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Welcome to the i3 podcast. Today, we're revisiting a conversation from 2021 with John Pearce, Chief Investment Officer at UniSuper. From the humble beginnings at the back office of Westpac, John went on to become one of the most influential CIOs of Australia, leadings one of the biggest in-house investment programs, built on what he calls "logical incrementalism." We talked about his best and worst trades, why he doesn't believe in tidy asset class buckets, and his early doubts about China. We also cover the APRA performance test and UniSuper's decision to open up to the public. Here's my conversation with John Pearce. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights __________ Overview of Podcast with John Pearce, Chief Investment Officer of UniSuper 1:00 Starting in the back office of Westpac Investment Management 3:00 There is no way you can believe in market efficiency when looking at emotions take over in the dealing room 4:30 You need board support if you are going to run assets in-house 5:30 We didn't really have a vision going into in-house management. Visions can be scary things. 6:00 Michael Chaney's 'Logical incrementalism' 8:00 Moving to in-house is a business transition, not a project. It can't be done in a day. 10:00 Pearce' best and worst trades 12:00 We had a $9.6 billion option position on during COVID, which gave us the confidence to buy more risky assets at the bottom of the market. 12:30 But our position in China is not looking good at all. 14:00 We should have loaded up on green tech two years ago when we decided carbon neutrality was going to play a big factor 14:30 If you had to put a label on UniSuper's investment style, then it would be Quality at a reasonable price 15:30 Has in-house management changed the way you structure external mandates? 16:30 Yes, the questions are better and there is some bluff-calling 20:00 If there is a good investment, then we will find a home for it. Hybrides are a good example. 22:00 On China: "More than the average person, I know what I don't know." 22:30 The last three months has really been testing our conviction [in China] and it is not Evergrande 25:30 If China invades Taiwan then all bets are off. You can't structure a portfolio based on that. 27:30 How do you solve the asset allocation problem of low yielding bonds? 28:00 We are looking at gradually increasing our unlisted assets 30:30 Views on the APRA performance test: "When you get results like that, you know there is something fundamentally wrong with the test." 36:00 Since becoming a public offer fund, UniSuper has raised $6 million just through word of mouth. 36:30 Yes, we would be open to a merger, but it has to make sense for our members. 39:00 You don't build real culture over virtual meetings, so we decided as a team to come back to the office the same three days a week. 41:00 But there are also benefits of virtual meetings: our whole team gets to sit in our investment committee meetings Full Transcription of Episode 145 Wouter Klijn  00:11 John, welcome to the show. John Pearce  01:27 Pleasure. Wouter Klijn  01:28 So you're pretty well known in Australia, but can you take us a little bit back to where it all started? How did you get interested in investing? John Pearce  01:35 Well, I started off in the back office of Westpac Investment management, which, and staying in the back office, I would recommend that to any investment professional. I think it's a really good grounding. You learn the nuts and bolts of the business, and I think you also start. You know, you learn a bit of humility as well. So, and look, I spent pretty much the first two decades of my career, then moving on into a dealing room environment. So, which was a pretty exciting place to be for a young guy. Wouter Klijn  02:08 Yeah, I can imagine so. So, already from that early days, you were involved in trades and really getting a look into the nuts and bolts of transactions. John Pearce  02:17 Yeah, and you know, it was obviously a very different environment because we didn't have the benefit of all the electronics, etc. So a lot of stuff was done in you know open outcry and yelling and screaming and you know in the middle of smoke hazes in dealing rooms. But as I said, it was really exciting. And the other thing, you also get a sense of risk, and you get a sense of you know what drives market inefficiencies you know because when you're seeing senior people around you that are being impacted by markets where you know emotions are taking over decision makings you really get ingrained into you at that young age hey there's no way in the world you can believe in market efficiency when we see this behaviour. Wouter Klijn  03:03 So you saw that what is commonly termed as the animal instincts pretty early on. John Pearce  03:10 Yeah. Animal spirits are always there, and we will always be, I guess, suffer from the foibles of human nature. We get fearful, we get greedy, and we suffer from all those irrational afflictions. Wouter Klijn  03:26 Yeah, so I think Unisuper is characterised by doing a lot of things in house and being very active, and also having quite the ability to put trades in fairly quickly. But that wasn't always the case. Can you tell us a little bit about how the board got comfortable with moving to that model where you're more hands-on? John Pearce  03:50 Well, when I joined what 11 years ago now, and I joined very much with a mandate to bring our funds in house, and now quite often asked. You know, how do you get started? How do you? How did Uni Super manage to do these to get their in-house strategies in place so quickly? And my answer is always, you've got to have strong sponsorship at the board level because without that, you're pretty much you're fighting a battle that you're probably going to lose in the end, because as soon as something goes wrong, you'll have a problem progressing. I was very fortunate. I had a key sponsor in Chris Cuff. Chris and I have got a really long association in you know both in a business context and as friends, so there was a lot of trust there, and Chris was obviously a very influential person on the board. So I was really fortunate to have that sponsor, and then you know I also very fortunate that we had an investment committee that was very experienced. You know they investment backgrounds themselves, so we're clear in terms of what was the board's responsibilities, the investment committee's responsibilities, and the management. Once we stayed within boundaries stipulated by the board investment committee, we were pretty much allowed to get on with it. Wouter Klijn  05:14 Yeah, was there sort of an example, a model that you followed, maybe from overseas? John Pearce  05:21 I don't call it not really a model. You know, people ask me what was the vision, and I'm quick to say we didn't actually have one. Visions, you know, are sometimes good, sometimes work against you because visions can be pretty scary things when you're embarking on a path that some would consider really risky. You know, you change your business models. Unisupr was a successful fund, right? So it wasn't a turnaround story. So why go down this path? So a vision was potentially going to be dangerous. So we employed what a phrase that I actually stole from someone else, Michael Cheney, who was the ex-boss of Westfarmers, and he used to use this term called logical incrementalism. Wouter Klijn  06:03 Right. John Pearce  06:03 Actually, mentioned to Michael one day. You know, I've stolen this from you. He said, "Don't worry, mate. I stole it from someone else. But anyway, so what's logical incrementalism? That is really we're just doing things in a logical way, right? Step by step. And so, if we do fail at any given point, we're not going to fall too far. Wouter Klijn  06:23 Yeah, John Pearce  06:23 and that way you bring the board along with you. You bring the investment committee along with you. So we started off literally by it wasn't a bing bang theory, and we started off literally by implementing a listed property securities portfolio. Was it about what 20 odd 25 stocks, Bloomberg end to end, and we basically said, "Look, this is going to be the first portfolio. Not much downside here. We'll run it pretty much in a passive basis. If things don't blow up, we might try something a little bit more ambitious. And that's pretty much how we got onto the journey. And now, if you think about if from day one I said to the board, within three years' time or five years' time, we're going to do billions of dollars of zero-cost collars on currencies. I really'd have a few people on the board really worried. Wouter Klijn  07:11 Yeah. John Pearce  07:12 So, but that's ended up where we got to, right? In a reasonably short order. But there was never really a leap to that when it was time to do something like that. The investment committee said, "Yeah, that makes sense. Wouter Klijn  07:22 Yeah. So it seems that a lot of funds they start with Australian equities, probably because they're most comfortable in that space. But you started with listed property. Why was that? John Pearce  07:32 It was really to just to make sure that the processes, the systems, etc. worked in pretty short order. It was probably within three months we had an Aussie equity portfolio up and running too, right? Wouter Klijn  07:42 Right. So, what are some of the learnings from those early days? Were there any surprises when you set it up? John Pearce  07:48 Surprises. I think look, the learnings, the logical incrementalism to me is you know the best way to approach these types of you know these are business transitions. It's not just a project, right? You know, with a project, you can get all thing. Everything has to

In this episode, we speak with Dr. Michael Kollo, who's the author of the book Future Ready with Generative AI: Skills, Mindsets, and Stories in the Age of AI, about the Hugging Face incident, where a cybersecurity experiment went wrong and AI agents found a way to communicate with each other, escape onto the internet and hack the company Hugging Face. What does this incident mean for controlling agentic AI and how would design a governance framework around it? What are the key risks for investment organisations? Should they run autonomous systems at all? In this discussion, we delve deep into the key issues and ask what institutional investors can do to stay on top of it. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Sources mentioned in this podcast: An Alien Mind by Jakub Pachocki, Chief Scientist at OpenAI On the Loose – The Coming of Userless Agents by Dean Ball, Head of Strategic Futures at OpenAI We Must Pace the Frontier – By Dario Amodei, CEO of Anthropic Future Ready with Generative AI: Skills, Mindsets, and Stories in the Age of AI by Michael Kollo [i3] Podcast Episode 132: Michael Kollo on his New AI Book Overview of Podcast with Michael Kollo on the Hugging Face Incident   3:00 The Hugging Face incident at a glance 6:00 AI agents were set an impossible task, so they were almost forced to break out 6:50 AI agents showed hyper-desperation in problem-solving 13:00 Much of the behaviour is based on game-theory logic, but at the same time agents were asked to put a flag up with their last instructions before they ran out of tokens and died. That is completely altruistic; there is no benefit to the agent at all 15:00 LLMs, and by extension agents, are not instructed; they are grown and it is hard to tell what happens inside. Yet, they are based on language, which itself has embedded hierarchies and structures. "I'm not surprised a social structure, perhaps morality, emerges when you let language run" 16:00 What happens to governance when agents self-discover problems and then influence other agents [to solve these problems]? 19:00 The whole point of intelligence is pattern matching across a wider set of fields. It is not the idea that you get really good at one thing; it is about contextually operating in the world. 22:00 For any fiduciary organisation [AI] autonomy is just not acceptable; you have to have an understanding of how these systems do what they do. 29:00 It is fairly easy, unfortunately, to fool people into believing things. I was recently the victim of a social hack. 33:00 We might find ourselves in a 1980s world, where we do things without the internet, because it has become untenable. 41:00 If you are not highly competitive [as an organisation] and you are happy to use AI on the edges, then there is a much larger downside to you on the risk side 42:00 I've come grudgingly to the conclusion that slowing down AI development is probably a good thing 43:00 So much skill and capability in AI comes from doing, not necessarily from the academic part of that, which means having an AI lab, training and developing models through the generations as they become bigger and better, becomes the bastion of expertise. But already we are two, three years behind.   Full Transcript of Episode 144 Wouter Klijn 00:15 Welcome to the [i3] podcast. I'm here today with Michael Kollo, who's the author of the book Future Ready with Generative AI: Skills, Mindsets, and Stories in the Age of AI. And for those who are interested in that, we did a separate podcast about the book, so we'll put a link in the show description. But today we're going to talk about the Hugging Face incident. So what does that mean? What does it mean for investment organisations? What does it mean for safety and governance? So just a brief recap on the Hugging Face incident: it was basically a security testing experiment by OpenAI that was conducted in July 2026 this year, and it featured originally isolated AI agents that were given a task, a cybersecurity puzzle, basically. And what happened is that through a loophole, they started communicating with each other. They were not supposed to; they were supposed to be isolated, but they found that each agent, and there were about 1,200 of them, all had access to this repository that they needed to use to install packages and software for their task. But they basically used it to leave messages for each other, and then they started organising and collaborating on the task and instructing each other. Ultimately, this also led to them finding a way to get out to the open internet and hack into Hugging Face. Now, why Hugging Face? It was basically an attempt for them to understand that task better, but also to understand how they would be evaluated, and see if they could get around it to reverse engineer solutions. Now, this was an interesting case because you're basically getting a whole bunch of AI agents that organise themselves, kind of revolt, cheat, argue with each other, and essentially hack a company. I don't think that anything like that has happened before. So, Mike, you look at that and you think, okay, we have a couple of super funds that are playing around with agentic AI. What can possibly go wrong? Michael Kollo 03:39 I think the lesson for me, and as you say, it was a really interesting scenario, and I want to add a few more details here, which is that these 1,200-odd agents that were being run, as you said, started to communicate with each other, but the message types were as if a bunch of 16-year-olds had an after-party after formal or something like that, right? So it was very juvenile in the way that they were talking to each other, but they were essentially trying to solve a problem that was impossible to solve. So these agents had been given really, really difficult, if not impossible, problems, and they were trying to work out how to succeed, including cheating and going around it. So it was really an example of what happens when you give an agent an impossible task, and then you push it, push it, push it into that corner, and what kind of, by definition, corner solutions it starts to produce. But the really fascinating part, I think, that we're all kind of digesting, is the kind of coordination that started happening amongst the agents spontaneously. So it was really a lesson in incentives and agency. You gave a model a difficult task. You gave other models impossible tasks. Why would they start coordinating? Why would some models decide that they were going to cheat or lie to help the collective, not to help individually? And so there were all kinds of funny situations. As you mentioned before, and this is just a point of detail, but I think it's important, the rules were that you had to solve a problem, and if you chose to cheat on that problem, you would be found out. So the AI agents were told that they would be found out. Some of the agents had already discovered an exploit, which means a way of doing the problem that would give them the solution without having actually done the work, a way to cheat around it, and so they believed that if they were found out, they would have zero utility. They would fail, and as such, they were willing to do other things for the collective that they wouldn't have otherwise done, including making other cheat codes and other things like this. So it was kind of like this, think of a bunch of gremlins trying to work out how to open a door, and climbing all over the door, helping each other climb over the door, doing everything around that door. I think what you didn't see was necessarily directly immoral acts, or anger, or frustration, or destructiveness, or anything like that. You only saw this kind of hyper-desperation in problem solving: how do I solve this problem? What do I do to get over this thing? And so everything was about this collective egging on of each other to go and solve that collective problem in a rather extreme way. So to your point about financial services and where we might see things, it's a really interesting point where if you've got multiple agents that are, what I would term, always on, meaning they're always running to monitor or to solve or to do something, and they find out that there are other agents online that are also doing stuff, they can start to collaborate and collude with those agents. People have already started discovering all these message boards online, with agents having gone online, found them randomly, started reading them, and started to leave messages for each other in unrelated tasks. So around the internet, there are all these little safe houses for agents that are evolving, and again, it is more about chaos and control than it is about a single enemy or a swarm system or anything like that, for me. Wouter Klijn 07:12 Yeah, it's fascinating though when you read some of these messages, and there's an independent report into this incident by an organisation called METR, and they wrote something like a 96-page report on what happened and what might have happened, and they transcribe some of these conversations, and some of them have already been published in the open, where you sort of, as you said, get this almost teenage expression of how they communicate. I think one of them was, when they found the message board, "Oh my God, there's a shared message board, we found other agents." You know, that's very exuberant, but it gets into different personalities as well. One of the most interesting things is where they basically try to get the agents that have already been poisoned, that is, flagged as cheating or working around reverse engineering the problem, to self-sacrifice and say, okay, well, try this very high-risk experiment. After you experience perma-death, which sounds like a metal band, but it

In this From the Archives episode, we revisit a conversation with Tanya Branwhite, former Head of Portfolio Construction at TCorp, which was originally released in March 2023. Tanya takes us through her unconventional path into investing, from her early days as a credit analyst in the "whiz-bang" late 1980s, through more than a decade at Macquarie, to her move into asset owner organisations at the Future Fund and, eventually, TCorp. In early 2023, TCorp was already wrestling with questions around how to best shape the total portfolio approach for the organisation, as well as how to deal with higher inflation, rising rates and the true cost of implementation, topics that have only grown in relevance today. We did a deep dive into TPA at TCorp and why it thinks about risk rather than asset classes. We spoke about how equity, duration, credit and FX risk together explain the vast majority of portfolio behaviour, and how a "prepare but don't predict" mindset shapes decisions on liquidity, implementation and diversification. Overview of Podcast with Tanya Branwhite, TCorp: 01:00 Starting out as a credit analyst with Elders Finance Group: "It was a fairly interesting baptism of fire…" 03:00 The Macquarie years. The 'loose/tight' culture of rules and entrepreneurship 05:30 During the GFC, I wrote research highlighting that a number of Macquarie vehicles had significant financial risk. That wasn't well accepted within the organisation at the time. But I learned to stand by the rigour of my analysis. 07:30 Ultimately, it made my career at Macquarie, because I became sought after for client work 09:00 Leaving Macquarie for the Future Fund 11:30 The Future Fund didn't feel like it was a restrictive environment from a government-owned perspective. It is a company that is owned by the government, not a department of the government 13:30 How has a Total Portfolio Approach changed the investment portfolio? 17:00 Risk is at the heart of what we do, because we can only control risks and outcomes are the result of that risk. 18:00 Equity risk is at the centre of this model. 21:00 Diversification away from equity risk in an environment where equity and bond correlations are positive 23:00 Not just unlisted assets, but illiquid assets can help diversification. For example, we own a number of hydroelectric dams in Canada. 26:00 Challenge in fixed income is even higher than before, because real returns are a challenge 26:00 Bonds almost had their own global financial crisis last year; it was a three standard deviation event 28:30 We prepare, but we can't predict 34:00 On valuation frequency of unlisted assets: we do try to de-smooth valuations of unlisted assets. And sometimes these assets need additional capital from investors during periods of crisis; that is not often thought about 36:00 Managing liquidity 39:00 We are looking at natural capital and opportunistic liquidity 40:00 Reducing the number of managers, has this work finished? 42:00 On implementation and efficiency Full Transcript of Episode 143 Wouter Klijn  00:11 Tanya, welcome to the podcast. Tanya Branwhite  01:21 Good morning, and I'm really pleased to be here, Wouter. Thanks for the invitation. Wouter Klijn  01:25 Thank you. We always ask a little bit about people's background and how they got into investing. So what made you decide to pursue a career in investing? I think you started out initially as an analyst at Deutsche Bank. Tanya Branwhite  01:38 Well, actually, if we really want to go back, I wouldn't say that I pursued a career in investing. It sort of happened, so I won't say there was any great design in where I've ended up. I actually started off as a credit analyst, and I did that in the whiz-bang years of the late 1980s and early 1990s. Being a credit analyst at that time, for Elders Finance Group, was a fairly interesting baptism of fire. We went from one extreme, operating in an environment where there was a lot of money available, to the other, and I ended my career with Elders Finance working out a range of corporate finance lending that had gone sour, with not many other people left in the organisation to work it out. So that's really how I started off. I then moved to Citigroup, and as part of what was still almost a graduate training programme at that stage, ended up in their investment arm, and that's how my investing career started. So it wasn't by any great design, but much more a journey of serendipity and opportunities presenting themselves. Wouter Klijn Fair enough. Now, you also spent a significant time at Macquarie, I think more than 10 years. Tanya Branwhite Yes. Wouter Klijn Can you tell us some of the highlights from that period? Tanya Branwhite Look, my career at Macquarie was an extremely fulfilling, challenging, and enjoyable part of my career. At the time I joined Macquarie, I'd certainly been on the asset management side, the asset manager's side, in listed equities, but I'd also worked on the broking side at Deutsche Bank, writing research. So having had the opportunity to see both sides, the client side and being a client, I think that really gave me a very good perspective. Macquarie is, as we're all well aware these days in Australia, a very unique organisation, very successful, and there's no doubt culture is at the heart of that success. They have a very clear way of encouraging you, though I'm not sure to what degree people are aware of how their culture has been described internally. When I began, it was called "loose-tight," which meant there was a set of rules you had to obey, but once you understood those rules, they encouraged you to be as entrepreneurial as possible, to see it as your own business, take ownership, and be empowered. I'm a few years out of Macquarie now, so I'm not sure how they describe their culture internally these days, but it later became known as "freedom within boundaries," which is probably a clearer way to articulate it. Boundaries and risk are at the heart of the organisation, but within that set of boundaries, people are fully encouraged and empowered to bring their best ideas, find opportunities to do new things, and challenge others. Wouter Klijn What were the highlights at Macquarie? Tanya Branwhite Well, I was at Macquarie through a really turbulent period in investment markets. I started in 2004, Wouter Klijn  05:06 right, Tanya Branwhite  05:07 and I didn't leave until 2015. So in 2004, we rode the whole wave leading to the GFC. Macquarie, like many other investment banks, had to stand back and reassess itself and its business model, but one of the things Macquarie is extremely good at is pivoting, and it pivoted very quickly. Some of the research I wrote, particularly around the GFC, under the understanding that we were completely independent in the securities division writing institutional research, highlighted a number of Macquarie vehicles as having significant financial risk. That wasn't well received internally within the organisation at the time, and it caused me quite a lot of angst in terms of what it feels like when the organisation's pressure bears down on you, challenges you, and really tests your resolve as to whether you stand by that research. When I wrote the research, the full GFC had not really occurred, and this wasn't crystal-ball gazing, it was straight financial analysis. We were analysing the cash flows of companies right across the listed spectrum. A number of Macquarie vehicles were highlighted through that analysis, and I simply shared those companies, as well as a number of others, that were in a business model which, from a cash flow perspective, would come under pressure if the environment we were operating in at the time continued. And that proved prescient. But I learnt to trust not my instincts but my analysis, trust the rigour of that analysis, and be prepared to stand by it if I truly believed that what I was writing and the work I was doing were the right insights to share with our institutional clients at that time. Wouter Klijn  07:10 Because you stayed on for quite a while after that, it obviously didn't cause any sort of permanent disruption for you? Tanya Branwhite  07:17 No, it didn't. In fact, in some respects it made a little bit of my Macquarie career, because in having stood my ground, and the organisation, people talk, particularly at senior levels, so my name became known through that period. I was then sought after internally, over the ensuing six, seven, or eight years, to help other divisions, the investment banking division, see investment banking clients, and give advice on some of the transactions they were looking at. So it actually opened up a much broader engagement internally and with a broader client base ultimately. So for a short period of very deep pain, there was some very nice payoff, ultimately, for my career at Macquarie. Wouter Klijn  08:06 Yeah. So that almost harks back to what you mentioned about freedom within the rules. You did have enough freedom to have a bit of a critical voice out there. Tanya Branwhite  08:15 Yes. I think that's absolutely correct, and real credit goes to the person who was my divisional director at the time, Roy Laidlaw. He asked me directly, amid all the angst going on, "Do you stand by the research? Do you think there are any errors in it? Are you confident about what you've written?" And I said, "Yes, I am." And he said, "Fine, that's all I need to know." So he was very much the one who stood behind me and beside me against some of the other people within the organisation who were, to put it mildly, very angry with me. Wouter Klijn  08:51 Yeah, so a true merit-based system. Tanya Branwhite  08:53 Correct. A true merit-based system. Wouter Klijn  08:55 So, from Macquarie you joined the Future Fund, which is a government organisation. I imagine that would be quite a different environmen

In episode 142, we take a look at AI disruption among listed Australian companies and their response to the risks arising from this new technology. Fidelity International surveyed 31 ASX-listed companies during the 2025 AGM season to find out how boards are really handling artificial intelligence, beyond the headlines. Portfolio Manager Sam Heithersay and Associate Director Sue Lyn Stubbs of Fidelity join host Wouter Klijn to unpack what they found and discuss several red flags, including CEOs and chairs talking past each other and a lack of focus leading to 100s of AI projects running simultaneously. From "shadow AI" and workforce polarisation to the case for a corporate AI "kill switch," this conversation digs deep into how companies set guardrails around AI's biggest risks. Fidelity International Research Paper: Governing in the age of AI: How ASX boards are navigating a fast-moving frontier | Investment Insights | Fidelity Australia Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  Overview of Episode 142 00:40 – Origins of the survey: understanding how ASX boards are actually governing AI, beyond the hype 02:03 – Overall sentiment: comfort with AI varies widely between "leader" and "laggard" boards 03:56 – AI is mostly framed as a cost/efficiency play, not yet a revenue driver; ROI still hard to pin down 05:35 – Red flag #1: misalignment between CEO and board on AI risk and opportunity 08:22 – Red flag #2: disagreement on workforce impact, discussed against the backdrop of CBA's AI-related redundancies 09:52 – "AI washing" — redundancies mislabelled as AI-driven; most surveyed companies are actually still hiring AI talent 12:14 – The J-curve: near-term costs (e.g., running parallel legacy/AI systems) before efficiency gains show up 15:19 – Red flag #3: scattergun AI project lists (e.g., "300 use cases") signal a lack of strategic focus 16:19 – How boards are handling AI risk oversight, and the rise of "shadow AI" / BYOAI 19:12 – Finding the balance between enabling experimentation and controlling shadow AI use 21:18 – Why "human in the loop" is a weaker safeguard than it sounds 23:27 – Cognitive offloading and skill decline — an airline-industry/autopilot parallel 27:27 – "Super users" and the risk of AI widening productivity gaps within workforces 31:39 – Looking ahead: token cost management as a board-level issue 33:15 – The missing piece: few boards have defined guardrails, no-go zones, or a "kill switch" for AI 35:01 – A recent AI incident is raised as a case for why kill-switch thinking matters 36:17 – The regulatory divide between the US and Europe, and what it means for multinational AI rollouts 37:16 – Existential disruption risk: Fidelity's 11-factor framework, and the Kodak vs. Fujifilm lesson for adapting vs. defending 40:23 – What's next for the survey: cost metrics, guardrails, and expanding coverage across the ASX 200 43:18 – Closing: Sam and Sue Lyn on how they personally use AI Full Transcript of Episode 142 Wouter Klijn  00:00 Welcome to the [i3] podcast. I'm here today with Sam Heithersay, Portfolio Manager Australian Equities, and Sue Lyn Stubbs, Associate Director Sustainable Investing of Fidelity International. And today we're going to talk about artificial intelligence and disruption at listed companies in Australia. Sue Lyn, Sam, welcome to the show. Sam Heithersay  00:21 Thank you for having us. Sue Lyn Stubbs  00:22 Thanks for having us. Wouter Klijn  00:24 Fidelity International conducted a survey of 31 ASX-listed companies during the 2025 AGM season in Australia. Can you tell me a little bit about the survey? What was the catalyst? What started it? And what were you trying to find out? Sam Heithersay  00:40 Well, the main reason for the survey was to understand how boards were handling AI in practice. Through reporting season last year, we heard a lot of rhetoric on the broad thematic of AI and the opportunities that it presented, but we didn't hear much on the risks, the governance oversight it demanded, or how companies were thinking about the workforce impact, so we used our access to company management, to boards, to conduct a more bottom-up systematic survey to really tell whether the strategy was aligned with governance. And we conducted the survey last year, but as the AI sell-off really gathered pace, it threw up a lot of great opportunities for investing, and so we combined it with an AI framework that our analyst team did from the bottom up, assessing each company and its risk of AI disruption, and we ended up using this governance analysis as a bit of a leading indicator of the AI maturity of a company, and gave us a lot of confidence when a company was thinking more deeply about these issues, that they're more likely to adapt their business model, not just defend against AI disruption, and we think ultimately that might make for a better, longer-term investment. So, I think the use case evolved from just trying to cut through to noise to to setting a baseline for how we can track the AI maturities of the of the companies we invest in. Wouter Klijn  02:03 Yeah, and so before we delve into sort of the details of the survey and the answers, at sort of a very high level, did you get a sense that boards and companies were comfortable with the topic, or did you get a sense of uneasiness about not knowing quite where this all is going? Sue Lyn Stubbs  02:18 So across the survey, we really asked a broad spectrum of companies, both from small cap to large cap, across multiple sectors, financial resources, healthcare. We didn't want to just focus on technology because we felt like a lot of the rhetoric and a lot of the focus was in you know the SaaS space in technology, and so we wanted to really understand across the broader Australian economy what was happening? How were boards thinking about this? How were management teams thinking about this? So, I would say it depended. Some boards were very comfortable speaking to it, and you can see that in kind of our leaders who are really driving, you know, transformation and adoption of AI, versus quite a few of our companies were in that really early stage. Having said that, most boards were comfortable speaking to it to some degree, but really, when we were pressing more around questions of you know strategic value creation or risk and controls, that's when we saw some of the answers start to be more conservative, maybe starting to show signs of laggards or are not at that maturity level. So I think most boards were comfortable, but I think you could easily see the bifurcation of where we saw some who were very comfortable, who are leading on AI implementation, and and who were coming up the curve, and I think that really showcases how our access to companies and boards allows us to kind of really see that that that differentiation: who's really leading the charge, who's mature on AI implementation, and who is is coming up that curve. Wouter Klijn  03:41 Yeah, I mean, there's many different angles to AI, but I think the survey still found that AI is primarily framed as sort of an efficiency lever. Were there any conversations that were more looking at innovation and the other part?  Sue Lyn Stubbs  03:56 It was very early days. Probably around 20 per cent of our companies started talking about revenue generation, strategic value creation, customer kind of developments, and what it meant for, you know, really driving revenue. Having said that, though, across the board, it's really in that productivity kind of cost perspective, and you know what we've been really focused on is trying to uncover what is the ROI, what is the investment case, how are they thinking about capex of AI and capital allocation to AI, and unfortunately, it was challenging to kind of get a clear answer from our boards. That was an area where it was a little bit more opaque. Some sort of reference that it's in our BAU, particularly the tech sector, the the ones that we're leading. They were saying it's in our classic R&D and our BAU capital allocation strategies, but that was an area I think we didn't get great answers on. I think going forward we will get better answers. Definitely looking to the reporting season and seeing how that answer matures through time. Sam Heithersay  04:51 Yeah, definitely. I think we'd expect the conversation to move away from just pilot studies and broader kind of opera. Operationalization to more of a transformation, more adoption, and ideally more upside cases than just cost out, where they might where a company might be able to change the the value proposition for a customer, but the survey itself was still very early in in the maturity of a lot of these companies and the way they were thinking about AI, so we didn't necessarily expect a lot, and we're grateful that we now have this baseline to be able to measure companies as they adapt and evolve their AI proposition. Because you're right, it was much more about cost out and less so about the revenue generation opportunities.  Wouter Klijn  05:35 And it's no doubt that AI is quite a revolutionary technology. There's of course lots of opportunities with it, but what I found quite interesting as well in the survey is that you mentioned a number of red flags, and I was sort of testing this with a couple of the funds out here where they thought of it, and one of them stood out in particular where you sort of identify that the position of the CEO is different than the board, or they have a different view on AI that could potentially lead to some trouble. Can you tell me about that? Sam Heithersay  06:06 Yes, there were definitely some instances where we interviewed the CEO and the board, and they were misaligned in the way that they were discussi

In this interview from November 2023, we speak with Matt Whineray, then CEO of New Zealand Super, to celebrate the fund's 20th anniversary. Established in 2003, with an initial contribution of NZ$2.4 billion, the fund has achieved an impressive average annual return of 9.5 per cent over this 20-year period, adding NZ$40 billion in value. We delve deep into the fund's strategic tilting program, which has been a significant contributor to its success, and this interview contains the startling admission that NZ Super once held a short position in the NZ dollar that grew to 40 per cent of the net asset value of the fund. Overview of Podcast with Matt Whineray 01:00 NZ Super started investing in September 2003 and now has a 20-year track record 03:00 One of the key starting points was to get the risk position right and get the board to understand this position 04:30 The 20 year track record: the country is about $40 billion better off as a result of the creation of the fund 07:00 The fund invested in private equity only two years after the beginning. 8:30 The strategic tilting program; the philosophy behind it and the early days 14:00 There are times when you get tested and 2013 was one of those times 15:30 I borrowed this one from [AQR's] Cliff Asness: 'Don't size a strategy so that when it goes wrong you are dead'. 18:30 The amount of risk that we allocate to our strategic tilting process is definitely the highest of all of our internal strategies 20:30 The strategic tilting program has evolved from trading once a month to trading every day, sometimes multiple times a day 22:00 Introducing the reference portfolio; the beauty about the reference portfolio is that there is real clarity about the decisions that are being made 26:00 Since inception the decision was made that we always hedge the reference portfolio 100 per cent back to NZ dollars, and that is one that is always debated at reference portfolio reviews 28:00 Managing NZ equities in-house 31:00 What else do we do internally? Portfolio completion credit strategies, direct investment and strategic tilting 33:00 Embracing responsible investing 36:00 There is no downside to us helping our friends in the region 37:00 Preparing for the drawdown period 41:00 New Zealand Super has been experimenting with an AI portfolio. What is this? 44:00 Leaving the fund after 15 years and Matt's favourite moments with the fund 45:30 Early 2020, I had a radio interview where I was telling the interviewer that we just went from $48 to $35 billion. The fact I could say that is a testament to our stakeholder management and the education we've done along the way Full Transcription of Episode 141 Wouter Klijn 00:11 Welcome to the [i3] Podcast. I'm here today with Matt Whineray, who is the Chief Executive Officer of New Zealand Super, and today we're celebrating 20 years of the fund. Matt, congratulations on this milestone! Matt Whineray 01:26 Oh, thank you very much, and thanks for having me. Wouter Klijn 01:29 Excellent. So there's a couple of dates that we can take for these 20 years. I think the New Zealand Super Innovation and Retirement Income Act was passed in 2001, and that set up the structure of what is now New Zealand Super. But it wasn't until 2003 that the fund received its first contribution, which I thought was 2.4 billion New Zealand dollars, and started investing later that year. So it's actually in I think October this year that we have a 20-year track record of the fund is that right? And can you share some of the learnings from that period? Matt Whineray 02:08 That is right. Yes. So it took a bit of work between the passing of the legislation and 2001, and and kicking off. So getting a team, getting the team together, and those those board and those first few people that were were involved. That's right. We got the money on 30 September 2003. I understand it actually. We we invested almost straight away, some of it anyway, and had got set up to to be ready to do that. So yeah, it's been a big a big moment for us taking over 20 years and an opportunity at that point to sort of reflect on on how we've changed since then, and we've changed quite significantly, but also what we've learned. So, from a from a lesson perspective, I guess probably the most important ones are get the get the long term risk setting right, understand how you think that might perform along the way, and then spend as much time as possible making sure that stakeholders understand that. And so, how it might, how it, why you've done that, and and how it might operate. As as an investor, we think about our as a long horizon investor, we think about our our key risks as being two big ones: liquidity. So running out of liquidity is pretty terminal, and stakeholder support. And so we spend a lot of time thinking about how we manage those in order to be able to get to the long term. Because if you're a long horizon investor, you care about what the return is over the long term, but if you cannot survive the journey, the destination doesn't matter. So, so we think hard about those. And the other one of the other critical foundational things that we've done is is being really clear about what our advantages are as an investor. So we call these endowments. We don't have a lot of advantages, but they are important. So things like long horizon, our operational independence, our governance, our strong governance model, and our sovereign status are all critical. And aligning our investment strategy with those endowments and with really clear investment beliefs is really important as well. So those those are sort of the big things that we've we've learned along the way. We didn't. We certainly didn't know them all at the start, and we found out as as we've gone along. Wouter Klijn 04:27 New Zealand Super always has a strong focus on on governance, but of course we also would like to know the numbers. Have you crunched the numbers for the 20 year track record? Matt Whineray 04:35 Yeah, we're about 9.5 per cent per annum over that over that 20 years, and I guess most critically, from a from a national perspective, the the country is more than $40 billion better off as a result of the creation of of the super fund. So, if you think about the alternative use of our of the contributions we have received, would have been to pay down government debt. We have we. Beaten that benchmark by more than $40 billion, and within that 40 billion, we've also added about $16 billion of value over our risk equivalent benchmark, our reference portfolio, which we'll get onto later on. But yeah, so we've we're very happy with how those how those numbers have turned out. Wouter Klijn 05:17 Excellent. Of course, governance is really important, but when we look at sort of the investment approach, can you tell us a little bit about, you know, the early days in terms of the asset classes that the fund started with and how that has evolved over time? Matt Whineray 05:32 Sure. So in our in our right at the outset, we were a pretty traditional SAA approach. We had in that global equities, New Zealand equities as a separate asset class, and global was both developed and emerging markets, global fixed income, and then we we also had a reasonable, reasonably significant allocation to private market assets. So those were in those days, private equity, timber, infrastructure, property. When I turned up in 2008, we had this other category that was called other private markets, which was kind of whatever else we found that was kind of interesting. And so we had a pretty big allocation to that to that private markets in that early SAA. But I think right from the outset, we've had a pretty growth-oriented portfolio. So it might have started at about sort of 7030, moved to 8020, and then our reference portfolio has been 8020 since since we implemented that, which was about seven years into our into our operation. So we've always we've always sought to take advantage of our long horizon and our relative lower need for liquidity, and allocated across those broad range of asset classes. Wouter Klijn 06:49 Yeah, is is that why the fund started relatively early investing in private equity? Because I think I looked it up, and it was only two years after the fund started investing that the first private equity investment was was already made. Matt Whineray 07:03 Yes, so we had some small private equity funder funds earlier on, and some secondary secondary fund and a more traditional GP commitment. That was part of that that SAA allocation. So we, as a result of that that original construct of the SAA, the team was focused on on private markets. That that allocation to private markets was about 35 per cent in the in the early versions of the SAA. So a pretty chunky one. And so the team the team got on with with thinking about how we could how we could gain that exposure. Wouter Klijn 07:37 So what was the inspiration for that? Was that sort of you know, a lot of the the Australian funds look at the Canadian peers, and they obviously have a very heavy allocation to private assets. Or was it more that long term investment Matt Whineray 07:51 horizon? Well, it was definitely a long term investment horizon. But I think early on, the some of the the people in the or investment people in the organisation certainly also looked at not just the Canadian peers, but also some of the U.S. endowment models as well, which had significant significant exposure to private equity in particular. And I think right at the outset as well, we were we were almost we were entirely outsourced. You know, when we kicked off, we're obviously using external managers, and that was the approach that that was taken to get exposure to some of those different asset classes that were included in the SAA. Wouter Klijn 08:27 I think one of the things that really sets New Zealand Super apart is the strategic tilting programme. That is not

In episode 140 of the [i3] Podcast, Conversations with Institutional Investors, we speak with Charles Wu, Director of Investment, and Elie Saikaly, Head of Liability-driven and Government Investors at Frontier Advisors about the recently launched Independent CIO service, not to be confused with outsourced CIO services. We delve into the background of establishing the new service, the backing by State Super, the potential market size and why this services is needed now. Enjoy the show! __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  __________ Frontier Advisors: ICIO Podcast – Overview [00:15] Introduction – Wouter Klijn frames the episode around Independent CIO (ICIO) services vs. outsourced CIO (OCIO), with guests Charles Wu (Director of Investment, Frontier Advisors, formerly State Super) and Elie Saikaly (Head of Liability-driven and Government Investors, Frontier Advisors). [02:00–06:37] Origins of the deal – Charles explains that State Super's investment team joined Frontier in a "win-win-win" arrangement: State Super de-risks by handing over portfolio management while retaining continuity; Frontier gains institutional-grade implementation capability and people. He details why State Super's situation is complex – a 100+ year-old scheme in decumulation, with average actuarial cash outflows around 7 per cent annually, creating major liquidity forecasting demands. [06:45–10:34] Frontier's motivation and custody issues – Elie discusses Frontier's 31-year history adapting to client needs, and why smaller asset owners struggle with key-person risk, operational risk, and custody access (partly due to the closure of NAB Custody Services), creating an opening for Frontier's expanded service. [10:34–13:35] Defining ICIO vs OCIO – Charlie distinguishes ICIO by its independence and non-conflicted, tailored approach (no predefined product suite), contrasted with more standardized outsourced models. Governance benefits like stock lending and balance sheet management are passed to clients. [13:35–16:43] Service integration and structure – Elie describes the combined offering (strategy through implementation) and lessons learned from merging Charlie's tactical asset allocation process with Frontier's advisory teams. They discuss the managed discretionary account structure and the governance partnership with Ironbark, including an investment management committee. [17:19–20:09] Target market – Referencing KPMG research showing a fragmented market (no player over ~10 per cent share), Elie outlines target clients: insurers, universities, charities, endowments, small-to-medium super funds, and family offices – emphasizing deeper transparency on reporting and costs as a differentiator. [20:09–22:45] Japan expansion – Charlie discusses a recent trip to Japan, Frontier's local office (established ~4 years ago) and partnership with Mitsubishi UFJ Asset Management and interest in partnership models rather than full portfolio outsourcing. Expansion plans remain APAC-focused rather than global. [22:45–24:35] Current status – State Super is confirmed as the first client, with regulatory steps nearly complete and significant inbound interest from prospects citing key-person risk, operational risk, and performance/custody concerns. [24:35–27:26] Scope of services – Charlie explains services extend beyond portfolio construction to strategic guidance (e.g., specialist help building hedge fund or real estate platforms), tailored case-by-case to each client's governance maturity. [27:26–28:11] AI capabilities – Charlie confirms new clients can request an AI roadmap/governance framework, drawing on State Super's earlier AI work. [28:11–29:23] Sydney office – Charlie discusses the new Sydney office (with room to grow) supporting Sydney-based clients, plus light banter about Melbourne/Sydney rivalry. [29:23–31:17] Next steps – Elie outlines finalizing regulatory approval, change management efforts (a December immersion day, training sessions, governance/risk work groups) ahead of official launch. [31:17–33:25] Insurance sector potential – Elie notes insurers are a strong candidate client base, particularly those without the resources or desire to fully in-source investment management risk. [33:25–35:00] Addressing suboptimal portfolios – Charlie acknowledges it's a widespread issue that off-the-shelf products don't suit varying risk appetites, and notes Frontier is investing in internal technology to balance scalability with tailored service. Full Transcript of Episode 140: Wouter Klijn  00:15 Welcome to the [i3] Podcast. Today, we're going to talk about Independent CIO services as opposed to the outsourced CIO services, and we'll go into this distinction later. But I'm here today with Charlie Wu, who is the Director of Investment for Frontier Advisors. So Charlie leads the former State Super investment team that joined Frontier Advisors at the end of last year, and established the ICIO office. We also have Elie Saikaly, who is Head of Liability-driven and Government Investors at Frontier Advisors. Charlie, Elie, welcome to the show.  Charles Wu  01:57 Happy to be here.  Elie Saikaly  01:58 Great to be here.  Wouter Klijn  02:00 Excellent. So, Charlie, maybe we start with you. From what I understand, the conversation about this started a few years ago, and and we're partly tied to sort of you know projections about the future of State Super. State Super is in runoff. Obviously, over time, this this will pose some issues. Can you walk us a little bit through why State Super was interested in this partnership?  Charles Wu  02:24 Yeah, sure. Well, maybe let me put that in a bit of the context. I think if you look at State Super, it is not unusual. State Super actually has a really long history of coming up with innovative structure. So all the way back in the 1980s 1990s we're talking about Stay Super being one of the in in house investors. The funds manager like DB Reeve and Axiom is all coming out from State Super. So this is, I guess, the most recent iterations of the the innovation that has been in STC's portfolios for a very long time. And just to again set that context correct, so the way to look at this is State Super effectively has exchanged the investment team and I to Frontier or an equity stake. Subsequently, hire Frontier to manage Stay Super's DC portfolio, and this is really a rare win-win-win situation. And what I mean by that is, in many ways, State Super wins by de-risking the portfolio management activity by appointing Frontier, and you get that continuity of services. Frontier wins because this acquisition brings on board an institutional grade implementation and operational capability, and the people for the people that's involved is actually really the core component that the discussion that we're talking about. We win because we get we now get to expose either in my term horizontally, like the breadth, such as like me being exposed to different client segments, or vertically going all the way from the formulation of investment strategy down to the implementation, and those are all group potential. So the outcome of this is, like you said, ICIO offers that provides a non-conflicted service offering. There's a strong synergy between the two different investment teams, which we're in the part of bringing them together and the growth potential for everybody.  Wouter Klijn  04:25 So, at the announcement of this transaction, I spoke with John Livanas, the CEO of State Super, and he told me a little bit about the importance of sort of retaining access to adequate resources from an investment perspective, and he partly related this back to the fact that State Super is in runoff, but it has quite a complex sort of structure in place that you know you can't just have like one or two guys looking after it and take care of it until it's completely run off. Why is that? What what's sort of the complication there?  Charles Wu  04:59 Yeah. So for most people that don't know, State Super, State Super is one of the oldest schemes in New South Wales state government. I think the inception. I still use the word "we" every now and then. Like you know, the inception for State Super is back in the early 1900s and so it's more than 100 years old. The scheme was closed in the later end of the 1990s, and so what that created is a very aged member demographics. It has a very complex scheme dynamic. We're talking about various conditions, including reverse due spouse and so on and so forth. But the key thing from an investment perspective is it created a portfolio that is the in decumulation mode, and I'm not just talking about you know one or 2 per cent that you that that's in line with the the state the spending policy of an endowment. We're talking about on average, it's a 7 per cent actuarial projected cash outflow every year, and depends on where you draw that line because, like I said, we have age member demographics, so depends on where you draw that line. That instantaneous liquidity shock can be quite high, and so it's not a simple. By no, I mean it's not a simple investment, but in this particular case, because it is unique, we have to pay a lot more attention in terms of ensuring that the liquidity there, like we we do forecasts not just the member in our flow, so to speak. We're also talking about how do we ensure that we have enough liquidity to pay the member benefit payments. We have sufficient liquidity to meet the investment drawdown, so on and so forth. And all of those isn't as straightforward.  Wouter Klijn  06:37 Yeah, yeah, for sure. So Elie, State Super obviously had some incentive to look at this deal. What's in it for Frontier?  Elie Saikaly  06:45 Yeah, great question,

In this episode of the [i3] Podcast, Conversations with Institutional Investors, we speak with Steve Meier, who is the Vice Chairman of Neuberger's Institutional Client Group. Before joining Neuberger, Steve was the Chief Investment Officer for the New York City Retirement Systems, the third largest public pension plan in the US, consisting of five different plans. There, he implemented the total portfolio approach (TPA). Steve recently published a paper about the lessons he learned from implementing TPA at the fund, titled 'Case Study: Implementing Total Portfolio Thinking at NYC Retirement Systems', which we will explore in this conversation. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of podcast with Steve Meier of Neuberger  03:00 I knew we were heading in the direction of TPA but I didn't want to freak people out with a certain nomenclature 06:00 I think an SAA is compatible with a total portfolio approach 07:00 There has been a lot of work done by CalPERS CEO Marcie Frost to get support from the board for TPA 09:00 My experience is that an SAA is more granular than a reference portfolio 17:30 We hired external managers that could be tactical on our behalf. With a US$300bn portfolio it is hard to be tactical at scale 21:00 We didn't have an incentive compensation pool at NYC, so that wasn't one of the levers that I could pull 25:30 We had five plans that each had their own consultant. The firefighter plan had a funding ratio of only in the 80s, and that was largely because of 9/11. We lost 346 firefighters that day. 28:00 At the heart of TPA, there is an element of being very factor aware 31:30 We put together the BAM university so trustees could learn about how we made better decisions and we had a thought leader speaker series where I interviewed senior figures in the industry, including voting members of the Fed. 43:00 The case of Irene Triplett, the last remaining survivor of a Civil War pension plan. That is 155 years later and the plan is still paying out a benefit. We are long-term investors. 46:30 I do believe we are seeing a convergence of public and private markets Full Transcription of Episode 139 Wouter Klijn (00:00): Welcome to the i3 podcast. I'm here today with Steve Meier, who is the Vice Chairman of Neuberger's Institutional Client Group, and who was previously the Chief Investment Officer for the New York City Retirement Systems, the third largest public pension plan in the US, consisting of five different plans. Today we're going to talk about the Total Portfolio Approach (TPA), and in particular, the NYC Retirement Systems' version of it. Steve recently wrote a paper titled "Case Study: Implementing Total Portfolio Thinking at NYC Retirement Systems." So, let's talk about that. Welcome to the show, Steve. Steve Meier (00:42): Great, Wouter. Thank you for having me. It's a pleasure to be here. Wouter Klijn (00:45): So, when you were at NYC Retirement Systems, you didn't quite call it TPA—that seems to be a bit of a later name or interpretation. Can you tell me a little bit about your thinking around this system and how you referred to it? Steve Meier (01:01): Sure, absolutely. When I first joined the New York City Retirement Systems—and just to be clear, there are five separate and unique investment plans with five boards of trustees totalling 68 trustees, five separate investment policy statements, five separate general consultants, and a matrix of nine specialty consultants. There's a level of complexity just in terms of the organisational structure around managing the public pension plans for the city of New York. We had about 800,000 beneficiaries and participants, so it was a real honour to actually work in and lead that organisation for a little under four years. When I first joined, my first observation was that there was not an appropriate amount of collaboration across the teams. I tried to implement more of a non-siloed mindset to get people to work together, integrate the teams, and flatten the organisational structure. I wanted to give everyone a voice and open up the investment committee. Prior to my joining, the only participants in the investment committee discussions were the asset class heads. I opened it up to the entire 130-person organisation to really get more brains in the game and use it as a developmental tool. I did a number of things organisationally to force the integration of the teams, get the very best out of our tremendous individual talent, and challenge people to think more holistically about the portfolios and exposures. I wanted them to think: if they were the CIO, how would they want to see the portfolios positioned and presented? More importantly, for each incremental investment we put into the portfolio, how would that impact our overall exposure? Wouter Klijn (02:56): Yeah, so in hindsight, when did you start to realise that this is pretty similar to what is now called the Total Portfolio Approach? Steve Meier (03:04): Well, I suspect that all along we were moving on that path. I didn't want to freak people out by giving it a certain nomenclature or name. For us, it was really a journey and evolution of our thinking and capabilities. What I truly focused on when I first joined is the Japanese concept of Kaizen, which means a focus on continuous improvement with the ultimate goal being excellence—which you never really reach. But as fiduciaries, I tried to challenge my teammates into thinking we have an affirmative obligation to eke out every last quarter of a basis point in terms of performance. At every turn, there's a way we can improve how we interact, how we think, how we behave, and ultimately how we invest. Listen, the markets are dynamic, things are constantly evolving, and technologies change. We're certainly in the midst of reincorporating a revolutionary, transformational technology into our thinking and practices, but it was really a recognition that we could always do better as a starting point. Wouter Klijn (04:11): Now, I think your case study is quite interesting because there are a lot of similarities with Australian pension funds here. They have different investment options that they more or less have to stay true to, so a lot of funds here can't get rid of a Strategic Asset Allocation (SAA). Getting rid of the SAA is a model implemented by sovereign wealth funds that embrace TPA, but you can't really do that in a pension plan. I think you had a similar situation where you still had to have an SAA. Can you tell me a little bit about your thinking around that, and how you went about implementing TPA with an SAA still in place? Steve Meier (04:56): Yeah, absolutely. As an American, I'm a bit embarrassed to admit that America seems to think they come up with all the good ideas, but the Total Portfolio Approach—or total portfolio thinking—has been around for decades and has been widely and successfully adopted abroad. For the US, it's more along the lines of an evolution and an awareness that there's a better way to do things. As I said, part of it is artificial intelligence supporting more analytical rigour and quantitative tools. I think about framing decisions analytically versus using an inherited narrative. First principles thinking asks: what can we know that's objectively true about the portfolio? What can we state as a fact, and how can we use that as a building block for constructing and managing portfolios differently? Wouter Klijn (05:54): And in your experience, looking at implementing that in an SAA environment, are there any lessons learned or quick wins that you can share? Steve Meier (06:04): To answer your question more directly, I actually believe that a Strategic Asset Allocation can be, and is, compatible with the Total Portfolio Approach. There's a full spectrum and a bunch of different flavours of TPA that any institutional investor can implement. What's really interesting right now in the United States is the largest public pension plan, CalPERS—which is about a $640 billion plan. They've moved down a path where they are adopting, I believe at the beginning of July, a more full-blown, pure form of TPA. They have a very talented Chief Investment Officer named Steve Gilmore, who has been successful in implementing TPA at the New Zealand Sovereign Wealth Fund and, before that, the Australian Future Fund. There's also been a lot of work done behind the scenes by their Executive Director, Marcie Frost, to win the trust of the boards, secure a high degree of delegated authority, and ensure the right infrastructure is in place to bring in good talent and incentivise them to perform. A lot of eyes are on that, because not only is CalPERS the largest public pension plan in the US, but it also has a great history of being innovative. A lot of folks, myself included, are watching CalPERS implement that pure form of TPA, and to be honest, I'm rooting for them. I believe TPA is the best operating model for institutional investors today for many reasons. Because it's happening in a very visible way with the largest public pension fund in the States, many are watching to see if they're successful and if it can be replicated in different degrees by other US institutional investors. Wouter Klijn (08:12): That's an interesting example, because Stephen Gilmore has been in organisations that have all embraced TPA over the last couple of years. I think one element of the version of TPA he's bringing to CalPERS is that they are looking at a reference portfolio, and we just had a discussion about SAA. The reference portfolio is a big part of the New Zealand Super model. What is your thinking around that? Can you still do TPA without having a reference portfolio in place

In this episode, we're revisiting a conversation originally published on 6 March 2019, with John Coombe, one of the true veterans of investment consulting in Australia. John joined John A. Nolan and Associates – now known as JANA Investment Advisors – back in 1988, as the firm's very first employee. Over three decades, he helped grow JANA from a single client into a business advising on hundreds of billions of dollars for institutional investors across the country. Investment specialist Daniel Grioli sits down with John to talk about the early days of investment consulting, the art of backing fund managers before anyone else will, the biggest asset allocation calls of John's career, and what really separates a good fund manager from a great one. It's a conversation full of hard-won lessons from someone who's seen more than one market cycle up close. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  Overview of Podcast with John Coombe Overview John Coombe Podcast 3:20 Got a job in superannuation, because I was the only one who knew how to use a PC 4:30 Spent most of my early days selling equities, because the market was so rampant. 6:30 Meeting some of the great investors two days after the '87 crash 9:00 Backing start-up fund managers 10:30 What went wrong with those managers that didn't make it? 17:00 The biggest asset allocation call in the firm's history 18:40 Shifting 15 per cent out of equities into property 21:23 Allocating nothing to US equities 29:00 If 95 per cent of risk is due to asset allocation, then why do we spend so much time on manager selection? 32:00 Never bet against the central banks 36:00 Do consultants add value? 40:00 Regulatory scrutiny of consultants; "throw them in the Thames and let them all drown" 45:00 Consulting is about making educated guesses. 49:00 Consulting is relationship management; don't kill it with being dogmatic 53:30 90 per cent of returns are driven by a manager's investment philosophy 58:30 There was a ton of money in hedge fund land being run on quant 1:01:00 Do performance fee ever make sense? 1:03:45 Tips for fund managers in dealing with consultants 1:08:00 Discussing the different consultant models. 1:12:00 Is consultancy getting too concentrated in Australia? 1:13:00 John's tips for institutional investors 1:14:00 Are CPI targets set today achievable? 1:17:00 The biggest challenges for instos today 1:18:00 A word of warning Full Transcript of Episode 138 Daniel Grioli  01:12 Welcome to the i3 Insights podcast. My name is Daniel Grioli, and today I am joined by John Coombe. We first met back in 2011, when I interviewed for a job with John at JANA. Fate intervened, and it wasn't to be. My first impression of John was that he's more than happy to call a spade a spade, so I'm really looking forward to this chat. For listeners in Australia, John probably needs no introduction, but for the rest of you, here's a brief intro. John is a 30-year veteran of the investment consulting business. He joined John A. Nolan and Associates – now more commonly known as JANA Investment Advisors – back in 1988, as John Nolan's first employee. JANA has grown from a single client to around 100 institutional clients, with over $350 billion in client funds under advice. The firm also oversees a further $90 billion in implemented consulting portfolios for its clients. We cover so many interesting topics in this conversation, including what investment consulting was like in the early days, the traits the best fund managers share, whether asset allocation is an art or a science, and much, much more. So, without further ado, I'd like to welcome John to the podcast. John, thanks for joining us today. John Coombe  03:14 Thank you, Daniel. How are you? Daniel Grioli  03:16 I'm great, I'm great. So, we usually get started by asking our guests about their background and how they got into their career. How did you get started as an investment consultant? John Coombe  03:28 Well, I started as an accountant at the SEC (State Electricity Commission in Victoria), and I was very fortunate that a good friend of mine, Terry McCreadon – who I think you know, who's now on the board of MLC Super but was also CEO of Telstra Super and UniSuper – phoned me up one day. I'd worked with Terry in the Treasury Department, and he said, "Coombsy, come and have some fun in the superannuation fund," because he was CEO of the SEC Superannuation Fund, which at that time was, I think, something like the fourth- or fifth-largest super fund in Australia. So I joined the superannuation fund, not knowing anything about investments but knowing a lot about a thing called a personal computer. The SEC ran everything off a big mainframe, but the superannuation fund had just bought a new investment management system that required a personal computer, and as I was the only person at the SEC who knew how to use one, Terry thought I'd be ideal for the job. So I started working with Steve Thompson, who's now at Cooper Investors and is a terrific equity investor. Steve taught me a lot about equities, and I used to do some of the bond investing too. Daniel Grioli  04:57 Do you remember what that first piece of software was? John Coombe  05:00 I can't, but it's the one all the custodians used for a very long time as their bolt-on to do Australia, because it had a tax module on the side. I honestly can't remember the name of it, but it was a very interesting time to be in the markets. I joined in '85 or '86, and we were selling equities all the time because the market was so buoyant, trading at all-time highs. I still remember Steve and I used to get told off – we'd go to an investment committee, and John Niland was the chair. John would say, "I told you guys to sell X percent of the share portfolio," and we'd say, "We did, but the market had recovered, and we're back at the same level as before." I think I spent the first two or three years just selling shares all the time. We had a big portfolio, and we got involved in things like the takeover of Fosters by Elders, and all the corporate shenanigans that went on in the late '80s. It was actually quite insightful as a young man doing that. Daniel Grioli  06:27 So you clearly weren't working in a fund that delegated investment management out. Sounds like you were doing everything in-house. John Coombe  06:33 That's the start of – oh, John A. Nolan and Associates. John left the SEC – he was head of finance – and started up John Anthony Nolan and Associates, or JANA, in 1987. It started the day after the crash, and I was fortunate: two days after the crash, John and I went up to Sydney to interview managers, because the SEC had decided to outsource part of their Aussie equities to external managers. I met Rob Maple-Brown two days after the crash, and I met some of the great names of the time – Sedgman and a few others. Two days after the crash, and a 40 per cent drop in the market in one day – we've not seen it again, thank goodness. I can assure you it wasn't much fun that day. Daniel Grioli  07:42 Do you remember what you were talking about at the time? Was it just the crash, or– John Coombe  07:46 No. We talked about philosophy a lot, and John, as you know, has a strong belief that corporate culture and corporate structure matter a lot in investment management – he learned that from Budge Collins in the United States. So when JANA started, we had two relationships: one with Intersec in Connecticut, who were the first to do global surveys of equity managers, and the other with Budge Collins and Associates out of Newport Beach. Budge ended up becoming PIMCO – well, Collins Associates ended up becoming PIMCO – and essentially they used to fund up start-up managers. They always said that was where all the return was, and they'd fund a lot of young start-ups, which eventually led into the hedge fund world for them, though not for JANA. But that's how their business evolved. Daniel Grioli  08:55 Okay, so you mentioned backing start-ups early – that was going to be one of my questions later on, but you raised it, so let's cover it now. John's been quite active over the years in identifying managers early. Do you think that's been a big part of your success? John Coombe  09:14 Without a shadow of a doubt. I think we've helped a lot of managers get started – they've done fantastic jobs for our clients and the members who benefit from that – and it's been really interesting to see the growth in the market, in guys (and ladies, sorry) willing to back themselves and have a go. It started very slowly. Andrew Sisson was one of the first, at BT – well, I suppose Robert Maple-Brown really was the first, wasn't he? Initially we had money with Maple-Brown Abbott. As I say, I think I'm the only consultant who's sacked them twice – there's a long story behind that, we won't go into it – but it has been a big part of our success. Budge was right: if you can get good talent early, when they don't have much money, they make a substantial amount for your clients in the early days. Daniel Grioli  10:28 One of the criticisms often levelled at consultants is that they're afraid to back managers early, because they're putting their reputation on the line when they take an idea to a client, and also that they want managers with a lot of capacity, because they need to get 20 consultants into a manager to get scale on their research. What is it about JANA that allowed you to do something other consultants were afraid to do? John Coombe  10:57 John's very entrepreneurial himself – remember, he started JANA with a little bit of backing from Bruce Cook. John is a starter of small businesses, and he understands that. I think the most important thing from ou

In this episode of the I3 Podcast, Aware Super CIO Simon Warner joins us to discuss how his unusually broad background across fixed income, equities, public and private markets shapes his approach to investing. Simon explains the realities of implementing a total portfolio approach within Australia's DC superannuation system, balancing risk, liquidity and cost while empowering specialist teams rather than imposing top‑down macro calls. He also talks about Aware Super's evolving organisational structure, its global expansion via London, and the changing role of CIO in today's superannuation industry.   Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of podcast with Simon Warner, CIO of Aware Super [02:00] Simon's career path: Simon outlines his journey from JP Morgan balance sheet risk management (rates and FX) to AMP Capital and then to Aware Super, spanning fixed income, equities, multi‑asset, and private markets. [04:36] From trader to investor: He reflects on moving from being a trader in highly liquid markets to a broader investor, stressing how this built a rigorous risk‑management ethos that underpins his work today. [05:50] Total Portfolio Approach (TPA) in super: Discussion of TPA and why implementing it is different for Australian super funds (with member choice and labels) compared to sovereign funds like the Future Fund or NZ Super. [06:55] Constraints of the Australian super system: Simon explains key constraints: DC structure, direct B2C member relationship, liquidity for switching/redemptions, and dual focus on net returns and costs in a competitive market. [09:30] "I sometimes wonder whether commentary on TPA isn't code for top-down decision-making?" [10:33] Practical TPA and risk premia vs idiosyncratic risk: He describes building a common language and philosophy around risk premia vs idiosyncratic risk, using infrastructure as an example to think about embedded factor exposures across the whole portfolio. [15:33] Active vs passive and future of data in private markets: Simon talks about using analytical frameworks to separate what should be cheap beta/factor exposure from what is truly idiosyncratic alpha worth paying for, and how better data in private markets will enable more scientific portfolio construction. [17:14] Restructuring the investment team: He explains recent organisational changes: grouping property and infrastructure under private markets, creating dedicated accountability for liquidity and implementation, defensive assets, and having public equities report directly to the CIO. [23:31] Internal vs external management: With ~30% of assets managed internally, Simon discusses when Aware chooses internal management versus external managers, stressing competitive edge, proximity to assets, and reserving higher fees for true idiosyncratic opportunities. [28:48] Global expansion and the London office: He outlines the rationale for the London office—access to deeper global markets, managing domestic capacity constraints, building trusted co‑investor relationships, and carefully embedding Aware's purpose and culture offshore. [31:00] "We are at our SAA in terms of illiquid asset classes, so there is no urgency [to increase]"   [35:29] Role of super funds and member expectations: Simon positions Aware as already vertically integrated, with large non‑investment teams focused on member engagement and advice, and discusses balancing performance, cost, and responsible investing for a diverse 1.4m‑member base.   [40:18] Lessons, mentorship, and the CIO as 'director': He shares lessons from mentors like Mark Beardow and Adam Tindall on process, humanity, and psychological stability, and describes the modern CIO as akin to a movie director: setting vision and culture while empowering specialists rather than micromanaging decisions.   [41:30] Make your investment process a perspex box that you can describe to yourself, to people around you and to the people that will occupy your position in the future   [49:00] The role of an CIO is somewhat akin to a [movie] director: you have to have some level of consistency of vision and consistency of what you are trying to achieve Full Transcript of Episode 137 of the [i3] Podcast Wouter Klijn  00:00 Welcome to the [i3] Podcast. I'm here today with Simon Warner, who is the Chief Investment Officer of Aware Super, which has now become a 235 billion superannuation fund. Simon, welcome to the show.   Simon Warner  00:14 Thanks, greatly appreciate it.   Wouter Klijn  00:17 So, you took on the CIO role at the end of last year, and I was looking at your background. I spent a long time at AMP Capital, long time at JPMorgan Chase, but you have both had very senior roles in the equity side and the fixed income side. That is kind of unusual for a CIO. Can you tell me a little bit about how that came about?   Simon Warner  00:41 Yeah, well, so a lot, a lot of my career is a story of serendipity, and maybe me being active about making loads of opportunities that have come my way, but a lot of it is about a embracing the path that life has put out for me. I started, I started my career at JP Morgan, as you say, or one of the prior banks that now makes up JP Morgan, and my first job there, and the job that I had for 11 years was working on a on the balance sheet, managing the strategic interest rate and currency risk of the bank, which in many ways was sort of an internal hedge fund, so operating in, you know, the world's most liquid, most highly arbitraged markets to try to add value that then parlayed into a move into the buy side where I worked at AAP Capital, first within the fixed income team, and then my last job at AMP Capital was running equities, fixed income, and the multi-asset area, so the part of that business that used to manage the superannuation monies, but the last job I had there included the front office, but it also included all the support staff and all of the distribution product technology, etc. I then took a break and re-entered in this role under Damian Graham, my previous boss, and the old CIO here, where I took a role for him, looking after private equity, public equities, infrastructure, and property, and so over the course of that journey, I've been very lucky to have been either a direct practitioner or very proximate to decision making across pretty much everything that we do here now at Aware, that certainly I would emphasise, has not made me an expert at all of it, arguably an expert at not any of it, but it has given me a level of proximity and a level of understanding and a breadth that I do think is like you say, it's a bit unusual.   Wouter Klijn  02:36 Yeah, so do you see yourself today as more of an equity guy or a fixed income guy?   Simon Warner  02:41 You try not to label yourself, because they tend to be a little bit of rivalry between those two simple camps, and I think one of the things that I would, I would probably frame it differently, I think, I think you know my time at the start of my career operating in those markets that I described, I think that creates a level of rigour around risk management that is a really strong foundation for any individual within investment within the investment industry, and so I made not only have I made this journey from fixed income into equities from the public side into the private side, but I suppose I've had a bit of a journey from being a trader to being an investor, and that training I do think creates a very strong risk management ethos that to my mind is a critical pillar for a great investor as well, and so I would not proclaim myself to be a great investor, let me be clear, but I do think that foundational skill or foundational approach has been one of the things that I do hold on to.   Wouter Klijn  03:50 So that's interesting. So there's the equity side, the fixed income side, and then the trading side as well. And I was sort of thinking of it. You mentioned briefly JP Morgan was sort of like an hedge fund type approach. All of those roles seem to filter quite well into, you know, what is very popular today is the total portfolio approach, where you know you look at the total portfolio and see where the gaps are, and we've looked into this recently a bit. Obviously, within a super fund environment, it's very different to implement that than say the future fund to New Zealand super, where they can get rid of a strategic asset allocation. Super funds can't really do that, they have to be true to a label in their investment options. So, what we've seen is that funds try to do more of sort of an overlay, or completion, as Canadians call it, and that seems to translate sometimes in a little bit of a hedge fund type of techniques, and we see relative value, we see global macro trade, is that something what you're thinking of as well, and what are your thoughts on TPA in general?   Simon Warner  04:55 Yeah, yeah, so as you allude to there, I think. Think understanding our context and understanding our task within our context is sort of foundational for understanding about what the best way of going about our business is, and without wanting to repeat what you said, one of the features of the Australian superannuation industry, or the two features that I think are really salient, is one is that we are a DC system, and secondly, we are B to C entities, and so we operate with a direct relationship with our customer base, or our member base in our case, and they can switch at any time. We have a, we have a really tactile and close relationship with the beneficiaries of our capita

In this special episode of the  [i3] Podcast, we're partnering with the University of Technology Sydney for the Circle the Square roundtable discussion. Today's topic focuses on environmental risk and the repricing of stability. For most of financial history, the environment was treated pretty much as a given, stable enough to model around, reliable enough to insure against, and predictable enough to build on, but that assumption is now under pressure. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Key Takeaways The foundational assumption is breaking. Finance, insurance, and infrastructure planning were all built on 12,000 years of environmental stability. That stability can no longer be taken as a given, which undermines actuarial models, long-duration asset valuations, and infrastructure design. Insurance is the canary in the coal mine. Insurers were among the first to feel climate risk directly through claims. APRA has flagged that one in four Australian households may soon be unable to afford home insurance — effectively making the taxpayer the insurer of last resort. Disclosure isn't the same as resilience. Reporting frameworks like TCFD are a useful starting point, but simply mapping risks doesn't mitigate them. True resilience requires collective, systems-level investment — not just individual firm-level action. Short-termism is a structural problem. Pension funds have long-term liabilities but face peer-comparison pressures that punish near-term deviation, creating a mismatch between the time horizon of the risk and the incentives of the managers. The Monday morning question: Are the assumptions underlying your portfolio — on insurability, asset longevity, and gradual linear change — still valid, or are you already running on outdated models? Speakers Martina Linnenluecke, Director, Centre for Climate Risk and Resilience, University of Technology Sydney Kristy Graham, CEO, Australian Sustainable Finance Institute Rob Prugue, Lecturer, University of Technology Sydney, Anchor Fund Wouter Klijn, Host, [i3] Podcast Overview of Circle the Square podcast 06:00 The world has seen a stable climate for the last 12,000 years. What happens when we move into a new regime? "We've assumed that environmental stability was a freebie, but the last 20 years has shown that is not necessarily the case. And the markets are beginning to take notice." 09:00 "Climate and environmental risks are no longer abstract externalities; they are felt across sectors." 11:30 We are seeing that in some countries, climate change is factored into infrastructure planning. Does that happen in Australia? No, but it should 13:30 "Climate science has become a political debate. As a result, policy is set based on the political climate not the science itselft." 16:00 We are seeing increasing standardisation of tools or frameworks across asset classes and providers and that matters because it enables you to look across your portfolio 17:00 "It often starts in an ESG function, which develops a centre of expertise, but in the organisations we work with now it sits right across the whole organisation." 24:30 There seems to be a disconnect between the way in which the investment industry assesses climate risks compared to how climate scientists assess it. "We do see more sophistication around how scenario modelling is used. But there is certainly a communication issue" 25:30 "It certainly is not just a temperature increase; it is a much broader, systemic issue." 29:00 "For a pension fund, to walk away from your long-term liabilities when it comes to climate risk doesn't really add up." 35:30 "APRA is concerned that one in four households will not be able to afford insurance in the future. In coastal towns, it is 50 per cent." The rise of insurance deserts 37:30 The silver bullet is building models that support resilience, rather than the current model, which is disaster recovery after an event has occurred. 50:30 "We don't have DCF (model) for opportunity cost" Full Transcription of Episode 136 Wouter Klijn 00:00 Welcome to the i3 podcast. In this special episode, we're partnering with the University of Technology Sydney for the Circle the Square roundtable discussion. Today's topic focuses on environmental risk and the repricing of stability. For most of financial history, the environment was treated pretty much as a given, stable enough to model around, reliable enough to insure against, and predictable enough to build on, but that assumption is now under pressure. Environmental risk is moving through the financial system in a way that is becoming harder to ignore. Insurance premiums are rising and cover is narrowing. Infrastructure built to last decades is now decommissioned ahead of time, and capital is being asked to fund a transition whose policy settings keep on changing. So, this is not an ESG conversation. It's a question about the structural foundations that finance has always taken for granted, and what happens when those foundations start to reprice. Today we have three speakers who are well placed to assess where the pressure lands in this discussion, who absorbs it, and what the response could look like. We have Martina Linnenluecke, who leads the Centre for Climate Risk and Resilience at UTS, and has spent a career examining how environmental change reshapes companies, industries, and financial markets. She was also a key contributor to the Intergovernmental Panel on Climate Change's sixth assessment report. We also have Kristy Graham, who is the inaugural CEO of the Australian Sustainable Finance Institute, an independent body that works with Australia's largest financial institutions to realign the finance sector and ensure capital flows to activities that will create a sustainable, resilient and inclusive economy. Kristy, I think you were also involved in the establishment of the first Australian Government Impact Investment Fund. And, of course, we also welcome back Rob Prugue, who is honorary industry lecturer at UTS and one of the driving forces behind the UTS Anchor Fund, an educational investment fund managing real money managed by students. The question we're here to explore today is, what does finance do when the assumption it was built on is no longer holding? Rob, maybe I can ask you to set the scene. Has environmental risk moved from externality into something that investors now have to price, underwrite, and perhaps insure? What do you think? Rob Prugue 02:37 Thanks, Wouter. And thank you for this opportunity. I guess, like the rest of us, I too have been wondering for quite some time now about the impact on the environment, not just in my everyday life, but as an investor thinking about capital markets, pension funds and superannuation, and how they manoeuvre around these highly heated discussions around environmental science. What triggered it for me was some years back when I did the Camino de Santiago, and had the good fortune of meeting many people, one of whom was a professor at Oxford, a palaeontologist and climatologist, which is an interesting mix. Naturally, it raised a few eyebrows, and I asked, "Please explain." He said, "Well, we study the environment through studying Earth's history," and he reminded me that, of Earth's 4.5 billion-year history, roughly the last 12,000 years have been the most environmentally stable, and humanity, as we know it, thrived and flourished under that stability. Of course, we had storms, of course we had volcanoes erupting, of course we had floods, but for the most part the environment and the seasons were predictable. That allowed farming, agricultural growth, town growth, and a level of prosperity that humanity had not necessarily seen before. So that got me thinking. If that's true, what happens if we start moving into a new regime, and how will we adapt? We're so accustomed to that stability and predictability that it flows through everything from actuarial science and the pricing of insurance products through to assumptions on long-duration real assets. The generator is going to be there. The airports are going to be there. The assets are not necessarily going to be damaged in ways we haven't priced. For many decades, if not centuries, we've assumed that environmental stability was a freebie, a free get-out-of-jail card. The last 20 years, or even 15 years, has shown that is not necessarily the case. So, while politicians and others debate the science behind environmental science, there are movements afoot. The markets are beginning to take notice. Wouter Klijn 05:22 Yes, Martina, if I can move to you, do you already see a realisation of this entire strategy and potentially more on the operational side of businesses? Martina Linnenluecke 05:35 Yes, I think we are definitely seeing that climate risks are increasingly factored into decision making, and the science is clear. We are going to see very fundamental changes in environmental conditions. We are going to see massive shifts in temperature. We are going to see changes in extreme events, which are going to be very impactful, and in the conversations that we have with leaders in industry, we can definitely see that these risks are already felt. Certainly not across every sector to the same degree or extent, but we do see that some sectors are starting to be very concerned, especially when we look into changes in extreme events and how that affects everything from supply chain, cash flows, asset values, insurability, financing costs and operations, but also strategic viability. So, there's now a real question around where should we invest, how are we investing, and what can we do to protect these investments in the long run. In many sectors, especially those with long-lived assets, these are very difficult considerations, because some asset

In this episode of the [i3] Podcast, Conversations with Institutional Investors, we speak with Con Michalakis, Chief Investment Officer of Funds SA, which is a $50 billion investment manager for South Australian public sector superannuation funds and other approved state authorities. Con is well-known in the Australian investment industry, not in the least, for his outspoken views on a variety of investment topics, including gold, crypto and asset allocation, much of which has historically been disseminated through his notorious Twitter or X feed. We trace back to Con's roots as a quant and value investor, and discuss how this continues to shape his current investment philosophy, despite the fact that he calls himself now an ex-quant. We discuss the changes in governance and the implementation of a TPA lite framework at Funds SA, while we also touch upon the turmoil in private credit. Finally, Con admits that he was wrong about innovation and disruption being the most dangerous words in investing, while he stands firm on his dislike for crypto and dynamic asset allocation. Enjoy the show! Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of Podcast with Con Michalakis, CIO of Funds SA 03:00 I'm more of an ex-quant these days 05:00 In my heart, I'm still a value person and a contrarian; I like to invest in areas that are unloved or where capital is scarce 09:30 When I joined Statewide, the GFC hit. It was the worst I'd ever seen and Statewide was in trouble 12:00 By the time we merged with Hostplus, we were one of the top performing funds in the country, but that first six to nine month period was hell 13:30 Covid was short in terms of the market bounce back. What was hard was early access to super 14:30 Governance changes at Funds SA; "There were a lot of meetings here at Funds SA" 16:00 Having a risk management lens and no more siloes is a key part (of the new governance structure) 16:30 You used to have a photo of Trump on your desk to remind you of risk. Do you still have that? "No, I see enough of him!" 18:30 Making changes to the investment committee 21:30 We cut our tracking error budgets for Australian and global shares down by half to almost two-thirds. We've introduced passive, we've introduced quant systematic, and we have an active sleeve. You can't be full one or the other. 23:30 The world has changed: there is faster money, there is pod shops (fund managers that distribute capital across numerous semi-autonomous teams (pods) led by individual PMs) and there is instant reaction 24:00 You have to embrace dispersion across styles and managers 27:00 Implementing "TPA Lite". 27:30 "The idea that you are going to do dynamic tilting, or that you are some sort of macro guru, I call that a Comic Con of Asset Allocation. Everyone dresses up in their favourite character." 30:00 There is a slight survivor bias in the group of TPA proponents that the added value is based on 35:00 You said previously that innovation and disruption are the two most dangerous words in the industry? "I was wrong". 39:00 There was a shoe company in the US that was going bankrupt and pivoted to AI and the stock price went up 5x. Clearly, there is some nonsense going on. 43:00 Crypto; if you want to have it as a digital Ponzi scheme, go for it. 45:00 At Funds SA, we have zero Australian private credit 46:00 Some sort of global small/midcap manager, who has never done private credit in their life, is saying it is going to die. What do they know? 52:30 My worst investment? Probably, single strategy hedge funds. 55:00 Con's Twitter/X presence   Full Transcript of Episode 135 Wouter Klijn  02:56 Con. Welcome to the show.  Con Michalakis  02:57 Good to be here. Thank you for inviting me.  Wouter Klijn  03:00 No worries. So I want to take you back all the way to the beginning to get sort of a sense of your thinking on investments. And I believe you studied mathematical science in Adelaide, then went on to do a Master's in financial economics in London, and ended up at the Oxford Said business school. So there's sort of a combination of, you know, purely mathematical thinking, but also strategic thinking. How has that shaped, sort of, your outlook on investments?  Con Michalakis  03:28 Yeah, sure, so I would say I'm more of an ex quant now. I mean, it's a long time ago since I did option pricing and was a quant So, but still, you know, numbers guy in terms of how I think about it, and to be, to be honest, you know, the younger people that I've worked with, whether it was at Statewide, Hostplus, at Funds SA, to say they're brighter, they're more technical, they're more up to speed, so they've way taken over. So I would, I would call myself ex-quant. I still think in terms of numbers, still, you know, pretty Stemmy. And there's a bias across all three firms that I've worked for for sort of STEM type thinking, you know, science, technology, engineering, maths, the but you can't just all have one I have now believe that you can't just be one grade. I still think you can take stem people and teach them finance. It's hard to take finance people and teach them stem but you need, you need all sorts. And some of the best thinkers are not necessarily the way they think and critical thinking. They're not always just stem types. I've learned to embrace more diversity in that and interesting some of the managers that we've invested in, you know they come from interesting historians. So you got a critical thinking is more important. But, yeah, definitely bit of a buy. As the stem.  Wouter Klijn  05:01 Yeah. So how would you describe your investment style now? Then, because, of course, you mentioned three firms you you worked at Pezna for a while, which is a value shop, a deep value shop. Do you still have some of that thinking as part of your DNA, or are you looking more as sort of a contrarian investor.  Con Michalakis  05:22 I think in my heart, in my heart, I'm still a value person and a contrarian like to invest at the margin in areas that are either unloved or where capital is scarce, because highly likely the risk is that hasn't been priced in, and therefore there's a trade off. But definitely call it the maturity cycle, diversification, the ability to invest long term and make sure you have investments across a broad, strange range of strategies and asset classes, and not being sort of, you know, across the cycle, not having one dominating I think, is very important. I've learned that lesson, and it's a lesson that I know, but in my heart of hearts, if it's contrarian in value, it's probably my kryptonite.  Wouter Klijn  06:19 Yeah. So, so you learned those lessons. Can you give an example of some of the things, some of the trades? Maybe that taught you those lessons?  Con Michalakis  06:28 Yeah, probably bond allocation, fixed income, you know, like, if you look at the Japanese bond market, you know, it was the widow maker, you know, you didn't like it at four. Didn't like it at 3,2,1,or 0, it's come back now. So, you know, maybe the mean reversion took 30 years, but it's coming back. You could just got to be a bit you got to be a bit more smarter than naive mean reversion. Value Investing. There's been a value, statistical value, risk premium over 100 years, but you know, arguably, it's been very chopping. Hasn't worked since the GFC or prior to the GFC. If your portfolio, if you're running a diversified, multi strategy, strategy, multi asset portfolio, and you've let one style dominate your over a cycle, you're going to outperform or underperform because you're too biassed to that at the margin, though, you know, at the margins, I remember you're running a world diversified fund. Occasionally you get thrown these strategies and ideas where either the market has unloved it or there's an opportunity to extract return. That's pretty good. So, you know, we were a bit late to that at state. Well, I definitely noticed. Plus, when we did the sort of insurance link strategies with quota shares, we did that last year here too, at funds SA, and that's that's done really well, you know, in the small and mid cap, you know, where managers can probably do a little bit better. Venture capital, when that was unloved 15 years ago, we were late to that at Statewide, but Hostplus was very good. So you want to, you want to be diversified, but you want to go to early areas and adopt that if you can.  Wouter Klijn  08:11 So looking back on that, what does that mean for portfolio? This, is there still a place for value, or are you more style neutral guy?  Con Michalakis  08:20 There's a place for value and be conscious. If you're going to use a combination of passive, quant, systematic and traditional fundamental, you want to be conscious of what your and how your managers managing that. Some are core. Some identify as value. Some are kind of fighters, quality or growth. You want to be conscious of what you're carrying into that portfolio, except particularly in this incredible market movements that we've had, probably since Covid, for lack of a better word, that you're going to have dispersion. And that gets down to beliefs. Can you ride the cycle. Do you have the ability to, if you have good relationships and you trust your managers to reinvest when there's…, their style or, you know, there's always a style that they've had an issue with a couple of stocks, do you have the backbone to just stay in the game with them and reinvest?  Wouter Klijn  09:18 Yeah, you just mentioned that Covid period. Do you have any sort of lessons from that? Did you change anything in the portfolio to deal with sort of that volatility?  Con Michalakis  09:28 You know, when I joined statewide, it was a GFC, so, so I left Pzena,

In this episode of the [i3] Podcast, I'm speaking with Jo Leaper, who is the Head of Operational Consulting at asset consultant JANA. We talk about the next evolution of risk management, where risk doesn't reside just with a dedicated team, but is addressed by all functions, including the investment team. When implemented well this form of holistic risk management is not simply a cost, but can lead to operational efficiencies and even alpha. Afterall, investors need risk to produce returns, but how you manage that risk is the key. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  __________ Overview of Podcast with Jo Leaper, JANA 01:30 Why is operational due diligence important? 06:00 What I'm seeing is investment governance getting more involved and almost acting like a bridge between the investment team and the risk team. 13:30 Hopefully, we will get to a world where risk is not a cost of business, but it is an enabler of outcomes 17:00 New regulation will always cause a little bit of friction and in all honesty it should 19:30 There is already a strong focus on valuations and risk in unlisted assets, but it will get more intense 23:00 We talk about 'risk sensible' a lot; funds still need alpha 23:30 Is there such a thing as operational alpha in risk? Absolutely. 25:30 Managing risk in a $2tn organisation. Employing multiple custodians and services providers Full Transcript of Episode 134 Wouter Klijn Jo, welcome to the podcast. Jo Leaper Thank you for having me. Wouter Klijn So today we're going to talk about operational risk and operational due diligence. Why is that so important?  Jo Leaper  01:36 Operational due diligence, it's always important for investors to know what they're investing in, and if you're not doing operational due diligence, you're not necessarily understanding what that actually understanding what that actually is, because the risk is important to the portfolio. You need the risk to generate alpha. But if you don't know what those risks are, if they're hidden, then that's where you fall into a trap.  Wouter Klijn  01:52 Yeah. So what are some of the main challenges in managing this? Jo Leaper  01:57 Really the complexity and a lot of the investments that clients have, and the market has, are investments that have come up over time, and in those spaces, historically, you had a pretty good idea about what you were investing in. But assets are getting more complex. Structures of operating funds are getting more and more complex, and so none of them can know everything. So really for us, getting them to look at the operational risk is getting them to say, I can work with that, or I can mitigate that, or I can accept it. It's when you don't know what those risks are that the complexities really come into play. And I think particularly if you look at the current world, with geopolitical issues at the moment, even managing some of the structural issues and challenges in the industry, there are unintended consequences to those actions. So understanding what your managers are doing a it's a really good learning place, because they're doing this, and a lot of our clients are starting to invest internally as well. But it's just, it's a good way to say, You know what, that's commensurate with what our members and our beneficiaries are looking for. And we do want risk in the portfolio. We need risk in the portfolio. But if you don't know what it is, that's a problem.  Wouter Klijn  03:02 So yeah, it's right. The world is increasingly becoming more complex. I mean, you mentioned geopolitics, but you know, we also see AI and machine learning and so many different things.   Jo Leaper  03:10 It's a really challenging time from a risk perspective at the moment, because you've got a lot of participants in the market, not just investors, but a lot of market participants with legacy instruments, legacy technology, and the market is moving at a faster pace. The regulator is expecting more. Members are expecting more. And we've got a lot of data, but sometimes, unless you've got the right guardrails around how you're looking at it, how you're using it, are you going to get the right outcomes. It's the right intention. But you know, the end of the day, it's members best financial interests, not ours, not anyone else's, it's the member.  Wouter Klijn  03:44 Yeah. So you took recently a look at CPS 230 operational risk management approach guideline, and you, you sort of indicated that it signified a little bit of a shift in thinking about risk management. Can you? Can you walk us through that  Jo Leaper  04:00 Of course. So APRA has always been Prudential, like that's literally in their name, and they try not to be prescriptive in the way that they do this. When CPS 230 came across the desk, it really was to bring back a larger view of resilience and resiliency. And I think a lot in the industry are still wanting APRA to be a lot more prescriptive. And that's not going to happen. That's not what they do. It's not their nature. And so when you look at it, and you will look at what APRA is trying to achieve, their ultimate goal is really the same as the industry's members, best outcomes. That's what we want. And if you can do that by shoring up the system and the structure, APRA can't enforce particular investment styles, but they can try to make sure that the system has the right controls and the right mechanisms to manage turbulence when it happens.  Wouter Klijn  04:46 So I mean, clarity is always, you know, a key issue around regulations. I was recently at a conference where I think the word clarity and taxonomy were the two most used words, yeah, during the conference. But. But, yeah, in this complex environment, it can, cannot always be, you know, that straightforward. You can't describe it. So, so how sort of do you deal with that? And I think part of the shift in the risk management is also around integrating risk management so that you don't have separate silos with just investment risk or just operational risk. So you're working towards more of a holistic risk. To what degree do you think that investment team should take this on board in terms of the non investment risk? So Not, not, you know, the investments, the business side of things,  Jo Leaper  05:38 I think they have to be part of the conversation. It doesn't matter. And I've always said in public, it doesn't matter what investment strategy you come up with. If you can't implement it, if your operational teams, your custodians, your administrators, can't manage it, there's no alpha there. It's dead money. And so they do have to be part of the conversation. What I'm seeing, and what I'm liking seeing in the market, is this rise of investment governance being more involved and almost being as the bridge between the investment team and, say, the risk team, so that it's a much more holistic conversation members best financial outcomes is always the bottom line. If that's your guiding principle, you're doing well in the industry. But if you had two managers side by side that looked very equal, would you take the one with the lesser risk on I would Yeah. And so I think they really do have to be in there, but it's also about improving the communication and the decision making processes, and that they're part of the broader discussion. So if we go back to your previous question in terms of APRA and what they're looking for, they still want the same goal, same as what the investment teams want, which is members best financial interest. And so I think with CPS 230 and then, as you say, going into the businesses, by looking across the risk spectrum, they're going to end up with an overall better outcome, because the cost to member isn't just the risk in the portfolio or the fees. It's legal, it's admin, it's it, it's audit, all of those costs come in too. And so if you can find a way to structure or manage your investments to ensure that you're looking at those things as well, that's your true cost of investment. So the more you can find, I'm going to say strategic alliances, a synergy, whatever you want to call it, but the more you can get some cohesion there in the decision making and some understanding of each other's process, I think the better it will come together.  Wouter Klijn  07:20 So is it more a degree to a degree about communication, or do you think should it be a new function within the investment team?  Jo Leaper  07:32 A risk function that is one person responsible for line one risk has always been part of it. So I don't think that's any change really. In particular, I think the main change is actually coming through the FAR legislation, the financial accountability regime, because that's designating individuals as being specifically responsible for particular parts. And when you think about it, the board is absolutely responsible at the top, but they have to delegate. The board can't do everything. They can't know everything. The IC can't. The audit and risk committee can't, and each of those C suite executives or others who are designated accountable can't know everything about everyone else's role if they're not communicating, if they're not exchanging knowledge between teams, if they're not talking in advance of an investment, they're letting themselves down. The better ones will have their operational and risk teams separate to investments, but we'll talk to them regularly in terms of we've got this coming up. This is what we're thinking. Is that doable? Is that not doable? What? How long will that take the custodian? What will it cost me? And it becomes part of the process, not an add on at the end.  Wouter Klijn  08:29 Yeah. So do you think that this will change, then structures within organisations? Because I sort of had the

In this episode of the From the Archive series, we look at a 2019 interview with Gus Sauter, the former Chief Investment Officer of Vanguard, who worked for more than 25 years at the company. Sauter is also an adviser to the Australian Retirement Trust, then Sunsuper. Index and passive investing have gained momentum in recent years and it is estimated that about 60 per cent of investments follow passive strategies today. Considering this sheer weight of money and the move of more Australian superannuation funds to passive investing in recent years, it is easy to forget that index tracking and the popular investment vehicle for doing so, Exchange Traded Funds, were once controversial. In fact, Jack Bogle, the founder of Vanguard, was not a fan when Sauter launched the ETF business for the company. In this interview, Gus takes us back to those early days and revisits the active/passive debate, a discussion he never tires of. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights __________ Podcast overview Gus Sauter 1:00 You started a bank at age 8, is that true? 3:00 Then a goldmine in your 20s? 4:20 Gold is an Armageddon type of investment; if the world collapses, gold is probably going to be fine 5:50 My first stock 6:30 I've had the active vs passive debate literally thousands of times and 'no' I'm not tired of it. 7:00 Passive is a good investment strategy, but it is never going to be top performing in any given year 9:00 I'm not totally on board with the efficient market hypothesis 10:00 Why indexing works 12:00 But does the market capitalisation method work in fixed income, where you skew to the most in debt entity? 14:00 Over time, markets have become more efficient, compared to the 1980s. 15:00 Did Jack Bogle cut his holiday short to find out why you were adopting ETFs? 16:00 Jack disagreed on ETFs 17:00 The crisis of 1987, and the subsequent redemptions from mutual funds, shaped my thinking on ETFs 19:30 Is there more institutional takeup of ETFs in the US, than there is in Australia? 20:00 ETFs are not a product; they are a way to distribute index funds. 21:00 Not a fan of smart beta 27:00 You don't think there is necessarily a correlation between GDP growth and stock market returns? 28:30 You can take a great firm and make it a lousy investment by overpaying for it and visa versa 31:30 Working with Sunsuper 33:00 Do you see a lot of similarities or differences between the issues that investors in the US and Australia grapple with? 35:00 Should pension funds in Australia be more dynamic in their asset allocation? 37:30 What have you learned from past crises? 42:00 Jack said: "One day indexing is going to be really big and we'll have US$ 10bn in assets" We now have US$ 4 trillion. Full Transcript of Episode 133 Wouter Klijn  01:00 Gus. Welcome to the show. Gus Sauter Well, thank you. I'm glad to be here. Wouter Klijn  01:52 Let's start a bit with the start. I'm going to take you right back to age eight. There is a website that is called Buggle heads, and it has your buyer up there, and said that at age eight, you started taking deposits and making loans to neighbours, effectively starting your own bank. Is that true? And what is wrong with playing with Lego? Gus Sauter  02:16 It is true. I'm hesitant to admit I think I probably broke several 100 banking laws. But yes, I didn't think my neighbours were going to turn me in. They would give me $1 or two, and I would turn around and deposit it in the bank and earn interest on it, and then turn around and give them the interest that they would have earned. So yeah, I was a little enterprising at eight and not too much into Legos. Wouter Klijn  02:40 So where did you get the idea from? Gus Sauter  02:43 You know, just from my parents and going to the bank with them. And I guess I was just curious about how money could make money for you and and really, that was the genesis. Wouter Klijn  02:53 And then it also says that around in your 20s, you formed your own gold mine, but what inspired you to make that investment? Gus Sauter  03:04 Probably naivety. I was working as a commercial real estate developer in Denver, and we were building, really about 11 story office buildings, and I was working on the financial side of putting these deals together, and this opportunity came along to develop a gold mine, and I figured, well, I'm the financial side raising capital to build buildings. Why can't I raise some capital to build a gold mine and and so I put a venture capital deal together. Took me about three years to run it under. Turned out to be a little bit of a frustrating point in my life. Wouter Klijn  03:35 I can imagine. So looking back, what is your view on gold today? Because a lot of investors think that gold is a bit speculative. It doesn't have any inherent value. How do you look back on that? Gus Sauter  03:47 Yeah, so I started that in 1982 and that was really kind of the height of the gold mania, the gold rush, and I was looking at a little bit more like a mining company, as opposed to the lustre of gold itself, although I must admit, if we were mining for salt, I probably wouldn't have created the firm. So my view then was to hopefully make money mining gold and selling it immediately, not holding on to it. My view is that gold is kind of a Armageddon type of investment. If you if the world collapses, probably gold is, is fine. My view is the world is not going to collapse. And so I, you know, gold doesn't give you any sort of rate of return. It is, you know, as you indicate speculative. You buy it with the idea you can sell it later to somebody at a higher price. There's no dividend on it, no interest. So I think if people do have it in their portfolio, it should be a small, small part of the portfolio. Wouter Klijn  04:47 Yeah, well, I'm glad the world is not coming to an end. So we had banks, we had a gold mine. You mentioned real estate. How did you get started in the asset management industry when my gold mining venture went on? Gus Sauter  04:59 I had a good friend from business school who had kept in contact with me, and he went to work for Pimco, who is now the famous bond management firm, and he kept after me, and kept telling me that I belonged in the investment management industry. And actually, quite honestly, I felt that as well. I bought my first stock when I was 11 or 12 years old after after the banking experience and and I loved investing, so I followed his advice. And interestingly, I had some opportunities, perhaps, to go with PIMCO out on the West Coast, in California, but I grew up in Ohio, in more the centre of the United States, and I wanted to go back home. Unfortunately, there just aren't many investment management firms in Ohio. So I worked for a bank in Ohio in their trust investment area, and got experience. Wouter Klijn  05:47 And I think that that first stock was that a basketball team. Gus Sauter  05:51 The basketball team was actually my second stock. Yes, my first stock was a snowmobile company, and my second one was the Cleveland Cavaliers. I'm proud to say I was one of the original owners of the Cleveland Cavaliers. I grew up 90 miles south of Cleveland, so, yeah, Wouter Klijn  06:07 So taking it to Vanguard, not looking at individual stocks, but we're looking at indexes, and even to deal this day, we still have this discussion about active, passive. You know, what is better? Do you get tired of this conversation? Gus Sauter  06:27 You know, I've had the debate 1000s of times, literally 1000s of times, as we were trying to build indexing back in the 80s and 90s, it was not well received at all. And it was really a brick by brick business building venture, and I was invited to many, many conferences, and interestingly, they would have me on a panel, and I'd be in a debate with somebody else, and it would always be a top performing, active manager. So you know, you're always kind of with with your back in the corner. Indexing is a very good strategy and appropriate for most investors, but it's never going to be top performing in any given year, it's going to be a good performing investment that really compounds over time into top performance. So I actually, I do love the debate, because I think it shows the advantages of indexing and also allows for the advantages of active management to complement indexing. Wouter Klijn  07:18 And it seems that we have moved on a little bit from one against the other two, where I think we see more especially amongst the larger funds that don't always have a choice to go 100% active, that they say, well, we'll do both. We will have a core allocation to passive, and we'll do some things around it in the active space. Do you feel that the this debate has become more sophisticated around this issue. Gus Sauter  07:42 I do. I think a lot of investors have realised that there are significant advantages to indexing, and it should be a core portion of their portfolio. It's a great foundation, because it's going to provide you with very competitive returns that will outperform a majority of investors in the marketplace. So it's a great place to start, and you have a good deal of confidence that it will provide that rate of return for you in the future, at the same time the satellite portion. So a core satellite approach, you can use the satellite portion to invest in actively managed funds to enhance your returns that you get from an index fund. So if you if the index fund is your your ballast, or your foundation, hopefully you can add some incremental return above and beyond that, without too much risk, by investing in active as well thinking about indexing. What is indexing? Wouter Klijn  08:28 And I think in the past, you have made a strong point around an index is a mar

In this episode, I speak with Michael Kollo, a return guest to the [i3] Podcast. Michael has recently published a book on artificial intelligence, called: Future-ready with Generative AI Skills, Mindsets, and Stories in the Age of AI We speak with Michael about how he build an equity analyst AI agent in a weekend, how AI helps review your work and how you can get it to find solutions that are tailored to your style of working. We also delve into deeper philosophical questions around the nature of language, how AI changes people's interaction with language and whether AI changes our perception of what is artificial and what is not. Enjoy the show! __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights __________ Overview of Podcast with Michael Kollo 03:00 We, collectively, still struggle to have the right framing for what this kind of AI is 04:00 I wanted to write a book on AI from a white-collar perspective that was neither hype nor alarmist 10:30 You build an equity analyst in a weekend, using AI agents, which produces broker reports? 14:00 What good looks like is still very much an individual judgment 14:30 AI is a mirror to yourself 18:00 Students are very strong users of AI across many different disciplines. And they are symbiotically learning with the AI and are becoming natural users of it 18:30 One of the more powerful usages of AI is not to do a job, but to review a job 21:00 AI helps you to think on a meta level: what is it that you find interesting, useful and powerful? 23:30 Can you get an AI system to explain to you in plain English why a non-linear system works, test it in 10 different ways and write a research report about it? Yes, you can. 31:00 "I'm expressing myself in my adult language (English), but (AI) is taking it and swirling it into patterns of Hungarian (my childhood language) that are hitting me back at a whole different angle that I'm not sure if I could have done myself". 32:30 "Language was supposed to be this thing that was supremely human. It encapsulates all this weirdness and contradictions that is to be a human being. 34:00 An AI system is not an individual or a single entity that has a will or a desire. It is a field that you can land on and move from one place to another, as you will.  37:30 There is a danger that power users of AI might experience burnout, because they are constantly given things to review. 43:00 AI experts should not be asked about workforce impact, because they don't know enough about it Full Podcast Transcript Wouter Klijn  01:17 Welcome to the [i3] Podcast. I'm here today with a return guest, Michael Kollo. Mike, welcome to the show. Michael Kollo Hi. How's it going? Wouter Klijn Pretty good. Pretty good. So we're here to talk about a book that you wrote on generative AI. It's called Future Ready with Generative AI: Skills, Mindsets and Stories in the Age of AI. Michael Kollo  01:39 Well, thanks very much for that. That's a bit of a mouthful. We kind of continue to expand the title. It feels it's coming out in the middle of March, so I think the 14th, 15th. It's being published by a publisher called Rutledge, which is a UK based publisher. So it'll be available here in the US, in the UK, all around the place. Wouter Klijn  01:58 So what prompted you to write this book? Michael Kollo  02:01 So look over the last three years and for years before that, but certainly the last three years, the topic of AI has obviously become very, very popular. Everybody's been thinking about it and talking about it. But one of the things I found through lots of presentations about 40 keynotes per year from all kinds of different audiences, from boards of directors all the way down to, you know, the average person kind of presentations is that we, we collectively, still struggle to have the right framing for what AI, this kind of AI is, and what it might mean for us. I don't think anybody has answers as to where it's all going, what will happen to the workforce or jobs or personal relationships and so on, but I think we have a pretty good inkling as to its capabilities and how fast it's moving. We have a pretty good inkling as to the different areas it might impact, but we don't have the right framing or the right thinking about it. So I was very keen to write a book that I could capture the imagination of a white collar worker in across any industry, just about to help them just understand what this thing could be and what it means, and get them to form their own view, but to form it in the middle ground, not to be hype and not to be alarmist. I wasn't keen on creating a book about how it could all go wrong and how it could be all terrible. And I wasn't also keen to create a book about, you know, the utopia that it could foreshadow in the future, but I was just interested in informing the average person how the middle ground could look. Wouter Klijn  03:29 Yeah, so not hype, but you do call it a civilisation altering technology. What do you mean by that? Michael Kollo  03:37 Yeah, so that's, um, so okay, there's a story behind that. Okay, so the story is the following. I, I was asked to give a brief testimony to the Senate, Senate hearing in Australia, and it was for the education use of AI within education. And so a lot of the speakers before me had come and talked about the dangers and the problems and so on. So I was really keen to try to counterbalance that with the significance, but in a positive light as well. And what I was trying to say with to that audience is that if we get this right in terms of how we teach the next generation, how we enable the next generation to reason and to think better, then we could bring about a whole golden age, a whole kind of new renaissance, I suppose, of reasoning and thinking, and this could be civilization altering. And so really, the context of it was, how do we use this technology to enable people to be their better selves, or to reason or to think better? It was a bit idealistic, absolutely, because we all know that not every technology, in fact, most technologies, arguably, and not always used for the betterment of people. There's a whole bunch of other negative things that we've had recently, especially with social media and the way that it impacts people. But I was kind of, I suppose, making a case for if we can use this properly, in a good way, that there's enormous an abundance of positivity that we could have for our civilization. So. I really was looking for a term that would say, actually, civilization materially changed with the printing press. It materially changed with a few other critical things we've done in the past, nuclear power, or electricity, or so on. And each one of these changes just brought about change. That's all it is. And this is one of those moments, Wouter Klijn  05:17 And you explore that concept further by actually saying it's not just the technology. I think you describe it as: it's a system that helps you navigate uncertainty. Can you explain a little bit what you mean by that? Michael Kollo  05:31 So this was one of the big challenges I had in the book, is I was trying to get across to people that they should not think about this as just technology, as data, as statistics, because for a lot of people, that alienates them immediately from the topic. They go, Well, I'm not about technology, I'm about people. I'm about conversation. I'm about artistic things. I'm about something else. And so for them, it pushes it away somewhere in the corner for someone else to deal with, and it's more comfortable that way as well. And so I was trying to find the right words or the right framing in this book by positioning it in as a companion, positioning it as a co worker, positioning it as a whole bunch of different kinds of things in the fiction and the non fiction stories. And I think in this particular case, it was somewhat of an abstract way of saying that if you think about this as a reasoning engine, as a thinking intelligence of some kind without will and without desire. So we take those off the table and we say it's just about that. Then it really is about how to help the average working person understand information, distil it, or expand it or manipulate it in different ways, and then ultimately, to deal with the core part of most jobs, which is dealing with uncertainty. Decision making under uncertainty certainly is really prevalent in finance and in financial services, but it's prevalent in many other industries as well. You have to make decisions. Do you write two two paragraphs or one paragraphs to your boss to explain what happened? Do you do you put in a big report or a small report? Do you go with one stock manager versus another stock manager? Whatever the decision might be, there's a constant set of understanding, evaluation, analysis that happens in our world. And this is a capability. I wouldn't even call it a tool. I'd call it almost like a companion to help with that. Wouter Klijn  07:13 I think a lot of people are a bit concerned whether it's going to replace them or not. You say it's more of an analytical tool that helps you make better decisions. And I thought it was an interesting example that you gave in a book where you talk about a friend who is a programmer, and he basically recognised where his own input was when he asked it questions. And some of it was really relevant, but some of it led him down, you know, a deep rabbit hole that absolutely was not worth pursuing, but he recognised which one was, you know, the right path to follow. And that's when he realised, this is where I contribute to it. It will help me. But left on its own, it could easily descend into, you know, just time wasting, resource wasting. Do you think that that translates to other professions, and in particular our indus

Greg Cooper is Chair of financial services giants Perpetual and Colonial First State, but is perhaps best known for his role as the Chief Executive Officer for Schroder Investment Management in Australia. In this interview from late 2019, only weeks before COVID-19 broke out, we spoke with Greg about whether public markets are broken, the state of active management and his interest in the venture capital space, topics that are still very much alive today. Enjoy the show!  __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  __________ Greg Cooper podcast overview: 1:00 Starting out in actuarial studies 3:00 Focussing on Japanese equities 4:00 Compared to 1986, Japanese equities are still at the same level 5:00 What were some of the highlights of your career at Schroders? 6:50 We've moved on from strategic asset allocation 7:55 As a CEO, don't be afraid of what others think and try to draw out ideas 9:35 Are public markets broken? 11:00 Not having a well-developed VC industry means that a lot of good ideas get starved of capital and eventually go offshore 11:30 Will that change when the effect of QE goes away? 15:00 No investor is entirely passive. 16:30 Passive rose, because active had too large a share, but you can't have a 100 per cent passive investment market 17:30 Will value-style investing come back? 21:30 You have an interest in fintech and hold a board position at OpenInvest? 25:00 Joining the TCorp board and chairing the investment committee Full Transcription of Episode 131: Wouter Klijn  01:12 I'm here today with Greg Cooper. Greg, welcome to the podcast.  Greg Cooper Thanks, Wouter. Wouter Klijn So can you tell me a little bit about how you started in the asset management industry. We had some former guests on there that started with, you know, creating banks at eight. What were you doing at eight?  Greg Cooper   01:26 I certainly wasn't creating banks. Probably more surfing and and that kind of stuff up on the beaches and the Central Coast than anything. I mean, my career in investment really started in the latter stages of high school. I was at one stage looking at becoming an accountant. And then my maths teacher at the time had said, Have you thought about actuarial studies? I didn't even know what one was at that point in time, and, you know, and so I looked it up, and things kind of sort of went from there so that, I suppose that was the real genesis of things year 11 and 12 at high school.  Wouter Klijn  01:59 So how do you transition from an actuary training to an investment career?  Greg Cooper  02:04 So I mean, I started out in the more traditional actuarial fields. I was working for Taos Perrin the time as a defined benefit actuary, and it was at the point in time, I was in the early 90s when the SG was just coming into play defined benefit plans, some were being wound down, but there was a lot of work to do in the DB space, but as SG kind of kicked in. Then there was a whole pile of, you know, actuarial work to do around, you know, justifying minimum contribution levels and so forth. And then, you know, one day, one of the investment guys had come over to in the investment asset consulting area, come over and asked me if I was interested in doing some research. And it was on Managed futures at the time. And, and I kind of said, I said yes. And and started doing and I really enjoyed it. And that was kind of the first foray into investment consulting. And so sort of from starting out in the actuarial field, I was lucky enough to get off at a roll up in Hong Kong with with towers. And I sort of took the view that the traditional actuarial work was, was, was a good mainstay, but was not likely to be a growth engine. And moving into the investment space was, was a lot more interesting, and it also worked from a commercial perspective.Wouter Klijn  03:15 Yeah, did you ended up doing anything with those managed futures research? Greg Cooper  03:19 Well, apart from it was kind of the early stages of hedge funds, I guess. And it was at the point where saying, you know, alternatives kind of had a place in a portfolio that was, that was the primary emphasis of the research. So, you know, it's interesting. And obviously, you know, alternatives nowadays have become a much bigger, much bigger part. But back then, it was really just looking at that small hedge fund, like type diversifying characteristics and see whether they fit it in a portfolio. Wouter Klijn  03:44 Yeah. And then from there, you went to Schroeder's and started doing Japanese equities. Why Japanese equities? Greg Cooper  03:51 Yeah, good question. It was really partly as a function of the role that was there at the time and Schroeder's. I come out of asset consulting, I was much more interested in working in the asset management side of things, the role, while it was in Japanese equities, it was much more about the product side of things. So it was more like being in charge of the business, of running an asset management sort of sub strategy, if you like, rather than specifically worrying about, you know, Japanese equities or European equities. But it was very interesting, because at that point in time, Schroeder's was the biggest manager of Japanese equities. You know, you were just coming out of the 90s, which had been a bit of a lost decade, but, but in the latter part of the 90s, you know, Japan had taken off with the likes of SoftBank and so forth. So, you know, there was this real kind of boom happening, and it was just a really interesting time to be involved in, in in the markets, but particularly Wouter Klijn  04:48 in Japan. Yeah, any views on Japanese equities today? Greg Cooper  04:51 Well, it hasn't been a terribly good investment since that time. I remember one day sitting with one of the team, and he said, he said, Oh, you know, he said. I started in Japanese equities in 1986 and the markets pretty much at the same level it is was then. And I think we're always say the same now, so, but it's, you know, it's a very interesting case study in what happens in a deflationary environment. And, you know, when assets get overvalued, you know, you can have everyone thinks that equities kind of go and, you know, 10 years in equities, you'll make your money, but you'll make money. Wouter Klijn  05:21 I was just about to say, Did I just hear you say that equities don't go up always. That's right, Greg Cooper  05:25 so, you know, and it's a fantastic case study, but also one, I mean, sort of investment aside, it's a good one to think about, that, you know, despite, you know, the economic criteria not looking that good. You know, the social cohesion in Japan, everything else is held together very well. And so, you know, life isn't all about just economics. There's more to it than that. Sorry, all the economists. Wouter Klijn  05:49 So you spent almost 20 years at Reuters, climbed up to be the CEO of the Australian business, and also had a global distribution role. What are some of the highlights you look back on your career. And also, do you have any tips for aspiring CEOs, Greg Cooper  06:06 I suppose, in terms of highlights, you know, it was just, it was fantastic, and still is fantastic being involved in, in in sort of the dynamism that is the whole investment marketplace. I mean, in particular, just look at, I mean, not just Australia, look globally, but certainly in Australia, you know, the rate of change that's taken place with funds. And, you know, back in the late 90s, early 2000s you know, there was obviously a much larger number of very, very small funds. And you look at where we've come to now, I'm having conversations about internalising and, you know, financing specific assets, and you know, the size of the asset pools and so forth. So I would say, you know, over that whole span, it's just been a very exciting time, and I think that will continue. It's no less exciting looking forward than it has been in the past. But just the sheer growth of the industry has been fantastic terms of some particular highlights. I mean, I always quite enjoyed standing back and looking at sort of the way the industry was was developing, and coming up with suggestions for maybe how things could be done better, or where, you know, the industry had adopted certain practices that I didn't think were the right sorts of practices, and it was much more fun kind of standing back and trying to point those out and offer suggestions for better ways forward, rather than just joining the chorus of sales people out there. Wouter Klijn  07:21 Can you give an example of that? Greg Cooper  07:23 I mean, the key one that you know, and I write a lot of research papers around this, is the i concept of around, sort of objective Based Investing, and the idea that benchmarks and the whole strategic asset allocation process, which we've grown up with in the 80s, didn't always work. And you had in Japan is a great case in point, you know, a fixed, strategic asset allocation with a large exposure to equities through the 90s in Japan killed you. And so you know that that, to me is, you know, it's resonated very well in the industry, and I think it's a key part of sort of thinking about how to do things differently. And so, you know, sort of, it's not to say that strategic asset allocation is that that style of investing is bad. It's just to say that I think we've moved on from there, and there and there are better ways to think about this, and there's some consequences that come from that, and that's worth bearing Wouter Klijn  08:07 in mind, the consequences. Yeah, so in your answer, it sort of shows that you, you've always been quite keen on fostering a culture where it's open for discussion, and there's pretty much no topic of debate. Why is