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maintain positions and securities discussed on this

3:00

podcast. My

3:02

guest on today's show is Raph

3:05

Art, the CEO of The Future

3:07

Fund, Australia's $200 billion Aussie

3:10

dollar sovereign wealth fund that his team

3:12

manages alongside $55 billion Aussie dollars

3:15

of other sovereign pools in capital. Raph

3:18

assumed the CEO ceased in 2020

3:20

after serving as chief investment officer

3:22

for six years. Our

3:24

conversation from five years ago as the

3:27

fund's total portfolio approach is replayed

3:29

in the 60s. Our

3:31

conversation focuses on the significant changes in

3:33

the Future Fund over the last few

3:36

years. Raph and his

3:38

team spent the year analyzing changes

3:40

in the global economy, demographics, and

3:42

markets and concluded the Future Fund

3:44

needed substantial turnover to prepare for

3:46

the coming period. We

3:49

discussed these changes in the external environment

3:51

and the governance and culture internally in

3:53

order to do something about it. What

4:10

you just heard is my son Ryan's

4:12

response to my asking him to create

4:14

a guitar riff for a new intro

4:16

for Capital Allocators. We

4:18

do bring some heavies on the show and

4:21

he's definitely got that heavy metal vibe. So

4:23

I'll leave this one up to you. Next time

4:26

you're chatting with a friend about Capital Allocators,

4:28

why not ask what they think about the

4:30

potential new show intro? We'll

4:32

take you out with it one more time and thanks

4:34

so much for spreading the word. Please

4:39

enjoy

4:42

my

4:45

conversation

4:49

with Raph. Raph, good to see you. Well,

4:56

it's actually been five years since you last came

4:58

on the show. Since then,

5:00

there have been a couple things that have changed. So

5:02

you are now the CEO, not the

5:04

CIO. And there

5:07

are two pieces that I've seen you put together

5:09

that sort of would be a bit of this

5:11

for the 15-year letter of the history of the

5:13

fund and then last year's piece on the death

5:15

of portfolio construction. Maybe we should

5:17

start with how do you feel about being CEO?

5:21

Yeah. What an interesting question and what an interesting

5:23

time. And what has changed in the world. I

5:25

think COVID was a real catalyst for a lot

5:27

of things and it just so happened that right

5:29

in the middle of 2020, I

5:31

changed jobs and became the CEO.

5:34

It wasn't something I was really looking to do. I

5:37

was happy being the chief investment officer and

5:39

I was quite passionate about that. But

5:41

what happened was that the role was

5:43

vacant and there was a market crisis.

5:46

From a future fund perspective, we were turning 15. I

5:50

had a lot of ideas about things I

5:52

thought we needed to do to pivot, to

5:54

double down on. I

5:56

started talking to the board about

5:58

that and eventually. someone on the board said,

6:01

why don't you go fit the job? And I thought, oh,

6:03

that's an interesting idea. I hadn't thought about that. So

6:05

I thought, what could go wrong? So I

6:07

did. And here I am. What

6:10

were some of those views of what you wanted to do in the

6:12

role? They sort of fell into two

6:14

broad buckets. One was internal related issues and

6:16

the other one was external. So on the

6:19

external, we'd really been fortunate

6:21

in that we don't have members

6:24

or clients, we don't have to do marketing,

6:26

we're not regulated. And so we

6:28

thought really deeply long and hard about the

6:30

investment world and what was changing. And we've

6:33

done some research already around the return

6:35

of inflation, the end of monetary policy,

6:37

at least in a traditional sense

6:39

when interest rates are all zero, and

6:42

what might come next. So when COVID

6:44

happened and government started to stimulate, we

6:46

sort of got really interested in whether the

6:49

world was changing. And I felt like we

6:51

had to reposition not just the portfolio,

6:54

but the mindset of the organisation around

6:56

the world being different now. And

6:59

that's a big task because when you've got

7:01

investment professionals that have been doing things for

7:03

20 years sometimes or longer, and

7:05

an organisation that had existed long enough in 15

7:08

years at the time that had

7:10

developed a process and approach and

7:12

a way of thinking to change it is

7:15

a big task. And then secondly,

7:18

the external world was changing and we had

7:20

to adapt to that. So whether

7:22

it was the things our staff expected

7:24

from us, ways of working, societal

7:27

expectations, things around

7:29

reputation when you're a sovereign well-fund, I

7:31

felt like we needed to do an

7:33

even better job at that than what

7:35

we had been doing. So

7:37

lots of interesting things to tackle. Why

7:40

don't we start with this idea that

7:42

the external market environment is changing

7:44

and you need to do adapt.

7:47

How did you lay out what

7:49

that meant and how you should change your approach? It

7:52

was really founded in research with Bangdong for quite

7:54

a few years and we'd started to talk to

7:56

the board about Just long-term

7:59

trends. Kilocycles and things like

8:01

that and then when covered happened. I

8:03

am in Melbourne in Australia and unfortunately

8:05

that was one of the city's that

8:07

was locked in the most in the

8:09

world and must have s now so

8:11

they totally and was a big disruption

8:14

and all such as a soft to

8:16

think you have time dealing with issues

8:18

because we lost. Our

8:20

was really soulful. That is this world was

8:23

changing. Driven. By generational trying

8:25

so people who was high and

8:27

of forty five said i millennium

8:29

when James A really have a

8:31

very different lived experience partly. Because

8:34

of how old's I would win, the

8:36

financial crisis happened and what sort of

8:38

jobs? I god what? That. Felt

8:40

lot of them with as I can

8:43

afford to buy assets, houses and things

8:45

like that or north North. And

8:47

says I expect different things from their

8:49

governments and because the research was done

8:51

on notice that amount had been through

8:53

they saw calls before and or challenge

8:56

the time to start thinking about a

8:58

six when what happened is I ran

9:00

up soon, was thin and of of

9:02

holiest G and said i think the

9:04

world's changed A way to tear it

9:06

down to first principles, figure out how

9:08

it's changed, figure out what we know

9:10

today to succeed in that new Weldon.

9:13

build a backup you've got a year.

9:15

And. Say, say it off. That's an interesting question.

9:17

I bluffed story that but I'm too busy with

9:20

they are you. And. Or said

9:22

okay I use cancelled say are literally went

9:24

to the bone said we're gonna stop reporting

9:26

on a whole lot of stuff because we

9:28

like to focus on this project in the

9:30

board to support even lower in a market

9:32

crisis. We. Recognize that we didn't

9:34

know what was gonna happen in the

9:37

world so the next thing we did

9:39

was a wiki says i across the

9:41

whole organization as in from the receptionist

9:43

up and we said with these exchanging

9:45

in the world what's important We came

9:47

up with the been over seventy ideas

9:49

and we tried to group them and

9:51

ultimately came up with obtained growing things

9:53

that are settings as paper the new

9:56

investment order. It always feels like

9:58

something is changing in the world. The.

10:00

Especially in markets, drinks or tops

10:02

and bottoms. How

10:04

do you develop the conviction? Looking

10:07

at cycles, Looking at these ideas

10:09

that your team developed that you

10:11

should make a significant change

10:13

in a substantial portfolio. Are

10:16

just boils down to expressing a form of

10:18

leadership because you can over analyze something today

10:21

and come up with a million reasons why

10:23

he will refer to the main law and

10:25

models will tell us something will be. I

10:28

guess it was a career of

10:30

writing and seen teaching and being

10:32

influenced by different things I've read

10:34

that really went so you the

10:37

fact that finances are calls for

10:39

high ville and whether it's quantities

10:41

old Norse. Paypal. Program the

10:43

algorithm. Some sides: Eco

10:45

Challenge. Or. Was pretty influenced

10:47

by a book or right back in the nineties

10:50

called the Fourth Turning. That. Really

10:52

went to have generations think differently

10:54

and how the world actually does

10:56

change Caught pro family have done

10:58

a little bit of writing and

11:01

sinking around the Great Depression and

11:03

Nine Twenty Nine Market Proof of

11:05

men, the financial crisis. Or

11:08

could say on of parallels to the

11:10

wealth and exist then and are just

11:12

as such a conviction in Illinois. Engage

11:15

the time and got them to write

11:17

up a it and talk about it.

11:19

A point where Life Thoughts was a

11:21

pretty interesting project but it was really

11:24

the process of coming through the project

11:26

to year which also engaged and higher

11:28

interest tax. And

11:30

at the time when. I'm. Seventy or

11:33

eighty pipeline project. With.

11:37

Us internal and on the whole

11:39

thing to build views and conviction

11:41

upon my we attach the portfolio

11:44

and people would be on that

11:46

journey rather than impose it on

11:48

the top. Damn financing for deflect.

11:51

Tests including paper you titled the

11:53

test asked. Us

11:56

to discuss. So.

11:59

Sorry. Finance or really

12:01

based on observations on have

12:04

financial markets and economies have

12:06

worked and ascribes. Quite.

12:08

Laws or behavior is to

12:11

these activists in the economy.

12:14

assuming. That people in the future will

12:16

like lotta having the past. But when you

12:18

start to think about it, most of the

12:20

daughter we have comes from that era, postwar,

12:23

daughter, and in many cases really only the

12:25

last thirty or forty years. And.

12:27

So we've been in a particular part

12:29

of the cycle during that period was

12:31

head. Democratic. An economic

12:33

title wins with had the emergence

12:36

of middle classes in Europe in

12:38

the Us postal votes who was

12:40

had increasing dead in the world

12:42

and that was a positive thing

12:44

mostly because of brought forward consumption

12:46

and wealth from the future but

12:48

we had a fast growing world.

12:51

Pretty good season see productivity

12:53

top affects Globalization global trade

12:55

mostly economic rationalist government policy

12:58

makers through a lot of

13:00

that era. not solely the

13:02

always like bumps on the

13:05

why, but mostly. But.

13:07

Actually, when you look back at hundreds of

13:09

years of history, the world hasn't normally bang

13:11

lotta and suddenly gone through by cycles for

13:13

far. As said, the question was, why will

13:16

it continue? Was. Ultimately

13:19

a bull's dance harrys capitalism performing a

13:21

useful says as a society at large

13:23

and the city's it will continue and

13:25

if it isn't than someone some tom

13:27

will try to intervene in those markets

13:30

and challenge of. Such hiking

13:32

that backdrop. Then you can start

13:34

to say well why should bonus

13:36

be. Negatively. Correlated with

13:38

equities always. Why should equities

13:41

own a higher return than

13:43

some point? Loma Risk Acid

13:45

always. Why should prose of

13:47

markets and have none? Illiquidity

13:49

always. And. The answer is

13:52

well on every guy's a time by

13:54

promo we should because Paypal otherwise wouldn't

13:56

mind them. Parts. At different

13:58

points in the cycle by Chloe, Don't. For

14:00

example was just a couple of years

14:03

of inflation rising interest rightfully bones falling

14:05

equities of the site on. And.

14:08

So really inciting the deaths of traditional portfolio

14:10

construction and much I made me put a

14:12

question mark on the end of natal at

14:14

all because we really calling from a debate

14:16

and I guess I personally think it is.

14:19

What? We really saying is the might be

14:21

periods in the future way bones are

14:23

still defensive relative to equities and were

14:25

profit markets win in a premier and

14:27

so forth by the econ assume it

14:30

will always be the case and said

14:32

the reason I say forget portfolio anymore

14:34

that eaten just put on and when

14:36

and sleep. Or philip an

14:38

asset allocation with dollars every year

14:40

have to actually buy a lot

14:42

more dynamic and along. So.

14:45

Would you do with Sat Ccs

14:47

when it comes to the actions

14:49

to takes you. Are

14:52

very first principles invest. We.

14:54

Call a joined up hopefully. Oh investing

14:56

A tend not to use the term

14:58

title portfolio approach because when other people

15:01

do that I do different things to

15:03

what we do. Say.

15:05

Right now we think. The.

15:08

Assets Array Pricing Still as the

15:10

world works at. What's that? The

15:12

price of money base in Us

15:14

Higher Inflation Weldon A. Boat.

15:16

With is more competition for capital. Printed.

15:19

Actually looks pretty attractive because it has

15:21

free prost. Say. More

15:24

would need to put all your portfolio

15:26

and critter and this good reasons why

15:28

you wouldn't but that's the starting supposition

15:30

rather than a will have an overweight

15:32

have some small amount Within some tracking

15:34

era budgets are some strategic asset allocation.

15:38

When. We look at the will

15:40

going forward. We say more inflation

15:42

will volatility probably was at least

15:45

in why cause prices more frequently

15:47

take mobilization A more populist governments

15:49

that will to recapitalise things detract

15:52

from economic growth. All those things

15:54

are inflationary and in that world

15:57

in the big picture you would

15:59

have. Probably. Less reliance

16:01

on equities and you would have

16:03

less conviction in offs answer. The

16:05

question becomes we did as he

16:08

returns from And what color offensive.

16:11

As as he got about thinking through that. We.

16:13

Concluded that we need better

16:16

slice. It

16:18

many many reasons were missing and functional.

16:20

By Sustain that doesn't mean will study.

16:23

of the digital ha single digits or

16:25

come back down in all gop again

16:27

and will come back to and will

16:29

go up again. This is the past

16:31

history. Since. Hopes of Real

16:33

less. It's particularly infrastructure assets that

16:35

can pass through inflation quite attractive,

16:37

but not for example, regulated utilities

16:39

which you moment in series. I

16:41

should be because the nice to

16:44

be social contract if you're buying

16:46

an essential service conscious couch anything

16:48

you want it up with the

16:50

process or the racers I reported

16:52

by says it's quite risky in

16:54

this world. But. There are

16:56

other things mobile phone

16:58

towers, fi bar, data

17:00

centers, renewable energy infrastructure

17:02

that are caught attractive.

17:05

We. See commodities are one of the see

17:07

things that have worked through stagflationary periods

17:10

and inflationary periods and we say no

17:12

reason to think the future will be

17:14

different, but you've got an added tile

17:16

We now that in the. Day

17:18

Carbonized Economy A Lotus. Commodities.

17:21

Become very valuable. Not the petroleum

17:23

months, but the reverse said the

17:25

tops of minerals and metals and

17:27

so was. Put. That exposure

17:29

on in the portfolio. In

17:32

Twenty Twenty, we put Golding to the

17:34

portfolios for the first time. Because.

17:36

we saw that more populous governments

17:38

would be more likely to print

17:40

money or otherwise sea bass the

17:42

currency's because that's what governments always

17:45

do when they're in the sort

17:47

of situations or at least he

17:49

contacted for granted that that life

17:51

and then we still have very

17:53

high conviction in school bus strategies

17:55

particular private equity vince capital a

17:58

sort of infrastructure and property we

18:00

don't and CreditWidow tends to be

18:03

private and equity

18:07

markets where some years ago we

18:11

were able to keep the equity

18:13

small cap strategy. We

18:16

started a great fanfare

18:18

and interest in Australian

18:21

equity small cap strategy

18:23

earlier this year because

18:26

it was a space where there was

18:28

capacity available and there is the potential

18:30

to deliver sustainable health. I'm

18:32

trying to think about how your portfolio

18:35

would change with this

18:37

different lens of a paradigm after this

18:39

year of work. You

18:41

started with an approach that's a little bit

18:43

different from traditional asset allocation as it was

18:45

anyway. How much

18:47

can you change such a large pool

18:49

even over two or three years to

18:53

move into the areas that you think are

18:55

more likely to benefit from a different environment?

18:58

So we manage about $265 billion Aussie

19:00

across seven funds. The future fund, which

19:02

is the higher risk fund, is a

19:04

bit over $200 billion and we've changed

19:07

half of it in the last three years. So

19:09

it is something we have conviction

19:11

in. Some of it isn't

19:14

obvious if you just look at the asset allocation

19:16

because it says equities, we've still got equities but

19:18

we've got different types of equities now than we

19:20

used to. Some of it is

19:23

things that don't really show up in the

19:25

asset allocation. We think we need to be

19:27

more careful about our liquidity. We

19:29

think there's going to be more volatility in currency.

19:31

We think there's options in

19:34

unlisted assets that can get us higher

19:36

returns in lower growth world but other

19:38

issues come with that. So

19:40

we've built an internal treasury management function

19:43

for example to work the liquidity harder.

19:45

We're taking some of the risk using derivatives

19:48

over the cash that we have. So we're

19:50

being more disciplined about how we think about

19:52

that. But other things are quite

19:54

different. So the nature of the type of infrastructure

19:57

we're buying is different. The way we're doing real

19:59

estate is different. different we don't think

20:01

certain forget-free assets are that exciting

20:04

because there's no reason to think that

20:06

you'll just get rewarded for having capital

20:08

and so you need to have strategies

20:11

that actually create something worth that people

20:13

want to pay for and

20:15

the issues in terms of office

20:18

building utilization or shopping centers versus

20:20

internet retail for example will

20:23

know in an ignored at

20:25

the same things are happening right

20:27

across the ecosystem. So

20:29

it's more inside a chess and

20:31

allocation how we execute on the

20:33

portfolios that is changing. This

20:35

idea that credit looks

20:38

interesting couldn't you just put all your money in credit

20:40

well you can't do that well this

20:42

infrastructure is interesting but it's a liquid. How

20:44

do you get to the sizing of all

20:47

these different buckets of opportunities? Well

20:49

firstly I'd say we can put all that money

20:51

in credit that's a decision not to and the

20:53

reason we don't is because we

20:55

might not be right or maybe

20:58

the market capacity in the size of the

21:00

fund over the time period would restrict it

21:02

but we wouldn't start from the

21:04

attitude that we can't. And so

21:07

most of the conversations around the investment committee are we

21:09

like this idea why can't we do more? Usually

21:11

the investment committee is pushing the sector team

21:13

to do more of a good idea rather

21:15

than less. And that's what

21:18

the whole portfolio investing really comes

21:20

to sizing issues of the whole

21:22

portfolio level appropriately. But of

21:24

course we do have an existing portfolio and

21:26

we can only have one portfolio and so

21:29

there are multiple future scenarios in

21:32

the world. No portfolio will

21:34

be great in all the scenarios, we

21:36

could have a low-growth stackflation, we could

21:38

have a productivity shock where everything's fine,

21:40

we could have anything in

21:42

between, we could have geopolitical conflict that

21:44

means that certain geographies get impacted more

21:47

than others and so we do think

21:49

about true diversity in the portfolio. I

21:52

don't use the word diversification because we

21:55

don't assume asset classes behave differently

21:58

in a particular way we try to to look

22:00

through that in a more granular

22:05

real estate in these geographies will

22:24

or through using option strategies or other things

22:26

like that. In a

22:28

world where you're expecting there to be

22:30

more volatility across whatever these

22:33

factors are, inflation, equities, bonds, how

22:36

do you dial up or down the investments

22:39

you make in the dynamic asset allocation

22:41

portion of what you do? There's

22:44

a few different lenses on it. Probably the more

22:46

important one is that we talk to

22:48

each other a lot. So we talk about

22:50

joined up whole portfolio investing. The joined up

22:52

piece is that teams are

22:54

talking to each other all the time about

22:56

what they like, what they don't like, what

22:58

they're seeing in the portfolio, what

23:01

they think is attractive. We try to learn off each

23:03

other and our fund managers of course.

23:06

If we say something that's attractive, we'd work

23:08

together on it. So right now real estate

23:11

credit for example looks pretty interesting. There's a

23:13

shortage of capital and so our real estate

23:15

teams and our credit teams are working together

23:17

on that. So there's that piece

23:20

and then we have a

23:22

more formulaic, more traditional dynamic

23:25

asset allocation piece as well.

23:27

This is something that has changed since

23:29

the work we did because we think the

23:31

world is more volatile and we think it's

23:33

worth investing more in capturing

23:35

the benefits of the volatility

23:37

because we have a longer term mindset.

23:39

We don't mind if we

23:41

lose money over the short term or if we

23:44

are running tracking errors to some

23:46

sort of benchmark and so we

23:48

can take a longer term view

23:51

about whether there's fundamental value in something and

23:54

take a position. And so we

23:56

have built a dynamic asset allocation team that's

23:59

doing that now. The across

24:01

a kiddies. Tops

24:03

of currency, an interest rates

24:05

and I can. Movies in

24:07

front are if necessary. Actually

24:09

was. It's

24:11

really just based on fundamental longer

24:14

term value plus a few other

24:16

matrix a bit shorter term macro

24:18

cycle and that's proving to add

24:20

quota value was always done that.

24:23

But. With ramped up and say we

24:25

try to analyze it runs performs. We.

24:28

Pretty much start with if we

24:30

just had equities in cash, nothing

24:32

else and we ran a typical

24:34

responsible for a time of thing.

24:37

And. Then we think we didn't have the

24:39

support the portfolio. my can actually get

24:41

some alpha and we can be dynamic.

24:43

wouldn't be bright. Damn the returns over

24:45

the loss of the sun I time

24:47

he is now we've added minutes on

24:49

off percent per annum. Think

24:51

is pretty good and of

24:53

sexually split interestingly only about

24:55

half a percent to. Those.

24:58

Of suffocation in the traditional sense.

25:00

And. About one person Hm, dynamic asset

25:02

allocation an alpha and if you look

25:05

at last three is actually of discussion

25:07

has been significantly negative because obviously bottles

25:09

inequities have been correlated in a bad

25:11

way. but Elsa has been really, really.

25:15

You. Mentioned that. To. Make a

25:17

significant change in the portfolio like

25:19

that. He had to get the

25:21

organizations. Prepared. To. Be.

25:23

Able to make change because people are

25:26

used to just doing what they've done

25:28

and incrementally moving forward. How

25:31

did you get. The. Organization

25:33

to change. Site.

25:35

Says I'm lucky because we didn't have to

25:37

change from the opposite we didn't have fundamentally

25:39

times. we just set the was needs the

25:41

culture with already bills and do more of

25:43

it with an item on the We also

25:45

had to do it with more. Because.

25:48

We decided english weeknight.

25:51

More strategies to have all manages to

25:53

my. Last six

25:55

months. And

25:59

not a part of the price. This was born.

26:02

With more want some reference

26:05

portfolios? You're tracking era budget.

26:07

Hooked on work. All. His

26:09

conversations we were having as we went through

26:11

this year of research we will also having

26:13

with the board. And. When we

26:16

ultimately got the recommendation on hand attached

26:18

the portfolio the board was rather with

26:20

us so you build confidence and model

26:22

was the why but thankfully this those

26:24

decisions have added value to the portfolio

26:26

since then and so that helps you

26:28

have higher conviction in doing a even

26:31

more and actually lost a window into

26:33

the board. We put up a recommendation

26:35

and then we put up another proposal

26:37

which way called be Bold of. Which

26:40

really means. Doubled. Down

26:42

into a conviction about the challenges in

26:44

the world. The board actually said something

26:47

so you don't have that iii conviction

26:49

that were ice and less important to.

26:52

And. Say it's caught solitary she's we

26:54

know before Adding value will not

26:56

perfect pass. We just have to

26:58

back each other to have even

27:00

saw it tasted to be open

27:02

about it takes a back into

27:04

pieces as a goat. So.

27:07

Bold did be bolder look

27:09

like. It. Really when

27:11

hard into commodities? It

27:13

when Harding to hedge funds which we

27:15

sing can be defenses and tops of

27:17

hedge fund strategies in this world as

27:19

you would knighted conviction in his friends

27:21

doesn't always pay off, so you want

27:23

to be careful about that. But.

27:25

Really interested more of what we're already doing in

27:27

terms of saw as it. Does. Seem

27:30

to remember was something like about

27:32

how a single digits of the

27:34

portfolios moving out of traditional less

27:36

it seems to I saw day

27:38

is with for very done quite

27:40

a lot of been another. A

27:42

scene of The Portfolio doing. I

27:46

want to take a break in the

27:48

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Now back to the show. In

28:59

your seat as Ceo. A

29:01

curious how you thought about

29:03

culture. Touches. Very fundamental arcing

29:06

and a lot of would have been described

29:08

as you can do without a counselor. Support

29:10

the innovation and the recycling in the being

29:12

different. I think to begin

29:14

with each fans had that since it

29:16

was established at We Will really small

29:19

and young and we sort of grow

29:21

it as we weigh ins and. We.

29:23

Got bigger and as we went

29:25

into the cousin period part of

29:27

the strategy was when I grow

29:29

the investment time by about sixty

29:31

percent because we need more strategies

29:33

for next be more granular when

29:35

I to be more active for

29:37

their fund managers to bring the

29:39

information scalar. i was convinced

29:42

by launching an old was really concerned

29:44

about the culture of the organization if

29:46

we did that about the fact that

29:49

you need more people to manage more

29:51

paypal whether it's in hr people and

29:53

culture top teams all legal and finance

29:55

and other execution for hims at the

29:58

same time we were up our

30:00

data and technology capability to understand

30:04

what was in the portfolio and

30:06

we just couldn't buy it off the shelf what

30:09

we wanted. So our technology

30:11

team I think quintupled over

30:13

the period of four or five years. There

30:16

were lots of challenges in managing

30:18

that growth in terms of having

30:21

an aligned investment focused culture and

30:24

also in ensuring that our

30:27

people who were becoming leaders especially

30:29

in the middle of the organisation understood

30:32

what their role would be and what

30:34

their obligation is. And so I

30:37

was very focused on ensuring

30:39

that we continued to offer

30:41

quality support for ultimately

30:43

the investment mission which is why we're here

30:46

and that meant listening to the organisation

30:48

about what wasn't working and

30:51

fixing it. Technology being

30:53

a good example that we couldn't afford to

30:55

have a technology team that could do lots

30:57

of things and have lots of ideas but

30:59

wasn't being driven by the investment need explicitly.

31:02

As a CEO I

31:04

felt like my job was to ensure

31:06

the whole organisation was wrapping itself around

31:08

this really significant change

31:10

in the investment world and the change we

31:13

had to do in the portfolio and our

31:15

mindset and supporting it. That goes to the

31:17

risk team and how they think that goes,

31:20

I already mentioned to Treasury management, it goes

31:22

to how all our enablement functions are working

31:24

and it ultimately goes to how we innovate.

31:27

I decided that in order

31:30

to grow successfully we had to cater

31:32

for the culture and I'm a little

31:34

allergic to that and my

31:36

predecessor, Dov Niel, I think was highly allergic to

31:38

that because he felt it had to be more

31:41

dynamic but if we were growing from something

31:43

like 150 people in five years to 350 then I just felt like I

31:46

was too

31:49

risky not to do that. So I took

31:51

a summer and thought very hard about it

31:54

and wrote down what I thought

31:56

the culture was in two

31:58

phrases and four actions. Oh

32:00

like corrected by my colleagues too far

32:02

as actions. Does. A

32:04

speech on it to the organization.

32:07

It was really not about you

32:09

must join at Tulsa Neck. The

32:11

why when you hear better was

32:13

more about this is what guides

32:15

us. This is why were different

32:17

to somewhere else is largely about

32:19

working together and collaborating with each

32:22

other without joints focus. Now.

32:24

When people join the organization like get

32:26

a copy of that and we talk

32:28

about what unites of a successful. What?

32:32

Were those two faces? So.

32:35

The first one was one time on purpose

32:37

which would head for a long time. And.

32:39

That really time and of an investment context

32:41

for east side ones. I am one portfolio

32:43

but now that we manage seven thousand of

32:46

the governments of didn't really work anymore and

32:48

it was really a bad aligned objectives the

32:50

second one else has. On

32:52

to see newly repeated even to this

32:55

day Investment Performances if I guess we

32:57

have to know why we exist and

32:59

every decision that anyone in the organization

33:01

max nice to come back to that

33:03

have will you help Investment Performance and

33:05

was influenced by Sam Signs point about

33:07

warm out when he said well if

33:09

you don't see the customary and or

33:11

helping someone who says the customer we

33:13

don't have a few and I'll sing

33:16

when have to sign. When it comes

33:18

to Investment Perform and some analysts you

33:20

to build a big technology turning let's

33:22

show. Money in those wonderful things and

33:24

Mister Trump's investment performance. And

33:26

are simply to commit the

33:28

risk someone's transaction functions. Going

33:32

out of pace three the side

33:34

Mullins wants to promote. how are

33:36

you helping us and or any

33:38

investing So there was a tree.

33:40

Phrases in the nerves for a

33:43

regional elections which are try to

33:45

make or i'm just so people

33:47

would remember them were collaborate, facilitate,

33:49

innovate, and deliberate which goes to

33:51

working together telling to souls the

33:53

investment problem with a whole portfolio

33:55

liberal facilitate. Really my style whites fiasco

33:58

in Alpha. and if you've

34:00

got some knowledge, some connections, some

34:05

awesome capital in the portfolio because some

34:07

other idea is better than yours, then

34:09

go and offer. Innovate, I think a

34:11

lot of people have but I talked a lot

34:14

about looking at the quality of the

34:16

decision we made at the point of the decision,

34:18

something you've explored on your podcast and

34:21

not judging people by the outcome because there's

34:23

too much uncertainty in the world when you're

34:25

in the investor to know if we're good

34:27

at decision making just by a

34:29

few decisions a year and what the outcome

34:32

was and that's really encouraging people to be

34:34

bold and you can hear the outcome of

34:36

that through the new investment order

34:38

work we did. Deliberate is

34:41

about reputation risk management, whether government's

34:43

fund but also in our

34:45

view of the future more populous governments

34:47

are likely to be sustained around the

34:49

world and society is

34:51

expecting more and more from its institutions

34:54

and we're no different so we need to be

34:56

very thoughtful about things that are appropriate for

34:58

us to do and talk openly about that.

35:01

And then it seemed implicit to me

35:03

that in that world we were collaborating

35:05

and working together that we would get

35:07

a whole diverse range of people into

35:10

the organisation and value their views and

35:12

so I wasn't explicit about that but

35:14

my colleagues corrected me and said well

35:17

if you want to achieve that you better be explicit

35:19

about it so we've added inclusion which

35:21

I think is really important, it doesn't rhyme

35:24

but that's okay and we talk a lot

35:26

about that internally. We've set up

35:28

the Future Fund Academy which is only small

35:30

but we're only a few hundred people. They're

35:33

helping teach a whole lot of things

35:35

from leadership through to how to pick

35:37

a good fund manager but most importantly

35:39

on your first day in the organisation

35:41

you come to an induction

35:43

program for that day and the whole first half of

35:46

the day is on our culture, they've had a copy

35:48

of my speech and we talk

35:50

about why are we different, what do you

35:52

think that will do in terms of your

35:54

decision making no matter what role you're in

35:56

and People

35:59

are able to... Hi Busquets good idea

36:01

or that much I will not sure

36:03

about the sweet question if we think

36:05

it's gonna be valuable in when I'm

36:07

on than a that are going to

36:09

made as many people as I can

36:11

if I'm around and it just stops.

36:13

Michael feel connected organizations that also understand

36:15

that winning a fly studies class emissions

36:17

the beginning the book we did on

36:19

the fifteen years history of the sand

36:21

or felt that was really important not

36:23

just to mock an important occasion and

36:25

a crash in of a new institution

36:27

first riley of but also because really,

36:30

The audience who may was Pizza

36:32

sauce or want people to neither

36:34

joining an organization that existed and

36:36

as some runs on the board

36:38

which can be a bit scary

36:40

some paypal as well At the

36:42

insight I kind of the tines

36:44

to have a new ideas but

36:46

one day when you leave and

36:48

everyone likes eventually. The organization

36:50

will continue as well as opponents

36:52

I've on gets. To

36:55

probe a little more and some

36:57

of these principles and it sounds

36:59

intuitive to say. Investment. For

37:02

fairness is what you're driving towards.

37:04

That are some of the ways

37:06

that having that. as one

37:08

of the core emissions. So.

37:10

Kisses activities in a way

37:13

that. Hadn't been taking place

37:15

before. Some obvious ones

37:17

would be a red and risk

37:19

and lay goal functions and have

37:21

I apply the lens. Some it's

37:23

not just us doing risky things

37:25

but to know that that I

37:27

consider risky things is also draws

37:29

that A returns in the summers

37:31

were open minded and clear eyed

37:33

about that. That a more subtle

37:35

one would be how and Paypal

37:37

with culture and Inclusion function is

37:39

working with their senior investors to

37:42

build trust between Moon. T.

37:44

support they soft skills of challenging

37:47

each other without becoming defensive and

37:49

we think that to continue to

37:51

fries and succeeding this more complex

37:53

world we have to get even

37:56

better it hopefully i joined up

37:58

investing and And the key plank

38:00

is how senior investors, in fact,

38:03

all our investors engage

38:05

with each other and challenge. And

38:08

to do that, you need to have trust. You

38:10

need to have a framework so that you

38:12

understand the rules and not be personal. We're

38:15

not bad at that, but we're not great at

38:17

that because we're people. So we need to keep

38:19

working at that. And so our team is building

38:22

all sorts of supports from how

38:24

we hire, how we sponsor people,

38:26

who we promote the sort

38:29

of conversations we have about the behaviours

38:31

we reward or we penalise when

38:34

we fill senior roles. We'll often try

38:36

to do that internally, but what attributes

38:38

are we looking for? So it really

38:40

gets embedded all the way through the

38:43

organisation. And then we can apply those

38:45

same things to the other parts of

38:47

the organisation, not just the investment team.

38:49

That's probably what's coming next on our

38:51

agenda. We're really trying to

38:54

create the structure and the straps for the

38:56

organisation as a whole to support the culture

38:58

and the culture's focused on delivering investment performance.

39:01

What have been some of your biggest challenges in

39:03

your time in the CESE? Well, there's

39:06

the basic CEO problem

39:08

of every day, which is that everyone you

39:10

speak to has a view on something,

39:12

but usually they're completely different to each

39:14

other and everyone wants to give you

39:16

advice. And one thing you learn is to

39:19

not jump to conclusions or make quick

39:21

decisions on those type of things, but

39:23

to take the time to talk to a range of people

39:25

and get a range of views and understand why it is.

39:29

As I said, I became the CEO in the middle of 2020 in

39:31

a lockdown, so that was quite challenging. And

39:34

just to engage the organisation,

39:37

the purpose helped. Obviously, we work for

39:39

the Australian taxpayer. We don't just invest

39:42

the Future Fund, which helps strengthen the

39:44

Commonwealth Development Balance Agency and helps support

39:46

the economy through COVID. But we also

39:48

manage the Medical Research Future Fund that

39:50

funds a better set of medical research

39:52

in Australia and then a

39:54

whole bunch of other funds that data support,

39:56

drought and emergency relief, social

39:59

affordable housing. in the indigenous community.

40:01

So the person.

40:20

I suppose you just do what you have to do. I think

40:23

as a CEO the other big challenge

40:25

for me has been to engage the

40:29

senior leaders around the

40:31

strategy where we want to go, how we want

40:33

to get better. Getting better together

40:35

is hard because you're changing things that

40:37

you've done for a period of time

40:40

and so I have found that quite

40:42

challenging to keep the focus,

40:44

keep the alignment, keep everyone engaged

40:46

in a positive way with momentum

40:50

but it's going quite well. What

40:53

have you learned post-COVID as you're able

40:55

to travel around and meet other people

40:57

in similar senior leadership roles? Everyone

41:00

has the same sort of issues. I think

41:02

they change a little bit depending on your

41:05

stakeholders most importantly and your

41:07

governance models but mostly everyone has the same

41:09

issues and so I find that speaking

41:11

to my peers is the best way

41:13

to learn because some of their organisations

41:16

have been around a lot longer than

41:18

ours and they've confronted most of those

41:20

issues before. Fortunately or otherwise

41:22

when you're an asset owner most

41:24

people you speak to either work for you and

41:27

so it's always hard to know if they're really

41:29

telling you what they think or

41:31

want to mandate off you and so

41:33

usually they agree with you wholeheartedly. I'm

41:35

always very skeptical about that so peers are

41:38

the best way to learn. No

41:40

organisation is exactly the same but there's great

41:42

things that you can learn from others and

41:44

adopt for yourself. What are some of those

41:46

lessons that you've learned from others? So

41:49

for example as we've got bigger as

41:51

I said before we've set up the Future Fund

41:53

Academy to help train people and I was fortunate

41:55

to be able to do some research and talk

41:57

to you some of our peers. Goldman's,

42:00

GIC, has GIC school,

42:03

a lot of organisations

42:06

have well-developed learning academies that do a great job

42:08

and they've all been very generous with access and

42:10

insight about what works and what doesn't

42:12

work. What have you found does

42:15

work and doesn't from this? So

42:17

actually someone said to me when we first

42:19

started you have to decide will it sit

42:21

reporting directly to you as CEO or will

42:23

it report through the people and

42:26

culture function or through some other part

42:28

of the organisation because that's important. If

42:30

it doesn't come from the top people

42:33

won't do it or they'll see it as

42:35

a distraction or a waste of their time.

42:37

It also needs to be

42:39

demand driven from the organisation so there's

42:41

no point in imposing things

42:43

on the organisation if it doesn't value those

42:45

things. So we're trying to get that model

42:47

right. I don't have it reporting to me

42:49

because I thought it was important to integrate

42:52

with our other processes

42:54

around engaging, sponsoring, developing

42:57

people. That seems to

42:59

be going fine but I take a pretty

43:01

close interest in it including sitting on the

43:04

steering committee and having input into the syllabus.

43:06

It needs to be bottom up and we need the investment

43:09

people and the people in the other parts of

43:11

the organisation to be saying I need

43:13

help with this particular set of skills in

43:16

my team and if there's enough demand we

43:18

can try to develop some content around it.

43:20

So it's kind of astounding

43:23

that this significant pool

43:25

of capital has only been around for 15 years.

43:28

As you wrote this 15-year

43:30

letter I'd love to

43:32

hear your impressions of the perspective you

43:34

have from this period of time. So

43:37

I joined probably a bit over a year

43:39

after the Future Fund was established and I

43:41

was one of the first people into the

43:44

investment team but it had been going. It

43:47

had established its culture at

43:49

least in principle and

43:51

it had started investing even if

43:53

just in index equities. I'd

43:56

never really thought of myself as one of the

43:58

founders therefore I thought of myself as someone. who

44:00

came along pretty quickly thereafter and

44:02

was part of the team that

44:04

built out the original ideas.

44:07

I'm grateful for that because if it was

44:09

there at the time, then it

44:11

just seems like another day at the office. You have

44:13

to make 30 decisions today. One of them was what

44:16

sort of approach would we have and it just gets

44:18

lost in the midst of the decision making but I

44:20

was able to come in and say actually that's a

44:22

bit different, it's a bit special and

44:24

it's helped us be who we are and

44:27

then reinforce it as a

44:29

builder. And so I really

44:31

wanted to capture the things that

44:33

are different. I think the two

44:35

things really that have allowed us to

44:37

be successful if we have been and I'll let

44:39

others judge that. One

44:41

the governance model. So we have a

44:44

board appointed by government but the board

44:46

are all industry experts, they're not a

44:48

lay board. And I can engage in

44:50

quite a sophisticated way and they've always

44:52

been aligned and supportive but

44:54

they've always been close. And

44:57

by that I mean we have monthly

44:59

board meetings and we don't have some

45:01

quantitative reference portfolio approach

45:03

to measuring our success. We have

45:06

much more qualitative debates and discussions and

45:09

that allows us to do things that

45:11

would be considered quite risky in

45:13

other frameworks. So governance and the other one

45:15

is culture and I've already spoken quite a

45:17

lot about that but I think that culture

45:20

allows us to understand

45:22

the world and act on it. And I

45:24

think most trends understand the world at some

45:26

level. Most of the things we think about

45:28

the world are not secrets. Plenty

45:31

of people are debating the same issues.

45:34

It really boils down to are you willing to act

45:36

on that and how far are

45:38

you willing to move off the back of

45:40

that? And mostly that's not the capability of

45:42

the people, it's the governance model.

45:45

How do you feel about being

45:48

effectively responsible for pivoting the

45:50

organization to make those important

45:52

decisions when you're not as close to

45:54

the investment markets as you were? I

45:57

feel pretty good about it and that's because I'm not

45:59

trying to make investment. decisions anymore.

46:01

I think it's important to

46:07

make the decisions. My job is to

46:11

make sure that we've got a culture that's

46:13

agreed and clear, make sure that

46:15

the team's putting in place clear

46:17

investment processes and strategies and they

46:19

make sense. There's enough checks and

46:21

balances but not too many to

46:24

seize the pipes up so that we can't actually

46:26

act quickly and then make sure that the whole

46:28

rest of the organisation is supporting. And

46:31

I quite like that job actually. I've probably done

46:33

the investment job for long enough that I've got

46:35

the perspective and I don't need to make the

46:37

day-to-day decisions. I just want to make sure that

46:39

the infrastructure is there and the culture is right

46:41

and the people are right. So

46:43

as you're looking at over the next couple of years, what

46:45

are the most important initiatives you're working on? The

46:48

first one is just maintaining that flexible way

46:50

of thinking and culture because the world will

46:53

keep changing and we can't predict what will

46:55

happen. In the next five years, we might

46:57

have a hot war, we might have a

46:59

cold war, we might have a cyber war

47:01

but even if we park that, we'll certainly have

47:04

major political change in a lot of important

47:06

places in the world next year, the US election.

47:08

I think it's very hard for anyone to predict

47:10

which way that will go but it

47:13

seems quite clear that whoever wins

47:15

might make some changes to how policy is

47:17

made and where the US sits

47:20

in the world economically. We've

47:22

got new technologies emerging, AI potentially

47:25

new energy forms,

47:27

not just renewables but nuclear

47:29

fusions coming along, quantum computers

47:31

coming along. So it's very,

47:34

very hard to predict what's going to happen and

47:36

that's quite exciting for an investor because

47:38

what we need to do is make

47:40

sure we stay elastic, flexible and nimble

47:43

in our thinking and also that we

47:45

have the portfolio approach and the governance

47:47

model to allow us to act on

47:49

it. That's really the biggest challenge. To

47:52

do that in a joined-up whole

47:54

portfolio way, we need much

47:57

better tech data about what's in

47:59

the portfolio. And so we've spent more

48:02

than a half a dozen years now building a

48:04

system that can look into the

48:06

portfolio, look through the private funds

48:09

to understand the underlying assets

48:12

that we can ascribe our own

48:14

information onto any assets that we own

48:17

in terms of what currency it is,

48:19

what duration it is, how risky it

48:21

is and that we can aggregate that

48:23

and poll the portfolio in real time

48:26

so we know exactly what we own

48:28

and then we can do all

48:31

sorts of interesting things with that

48:33

in terms of analytics, scenario, testing,

48:35

looking forward and also analyzing the

48:37

performance of individual positions or managers.

48:39

So we've got all that now

48:41

which is amazing. Now we can

48:43

test what to do with it. We have all

48:45

our data, we're sure that it's clean. So

48:48

something like AI coming along, we've got

48:50

a little team working on what

48:52

could we use this for, how could it help

48:54

us and there's lots of

48:57

exciting other things that are emerging and so

48:59

we need to keep enough bandwidth to make

49:01

sure we continue to get better on what we know

49:03

every day as well. I'd love

49:05

to ask throughout your career as you encounter

49:07

money managers, peers, you always learn lots of

49:09

lessons along the way. I don't know if

49:11

you could pick out a few people that

49:14

you've learned some key lessons from. I

49:16

think the best investors are

49:19

open-minded. There's a lot of people and I

49:21

find this right across the

49:23

universe, public and private markets that have done

49:25

something in a particular way. It's worked in

49:27

the past. They assume they just have to

49:30

keep making that sausage and

49:32

the future will look like the

49:34

past. I think that's fraud. I

49:37

think the people you can learn or the people

49:39

who are open-minded who try to understand the changes

49:41

in the world. If you're a money manager, try

49:43

to understand what your clients want

49:45

or need or what problem are they trying

49:47

to try to

49:49

invent new ways of solving that that fit

49:51

the world. I won't name them because

49:53

I think that's not appropriate but there's quite a few

49:55

people like that I enjoy talking to. I have

49:58

A couple of closing questions for you. The that

50:00

are different from the ones from five

50:02

years ago. What is one sacked the

50:04

most? People don't know about you. On.

50:07

Clock fanatical about Disney same park

50:09

sexual offences and I enjoy going

50:11

sometimes on mine. At. Times you

50:13

pick things up that to influence house in Tibet

50:15

work as well. What? Are some of those

50:18

the effect of. I. Think they go right

50:20

at. In. Viewing culture through the organization

50:22

and so started to investigate be some actually

50:24

have the Finkel the Season University in my

50:27

day this culture induction on the surface die

50:29

and off and fortunate enough to meet with

50:31

them and shamelessly cops quite a bit of

50:33

what I don't. Which. To

50:35

people have had the biggest impact on your

50:38

professional less. Everyone has sponsors

50:40

and sometimes you don't know. That.

50:42

You do that in my Korea have

50:44

been fortunate enough a few times when

50:47

I was an engineer originally and then

50:49

I went back to dame year and

50:51

a person called much it's Petrie ten

50:53

renner unlisted infrastructure be take in Australia

50:55

begged me to come in and moon

50:58

had to invest really taught me how

51:00

to invest It worked out okay but

51:02

it was unclear it was going to

51:04

they he really had facing me and

51:06

then when attempt to the feet financing

51:09

david know was the site and money

51:11

because say I have. Me, the opportunity

51:13

to become the Chase investment Officer not wasn't

51:15

something out done before and he really backed

51:17

me to step into that role. Or sixty

51:19

nine people like that in your career. Her.

51:22

A or more What was the best

51:24

advice you've ever received? A

51:26

my very first study of works as

51:28

an engineer in Australia in the early

51:30

nineties. they was appointed big recession and

51:32

old Walked into my job and thirty

51:34

people got migrant on and on. Muscle

51:36

that die and someone said to me

51:38

don't take a job for granted, just

51:40

put your head down and work hard

51:42

and have never forgotten that. Arrest!

51:45

Thanks so much for sharing your perspective on

51:47

this important inflection point in the markets in

51:49

the world. Sextus. thanks

51:53

for listening to the south to learn

51:55

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51:57

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52:11

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