we are seeing grow. We are seeing a bigger driver of asset allocation being the search for yield, and that search for yield is driving people to higher risk products within public markets, So do you think more about emerging market debt rather than investment grade debt, as an example? Folks looking more, I'd say, global equities rather than just large cap domestic equities, and certainly looking for kind of the higher yields you do get in private markets. So the combination of all those factors is driving to greater allocations to privates I think given some of the high valuations pre-coronavirus, particularly private real estate debt and private debt, rather than necessarily private equity, where there was perhaps more of a sense of a bit of a bubble, but absolutely a perceptible shift. It's the first question that clients ask me when we have conversations with them is how should we be thinking about privates? What is the right balance between the liquidity we might need to meet our participant needs or fo…

AI assessment note: “combination of all those factors is driving to greater allocations to privates”

Q been this sort of co-working, and WeWork was a bellwether for lots of things, not the least of which maybe the peak unicorn trying to go public, and this was a mega trend that seemingly COVID has meaningfully shifted from something that looked like it would accelerate to something that It's hard to see how it will be the same. What's your perspective on that particular issue of coworking spaces?

A So we were always skeptical about the ability of some of the co-working models because of their unique personal balance sheet situations to weather a downturn, and there's a rich history of co-working and flexible space providers weathering downturns badly. But nevertheless, we believe there were some virtues in what the co-working model did, let alone specific companies like WeWork that had some additional issues, and that include shortening commercial lease lengths. And increasing the attractiveness of amenities for particularly millennial workers at these places who kind of valued a different kind of vibe. We do think that trend is going to be curtailed by the coronavirus situation as employees and their companies from both a liability and risk perspective and because they care about their employee safety will want to have their own standards of what is sanitary and safe and And protects people. And that requires less shared amenities, more spaces that are yours, and maybe longer term investments in all the things that you require, whether it's the ventilation systems or flexible panels between cubicles. That means that you may want to make longer term investments in spaces you earn rather than having super flexible and shared co-working spaces. So I think it's a headwind.

AI assessment note: “We do think that trend is going to be curtailed by the coronavirus situation”

Q what happens after the great lockdown with the notion that costs will go up. And maybe aside from these sort of really technology driven weightless firms, it feels like we might have hit peak profitability in markets if that's the case. And I'm just curious, with markets having bounced back from lows, how do you consider the future of these businesses in thinking through where you find great investment opportunities?

A I do think it's really about being an active investment manager, and while benchmarks and indices may be certainly, in the case of equities, assuming a very sharp V-shaped recovery, and therefore quite Buently priced. Finding select pockets, whether it's technology or other sectors in emerging markets where you are seeing companies with opportunities is important. I do think it's also the power of being in multiple asset classes the way we are. So we are thinking about opportunities now in direct lending and mezzanine, where you may find some very attractive pricing entering into the recessionary environment that we are now in. We are thinking about distressed opportunities. And in real estate, it is so localized in terms of the pricing trends. We fortunately have a portfolio that's quite resilient to sectors like hospitality and retail that suffered quite a lot in the crisis, but there will be new opportunities that come out of the repricing that this recession has driven. So we are still quite optimistic that this could be a good time over the now and the next six to nine months for investors to return to markets at a pretty attractive new pricing point.

AI assessment note: “we are thinking about opportunities now in direct lending and mezzanine”

Q What are some of the other implications on markets of these waitlist firms?

A I think one other interesting implication is that because the capital needs of intangible asset firms are not as intense as firms that were tangible asset heavy, and because often they're secret sources, R&D, and algorithms that are, that rather not reveal in public markets, and combined with the fact that might change after the coronavirus-induced recession, but has been true so far, of a glut of private capital that has gone way past series A and can keep Companies private for pretty much as long as they like, both rationally and irrationally, that companies have stayed in the private sector for much longer, and perhaps permanently versus five, 10 years ago. And that means any institutional investor, any investor really, does need to think about if they want to capture this opportunity about private equity and private debt alongside Public equity and public debt, particularly when they look at G-Eight. I think in emerging markets, more of these intangible heavy companies are listed than here.

AI assessment note: “I think one other interesting implication is that because the capital needs of intangible asset”

Q On that first part of diversifying, let's say, away from China, though it's not necessarily that specific, how does a company determine what's sort of the optimal amount of diversification?

A Ultimately, over the long term, it'll come down a little bit to how equity and debt investors perceive the cost of additional resilience. We believe in the medium term, investors will be willing to give up some of the upside of the leanest possible supply chain, For a more resilient supply chain that can weather other tail risks. Most of them are noble that might strike in the future. And while not all of them are preventable by having a multi location, more redundant supply chain, some of them certainly are. And our belief is that investors will value that more and diligence that more, and therefore companies will be willing to invest because they'll be rewarded in their valuations for that. I think a key thing here is it's not just about manufacturing. This is also about food supply chains. We saw how the lack of ability for migrant workers from North Africa or Eastern Europe to come to Europe affected food supply chains there. America was trying to barbecue with potentially a shortage of beef burgers right here. And then even in the services sector, as Ireland and India went into a lockdown, It became quite hard for some people to kind of have their call centers and other places operate effectively. So this is going to actually impact all sectors. And I think there will ultimately be the right balance between what is too much redundancy and what will investors ultimately val…

AI assessment note: “it'll come down a little bit to how equity and debt investors perceive the cost”

Q And did you see anything come of those findings?

A You know, that was one of the reasons I left academics. The piece on land ownership, and it's a very complex topic linked to land reform and politics and wealth distribution, but academics in general is backward-looking. You're looking at data that's five years old, so it's like looking out of the rearview mirror rather than looking forward. It's very isolatory. Everybody wants to be a big fish in a small pond, and a team coming together might make more progress than you can otherwise, and Modern economics this is a whole separate discussion we can have, is increasingly caught up in econometric complexity, rather than trying to find policy conclusions that maybe don't have a 99%, sometimes spurious confidence interval, but actually are policy implementable. And that's what was one of the reasons that actually drew me out of academics and said, let's find something where we can make impact now, rather than look backwards and get caught in that cycle.

AI assessment note: “that was one of the reasons I left academics. The piece on land ownership”

Q And is the cadence of this intended to be once a year?

A Sometimes we get excited by other topics. So when a range of nationalist leaders rose across the U.S. and Europe, we did a report on the ongoing tussle between sovereignty and nationalism, and who'll win in the short term, which was nationalism, but why we think there's still lots of reasons why globalization ultimately will prevail. This year, with the COVID crisis and lockdown, We did a report not on all the very important tactical steps that market participants need to think about right now, and on the alphabet soup of recovery parts that they're focusing on, U, V, W, but more around once the crisis is over, once the great lockdown is over, what will happen next? And that also was a special report because we were working and continue to work on climate change as the next big megatrend we are discovering. Obviously, these megatrends are also deeply interrelated with each other. So we're now getting a quite interesting body of work that has lots of cross-cutting themes, most of which are proving true.

AI assessment note: “Sometimes we get excited by other topics. So when a range of nationalist leaders rose”