The Exchanges

Q And how did the transition to church commissioners come up?

A It probably came arguably a bit early, but I knew it wouldn't come again. It's like often many things in life. I didn't know a huge amount about the church commissioners, but I was headhunted by a, you know, firm I knew well, and when I sort of evaluated it, it was just fantastic. It was a big pool of capital, single client, pure investment role, really good group of trustees, good track record even then, and they hadn't had a CIO before. The idea behind why they wanted to hire a CIO was really, they felt that the investment committee Was taking too much of the strategic decisions, and there wasn't enough decision making coming up from the executive team. So the balance, if you like, between what was done at a non-executive level and what was done at an exec level wasn't quite right. And a gentleman called Andreas Wittem-Smith decided we must have a CIO, bring everything together. I was lucky enough to be the candidate that got the role.

AI assessment note: “I was headhunted by a, you know, firm I knew well”

Q two things you said that was interesting. One was this target of inflation plus four that wasn't always that way. And then the other is this notion of they'd like effectively stable spending. And you can imagine a bunch of different ways you could go about that. So I'd love to tackle both of those. First, that return objective and it not staying the same, like how does that work?

A In practical terms, if I want to change the return hurdle, I have to Take a recommendation to the board. That's even above the investment committee to the board to get sign off for that. I've only done it once. That was in 2019 when I lowered the return hurdle from RPI plus five to CPI H plus four. That in a sense, I think gives me two points because the RPI is always higher than CPI. So the RPI CPI wedge, they often talk about it. So it roughly about two points lower. And I did it principally because I felt the return prospects going forward Would be worse and lower, and valuations across all markets were stretched. So not just in certain markets, really much across the board were stretched. So it was hard for me to see us achieving that higher hurdle without taking what I thought as undue risk. And if you've got a set target, and return prospects are not so good, by definition, you have to increase risk. Just what I think is the counterintuitive and worst time when you want to be Reducing risk. So I took a recommendation to the board. We should lower the target, and they accepted it. I wouldn't rule out. I certainly wouldn't do it today. We don't change it very often, but in theory, we could increase our return target as well. So that's the mechanics, and if you like, the idea behind why we think that it's not right just to have a fixed return target for all time, but it's on…

AI assessment note: “In practical terms, if I want to change the return hurdle, I have to Take a recommendation to the board.”

Q Which two people have had the biggest impact on your professional life?

A One would have to be a gentleman called Andreas Whittam-Smith, who was the person that decided that the church needed a CIO, and was ultimately the person that decided that he wanted to take someone still in his thirties and give them a CIO seat off of funds, so that he would have to be one, because I, you know, I hope he would think that I've done a good job, and that it was worth it, but I feel at the time they may have had other safer or easier to make options, but they went for me, and I'm super grateful for that. The other one would be probably a gentleman called Justin Abercrombie at Schroeder's who plucked me out of the fixed income team to work on the coin equity and investment strategies, um, and took, you know, again, an individual that I guess took a leap of faith and chose, gave me that break, because they're the people that have really, if you like, given me opportunity, um, that I'm incredibly grateful for. Hopefully I've justified their trust in me, but, um, they would be the two I'd point to.

AI assessment note: “One would have to be a gentleman called Andreas Whittam-Smith... The other one”

Q So with those objectives, with this pool of capital, both rate of return and the spending needs, you step into a seat where you've had a broad background, and you've both worked at a storage institution and an entrepreneurial organization, and then you step into a portfolio that is not quite where you think it should be. How did you first tackle that?

A I realized pretty early on that patience was going to be important. That evolution Not revolution. And often in organizations, there's this desire to make an impact quick. And I think actually, if you've got a more patient mindset, you're more likely to carry everybody with you on the journey. So there were four main areas that I really wanted to focus on. The first one was governance and real clarity around what role everybody plays in the process. So what's the role of the board? What's the role of the investment committee? We actually have some subgroups underneath our investment committee that work on different component parts of the portfolio. What's their role? What's the role of the executive? And what's our agreed objective and investment philosophy? And get real buy-in to all of that. So that was one really important thing to do. And I felt that their approach, if you like, to thinking about who was on the investment committee could be improved by really sort of thinking about the skills matrix, how they might go about Approaching, attracting, and choosing those individuals that we're going to serve on the IC as well, and, and also getting the balance right between subject matter expertise and stakeholder representation, because both are really, really important. The next was people, because you can have the best laid plans and great plans and ambitious plans, but if y…

AI assessment note: “there were four main areas that I really wanted to focus on. The first one”

Q Have you thought about the trade-off in that defensive equity objective between a long short fund and a lower beta long only strategy?

A We've looked at both. We just prefer the construct that we've come up with. We think we have more control over it. The long, short managers that we've partnered with have been more consistent in their beta, so we know what we've got. Ultimately, the critical component part of portfolio creation is making sure what you think you've got is what you've actually got, and so that is probably what I would say there. Our concept of genuine diversification does focus more at a total portfolio level, so Again, coming back to equities, probably, I would think, on balance, our public equity portfolio might lag a little bit in a very strongly rising market, typically, even if we get everything right. And that was certainly what we experienced. I don't mind that if when markets go down, it really doesn't go down nearly as much, because it reduces, if you like, the heavy lifting that the rest of the portfolio has to do.

AI assessment note: “We've looked at both. We just prefer the construct that we've come up with.”

Q Well, why don't we start with how you first got involved in investing in the first place?

A Well, it was straight out of university. Well, not quite straight out of university. I, uh, I did my undergraduate, and then I had two offers. One was to be a ski guide. One was to take a scholarship and go and do a master's, and actually the post went to my home. My mother still then was opening my post. I never saw the ski guide job offer. When I quizzed her about it, because the firm chased me, she said, well, of course you're not going to take that. You've got a scholarship to do a master's. So that was a course where there were a couple of economists that were very well respected. They actually formed part of Margaret Thatcher's six wise people that advised her. So they were quite well known in the city. And I think doing that course helped me formulate a view, because up to that point, like many people at that age, wasn't really sure what I wanted to do. They really sort of helped me that a sort of career in the financial markets might be something I'll be interested in. So I applied and was lucky enough to get a graduate training program, and I did that for about 18 months, and I got a good break to go to Schroeder's, which is one of the best well-known UK-based asset managers, and that was really fantastic, so I took that up. I could have had a career in the, in the mountains in the ski industry, but as it turns out, I, uh, ended up going into investment management, and…

AI assessment note: “I applied and was lucky enough to get a graduate training program”

Q Are there things you would now describe as tenets of your own leadership management style?

A Yeah, I think, you know, real transparency, focus on clear communication, you know, honest feedback. Investment isn't easy. Sometimes you do have to make difficult decisions. When we do need to make changes, I've really tried to be sort of kind about it, patient about it. And while those individuals may not be happy at the time, ultimately, I think if someone's in the wrong seat or they're not really sort of performing, ultimately making changes is the right thing to do. I think really giving people opportunity, you know, I really sort of focus and like to have a sort of balance between experience, but equally back youth, back that enthusiasm for the right people, give them the rope to sort of run with. There's a number of people in my team that have joined at, you know, investment, you know, not even an analyst level, and they're now leading an asset class. That's enormously rewarding.

AI assessment note: “real transparency, focus on clear communication, you know, honest feedback.”

Q One of the most important overriding things you mentioned at the outset is responsible investing. How do you approach that?

A Our goal, as I said, was, you know, really to be at the sort of forefront. But what I would say is that our major focus is on doing good, not just looking good. If we take the sort of E of ESG, if you like, or RI, and the environment, you know, we have set a, um, a net zero target for twenty-fifty. We want a net zero world. We don't just want a net zero portfolio. So I think that, I think, runs through all that we are doing. We're really focused on trying to nudge and effect change. Rather than just trying to make changes in the portfolio so we can then look good. We really have a sort of full toolkit of our team. I've got seven people dedicated to responsible investment. If you want to affect change, you've got to have the people to do it. And although we're a small fund, you know, we've got quite, you know, a powerful voice. So we focus on avoiding parts of the market. You know, that is by definition going to come with who we're representing. And that was really where it was when I got there. It was all about avoiding harm, so to speak. Now it's much more about doing good. That's about engaging with corporates and trying to affect change at a corporate level. It's about engaging with fund managers. We probably engage as much with fund managers as we do with corporates. It's about engaging on a policy level and trying to affect change there. We've been involved in some policy …

AI assessment note: “our major focus is on doing good, not just looking good”

Q What did you pick up from your prior experiences that led to how you would describe your leadership style?

A Words are free. It's amazing if you really praise someone and you do it sort of publicly when it's merited, you know, how good that makes someone feel. And it's free. I remember how that made me feel when it happened to me early in my career. Equally, on the opposite side of the coin, examples where I've done a massive amount of work, and then someone has taken that work and presented it, and whoever they're presenting it to has lauded it as fantastic, brilliant, and not once Through it. Have they ever, or later, after the fact, have they given any credit? It's not that I needed to take all the credit, but just, you know, and I remember how annoyed I was about that. I think it's just focusing on that and thinking through that. Yeah, I never really went on, you know, management training courses, or haven't been done a huge amount of, if you like, leadership courses. So it's more sort of learning on the job, but thankfully, I We've managed to hire really, really good people. They've stuck around. We have very low turnover, so I guess must be doing something right.

AI assessment note: “I remember how that made me feel when it happened to me early in my career.”

Q AI era, asset and 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. How have you thought about measurement? Let's just talk about the E on, say, carbon emissions, net zero, across every aspect of the portfolio.

A That's a challenge for anybody. You know, it's even more of a challenge for us because we've really got some, you know, asset classes where that's not really been thought about yet. So we've set that long-term target. You know, as part of our commitment to net zero asset owner alliance, we've made an interim target, but we want to make sure that the targets as we go along that journey are achievable. You know, we don't have to have all the answers today, but just because we don't have all the answers today, I don't, don't think it should mean that people can't set long-term targets. So our first one is to reduce by 25% our scope one and scope two emissions in our public equities portfolio and real estate by 25 based on a twenty-ninete baseline. So, you know, I think that should be achievable. We are focused very much in our real assets portfolio. We own a lot of farmland We own a lot of forestry. You know, we're looking at ways whereby we can capture an industry sort of initiatives to, to look at the measurement on, you know, from a regenerative farming perspective. Um, and you know, and we often will pilot and test initiatives with different, um, you know, industry people, uh, which is what we're, what we're doing on the farmland space on, you know, in private markets, there's some, uh, initiatives as well that we're sort of involved with that They're looking at, you know, col…

AI assessment note: “reduce by 25% our scope one and scope two emissions in our public equities”

Q What new initiatives are you working on with your team?

A We felt we were too siloed. We felt that we didn't have sufficient competition for capital across asset classes within, so we've, we've consolidated into a public markets team, a private markets team, and our direct real assets. That's been one that we're working on. Given how much we broaden out that internal derivative and TAA capability, we've, we've had to sort of really focus on the depth, strength and depth of our operational function. You know, there's sort of Areas that we're sort of looking at, um, we haven't made any commitments. We're looking quite actively at the sports space. You know, in the US, the sports markets are sort of opening up to sort of institutional capital, and that might be interesting. That's one area that we're looking at. Transition metals is another, and mining finance, certainly in developed markets, is another area that we think could be quite interesting. And again, you know, I think the climate transition, you know, is just, and so the infrastructure space is, is going to throw up a ton of opportunities going forward.

AI assessment note: “we've consolidated into a public markets team, a private markets team”

Q At your size, as you mentioned, some of your peers have larger allocations to venture and private equity. You mentioned you're happy with yours. Why is that?

A I think that the best thing an investor can have is lack of FOMO. I think FOMO is the most dangerous thing an investor. So as a, as a psyche, you've just got to not worry about that. All I care about is creating a portfolio that's going to meet my objectives, and if I look at others that have done better, I say, brilliant, well done you, that's tremendous, but most other people seem to get FOMO, and they want to chase those, and that doesn't make me not competitive. I am competitive, but I'm competitive against my objective, not competitive about others. I want others to do well, because that's great. Because they're obviously managing assets for other endowments and foundations that are super worthy causes. I really want them to do, to do well as well. So I valued that genuine diversification, because PE and VC ultimately is still equity. It's investments in companies. They're going to be determined by the same economic drivers as public equities. Now, I do think that private markets have some advantages, and public equities and also VC managers have more levers, um, Then, then sometimes public companies have to navigate, et cetera. And I think the construct of our P and VC portfolio means that it will probably navigate a downturn better than, um, than the maybe public equities generally, but there's still ultimately equity. It's in, in the environment that we're in now, there…

AI assessment note: “didn't want to utilize all of my illiquidity budget from the PE and the VC.”

Q How do you decide when things are stretched enough that you should take action?

A The primary one is the price that the market is asking you to pay for, for asset classes by. So the main areas where we manage investment risk dynamically would be interest rate, equity risk, and FX. And obviously, although I would say that actually fixed income and credit is very much back on the table for virtually the entire time that I've been at the church commissioners, we've not owned fixed income or very little. We always hold cash and we're very focused on liquidity. We always hold at least two years worth Of unencumbered cash from a distribution perspective, net of the income we're going to get. So the main one is sort of price. We have a disciplined valuation process, uh, where we look across all markets and, you know, look at what the market's asking you to pay for things. We also have, uh, and have developed a number of very comprehensive set of internal models. They're looking at technical factors, sentiment factors. We're making use of, our quants are making use of AI to sort of help build those models. So it's pretty sophisticated, comprehensive suite. Like anything that we do, when we're going to do something, we want to do it Really robustly and properly. So I hired the global head of cross asset from, from, from Bank of America to come and be my managing director of investment strategy. And he hired then, you know, a number of quants to sort of support him. A…

AI assessment note: “The primary one is the price that the market is asking you to pay”

Q When you have acted on it, how do you think about sizing?

A Well, I would say, first up, why are we doing it? If I was a fund or managing assets for someone where it was all about long-term wealth creation and the mark-to-market and the volatility didn't matter, they had tremendous flexibility on their distributions, so if things didn't go right, I probably wouldn't do TAA. I don't think you'd need to. You'd just go heavy equity-orientated, maybe high degree of private markets as well if you could get access to really good managers. And away you go and come back in 1015 years time and you'll be fine. But we do think about that fact that we don't want to cut distributions. You know, it's painful for, for the church to do that. We've never had to cut distributions in the past. We didn't cut them post GFC. We held them flat for a number of years in nominal terms. So that was obviously a real cut. So it is thinking about it in those terms as well, that, you know, we do need to think about the downside. I do think that the world's changed a bit. Everyone normally says you can't time the markets. I think we're in a different environment now, actually, and I think it will be more value added, and I'm just incredibly grateful that we've set it up in the way that we have, and we've now got that capability.

AI assessment note: “Well, I would say, first up, why are we doing it?”