US Institutional Investing Outlook Panel Discussion Greenwich Economic Forum | Traders Network Show – Equities News

Matt Bird  |

-$18 trillion in total assets attending 2019 Greenwich Economic Forum

-US has $19 trillion in retirement and pension assets

-From 2004-2018, venture capital funds in US increased from $17.5 billion to $53.8 billion


Event: Greenwich Economic Forum (Greenwich, CT) Herman Laret from Titan Advisors, Charles Van Vleet from Textron Pension Fund, Timothy Barrett from Texas Tech University, Paul Colonna from LMIMCO, and Geoffrey Rubin from CPPIB deliver US Institutional Investing Outlook Panel Discussion on the Traders Network Show - an Equities News original show.

Julia La Roche – Correspondent, Yahoo Finance: 00:00

Our next panel is US institutional investor outlook. This panel is chaired by Herman Laret, the director of global macro CTA and multi-strategy at Titan Advisors. He's joined on stage by Charles van Vleet, the assistant treasurer and CIO of Textron Pension Plan, Timothy Barrett, associate vice chancellor and CIO of the Texas tech university system. Paul Colonna, president and CIO of Lockheed Martin Investment Management Company and Geoffrey Rubin, senior managing director and chief investment strategist at CPPIB. Take it away.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 00:34

Thank you. So welcome everyone. And obviously we're…Hi Geoff. Good timing! So maybe, maybe we could just start by having each of the panelists just introduce themselves very briefly and also just give us a quick idea of what you focus on mostly with respect to asset class portfolio construction aspect of the portfolio.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 01:05

I’m the CIO at Textron. Textron's an industrial manufacturing firm in Providence, Rhode Island. We make Cessna airplane, spell helicopters, Eagle golf carts. You have been in one of our products and I am the CIO overseeing 12 billion worth of defined contribution defined benefit assets globally, UK, US and Canada.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 01:26

I'm Tim Barrett. I'm the CIO at Texas tech university. Future leaders no helicopters. I manage about 2 billion in assets, about 1.2 billion in an endowment structure. And the other 800 million is tier three operating capital, which is just capital you don't need for the next five years.

Paul Colonna – President/CIO, LMIMCO: 01:48

Okay. And I'm a Paul Colonna president and chief investment officer for Lockheed Martin, also an industrial company in the defense and aerospace industry. We run 80 billion in assets from the defined benefit and defined contribution plans for the company.

Geoffrey Rubin – Senior Managing Director, CPPIB: 02:03

Great. And it's Geoffrey Rubin. I'm the chief investment strategist with the Canada Pension Plan Investment Board. We invest the assets of the Canada Pension Plan, which now amounts to about $400 billion Canadian on behalf of all Canadian workers in retirement.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 02:18

Great. Thank you very much. So if I just like to start by framing the backdrop and just start by saying that, this is a very, very tough environment to navigate. And you know, when we think about how well fixed income is performed and how well equities performed and arguably I'm not going to perform as well going forward. Maybe I can start with you Charles. In terms of thinking about valuations and thinking about growth thing, about demographics and things of that nature, and even throw any as ESG’s since we just talked about it. How are you, how are you changing your investment process to deal with all these issues, including, you know, the random tweets and things of that nature?

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 03:09

Well, you heard from the experts this morning, certainly much smarter than I am. That timing of an economic cycle is a near impossibility. So the best I can do, I think as, as this gets longer in the tooth, there's looked for investments, which I would call an asymmetrical profile, has better downside capture than upside capture. So I have been over the last two or three years now, arguably early because it continues to be a robust market and economy, but we're trading units of SOP per units of convertible bonds, units of S and P per spex units, recipe, four units of consumer staple stocks. You don't have the recipe for private credit. These are things again that I feel will have an asymmetrical capture. I'm still going to positive carry I S and AC instruments will capture a better downside and upside. My favorite tail risk strategy right now is we're just, we're kind of perpetually long dollar year old calls and dollar versus Ozzie calls.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 04:02

That's a positive carry. It's a good tail strategy. It costs me virtual, it costs me nothing cause it's positive carry and I do it in the, in the forge market. My favorite that I think as much as being prepared for that event. Another, it's also important to be ready for the opportunities that will arise in the next event. I simply can't move the committee fast enough to populate a new product. So, for example, we have put a nickel into public BDCs cause because I know when the next event BDCs as you know, commonly can trade at 10 20 point discounts retail indiscriminately sells. So I put in a nickel now so I can push an a dollar later and I don't have a ready, it's just not going to be able to move fast enough. So we have seed capital with a nickel ready to push a dollar in public BDCs.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 04:52

We have pushed the same thing with a nickel now for a dollar later into a strategy which is focused on fallen angels. There's this cliff of triple BS. There's a lot of people who would indiscriminately sell because they haven't managed their cure language, particularly in the corporate space. So we've seen capital, the strategy that we'll focus just on fallen angel. And so again, I think we need to look for things where you can move quickly. Secondary CLO’s we, again, we have a, a secondary risk retention and CLO equity, terrific space. It will trade a significant discount. I need to be quickly able to move capital there.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 05:30

So Tim, maybe moving onto you, we chatted beforehand and you mentioned a number of managers that you allocated to, and it sounds like you've allocated a fair amount of your capital to individual hedge fund managers. And I'm just curious when we think about negative rates and the inability of pension funds to meet some of their liabilities has that always been something that you guys have done or is that, that you've shifted into overtime given the lack of returns and given where spreads are and you know, triple B's double B's are trading at 389 for example.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 06:06

It is not been a recent shift that we've been in credit probably at multiple firms. I've been in credit for since Oh four when we started build on alternative credit. I would say that the shift this past couple of years is been more in line with trying to find things with shorter duration and collateral backed. Just trying to get a little safer. Another example of that would be we like the CLO type structure and we have a separate account that's kind of empty with CLO, same idea, waiting for the dislocation that never seems to come. But we also put money into a CLO structure that does infrastructure loans, which we like a lot because we think that's, it's a lot less volatile and has a lot less downside than traditional CLOs. We're getting about the same return. But our big push has been very similar. We're pushing a lot of money into what we call diversifying assets. So that's where we have like the trade finance platform we bought. We're probably going to sell that this year. We have ball managers convert all those types of things. And we've moved that from like 15% of the portfolio to 20% of the portfolio this year. Just kind of in preparation of whenever that last ending is and that's been a big push for us.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 07:21

You, so, Paul, you've, you've seen everything. You've worked at Freddie Mac, you've been on the GSC side you've seen the inner workings of how 90 as you put it early in 99 to one type leverage. Obviously what you do today is, is a little different. But it has monetary policy and QE and asset purchases created many bubbles that could emulate into something comparable to a 2007/2008. And if that is your thought process how are you structuring the portfolio to create a safety net as it were?

Paul Colonna – President/CIO, LMIMCO: 08:02

Yeah. I mean, I certainly don't think we're on the path to 2007, 2008. I could be wrong. But I think clearly when you look at acid valuations, especially in the fixed income markets, you could argue for incredibly lofty valuations, you know, lower yields and you do wonder what is the true expected return out of those asset classes over the time horizon that we look at over the next 5, 10, 15 years. So, for us it does leave you in a space where, you know, if you're thinking strategically, I think you have to think about the portfolio and stick to your strategic insights around looking at the portfolio. And for us, you know, in a world where, you know, look, equities aren't exactly cheap.

Paul Colonna – President/CIO, LMIMCO: 08:47

Fixed income is very rich. It's been a great year, just very tactically speaking. It's been a great year for asset allocators in terms of in terms of asset performance across the board. But I think for us, you know, I think you have to look at the long-term you know, centers of gravity for your business. And for us, it's, you know, we pick managers mostly that's what we do. And you have to pick great managers, you know. We talked to, you know, some of the panels earlier this morning about you know, about private equity and returns and private equity. If you look at the core tile distributions of performance in private equity managers, they're tremendous. So finding top core tile managers in private equity, in hedge funds, in active equities is really important.

Paul Colonna – President/CIO, LMIMCO: 09:30

You know, we're looking to concentrate our equity portfolios and make sure that we have you know, the right managers in the right places. I think that that's very important in hedge funds. You know, I think we're looking for true idiosyncratic type strategies for us that can generate returns. And so I think we're not going to move up an $80 billion battleship, around a tactical situation. So for us, I think you've got to lean into those, those kind of core principles of manager selection, concentration in active markets, you know, the beta in your portfolios. You've just got to try and get a cheaper, or maybe even in source it, you know, yourselves, which I think you see a lot of plans doing.

Paul Colonna – President/CIO, LMIMCO: 10:08

So just be efficient around beta, you know, beta management and then, then lastly, for us, since we're a corporate plan, it's obviously managing, you know, the risk management of the liabilities around the around the pension scheme. So those are the kinds of things that we've got to focus on. Even in a world where you could argue that, you know, look, 2% rates are not a place that you want to be investing long-term in.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 10:30

So you mentioned shifting an $80 billion balance sheet around, you know, when we think about Dodd-Frank and the various regulations that have habited the banks from using their balance sheet or reduced the amount of balance sheet that they can apply to, you know, running their business. How do you think about liquidity risk and how have you incorporated that, that, that factor, if you will enter your risk framework?

Paul Colonna – President/CIO, LMIMCO: 10:59

So for us, and I may regret saying this but, liquidity is actually not something that we're extremely worried about. I know I said it and now it's out there, but I do look at it. I personally think most corporate plans. I mean, look right now we've got, I think it's like 60% of our assets are tradable within a day. It's actually something where I think you want to be a little more thoughtful around how you look at asset classes, especially when, and you know, to take it back to the public fixed income markets. You know, where we started the question, those are some of the riskiest asset classes on the planet right now. They're liquid, but you know, at what point can you really deploy a lot of capital at 2% returns. So I actually think that of all the things that I'm worried about and I'm thinking about liquidity, is not at the top of that list. And For us, you know, we've got a manageable process where we, you know, look, we have to make benefit payments, we have to do things over time, but it's not a day to day liquidity moment for us.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 11:54

So yeah, for us, I mean I'll just interject there. For us it's a huge part of what we think about. Obviously when we allocate to two hedge funds, crowding is a huge issue and obviously AUM is to the detriment of returns. So shifting to you Geoff. And by the way, we should rename this from the US institutional investor outlook to North American institutional investor outlooks since Geoffrey works for CPPIB. So as the non US investor here you know, we hear and manage meetings, guys selling frackers to buy renewables and things of that nature. And there are pundits on the tape talking about how equity is, are going to drop 25% if Warren wins the nomination. So as an outsider how do you view the political landscape and how are you taking precautions for an eventual Elizabeth Warren victory? And what do you think the odds of that are?

Geoffrey Rubin – Senior Managing Director, CPPIB: 13:04

Yeah, well, gratefully we view that from afar. That's the good news. Look, this is the relentless optimism we heard this morning from some of the initial speakers makes an impression on us and it's something we need to contend with, but we want to contend with it over the appropriate horizon over a length of time that's suited to our particular circumstance and our mission and the liability structure and the cash flows that we have, all of which are intentionally designed to be very long-term. The situation is going to unfold here as it also unfolds around the globe. And we are very decidedly diversifying across these geographies very decidedly diversifying across asset classes and sectors in a way that we really hope one particular event and one particular country is not going to unduly impacts our overall portfolio construct and design is that relentless pursuit of diversification that I think for us is consistent with the kind of profile we have as a fun and the kind of horizon.

Geoffrey Rubin – Senior Managing Director, CPPIB: 14:15

I'd love to also just quickly chime in on the liquidity challenge because you know our types of institutions for exactly the reasons you described Paul, we should be tremendously well positioned to monetize our liquidity position with predictable inflows and outflow constructs and protection from the kinds of runs or the kinds of redemptions that many other asset managers face. It is a darn challenge though to monetize that special liquidity position in the kinds of markets that we've faced now there's a real concern that the illiquidity premium is positive over time. It's super positive 1 year out of 10 and it's roughly zero 9 years out of 10 and deploying that illiquidity in periods where there is not compensation for that illiquidity premium is really difficult and frustrating and challenging. And I hear all of the different strategies that that, that these folks have talked about as to my mind, some means of being able to monetize that inherent liquidity position that we do enjoy it.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 15:19

So that's an interesting point. So, for example, I was talking to a mortgage salesperson last week and they were bringing a deal to market and the WB, it was price talk was 700 and CLO and it widened out to 800. So presumably you guys are loving that. So along those lines when we think about levered loans and, and widening in spreads in here currently student loans is a market that's ballooned over the last several years. Thinking about ETFs and thinking about private credit funds and that mismatch between the underlying securities and the liquidity of the instruments themselves. Charles, how do you think about that when you think about those products and what do you think is the next Canary in the coal mine, if at all?

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 16:11

Well, we know the next crisis will look nothing like the last, and that's kind of the nature of it. But we were talking specifically in our pre-calls about fixed income, illiquidity, crisis. It just drives me nuts. Every time I read something about ETFs or a fixed income ETF by design, it's impossible to have a liquidity run. The AP, we'll re we'll create a redeem on a stratified basket of one bond and go, of course they're dumping illiquidity on the remainders in the fund. But, and people will not necessarily get market when they sell. They might only get 90 cents on the dollar, but it's really a tremendously better vehicle over a mutual fund vehicle. And private credit, same thing is I know what the point of the sum private credit is zero and that's good. That's fabulous. Everybody's, everybody's handcuffed in together in this structure. So I actually don’t see fixed income illiquidity being the Canary.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 17:10

I think there is illiquidity problems, especially if you get to emerging market debt and you start looking at the gap risk in emerging markets, you can actually push the trade around quite a bit in emerging markets. And you know, stuff that I would argue from our managers say that stuff that used to trade at forties will now drop all the way to the 20s now, and there's just no buyers on that end. You got to really be a lot more patient and EM because of that lack of liquidity. I would also say that in our portfolio liquidity is a much bigger issue than what it is for these guys. We don't have a machine pumping money into us every day. Ours is outflow mostly. So we have to manage that liquidity to be able to take advantage of the dislocations in the market.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 17:59

That is true. And as a pension, I have really near perfect foresight to my outflows. I mean, short of a robotic plague, I know exactly what my cashflow goals are for the next 30 years. And it is very different for you.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 18:11

Tim, do you like century bonds in Argentina?

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 18:15

I love Argentina. I mean, actually they’re the gift that keeps on giving. As one of my managers, Robert Koenigsberger always tells me we're deep in Venezuela, Argentina, all those emerging markets that are in trouble.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 18:28

Paul and Jeff, any canaries in the coal mine. Do you guys like Argentina as well?

Paul Colonna – President/CIO, LMIMCO: 18:35

We're not large enough in emerging fixed income.

Geoffrey Rubin – Senior Managing Director, CPPIB: 18:41

We are very enthusiastic around emerging markets as a source of productivity and growth. Broadly speaking over that again, longer horizons. We tend to focus about 20% of our portfolio now is in emerging markets and tends to be focused in geographies where we can build real scale. So questions around some of the smaller frontier markets that could be really interesting for other types of institutions. Perhaps a little bit less. So for us the focus on China and India and Brazil and a few other lab focus countries is driven as much by our ability to get access to scale there as any particular thesis.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 19:17

So I figured having four pension experts on the panel here today. I'd love to get some insight into your thoughts on pension risk transfer and I read a lot about re pension risk transfer to insurance companies and things of that nature. Is that on the back of sort of underfunded pension funds and some of the inherent issues? And is that a looming problem if there is a large downturn in the equity market, which is obviously been a large driver of returns for pension funds.

Paul Colonna – President/CIO, LMIMCO: 19:55

I'll start the conversation. Cause we've done a few of those transactions at Lockheed we did at the end of 2018. When I think about risk management around a pension fund, I think it's just a part of the overall process of risk management. You know, the first part of the process is, you close the plan to new entrance, then you ultimately freeze the plan to everybody. And so you end the accretion of benefits. And so then you understand what your liabilities are. So that's kind of step one in at least the US corporate pension management process. Step two is, you know, you look at ways, how do you manage the balance, for the firm.

Paul Colonna – President/CIO, LMIMCO: 20:33

And look, we live in a world where you don't want to be talking about your pension fund on the quarterly earnings call. That's not what you want to be talking about. You want to be talking about the business, how you're investing in the business, what the growth capabilities are, where the core business is heading. And so pension risk transfers are a mechanism to help you with that. And if you dive into that market a little bit on the pension risk transfer side, a lot of that, I'll call it arbitrage for doing those transactions quite frankly, is wrapped up into PBGC fees that you have to pay as an organization, which quite frankly are exorbitant for companies to pay.

Paul Colonna – President/CIO, LMIMCO: 21:08

And so I think pension risk transfers allows you to take down that fee structure that the company has to pay. It also allows you to give visibility around your willingness to manage the overall balance of the pension. And so =there's some benefits in terms of that it's not going to be the final solution. You know, it's not going to be something that you can just, make your pension go away through pension risk transfers because they get very expensive as the fee arbitrage kind of reduces itself over time. So then that gets to the third part of the risk management process, which is really around what's your asset allocation strategy? What are you thinking about within the portfolio? How do you reduce funding status volatility, how do you still earn the returns that you need to earn? And that's really a lot of what a pension funds CIO is working on, it's that latter stage, but it's a part of a holistic risk management process for the pension PRTs being a component of it.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 22:00

So what Paul’s trying to say, I think that is the environment for corporate pensions these days. But just one caveat, it just drives me nuts. When I see a CFO, my unfunded pension, we're 94% funded. So I have 6% of a contingent claim. It's a contingent claim. I see too many CFOs and my opinion will go out there and then they'll issue a bond. So they will harden that claim and then top up their pension. So I've taken a contingent claim and substituted with a hardened 20 or 30 year bond. That's just nuts. As a shareholder, and I'm sure everyone in this room is a shareholder in your personal account, it drives me crazy to see a CFO go out and borrow per good capital. Instead of putting it to work in their operating business, they're operating efficiently. Go buy something, do something, invent something they bury it in to offset a contingent claim. It drives me nuts.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 22:54

You must just believe in your ability to grow that.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 22:58

You know, that's my job. Go out and grow it.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 23:06

So Geoffrey, Paul mentioned private equity, when you think about the stop wall street looting act, is that going to alter your view in terms of the potential returns in the sector, if that something that you guys are heavily involved in?

Geoffrey Rubin – Senior Managing Director, CPPIB: 23:22

Yeah, so we are. I think about a quarter of our portfolio right now. So about a 100 billion dollars is in private equity and we have significantly more in other private asset classes, including real assets and credit. And in all of those cases we are evaluating the entire economic prospect and proposition of the investment. And that includes the return expectations includes the premium they afford, it includes the entirety of the risk profile including illiquidity, risk, including regulatory risk if that's something that needs to be assessed and is on the horizon as part of our overall portfolio construct. We obviously believe deeply in that asset class managed both internally and with external partners. So it is something that has been proven to have been a really important part of our overall portfolio design and risk adjusted return performance. We'd expect it to continue to be so going forward. So, we don't see anything in particular that would undermine it, but to the extent issues arise, we certainly need to be eyes wide open as to how that risk return proposition is changing relative to everything else we have access to.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 24:40

So just turning for a second to monetary policy and negative interest rates and things of that nature. I'd love to hear your thoughts and whoever wants to start off, take the lead. But when we think about the reversal interest rate, what are your thoughts on that? And in the US specifically, can you put a number on that?

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 25:10

I do not have a number on that, but honestly if we reversed, I mean just where equities are valued now based on the low rates and you just do the dividend discount model and you start getting rates go up, that probably does not bode super well for risk assets, right? If you truly are going to shift that way I think the market's a little split right now. I could probably pull half this room and they'd say, we're going to Japan vacation and the other half would say, Oh, we'll turn, because physical stimulus will start moving the curve. I think we could easily be talking about this four years from now and saying, what's going to happen to rates?

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 25:44

Well, Ray said it well this morning he said, throughout history, there's only one true way that we've reversed deflation. The natural state of capitalist mapped role is falling prices. Cause because the capital is defined as producing evermore goods that ever falling prices ever better productivity. So the natural state of capitalism is falling prices interrupted by these things. Those things are called Wars. And that's what Ray said this morning. There's many types of Wars. There's Wars with guns and bullets, there's Wars with capitalists, Wars with words, wars with trade. And any one of those Wars is an impetus to inflation. And what we need is, I'm sorry, a healthy dose inflation and its pension obligations go away with inflation. Student debt goes away with inflation. You know government debt gets forgiven with, well it goes away with inflation. It's that secret tax where we're on our way to, we're desperately seeking inflation and we'll find it, we have the perfect leader for it.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 26:39

I feel like you guys were talking your own book now.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 26:43

Inflation is great for my funder status.

Geoffrey Rubin – Senior Managing Director, CPPIB: 26:44

I think the counter to that would be, it depends what kind of inflation and whether it's anchored or unanchored. Whether there's an expectation around that higher level of inflation or whether it's a big surprise. We were talking with a central bank recently and we talked about concerns around inflation getting unanchored and they said they totally agree to the downside which really surprised us. They were just as concerned if not more so about inflation getting unanchored low as it is to the high side. Whether that suggests and or implies there's going to be continued monetary in combined with fiscal stimulus to ward against that, we will see. But I think it's the inflation, yes. If in a well anchored and in predicted fashion.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 27:27

Let's just say it's going to create a huge problem. When you think about the pension underfunding that people were talking about earlier, if you just take a 60 40 portfolio and use the current building blocks with inflation where it is and rates, you get to about a 3% 4% go forward return. It's not attractive and nobody can fund their liabilities with that, which I think is pushing everybody constantly over to the edges. That's where you're going to see people get hurt where they start stretching too far.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 27:55

So heading over the edge there, then we would think about defined benefit plans should alternatives. What are your thoughts on alternatives and what is, what is the industry doing to try and get that going?

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 28:14

One of the topics that we talked about was, you know, we all took Econ 101 S must go to I - high savings must go to investing. There's just many channels for that to happen. It can happen through an insurance channel, a pension channel, an ETF channel, you know, but the channel that's happening from savings to investing and money must move. It will move or otherwise capitalism is dead. It's moving through personal directed. So individual directed counts, whether it's 403B, 401k and none of those are participating. A full balanced amount of alternatives, particularly private equity and hedge funds, real estate starting to catch on a bit. So the I'm active in a lot of organizations are how do we get personal directed assets or through PKs, IRAs to participate more in private equity. And it is, it's tough for one of the reasons I mentioned earlier panel because PE is losing the public relations campaign. You know, we're live this Warren and in the country largest painting it as, well they just steal the balance sheet, file the workers. So it's a tough slug to paint a better picture to get private equity into these self-directed accounts.

Paul Colonna – President/CIO, LMIMCO: 29:25

Yeah, yeah. I mean I think the industry is changing dramatically. We talked about, we're trying to make the pension balances smaller and quite frankly we're trying to make the defined contribution balances larger. I mean quite frankly, as you know, as a company, it will be the way the next generation accumulates wealth here in the United States. And you know, as Charles pointed out, it's self-directed to which, which adds some complexities. But I think the history of the industry also adds some complexity too. The defined contribution plan was always a little bit of an add on or a sidecar to the DB plans. Like, well, you've got a DB plan, we'll set up a DC plan with a couple of stock and bond funds and index funds and they'll be fine because you've got a DB. Now we've taken away the defined benefit plans.

Paul Colonna – President/CIO, LMIMCO: 30:06

And so I just, I think we all need to, and I know this is something we're looking at Lockheed, I think we just all need to just think about what do we want out of these DC plans? How do we make them as appropriate and optimized as possible for the outcomes? But I think the participants are going to want going forward. And you know, if history is a guide and certainly our investment expertise as a guide, I think alternatives should play a piece in that outcome. I mean that's why we do it in the defined benefit plan. If you're looking at outcomes over the lifetime of a career and even post retirement which I think people should be doing in terms of their defined contribution plans. Don't take your money out of your defined contribution plan at retirement.

Paul Colonna – President/CIO, LMIMCO: 30:43

Keep it in, it's low fees. It's good management for people. But, you know, thinking through retirement on these plans, I think you're going to need alternatives. And I think as an industry you know, as Charles mentioned. I think as an industry, I think there's space for us to think about how we get those outcomes and how do we get private equity and how do we get hedge funds in how do we stop kind of the frivolous litigation that's going to occur? Because at the end of the day, the impact is going to be felt on the individuals. And when we talk about a lot of crises up here this morning, I mean, certainly the other crises out there is the retirement crisis and it's a big one and it's real. And I think we're going to need to find a way as an industry, especially within the alternatives industry, to get that type of product and those types of returns and those types of great ideas into a defined contribution platform overtime.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 31:31

Great. Geoffrey maybe start with you and work towards Charles. So we've got about actually almost running out of time. I'd love to leave some time for questions. So I know when Madison Square Gardens is full for the Knicks game, that means the economy is doing very well cause otherwise no one would ever go to see them. What is your individual favorite economic indicator for the pulse of the economy? Just very quickly, so start with you Geoff.

Geoffrey Rubin – Senior Managing Director, CPPIB: 32:05

Yeah, you talked about the Knicks. I was going to say some about the Raptors and the world championship that we hold, but you know, the Canadian economy hasn't done terribly well since that cropped up. Pulse check on the economy. You know what, let me go last.

Paul Colonna – President/CIO, LMIMCO: 32:22

Okay I’ll go. So my favorite bit, it used to be taxi drivers, now it's Uber, Lyft drivers. Just whenever you're in a city, and I've traveled, you know, not extensively but a bunch and I think always getting a little check from them on how things are going locally, especially when you get out of the New York, San Francisco, you know, type areas, LA areas. It's fascinating what you may hear.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 32:48

Yup. I love that one. So mine's a bit boring. It's a more like PMI service indicators.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 32:56

So you were excited about this morning services number coming in at 54-7 it's got to be good.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 32:58

I get excited about things like that. Yes.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 32:58

Equally boring mines, the jolts voluntary departures. It says everything about wage inflation. Nobody leaves their job unless they're leaving it for better money.

Geoffrey Rubin – Senior Managing Director, CPPIB:33:09

Upon reflection. I mean maybe it's the number of times my board asks whether or not we are ready to de-risked the portfolio.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 33:18

That's a good one. So now, just a last question very quickly, thinking ahead to 2020 where are you guys shifting your capital? A lot of LPs in the room really want to know that obviously. And what do you think's going to be the best performing asset class in 2020? Obviously, that's same sort of question.

Timothy Barrett – Assistant Vice Chancellor/CIO, Texas Tech University: 33:41

Where we're shifting, I would say when 2020 comes around our view is the equities are probably going to take off again and we'll be shifting a little bit more into equities. We're also maintaining a lot of those empty accounts for the crisis at the same time. And also tail hedging that increase in equities. So we're not going into equities with that much confidence just because valuations, but we feel like there's not a lot of other places to go right now, so we'll be there on a hedge basis.

Paul Colonna – President/CIO, LMIMCO: 34:14

Yeah, tactically we like the equity markets here as well. I think there's a pretty straight market, higher between here and certainly call it super Tuesday or know however you want to sketch out the early part of next year and then may get a little more interesting. So we, like the rest markets and alternatives, we're trying to figure out how do we thoughtfully de-risk our pension plan and do that in a way that incorporates alternatives private credit. So we'll be allocating probably more to privates going forward on a thoughtful basis. Avoiding, again, some of the rich liquid sectors that we've previously discussed.

Geoffrey Rubin – Senior Managing Director, CPPIB:34:51

Yeah. Emerging market, local currency, fixed income is one area we focused on both for the returns and the diversification value it brings to the portfolio.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 35:02

So we've built up a position last two or three years with a couple of strategies in the public equity space that week. My team has, I call it my catch portfolio. It's focused on consumer staples, chocolate, alcohol, tobacco. They are three government sanction drugs. People will pay any price for them. I consume all three. I will pay any price for all of them. They will have, again, a better capture ratio. They will capture less of a downside, but over the upside they'll do well if an inflation scenario comes along, these are inelastic demand curves. So, I don't know when or if this thing's going to happen. I just want to capture less of the downside and still upside exposure.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 35:38

Interesting. Given the fact that the trade for inflation is the least positioned for trade out there.

Charles Van Vleet – Assistant Treasurer/CIO, Textron Pension Fund: 35:48

Private equity finds inflation up to 5%. I mean, Goldman's traffic that research for years. And so you know, consumer staples, my Hershey's chocolate, we heard about that earlier today. These are things I think we'll have some sustainability over turmoil.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 36:07

Right. Well, thank you. Let's open the floor up for a couple of very quick questions. We have just done an under a minute left. This gentleman right there.

Speaker 1 36:13

Charles mentioned casually that a pension is only 6% underfunded. I'd be curious of the other three pensions and how that differs from 2007-14.

Paul Colonna – President/CIO, LMIMCO: 36:36

So we're 74% funded as of the end of last year. They actually strike it demonstrated once a year officially. And the mass with you, I don't know the 2007 number, but in general, like most pension funds have kind of. Well, it's been a little more moderated to be honest with you. I mean, it depends on how much you're contributing and there's a lot of factors that go into it beyond just interest rates and market returns.

Geoffrey Rubin – Senior Managing Director, CPPIB:37:02

We're slightly over funded, but it's a bit of an artifact of the accounting scheme by which the CPP is assessed.

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 37:10

Hmm. And you had a question right here?

Speaker 2 37:12

Okay. So, sort of beyond North American limited partners. Could you speak a little about an idea of a mix of international and LPs along the strategies? You know, is there a certain percentage that you find to be value add in terms of that that is a position?

Herman Laret – Director Global Macro CTA & Multi-Strategy, Titan Advisors: 37:32

Can we take this last question? Are we good to take this last question? All right. Well, I think we've actually run out of time and I apologize, but it was a good question. Do you want to just repeat the question one more time? Sorry. Okay, fine. We're done. Alright. Okay, guys.

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