YouSaid · the spoken record

Tim McCusker

lines on the record: 77
first: 2020-04-30
most recent: 2020-04-30
sittings or episodes: 1
sources: podcast

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“Perspective rather than just narrowing in on your own view of things, how can I be wrong and why are they thinking the way that they think? I wish I could be better at it, but it's something that I improve from being terrible at to okay.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Being able to understand another person's perspective, that is something that I think Mike Manning and my boss are managing partner has been a great mentor to me in general, but that's something that I think he is great at and has helped me get better at whether it's managing people and understanding why they have the perspective that they have in a negotiation or contentious situation, whether with a client or with a colleague, understanding why they're coming to the table, thinking the way that they are, and why they have the view that they do. And then in research, whether it's manager research, understanding why an investment team working on a strategy has the view that they have and how they get to the view that they do or just understanding the overall marketplace. If I've got this view, why is the collective group of market participants thinking differently? I just think it's a really helpful.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess two things. One is I guess just grit and determination. My dad was a police officer, and watching how hard he worked, not only the day-to-day job, but then the details on top of that working seventy hours a week to provide for us. My mother was a stay-at-home mom, but I've never seen a person more focused on a job than my mother of being a mother. So that grit and kind of singular focus really always stands out to me. But the other big one is just laughter, more for my mother than my father, but just being able to have fun in any situation and be able to make fun of yourself when you need to and being able to.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably the Bridgewater Daily Observations. I get that in my email inbox every day and always at least read the first couple paragraphs to hear what they're thinking. Because it comes every day, they can scan the world over a reasonably short period of time and so you can get a good sense of what's going on. There's great data in there, great insights. They get just always give some great perspective on what's going on”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess being too short term, I think, and we struggle with that. We're setting five to seven year views, and if they're not working in the first three to six months, we've got all of our consultants and clients saying, why do we do this? How do we not see this? And I think behaviorally, we all fall victim to it. So I fall victim to it as well. But focusing on the short term instead of the long term is definitely a pet peeve.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably passive aggressiveness. I've never figured out a good way to address that or work with a passive aggressive type behavior. So I end up just kind of wanting to scream and rage when I notice it going on.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's probably running. Could be golfing, but it's probably running, and it's funny how that's evolved for me. I mentioned I was a runner in college, so it was a competitive thing for me at first, and it evolved to be just a physical activity to stay in shape. Now it's become more of a family activity and more about the mental health than anything else. One of my favorite things to do on weekends is get out and run, run six or eight miles, and I'll be pushing one kid in the stroller and another kid riding the bike with me. So there's the family element to it, but mindfulness and meditating is all the rage now. Everyone talks about that. And as I've heard people talk about it and listen to it, what I hear they get out of it, I've come to realize is what I get out of running, just that clearing of the head being in the moment and being aware. It's as much about the mental health as is the physical health for me these days.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Biggest ones are probably more lucky than good, but going to all clients in 2008 and saying lower equity risk at the beginning of 2008 was a hugely powerful recommendation that worked for clients. And then I mentioned at the beginning working with corporate clients back then to build liability driven investing programs. You think about how much rates fell over that time and how much funded status was protected, how much in contributions was saved. That is, I think, probably the most powerful one. It was much more about risk management than it was a call that rates were going to fall, but it's always better to be lucky.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've made more than my fair share, I'm sure. I think moving into the chief investment officer role, I had managed a medium. I was probably about a 15 to 20 person team and manage those people directly. And so I think my first few years as chief investment officer, I was trying to manage in the same way. And I've had managers managing everybody else and I was just managing those people and not worrying about everyone else on the team and probably got a little bit too distant from the rest of the group. And I think I've tried to change that and tried to get more involved and engaged with everybody else. But I don't know if that's my biggest mistake, but it's one that stands out that I didn't do things the right way and had to correct it.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very different by client type It's probably over half of large cap is probably, and I'm thinking by client count, not dollar count is probably passive. If I go by dollar count, it's much, much higher because many of our large public funds are passive in US equities and often running it internally for cost management purposes. But client count wise, it's probably 50-50. And a lot of clients have just moved away from having a US equity allocation. Some of our smaller and medium-sized clients will have just a global equity allocation and they'll use global equity managers and then build satellites around that.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can beat the benchmark in global equity. So I think it's about how you structure the portfolio and what type of managers that you're looking for. So we have seen concentrated, more unconstrained managers in the equity space do well. So we think there are places where active makes sense. But we are trying to get managers to think about their fee structures. And that's a benefit of being a large firm that we can go to managers and try to get preferential fees and pass those on to our clients. So that is critical to us. If you are going to be active getting the lowest possible fee that you can is important.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think there's a place for both we do believe that there are inefficiencies and there are skilled managers that can exploit those inefficiencies. We think it's a lot harder in some places than others. So while we will look at large cap equity and see if there's places where you can be active, it's not a primary focus for us. And so we're very comfortable with clients going passive in some places. We think going passive in other places is almost counterproductive. And I think most people agree with that, that you don't want to be passive in high yields. And even if you just want to get exposure, you still want to be active there. You don't want the biggest bonds in your portfolio to be there just because the company's issued more debt. You don't want to be passive in emerging markets, even if it can be a challenging benchmark to beat. You want to be active there. You want to be trading there and not just stuck with what the benchmark offers you. And we see some skill there too. We see that managers can beat the benchmark. We see that managers”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. That is a really interesting challenge that if we just, you know, everyone wants to move to passive today. If you move to passive, then you're probably not taking advantage of these opportunities. Investing in a more concentrated way Two of the biggest companies in the world, Google and Amazon, didn't exist. So the investment opportunity, I think even though we talk about these trends being talked about a lot, how they actually play out, how they become investable, I would say is a big unknown right now. And so part of it is just not how you allocate your portfolio today. It's how you can be nimble enough to access these in the future.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Four trends you talk about are almost known. We don't exactly know the implications, but they're truths that are playing out and the data all supports it. And then we have these traditionally structured asset allocation portfolios filtered by bottom-up managers in a rigorous process. How much do you want to look at that traditionally structured portfolio and say, well, we don't know how to invest in these trends specifically, but we think the trends are going to drive things and so we can therefore calculate that 5% of the portfolio is where it should be a 95 is just chugging along. Sure.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of places where I think we'll see increased usage of blockchain. And then the shifting currency regimes things I think is going to be more about the US-China rivalry and how that plays out that we've seen really two currency regimes in the last hundred years. The gold standard and then a fiat-based currency regime really with the dollar as the reserve currency. And increasingly we'll see a more diversified basket with China as they get through some of their transitions playing a bigger role in that currency basket over time. So I think it's the kind of thing where the investment opportunities maybe aren't obvious today. But if you're thinking in that framework and thinking about those long-term trends, and then also thinking about what the future trends might be, I think it just helps you be a better investor over time.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“To that. I think the ways that you invest in that are trying to invest in a sustainable way. If you look at the UN Sustainable Development Goals, over half of those are trying to promote better equality. And then investing in education. I think we're only going to need more STEM workers over time. And so finding ways to invest that benefit that type of framework, I think, is really powerful. And then shifting currency regimes started out talking a lot about Bitcoin because everyone wanted to hear what was going on there. People are a lot less interested now that the bubbles burst there. I think there are two interesting things going on there. One, the underlying technology of Bitcoin blockchain is really powerful and could be a game changer. There's some things that have to get worked out there. The amount of computing power and energy that gets used for blockchain, I think, is still a challenge, but there's a lot of places where that can be applied, whether it's supply chain management, contracts, ID management.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you look at income growth in the US, it's on average nice steady growth over fifty years. It looks like the US has participated greatly in our overall economic prosperity. You look at the bottom 50% and the bottom 50% of our economy hasn't seen a wage increase in over 50 years. Now, if we look at it more globally, there's actually been increasing equality. What we've seen is the developing world have an emerging middle class, but that's come at the expense of the developed middle class as those manufacturing jobs shifted to China and other places in the emerging world and per capita GDP went to 10,000, 20,000 dollars, you've got a whole swath of the world that's been able to participate in the economy in a way that they haven't historically, but that's meant stagnated wages for a lot of the developed world. And so there's political implications to that. There's social implications.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Pace and they keep up not keep up their growth pace, but let's say a 5%, four or five percent real GDP growth, they're going to surpass the US as the largest economy in the world. And so it's a race against time for China. And they need that productivity because the labor force growth is not going to be there. We've been in a demographic boom where prosperity has increased across the world, but with that has come an aging population. So there's, again, opportunities and risks that come with that. That aging population means fewer workers supporting a larger population. But it also means there will be investment opportunities. We've seen some of that already. One of the best places to be the last few years has been senior housing in the real estate market. And so there'll be opportunities like that and tying it back to artificial intelligence. That may be a place where displaced workers go, that they can work on elderly care and things like that. We get to income inequality in another specific part of demographics.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“For our economy to be able to do that. So there's good and bad that comes with that. How do you invest in it? There's venture. Certainly venture managers are talking about artificial intelligence, applying artificial intelligence. We're all investing in it already. If we own the S&P 500, if we've got the FANG stocks in our portfolio, they're spending a lot of research dollars on it. And then one of the more interesting insights in this research is that China is huge in artificial intelligence. If you look at the publication of AI research, probably 2x has come from China as opposed to the US. China and the U.S. are the big leaders. So looking for ways to get exposure in China either through venture or some of the big tech companies there is really interesting. China needs to do it because of their demographic situation. They're trying to get rich before they get old. In 2030 or sometime in the 2030s, China is going to move to negative population growth. If we keep up our growth,”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“this vast amount of data, and there's been great insights the last few years on ways to analyze that data. And that's where all those AI terms start to come up, the machine learning, deep learning, neural networks, all of those things. And so there's a lot of excitement about artificial intelligence. Could it be a productivity boost the way that the internet boom was in the late 90s and early 2000s? It might be. That's very possible. When we look at productivity and moves in long wave cycles, so maybe this is another one of those up waves. But there's going to be job displacement that comes with that too. An obvious one is drivers. There's almost 4 million drivers in the US that their primary responsibility is driving. If we get self-driving cars, what happens to all of those people, the displacement that comes with that? As a society, we've done a good job of that historically. We have go back over a century and we shifted an agrarian economy to an industrial economy. So we have done it, but it's a big challenge.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. Artificial intelligence comes up every day now. I don't think you can open up a paper and not see something about artificial intelligence. And there's three big factors that have driven that over the last few years. There's computing power, the rise in computing power that Gordon Moore in 1965 came up with Moore's law that computing power could double every 18 to 24 months. He thought it could last 10 years. It's been going on for 50 years now. And I think we've all experienced that if we think about 20 years to trying to log on with a modem to how quickly stuff comes up on our phones today, these supercomputers that we carry around. Data. We all walk around with those phones and leave little digital footprints everywhere we go. So we've created a lot of data. I think the big breakthrough in the last two to three years has been the organization of that data and the ability to structure it and then sell it. And then the last is algorithms where the computing power is there to process.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thinking in that way is a little bit uncomfortable as a consultant because our entire work lives is spent coming up with an insight, finding a manager that can implement that insight and effectively execute on it, or finding a set of managers narrowing down to the ones that make sense for our clients, making a recommendation, executing getting it into client portfolios. These are in a lot of ways very different. They're not actionable today. We like to think in a five to seven year framework for setting our assumptions and our outlook. These will evolve over five to seven years, but in a lot of ways our twenty-year trends, 30-year trends. And so they're not necessarily investable today. But I think if you are considering these.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Artificial intelligence, demographics, income inequality, and shifting currency regimes. And we got to do some fascinating research behind each of those, and we've been talking to clients a lot about those. I can tell you it is”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mentioned before this process of setting assumptions and having capital market views. And honestly, I'd say we sort of stumbled across this last year in our process. I think we were having a debate about inflation and artificial intelligence came up and automation, what that might mean for wage growth and inflation. We talked about it for a while and sort of, well, maybe it's too far in the future. It shouldn't affect our inflation assumption today, but it kept nagging at us that there's sort of these bigger picture trends that maybe by talking about the core economic factors, talking about economic growth and inflation and productivity and all those things that matter when you're setting economic and market assumptions, maybe we're missing some bigger picture things. And so we started studying some of those and ended up narrowing in on four major megatrends.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Approach. It's another thing like I was talking about with OCIO, where maybe it's not the best business decision and it's not as scalable, but it's right for our clients and that's what we try to do.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I can tell you we haven't had a lot of situations like that when there's only a little bit of capacity available, there's a couple things going on. Most importantly, it's usually moving really quickly. And so the vast majority of our clients are not interested in that kind of process where they've got to move that quickly. So when we've only got a little bit of capacity, there's usually only a little bit of interest as well. So that allocation policy, I don't have the numbers, but it comes up half a dozen times a year. It's not the kind of thing where we're using that once a month or once a week. But let's take that example. I think we've always taken the approach that putting clients first is our top priority. And so we should not let the convenience of our business drive our decisions. We should think about that single client and what matters. It's only $10 million, but that's going to help one, two, three clients, we should do the work. And so that's been our.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we have an allocation policy that we stick to every time there's capacity constraints. And what we do is when a manager or fund is approved and we believe that there'll be capacity constraints, we make all consultants aware of it through email and they can choose whether it's a fit for their client or not, work with clients to see if they want to allocate. And then we gather all the interest. And so let's say in that example, we think we'll get $10 million of capacity and we get $20 million of interest from our clients. We take that $20 million, put it in a list, and we give that back to the manager, and they make the decision of how they want to allocate. So we're not making the choice of one client over another. We're not choosing OCIO over advisory. They all go in together and the manager makes that decision. Certainly, when we have overall allocations, we're pushing for the manager to make more room for us.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think it is, and we've seen in that trillion dollar number the large public funds aren't doing much in venture. So we definitely think it's worth it. I'd say there's more of an appetite for venture from our smaller and medium-sized endowment clients, so $500 or a billion dollar endowment can make a $5 or $10 million allocation to a venture manager and have that matter at the end of the day. If someone covering buyouts for us has a great idea, they can go through the process, bring that through, and have hundreds of millions of dollars allocated to it across our client base. Our venture guys can go through just as much work for one venture fund and working with the manager, we can fight and claw to get $10 million and then have two clients get into it.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is, but the experience of knowing the space and building a manager relationship over multiple years is so important on the private equity side in a way that, I mean, certainly you want to build long-term relationships with managers on the traditional side as well, but in most cases you can pick up the phone with a long-only manager and say, hey, we'd like to allocate to you and it can be done pretty quickly. It can be a process where and it can be tough for our private equity folks, they can go through a process of fully reviewing, vetting a manager, bringing it through our process for their fund. And then we can't get it through in time or we can't get allocated. There's still a benefit to that, though, because if we didn't get into fund three, we've built the relationship now and now a couple years from now when fund four rolls around, we can get on top of that and get clients in that time. So we've been able to take a long-term view there and build relationships over time.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are some databases and tools that you can use to gather information about what funds are out there in the marketplace. The striking thing to me, when I moved into the chief investment officer role, I had spent less time on the alternative side than I had on the long only and asset allocation side. And so I had lived in a world where you've got managers banging down your door every day telling you how smart and good looking you are and laughing at all your jokes. And all of a sudden I've seen the private equity side where it's almost reversed where we've got to go pound the pavement. We've got to go build the relationships. We've got to get out to conferences and understand who's out there and go out to the Bay Area and try to get access to some of these name brand high profile managers, particularly in the venture space. So it was striking for me how much different it is. So there's the database work up front to understand who the overall universe of managers.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's just unavoidable in those spaces that if you can find an optimistic fixed income guy, I'd love to beat him. I think there's those kind of overarching biases. But the process of getting to an investment thesis is pretty consistent across equities, fixed income, and multi-asset strategies as well.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say at the highest level no, you're trying to have the same kind of conversations. You're trying to understand who the people are and what the investment thesis is. There's nuances though that are different that you want to you're going to expect to have more dour and conservative people on the fixed income side of things that the world's always ending and everyone's going to default versus the equity guys that think everything's going to go on forever. So there's those natural biases that come in.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We break it down in a pretty granular way, even though we don't really work in style boxes. Some clients still want to structure things that way, so we've got a set of large cap value managers and small cap growth managers and emerging small cap, international small cap. So you add all that up for public equity, it's probably on, I think we have about $350 to 400 managers in long only overall, so probably 200 or so of those, or 150 to 200 are equity.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Not that there's not art in the research process as well, but I think there's more art in how it gets into client portfolios. Now you're thinking about, okay, what is the rest of the portfolio look like? And it's as much about what's the best manager among these six to ten as it is what's the best fit for this particular client. I may take a lower information ratio manager if it's got a lower correlation profile or a different set of characteristics that fit better with the rest of the managers in an investment program. And that's the researcher and the consultant working with that client, collaborating together to understand those things.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's sort of two phases to it. One is Going through a consistent process in research to get to who our top rated managers are going to be. We have a one through five rating system. And so each of our researchers for whichever asset classes they own, they're trying to get to anywhere from six to ten managers in each space that they want to have as best ideas. And they're bringing that forward to an internal due diligence committee made up of partners from research and consulting. And that's where it's getting reviewed and approved to be presented to clients. And so that peer review process is really important to us that we can give the researchers freedom to do their research in the way that makes sense for them, but that peer review process is another layer of consistency for us. So that's step one is being an approved manager and then to actually make a decision to get it into a client portfolio is where the art comes in.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's nothing revolutionary about that. It's understanding the people, the process, the philosophy that they have, the reason why they believe they can outperform throughout time and consistently over time, trying to get to what biases they have and do they understand those biases. I think the people part to me is the most important. It's not just who they are, but it's how they work together, how they interact. And sometimes that's more subtle things. Sometimes there's a named portfolio manager, but you get a group in the room and you realize they're deferring to the director of research on everything. And that's the real power player here. And that you may like the strategy either way, but it's a really important insight that if anything ever happens there, if that person leaves, it's much more important than if the portfolio manager leaves. So getting to some of those subtle but important points is, I think, a critical part of the research process.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't want to get to the point where it's just a checklist approach and there's no creativity. We're not allowing the researchers to really go in whatever direction that they need to. So I'd say there's big categories that we want them to cover in those meetings. But each researcher can get to some of those places however they need to. So we try to balance that by giving each researcher the freedom to conduct the meetings the way that they want, but also the structure of having to write up what they got out of those meetings at a pretty consistent way. So it could be some of our researchers want a very structured meeting where they're going through each step of the process and point by point, getting through their agenda. And that's the way they draw their insights. Others want to just let the portfolio manager start talking and then wait for that point where something sounds inconsistent and then try to not catch them in a trap, but really figure out, is the logic that they're”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's something that I, leading the group I struggle with sometimes because you want to have consistency of research. You want to be getting towards any PC process for manager research where we are consistent and reliable on how we do that.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are, we look at the statistical significance of the alpha so we're rewarding higher efficiency of alpha and longer track records of alpha. We also have a contrarian indicator where we look at the long-term history of alpha and then compare that to the last 24 months of alpha. And so if you've got a manager that has a strong long-term history, but the recent two years isn't that strong, it's a very small weight in this scoring system, but it's a great flag for us to say, wow, this manager has dropped down in the rankings all of a sudden, but they have a really strong contrarian indicator score.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“The top third of managers that come through. And that's great in a couple ways. One, it helps us be more efficient, but two, it's a great tool for communicating with managers. Our business comes from working with clients and getting paid by clients 100%. But we're partners with the manager community and we have to have good relationships with them and we have to work together with them. We have to give them feedback and tell them why we're not taking meetings. And so just saying no or just ignoring doesn't really help them. So being able to say, hey, here are the places where your strategy is falling short. We're looking for more downside capture here. You're really weak on that factor. The consistency of your alpha isn't that strong relative to other managers in the space. And they can at least go back to their team and give the reasons why a meeting isn't productive at this point. So that part's really helpful, but the scoring system that we have just allows us to narrow the research a little bit more. And then we've got to go.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We go through a quantitative process to try to narrow things down a little bit. So in the traditional space, we use a quantitative tool that strips away the beta, the market exposure, strips away the fees, and looks at things on a rolling return basis. When we've done some testing on that approach, it's not an investable insight from that tool, but it does help us filter things out. It's very predictive on the bottom half. The managers that are drifting down towards the bottom tend to continue underperforming. So it allows us to say cut the universe in half. We get into some misperception of that tool. People hear about this tool when we're talking about it in the new business or working with clients, and they say, well, you're overly quantitative. And try to tell them, well, just because this tool spits out top 10 managers doesn't mean that those 10 managers will be the managers that make it through. It means we're going to focus our research on.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're looking for something differentiated. We're looking for a reason why that manager can outperform in the future. So certainly we analyze historical returns and look for what's driven the returns historically, but we're looking for why that can continue in the future. What's that manager doing that's different from the rest of the market? What are those insights that they have?”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think about what attributes we're looking for in a manager and then narrow down to a really small set of managers or funds where we're going to focus our time and effort, try to develop an investment thesis of why we believe that strategy can outperform in the future and then bring that through a process where there's some peer review and vetting of the strategy.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we've historically organized it by, for lack of a better term, investment structure. So we've got a traditional long-only research team, a hedge fund team, and then a private markets team covering private equity, private credit, real assets. I'd say the overall steps of the process for all those teams are very similar. We're going to think about the universe of managers that are out there really easy in the traditional world. We can go on investment and grab the entire universe of managers, do some quantitative scoring on them, and then start to funnel down on the managers where we want to focus our efforts. Hedge funds increasingly, you can just go get the data. Private equity, more of a market survey approach where we've got to really uncover rocks and look at everyone who's out there, who's been out in the marketplace the last few years and try to forecast who will be fundraising in the next year, but similar in the sense that we're trying to scan the full universe.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“in OCIO when there's some sort of big event when we see we're rebalancing, we're re-upping in a way that in a typical advisory model, you've got to wait to the next client meeting to make a recommendation. We can look that equities are down 10%. We still think they have a long-term expected return that's above fixed income. We should be rebalancing now. So being quick to rebalance, but not quick to change our views.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think we had to be careful about not getting too short term because in some cases potential buyers were thinking of OCIO as a much more tactical model. And so we had to be careful about what the marketplace was looking for. They thought they wanted a more tactical trader of their portfolio. That's not our view of how you run an institutional portfolio. And so we had to be careful about that. We'd bring a client on and six months in they'd say, once we've implemented things, maybe six months after everything's fully implemented, they'd say, wait, nothing's changed. You haven't moved the equity portfolio at all. You haven't done anything in fixed income. And we'd have to say, well, our views haven't changed that much. We're trying to think about the long term. So I think we had to think about that more and make sure that we were comfortable being more long-term oriented, but still looking for opportunities, trading a little bit more, and being quick when we saw moves. So we're at our best.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was something where we had to invest several million dollars to build an operating platform that worked for us. I think if you're starting to trade equities, there's lots of things off the shelf because there's lots of equity managers out there. When we were building this, there's not a lot of OCIOs. There's not a lot of stuff off the shelf. So we had to work with a technology partner to build something that worked for us. I think we have a leading system now, but it took time, effort, some trial and error to get there for sure.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's trading, but not trading securities, but just the process and discipline of monitoring a portfolio on a day-to-day basis. It was eye-opening for us because I say that we're in the decision from beginning to end, but at some point any PC and consultants in general walk out of the room after a recommendation and decision has been made, and now historically as an advisor, someone else has got to fund that. The details and minutiae of going through an operating agreement, getting side letters written, figuring out what vehicle among the many vehicles within a strategy, figuring out which one is appropriate for a client. That was a learning experience for us that we hadn't done much of that. That was something that staff always handled or someone on the client side handled. So the details of that were something that we had to get up the curve on, being able to monitor and track everything.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of operational challenges. There's a lot of stuff that comes up as you're building that out that you just don't know until you're actually getting into that”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source
“an appropriate manager, we may keep them in the portfolio. And if they decide to leave us someday, which It's a much less scalable model for us. It means we've got a set of portfolios that are built by any PC experts instead of working through a board or investment committee structure at the client.”
2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source