Since joining $233.5 billion New York City Retirement Systems (NYCRS) six months ago, CIO and Deputy Comptroller for Asset Management Steven Meier has spent the bulk of his time getting under the hood of the private markets allocation, engaging with business partners and meeting some of the best minds in the industry to discuss the private equity, infrastructure, and credit allocations.

It makes the recent amendment to so-called basket clause legislation that will now allow pension funds in the state to increase their allocations to private markets to 35 per cent of assets under management (up 10 per cent) particularly timely. More so given it also coincides with NYCRS approaching a scheduled review of its large and complex asset allocation across the five different plans with trustees and consultants.

“We will revisit our asset allocation strategy in coming months to rethink asset allocation decisions,” says Meier in an interview with Top1000Funds.com. “And since basket clause legislation has now been approved, we will discuss with our boards whether to increase our allocation to private assets. It’s time to revaluate our asset allocation studies across the plans and cascade these decisions into our investment policy statement.”

Private equity

Still, any GP bonanza comes in the context of today’s market headwinds. In private equity, where NYCRS currently has around 100 direct relationships (it doesn’t invest in any fund of funds) he still expects solid returns but not on the same level as recent years. Moreover, until rates come down, his focus is on private equity investment structured with more equity and less leverage. “We will see more equity in deals with the expectation that as rates come down, leverage will be added on these opportunities down the road.”

Elsewhere, he anticipates less exits as investors sit tight and avoid selling into a distressed market, something that is made easier by NYCRS long-term approach where strategies are typically 11-12 years, and sometimes longer. “GPs that manage on our behalf don’t have to sell into weakness,” he says. It means a lower level of distributions ahead since NYCRS is unable to lean in and lean out of the asset class. Continued capital calls will have a negative impact on cash flow, he says.

Smaller managers

At the moment, NYCRS’ size means it’s rarely worth conducting costly and time-consuming due diligence on deals that only ever result in a small investment. “Our size can be a hindrance,” he says. “When it comes to looking at smaller deals, it is a question of resource allocation and one of our priorities is increasing how nimble we are.”

However, re-evaluation of the portfolio, GP relationships and asset allocation levels, could open the door to smaller GPs investing on behalf of the smaller pension funds under NYCRS umbrella. “We could look at smaller deals for some of the pension funds for whom small would be a better fit. This would expand the opportunity set and give us better diversification.”

Manager selection involves a rigorous due diligence of the strengths and quality of the offering around ESG, compliance, risk, operations, and legal considerations. And quantifying the risks associated with climate change in portfolio construction is increasingly centre stage. In real estate this involves assessing areas prone to flooding or fire, for example.

He adds that NYCRS is prepared to support smaller GPs integrate ESG over the course of the relationship – it doesn’t all have to be in place from the get-go. “They don’t have to be there on day one; we can look at [integration] and measure it over time,” he says.

In contrast to private equity, Meier believes private credit could benefit from a tailwind from several factors. Fed policy and tightening financial conditions has pushed yields to 4-8 per cent depending on the Sovereign, or if an asset is investment grade or high yield. “Defensively positioned private credit strategies and opportunistic credit strategies in the private space should all do well. It’s a better time to be a fixed income investor now than a few years ago,” he says.

Public markets

NYCRS ability to invest more in private markets will act as a counterweight to ongoing travails in public equity. Meier believes public equity will remain buffeted by the impact of low interest rates through the pandemic pulling forward returns, and says that US equities are most vulnerable to headline risk. He flags the risk of  a decline in corporate earnings, the impact of which is unclear given how much is already priced into the market. Sticky inflation will also dent public equity where he is concerned by inflationary geopolitical trends around re-shoring, inflationary pressure in the transition and shortfalls in the labour market.

“The labour force participation rate is low on a combination of demographics, baby boomers retiring and stifled immigration. We haven’t replenished the labour force and may see wage price pressures that are inflationary. I grew up in 1970s and remember a time when inflation was higher and stickier, and I think about this in the context of the asset allocation and what to reasonably expect for performance.”

He also has half an eye on another market shock. Crypto’s collapse and sharp falls in the UK bond market are the only major fallouts from the policy response so far, and more could lie ahead. “When the Fed raises rates this aggressively, something usually breaks,” he concludes.

The world faces a set of risks that feel both wholly new and eerily familiar. The Global Risks Report 2023 explores some of the most severe risks we may face over the next decade. As we stand on the edge of a low-growth and low-cooperation era, tougher trade-offs risk eroding climate action, human development and future resilience.

The war in Ukraine has disrupted the return to a ‘new normal’ following the COVID-19 pandemic, according to this year’s WEF Global Risks Report.

The 2022-2023 Global Risks Perception Survey (GRPS) identified the energy supply crisis, the cost-of-living crisis, rising inflation, the food supply crisis, and cyberattacks on critical infrastructure as among the top risks with the most significant potential global impact in 2023.

It also flagged concerns over the failure to meet net zero targets, the weaponization of economic policy, the weakening of human rights, the debt crisis, and the failure of non-food supply chains.

The report states that all the current risks are converging to shape a unique, uncertain, and turbulent decade to come.

Respondents to the GRPS (more than 1,200 experts across academia, business, government, the international community, and civil society) see the path to 2025 dominated by social and environmental risks, driven by underlying geopolitical and economic trends.

Respondents expect the cost-of-living crisis, the economic down-turn, geo-economic warfare, the climate action hiatus, and societal polarisation to play out over the next two years.

They will also have ramifications for the next ten years. Some respondents felt optimistic about the outlook for the world in the long term, predicting limited volatility with a relative – and potentially renewed – stability over the next ten years. Yet, over half expect progressive tipping points and persistent crises leading to catastrophic outcomes or consistent volatility over the next ten years.

‘Global risk’ is defined as the possibility of an event or condition occurring that would negatively impact a significant proportion of global GDP, population, or natural resources.

The report explains that some of the current global risks are close to a tipping point and understanding them is vital to shaping a more secure future.

Queensland Investment Corporation’s (QIC) CIO of State Investments, Allison Hill, sees private debt as a key part of the $60 billion portfolio she oversees.

“We have introduced private debt as a dedicated stand alone asset allocation within a portfolio,” she says in an interview with Investment Magazine.

“The majority of our portfolio has a long term horizon. We’re leaning into private debt because of its floating rate nature. It has lower duration impacts on the portfolio, while still being able to earn a reasonable spread.”

The strategy comes alongside the fund’s concerns about the short term outlook for shares. “From a more tactical lens, we have short term concerns on valuations in relation to equities,” she says.

Hill says the share market has yet to fully reflect the potential for a downturn in company earnings after a year of significantly rising interest rates.

“We haven’t really seen too much flow through equity markets as a response to what will likely be a slowdown in earnings and potentially a contraction in margins associated with the fact that central banks globally are trying to slow economies.”

“Companies seem to have been able to pass through price increases to consumers to date, but if the consumer becomes a bit softer, companies may need to compromise somewhat on margins. We haven’t really seen any valuation impacts flow through from either of those outcomes,” she says.

QIC is confident about the long term outlook for equities, but cautious about the short term. “We certainly continue to be exposed to equities- but at the margin we are tactically underweight equities on the view that we do think there could be some softer earnings quarters to come,” Hill says.

Restraints on bank liquidity

Hill says increasing controls on the traditional banking sector have made issuing private debt attractive for some companies and the sector’s returns have also made it increasingly attractive for suppliers of private capital.

“Generally [issuers of private debt are] corporates that don’t want to go through the public markets for one reason or other. It might be that it is sub-investment grade, it might be that they want flexibility and ease of transaction outcomes.”

She says banks are increasingly restricted by capital adequacy regulations. “A lot of those are very important for the stability of the financial system but it means that their process is potentially a bit slower. So there’s a lot of companies that chose, for speed and expediency, to access private debt markets.”

“There is a lot of capital being provided into the market as there is quite a lot of demand. It’s an area that we have grown, but also many institutional investors have grown materially over the last few years.”

Hill joined QIC in January 2018, from her previous role as chief executive officer of DMP Asset Management. She was named chief investment officer of its state investments team in September 2021, overseeing the investments of a range of Queensland government entities, reporting directly to QIC’s chief executive.

Hill says the $60 billion portfolio she oversees now has an eight per cent allocation to private debt over the long term. “We have exposures domestically as well as mandates across Europe and the US.”

In August 2022, Hill’s team awarded a $500 million mandate to QIC’s multi-sector private debt team for loans originated in Australia and New Zealand which typically range between $20 and $50 million, increasing to as much as $75 million per transaction.

QIC’s growth

Her role is an important part of QIC. Set up in 1991 as the Queensland government’s specialist investment advisor and whole of fund manager, QIC now manages around $100 billion for both state government entities and external third party investors.

As CIO of its state investments team, Hill works with Queensland government entities to handle their investment needs. “We work with a range of boards across government entities,” she says.

“We sit down with our clients to make sure we carefully understand the risk tolerances of that entity and other parameters such as future cash flow requirements. From there, we build diverse asset allocations that the clients agree on and are approved on an annual basis.”

“With those objectives, for the majority of our clients, we have full delegated authority to invest in the best way possible within a strategic asset allocation.” She says the role includes recommending new asset classes to invest in, a process which has included private debt.

QIC’s role has grown significantly since it accepted third party investment mandates for its special investment funds.

Some $40 billion of its total $100 billion in assets under management are invested on behalf of more than 100 external institutions both in Australia and overseas, including superannuation funds.

As CIO of Queensland state investments, Hill’s team invests about half of its funds through QIC’s specialist funds and half with external third party managers.

“We have really good relationships with our internal team,” she says. “It’s a really good advantage for us.”

Her group invests in “the same structures and strategies” that third party institutions do with QIC. She says third party institutions which choose to invest in QIC products are “an independent verification from clients globally” of their quality.

Some 35 per cent of the portfolio under her management is invested in long term, illiquid assets.

Her role also includes working on the state government investments for Brisbane’s new Cross River Rail project which involves four underground train stations and above ground development as well as technology and innovation projects for Brisbane office precincts.

One of the sites is Woollongabba which is the location of the Olympic Stadium. “It will be transformative to the Brisbane CBD and the Brisbane skyline. The opportunities we have from these sizable pieces of land can help build the city of Brisbane in the future.”

The simultaneous decline in prices in equities, government bonds and corporate credit on a scale not seen for many years hit global charitable foundation £34.8 billion Wellcome Trust’s portfolio last year. But in its latest annual report, the charity established in 1936 with legacies from pharmaceutical magnate Sir Henry Wellcome, states that its allocations to property, some hedge funds and holding most of its assets in currencies other than sterling, also stood it in good stead, helping the portfolio return 1.7 per cent in the year to 30 September 2022.

Black spots

One of the worst hit portfolios was public equity, although Wellcome had prepared for a more difficult environment by holding fewer equities (its lowest allocation this century) and more cash. The £13.7 billion public equity portfolio returned -12.7 per cent in absolute terms and was the principal cause of weakness in the broader portfolio, although the internally managed equity portfolio (the Global Compounders Basket) did better than mandates with external managers.

Indeed, Wellcome’s £4.0 billion portfolio of outsourced equity had a “very poor” year. No manager outperformed their underlying benchmarks with the worst performance in absolute terms coming from global growth where the portfolio was down -37.4 per cent. Still, the report states, “We can tolerate this kind of volatility given our long-term perspective – this manager has been in our portfolio since 2003, during which time they have delivered annualised returns of +11.6 per cent.”

Now Wellcome Trust is watching for an opportunity to deploy capital back into public equities, which, it says, (at the right price) should be the default liquid asset class for long-term, unconstrained investors.

(Some) hedge funds do their job

Wellcome’s £4.9 billion hedge fund portfolio (12.4 per cent of total AUM) protected value and delivered a positive return of +5.7 per cent. However, there was wide dispersion within the portfolio. The absolute return funds, which are hedged with sophisticated risk systems and can seek profits in any asset class, delivered +33.7 per cent. In contrast, the £2.3 billion allocation to equity long short hedge funds failed to protect on the downside and delivered a worse return than global equities at -13.3 per cent. Cue possible changes ahead.

“There will be some changes to composites from next year,” the report states. “As a group [long short hedge funds] have underperformed the long bull market in equities and failed to protect our capital as the market has turned. This has led us to consider carefully our exposure to these vehicles.”

However, the report also notes a wide dispersion among long short managers, indicating that some have adapted more rapidly to a very different environment than others. The best performing manager was up +16.2 per cent, while the worst was down -50.0 per cent.

Going forward, Wellcome plans to aggregate reporting on the equity long short funds with its public equity exposure, given the high correlation with equity market returns. This reflects the objective for these managers to deliver a superior return to equities through the cycle by adding value on both the long and the short side. “It is, as we have seen, a tough task,” states the report. The absolute return funds will continue to be reported separately.

Stalled private equity

Despite a one-year return of +7.7 per cent, Wellcome’s £14.8 billion private equity portfolio has not escaped unscathed from drawdowns in major liquid asset classes. Sizeable mark downs are linked to underlying companies requiring fresh capital, something Wellcome expects will be repeated more widely across private assets over time. Moreover, cash flows from the private portfolio have turned negative as IPO markets have slowed down and distributions dried up. However, Wellcome will not pare back investment. “With capital now scarcer, our PE partners are more likely to seek willing co-investors and we are open for business.”

The investor is also keeping more cash on hand in anticipation of distributions remaining thin. “We are keenly aware that cash holdings are rapidly eroded by inflation but for now, we remain content to retain the optionality of a higher than-normal cash balance, especially as it seems likely that distributions from PE will remain subdued for the foreseeable future,” states the report. The largest portion of the private equity portfolio lies in VC funds (£8 billion) bringing exposure to “some of the most exciting, innovative companies in the world.”

Strategies relying on access to abundant cheap leverage will face a particularly difficult future, adds the report. Inflation is a key challenge for all investors but our portfolio strategy of holding real assets (equity and property) and issuing fixed rate nominal debt should provide some protection over the long-term, states the report.

ESG

Emissions in Wellcome’s public equity portfolio have fallen 35 per cent over the last year. A year-on-year decline Wellcome links to its exits from holdings in BP and Shell, sold as part of a strategy of reducing exposure to cyclical stocks. “Of course, our exit from these holdings has not reduced overall carbon emissions, simply those that are linked to our own portfolio.”

Outside of public markets, Wellcome notices increasing recognition that buyouts managers’ longer investment horizons and advantageous governance structures mean they can play a significant role in catalysing the transition. “But there is much work to be done here.”

Wellcome has written to its buyout partners to share examples of best practice and set out its view of gold standard net zero target setting in private equity. “Positively, some of our buyouts managers already have net zero targets, which include commitments to require this from portfolio companies,” it states.

China

Wellcome’s annual report also alludes to the impact of decoupling trends. There remains every prospect that the economies of many Asian countries, including China, will grow faster than those in Europe and North America, it states. However, as the last two years have demonstrated, it is not always easy to translate economic growth into portfolio returns. “The assumption that we can access investment opportunities across the world in a relatively unimpeded way may no longer be valid if we see increasing fragmentation in the global economy and a retreat from integration.”

 

 

It’s possible that a traditional 60:40 passive portfolio could get close to a target long-term return of 7-8 per cent this year in a trajectory not seen for the last 12 years, according to Rich Hall, CIO of $65 billion University of Texas endowment. The brighter outlook comes after one of the most torrid years for investors in over a century and is a view different to some investors that are questioning the validity of 60:40.

 

It is possible that a traditional 60:40 passive portfolio could get close to a target long-term return of 7-8 per cent this year in a trajectory not seen for the last 12 years. So said Rich Hall (pictured), chief investment officer of $65 billion University of Texas/Texas A&M Investment Management Company (UTIMCO) speaking at the firm’s last board meeting together with president and chief executive, Britt Harris.

“Instead of a headwind, we could have a tail wind pushing us along for the next ten years based on where asset classes are right now,” Hall predicted.

The brighter outlook comes after one of the most torrid years for investors in over a century and it’s a view different to some investors including the Future Fund that recently published a paper on the death of traditional portfolio construction (see interview with Future Fund CEO, Raphael Arndt, Investment industry needs to rethink strategy).

“2022 was a year like no other that any of us in this room have ever experienced. We just went through a 150-year event by a wide margin,” said Hall, adding that last year was the first time since the 1870s that both equities and long bonds were down by more than 10 per cent in a double whammy that has wreaked havoc on many portfolios.

Reflecting on a tumultuous year – and his reason for forecasting brighter climes ahead – Hall began with a little financial theory.

The rate on cash is a key component of the discount rate used to value assets like stocks and bonds, he said. The discount rate and asset prices have an inverse relationship whereby the discount rate goes down and asset prices go up. In another rule of thumb, the price investors pay when they buy an asset has much to do with the return – and the higher price they pay, the lower return they can expect.

In a third norm, Hall described how investors expect higher returns for holding risky assets – cue that upward slope on a risk premium line. It’s why over the last 40 years of a secular declining rate environment, assets prices have crept relentlessly higher.

Investor strategies through this time have included levering their portfolios with an all-weather approach while others have built up their private investments or tried to lower costs, said Harris who described returns over the last decade as lower and taking longer to achieve – like flying in a helicopter rather than a jet plane. “It took us for ever to get across the pond, but it [financial repression] kept us in the zone of growing financial markets,” he said.

When COVID hit unleashing monetary and fiscal stimulus, real rates turned negative and nominal rates went to zero sending asset prices even further north. “Asset prices soared in 2021 and everything was feeling pretty good. Then inflation emerged and the story changed,” said Hall.

The machine swung into reverse with the Fed raising rates, causing multiples to compress and asset prices come down in a painful adjustment. Rates are now around 4 per cent and expected to climb to 5 per cent or above in a trajectory that is causing bond prices to fall and corporate PE multiples to compress. “The market is still trying to sort it all out,” said Hall.

If the Fed is successful in fighting inflation, Hall said expect a reversion to the mean whereby short end rates come down creating positive returns – however he cautioned that it is still unclear what will happen in equities. Expect near term volatility as the market settles into a new equilibrium, he predicted, adding that longer-term the outlook has improved materially from last year: long term capital assumptions for asset class returns are much healthier and returns should increase.

Portfolio implications

UTIMCOs portfolio is split between a 16 per cent allocation to stable value comprising long treasuries, hedge funds and cash; a 65 per cent allocation to global equity (25 per cent of which is private equity) and a 10 per cent allocation to real return made up of assets like natural resources, infrastructure and inflation-linked bonds.

UTIMCO’s exposure to both equities and the oil price – via oil and gas leases on 2.1 million acres in West Texas – provides a powerful source of diversification. When oil was range-bound in the five years prior to the pandemic, stocks rose. Post Covid, stocks have been down, but oil has been up at $120 a barrel and is now around $80 sending royalties coming into UTIMCO’s Permanent University Fund through the roof.

“It’s how diversification works really well,” said Hall. Still, Harris noted that OPEC’s “huge mistake” to flood the world with oil on the eve of the pandemic had grave consequences for oil prices – and for that diversification.

UTIMCO CULTURE and Management

Away from markets, Harris reflected on UTIMCOs management and culture. The asset manager’s technology function was struggling in a way that was “effecting everything” until personnel changes solved the issue, he told the board. Elsewhere, personality problems that had plagued the legal and compliance group acting as one have been ironed out.

The most opportune management structure within an organization is having around 40-50 per cent of the team in middle-ranking positions, reflected Harris. Twenty per cent should be in the top echelons and the remainder in junior positions.

“This demographic makes sense,” he said, noting that challenges can occur if an organization has too large a pool of junior people and lacks muscle in the middle.

He also noted that value systems and priorities of younger generations are different. Although younger staff can do things faster than their older peers, they may lack professionalism around deadlines or keeping their word. Indeed, UTIMCO makes much of its culture of integrity and character.

“You either have it or you don’t have it. And if you don’t have it, we don’t care what else you have.”

Reflecting on a team that often work close to 24/7, Harris said that achieving a work life balance in the investment industry remains an enduring challenge because it is irreconcilable with outperformance.

“What people really want is a work life balance. My response is that I want this as well, but I can’t say I have a great work life balance. How do you have a life that is healthy, and outperform?”

One way to address this is via playing to people’s natural strengths. This requires self-awareness, and putting people into the areas they are most suited so they do less hours and can achieve more.

 

 

Better internal investment integration and co-ordination will underpin long-term returns for two of the world’s largest investors, but they’re also closely focused on how cultural issues – including diversity and team-building – affect whole-enterprise performance.

When the Canada Pension Plan Investment Board was initially endowed with C$200 billion (then around US$146 billion) in 1997, it did what it had to do: it went out and built an investment capability, across asset classes, and across geographies.
But as the fund turns its attention to how it’s going to operate as potentially a C$1 trillion ($730 billion) fund, CPP chief investment strategist Geoff Rubin says a siloed structure won’t work.

Now, the fund is examining how it can integrate and foster better communications across its investment and administration operations, not only to reduce costs but to also improve investment performance. But CPP is contemplating more than just a structural reinvention; it’s also thinking hard about how cultural factors affect team success.

“The solution to the problem was very clear 15 years ago: go build active investment capabilities to transition that passive liquid portfolio into active investments that can generate superior returns at the same level of risk,” Rubin says.

“That was it: go build it. Go build a real estate investing team and capability and go build private equity, and credit and hedge funds, go build these teams – oh, and go build a risk department and an HR department and all of these enabling functions.”

Now, Rubin says, as CPP Investments plans for the day it reaches C$1 trillion in assets it’s facing a different challenge.

“It’s about orchestrating those active capabilities in the most effective ways,” Rubin says.

“And it’s about building connections among them to help develop and sharpen some of the edges [of competitive advantage] that we talked about earlier.

“This is a really important evolution for our organisation, because for about 10 years, we were an organization [that] could do it all, because we had this huge liquid passive portfolio to draw upon. Now we’re in a land of constraints.

“This need to prioritise is increasingly becoming a demanding challenge for us as we transition from this organisation that has been building capabilities to one that’s orchestrating them in the most effective ways.”

It’s about more than investing

The operational and logistical issues that come with connecting the organisation’s disparate internal elements into a coherent whole are significant. But Rubin says “you can throw all that stuff on the fire and burn it if you don’t have the culture that people are really indexed to and enthusiastic about the overall organisational mission”.

“When we were in silos, people felt identity and fidelity to their group or their team as much or even more so than the total organisation,” he says.

“We would do these annual offsites where the teams get together, and they would just kind of glower at each other from different corners of the room. There was something culturally missing around a real excitement to not just connect, just for kind of baseline reasons, but [also] to connect in order to make ourselves better investors, in order for us to be the most effective private credit investor in the world, to have those people really hungry to connect with their colleagues in ways that they can draw upon their relationships or their insights or their techniques and use that in their investing area.”

Rubin says CPP’s rebuilding will be “a combination of some of these structural elements of how we allocate capital and how we evaluate the portfolio, but it’s really going to rely on this cultural piece of making sure that that people’s identity in this organisation is CPPIB”.

Diversity is crucial

An appreciation of cultural issues has also informed how the $307 billion CalSTRS has rethought its approach to investing. The fund’s chief investment officer Chris Ailman says diversity within an organisation is critical to support better decision-making and producing better outcomes for fund members.

“The best way I can put it is, if your entire staff was all hired from one university or one business school, you actually probably would be a little bit worried,” Ailman says.

“And then on top of that, they’re all the same. Let’s say they’re all from one part of Australia. It’s not very diverse. It wouldn’t even matter if they were different ethnic backgrounds. You would look at that and say, ‘well, it’s kind of close to groupthink and I’m a bit worried about that’.

“And that’s really the way we tried to approach this is from an investment standpoint, which is, diversity brings out better diversification, better thought.

“There’s a reason it was called Lehman Brothers, rather than Lehman Sisters or Lehman Family. I often say to people, just think of your families. Things are usually debated heavily before decisions are made. And that’s what you want in an investment process.

“You want somebody who can look at things from all different sides and really debate it out. We know from biology and human psychology that people think in different patterns. And that’s a good thing.

“So instead of having everybody, you know, look like me – pale, male and stale – and think in a little A-B-C-D-1-2-3 kind of linear pattern, I want people who are different, come from different backgrounds, different schools and think about it totally differently.

“And boy, we have that. And it leads to lively debates, which are good because I think it yields better investment decisions. It doesn’t mean we avoid all the risks, but you certainly know when you get people with different backgrounds, they just look at the issues in different ways.”

You get what you pay for

Rubin says CPP aims to align remuneration and compensation structures with the concept of being a single investment entity, but this has some clear challenges. It’s not always obvious how a single individual’s effort contributes to the whole-enterprise result. Some will resist the idea that their compensation might be dependent on the performance of others in the organisation as much as their own. Sometimes non-monetary rewards can produce the required outcomes.

“Historically, folks have expressed limited ability to impact and have line of sight to exactly how their efforts are driving the total fund,” he says.

“In a big organisation it can be difficult [to define] this line of sight, this conductivity of incentive and alignment, and drive to what you’re trying to achieve at the total I think is that is vitally important. Comp is a piece of it.

“It’s not going to be the whole, and some of it is reward beyond compensation – it can just be what culturally people really prize internally; or the success stories; or the congratulation emails; or are the promotions centred around those who are making the organisation a better investor, or is it around people who are just focused on their narrow P&L to the exclusion of what’s happening elsewhere?

“I think we need to work through all of that and comp is going to be a big piece of it.”