YouSaid · the spoken record

Tim McCusker

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77
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2020-04-30
most recent
2020-04-30
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1
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podcast

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  1. “We were probably a couple years late more than a couple, I'd say. We were late getting into that business. It was twenty eleven, 2012 when we launched our OCIO platform. Probably from a pure business perspective in the least scalable and least any PC friendly kind of way. I think in that client first mindset and that belief in our fiduciary responsibility that we have, we didn't want to launch funds. We didn't want a one-size-fits-all model for our clients. So we have what is now a large OCIO business with probably over $20 billion, over 50 clients. Every portfolio that we build is bespoke. There's some benefits to that for the client. It means that it's customized to their specific needs. It means when they come on, we're looking at every manager existing in their lineup and not blowing everything out. Whether it's a top rated manager for us, if we think it's a good manager.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Or they're going to rely fully on consultants or asset managers to run their whole portfolio in an outsourced CIO fashion. And that business has taken off in an incredible way. The assets flowing into OCIO have been increasing tremendously. We've seen that as a business, but we've also seen that with all of our competitors 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

  3. “So that's the other end of the spectrum that there's a tipping point. The asset size and number is different for every organization, but at some point they've got to make a call. Do we want to have dedicated staff who manage this and focus on our investment program? Or do we want to have someone else do that for us? And so you're seeing a real split in the consulting model. If we think back over 20, 30 years, consultants were always true advisors and partners with a seat at the table and it's part of why I've always loved consulting. We're really involved in the process. We see the decision from beginning to end and see the impact that it can have. And that's still a big part of the market, but you are seeing more and more investors move in one direction or the other towards the tails. Either they're going to work with consultants in a more limited way where they've got a dedicated staff and they need a little bit less from consultants.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Where as that dedicated staff is built out, boards or investment committees seem to be getting more and more comfortable with giving those staff members some authority, if not full authority, but authority to make manager decisions, hiring and firing decisions, but asset allocation maybe stays with the board is one example that we see increasingly.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “You do if I go back over the course of a decade, I'd say two things have changed. There's definitely been a build up of investment staff at organizations, whether it's building out a staff that already existed or organizations deciding that they need dedicated staff. So I don't have statistics on this, but it certainly feels like there's a lot more dedicated endowment CIOs or healthcare CIOs than there were 10 years ago. And that's natural that over the course of a decade or more than a decade, an organization that had a pool of assets that was $300 or $400 million that's now over a billion, that's appropriate that they probably need more dedicated oversight. And so they hire folks or move people within the organization into those roles. So you see that shift where there's more focus on it from the internal side of the organization. And then you also see that picture I was painting.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Process to get decisions done and get things implemented when everything is going through a board driven process. I think that's where you see things really get slowed down.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “And so we could be looking at a change that's three to six months out if we can actually get that change through. Now within public funds, and I guess I should generalize that, and for folks on the research team at NEPC, a lot of times we think less about the client type and more about their structure and their governance model. And so you've got really sophisticated kind of staff-driven organizations. And so that can be large public pensions. It could be medium to large size endowment organizations. It can be some of the large corporates that are out there where they've got a staff that's maybe not as big as our research team, but they've got someone covering equities in the way that we have someone covering equities. They have folks focus where that's their full-time job. And in some of those cases, their governance structure is one where staff has a lot of authority to make decisions. And in those situations, you can see a much more streamlined.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “I can go by client type as one example, but then within those client types, you have such a wide range. So we can sit down with a family office client in the next month and explain that story of what we see going on and probably provide a recommendation of some tweaks to the asset allocation. And it can get approved on the spot. We recommend you lower U.S. equities by 5% and increase treasuries as an example. And they can look at that analysis and say, good, we're doing it and it's implemented within a week. On the other end of the spectrum, we can go to say a public plan, and we've got to go through the governance process. We've got to go through monthly meetings. We've got to think about what that means for their discount rate and have conversations about that. And then, by the way, if they actually want to do that, we're talking about moving billions of dollars to make a five percent change to the portfolio.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “targets the growth picture doesn't look great in Europe or Japan. Not a lot of stimulation coming through anymore at least in Europe. So we really wonder if we're ever going to get that outperformance. So to us it just feels like a time to get more conservative and lower equity allocations, increase safer fixed income exposure.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “It starts with risky asset allocations generally. It's always a tough conversation no matter how disciplined and process oriented we want to believe institutional investors are, it's human beings making decisions at the end of the day. So the fact that U.S. equities have been on an incredible run makes it hard for committees and investors to not only capitalize on those gains and rebalance, but take down those allocations somewhat and lower allocations. That's a place where we've been talking about over the last year and U.S. equities have continued to do pretty well, but I think we're really pounding the table now that that's a place where we want to rebalance. Now, the harder thing is that we've been in favor of international equities and haven't seen great performance there. And we wonder now if we're going to get that good performance. Because even though expectations aren't that high and there's not really lofty expectations priced into those markets,”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Calculus of the market dynamics but feels like it's pretty consistent with what we're hearing from other allocators of capital. So I don't know if that's consensus or not. Right.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “We see a lot of late cycle dynamics starting to play out in the market, and I'm struggling with whether to call that consensus or not because it feels like when we talk to other multi-asset managers, allocators of capital, we're hearing similar things from them. We're hearing similar viewpoints that are pretty consistent with that. When we look at the overall market picture and what's in the press and what people are forecasting, what's priced into markets, it doesn't feel as consensus all of a sudden. The market is still pricing in pretty lofty expectations for earnings growth. The market is pricing in pretty modest increases in Fed policy over the next year or two years.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “That group is spending a lot of time going through that. We roll out new views every January, roll out new assumptions every January, and then tweak those modestly throughout the year. If there's big changes in the market, we'll adjust in a bigger way, but that rigorous process is going on right now.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Were a fifty person research team roughly, and within that team is an eight person asset allocation group that doesn't really worry about the manager research side of things, just focuses on capital markets. They have two jobs. One is monitoring and maintaining all of the tools and asset allocation models that we have, tweaking and improving those, and then helping to set all of our capital market views. So we're going through a forward-looking process of having building blocks for every asset class to come up with forward-looking five to seven year assumptions for each asset class so you can use those in portfolio construction to think about risk and return, but then also setting views across markets. What do we think is more attractive U.S. equities, non-US equities, equities versus fixed income, alternatives versus traditional, and very granular views too, down to high yield versus investment grade, CLOs versus bank loans even.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “Whether it's a differentiator or not, that's part of who we are. And that's when we think long term, five years, ten years, twenty years out, that's who we want to be. There's been a lot of consolidation in our industry, a lot of those big players have scooped up some of the smaller ones. That's not part of who we are. We're not looking to grow the business and sell out in three years. We're looking to be an independent firm that is passing off to the next generation 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

  16. “There's an NEPC story that is consistent every time that we are client service oriented, that clients come first in everything that we do. And you can feel that in our DNA, in our culture and how we work together, that it's almost to a fault sometimes. It's a yes culture between research and consulting. Research has to trust that if a consultant is asking a researcher to attend a meeting or asking a researcher to look at a manager, they've got a trust of the consultants thought about that and understands the value it can bring to the client and that there's a client benefit to doing it. And the researcher says, yes, and does it, right? And so that client service aspect, everyone says they're great at client service. I really believe it's part of our DNA and then the independence, I think, resonates across any of those messages that we are 38 partners who own the business 100%. There's not an outside owner. We're not publicly traded.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “At a small set of managers, but maybe don't have the resources that we have to cover everything. So we've got to think about the benefit that we bring and being global and being able to cover everything. And in some ways, you feel like you're saying different things to different clients. And I think we're trying to meet clients, meet investors where they are. I think one of the things that we really value about NEPC is that we can be flexible with how we work with clients. It's not just one model, one portfolio. It's fitting our client service model, fitting how we think about investments to that particular client. It may mean that we're doing more asset allocation work with one client, more manager research work with another client, working more closely with staff with one client, working more closely with the board with another client. That flexibility helps fit with the unique needs of each 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

  18. “Yeah, it's funny because it would be a lot cleaner for us if we just had one competitor than we could figure out how to attack them and try to beat them in the best way possible. And when I think about those different client types, we've got a different formidable competitor in each and every segment. So we've got to think about how we stack up against different kinds of competitors. Sometimes we're going up against a global actuarial firm that has global resources, offices across the world, but maybe a different overall research mandate where they're trying to build out a database of managers and have an opinion on not every manager, but a vast majority of managers where we're trying to take a much more focused approach to our research and trying to identify just the very best ideas and get those into client portfolios. And then in other segments, we're dealing with more niche players who are very, very focused and looking”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “How do you think about the competitive proposition? So there's a lot of other large consultants you're serving in every different channel and some just specialized in one. How does the competition work? Yeah.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “In their pension plan long term. So there's certain themes across each client type that are similar. And so we organize our consultants to really focus on one segment versus another so they can specialize and then they can bring those insights to our research team and we can take those insights and try to find the strategies that fit with those insights. Yeah.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “I think at the end of the day, the investment objective is to earn a certain return to beat a benchmark, beat a liability, beat a long-term return objective. So if we can boil it down to the core investment goals and the core organizational goals, we can get to some themes that make sense across all clients. But the way that we organize is for our consulting practices to organize by those client types. So every client is unique, but there's certain things that are similar for all healthcare organizations. All healthcare organizations are going to think about their day's cash on hand, how much liquidity they have, and they're going to think about all the regulations that come with healthcare and the consolidation that's going on there. All public pensions are going to think about their long-term discount rate, their funded status, the political dynamic within their own jurisdiction. All corporate plans are going to think about liability-driven investing and whether they want to be.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “the global investment spectrum then ended up leading our manager research and asset allocation teams and now for the last five years have been chief investment officer leading our overall research all right we've got a lot to go over why don't we take a step back and when you describe who NEPC is sure so NEPC has been around since 1986 we're a global investment consulting firm I think probably about 400 clients, about a trillion dollars in assets under advisement, and a very diversified client base. So we work With public pensions. When you have that diverse of a range of clients, how do you approach the core problem of how you serve them”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “The Pension Protection Act had just been signed into law, so corporate pensions were thinking about liability driven investing all of a sudden, and I was one of just a few people at the firm who could speak that language. And so I was getting all these opportunities to go out and present and work with clients and help them implement LDI and think about whether that was right for them. And it was great. I got opportunities probably well before I was ready for them, but kind of grew into it and took all that asset allocation work, then shifted to manager research. I shifted to covering global asset allocation and multi-asset managers. And that was a great. Perspective on how allocators think about investing across”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “And then the one on one stuff too, having to communicate concepts clearly, having to really teach and educate was just, I didn't know it at the time, but the experience that I got in that year was just incredible for me and awesome and set me up in a great way. So I did that for a year. And then the advice that I had gotten as a math major was you can be a teacher or an actuary. And so I tried the teaching thing and then went on to be an actuary. I did all the exams. I worked at Towers Perrin for a number of years and sort of figured out that. Everyone was a lot more interested in what the investment guy had to say than what the actuary had to say. So jumped over to the investment side and went to work at NEPC. And it was a really unique 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

  25. “They waived all the training and credentials that you needed, and I went and taught math to high school students for a year. And I tell people it's the best training you could ever have. I've stood in front of billionaires. I've presented to a room of 400 people at conferences. I've never been more nervous than standing in front of 2015-year-olds. Is that just the first time, or was it all the way through? It faded away over the first couple months, but the pressure of being in front of people, having to present, learning 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

  26. “Demographics, and shifting currency regimes. I want to wish you and your families a very happy holiday season. We'll be taking a break over the next two weeks and we'll be back at the turn of the year with a great roster of capital allocators. Happy holidays and have a very happy new year. Please enjoy my conversation with Tim McCusker. Tim, great to see you. Great to be here. How does somebody get to a seat like yours? I'm sure everyone has their own unique journey. Mine actually started with teaching. I was running track in college and decided senior year. I just really wanted to focus on that. I wasn't going to worry about a job. And that worked out great. I had a great experience doing that. But August rolled around. I didn't have a job. And the town next to where I grew up needed a math teacher.”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source

  27. “My guest on today's show is Tim McCusker, the chief investment officer at NEPC, an investment consultant that advises on one trillion dollars in assets on behalf of four hundred institutional clients. Tim oversees NEPC's 50-person investment research team and leads investment strategy for the firm. In each of 2014-2015 and 2016, he was recognized by CIO Magazine as one of the world's most influential consultants. Our conversation covers NEPC's client-centric model, meeting the needs of a range of client types, forming and implementing capital market views, researching managers, sourcing in public and private assets, allocating to scarce capacity managers, and forming and leading into the megatrends of artificial intelligence, income inequality,”

    2020-04-30 · Capital Allocators · [REPLAY] Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80) · IDENTIFIED FROM THE TRANSCRIPT · source