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Travis Williamson, Nick Liolis, Hong Zhang, Jay Madia, Robert Hetu, and Mark Burgess Discuss Global Institutional Outlook at Greenwich Economic Forum

Travis Williamson, Nick Liolis, Hong Zhang, Jay Madia, Robert Hetu, and Mark Burgess Discuss Global Institutional Outlook at Greenwich Economic Forum

Travis Williamson, Nick Liolis, Hong Zhang, Jay Madia, Robert Hetu, and Mark Burgess discuss Global Institutional Outlook at Greenwich Economic Forum (Greenwich, CT)


  • US leads the world with total wealth of $106 trillion
  • Global wealth grew during the past year by 2.6%to $360 trillion
  • Between 2017-2018 there was a 26% increase in number of private equity funds in the market


INTERVIEW TRANSCRIPTS: Travis Williamson, Head of Hedge Fund Research for Albourne Partners, Nick Liolis, Senior Managing Director/CIO at TIAA, Hong Zhang, Chief Representative of NY Office for CIC, Jay Madia, Head of Risk Assets at Axis Capital, Robert Hetu, Managing Director of CDPQ US, and Mark Burgess, Chairman/Investment Committee & Director at HESTA

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 00:00

Thanks everyone for joining us. We have a really interesting panel here. We have a diverse group of perspectives that I think you’ll find really informative in a broad set of topics to discuss. I thought to at least some groundwork we could ask each panelist to answer an initial question and provide some context on their organization and their role within that organization. So maybe Nick, maybe if you could kick us off with just characterizing the market environment as you see it and sort of what challenges does that pose to the goals of your organization?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 00:29

Sure. I guess was the big draw, right? Cause then we kind of emptied out a little bit here, but it’s okay. I understand. So I guess I would define the environment as being uniquely challenging. We’ve got low economic growth, low rates of unemployment, low inflation, unprecedented central bank intervention, low rates, but at the same time really high asset prices which would make, you know, a challenging environment. Pretty much anybody, let alone insurance companies. And, and that’s where you know, where I come in, I’m the CIO of TIAA, which is known to be a pension plan for teachers, but does that through an insurance product, which makes us an insurance company which means that we have insurance regulations which forces us to invest mostly in fixed income. So low rates is a pretty big issue for us. And pretty much any, any insurance company you know, the reinvestment turnover that we have you know, to put to work every year at lower rates is you know, the biggest challenge that we face.

Hong Zhang – Chief Representative of NY Office, CIC: 01:35

I think partially the market is where, you know, every investor has a higher level of uncertainty. They have to deal with a higher level of uncertainty. With concerns over recessionary conditions or risks or excessive liquidity in their portfolio or people worry about whether the trade war would flare up again and its implications. Or, you know, what would trigger the next recession or the next market downturn via excessive corporate debt or you know, some mistakes in the policies of some government administration. So it’s a lot of uncertainties there. So CIC is Chinese investment corporation is the financial investor that focuses on commercial investment returns. And we set up the New York rep office in 2017 just right before the US China trade war started to be with momentum. So good timing. So in the past few years we have seen more a stringent reviews for investments and CIC because his status as a sovereign wealth fund of China and it makes it inevitable for CIC to be involved in some sorts of geopolitical risks. So it makes it more difficult for CIC to do some direct investment here in the US and we do hope that things could improve later on.

Jay Madia – Head of Risk Assets, Axis Capital: 03:17

I work for a Bermuda based reinsurance company called Axis Capital. We’re global. We have about 15 billion in AUM. My, our CIO and I we’ve all been from, we’ve been in direct investing backgrounds our entire careers, but here at access capital, we’re actually investing with outside managers as well. And I, I personally, I manage our credit private equity in real estate portfolios. I think the current environment if I were sitting here last year, you know, what had talked about inflation and interest rates and you know, what you know, what the fed is trying to do to get inflation where they needed to be, but I think it’s more appropriate to, to, to borrow from what Ray Dalio said and then what Mohamed said this morning that we are really in monetary policy part three. So part two is sort of coming to an end and we’re in part three, which I think is targeted to, you know, our 50 plus trillion and unfunded liabilities that somebody might have to monetize going forward. As well as the trade war which is going on as well.

Robert Hetu – Managing Director, CDPQ US: 04:30

I head private debt for the US for CDPQ. For those of you who don’t know is the manager for the pension assets for the province of Quebec. We’re about 225 billion in assets in five different asset classes, public equities, fixed income where I sit real estate, private equity and infrastructure. So the challenges for us obviously vary by asset class, but overall the theme of the institution and what we’re looking to do is invest more in illiquid assets. Take obviously a very long-term view. We’ve been doing that for a long time, both in private equity and infrastructure, obviously in real estate as well, where we own buildings around the world. In fixed income, and I joined a couple of years ago to really develop a private debt strategy where our focus is to really, again, increase the non-investment grade private debt piece of our portfolio to, we don’t need liquidity, so we want to generate obviously a higher return with better structures.

Robert Hetu – Managing Director, CDPQ US: 05:29

And you know, again, tighter protections for us as than the broadly syndicated markets. So the challenge for us in both organizationally and for us in our in our strategy in private debt is really the con, the confluence of continued low interest rate, but obviously being very late in the credit cycle. So how do we adjust that in terms of deploying more capital in illiquid private credit. So have a team that’s been formed of 15 people just focused on private debt where we can originate and do our own diligence as well as work with outside managers. And we feel that over time there is still a lot of opportunity to invest in private credit. Despite where we are in the cycle. We think that we don’t see a, you know, 2008 and ‘09 recession the same, you know, coming to the same fashion.

Robert Hetu – Managing Director, CDPQ US: 06:22

So we think that it will be less severe, but still, you know, we want to focus on quality structures and quality assets. But the fact also that we essentially are thinking more about a low road scenario and what are the implications for the various portfolios within CDPQ in terms of how we construct them. That is a clear port part of our strategy in terms of how do we adjust our investments. And our philosophy to reflect the fact that we’ll be, we could potentially be in a very low growth and low interest rate environment for a long time. And still our goal is obviously to achieve good returns for the employees and the problems that go back to generate a good return above the benchmark that we are, we’re trying to be. So that’s been our challenges.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 07:10

I’m Mark Burgess, I’m from Australia. I spent most of my career overseas but I currently sit on a chair of board for a large pension plan, but I previously ran the sovereign fund in Australia as the president and CEO. What are we dealing with today? I’m reminded of my students. I lecture students as you do at my age I suppose, and also give them some career advice. And they always say to me, you know, why was your career so good? And it’s just very simple, which is that I joined the markets about 35 years ago when interest rates are very high and I’ve been sailing the rate of change ever since. And in fact, I think there are about 12 or 13 different indicators that have been very, very favorable over that period. The one that the students really struggled to believe is that I say to them, is the world violent today?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 07:54

And they go, yes, of course it is. And of course today’s the least violent in human history. And we know that. But there are many others and, and you know, the demographics were favorable, but one of the ones that are really critical is that interest rates just continued to fall during the period. So it’s not just the absolute level of rights we were at now. It’s the fact that they were falling and that’s had a compounding effect for anyone who’s been long duration. And that’s the challenge today. It isn’t just rates of return are low, but in the next cycle P long duration assets will get found out because there is no more rate cutting on which to revalue to value out. And so this is why we’re at such a critical point and it’s partially why I think people are kind of cautious about what’s going on, is because they can sense that the tailwinds have been phenomenal for a very long period of time. And now we have to figure out what to do next.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 08:39

Mark, maybe just building on that, the trajectory of rates. Is it a race to the bottom? Is there hope we’ll change trajectory if you have a view.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 08:50

Look how much bottling can you get when you’re already got negative rates. But what’s on behind all of that of course is, is that we have a major demographic change. Everyone knows about demographics, but what we’re about to do is we’re putting economies through absolute declines in population. And the difference between a growth rate and an absolute fallen population is very significant for asset prices. You know, the example I give people, 10 houses in the street, population growing, all houses get bid up, 10 houses in the street, population absolutely declining and the 10th person dies. All the other houses are worth scrap as the temp 10th one’s vacant.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 09:24

Now it’s not going to work like that, but what actually happens is the dynamics of the system doesn’t work well. And this is what we’re beginning to see transferred from places like Japan, which we know has already been through going through the cycle to Europe, to Germany, etc. And so we have a sort of major demographic change that will not change the growth rate, but we’ll change the way financial assets behave and credit the house behind that. And so our hope is the four or five countries with great demographics, India, Indonesia, Philippines, places like that. And we’re just not sure that it’s going to all connect together to give us the growth rate that we require. And just to answer your question directly though, I think the one positive thing that’s come out since Jackson hole is I do believe I’m on a think tank for central banks and sovereign wealth funds and we do 150 meetings a year with simple bankers. Even they’ve realized that negative rates wasn’t such a good idea because of the signaling effect. And I think there’s a recognition that go there carefully and so maybe rates are just going to stabilize a very low levels, but I think we’ve reached the bottom basically.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 10:21

Sure. Jay thinking of rates at low levels and sort of meeting return targets, you have a number of levers to pull within your remit. Just curious sort of how you’re managing that and what steps you’re taking to, to meet return targets.

Jay Madia – Head of Risk Assets, Axis Capital: 10:36

Point on the rates is appreciate that Mark. And if, if you think about negative interest rates, is it really is really a monetary policy or is it really part of the trade? And it was started in Switzerland as an attempt to keep their currency from tripling and you know, crushing their current accounts so that the negative interest rate is also sort of a tax on capital. It’s a tax on the capital account, which is analogous to a tariff. And you know, we think that if Europe’s political environment is such that they don’t want to continue this policy or make it any worse, then that means that the US is unlikely to have to go to negative interest rates. So that’s one. And then the second point I’d make there is that you know, inflation has been kept low by technology. That’s something the fed is now set a number of times.

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Jay Madia – Head of Risk Assets, Axis Capital: 11:26

And if you think about e-commerce penetration in the United States and when it sort of took off in the mid two thousands and what that did to our inflation rate, that’s just now happening in the emerging markets. So we could actually see 10 years of lower than normal inflation rates in the emerging markets because they are 10 years behind in terms of e-commerce penetration in everything they do. In terms of meeting our targets, you know, it just, it puts everybody on this panel and it puts everybody in a higher risk position. So yes, we, you know, we’re going to invest in private credit just like everybody else does, but we’re going to have to be careful where we’re going for the best collateral we can find. We’re going for the best structures we can get our hands on so that when the downturn comes, you know, we’re going to be able to go to our board and say, we really like what we own. And even though it’s marked down, we know that it’s not going to have a permanent loss.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 12:20

That’s great. Nick, you, you face a number of unique constraints with with the, with your framework. What changes, what sort of adjustments are you making?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 12:33

It’s the same that you just heard. I mean, there’s no magic bullet out there. Obviously, you know, we don’t have the magic sauce that no one else has. What we do have is an illiquid liability, which allows us to do as much of what Jay just described as we possibly can. You know, having an illiquid liability that’s backing a pension. So it’s, it’s perfectly fine. That’s basically what you want to have backing your pension allows us to go out and pick up liquidity premiums. You know, across various asset classes. So that’s basically what we’re doing to try and combat this point. And what we like about it is similar to what Jay was saying is that it’s also a defensive positioning at this point in the cycle as well because we prefer private silver republics, the covenants, the ability to get closer to the borrower, you know, work with the borrower in a bad situation. You know, works out to a better recovery in the end.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 13:24

Hong, maybe from your perspective you, you have some unique constraints as well?

Hong Zhang – Chief Representative of NY Office, CIC: 13:31

Products here or they offered a very valuable insights for CIC. We again, what we can do is, you know, just continue to diversify and continue to identify companies that was a sustainable business model. And we hope to build a defensive portfolio. And also for the liquidity in liquid premium, I think we would seek set premiums improvement rather than financial engineering.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 14:08

Robert, you, you had mentioned focusing on structuring and building a resilient portfolio within private debt and whatnot. Maybe just some more on that just as it seems panel and more broadly, just a very popular area for capitalism.

Robert Hetu – Managing Director, CDPQ US: 14:21

Absolutely. Well, I mean, it’s, it’s a theme for the whole organization. We talk about resiliency and building portfolio that will sustain market volatility. And the best example of that was last year when CDPQ returned, I think it was 4.2%, which was materially higher than the index by probably 2% because of the fact that our portfolio was very resilient and focus on quality. So despite the volatility at the end of 2018, we were able to generate a return that was not really materially lower than 2017 but materially better than the benchmark. So that’s a theme for the organization. So translating that into what we’re trying to do in fixed income and private debt is again, getting the right resources and the right team to be able to do our own diligence develop our own view on credits, whether it’s, and we do have private debt in corporate credit, but we also have other teams that focus on specialty lending as well as real estate.

Robert Hetu – Managing Director, CDPQ US: 15:18

And we again, focus on making sure that we understand as best as we can, the risk, do a real deep dive and diligence and be able to live with that credit. If it goes through a cycle. So we don’t, we specifically focus away from, you know, cyclical companies or if we do look at cyclical companies, they will have to be levered in the right fashion so that they can go through a cycle. But otherwise it’s picking the sectors that we feel would be resilient through a cycle, whether it’s business services, technology healthcare that we feel have long-term growth potential, even if you go through a cycle and have to deal with potential problems that we will have in our portfolio. So the good news is we’re at the beginning of that effort in terms of building that portfolio. So we’re transitioning from a much more liquid portfolio to more private. So we both have the resources in place in terms of people, but also the benefit of being fully invested and not really have the pressure to deploy capital if we feel that the opportunities are not appropriate for us. So at least for now, because we’re at the beginning and we do have the benefit of really choosing the right investments to be able to deploy capital in a thoughtful way.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 16:29

Mark, you talked a bit about demographics, but outside of that, perhaps, is there an economic factor or trend that you’re seeing that is a note or concern?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 16:42

Yeah, look, there’s plenty always concerned. I think the comments previously, there’s always uncertainty in the world and so you can always find concerns. But you know, we were clearly in transition and you know, take the Chinese economy, it knows it’s in transition and I did kind of call it a lot of work up there. It’s in our region. They’ve been looking to internalize their growth rate. They’ve known that growth the export model of Japan and South Korea would eventually reach limits. But the concern for them is that this has happened a bit sooner than expected. And my sense of what I’ve been up there a few times this year is that they’ve been worried about that.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 17:15

On the other hand they’re doing strategic things. They’re opening up the markets. I had to speak at something two weeks ago on this. They’ve been very clear about their allowance of foreign investors. They’ve been very clear about paying down there. But that’s a big transitional change. They’re an important grower. They’ve been very important to the overall growth dynamics. The question for us now though is if I’m concerned is as I said before, the growth now has to be found in other places. And if I was running the IMF, I’d be concentrated on them and helping them do it well. So for example, the banking problems in India today actually matter because it’s one of the growth drivers for the next decade. And so are the, some of the dynamics that change on the very positive side. Demographics here in the US are good. The country is actually well run.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 17:56

I mean that in a broad sense. You know, commercialism is very good here and this is good, but it’s now patchy and it gets to an overall thing, which is because the trends have been so great for 35 years, and this is sort of obvious to state it’ll now be the art of investing that will really matter. In other words, if you’re a private equity investor today, you won’t be able to rely on falling rates to get revaluation the entire portfolio. About 75 to 80% of your return will be how good you are at actually running the company. The rest of it or take infrastructure. There isn’t an infrastructure manager today who isn’t good, right? But some of them are buying stuff that’s now getting fringy that there’s not very good. So it’s the art of being the bottoms up as well as the top down investor. That will be the trick in the next five years. That’s perhaps obvious to state. But finding really great managers is going to matter so much more.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 18:46

So speaking of really great managers and sort of finding the best there’s been a lot of fee consolidation across the industry and a bit of a jump ball, but has that opened new doors for any of you? Has that made anything that was previously too expensive now a viable or improve the utility of a financial product to anyone on that?

Robert Hetu – Managing Director, CDPQ US: 19:06

I mean for us, again, we have a team that’s dedicated to do or on direct investing, but we, because of our deployment targets, we have also the need for third party managers. And historically we’ve looked at it as a, somebody that would deploy capital in the segment that we can’t really do ourselves and we still think about it that way. But now we’re thinking more of a managers as partners that can help us achieve our strategy of direct investing. So co-investments, which if some of your managers, I’ve heard from a lot of LPs as well, that this is critical. It is very important to us to be deploying capital in a very cost efficient way. So yes, thankfully, and we love to have pressure on the part of external measures because it’s better for our deposits and we get to be a lot more efficient in deploying capital.

Robert Hetu – Managing Director, CDPQ US: 19:52

But it’s not, you know, fear for us is really, it’s important, but it’s more how does that manager fit in terms of what we’re trying to do strategically. How can they help us achieve what we’re trying to do in a cost efficient fashion? And you know, we used to think about managers as looking at folks that have a very big platform that can deploy a lot of capital. And now we’re thinking, well, we have our own team. We want to be important to that manager for us to deploy or to give a mandate of, you know, half a billion dollars to somebody who has a hundred under management. You know, it’s great, they’re a great platform, but we won’t really see as much benefit in what we’re trying to do. Then deploying 500 to somebody who has 4 billion under management where we become very important to them and help them a lot in their growth. So we’re really thinking about it as a, as a way for us to, again, achieve what we’re trying to do strategically. And analyze whoever comes to us for a proposal, which you know, there’s a lot of activity on that phone. People know where to find us. And we’ve met a lot of managers, but that’s kind of how we’re thinking going forward.

Jay Madia – Head of Risk Assets, Axis Capital: 20:58

Just to add to that, I mean we invest in a private equity fund. You know, we’re going to ask them how much are you really going to deploy? Are you going to get to 100% or not? Because if they’re only going to get to 70%, that’s going to waste a lot of our capital and we’re going to pay a higher fee structure. You know, people also talk about J curve and a lot of people talk about it in the context of the optics of are you losing money for the first year or second year? We, we think about it in the economic context of what’s the total amount of fees that we’re paying. It doesn’t matter when we’re paying them for the amount of capital that we’re going to deploy. It also helps us if the manager has an existing seed portfolio that’s already on the board that gives us visibility, we know that they’re going to be able to get their job done in the next, you know, two, three, whatever years. And it also reduces that kind of quote unquote J curve. And then finally, you know, with a lot of investments that are illiquid, if we can get that in a semi-open ended or a somewhat liquid structure where we have some power to, you know, push the stop button and just let our portfolio run off. That helps us out a lot in terms of our own internal capital management liquidity metrics as well.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 22:12

Nick as you look across a broad range of investments, is there anything that you’re, you’re not doing that’s off the table? It’s just a, we’re too late in the economic cycle or is too risky or region? Is there anything that just is a flat out no.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 22:24

Outside of the OFAC treats, which is obvious, probably I would say currency as an asset class, whether it’s traditional currency or crypto. It just feels a bit to me, like it’s there’s not a lot of expected return, but there’s quite a bit of all and that’s not something that an investor like us that has to worry about capital charges you know, put up against their assets so you know, would be concerned about. So that’s everywhere else. We probably are comfortable going, but I would say currency as an asset class, we don’t really

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 22:57

Sure. Hong, same question to you. Anything off the table.

Hong Zhang – Chief Representative of NY Office, CIC: 23:00

So we have to play it safe so we won’t enter into like too risky areas, especially countries with great geopolitical risks.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 23:12

Mark, outside of markets and with your teaching and whatnot, is there an area that you find challenging? Is it talent retention? Is it you know, what sort of things outside of markets are a challenge for your organization?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 23:26

The organization generally institutions I love the last presentation about skin in the game. You know, we, we have a problem there essentially because people don’t own the institution. In our case, we’re owned by the members, for example, well most, most are. And so finding people who are really, really great investors, paying them well but also credit, a culture that keeps them hopping is, is very important. And there is a problem for asset owners, which I found when I was at the future funds, first time I’ve been on the SRO side is that when you’re an asset owner, you’ve only got one client, usually it’s the investment community. And you don’t have a lot of clients out there asking you questions, keeping you sharp. Right? And in fact, the people that, that our staff do me are usually fund managers who tell them how great they are. Right? And so over time the culture of the asset owner is not as sharp as the culture that you get on the, on the buy side. And so for us it’s about attracting people, but it’s about creating the culture. The one thing I’ll say is that to Bridgewater do take people and when you send people to Bridgewater, they come back different. I mean that genuinely, I had a guy once who was always bearish and for his career development, there’s a very limited field of always being bearish. And this is a true story. We sent him up there and he spent three weeks and he came back a different man.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 24:45

And that’s because frankly in their case, they do not care. They so strongly believe in their culture that they were going to ask him as many tough questions they ask themselves and that made him a better person. But inside SL owners, it’s hard to create that hopping culture, but whereas you, you’re an asset manager, you’re seeing so many clients that you better be sharp, you’re going to lose the race. And so that’s there. Some of the challenges that we have is not just attracting but creating the right culture so that you’re absolutely at the cutting edge at all times.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 25:11

Because one of the benefits by the way that I think TIAA has, because we’re both an asset owner and asset manager, right? So wholly owned a very large asset manager under the brand of Nuveen. And that creates, I think that the appropriate mix inside of the culture that we’re looking for.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 25:28

Jay, this is the time of year when a lot of folks make goals for the next year and whatnot, both on the business side but on the market side as well. Anything on the agenda for you guys as you look forward?

Jay Madia – Head of Risk Assets, Axis Capital: 25:40

Yeah, sure. I mean from the investment perspective; I think this is probably front and center on a lot of people’s minds is preparing for a possibility of a recession. You know, how is your portfolio going to look in that scenario and you know, are you investing in the right things and what actions may or may not take if that happens. On the business side you know, the insurance and reinsurance business is also it’s a challenging and there are many who know a lot more about this topic than I do, but it’s a challenging business. We are, you know, there’s a lot of technological disruption. There’s a lot of competition. Recently there was an M&A spree in the reinsurance industry. You had larger firms from Asia paying even two times book to buy reinsurance companies cause they looked at them as just kind of a bond portfolio. One of the things that we do at Axis is we have a team not my team, but we have a team dedicated to strategic investments FinTech and InsureTech and they, they engage with outside partnerships to sort of get ahead of that and play offense instead of defense.

Robert Hetu – Managing Director, CDPQ US: 26:54

I was going to add one thing for us, it’s really where there’s, it’s a couple of things. One is because we’re deploying more in private debt, we know that there’s going to be more problems in the portfolio. So, which is something that’s relatively new for a team that has been mostly with more conservative, safer credits. So how do we think about, and how do we set ourselves to be able to manage those problems, situations, having the right skill set. It’s something that we’re thinking about for, you know, 2020 and beyond. We’re also looking at potentially investing outside of the North America and Europe where we currently have our teams looking at emerging market. We’re starting to think about how do we deal with Asia or potentially investing in, in in South America. It’s been challenging in terms of finding managers in South America too, that we feel would be a good strategic fit for us.

Robert Hetu – Managing Director, CDPQ US: 27:51

We are putting in place something in India where CDPQ has been very active in India over the last five, six years working with local partners to invest in particularly in infrastructure and more recently in private equity. So we’re probably going to do something in India as well in corporate credit. There’s a group of very good managers that have established track records. And for us it’s a way to dip our toes in emerging markets in a way that will give us the ability to learn about the market and see if it does provide a better return for our capital. So, not huge amounts of money, but certainly something that help us expand beyond North America and Europe.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 28:32

Yeah, I would actually, I would agree. The challenge around distressed investing is a pretty big one because it’s very difficult to maintain a team that has that skillset when there aren’t a lot of distressed assets. You know, you’re not going to hire a bunch of people having to sit there and do nothing. They’re not going to want to sit there and do nothing waiting for the wave to occur. And it’s been much longer than anyone expected for that wave to come. So that’s a huge challenge, I think, for pretty much every acidotic.

Robert Hetu – Managing Director, CDPQ US: 28:56

The interesting part is whether you want to invest in distress. We’re not doing that in fixed income within our group. Some of the pockets of CDPQ was doing that, but you’re right, it’s been relatively spotty in terms of return in the last five years, just because of the environment that we’ve been in. But for us to focus really, not necessarily to look at investing in this recessive, but just managing the problems that we’re going to have and how do we deal with that in the most cost efficient fashion, whether we do it all in house or do we use outside resources? We’re still trying to figure that out.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 29:29

Well with, with the idea of leaving time for questions here, we’re going to do a little bit of a lightning round. So these are four questions and we’ll let each of you answer them and then we’ll go to the next question. So will the S and P five be higher, lower and 12 months up or down?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 29:45

Are we going to come back in 12 months it’s documented somewhere. Lower.

Hong Zhang – Chief Representative of NY Office, CIC: 29:53

Okay. Well I really want him to ask my colleague, but higher. I hope it will be higher.

Jay Madia – Head of Risk Assets, Axis Capital: 30:00

I’m going to say lower.

Robert Hetu – Managing Director, CDPQ US: 30:03

I think it’d be lower.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 30:05

I say higher.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 30:14

Next question. 10 year yields higher or lower in 12 months?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 30:19

You know, on the hope side higher, but I get the feeling lower.

Hong Zhang – Chief Representative of NY Office, CIC: 30:24


Jay Madia – Head of Risk Assets, Axis Capital: 30:25

I think flat or target around 2%.

Robert Hetu – Managing Director, CDPQ US: 30:30

I think it might be lower than that.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 30:32

I bought the flat story.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 30:33

Fair enough. Will Brexit be resolved in the next six months? Yes or no?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 30:43


Hong Zhang – Chief Representative of NY Office, CIC: 30:47


Jay Madia – Head of Risk Assets, Axis Capital: 30:48

No. I think immigration’s a big issue.

Robert Hetu – Managing Director, CDPQ US: 30:51

I think so. I hope so for that.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 30:54

Yeah, I think they’ll resolve it. The most important things that I do it on the right day of the year because we’re the only country in the world that doesn’t have a national day. Right. And I desperately need a sense of identity. So I’ll pick July nice day to have a public holiday in which to celebrate.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 31:15

Last one before we do questions with the audience will we still be talking about crypto in three years?

Nick Liolis – Senior Managing Diector/CIO, TIAA: 31:21


Hong Zhang – Chief Representative of NY Office, CIC: 31:22

Oh yes.

Jay Madia – Head of Risk Assets, Axis Capital: 31:23


Robert Hetu – Managing Director, CDPQ US: 31:24

Think so.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 31:25


Travis Williamson – Head of Hedge fund Research, Albourne Partners: 31:39

Great. So we’ll open to questions from the audience. I don’t know if we have a mic or we’re just raising hands. We do have a mic. We have one in the back there.

Speaker 1: 31:51

Thanks Travis. So Rob Kohler in here on the emerging markets are sort of the international expansion. A couple of you all mentioned that, but then some difficulties. Is that related to potentially the scale of, you know, you all are wanting to put out more capital or is it sort of the dynamic between family owned businesses less open to equity give up or rule of law type things. Can you expand a little bit upon that? And I think this was driven a little bit from our folks from Canada and a couple of them.

Robert Hetu – Managing Director, CDPQ US: 32:41

Yeah, I can take that. I think it’s all of what you’ve said in the sense that when we’re thinking about where it makes sense, you need to think about the obviously the you know, the legal regime in that country. The history of investing in your asset class. You know, track record, the type of teams. And is there a cultural fit in the way that people invest in your asset class versus what you’re doing yourself? And then what are the returns? And in our case, being a Canadian, when we make an investment in private, we don’t really think about currency. Because we hedge it at a higher level than we just, whatever it’s euros, whether it’s Canadian dollars, US dollars, Sterling, whatever currency we can hedge. We think about it and it’s not a factor in our return decision. But when you’re looking at emerging market, it obviously becomes a bigger issue. And thinking about those market is, does it really make sense to deploy capital? If at the end of the day with the tax implication, with the currency implication, you’re going to end up with a return that’s marginally better than what you can do domestically. Does it really make sense? So these are all factors that we think about as we look at deploying in emerging markets and in fixed income, in corporate credit for us, it’s something that’s relatively new. But that’s how we’ve been thinking about it. And so far we’ve thought of India as the first step for us to kind of dip our toes into that market.

Jay Madia – Head of Risk Assets, Axis Capital: 33:51

If you look at standard markets in emerging markets, they’ve rallied and there’s not that much of a risk premium there versus developed markets. You know, we are looking at specific opportunities in emerging markets as well. So for example, India just passed the, the bankruptcy law that helps real estate debt, that sector working out real estate loans that makes it safer. Australia as Mark knows, has a situation where you have a, a banking oligopoly and so the, the yields that you can earn in private credit in Australia with really good collateral are actually quite high. In Brazil, we’ve looked at the system at federal claims there and you know, are managers that try to accumulate those at a discount. And you know, Argentina hard to invest in, but as many in the room may know that they have a public private partnership opportunity there where they’re building power plants in there. It’s all sort of us dollar denominated. So we are looking at specific situations.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 34:53

I must say we’re at a critical moment though because they need to, we need to have the game, the rules of the game still set the way we’ve been used to it, and I’m not suggesting necessarily will change, but I’m very impressed by how brave the Canadians are in terms of allocating to some of these markets. But you would not want to get in there and get your capital stack. That is distinctly possible. If we get bad behaviors by everybody where we don’t believe in the system and this thing gets to infrastructure for them for their sake, it will be great if we can convince the countries to have really sound and stable regulatory environments. But with the volatility that’s going on, we need US leadership and we need leadership from everyone else who’s who set the system to continue to set it. If they don’t, then we’ve got to think about exactly what sort of risk we’re taking. It’s an outside story, but it’s the first time in the last 35 years that I’m now particularly thinking that through personally.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 35:42

Yeah, that’s actually a good point. The world is moving against globalization. There’s no question about that. So there’s a lot of potential peril and you know, we’re, so TIAA is huge. I mean we have the scale. We have a very large investment organization. We’re pretty much across the globe. We’re investing in commercial mortgages in Australia. We’re investing in real assets in emerging markets. But those are genuine concerns. Now because you’re right, the world has shifted I think into a different regime.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 36:09

It’s shifted. We have a slightly quirky thing. I talked about the positive demographic countries. The thing is that the ones that are the most positive also have a youth bulge currently. And youth bulges are very dangerous periods. Mainly in Japan in the late fifties, there were student rights because they couldn’t employ them quickly enough. Us late sixties, whenever you get this youth called coming through on a 10, 15 year view, it’s fantastic. But in a short term view, and this is partially why we’re getting riots and other things partially and some of that has been countries, we’ve got to get through some of that stuff too. That said, if you’re a long-term investor, like we are and you believe in the system and we continue to work on the system, that’s where you’re going to get future growth.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 36:45

Combining the youth bowls with the wealth gap. It can be a pretty dangerous combination.

Speaker 2: 36:59

We recently had the change in the leadership of European central bank and together that fact and the noise that comes out of the insurance industry as well as banking, especially in Europe. There was an obvious desire and pressure and wish, I guess to change the regime. But what are you thinking your mind is the chance for something like that happening and the knock on effect to our markets?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 37:29

Yeah. So you’re talking about the change in regime at the central bank in Europe. Yeah. So I sit on this think tank called ANFA and as I said, had a hundred, 150 minute meetings a year, central bankers around the world. And yeah, Europe’s in a critical moment. The central bankers themselves need to rethink this. I asked them recently, the thing I was added, how much work have you done on demographics? So for example, we used to saying that Japan is not growing, but GDP per capita has been one of the best in the world. Right. And so maybe they’ve got to rethink some of their processes and systems, but you are absolutely correct. Is that Europe’s got some moments of truth, a lot of pressure on the guard thinking that she’ll bring in fiscal. I’m not so sure she will. So yeah, it’s one to watch, and I think it gets to a generalized thing, which is central banks have run out of bullets. I think Jackson hole was very significant this year. They’re essentially saying that, and we as investors just have to get used to that scenario.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 38:20

I would argue that part of the problem has been that monetary policy and fiscal policy just haven’t been aligned. So you know, when, when you had monetary policy easing in Europe, you also have fiscal austerity, right? So if you can get, you know, actually it’s true for the US as well, get your act together and find a way to actually, you know, put those two policies together enforce infrastructure for example, is just seems like the right thing to do right now across the globe that can, you know, increase growth, increase in employment even further than it is already. But it just doesn’t feel like the impetus is there you know, a, a regime change or a change in leadership is the appropriate time to start thinking about these kinds of things.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 39:00

I think it’s a good one. Jackson hole was particularly significant because they’re prepared to talk about fiscal central bankers are, and they know that fiscal is political. There’s a big psychological change for them because they’re basically saying, we’ve run out of ammunition as your very point. They do not want to look too political because they’ll lose their independence. And this is the trade off that’s going on between central bankers and everybody else.

Nick Liolis – Senior Managing Diector/CIO, TIAA: 39:20

Cause you don’t want to go even lower and rates, right. We talked about that before. We want to keep rates close to zero and use something else to try and stipulate the economy.

Jay Madia – Head of Risk Assets, Axis Capital: 39:29

And I think it’s also appropriate to think about what would European monetary policy be with Italy and potentially Greece not being part of the Euro as opposed to being part of the Europe that, you know, including them, you know, in introduces this sort of deflationary force because you’re putting an artificially strong currency on countries that have lower labor productivity. So, I personally think it’s still in the next five years. One of the risk factors that you do see a country leaving the Europe.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 39:56

Mark, through your think tank. What sort of reliance do central bankers place on the need for fiscal policy? Meaning when we say they’re out of bullets, is it onto you fiscal policy or are they fully relying on that for the next leg of stimulus or?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 40:11

They’ve started to hint at it and remembering that they’ve not got involved in that for a very long period of time. And, and I think the other thing is to be a little critical. Central banks, I’m reminded of, I lived in New York and the 87 crash and after the 87 crash, remember the bank credit analysts? So there was joke was that they said have 65% cash and what are is 35% canned food. Right. And that was because they were thinking about the depression, they were looking at the two. And the thing that we learned from the ASM crash was that monetary policy can statistic a floor under things. And that’s now 30 years of doing the same thing. And even the central bankers, they don’t want to stand up and say, cause it’s a huge blow to your ego. As a central banker. Say I’ve run out of bullets, I’ve lost my power. But I think even they are starting to indicate that, but they’re trying to grow massive figure out a way to do that without becoming political. MMT. Let’s face it, if MMT came in, they’re essentially becoming a fiscal arm of government. They should probably just give up independence and see what happens. I mean, my finally get inflation back. But they’re the sort of dynamics that are at the margin. Central bankers I think are changing their thinking.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 41:17

I think we have time for one more question or we’ll close it. There perhaps is a question right there.

Speaker 3: 41:23

In Vegas, one of the topics that came up was the, the demographic changes in emerging markets in the youth dividend in certain countries you know, make them give them attractive investment qualities. Do you think there’s an emerging sort of, given this de-globalization an emerging metric where some of these countries that are benefiting from the move away from certain parts of Asia of the supply chain to other countries. And sort of what would the metrics you would look for to observe any of the changes?

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 42:04

Yeah. So within emerging markets, what signals would you look for the change in regime or the change in sort of comfort and stability of investing?

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 42:16

There’s been some academic work, which I twitted that doll on my 500 followers. So I can look me up. You have your 501 or whatever it is. Probably most of them are robots, right? But I just can’t remember the lady’s name, but she’s done very interesting work and just recently, and she’s put out some stuff looking at how China’s behaving here. And so they’re attaching their supply chain to Europe and others. There’s no question. I go to a CFO of vintage June where we all sit around and CFO’s are great because they’re informed, but they’re not that egotistical. Like CEOs tend to tell you what they think and you’d have a conversation and there’s no question. The last two meetings we do this in Europe has lots of major global suits, CFOs, they’ve just stopped investing cause they don’t know where the supply chain is going to go and I think they’re sitting out, frankly the Trump administration to see how this plays out in the next 12 months.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 43:04

But the answer to the supply chain, not that simple. It was interesting. Mohamed El-Erian mentioning bi-modal distributions. The one he didn’t mention today in there’s chat I use a lot, the ILO did one on the bi-modal distribution of labor. And this has been a case in the 1980s we injected the one and a half billion fresh workers at cheap prices and the two curves are trying to come together, but there’s still a long distance apart. And so that’s the friction of the leg globalization is that the, as I said to people that we all started in the 18 hundreds we’d have one global distribution of labor, but it’s still, we’re in disequilibrium and so that friction is bumping. And I think what you’re trying to allude to there is to the countries on the left hand side, those with cheap labor trade with each other cause everyone else blocks them off or some other mechanism and there’s no doubt global firms are trying to figure this out.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 43:50

And so the big, unfortunately for Britain, the easiest decision they can make is just not put anything in the UK because they don’t win. Doesn’t matter what happens, right? But they’re trying to figure out these distribution channels and when you’ve talked to them informally, even, you know, should I put it in Mexico? Is that actually already said or isn’t it? And so they just hesitate a bit until you get 10 or 15 and investment and I think it will get resolved. I think it will be more regionalized, but it’s still working its way through the system and she’s done some very good work. If you just look up my tweet,

Nick Liolis – Senior Managing Diector/CIO, TIAA: 44:18

Why would they be a good way? Again, relationship anti-globalization, I guess not the best way, but that might be one way to get it.

Mark Burgess – Chairman/Investment Committee & Director, HESTA: 44:24

People ask about inflation. And I’m reminded this 15 years ago, I interviewed a strategist and she was very young. I said, what do you make of inflation? She looked me in the eye and she said a statistical anomaly, right? Cause she’d never seen it. She’d only studied it and she really helped me. She made me rethink my own thoughts cause I had only ever seen inflation. But now at the margin, if you ask anybody, everyone believes in law for longer. That’s an absolute consensus. Now from what I can observe and non-renew believes inflation is coming back. But if you think about what’s helped inflation, free trade helped it. Global warming won’t help inflation with rising food prices. There’s a bunch of these dynamics that at the margin could arguably be on a five or eight year view. The emergence of a style of inflation that perhaps we haven’t seen before.

Jay Madia – Head of Risk Assets, Axis Capital: 45:06

When we think supply chain, we think labor costs are higher in China, so you’re going to get more manufacturing in Vietnam. On the other hand, China’s benefiting from more pharmaceutical development coming into China. That was traditionally only India. But one of the trends we see is e-commerce across the world. And e-commerce increases the demand by an intensity factor of three acts increases the demand for simple industrial warehouses. So that’s something that’s been in the newspapers a lot in the US. Blackstone’s been in the news as buying billions and billions of dollars of warehouses in the US when we look at Europe, France, Germany, continental Europe, especially Spain, they’re e-commerce penetration is, is anywhere from a few years to even 10 years behind the US and so we, we like the idea of buying industrial warehouses in continental Europe. That trend is also happening in the emerging markets.

Hong Zhang – Chief Representative of NY Office, CIC: 46:03

I just wanted to add that it won’t be that easy to move to my chain off of China. One thing they have to think about is the advocated labor. I’m just thinking think about it. You can assign that US manager to China because it has a better working environment, but if you want to assign someone to VNM, then probably they would think twice.

Travis Williamson – Head of Hedge fund Research, Albourne Partners: 46:24

Great. Well, I think we’re out of time, but thank you to each of our panelists.


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