For the eighth edition of the Power 100, we laud the asset owners who have distinguished themselves in navigating a changing, and often perilous, market landscape. Come 2020, the ground surely will continue to shift beneath their feet, as they balance opportunity and prudence to deliver first-rate returns.
In 2019, these owners started out after the S&P 500 almost entered a bear market. Along the way this past year, they had to steer through headline-induced downdrafts that could come from anywhere, as the trade war and other exogenous events sent the stock market into turmoil. They also had to strategize how to deal with the return of falling interest rates, as the Federal Reserve reversed its policy of tightening amid signs of economic weakness. Up ahead, those headwinds will present tough challenges. Because they met the test of 2019 with such skill and grace, our Power 100 richly deserve to be honored.
For the list this year, along with their ability to innovate, some CIOs moved up the list when we added influence into our formula of factors. As the industry is often shaped by the power qualities of the CIO, their ability to collaborate also continues to play an important role, as CIOs tread carefully toward continued globalization, co-investment and team development to create investment offices that will last far into the future.
You can view the 2019 Power 100 List here and a few profiles here.
At the top of the list is Yale's CIO David Swensen, otherwise known as "God" in the finance industry for boasting one of the longest and most successful track records in the industry and for being an innovator in portfolio management.
Second came Hiromichi ("Hiro") Mizuno, the CIO of Japan's GPIF. Mizuno will lead the nearly $1.5 trillion pension behemoth for at least six more months, according to an announcement on the Tokyo-based fund’s web site:
Mizuno, who will lead GPIF through March 31, has been chief investment officer of the fund since January 2015. His previous term ended on September 30. The fund owns about ten percent of the Japanese stock market and about one percent of global stock market.Mr. Mizuno and Yngve Slyngstad, Noway's $1 trillion man who came in number 10 on the list, have a mammoth beta problem on their hands which works in their fund's favor as long as global stocks and bonds keep rallying.
Since his arrival at the world’s largest pension fund, the former private equity and banking executive introduced the culture of investment banking to the institution. He has made major changes to the investment strategy, initially moving the fund’s shift away from stocks to domestic debt. On Monday, the Nikkei announced that the fund continues to move away from domestic debt, given ultra-low rates in favor of holding more foreign bonds. He also pushed for assets that reflected environmental and social concerns.
The fund is a topic for a Harvard Business School case study. On a recent podcast, Harvard Business School professors Rebecca Henderson and George Serafeim noted that Mizuno has improved corporate governance, increased gender diversity and addressed climate change, radically re-thinking institutional investing. Mizuno’s approach to the fund, which has influenced other firms, was unusual because his strategy incorporated these factors into investment decisions simultaneously.
“The radical part was thinking about all three. Many Japanese asset managers and investors were worried about governance,” said Henderson. “It was the idea that you should focus on E and S as well when everyone was, like, ‘Whoa, why are you doing that?’ I mean, that was very countercultural…We have a protagonist who’s absolutely trying to change the world.”
Mizuno is aware that investors can’t diversify away from risks to the whole economy. “For Hiro, the risk of climate change is not some abstract thing that might happen to some other firm,” said Henderson. “He believes that the whole economy is at risk–and the Japanese economy is at risk from these issues.”
Mizuno has embraced change in other ways. He hired a consultant to help the fund adapt to alternative investments, as its regulatory framework was set up only for investments in public equities and fixed income rather than Japanese government bonds.
The co-chair of the Milken Institute’s Global Capital Markets Advisory Council even turned to technology. In November 2017, GPIF collaborated with Sony Computer Science Laboratories to study the impact of AI on asset management. Specifically, Mizuno sought to apply the technology for evaluating and monitoring fund managers. The effort culminated in a study that addresses how AI could be used to help each manager execute, depending on investment styles.
“We’re just trying to prove [that] even boring organizations like the GPIF can benefit from AI,” he said.
Bloomberg recently reported that Yngve Slyngstad, is stepping down after spending the past 12 years building a $1.1 trillion behemoth. He did a great job navigating that giant Norwegian super tanker and has decided it's time to step down and focus on other things.
At the third spot comes Chris Ailman, CalSTRS' CIO, who has his very own Twitter account but doesn't abuse it like the Twitter in Chief in the Oval Office.
Ailman makes regular appearances on CNBC and Bloomberg and he's a great communicator. He takes diversity very seriously and is one of the top pension CIOs in the world.
Ailman's counterpart at CalPERS, Ben Meng, came in number 36, which was a bit surprising to me as I think Meng is attempting to do some of the most innovative things like leveraging up its portfolio and ramping up its in-house private equity program.
Looking at the entire list, I paid close attention to the Canadian power brokers.
Ziad Hindo, OTPP's fairly new CIO, came in number 7 on the list, which is a huge and well-deserved achievement:
Our Chief Investment Officer Ziad Hindo has ranked #7 on @ChiefInvOfficer's 2019 Power 100 List. Congratulations! https://t.co/JpCRsISVpd— OTPP (@OtppInfo) October 31, 2019
Last month, Hindo was interviewed by Zane Schwartz the National Post, discussing how the $200-billion plan will survive the trade war:
Ziad Hindo has had an intense six months.I've already covered OTPP's Koru here as well as TIP and Space-X here and here.
The chief investment officer of the Ontario Teachers’ Pension Plan (OTPP) has overseen the launch of a new tech-investing division, surpassed $200 billion in assets under management and inked partnerships with Google’s sister company Sidewalk Labs and Boston Consulting Group (BCG) Digital Ventures. He also launched the Teachers’ Innovation Platform (TIP), which invested in SpaceX in June.
Teachers’ is going all in on tech: the fund is overhauling its operations and those of its portfolio companies as it gears itself up for an economic downturn and a global trade war.
But it isn’t the only pension fund with a new tech focus. The Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board (CPPIB) have new billion-dollar tech funds and plans to overhaul their investing strategies. CPPIB and the Ontario Municipal Employees Retirement System (OMERS) announced new tech-focused divisions coupled with San Francisco offices this year.
In an interview shortly after The Logic reported that the fund was planning a new incubator, Koru, he discussed why he wants to expand in India, why OTPP is focusing on private equity and infrastructure investments and his plan for diversifying Teachers’ $200-billion portfolio.
This interview has been edited for length and clarity.
How does Koru fit into Teachers’ overall strategy of increasing exposure in the tech space?
In private equity, infrastructure and natural resources, we have more than 90 private holdings across three diverse sets of sectors and geographies. The idea behind Koru is to help them do venture and to help them think about new businesses and new possibilities that heavily leverage technology to drive exceptional growth in revenue.
It will tackle early-stage venture in traditional economic sectors, which, frankly, will sooner or later be disrupted one way or the other through external forces. We’re trying to inculcate that entrepreneurial mindset, so we get to disrupt our own businesses before external forces disrupt us.
CPPIB and the Caisse recently launched internal reviews to look at the potential for disruption among their own companies. Teachers’ is partnering with an outside group to do the same. What’s the benefit of having BCG involved?
BCG Digital Ventures has entrepreneurs, software engineers, startup guys, a lot of data analysts. BCG Digital Ventures, we’ve gotten to know very well over the last couple of years. They’ve already stood up 90 startups or ventures by working with companies, and are doing it very successfully.
We always say one of our core values is partnering, and I believe we picked the right horse here. They’re a perfect partner for us, to help us inculcate that venture, that startup mentality, that entrepreneurial spirit inside our portfolio companies. I can’t really comment on what the other pension plans are doing.
Koru is early-stage venture, focusing on our holdings or private investments. TIP is late-stage venture and growth equity, but for new external investments.
When we put both of them together, they really cover the entire venture-risk spectrum. We have early-stage venture, but focusing on our own businesses — that’s where our edge is.
We really don’t have that much of an edge going in Silicon Valley, targeting Series A early-stage venture types. A, they’re not scalable. B, I’m not sure we’ve got the network to actually find out who are the entrepreneurs in their basement that are about to launch Series A. That’s not where we believe we can compete.
Both OMERS and CPPIB have opened San Francisco offices in the past year. Is Teachers’ interested?
We haven’t really landed on whether we need an office or not. I’m not sure the winning formula is only going to be in Silicon Valley. We see thriving technologies coming out of Asia and Europe, too, which is probably a market that is not as competed-out as you have in the States.
In September, Ontario Teachers’ said it would switch its focus from investing via limited partners in India to making direct investments in both infrastructure and private equity. Private equity and infrastructure seem to be focuses for a lot of your new initiatives: Sidewalk Infrastructure Partners, Koru, the Teachers’ Innovation Platform. Why?
They’ve always been areas of focus for us. We were one of the early adopters of going direct and internal in private assets: first in private equity, then we started infrastructure almost 17, 18 years ago.
I think the emphasis on India is that it is a vibrant emerging market with huge potential. We are going to invest significantly in our employees in Asia. I will be going with a senior investment team to India later this fall. We’re going to spend the whole week meeting with businesspeople, fund investors, our partners on the GP (general partner) side there and government officials.
Are there other parts of the world you’re planning trips to?
We have pretty excellent capabilities in Europe, based out of the London office, with, again, a great emphasis on both private equity and infrastructure, as well as high-conviction equities. We’re going to grow our capabilities in Europe, as well.
When we look 10 years out, we want to make sure we’re as global as we could be, so that we can scour the earth for the best opportunities from a risk-adjusted-return perspective and deploy capital accordingly. Canada is unfortunately too small a market for us.
In August, Teachers’ announced it had crossed $200 billion in net assets, and you said, “Over the last few years, we have been transitioning the asset mix to a more balanced approach from a risk perspective and … we increased our allocation to the fixed-income asset class.” Is that in response to the trade war and global volatility?
When we looked at the portfolio a few years ago, we realized that it doesn’t have enough fixed-income exposure. Why do we need fixed-income exposure? Two reasons.
First: income, because you clip coupons on government bonds. Second: from a diversification perspective, because fixed income typically does well in recessions or economic downturns.
We are in the 10th or 11th year of the economic expansion. It is getting a little long in the tooth in that cycle. You need fixed income. You need it because of a recession. You need it because of the trade war and tensions. By themselves, they’re having pressure on the manufacturing sector of the economy.
Big picture, what does success in tech look like for you five years from now?
First, we want to generate returns. And we want to make sure that from a capability perspective, we participate in the new trends that define the new economy.
They both serve that purpose, Koru and TIP. But for Koru specifically, we want to have about 15 to 20 portfolio ventures established that are hopefully commercially profitable.
On TIP, really, it’s about making sure that we understand technological disruption. That we’re participating in those new sectors — be it health or telecommunications or cleantech — that really define tomorrow’s economy.
It’s also about inculcating that digital, technological mindset, internally but also within portfolio companies.
Finally, tech is extremely important when it comes to attracting and retaining talent. Young talent want to come work for organizations that are vibrant, dynamic, thinking about technology, thinking about the future — whether it’s cleantech or sustainable investing.
Ziad Hindo took over from Bjarne Graven Larsen who in my opinion is a very smart man but didn't fit culturally at OTPP and made some huge HR blunders which will cost the organization as they lost a series of outstanding senior investment executives across public and private markets.
I think extremely highly of Ron Mock, Teachers' CEO who is stepping down at the end of the year, but I don't think bringing Larsen in at Teachers was one of his best decisions. Obviously, he will disagree with me but from the outside looking in, I wasn't impressed with Larsen's HR decisions.
Anyway, Ron will agree with me that Jo Taylor, OTPP's incoming CEO, has a great CIO in Ziad Hindo to lean on when the going gets tough, and it will get tough.
Coming in number 8 on the 2019 Power 100 List, is CDPQ's CEO Michael Sabia who is undoubtedly one of the most innovative CEOs in Pension Land. Under Sabia's watch, the Caisse is undertaking a mammoth greenfield infrastructure project (REM) and it's fair to say that the Caisse is leagues ahead of its peers when it comes to sustainable investing (don't argue with me on that point).
Sabia is going on his last year at the helm of the Caisse and already rumors are swirling about who will replace him. Will it be a man or a woman? I don't know. All I know is the Caisse's Chair of the Board, Robert Tessier, should conduct a thorough and independent search process.
He has great internal candidates like Macky Tall and Kim Thomassin, and there are some great external ones too, the most high profile one being Louis Vachon, President & CEO of the National Bank who between you and me, doesn't need the headaches of being the head of the Caisse but might relish the challenge (key word: might). There are other great male and female external candidates, I just don't want to spill the beans publicly (Mr. Tessier can reach out to me if he wants some more names but I will publicly state Macky Tall should be the next CEO of the Caisse).
Which other senior managers at Canadian pensions made the 2019 Power 100 List? Well, Geoffrey Rubin, Senior Managing Director and CIO at CPPIB made the list, coming in at number 12. I've heard great things about him. One CPPIB employee told me: "he's like a big, husky football linebacker who brings a lot of energy to his job." I'd love to meet Rubin one day and do an extensive profile on him (not to be mistaken with CIBC's former chief economist Jeff Rubin).
Other Canadian pension managers who made the list? Vincent Morin, President of Air Canada Pension came in number 15, Gordon Fyfe, the CEO/CIO of BCI came in number 37, and Dale MacMaster, CIO of AIMCo, came in number 94.
RBC Global Asset Management Inc. just announced the first closing of the RBC Canadian Core Real Estate Fund, which attracted more than $1.25 billion in equity commitments from institutional and individual investors, materially exceeding subscription targets. RBC GAM announced the creation of the Fund in March 2019 together with British Columbia Investment Management Corporation (BCI) and QuadReal Property Group (QuadReal).
I covered BCI's record $7 billion partnership here and think it was a great deal for all parties involved as investors get to invest in part of BCI's fantastic Canadian real estate portfolio and BCI gets liquidity to diversify its real estate holdings outside Canada.
Since his days at PSP, Gordon Fyfe loves carrying both hats (CEO/CIO) because deep inside, he loves markets a lot more than the job of being CEO and needs to balance out the more high stress activities of being a CEO with his CIO duties.
Dale MacMaster, CIO of AIMCo, is easily one of the smartest CIOs I've talked to and he's also a very nice guy. AIMCo is lucky to have hin as their CIO.
If you read the entire list, you'll see some less well known names but some pretty heavy hitters, so it's impressive to make this list.
I was actually surprised more CIOs and CEOs from Canada's mighty pensions didn't make the list, people like Mark Machin, CEO of CPPIB, Jean Michel, CIO of IMCO, Eduard Van Gelderen, CIO of PSP Investments, Satish Rai, CIO of OMERS, James Davis, CIO of OPTrust, Jim Keohane, CEO of HOOPP, Jeff Wendling CIO of HOOPP, and women like Julie Cayes, CIO of CAAT Pension Plan and Marlene Puffer, CEO of CN Investment Division.
Anyway, I take these lists with a grain of salt but it's still nice to be recognized for all the hard work you do.
I did reach out to Ziad Hindo but haven't heard back from him. However, another exceptional CIO, David Long, the former CIO of HOOPP, did call me back earlier today and we had an interesting and lengthy discussion.
David recently joined Alignvest where he consulted Alignvest Acquisition II Corporation, a special purpose acquisition corporation, on the Sagicor deal.
Alignvest sent out this note on leadership change:
We are pleased to announce that Dr. David Long, the former Chief Investment Officer of Healthcare of Ontario Pension Plan (HOOPP) has joined AIM as Co-Managing Partner with Kerry Stirton, and with AIM Partners Cheryl Davidson and Athas Kouvaras. Simultaneously, AIM Managing Partner Donald Raymond transitions to Chair of the AIM Investment Committee.For those of you who don't know, David Long is a derivatives powerhouse and a big reason as to why HOOPP achieved great long-term success and is one of the best pension plans in the world. The other reason is obviously Jim Keohane, HOOPP's smartest guy in the room and an expert in pension delivery.
At the time of David’s departure in 2017, HOOPP was the best performing large pension plan in the world over the previous ten year period (2016 CEM World Bank Group Study). Dr. Long was instrumental in the success of HOOPP and we consider it a major achievement for David to join AIM in this leadership capacity. David will join AIM with the goal to deliver even more value from the internally managed portion of the fund; something Dr. Long did exceptionally well at HOOPP. Moreover, David will be working with Alignvest with regards to a large new client, Sagicor Financial Corporation.
AIM Managing Partner Don Raymond will be transitioning out of his day-to-day Co-Managing Partner role while continuing his responsibilities as Chair of the AIM Investment Committee. Notably, AIM will continue to implement the Canada Model approach that Dr. Raymond designed for Alignvest Strategic Partners Fund. Dr. Long is very familiar with the Canada Model approach from his many years at HOOPP and will bring to bear additional capabilities for optimizing the value of client investments within the fund.
Anyway, David and I spoke at length but for brevity purposes, I want to list some of the main pints below and will likely edit them to add things:
- David told me a good CIO needs to be "pretty sharp mentally" and has to have a "broad background in finance, trading, and risk management." He added : "You need to be more well rounded than just investments to deal with tech, people, the Board and to manage change in a very fast pace environment. You need to be good at planning, in terms of hiring, see the future and plan ahead."
- We talked at length about markets, the role of central banks and the role that olitics play into the equation. David told me the "massively increased role of central banks has made investing difficult." On deflation vs inflation, he said inflation has "shown up in securities markets and the service economy" but said the "capacity of central banks to continue doing what they’re doing is limited and the end point is politics." He expanded on this stating: "The Fed’s modest sized balance sheet is because of US politics where too much government intervention is frowned upon. Central banks are doing whatever it takes to sustain some level of economic growth but politics is a key issue."
- He told me "MMT isn’t radical, it’s become more mainstream" and "as long as people believe the currency is worth as much as yesterday, that's fine" but if there is a crisis of confidence, it could degenerate quickly. He certainly doesn't believe moving consumption ahead will create real wealth.
- He is concerned that whatever level of prosperity is driven by "low rates and central bank intervention' and told me the big risk is if there is any change of that policy direction. "Policy is based on humans and they’re capricious."
- He wasn't bearish or bullish on markets and told me he doesn't see the bubbles of the past as there is a healthy amount of skepticism in the markets." But he did say record low unemployment isn't a good indicator of things to come because in this economy, a financial crisis will lead to higher unemployment (economy is more depended on financial markets).
- In terms of private markets, he said it depends on a lot of different factors. "Some transactions are well thought through, others are based on financial engineering."
- He said that all pensions are struggling with same issue, "interest rates are not high enough to meet your future obligations"forcing pensions out on the risk curve.
- He said many traditional activities of banks are pushed out in the private sector. HOOPP undertook balance sheet activities. Lending activities and some balance sheet activities are migrating elsewhere now because of the post-crisis regulations on banks which is good and bad.
- We had an interesting exchange on the role of a CIO or co-CIO. He said staffing decisions are more complex, which is why some organizations offer two candidates "half a baby." He said "two individuals can manage all the priorities but ultimately you need direct accountability."
- Interestingly, he said the job of a CIO can be "quite isolating when going up against the heads of five asset classes so you need a team, strong lieutenants or a strong co-CIO."
- In terms of peers, he spoke highly of Ontario Teachers and said they helped him a lot when he first started but said the "golden age of pensions is over" and that right now, organizations are so big you need to rely on "third-party PowerPoint presentations to know what is going on in different units."
Speaking of podcasts, Meb Faber recently spoke with Ben Inkler on the problem of good returns in the near term. Take the time to listen to this podcast here, it's excellent, especially the part on monopolies/ monosponies and how profits are increasingly being concentrated in a handful of large corporations. I also embedded it below.
Second, the chief executive officer of Norway’s sovereign wealth fund, Yngve Slyngstad, is stepping down after spending the past 12 years building a $1.1 trillion behemoth. He spoke with Bloomberg on his decision to step down.
Third, Bridgewater Associates founder and billionaire investor Ray Dalio sits down with CNBC's Leslie Picker to discuss the state of monetary policy in the US, income inequality and more. Great interview, take the time to watch it.