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Julian C. Salisbury on Managing Global Assets · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
0:09
Speaker 2: This week on the podcast, I have an extra special guest.
0:13
Speaker 2: What can I say about Julian Salisbury. He is the
0:17
Speaker 2: chief Investment Officer of Asset and Wealth Management at Goldman Sachs.
0:21
Speaker 2: He's a member of the Management Committee. He co chairs
0:24
Speaker 2: a number of the asset management investment committees. He covers pe, infrastructure, growth, equity, credit,
0:32
Speaker 2: real estate, on and on. Really a fascinating person who
0:36
Speaker 2: has seen the world from a unique perspective in multiple
0:40
Speaker 2: cities as an investor. He's been with Goldman for twenty
0:44
Speaker 2: five years and helps oversee over two and a half
0:48
Speaker 2: trillion dollars in assets under supervision. I thought this was
0:52
Speaker 2: an absolutely fascinating way to see the world of investment management.
0:58
Speaker 2: And I found this conversation to be fascinating and I
1:00
Speaker 2: think you will also, with no further ado, my discussion
1:05
Speaker 2: with Goldman Sachs. Julian Salisbury, Welcome to Bloomberg.
1:09
Speaker 1: Thanks Berry. It's great to be here.
1:10
Speaker 2: I've been looking forward to this conversation for a long time.
1:14
Speaker 2: Let's start out with a little bit of your background.
1:17
Speaker 2: You begin in audit practice at KPMG. What was the
1:21
Speaker 2: original career plan.
1:22
Speaker 1: Honestly, I didn't really have a long term plan. I
1:25
Speaker 1: grew up in a family where my mother was a mathematician,
1:28
Speaker 1: my father was a chemist. I didn't really know much
1:30
Speaker 1: about the world of finance. Investment banks were not really
1:33
Speaker 1: a known concept in the area I grew up. I
1:36
Speaker 1: graduated college, realized I need to needed to get a job.
1:39
Speaker 1: And my dad had always said, as you know, many
1:41
Speaker 1: young kids get this advice doctor, a lawyer, accountant, engineer,
1:45
Speaker 1: and accountants seemed like a reasonable option. And I kind
1:48
Speaker 1: of stumbled my way into accounting and what I found
1:51
Speaker 1: was it was just a phenomenal training ground for somebody
1:54
Speaker 1: who wants to then go on to invest especially doing
1:58
Speaker 1: more micro level analysis like that. Background of being an
2:03
Speaker 1: accountant was just was just great bedrock training.
2:06
Speaker 2: Very precise, very specific. So how do you then go
2:10
Speaker 2: from tax and order practice to finance and invest in
2:14
Speaker 2: very different fields.
2:15
Speaker 1: Yeah, I'd love to tell you there was some great
2:16
Speaker 1: master plan, but you know, in the UK, you when
2:19
Speaker 1: you qualify as a chartered accountant, first of all, you
2:22
Speaker 1: have to complete your three years training. So you know,
2:25
Speaker 1: people these days want to change job after a year
2:28
Speaker 1: eighteen months you had to finish the three years. I
2:31
Speaker 1: finished the three years. I qualified. The following week, I'd
2:33
Speaker 1: lined up a bunch of job interviews with a variety
2:36
Speaker 1: of banks, and again, I had ended up in the
2:39
Speaker 1: financial services audit practice at KPMG, so I'd got to
2:42
Speaker 1: know banks a little bit, and frankly, you know, I
2:45
Speaker 1: heard they pay more. So I interviewed with a bunch
2:47
Speaker 1: of banks, got a number of job offers by the
2:50
Speaker 1: end of the week, and joined Goldman Sachs in October
2:52
Speaker 1: nineteen ninety eight.
2:53
Speaker 2: So let me throw one of your own quotes back
2:56
Speaker 2: at you, because I feel like it's so revealing. Quote
2:59
Speaker 2: the world defining and is it as complicated as newcomers expect.
3:03
Speaker 2: It's simply shrouded in techno jargon. Explain what you mean there.
3:08
Speaker 1: I continue to find this truth to this day. But
3:10
Speaker 1: when I first joined the firm, I was doing P
3:13
Speaker 1: and L and risk reporting for a credit trading desk,
3:16
Speaker 1: and people start talking about DEVO on this, and duration
3:19
Speaker 1: that jumped to default, this, futures versus cash. I didn't
3:23
Speaker 1: know what any of these terms meant, so I took
3:26
Speaker 1: it upon myself to go off and took a course
3:29
Speaker 1: in bond math, took another course in derivatives, and realized
3:32
Speaker 1: the underlying fundamental concepts were barely I mean, it wasn't
3:36
Speaker 1: even high school math in most cases. And it was
3:39
Speaker 1: really more about learning not a different language, but a
3:42
Speaker 1: different dialect. And it's interesting because you'll find people who'll
3:45
Speaker 1: be fluent in one dialect, and then you know, they
3:49
Speaker 1: become fluent in credit dialect. And then you talk to
3:51
Speaker 1: somebody who works in an equities business and they start
3:53
Speaker 1: throwing greeks at you, and you've never come across these terms. Again,
3:57
Speaker 1: it sounds highly complicated. Most people, you could sit them
4:00
Speaker 1: down in half an hour and explain, you know, the
4:02
Speaker 1: majority of the concepts.
4:03
Speaker 2: That that's been kind of true in a lot of
4:05
Speaker 2: professions over history, is that almost by design, their language
4:11
Speaker 2: keeps outsiders at arms distance, and hey, if you want
4:15
Speaker 2: to learn our secrets, you have to pay us. Are
4:18
Speaker 2: you suggesting that all of this techno jargon is just
4:21
Speaker 2: to create a little mystique around.
4:25
Speaker 1: I wouldn't say that's entirely what boy you find it
4:27
Speaker 1: And this becomes more and more true, I think is
4:30
Speaker 1: people become very specialized in order to compete and win
4:33
Speaker 1: in so many things today and finance, you have to
4:35
Speaker 1: be super specialized. So you find people who are super
4:38
Speaker 1: deep in one area, one narrow area, and it might
4:40
Speaker 1: be it might be investment, great credit or distress credit.
4:43
Speaker 1: It might be equity derivatives, it might be growth equity,
4:47
Speaker 1: and they all develop their own little system of useful terms.
4:51
Speaker 1: But then they end up becoming almost like a barrier.
4:56
Speaker 1: That makes it hard for an outsider who hasn't grown
4:58
Speaker 1: up in the world of finale, who doesn't have you know,
5:01
Speaker 1: a father who ran a hedge fund or an unkleho
5:03
Speaker 1: ran a private equity firm. It's hard for them to
5:05
Speaker 1: break in without some way of developing that jargon.
5:08
Speaker 2: So that shorthand works for the practitioners, and there's no
5:14
Speaker 2: malicious intent there, it's just, hey, that's how these people
5:17
Speaker 2: talk in their chosren specialty.
5:19
Speaker 1: Yeah, it's quite natural.
5:20
Speaker 2: Really interesting. So you mentioned you joined Goldman Sachs in
5:24
Speaker 2: nineteen ninety eight, coming up on your twenty fifth anniversary. Congratulations,
5:28
Speaker 2: thank you, that's pretty good heady times in ninety eight.
5:31
Speaker 2: What's kept you with Goldman for twenty five years.
5:35
Speaker 1: Look, I think first of all, it's the people just
5:39
Speaker 1: super high quality people across the business, no matter what
5:44
Speaker 1: part of the firm they operate in, just the average
5:48
Speaker 1: intensity level, integrity level capabilities, and it's just really hard
5:55
Speaker 1: to match when you get to other organizations. So people
5:58
Speaker 1: is a huge part of it. Another part of it
6:01
Speaker 1: is I've been lucky in that I've you know, although
6:03
Speaker 1: I've been in one firm for twenty five years, I've
6:06
Speaker 1: just done so many radically different things.
6:08
Speaker 2: You've been in a lot of different divisions, You've had
6:11
Speaker 2: a lot of different job description.
6:12
Speaker 1: Yeah, I've been in I think all but one division
6:15
Speaker 1: at this point, and I've worked in three different offices
6:18
Speaker 1: too continents. I would say it's been a little more
6:21
Speaker 1: evolutionary after the first five or six years, but that
6:26
Speaker 1: ability to constantly be learning and at times be quite
6:30
Speaker 1: entrepreneurial in terms of starting new businesses. So what I
6:34
Speaker 1: tend to find is after three or four years, it
6:36
Speaker 1: depends how big and complicated the task is. But after
6:39
Speaker 1: in some cases it might be two years, in other
6:41
Speaker 1: cases it may take a little longer. Three four years,
6:44
Speaker 1: you know, you start to think what's next. You know,
6:46
Speaker 1: you develop reps. A lot of things are hard to
6:48
Speaker 1: start with, and then it's like I love sports analogies.
6:51
Speaker 1: It's like lifting weights. At some point you have to
6:53
Speaker 1: start changing the exercise or increasing the weights, otherwise you
6:56
Speaker 1: stop developing and learning. And sometimes it's a and then
7:01
Speaker 1: you can go back to what you were doing before
7:03
Speaker 1: and you come back and you've benefited from that cross training.
7:06
Speaker 1: But it's the ability to constantly learn and keep adapting.
7:10
Speaker 2: So you mentioned a couple of continents. You've worked in London,
7:13
Speaker 2: in Moscow and now New York. How have your roles
7:17
Speaker 2: changed in each of those locations and what do you
7:21
Speaker 2: learn working in very different parts of the world.
7:24
Speaker 1: Yeah, So I joined, as I said, in ninety eight,
7:26
Speaker 1: and I was doing P and L and risk reporting
7:28
Speaker 1: for the investment grade trading desk and then the high
7:31
Speaker 1: yield desk. I ended up being hired onto the high
7:33
Speaker 1: yield desk as a research analyst and did that for
7:36
Speaker 1: a number of years, a couple of years, and then
7:38
Speaker 1: I was the beneficiary of the TMT bubble bursting in
7:41
Speaker 1: two thousand and one, so the whole sector that I
7:43
Speaker 1: was covering went bankrupt. So I went from being a
7:45
Speaker 1: publishing high old research analyst to a distressed debt analyst
7:49
Speaker 1: and an investor.
7:50
Speaker 2: Same companies, just same companies. Yeah, they just became distressed.
7:53
Speaker 1: The high your bonds quickly went to zero and then
7:55
Speaker 1: you're buying the bank loans at discounted prices. So and
7:59
Speaker 1: that was that was fairly evolutionary. And then in about
8:03
Speaker 1: two thousand and three we set up a group called
8:06
Speaker 1: the European Special Situations Group, which was a multi asset
8:09
Speaker 1: class proprietary investing business. It was centered around credit, but
8:14
Speaker 1: really invested in both credit real estate growth equity. I
8:18
Speaker 1: led the corporate research team there for a few years
8:21
Speaker 1: and then, you know, in a fit of madness, I
8:24
Speaker 1: guess at the end of six you know, the credit
8:27
Speaker 1: markets were pretty uninteresting. There wasn't a lot to do.
8:30
Speaker 1: It was kind of bad companies issuing low quality bonds,
8:34
Speaker 1: and I thought about, you know what's next. I actually
8:37
Speaker 1: went out to visit the team in Asia and thought
8:39
Speaker 1: about moving out there. And my wife happens to be
8:43
Speaker 1: Russian or bella Russian, so I had an interest in
8:46
Speaker 1: the Russian market. And around that time, Russia was starting
8:48
Speaker 1: to open up a little bit. It was a very
8:49
Speaker 1: different place till we find ourselves today. They were starting
8:51
Speaker 1: to want to attract international capital and I did a
8:56
Speaker 1: couple of trips out there and the next thing I know,
8:57
Speaker 1: my boss is buying me a one way ticket to Moscow.
9:01
Speaker 1: So I spent the next couple of years there. The
9:03
Speaker 1: role there was quite different. Was really building a growth
9:05
Speaker 1: equity business, and we had some great successes. Not backing
9:08
Speaker 1: oil and gas companies or formerly state owned assets. It
9:11
Speaker 1: was really finding growth equity companies, young entrepreneurs that were
9:14
Speaker 1: building businesses. I did that for a couple of years
9:16
Speaker 1: and then I moved back to London at the end
9:19
Speaker 1: of O eight, which was a really interesting pivot. Yeah,
9:21
Speaker 1: I was asked to come back to lead the European Business,
9:25
Speaker 1: which you know, took about buying at the bottom. You know,
9:27
Speaker 1: at the end of eight we owned a lot of
9:29
Speaker 1: I liquid assets and whilst on a relative basis, you know,
9:32
Speaker 1: those assets outperformed what was going on in a lot
9:35
Speaker 1: of other private firms. You know, it was certainly I
9:38
Speaker 1: think we had one hundred and sixty nine positions on
9:40
Speaker 1: the book at the time and there was a problem
9:41
Speaker 1: with one hundred and sixty eight of them at the
9:43
Speaker 1: end of eight. That was kind of like a you know,
9:46
Speaker 1: almost like a distressed buy at the bottom assignment. But
9:49
Speaker 1: was interesting about that was the quick need to both
9:52
Speaker 1: separate the portfolio between the old stuff and the new stuff,
9:54
Speaker 1: because there were a lot of new investment opportunities and
9:57
Speaker 1: if people were too burdened down by dealing with legacy situations,
10:01
Speaker 1: they couldn't really focus on the new opportunities. And frankly
10:04
Speaker 1: had to do with the same with the people.
10:05
Speaker 2: I think that was a proposal from one of the
10:08
Speaker 2: central bankers. We need a bad bank and a good bank.
10:11
Speaker 2: You inherit a whole bunch of positions that have come
10:14
Speaker 2: through the financial crisis. You really want to look at
10:17
Speaker 2: this as hey, here's the legacy stuff that comes with
10:21
Speaker 2: a little air on it, and here's our opportunistic Hey
10:24
Speaker 2: look at all this stuff that we have no exposure.
10:27
Speaker 2: What was the financial crisis like when you were in London?
10:31
Speaker 2: How in the US? It was sheer mayhem? What was
10:35
Speaker 2: it like over there?
10:36
Speaker 1: Absolutely? I mean it was an existential event. I mean
10:39
Speaker 1: people were wondering, am I going to have a job?
10:41
Speaker 1: It was the here I made partner actually in two
10:43
Speaker 1: thousand and eight, and I thought, great, I just made partner.
10:45
Speaker 1: Is this group? Is this business is going to exist
10:47
Speaker 1: by the end of the year. So it was certainly stressful,
10:51
Speaker 1: but in some ways those events and we saw it
10:53
Speaker 1: again in March of twenty twenty, we saw it again,
10:56
Speaker 1: you know, around you know, we see these big moments
11:00
Speaker 1: where it draws people together. So actually everybody gets, you know,
11:04
Speaker 1: any kind of nonsense and couch time, all dissiplates because
11:07
Speaker 1: everyone's so focused on dealing with a task at hand.
11:10
Speaker 1: So in that way, it was quite a good defining moment.
11:13
Speaker 1: The other thing I would say is in some ways
11:15
Speaker 1: it was I remember a few years earlier there was
11:18
Speaker 1: one investment that I was working on that ended up
11:21
Speaker 1: being spectacularly successful, but there was a period of time
11:23
Speaker 1: where I was quite worried that it was going to
11:25
Speaker 1: lose a lot of money. And the reason I was
11:26
Speaker 1: worried it was my position. It was me and the
11:29
Speaker 1: rest of the world was looking good. The thing in wait,
11:32
Speaker 1: everything was broken and bad. So that actually helped in
11:35
Speaker 1: a way that everybody was dealing with the same broad
11:38
Speaker 1: based crisis as opposed to when it's just you or
11:41
Speaker 1: just your firm or just your fund, where in some
11:44
Speaker 1: ways it can feel more stressful.
11:46
Speaker 2: So what brought you back to New York and what you.
11:48
Speaker 1: Was at SO I led the European Special Situations Group
11:53
Speaker 1: from eight to twenty thirteen, and then at that time
11:56
Speaker 1: I was asked to run the global business and it
11:59
Speaker 1: seemed pretty natural to move to the US at that time.
12:03
Speaker 1: There are a couple of reasons for that. One, the
12:05
Speaker 1: London market is where it's about most of my career.
12:07
Speaker 1: I knew the market, but I also knew the people there.
12:10
Speaker 1: I was very well calibrated at a very strong and
12:14
Speaker 1: trusted team, the vast majority of which are still with
12:18
Speaker 1: the business today. So I felt like that was the
12:20
Speaker 1: last place I needed to be. So then it was
12:22
Speaker 1: a question of Asia or the US. If I'd moved
12:25
Speaker 1: to Hong Kong, I think it would have looked like
12:26
Speaker 1: a fairly self serving tax trade. If I had done that,
12:30
Speaker 1: it would have been because I thought that was one
12:32
Speaker 1: of the more interesting markets at the time where there
12:34
Speaker 1: was real out for generating capability.
12:36
Speaker 2: But so you said, let's find the most expensive taxable city. Yeah, world, Yeah.
12:41
Speaker 1: Now, what I decided to do what's right for the business,
12:43
Speaker 1: and what was best for the business at the time,
12:46
Speaker 1: was to be in New York. It's a New York
12:47
Speaker 1: headquartered firm. It's a it's a US centric firm. I
12:51
Speaker 1: think that's fairly well understood. And at the time, we
12:53
Speaker 1: were going through a lot of regulatory change. Capital rules
12:57
Speaker 1: were changing, risk appetite was changing, and being at headquarters
13:01
Speaker 1: where you could stay close to the people, you know,
13:03
Speaker 1: whether it's head of compliance, head of legal, head of risk,
13:07
Speaker 1: some whoever was running the business needed to be close
13:10
Speaker 1: to those decision makers in order to shepherd the business
13:12
Speaker 1: through that post financial crisis period where there was a
13:16
Speaker 1: lot of you know, the volcal rule like brought into focus.
13:21
Speaker 1: You know, could we do these businesses? Could you run
13:23
Speaker 1: private equity business? Could you run distress credit businesses? So
13:27
Speaker 1: we really had to work through that over over a
13:28
Speaker 1: number of years, and that's what really brought me to
13:30
Speaker 1: the US. And you know, I wasn't a huge fan
13:33
Speaker 1: of New York before I moved here, but now we've
13:36
Speaker 1: been here almost ten years, we love it and you know,
13:39
Speaker 1: I can't imagine leaving.
13:40
Speaker 2: Tell us a little bit about what the Goldman Sachs
13:42
Speaker 2: asset and wealth management business is, like, what do they
13:45
Speaker 2: focus on?
13:45
Speaker 1: Sure, Well, at the simplest level, we manage money for
13:49
Speaker 1: our clients about two point seven trillion dollars of assets today.
13:53
Speaker 1: Three main client segments institutional clients, our own private wealth clients,
13:59
Speaker 1: and then third party wealth clients where we manage money
14:02
Speaker 1: on behalf of other wealth managers distribution partners. So those
14:06
Speaker 1: are the three main segments. Within institutional we manage money
14:10
Speaker 1: on behalf of pensions, endowments, insurance companies, sovereign wealth funds.
14:14
Speaker 1: So that's essentially what we what we do from from
14:17
Speaker 1: a client segmentation perspective, and we do that globally US,
14:21
Speaker 1: Europe and Asia. In terms of the from the from
14:25
Speaker 1: the investing side of the business, we really are somewhat
14:29
Speaker 1: unique in that we cover the full range.
14:31
Speaker 2: Of products from meaning both public and alternatives.
14:35
Speaker 1: Yes, and really even within that the full range, so
14:38
Speaker 1: everything from money market funds, core fixed income, high yield,
14:43
Speaker 1: fundamental equity, quant equity, and then the full range of
14:46
Speaker 1: alternatives both direct and indirect. We have a business where
14:50
Speaker 1: we invest in other people's private equity funds, private credit funds,
14:54
Speaker 1: and then we have a series of direct investment strategies
14:57
Speaker 1: private equity, growth, equity, credit, real state, infrastructure, sustainability, life sciences,
15:04
Speaker 1: so what we find and then of course we have
15:06
Speaker 1: a multi asset solutions business where we talk to clients
15:09
Speaker 1: about the entirety of their portfolio, their strategic asset allocation models.
15:15
Speaker 1: So what we find is with our clients increasingly, they
15:18
Speaker 1: don't want to just be pitched on a product or
15:20
Speaker 1: pitched on a single idea. It's like, what do I do?
15:24
Speaker 1: How do I address my needs? What are my liability structures?
15:27
Speaker 1: How do I make long term investment decisions? And then
15:30
Speaker 1: how do I execute upon that overall advice through these
15:33
Speaker 1: individual investment opportunities.
15:36
Speaker 2: So that sounds like a substantial menu of options that
15:39
Speaker 2: can be fairly customized for each individual client, regardless family office,
15:44
Speaker 2: high net worth individual, or one of the institutions. Take
15:48
Speaker 2: us through a little bit of what that process is like,
15:51
Speaker 2: because I have to assume it's not cookie cutter. If
15:54
Speaker 2: you're dealing with a sovereign wealth fund, that's a very
15:57
Speaker 2: different conversation than a family authors.
16:01
Speaker 1: Look, every client is different. They have a different liability structure,
16:05
Speaker 1: different investment goals, different investment risk tolerances, and we have
16:10
Speaker 1: different teams. We have an institutional client team, we have
16:13
Speaker 1: private wealth advisors that cover our own clients directly, and
16:17
Speaker 1: then we have a series of people that cover the
16:20
Speaker 1: distribution partners. So it's pretty bespoken, tailored to their individual needs.
16:25
Speaker 1: And yes, some demand and expect a high level of
16:29
Speaker 1: customization and a higher level of service. If somebody's giving
16:33
Speaker 1: us billions of dollars, then they expect a very high
16:36
Speaker 1: level of customization. At the simpler end, it can be
16:39
Speaker 1: a relatively plain, vanilla product, but even our private wealth
16:43
Speaker 1: smaller private wealth clients are increasingly looking for broader set
16:49
Speaker 1: of advice and customization in terms of how we design
16:52
Speaker 1: their portfolio, which could be implementing values that they have
16:57
Speaker 1: or tilt that they have a desire to include or
16:59
Speaker 1: exclude certain products or q SIPs within their within their
17:03
Speaker 1: equity portfolio or fixed income portfolio.
17:06
Speaker 2: Really intriguing. So so your chief investment officer of asset
17:10
Speaker 2: and wealth management, that sounds like there's a pretty big
17:16
Speaker 2: list of responsibilities under that. So not only are you
17:21
Speaker 2: describing the broader asset allocation decisions with various clients, you're
17:27
Speaker 2: also selecting the specific assets that go within each of
17:30
Speaker 2: those allocations. Is that is that more or less right?
17:33
Speaker 1: So we have we have different teams that do this.
17:35
Speaker 1: So we have our MAS team, a multi asset solutions team,
17:39
Speaker 1: who are really providing more of the overall portfolio advice,
17:42
Speaker 1: and that's that's a discrete skill set by doing that.
17:45
Speaker 1: And then we have investment teams in each of these areas,
17:48
Speaker 1: so we have specialists in each of the sectors that
17:51
Speaker 1: I set out for you. I'm responsible for each of
17:54
Speaker 1: these individual investment teams making sure we have the right
17:57
Speaker 1: players on the field, the right processes in place. And
18:00
Speaker 1: then as it relates to the private side activities, I
18:03
Speaker 1: co chair all of those investment committees, so the individual
18:06
Speaker 1: deals that are coming through in our private equity business
18:09
Speaker 1: and our growth equity business and our real estate business.
18:11
Speaker 1: So we have you know, I'm one person. My primary
18:13
Speaker 1: responsibility at the end of the days to make sure
18:15
Speaker 1: that we have the right people on the field, you know,
18:18
Speaker 1: fulfilling each of these roles and functions.
18:21
Speaker 2: You're the coach and you're sending different players in to
18:24
Speaker 2: do different jobs. So your background, you've worked at merchant banking,
18:28
Speaker 2: you've worked in special situations. How does all of that
18:31
Speaker 2: come into play as chief investment officers.
18:35
Speaker 1: It's interesting because some of it's helpful and useful, and
18:37
Speaker 1: then sometimes it can bur in. You you know, when
18:39
Speaker 1: I ran a special situations group, it was a pure
18:42
Speaker 1: investing business. We didn't really have clients, we didn't really
18:44
Speaker 1: have to worry about marketing or advertising, didn't spend time
18:48
Speaker 1: on podcasts or TV. We kept everything as quiet as
18:51
Speaker 1: possible and one hundred percent of the focus was just
18:53
Speaker 1: finding interesting investments that we generated the highest return on
18:58
Speaker 1: equity possible for the firm. Wouldn't be a dollar of
19:00
Speaker 1: risk that we would deploy that I wouldn't personally review.
19:03
Speaker 1: We'd have a couple of hundred deals a year coming
19:05
Speaker 1: through investment committee. And that was interesting and it was
19:07
Speaker 1: a great model while it lasted. But I would say
19:09
Speaker 1: that the industry changed, the regulatory environment changed, and also
19:15
Speaker 1: I used to sit back and think, this is great.
19:16
Speaker 1: You know, we just get to focus on assets and
19:19
Speaker 1: asset risk management. I don't have to worry about flying
19:22
Speaker 1: around the world collecting capital from LPs. We have one
19:26
Speaker 1: LP and it's the firm, it's Goldman Sachs, and they're
19:28
Speaker 1: in the same building. The problem is, you know that
19:32
Speaker 1: there are multiple problems with that, but one is you
19:34
Speaker 1: miss out on a huge information piece, which is understanding
19:38
Speaker 1: what these huge asset allocators and investors want and understanding
19:42
Speaker 1: what their liability structures are and what their needs are
19:45
Speaker 1: from an investment perspective, really informs your view on the
19:48
Speaker 1: forward path of asset prices. And then you know, I
19:52
Speaker 1: would also say we were seeing increasing need from our
19:56
Speaker 1: clients to increase allocations to alternatives, and we were doing
19:59
Speaker 1: a lot of this for ourselves, but we didn't have
20:01
Speaker 1: enough investment product to be able to offer to our
20:05
Speaker 1: clients and scale and grow the business. So it was
20:07
Speaker 1: a very natural evolution to take a series of businesses
20:10
Speaker 1: which have been prosecuted either wholly on balance sheet or
20:14
Speaker 1: to a large extent on balance sheet, and start to
20:16
Speaker 1: evolve that business model where we continue to commit our
20:19
Speaker 1: own capital and our partner's capital, but to bring in
20:22
Speaker 1: client money alongside us.
20:23
Speaker 2: So you touch on so many fascinating areas. I have
20:27
Speaker 2: to follow up at least with three of them. One
20:30
Speaker 2: is you mentioned clients once. How do you separate when
20:36
Speaker 2: clients want something from when clients need something, and then
20:41
Speaker 2: lastly from when hey, all these clients are all clamoring
20:45
Speaker 2: for the same asset class. Maybe this has had a
20:48
Speaker 2: little bit of a good run and it's time to
20:51
Speaker 2: think about leaning the other way. How do you juggle
20:53
Speaker 2: all of those OK.
20:55
Speaker 1: Our job as an advisor to our clients is to
20:58
Speaker 1: know them intimately, to understand them, to understand their funding
21:02
Speaker 1: structure or their liability structure, to understand their risk tolerance,
21:06
Speaker 1: to understand their investment philosophy and approach, and then really
21:10
Speaker 1: to bring to them a variety of solutions. We have
21:15
Speaker 1: a team that really looks at their portfolio holistically across
21:20
Speaker 1: all asset classes, and then we have individual teams that
21:23
Speaker 1: can help bring implementation in each of the individual asset
21:27
Speaker 1: classes to make up that overall portfolio. But it's really
21:30
Speaker 1: a solutions oriented approach and a very client centric approach.
21:34
Speaker 2: You mentioned liability. I want to discuss that because I
21:38
Speaker 2: think the layperson who hears this may not understand when
21:41
Speaker 2: we're talking about financial liabilities. What we're really talking about is, hey,
21:46
Speaker 2: we have a bunch of people retiring in ten years
21:49
Speaker 2: and we expect to have to pay out X dollars.
21:52
Speaker 2: Go into a little bit of what those liabilities are,
21:54
Speaker 2: not you know, the usual use of the word sorry.
21:58
Speaker 1: When I say that, I mean, by the way exactly
22:02
Speaker 1: people should be. If people had forgotten about asset liability mismatches,
22:06
Speaker 1: they've got the starkish reminder of it possible, or the
22:09
Speaker 1: collapse of SVB for a few weeks ago. Generally, it's
22:12
Speaker 1: asset liability mismatches that causes you know, the bank bank failures,
22:17
Speaker 1: but it also causes in some cases hedge fund failures
22:20
Speaker 1: and other financial institutions to fail. So what I mean
22:24
Speaker 1: by that is what is your source of funding. If
22:27
Speaker 1: you're an individual investor, for example, your your source of
22:35
Speaker 1: you don't have to give that money back. It's your money,
22:37
Speaker 1: so you may be able to afford to tie it
22:39
Speaker 1: up as long as you've kept enough money aside to
22:42
Speaker 1: meet your near term liquidity needs. You know your cost
22:45
Speaker 1: of living essentially. If you have a private equity fund
22:49
Speaker 1: where you've raised money from institutional clients, they have given
22:53
Speaker 1: you that money for ten years, often some cases it
22:57
Speaker 1: could be longer, so you have time to invest that money,
23:00
Speaker 1: generate a return on that money, and give the money back.
23:03
Speaker 1: If you have hedge fund money, you may have to
23:06
Speaker 1: give that money at a month or three months notice,
23:09
Speaker 1: so you have to be very careful about how long
23:12
Speaker 1: you lock up your investments for. And if your source
23:15
Speaker 1: of funding is overnight deposits that can be called on
23:19
Speaker 1: that are on demand, then you have very very short liabilities.
23:22
Speaker 1: So what I mean by that is, first understand the
23:25
Speaker 1: duration of your funding source. That's what I mean by liabilities.
23:28
Speaker 1: Insurance companies have very long dated capital. Pension funds have
23:33
Speaker 1: quite long dated capital. It tends to be quite sticky.
23:36
Speaker 1: So first it's understand the duration of those of that
23:40
Speaker 1: funding source, and then the second is understand the return
23:44
Speaker 1: requirement of that funding source. So, for example, a lot
23:47
Speaker 1: of pensions and endowments would tell you in order to
23:50
Speaker 1: meet my obligations to pay pensioners for the next few years,
23:55
Speaker 1: I need to generate on average a seven percent return
23:58
Speaker 1: on that portfolio. And if I do more, that's that's good.
24:02
Speaker 1: But I, you know, in extremists, I should want to
24:05
Speaker 1: achieve a seven percent return and take as little risk
24:08
Speaker 1: as possible. So then they have to look at what's
24:12
Speaker 1: my what's my mix, and how does each investment that
24:15
Speaker 1: I make help me achieve that goal. So it's it's
24:20
Speaker 1: really understanding funding source duration, funding source, return requirement, and
24:27
Speaker 1: then for certain types of financial institutions, understanding the capital rules.
24:31
Speaker 1: So for example, if we raise, if we invest money
24:34
Speaker 1: for an insurance company, how we structure that can make
24:37
Speaker 1: a difference to the amount of capital they have to
24:40
Speaker 1: hold against it. So it's our job to better understand these.
24:44
Speaker 1: Of course, you know, the best funding source is to
24:46
Speaker 1: just have lots and lots and lots of your own money,
24:48
Speaker 1: with no particular time horizon on which you give it back,
24:51
Speaker 1: no particular capital rules that you have to comply with,
24:53
Speaker 1: no compliance you know, no clients to actually have to
24:56
Speaker 1: answer to. But you know, most people don't have the
24:58
Speaker 1: luxury having that much money in it.
25:00
Speaker 2: Perpetual capital is the ideal, absolutely and actually can do that.
25:04
Speaker 2: So earlier we were talking about assets and then you
25:08
Speaker 2: referenced risk management. Tell us a little bit about the
25:11
Speaker 2: difference between managing risk and merely owning assets.
25:16
Speaker 1: Well, look, I would say whenever you are making investment
25:21
Speaker 1: recommendations to your clients, you have to think about a
25:24
Speaker 1: range of potential outcomes. Of Course, there's a base case
25:28
Speaker 1: outcome for most investments that you might make. If you
25:30
Speaker 1: invest in a bond, base case would typically be that
25:33
Speaker 1: it pays a coupon until maturity and there redeems at
25:36
Speaker 1: par It might not be a straight path between when
25:39
Speaker 1: you buy it and when you get redeemed. That's a
25:41
Speaker 1: general expectation. There's a general expectation in the markets that
25:45
Speaker 1: if you hold equities long enough, they will generally go
25:47
Speaker 1: up in price. Again, it may not be a straight line. Similarly,
25:51
Speaker 1: when you buy private assets, there's a general expectation that
25:54
Speaker 1: these things will are created in value. But what you
25:57
Speaker 1: have to really do for each client is help the
26:00
Speaker 1: understand what's the risk of the deviation that could occur
26:04
Speaker 1: around that base case. And sometimes people become relatively blase
26:11
Speaker 1: or they kind of fall into this mode of thinking
26:16
Speaker 1: there's only ever going to be a tight range of outcomes,
26:18
Speaker 1: and they don't think about the extreme event. What could
26:21
Speaker 1: happen in a more stream Could I survive an extreme
26:23
Speaker 1: set of circumstances? So a great example. You know, some
26:27
Speaker 1: of these things you can plan for and some you can't.
26:29
Speaker 1: Like So, for example, it was probably unreasonable in March
26:33
Speaker 1: of twenty twenty that companies would have a war chest.
26:37
Speaker 1: A hotel company would have a war chest that would
26:39
Speaker 1: see them manage through twelve months of zero revenues based
26:42
Speaker 1: on the global pandemic. So there are some things that
26:44
Speaker 1: you can't but there are a lot of things that
26:45
Speaker 1: you can.
26:47
Speaker 2: On the flip side, the airlines had a couple of
26:50
Speaker 2: weeks runway it turns out now to be enough.
26:52
Speaker 1: Yeah, exactly so, but there are certainly things you could
26:55
Speaker 1: prepare for. So can I withstand an equity draw down?
27:00
Speaker 1: Do I have the liquidity available to meet my ongoing
27:03
Speaker 1: cash flow obligations even in the event of a drawdown.
27:07
Speaker 1: And then you see some surprise events, So it was
27:10
Speaker 1: kind of interesting. We've seen a couple of these events now.
27:14
Speaker 1: One you know, when people have asked me to compare
27:18
Speaker 1: and contrast today versus two thousand and seven, two thousand
27:21
Speaker 1: and eight, you know, what you hear from a lot
27:23
Speaker 1: of people is, yes, there's some fairly heady valuations and
27:27
Speaker 1: there were some fairly aggressive kind of investment strategies being pursued.
27:33
Speaker 1: But I would say generally there's less leverage in the system.
27:35
Speaker 1: The banks, the large banks at least, are better capitalized.
27:39
Speaker 1: You have fewer hedge funds making long data liquid investments
27:43
Speaker 1: with three month capital. There's just generally more duration in
27:47
Speaker 1: the liability structure so that people can withstand a storm.
27:50
Speaker 1: And then you see the events of September of last
27:52
Speaker 1: year where the UK pensions, many of the UK pension
27:55
Speaker 1: plans had a very short term liquidity crisis. Because they
28:01
Speaker 1: basically had a mismatch between their assets and their liabilities.
28:04
Speaker 2: Comparable to Silicon validate.
28:06
Speaker 1: It was a little different in this case in that
28:08
Speaker 1: they had very long dated obligations or pension liabilities. They
28:12
Speaker 1: couldn't match those liabilities in the investment market, so they
28:16
Speaker 1: bought duration in the swap or the derivative market. And
28:19
Speaker 1: then when you saw a sharp move in UK interest
28:22
Speaker 1: rates based on inflation concerns that came to arise back
28:27
Speaker 1: in September, all of a sudden, these pension vuns were
28:29
Speaker 1: subject to margin calls which they had to rapidly liquidate assets.
28:34
Speaker 1: Now most of them had pretty much all of them
28:37
Speaker 1: had enough liquid assets to meet those margin calls, but
28:39
Speaker 1: I don't think they'd really kind of prepared for themselves
28:42
Speaker 1: to that kind of like two or three standard deviation event. Similarly,
28:47
Speaker 1: you look at what happened in a few weeks ago
28:51
Speaker 1: with the SVB situation. You had a lot of people
28:55
Speaker 1: who had hundreds of millions of dollars unguaranteed deposited with
28:59
Speaker 1: one bank. They should probably never have been doing that.
29:02
Speaker 1: They should probably have always had it either in multiple
29:04
Speaker 1: banks or more likely in a money market fund where
29:07
Speaker 1: you have a truly diversified set of risk. So I
29:09
Speaker 1: think it's really not thinking, it's thinking through for each client,
29:14
Speaker 1: what's my base case return for their portfolio, what's the
29:17
Speaker 1: base case return for an individual asset within that portfolio?
29:21
Speaker 1: And based on like large deviations from norms as you
29:25
Speaker 1: saw last year, for example, with both bonds and equities
29:28
Speaker 1: going down? Can I live to fight another day? Can
29:31
Speaker 1: I live to fight another day? That's the number whenever
29:34
Speaker 1: I think about you know, crises. You know, number one,
29:36
Speaker 1: two and three is liquidity. Can I get to the
29:38
Speaker 1: other side, because if I have enough time, I can
29:40
Speaker 1: dig my way out of a hole.
29:41
Speaker 2: There was a book I don't remember if it was
29:43
Speaker 2: the thirties or fifties, The Battle for Investment Survival. Maybe
29:47
Speaker 2: that was Gerald Loebe. But it's all about what do
29:50
Speaker 2: I need to do to make sure I could get
29:52
Speaker 2: through this and still be standing after the storm? Receipts yep,
29:56
Speaker 2: dead on. So let's take a look at a day
29:59
Speaker 2: in the life of a CIO responsible for that much capital.
30:03
Speaker 2: Tell us what a typical day is for Julian Salisbury's.
30:07
Speaker 1: It's hard to say a typical day, but I could
30:09
Speaker 1: tell you over the course of the week generally, how
30:11
Speaker 1: I spend my time. I mean, first of all, you know,
30:14
Speaker 1: one of the one of the most fun parts of
30:15
Speaker 1: it is sitting on the investment committees for our private
30:18
Speaker 1: side activities. So we have our Private Equity committee on
30:21
Speaker 1: a Tuesday, our Growth Committee on a Monday. We also
30:26
Speaker 1: do infrastructure on a Tuesday, We do real estate on
30:29
Speaker 1: a Wednesday, and credit on a Thursday. So that's that's
30:31
Speaker 1: kind of like a central core part of how I
30:34
Speaker 1: spend my time, really seeing what the teams are bringing
30:38
Speaker 1: through in terms of deals that we're looking at in
30:40
Speaker 1: the early inception of the transaction as well as you know,
30:43
Speaker 1: taking these deals all the way through to final approval.
30:46
Speaker 1: That's on the private side, and then on the public side,
30:48
Speaker 1: really getting market updates from our various portfolio managers and
30:54
Speaker 1: CIOs across the public side business in terms of what's
30:57
Speaker 1: been happening in those businesses. So that's the kind of
31:00
Speaker 1: more investment side of things. Then there's business reviews going
31:03
Speaker 1: through each of these individual investment units and really looking
31:06
Speaker 1: at their structure, their resource allocation, their talent, their performance.
31:12
Speaker 1: Is something I spent a lot of time on really
31:15
Speaker 1: dissecting not only what is their performance? But why have
31:18
Speaker 1: they performed the way they've performed, both on an absolute
31:21
Speaker 1: and relative basis, both versus benchmark and versus clients. I
31:25
Speaker 1: spend a lot of time either individually, one on one
31:28
Speaker 1: with people or talking to our different investment teams around
31:31
Speaker 1: talent and cultivating talent and building culture within the businesses.
31:36
Speaker 1: And then there's clients. I spend a great deal of
31:38
Speaker 1: time with clients either on the road, a lot of
31:41
Speaker 1: time on the road, probably you know, like twenty to
31:43
Speaker 1: thirty percent of the time on the road with clients,
31:45
Speaker 1: and I always find those just incredibly informative meetings, really
31:50
Speaker 1: really deeply understanding the wants and needs of our clients,
31:53
Speaker 1: and that certainly helps inform investment judgment and decisions that
31:58
Speaker 1: we're making on the asset side. And then I would
32:01
Speaker 1: say the final thing is just you know, kind of
32:04
Speaker 1: them from a strategy perspective, what are the new investment
32:08
Speaker 1: products or investment solutions, whether it's new strategies or different
32:13
Speaker 1: wrappers around existing strategies in order to be able to
32:16
Speaker 1: deliver our investment solutions to a broader range of people.
32:20
Speaker 2: So so many questions to ask. Let's stay with strategies first,
32:25
Speaker 2: So what trends and practice areas have you most excited
32:29
Speaker 2: looking forward twenty twenty three and beyond.
32:32
Speaker 1: Well, when I think about our need for talent and
32:35
Speaker 1: the organization, I think of it as three buckets. There's
32:38
Speaker 1: our client business where we're providing solutions and advice to
32:42
Speaker 1: our clients. There's our investment teams, and then there's the
32:45
Speaker 1: operating platform and we'll come back to that last one
32:48
Speaker 1: in a second, because that's a critical area of focus
32:51
Speaker 1: for us. I would say from a client perspective, we
32:54
Speaker 1: really see growth across all of our client channels. So
32:57
Speaker 1: where as we grow the business, as we expand and
33:00
Speaker 1: the number of clients, and we expand the number of
33:04
Speaker 1: offerings and solutions that we're bringing to those clients, we
33:06
Speaker 1: naturally need more client advisors to help support the growth
33:10
Speaker 1: of that business and maintain the level of service and
33:13
Speaker 1: advice that our clients expect. So, whether it's our institutional
33:18
Speaker 1: business across pensions and endowments and insurance, whether it's our
33:22
Speaker 1: private wealth advisors where we're adding advisors, or our third
33:25
Speaker 1: party wealth channel, you know, as we scale and grow
33:28
Speaker 1: the business, there's a general need to have more talent
33:31
Speaker 1: to continue to provide the level of advice and service
33:33
Speaker 1: that we would want from an investment perspective. You know,
33:36
Speaker 1: we're continually looking at our teams and continually looking at
33:40
Speaker 1: performance and looking to refine our teams. But you know,
33:44
Speaker 1: we really find that those investing businesses are quite scalable.
33:49
Speaker 1: So it's really as we expand the size of the platform,
33:53
Speaker 1: we do need to add talent in order to help
33:56
Speaker 1: manage an expanding pool of assets. And then on the infrastructure,
34:00
Speaker 1: I would say there's a you know, continual demand and
34:04
Speaker 1: need to invest in technology and operations in order to
34:09
Speaker 1: deliver a better crime experience and to continue to improve
34:15
Speaker 1: and enhance our already strong risk management capabilities. But you know,
34:20
Speaker 1: that's an area that we've added quite a bit of
34:21
Speaker 1: talent in the last few years.
34:23
Speaker 2: I've had a number of people sitting in that exact
34:26
Speaker 2: seat also the same thing. I'm going to throw their
34:29
Speaker 2: questions at you. Finding talent is not only the most
34:33
Speaker 2: important part of their job, it's also the hardest part. YEP.
34:38
Speaker 2: Is that overstating it or is that a fair no?
34:40
Speaker 1: It's it's absolutely It's absolutely critical, and it's amazing the
34:45
Speaker 1: difference one person can make so we have a pretty
34:49
Speaker 1: well tried and tested campus recruitment approach. So we're going
34:53
Speaker 1: out to schools across across the nation as well as
34:56
Speaker 1: around the world to find, you know, the best and
34:59
Speaker 1: brighter talent. I would say we've opened up the funnel
35:02
Speaker 1: materially over the last you know, decade or two to
35:05
Speaker 1: try to expand the size of the of the searchable universe,
35:10
Speaker 1: essentially to attract not just the obvious kid who did
35:13
Speaker 1: the finance degree at the obvious finance focused school, but
35:16
Speaker 1: to attract a broader range of talent. I really find
35:19
Speaker 1: that diversity, and I mean I use that term broadly
35:22
Speaker 1: defined people who come from a variety of different backgrounds, experiences,
35:26
Speaker 1: different college degrees can be very useful to bring that
35:30
Speaker 1: that that range of people into an investment business. So
35:33
Speaker 1: we have a tried and tested kind of campus recruitment approach,
35:36
Speaker 1: you know, in addition to that you know later or
35:38
Speaker 1: hiring you know, while we well, we certainly endeavor to
35:41
Speaker 1: bring people in at the campus level and and and
35:45
Speaker 1: grow them and help advance them over time to take
35:48
Speaker 1: on more senior positions, so that often when somebody leaves,
35:51
Speaker 1: there's you know, somebody behind them. Ready to take on
35:53
Speaker 1: that job, and in some cases more than one person
35:56
Speaker 1: willing to take their job. You know, we do attract
35:59
Speaker 1: a lot of lateral talent as well, especially around specific
36:03
Speaker 1: new areas that we're growing in. So it's really broad
36:07
Speaker 1: based and look where it's a constant hiring approach. I
36:11
Speaker 1: mean in a I think I heard some stats the
36:14
Speaker 1: other day that a little over fifty percent of the
36:17
Speaker 1: people at the firm have joined in the last three
36:19
Speaker 1: or four years. And that's that's quite natural and understandable.
36:23
Speaker 1: That's a combination of natural attrition that you have in
36:25
Speaker 1: any business, growth of the business, some acquisitions that we've made,
36:29
Speaker 1: So integrating all of that talent and integrating ensuring that
36:32
Speaker 1: there's like a cultural assimilation is really important. But you know,
36:37
Speaker 1: the other thing that's key is as you're whilst you
36:40
Speaker 1: naturally have people joining and some attrition, is making sure
36:45
Speaker 1: you have a strong core of people who are consistent
36:48
Speaker 1: and have been there for a very very long time,
36:50
Speaker 1: especially in the asset management business, because when people give
36:53
Speaker 1: us money to manage, they're giving us money to manage
36:55
Speaker 1: for a very long time. It's not about a transaction
36:58
Speaker 1: or a trade. So if you look at our core business.
37:01
Speaker 1: You know, we have many hundreds of investment professionals that
37:06
Speaker 1: have been doing this for decades.
37:09
Speaker 2: You mentioned lateral hires on new business areas. What sort
37:15
Speaker 2: of sectors and trends are you excited about looking out
37:18
Speaker 2: over the next couple of years.
37:20
Speaker 1: Well, when I think about our need for talent and
37:22
Speaker 1: the organization, I think of it as three buckets. There's
37:25
Speaker 1: our client business where we're providing solutions and advice to
37:29
Speaker 1: our clients. There's our investment teams, and then there's the
37:32
Speaker 1: operating platform and we'll come back to that last one
37:35
Speaker 1: in a second, because that's a critical area of focus
37:38
Speaker 1: for us. I would say from a client perspective, we
37:41
Speaker 1: really see growth across all of our client channels. So
37:44
Speaker 1: where as we grow the business, as we expand the
37:47
Speaker 1: number of clients and we expand the number of offerings
37:51
Speaker 1: and solutions that we're bringing to those clients, we naturally
37:54
Speaker 1: need more client advisors to help support the growth of
37:57
Speaker 1: that business and maintain the level of service and advice
38:00
Speaker 1: that that our clients expect. So, whether it's our institutional
38:05
Speaker 1: business across pensions and endowments and insurance, whether it's our
38:09
Speaker 1: private wealth advisors where we're adding advisors or our third
38:12
Speaker 1: party wealth channel. You know, as we scale and grow
38:15
Speaker 1: the business, there's a general need to have more talent
38:18
Speaker 1: to continue to provide the level of advice and service
38:20
Speaker 1: that we would want. From an investment perspective, you know,
38:23
Speaker 1: we're continually looking at our teams and continually looking at
38:27
Speaker 1: performance and looking to refine our teams. But you know,
38:31
Speaker 1: we really find that those investing businesses are quite scalable,
38:36
Speaker 1: so it's really as we expand the size of the platform,
38:40
Speaker 1: we do need to add talent in order to help
38:43
Speaker 1: manage an expanding pool of assets. And then on the
38:46
Speaker 1: infrastructure side, I would say there's a you know, continual
38:50
Speaker 1: demand and need to invest in technology and operations in
38:57
Speaker 1: order to deliver a better crime experience and to continue
39:01
Speaker 1: to improve and enhance our already strong risk management capabilities.
39:07
Speaker 1: But you know that's an area that we've added quite
39:09
Speaker 1: a bit of talent in the last few years.
39:11
Speaker 2: Really quite interesting. So this has been kind of a
39:16
Speaker 2: funky year. Inflation seems to be coming down. We don't
39:21
Speaker 2: know when the Fed's going to be done their rate
39:23
Speaker 2: hiking cycle. How do you look at twenty twenty three
39:28
Speaker 2: from an investment perspective. Do you think, hey, we have
39:31
Speaker 2: to make some wholesale changes, or are you building portfolios
39:36
Speaker 2: where hey, that's what happens the market cycle. Rates go
39:40
Speaker 2: up and down. You have to have robustness in order
39:44
Speaker 2: to encounter these.
39:46
Speaker 1: I think you have to have some consistency to your process,
39:49
Speaker 1: but also have the humility to realize that you need
39:53
Speaker 1: to make adjustments. And every time there's an event in
39:56
Speaker 1: the market, it should cause you to rethink how you
39:59
Speaker 1: do things, whether it's SVB or the events that we
40:03
Speaker 1: saw in the UK pension system last year. These are
40:05
Speaker 1: these are opportunities to learn and enhance your process. But
40:09
Speaker 1: I don't think this is a wholesale shift. We're in
40:14
Speaker 1: a higher rate environment obviously for now, and while rates
40:18
Speaker 1: will likely start rolling over, you know, into next year,
40:21
Speaker 1: I think I think we're in an environment where the
40:24
Speaker 1: hurdle rate for making more illiquid investments is higher, so
40:30
Speaker 1: you've got to be really mindful that you're getting paid
40:32
Speaker 1: enough for the on a nominal return basis versus the
40:35
Speaker 1: risk free rate. But I don't think this is a
40:38
Speaker 1: major shift. I mean, the way we're looking at the
40:40
Speaker 1: market today is the equity markets are fairly fully valued
40:45
Speaker 1: on most metrics that you look at, and therefore, you know,
40:48
Speaker 1: we view rates as most attractive generally, credit as somewhere
40:52
Speaker 1: in the middle, and equities as looking like the most stretched.
40:55
Speaker 1: But I wouldn't make a you know that that causes
40:57
Speaker 1: you to tilt or lean in terms of how you
40:59
Speaker 1: are sure portfolio. But you don't like it's not a radical,
41:04
Speaker 1: a radical shift in approach. You know, we look at
41:07
Speaker 1: you know, people's long we look at it from a
41:09
Speaker 1: long term investment perspective. What are the long term goals
41:12
Speaker 1: of the client and do they have an asset allocation
41:15
Speaker 1: that's going to help them meet this long term goals.
41:17
Speaker 1: So we start with a strategic ass allocation, but then
41:20
Speaker 1: there could be tilts around that based on the environment.
41:22
Speaker 2: So you mentioned earlier, twenty twenty two was so unusual.
41:26
Speaker 2: It was one of the few years that we've seen
41:29
Speaker 2: where both stocks and bonds were down double digits. I
41:34
Speaker 2: recall a lot of people declaring ass allocation is dead,
41:37
Speaker 2: sixty forty is dead. Everybody has to start over. I'm
41:41
Speaker 2: going to assume you do. You don't buy into a
41:45
Speaker 2: world of allocation is over.
41:47
Speaker 1: No, I mean, it was a you know, it was
41:49
Speaker 1: a bad year for sixty forty, that's clear, but you
41:53
Speaker 1: also have to recognize that the speed and nature of
41:55
Speaker 1: that rate hiking is it was pretty unprecedented. By the way,
42:00
Speaker 1: it really demonstrated why diversification in a portfolio is important,
42:04
Speaker 1: because there were other asset classes you could have owned
42:06
Speaker 1: that would have seen better performance. Commodities, for example, had
42:08
Speaker 1: a particularly good year. One could argue that it was
42:12
Speaker 1: simply you know, the difference between mark to market and
42:14
Speaker 1: non marked to market. But if you'd had a more
42:17
Speaker 1: heavier waiting towards privates in your portfolio, that would have
42:20
Speaker 1: created a ballast and some consistency to your returns. But
42:23
Speaker 1: I certainly don't think it's I certainly don't think it's
42:26
Speaker 1: it's dead, But I do think people should think about,
42:31
Speaker 1: you know, within the sixty forty, for example, is it
42:34
Speaker 1: all public bonds and public credit or are there other
42:39
Speaker 1: alternative products, private products that can help form that kind
42:43
Speaker 1: of bedrock of the income portion of my portfolio. And similarly,
42:47
Speaker 1: on the sixty side, it's not just about public equities
42:50
Speaker 1: and being in index, it's are their private equity alternatives
42:55
Speaker 1: that can give me some diversification exposure to types of
42:59
Speaker 1: assets or industries that I couldn't otherwise get exposure to that,
43:03
Speaker 1: you know, a crete on a more consistent and persistent
43:05
Speaker 1: basis over time and don't have quite the you know,
43:08
Speaker 1: the day to day volatility that we see in public markets.
43:11
Speaker 2: So you mentioned the rate of FED hikes we've seen
43:14
Speaker 2: is has been very rapid, arguably unprecedented. How do you
43:20
Speaker 2: look at FED actions and this rate volatility, How does
43:23
Speaker 2: this affect your outlook going out, you know, beyond just
43:27
Speaker 2: the next month or quarter.
43:29
Speaker 1: Again, you have to break it down asset class by
43:31
Speaker 1: asset class. There you know, within our macro businesses, wh
43:33
Speaker 1: our public markets businesses, you know plus minus twenty five
43:37
Speaker 1: basis points in terms of peak and the exact month
43:41
Speaker 1: it starts rolling over it. It makes a huge difference,
43:45
Speaker 1: and it's something we focus on. We have, you know,
43:48
Speaker 1: a research based approach. We have an outlook and a
43:51
Speaker 1: set of expectations and if the reality deviates from those expectations,
43:56
Speaker 1: will refine the approach. We have other asset classes that
43:58
Speaker 1: on the face of it, should be less sensitive to
44:01
Speaker 1: the day to day machinations of the rate market, but
44:04
Speaker 1: when they move as rapidly as they just did, it
44:07
Speaker 1: can have a dramatic effect. So what do I mean
44:10
Speaker 1: by that? You know, I sometimes think, as you know,
44:12
Speaker 1: when you're when you're a micro investor doing private deals,
44:16
Speaker 1: it's like playing a game of chess. If you get
44:18
Speaker 1: the macro wrong, it turns out you were playing chess
44:20
Speaker 1: on the Titanic. You know you you were. If you
44:24
Speaker 1: could have bought the best piece of real estate, you
44:27
Speaker 1: could have bought the best class B office, you know,
44:29
Speaker 1: twelve months ago and not anticipated the pace of rate
44:33
Speaker 1: hiking that we just saw, and it just repriced the
44:36
Speaker 1: whole asset class. So I think the approach of the
44:40
Speaker 1: focus on the rate cycle really varies from somewhere, like
44:44
Speaker 1: you know, our money markets business, where differences in duration
44:49
Speaker 1: in how we run that portfolio being plus or minus
44:52
Speaker 1: ten days can make a huge difference in our returns
44:54
Speaker 1: and performance relative to other money market managers. We have
44:58
Speaker 1: other businesses that might hear less rate sensitive or less
45:02
Speaker 1: obviously rate sensitive, but then when you have that magnitude
45:06
Speaker 1: of move, they really roll over. Another great example of this,
45:08
Speaker 1: I thought it's kind of funny that you know, in
45:10
Speaker 1: the growth equity space that you know, people didn't seem
45:13
Speaker 1: to appreciate the full how much duration risk they were running.
45:17
Speaker 1: And guess what, when you own a bunch of public
45:19
Speaker 1: assets where all the profitability is ten years out, that's
45:22
Speaker 1: a long duration asset. So when you have a rate
45:24
Speaker 1: move like that, it really causes a complete de rating.
45:28
Speaker 2: Interesting stuff. You've had a pretty busy quarter. You announced
45:33
Speaker 2: three funds, Horizon Environment and Climate Solutions, a private credit fund,
45:38
Speaker 2: and a growth equity fund that all close their rounds,
45:42
Speaker 2: raising more than twenty two billion dollars. Tell us about
45:45
Speaker 2: those funds and what they do and how does each
45:48
Speaker 2: slot into a client solution.
45:52
Speaker 1: Well, so taking each of these, our growth equity fund
45:55
Speaker 1: really focuses on a couple of different segments enterprise, software, fintech, healthcare,
46:02
Speaker 1: and consumer. Those are kind of like the power allies
46:04
Speaker 1: in terms of industries that they focus on them, typically
46:06
Speaker 1: making significant but minority investments in fast growing companies. You know,
46:12
Speaker 1: these are companies often with an enterprise value in the
46:15
Speaker 1: area of a couple of hundred million to a billion dollars,
46:18
Speaker 1: sometimes skews higher, but I would say the sweet spot
46:21
Speaker 1: is that area and the reason for that. These are
46:24
Speaker 1: kind of companies that are growing at least you know,
46:27
Speaker 1: we're growing fifty to one hundred percent rates of revenue growth.
46:31
Speaker 1: Where the potential for takeout isn't exclusively an IPO. They
46:35
Speaker 1: could be sold to a strategic and we're trying to
46:38
Speaker 1: help grow these companies over a three to four year period,
46:41
Speaker 1: prepare them for a public exit or a strategic exit,
46:45
Speaker 1: and we build a portfolio of these of these businesses
46:47
Speaker 1: and we do that globally. That's our growth equity business,
46:50
Speaker 1: and that's a team that's been It's a first time fund,
46:52
Speaker 1: but we've been doing it for thirty years just using
46:54
Speaker 1: our own money. Are our mes fund. This was actually
46:59
Speaker 1: the eighth in a series of mezzanine funds. We've been
47:01
Speaker 1: doing this private mezzanine credit. We've been doing this for
47:05
Speaker 1: decades and this is really a strong power alley for us.
47:11
Speaker 1: In as much that you know we're tied to the
47:14
Speaker 1: you know, pre eminent investment bank. We have very close
47:18
Speaker 1: relationships with sponsor clients. This means where you know, we're
47:21
Speaker 1: at the leading edge. Every time an asset is going
47:24
Speaker 1: to trade or refinance, we know about it because of
47:26
Speaker 1: our investment banking business, and we can position ourselves as
47:29
Speaker 1: the preferred provider of the mezzanine capital to facilitate that transaction.
47:34
Speaker 1: And I would say, right now, given what's going on
47:38
Speaker 1: in the world, the rates of return available to us
47:40
Speaker 1: in the private credit markets generally are just unusually attractive.
47:44
Speaker 1: So that's our that's our mezzanine Credit fund, and then
47:47
Speaker 1: our Horizon Climate Fund is a this is really more
47:50
Speaker 1: of a private equity style control investments, where we're looking
47:55
Speaker 1: to invest in companies that will have a positive impact
47:59
Speaker 1: on the vironment. It's a it's an Article nine fund,
48:02
Speaker 1: and it's it's investing in things like climate, water treatment, recycling,
48:08
Speaker 1: and these are fast growing companies. But also, you know,
48:14
Speaker 1: so there's a there's absolutely these are these are pools
48:19
Speaker 1: of money that are managed with a profit motive, but
48:24
Speaker 1: they're also investing in companies that are having a positive
48:27
Speaker 1: impact on the environment.
48:28
Speaker 2: So let me throw a curveball at you. At one
48:31
Speaker 2: point in time, you were a aspiring sports scientist and
48:36
Speaker 2: competitive kayaker. What's that about.
48:41
Speaker 1: I picked up kayaking when I was you know, eleven
48:44
Speaker 1: or twelve. I started competing when I was fourteen or fifteen.
48:49
Speaker 1: I got quite into it. I took it very seriously.
48:52
Speaker 1: I developed a passion for it, and next thing I know,
48:54
Speaker 1: I'm in the top division in the country and competing
48:57
Speaker 1: at the highest level.
48:59
Speaker 2: Say, when you say kayaker, we're not talking about the
49:02
Speaker 2: long skulls that we see on the Charles however, we're
49:06
Speaker 2: talking about one or two person kayaks.
49:08
Speaker 1: It's a one person kayak. You sit down, you have
49:10
Speaker 1: a double bladed paddle and you go down whitewater rapids
49:13
Speaker 1: and you navigating poles in the river. You have gates
49:16
Speaker 1: that you go downstream through and gates that you go
49:18
Speaker 1: up stream through. Most people only know about it because
49:20
Speaker 1: it's in the Olympics every four years and they forget
49:22
Speaker 1: about it. But it's a pretty interesting competitive sport.
49:26
Speaker 2: Were you ever good enough to think about the Olympics?
49:29
Speaker 1: I competed at a pretty high level up until the
49:31
Speaker 1: age of nineteen, Up until the age of like around
49:35
Speaker 1: twenty actually twenty twenty one. I was a British University
49:38
Speaker 1: champion for a few years and competed in the top division.
49:42
Speaker 1: But at some point I realized there wasn't a lot
49:44
Speaker 1: of money in that sport, and I didn't like the
49:47
Speaker 1: idea of sleeping in the back of a van chasing
49:50
Speaker 1: you chasing glory around the world for the next five years.
49:54
Speaker 2: Not a lot of money in kayaking. Whoever would have guessed?
49:58
Speaker 2: I know I only have you for a limited amount
50:01
Speaker 2: of time. Let me jump to my favorite questions that
50:04
Speaker 2: I ask all of my guests, starting with what have
50:07
Speaker 2: you been watching, streaming listening to lately? What's been keeping
50:11
Speaker 2: you entertained?
50:13
Speaker 1: My two favorite shows at the moment are Tedle Asso
50:15
Speaker 1: and Succession, very different shows. One speaks to my interest
50:20
Speaker 1: in sport and the other one is It's It's it's
50:23
Speaker 1: almost a comedy. It's such a dysfunctional family.
50:27
Speaker 2: So tell us about your mentors who helped shape your career.
50:31
Speaker 1: You know, there's a few people along the way. I mean,
50:34
Speaker 1: first of all, I mentioned this earlier, but you know,
50:36
Speaker 1: Goldman Sachs, you're surrounded by great people that you can
50:40
Speaker 1: learn from developing, you know, and that could be technical skills,
50:45
Speaker 1: it could be leadership skills. And the other thing I
50:48
Speaker 1: would say is over the years, when whenever I get
50:50
Speaker 1: asked this question, I think not just about who I've
50:53
Speaker 1: worked for, but the many things that I've learned from
50:56
Speaker 1: the people who work for me. In some you know,
50:58
Speaker 1: sometimes my level of interact with them is so great.
51:02
Speaker 1: You can learn a lot from an analyst and you
51:04
Speaker 1: could certainly learn a lot from your your peers, partners
51:08
Speaker 1: that work for you, managing directors that work for you.
51:10
Speaker 1: So I whenever I get asked this question, I sometimes
51:13
Speaker 1: feel like I've almost learned more from the people who
51:15
Speaker 1: work for me than the people I work for. But look,
51:18
Speaker 1: there have been some particular strong people along the way.
51:21
Speaker 1: I remember a guy that I used to work for
51:25
Speaker 1: at KPMG, and one year I said to him, g
51:29
Speaker 1: at the end of the year, and this guy was unreplaceable,
51:32
Speaker 1: and he seemed to be in the middle of every
51:34
Speaker 1: piece of business that we did, and you couldn't imagine
51:36
Speaker 1: how the place would function without him. And I said,
51:38
Speaker 1: you know, at the end of the year, you must
51:39
Speaker 1: be able to ask for whatever you want. And he
51:43
Speaker 1: just looked at me and said, they'd manage. And it
51:46
Speaker 1: was it was really like the humility there and the
51:49
Speaker 1: realization that everybody's, you know, replaceable. Some are harder to
51:54
Speaker 1: replace than others. But he just kept that grounding and
51:57
Speaker 1: sometimes sometimes people lose sight of that and believe their
52:00
Speaker 1: own story a little bit too much. That was a
52:03
Speaker 1: great lesson I had when I after a couple of
52:06
Speaker 1: years at Golden Sachs, I was working for a guy
52:08
Speaker 1: in the distress credit business, and his analytical rigor and
52:11
Speaker 1: his relentless questioning and skepticism almost to an unhealthy level,
52:17
Speaker 1: was actually a great learning experience because he it was,
52:21
Speaker 1: you know, in a world where a lot of people
52:23
Speaker 1: like to believe the brochure or the prospectus, he never
52:27
Speaker 1: it was. Everything had to be founded in analytical rigor
52:32
Speaker 1: and facts, not what management told you or what story
52:35
Speaker 1: you heard or nothing. For granted, it's like, can you
52:38
Speaker 1: prove it in the numbers? I mean, it's back to
52:40
Speaker 1: the comment I made earlier around accounting. We get we
52:43
Speaker 1: get a lot of kids who come through the business
52:45
Speaker 1: who have fancy MBAs, but they don't truly understand the
52:50
Speaker 1: interactions between a P and L, a balance sheet, and
52:52
Speaker 1: a cashflow statement. And if you don't have all three,
52:54
Speaker 1: and I mean a complete one, not a partial balance
52:57
Speaker 1: sheet with just the liability structure, but everything, you don't
53:01
Speaker 1: really understand the business.
53:02
Speaker 2: Really very intriguing. Let's talk about books. What are some
53:06
Speaker 2: of your favorites? What are you reading right now?
53:08
Speaker 1: Whenever I get asked this question, my first response is
53:11
Speaker 1: about twenty five investment memos every single week. Add to
53:15
Speaker 1: that the various other business updates that I get, and
53:19
Speaker 1: the prep for management committee on a Monday detailing all
53:21
Speaker 1: of the client flows in the business. It doesn't actually
53:24
Speaker 1: leave a lot of time or eyesight left to you know,
53:28
Speaker 1: pick up other books and you know, with the with
53:32
Speaker 1: the with the advent of the of the iPhone, like
53:36
Speaker 1: this constant stream of information from Bloomberg and other news
53:39
Speaker 1: sources means that I'm reading a lot, but not enough
53:42
Speaker 1: time for pleasurable books. But there are a couple. There's
53:44
Speaker 1: there's the avoidable War. I think the geopolitical situation with
53:49
Speaker 1: China is something that everybody should be very mindful of
53:51
Speaker 1: right now. And that's going to that's going to impact
53:54
Speaker 1: asset prices and and and flow of money, and I
53:58
Speaker 1: think that's something everybody needs to be paying attention to.
54:02
Speaker 1: I've been picked up a book recently looking at it's
54:05
Speaker 1: called The Shallows, which is really looking at how the
54:07
Speaker 1: mind is being rewired by the Internet. The way we
54:09
Speaker 1: think and the way we operate is fundamentally changing. I mean,
54:12
Speaker 1: you know, everybody's become like everybody's developing kind of attention
54:17
Speaker 1: deficit disorder because of the constant flow of information and Actually,
54:21
Speaker 1: the ability to sit down and absorb a long form
54:25
Speaker 1: book is becoming harder for a lot of people because
54:27
Speaker 1: they're so used to the instant gratification of the Twitter
54:30
Speaker 1: feed or the short term news story.
54:32
Speaker 2: Yeah, deep work is becoming more and more rare. Yea
54:36
Speaker 2: our final two questions, what sort of advice would you
54:39
Speaker 2: give a recent college grad interested in a career in
54:43
Speaker 2: either investment or finance.
54:46
Speaker 1: I'd say three things. One, don't be put off, as
54:49
Speaker 1: we talked about earlier, by some of the strange language
54:52
Speaker 1: and the manclature. Become a student of it, study it
54:55
Speaker 1: and break through those barriers, and don't be intimidated by it. Two,
55:00
Speaker 1: I would say, develop an area of expertise early on.
55:04
Speaker 1: And what I mean by that is, in order to
55:06
Speaker 1: start really adding value, you need to prove yourself to
55:10
Speaker 1: be really expert or knowledgeable in a particular area, the
55:14
Speaker 1: go to person on that on that issue. And it
55:16
Speaker 1: could be relatively narrow. So I'll give you an example.
55:19
Speaker 1: I used to be a high old research analyst. You
55:21
Speaker 1: you know, you learn how to model one cable TV company,
55:25
Speaker 1: and then you do a second and a third, and
55:27
Speaker 1: then you because of the process that you go through
55:30
Speaker 1: you start to develop an ability to assess relative value
55:34
Speaker 1: between those things, and then you do a fifth and
55:36
Speaker 1: the sixth, and then you become the go to person,
55:38
Speaker 1: So become a deep expert in that one area, the
55:41
Speaker 1: go to person. But then you want to start if
55:44
Speaker 1: you if you unless you want to do that for
55:45
Speaker 1: the rest of your career, you need to start adding
55:48
Speaker 1: some breadth. But it's it's getting the balance right, because
55:52
Speaker 1: you know you can't if you're skipping from one area
55:54
Speaker 1: to another and you never get deep an expert in
55:57
Speaker 1: any one thing, then you become too much of a gens.
56:00
Speaker 1: So it's getting that balance right between specialist skills but
56:05
Speaker 1: not getting so sucked in that you become siloed. And
56:08
Speaker 1: that's the only thing you ever do.
56:10
Speaker 2: Really interesting, and our final question, what do you know
56:13
Speaker 2: about the world of investing today? You wish you knew
56:16
Speaker 2: thirty or so years ago when you were first getting started.
56:20
Speaker 1: Yeah, well, I started out in life really doing as
56:23
Speaker 1: a micro analyst, like covering distress credit situations, and it
56:28
Speaker 1: was always about finding that complicated, weird, interesting deal where
56:34
Speaker 1: you couldn't really lose money and there was interesting convexity
56:37
Speaker 1: to the upside and it was all about the art
56:40
Speaker 1: of maximizing risk adjusted return on that one trade and
56:44
Speaker 1: almost having like a bit of a dismissive view to
56:48
Speaker 1: people who just put money into like mutual funds and
56:50
Speaker 1: regular equity funds and little you know, fixed income funds,
56:54
Speaker 1: and you know, sometimes you can get lost in the
56:59
Speaker 1: in the wood, you know, uh, looking you can't spot
57:02
Speaker 1: the wood for the trees. And just the power of
57:05
Speaker 1: compounding a diversified portfolio of of decades has proven to
57:08
Speaker 1: be a highly successful path to wealth maximization. So it's
57:13
Speaker 1: really taken a step back from the not just about
57:16
Speaker 1: maximizing the profit on the individual deal, but how do
57:20
Speaker 1: I maximize return on my overall portfolio of a long
57:23
Speaker 1: period of time?
57:24
Speaker 2: Micro and macro exactly, really quite fascinating. Julian, thank you
57:29
Speaker 2: for being so generous with your time. We have been
57:32
Speaker 2: speaking with Julian Salisbury. He is the Chief Investment Officer
57:37
Speaker 2: of Asset and Wealth Management at Goldman Sachs, where he
57:40
Speaker 2: helps to oversee over two and a half trillion dollars
57:44
Speaker 2: in assets under supervision. If you enjoy this conversation, well
57:48
Speaker 2: check out any of the previous four hundred and ninety
57:51
Speaker 2: nine we've done over the past eight years. You can
57:53
Speaker 2: find those at iTunes, YouTube, Spotify, wherever you find your
57:58
Speaker 2: favorite podcasts. For my daily reading list at ridults dot com.
58:03
Speaker 2: Follow me on Twitter at Ridolt's. Check out the fine
58:06
Speaker 2: family of Bloomberg podcasts on Twitter at podcasts. If you'd
58:11
Speaker 2: like to learn more about Julian Salisbury and the work
58:14
Speaker 2: he does at Coleman Sachs, go to LinkedIn and look
58:17
Speaker 2: up Julian Salisbury. I would be remiss if I did
58:21
Speaker 2: not thank the crack team that helps with these conversations
58:24
Speaker 2: each week. Samantha Danzinger is my audio engineer. A tick
58:28
Speaker 2: of Albrun is my project manager. Sean Russo is my researcher.
58:32
Speaker 2: Pariswold is our producer. I'm Barry Ridholts. You've been listening
58:37
Speaker 2: to Masters in Business on Bloomberg Radio.