Conversations with Institutional Investors

In this episode, I speak with Ashby Monk, who is Executive & Research Director at Stanford Long-term Investing, a part of Stanford University in California. Ashby has been advising most of the large superannuation funds in Australia on governance, organisational efficiency and knowledge management. He is a regular visitor to our country, and has been here 55 times. We discuss the future of the superannuation industry and the role of innovation. Unsurprisingly, this means that we spend a fair amount of time talking about artificial intelligence and the changes it might bring to the industry. Ashby is of the opinion that it will be transformational, while initial problems such as hallucinations are quickly being dealt with. What does AI mean for the super industry? Well, consultants might be in trouble as AI systems will come to play a critical role in providing alternative views or in red teaming. Asset managers, too, will come to feel the heat, and boards might want to add directors with deep technological knowledge. Enjoy the Show! ________ Follow the Investment Innovation Institute [i3] on  Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights ________ Overview of Podcast with Asby Monk, Stanford University   03:30 I’ve never met a pension fund with an R&D unit. 09:00 I’ve seen Australia as the future of pensions 10:00 People in Australia don’t quite know how cool it is, the member first culture 12:00 There is no professional School of Investing in the world; it is an apprenticeship 16:00 The secret sauce for a pension fund is in understanding your own advantages, weakness and goals 20:00 You can have a culture of knowledge sharing or a culture of secrecy and I don’t think you need to do much more than to say those words to understand what is implied 22:30 What attracted me to the asset owner industry is that it is a mission-driven culture 26:00 The AI boom…, everybody acknowledges that particularly our industry is going to be transformed 28:00 AI for knowledge management; the hallucinations are starting to go away. We are very close 32:00 Red teaming with AI; ask to replicate what your analysts are doing to see if you get a different view 33:00 Consultants might be in trouble, unless they move fast towards AI 34:00 Anybody who provides advice…, even me, you could probably ask an AI: ‘How would Ashby respond to this idea?’ 36:00 The big asset managers that we can think of right now, their existence is threatened 37:30 There are about eight Australian super funds that can be world role models 39:00 I often ask: ‘Who on your board has technological expertise?’ and the answer is often ‘none’. 41:00 Deep thoughts to conclude   "The ‘Investor Identity’: The Ultimate Driver of Returns" by Ashby Monk and Dane Rook, 2023   Full Transcription of Episode 120 Wouter Klijn Ashby, welcome to the show. Ashby Monk  02:27 Thank you so much. It's an honour to be here. Truly. I think that if I didn't have my job, I would want your job. Wouter Klijn  02:35 It's pretty fun.  Ashby Monk  02:39 Yes, you know, because the investment Innovation Institute almost sounds like my life's work, but you've already got it, so I'll have to find something else. But it's, it's a it's a pleasure to be here, in large part because I think you and I are working on very similar things. Wouter Klijn  02:57 Thank you very much for that. And you also have your own podcast, which has an interesting name of ‘Don't get fired’. Why did you choose this title, Ashby Monk  03:05 Don't get fired Podcast, yeah, so that is meant to celebrate the heroic nature of innovation and institutional investment. Oftentimes, I'm sure you're aware the pathway to doing creative things, especially as it relates to the asset owner side of things, that pathway generally flows through a courageous person that is deciding, I'm going to do things differently, and in the process, generally takes career risk. And so the don't get fired podcast is meant to be somewhat funny, but it's also meant to acknowledge, like, we don't have standard pathways of innovation in this industry. You know, I've never met a pension fund with, like, a well formed R and D unit. Oftentimes, it's just a person who is ready to take on a challenge and and I think we do need R and D units, and so the podcast is all about different pathways to innovation. Wouter Klijn  04:06 Yeah, yeah. It's interesting because I think that's my cat.  Ashby Monk 04:13 Hello Kitty. That's a perfect that cat wants to talk to us about innovation, Wouter Klijn  04:16 Exactly, but yeah, no, it's, that's, that's interesting because I listened to your last episode with Mark Delaney, and he made a reference to that where, I think, before he joined the superannuation industry and became CIO, now of Australian super, he worked for an insurance company. And he said, he sort of made his remark that at the beginning, when he worked, there was one of the most innovative companies in Australia, and then over time, they became scared of innovating, and it actually ended up collapsing. And he for part of it was because of a lack of innovation, which is basically goes to the core of your premise with the podcast.  Ashby Monk  04:57 I mean every, every, long-lived organisation faces this challenge around how much to exploit and how much to explore. So you exploit the assets, you have to generate performance, and then you also have to explore in order to, you know, go out and find new things to exploit in the future. And there's a balance, and I think it was the Winner's Curse, or the winner's winner's dilemma, maybe, where those organisations that are very successful often end up in a pattern of exploitation, and then that ultimately sows the seeds of their demise, those organisations that go on for generations. So these family owned companies that you know, go hundreds of years into the future. They build very deliberate innovation practices and and the funds that you and I study, these are funds that have stakeholders rather than shareholders. We know these funds are going to live for centuries. You know, like obviously, many of the super funds are fairly new on that time scale, but University endowments, sovereign funds, etc, they're looking out 100 years into the future. Those organisations are going to have to balance that exploitation, exploration dilemma. And I'm not sure most of them are ready for that. Wouter Klijn  06:24 Yeah, it's sort of a fine balance between sticking with a winning formula and doing enough innovation to stay relevant, I suppose. And you're right, the super funds are relatively young, so maybe they are a bit scared to, you know, do too much innovation and and mess it up, but, yeah, it's a developing industry, but one of the things that I thought was quite interesting when when you spoke to Mark, is that you mentioned you've known him for 13 or 14 years. And I know you have been advising a number of funds here in Australia, but your interaction with the funds goes back quite some time. How did you first get involved with the Australian funds? Ashby Monk  07:04 Well, my mentor, my academic mentor, is a guy named Professor, Gordon Clark, who is Australian who, I think you probably know Gordon, I think he still comes down to Melbourne once a year, for a month. He might even teach a class at Monash, one or two classes every year. And really, he was the one who introduced me to the Australian superannuation industry. And as somebody you know, obviously very interested in the future of pensions, you can't help but be blown away by what's happening in Australia. So I would argue the accumulation side of the equation is basically solved in Australia. Now, the de accumulation, the retirement side of things, there's still some challenges, and people are working on those challenges, but the superannuation industry, by and large, feels like the future for the rest of the world defined contribution, so you're not taking that longevity risk pooled, so you're getting the best asset management the lowest cost. And then also there's the regulatory aspects, where you know you have to contribute, so there's that mandate, and so that combination of everybody contributing professional management and really getting this accumulation running puts Australia in a very rare community in the world where it feels like you got your pensions organised. The Canadians seem pretty good, but those are mostly DB plans and so we all wonder what happens when the nanobots get injected and we live for 200 years? How are we going to manage that? They would tell you that they can manage that through maybe renegotiation. But in the Australian case, you won't have to. People are just going to have to work for longer because there won't be as much money there. And so, you know, obviously I'm, I'm talking like a true Stanford engineer. People are going to live forever with nanobots, but, but really, politicians everywhere are trying to figure out how to manage the unfunded liabilities for old age retirement security, and so you have that there. And so I know there's a long winded answer, but going back 14 years, I was introduced to the Australian super folks. And really, as sad as this is to say out loud, I think I've been back 55 times. Wow. I owe a lot of trees to the world. I got to plant some trees, but that's largely because I've seen Australia as the future of pensions. Wouter Klijn  09:42 Yeah, yeah, it's an interesting system, because my background is Dutch, so I grew up in defined benefits schemes as well, and I know that my dad retired in his late 50s with 70% of his last earned wage for the rest of his life. So that's that's not really working, if you and is he still going? Lift to 100 he's still going. He's still there. Ashby Monk  10:04 Yeah, pretty great if you can get it, Wouter Klijn  10:07 yeah, although it did require along the way

In this episode of the [i3] Podcast, I'm speaking with Richard Brown, who is a Client Portfolio Manager with Janus Henderson Investors. And today we are going to talk about global small caps. We look at whether small caps are affected by the increasing concentration of the equity markets, particularly in the US, where technology stocks have dominated returns in recent years. We talk about catalysts for unlocking the current small cap discount versus large caps, including the rate environment and the current business cycle. And we take a look at a few case studies of where to invest and where not, involving fuzzy pandas, Italian industrial stocks and JB Hi Fi. This episode was sponsored by Janus Henderson Investors, and as such, the sponsor can make suggestions for topics, but the final control remains with the Investment Innovation Institute. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights ________ Overview of Podcast with Richard Brown, Client Portfolio Manager, Janus Henderson Investors 02:00 The appeal of small caps and the case for egg producers 08:00 Does the concentration in equity markets and the increasing value of the Magnificent Seven require you to adjust valuation models for small caps? 09:30 The small cap discount to large caps has reached quite an extreme by historical standards 11:30 More clarity on the direction of rates would help small caps 13:30 There is an opinion that if rates stay higher for longer, then that would be bad for small caps. That is something we fundamentally disagree with. 14:00 The consensus view that small caps have underperformed as rates have gone up, that just hasn’t been true versus history 18:00 About 30 per cent of small cap companies in the US has had a negative EPS over the last two calendar years 20:00 The two catalysts for small caps: clarity on rates environment and confidence in business cycle 23:00 Are the future small caps all about AI? 26:00 Examples of AI small caps; filling in doctor’s insurance papers 36:00 Healthcare, REITs and the dangers of playing the sector game 41:00 Examples of what not to invest in: the case of an Italian industrial company 43:00 Fuzzy panda, short-selling and meme stocks 45:00 Is there a small cap premium in the Australian market? Maybe, but JB Hifi has been one of our strongest performers   Full Transcription of Episode 119 Wouter Klijn  00:00 In this episode of the [i3] Podcast, I'm speaking with Richard Brown, who is a Client Portfolio Manager with Janus Henderson Investors. And today we are going to talk about global small caps. We look at whether small caps are affected by the increasing concentration of the equity markets, particularly in the US, where technology stocks have dominated returns in recent years. We talk about catalysts for unlocking the current small cap discount versus large caps, including the rate environment and the current business cycle. And we take a look at a few case studies of where to invest and where not, involving fuzzy pandas, Italian industrial stocks and JB Hi Fi. This episode was sponsored by Janus Henderson Investors, and as such, the sponsor can make suggestions for topics, but the final control remains with the Investment Innovation Institute. Richard, welcome to the podcast. Richard Brown  02:10 Hi Wouter. Thank you. Delighted to be here. Wouter Klijn  02:14 So why small caps? How did you get involved in this particular area of investment? Richard Brown  02:18 Look, I think small cap is one of the most interesting areas you can be involved in, in capital markets, in truth, huge inefficiencies available for active stock pickers. You know that can certainly peak at peak interest. But you also end up looking at some very bizarre and unusual areas of the market. You know, egg producers, other companies working in particularly niche areas of the market. And you know that that that sort of area of small cap has always sort of piqued my interest and draw me to this area within within investment. So, yeah, I've been working with in the equity market since 2010 and really for the vast majority of that time, it's been with a focus on the small cap area. Wouter Klijn  03:00 So is there a current investment egg produces? Richard Brown  03:04 Well, actually, after a long standing investment there, we've actually had to just take profit after we saw some very strong returns driven by a strong pricing environment that states on the back of an outbreak of bird flu over there. But so I was quite sad to leave that investment, but it was a good one to us. So that's a good reason to be selling a stock. Wouter Klijn  03:24 Yeah, it would be interesting doing due diligence on a company like that, but maybe we can bring it a little bit to a higher level the current environment for small caps. I mean, I think markets are in a very interesting stage at the moment anyway, because we've seen a huge concentration in the US markets. We have it a little bit here in Australia, with a lot of money going into one particular bank, CBA, that seems to crowd out a lot of stocks. How do you look at the current environment for small caps in sort of in that environment where you have this domination of the Magnificent Seven. You got other stocks in, you know, Taiwan with TSMC. Do they still have a chance? Richard Brown  04:07 Yeah, I think so. And you know, undoubtedly, this is a question that comes up time and time again recently, because the vast majority of asset allocators attention are towards the mag seven. And look, that's hardly surprising, as it gets given this huge AI innovation wave that we're really only just beginning to understand. But for me, what's quite interesting is, you know, a lot of people preface that discussion by saying, well, small caps have underperformed large caps, and I think it's quite important to pick that apart, because what we focus on is really the operational performance of small caps, and that's what attracts us to this area, because it's been very strong and high growth for a long period of time. And actually, if you look at this period of so called underperformance versus large caps, actually that operational performance has been fine. It's been very solid. It's been roughly on the same trend as what we've seen over the last sort of 50 or 60 years. Yes. So it's really a case of those returns in large cap being super normal. And for me, you know that that's certainly something that I find quite reassuring as a small cap investor, that if we just continue plotting this sort of steady course, this AI innovation wave is going to, is is going to is going to chug along there in the background. But you know, small caps can still play their part, and indeed still are for asset allocators in their portfolio. Yeah. Wouter Klijn  05:29 So we've seen strong returns in equity markets in recent years, and I think it hasn't happened too much in history that the s, p5, 100 at three consecutive years of double digit returns and four years is even rarer. But what do you think this environment does to the valuation of small caps? Does it? Did you need to adjust how you evaluate small cap models in this current climate? Richard Brown  05:55 No, we are quite dogmatic in our approach in truth. So our valuation models are totally unchanged. And really what we do is we focus on looking for high return businesses that have positive incremental returns that are not yet reflected in their underlying valuation. And we would do that at the crop of markets, and we would do that even when markets maybe appear to be overheating. So indeed, that hasn't really changed the way that we're valuing stocks at this moment in time. And you know, when we take a step back and say what the valuations look like for the asset class as a whole, like you say, it's been a it's been a period where a number of other asset classes have been making new all time highs and potentially reaching bubble territory in certain areas of the market. So small cap, we're on roughly our long run average, if you're just looking at forward forward PE and that's true of most regional markets as well as global small cap markets as a whole. So what that has ultimately meant is that the small count, small cap, sorry, discount versus the large cap area, the market has reached really quite bizarre, extreme by historical standards. And you know, the real catalyst for that came through the aggressive rate cycle that we saw through 2122 if you look back prior to that. And again, this applies to most regional small cap markets across the world. Small caps were trading on a premium versus large cap, because that strong, operational, higher level of earnings growth that small caps tend to achieve was 10 tended to be rewarded with it with a higher valuation. Yeah, as we stand here at this point in time, we've had that aggressive rate cycle come through now, now a massive discount applied to the small cap space. So I think is a good time to be looking at it. Wouter Klijn  07:39 So is there any sort of market event or as a catalyst that might unlock the discount and bring it more in line with historical averages? I mean, you were talking a little bit. Maybe we're getting to bubble territory in large gaps. Do we have to wait for sort of a correction in those stocks? Or could there be something else that would bring the discount closer to historical averages? Richard Brown  08:03 Yeah, it's a great question, and in truth one that we've sort of been scratching our heads about a little bit already over the course of the last 12 or 18 months, as we would have expected that valuation discount to already been narrowing, but we haven't really seen that at all yet. For us, it's really going to come down to two main catalysts, I think, to see asset allocators really move back into this space. And the first is cl

In this episode of the [i3] podcast, “Conversations with Institutional Investors”, we speak with Mary Manning, Chief Investment Officer of the National Reconstruction Fund Corporation, a recently established $15 billion fund that has been set up to promote the manufacturing industry in Australia. We speak with Mary about the investment objectives and how to balance investing in innovative new technologies, such as the fund's investment in quantum diamonds, that is industrial diamonds, not the fancy ones, with the risk profile of the fund, Mary reveals that they have over 900 applications for funding and are now looking for the best opportunities to invest, but also how to balance the strategic asset allocation and avoid being exposed to too much equity holdings. We also discuss what sets the NRFC apart from other government funding and investment vehicles such as the Clean Energy Financing Corporation and the Future Fund. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of the interview with Mary Manning: 02:00 What is the National Reconstruction Fund Corporation? 08:00 Focusing on the seven sectors of priority: red tram 13:00 One of the risk of having a broad mandate is that you are trying to do everything all at once and not achieve much at all 15:00 We need to be a self-sustaining organisation, so we need to have some sort of dividend income stream 17:30 We have made 10 investments to date; the largest is a $200 million investment commitment in Arafura Rare Earths Limited to help finance the Nolans Project in the Northern Territory 19:30 Investing in quantum diamonds 21:30 The point of the NRF is to manufacture things 23:30 We get a lot of dual-use technologies that overlap between defence and enabling technologies 26:00 We do have certain funding targets for the seven sectors, but you might also notice that they don’t add up to $15 billion 28:30 We do have some restrictions, but they are not necessarily old economy. We have a focus on manufacturing and some of that includes old economy type businesses 34:30 A great problem to have is that we’ve had over 900 proposals (for funding) 36:30 The Act does not allow us to have control positions 40:00 There is some confusion about what the NRF does and what the Clean Energy Finance Corporation does. 44:00 When I started it was a bit like drinking out of a fire hose for quite some time. Full Transcript of Episode 118: Wouter Klijn  00:00 In this episode of the [i3] podcast, “Conversations with Institutional Investors”, we speak with Mary Manning, Chief Investment Officer of the National Reconstruction Fund Corporation, a recently established $15 billion fund that has been set up to promote the manufacturing industry in Australia. We speak with Mary about the investment objectives and how to balance investing in innovative new technologies, such as the fund's investment in quantum diamonds, that is industrial diamonds, not the fancy ones, with the risk profile of the fund, Mary reveals that they have over 900 applications for funding and are now looking for the best opportunities to invest, but also how to balance the strategic asset allocation and avoid being exposed to too much equity holdings. We also discuss what sets the NRFC apart from other government funding and investment vehicles such as the Clean Energy Financing Corporation and the Future Fund. Let's get started. Mary, welcome to the show. Mary Manning 02:18 Thank you so much for having me. It's a pleasure to be here, Wouter Klijn  02:21 No problem. So can you tell us about what actually the National Reconstruction Fund Corporation is? Because I understand it's created to help diversify and transform Australia's industry and economy, but it also has a return objective. You've been asked to take a commercial mindset to the organisation. Is it as a sovereign wealth fund, a government corporation, a subsidisation vehicle? What is it? Mary Manning  02:47 Great, great place to start. So the National Reconstruction Fund, or the NRF, as we call it, is a sovereign fund. It was set up by the government about 18 months to two years ago, and the purpose is to device diversify and transform the Australian economy. But maybe we can dig a little into what, what that means and and why the NRF was was set up. So the impetus for the National Reconstruction Fund and similar funds around the world, there are a number, that have have been established, was perhaps in the wake of some geopolitical events, and then certainly in the wake of COVID that governments realise that countries need to have some sovereign capabilities. So globalisation meant that, you know, there was a lot of changes in the world, but it also meant that a lot of countries lost sovereign capabilities in in certain areas. And one area where Australia's sovereign capability had been on the decline for some time was manufacturing. And so the Australian economy as as you're well aware, and your listeners will be well aware, you know, lots of very impressive sectors in terms of mining and commodities and digging stuff up, and, you know, putting it on on ships and sending it elsewhere, but not a lot of processing or value add or the manufacturing of those types of minerals, and similarly, a very vibrant services economy, But manufacturing in terms of actually making things in Australia had been on the decline, and, you know, an economy that's structured this way carries certain risks. So covid is probably the best example in terms of, if there's a shock to the global economy and supply chains get disrupted, it's a very uncomfortable and vulnerable place for a country to be to not be able to make certain things. So I guess medical sciences is a great example. During the pandemic, Australia could manufacture hand sanitizers or certain vaccines or, you know, let alone semiconductors and aspects like this. So part of the reason the NRF was was set up, was to make sure that we have these sovereign capabilities. And those are some of the companies that that we're investing in. The next part that I'll add is those are some of the push factors about why the NRF was set up. But in terms of pull factors, as you may know, Australia has amazing research and innovation inside our our universities and world class startups and scale ups, but a lot of these, I. Sort of companies or ideas that are in universities are not making the jump to commercialization, and then a lot of startups and scale ups are actually going offshore because they can't find the financing in Australia. And so another aspect of the NRF is to make sure that these domestic companies or Australian born companies or Australian born ideas stay in Australia and benefit Australia and Australians going forward. So that's a brief intro to the NRF, and I'm sure we'll get into some more of the specific factors in the rest of the podcast.  Wouter Klijn  05:31 Now it's interesting that you mentioned that, that it sort of came out, that COVID realisation, that a lot of manufacturing had disappeared overseas, and we've seen a lot of discussions around reshoring, friend-shoring, but it seems to be more about supporting industry from the ground up. Mary Manning  05:49 Yes, that's exactly true, supporting industry from the ground up and also helping to create new industries. So you know, one of the areas which is a focus for the National reconstruction fund is quantum and you may be aware, but Australia is a global leader in quantum computing and in the supply chain that goes around quantum computing, it's a Centre for Excellence in terms of people who work in the quantum industry. And so this is not sort of a industry that used to be great and then got offshore. This is an emerging industry which is really exciting for Australia, and so that's part of our job also, is to make sure that those new industries emerge and become as important and as powerful as they can be. Wouter Klijn  06:30 Yeah, so we delve straight into some of the thematics in your portfolio there, quantum computing. How did you identify that? Is that something that the team came up with as a thematic or is that part of sort of a policy push into this sector? How does the opportunity get identified? Mary Manning  06:50 Maybe I will take a step back and just outline, sort of the the investable universe of the national reconstruction fund, and then I can go on to where quantum fits inside that. So the NRF has seven priority sectors across the economy in which we can invest. And seven is a lot. So we made up an acronym to to remember the the seven, and it spells red tram. So if you can't remember what the remember red tram. So the R, the first R is renewables and low emissions technologies. The E is enabling. Capabilities. So this is kind of a broad brush term for a lot of aspects of technology. It's AI, machine learning, robotics, space, biotechnology, etc. The D is defence, the T is transport, the second R is resources. The a is agriculture, fisheries and forest trees, and the M is medical science. So if you add up all those seven red tram sectors, it is a huge part of the economy. And one of the things that I did when I started was back to your very first question about sort of sovereign capability and why the NRF was was set up. If you look at those red tram sectors, some of them are sectors or industries where Australia already has a very strong competitive advantage globally. So resources, AG, renewables would would definitely be in that category. And the idea is just to value add more improve those industries and integrate them more into a manufacturing supply chain. The other ones, defence is probably the best example, and medical science is also. These are our areas where you have to have sovereign capability, regardless of whether you have a competitive advantage or not, because it's i

In this episode, I'm speaking with Dr Alan Dupont, who is the founder and CEO of Cognoscenti Group. Alan is a highly respected geopolitical strategist and has advised a wide range of governmental and commercial organisations, including the Northern Territory Government, Asia Society, the Australian Strategic Policy Institute and Outcomes Australia. He has advised several Australian ministers of defence and foreign affairs, and in 2013 established and led the Abbott government's defence white paper team. Alan started his career in government, including as an Army officer, intelligence analyst and diplomat. In this episode, we take a look at the geopolitical turmoil around the world and its impact on economies and investment markets. We discuss the disintegration of Pax Americana, where the US had the balance of power since the Second World War. And we look at the redistribution of power around the world, including the potential of non-state actors to play a role. We examine US President Trump's use of tariffs and the dollar as financial weapons, and ask the question whether the performance of The Magnificent Seven is related to the tech war between the US, China and Russia. __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights __________ Overview of Podcast with Dr. Alan Dupont   04:00 Early interest in geopolitics and working with Michael Hinze at CQS 06:00 We are slap bang in the middle of moving from Pax Americana to another system, which is yet to emerge. 08:30 Kondratiev Cycles and why they are important 10:00 Are we moving into the national security era, where security takes primacy over trade and commerce? 13:00 I don’t think we are on the eve of a new world war. Putin is constrained in what he can do. 17:00 The scope of a fruitful relationship with China is limited by the very nature of its system  20:00 If Australia has to choose between the US or China, then we will get a polarised, deglobalised world and we will have to forfeit a lot of economic benefits from globalisation, which are considerable 21:30 There is a technological and financial war going on 23:00 Trump decided to weaponise the dollar for geopolitical reasons 24:30 Geoeconomics: the use of economic and financial power for geopolitical objectives 28:00 Alan, you called the Iran tensions a few days before the rocket launches happened. What gave you this insight? 32:30 China has its nose in most of the key technologies of the future world. But they are not ahead in the most important one: AI 39:30 Is the technology war part of the reason why the Magnificent Seven have performed so strongly in recent years? Full Transcription of Episode 117 Wouter Klijn  00:00 Hello and welcome to the i3 podcast: ‘Conversations with Institutional Investors’. My name is Wouter Klijn, and I’m the Editorial Director for the Investment Innovation Institute. For more information about our educational forums for institutional investors, please visit our website at www.i3-invest.com. That’s the letter i and the number three at invest.com. There, you can also subscribe to our complimentary newsletter. I3 insights in which we discuss investment strategy and asset allocation questions with asset owners from around the world. Now, as you all know, we love our disclaimers in this industry, so here’s ours. This recording is for educational purposes only. It does not constitute financial advice and is intended for institutional and wholesale investors only. Please enjoy the show  In this episode, I'm speaking with Dr Alan Dupont, who is the founder and CEO of Cognoscenti Group. Alan is a highly respected geopolitical strategist and has advised a wide range of governmental and commercial organisations, including the Northern Territory Government, Asia Society, the Australian Strategic Policy Institute and Outcomes Australia. He has advised several Australian ministers of defence and foreign affairs, and in 2013 established and led the Abbott government's defence white paper team. Alan started his career in government, including as an Army officer, intelligence analyst and diplomat.  In this episode, we take a look at the geopolitical turmoil around the world and its impact on economies and investment markets. We discuss the disintegration of Pax Americana, where the US had the balance of power since the Second World War. And we look at the redistribution of power around the world, including the potential of non state actors to play a role. We examine US President Trump's use of tariffs and the dollar as financial weapons, and ask the question whether the performance of The Magnificent Seven is related to the tech war between the US, China and Russia. Let's get started. Alan, welcome to the show.   Alan Dupont  02:36 Thanks very much. Wouter, pleasure to be here.    Wouter Klijn  02:40 So I had a little bit of a look at your background, and you have quite a varied background, including starting as an Army officer and intelligence analyst. Is that sort of where your focus on geopolitics today come from? Or is it more related to sort of your study? I think you studied international relations. How does one become a geopolitical strategist?   Alan Dupont  03:06 Well, good question, and actually started probably earlier than you think. I always was interested in global affairs when I was even a student at secondary school, and that flowed through into my time as an intelligence analyst, which really whetted my appetite for international affairs, because I was the Vietnam desk officer, and, you know, I was briefing ministers and involved in high level geopolitics from a very early age. And so I re credentialed myself after I got out of the army, I went back to university and decided this is what I wanted to do for the rest of my life. Then the question was, well, how would I be able to do that and earn a sufficient money to keep in the lifestyle that I wanted? Right? So anyway, it all worked out okay, eventually, with a few detours on the way. Yeah, fair enough. So you have a wide range of advisory roles, also to government. But one thing that stood out for me as well is that you are involved with a hedge fund. Michael Heng says, CQ, s, so there's a bit of an investment angle there. What's What's your role with the hedge fund? Yes, well, the the context is that later in life, I was appointed to the chair at Sydney University, and the chair was funded by Michael hinsey. And when I first met him, I said, Michael, do you understand that this is this is actually national security, not financial security? And he smiled as Yes, as I fully understand that. So that began a sort of a long association with Michael, and then one thing led to another, and he invited me to come on to his advisory group to give a geopolitical dimension to his investment decisions, which was quite path breaking at the time. So I agreed to do that, and I served on that advisory group for nearly 10 years. Learned a lot about investment head. Funds, what they do, and I hopefully they learn something about geopolitics. So that was how it all happened.   Wouter Klijn  05:07 I think CQ s is global macro, isn't it? So it's more of a more in common with geopolitics than than, say, other types of in strategies.   Alan Dupont  05:15 Well, well, Michael would tell you there, there's sort of, it's sort of a multi asset investment platform where geopolitics has taken into the decision making in a way that most other hedge funds don't. But, you know, really, I really think it's on the edges, because it's very hard to find a geopolitical trade, per se. You have to be aware of what's going on the world, but what's the trade? You know, it's quite difficult, so it took us a while to work that one out. But no, no, he's been quite sort of bit of a thought leader in the sense that he has brought the two dimensions together to the benefit of both. You know, so, and I think more and more investment companies platforms are starting to factor in geopolitics now for pretty obvious reasons.   Wouter Klijn  06:03 Yeah, we've seen a lot of developments in that space. And you and I have spoken a little bit over the year about this concept of the end of Pax Americana, the great American Peace, and that there will be a redistribution of powers and potentially multiple power centres coming up, even maybe non state actors. Where are we in that shift away from Pax Americana?   Alan Dupont  06:30 So where? Where we are at the moment is right, slap bang middle in the most disruptive part of this process of moving from one system to another one, which is clearly yet to emerge. So if you look at this historically, there are these great wave cycles that macro cycles that shape history. And every 80 to 100 years or so, the existing system starts to break down, and you get a lot of turbulence and unpredictability, just as we're experiencing now. And the bad news is it often lasts for 10 and 20 years before the new system emerges. So Max taxi, Americana, the American Peace is a system that was set up by the victors of World War Two in 1945 all our institutions and our norms were shaped by essentially United States and the West, and now that's under threat from authoritarian challenges and and even under threat from the US president himself, Donald Trump. I mean, in a way, he's trashing the legacy of his predecessors all the way back to 1945 and he's the guy who's really shaking up taxi Americana and saying, we're not going to be global cop anymore. We're not going to carry the burden for everyone else. We're going to look after ourselves, America first, and the rest of the world has to stand up and do what we've been doing. And you can understand why he's doing that, but that's that's another reason why Pax Americana is fragmenting. But will we see a Pax Sinica that is

In this episode of the [i3] podcast, Conversations with Institutional Investors, we speak with Danny Latham, Partner and Head of Australia and New Zealand for Igneo Infrastructure Partners. We discuss the evolution of infrastructure assets, termed "Infrastructure 2.0," which includes renewable energy, digitalisation, and waste management.  Danny highlights the shift from traditional infrastructure to more dynamic, B2B-focused assets, emphasising the importance of cash flow predictability and regulatory risks. He also touches on the role of gas as a transition fuel, the potential of hydrogen, and the integration of water management in infrastructure projects.  Finally, Danny explains his investment strategy, which involves active management, matching up hard assets with good people, and leveraging mid-market opportunities for value creation. Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights  Overview of podcast with Danny Latham, Igneo Infrastructure Partners 02:00 The Four C’s of Lending: capacity, capital, collateral and character 04:00 Funding versus financing; there is plenty of capital in the world, but are people prepared to pay for services and products? 05:30 My first venture into infrastructure was actually a prison in rural Victoria 09:00 Changes in the infrastructure over the last 30 years 13:30 There used to be a perception that these assets looked after themselves 17:00 Infrastructure 1.0 versus 2.0 18:30 Theoretically, infrastructure 1.0 should be a little less risky, but you are trading demand risk for regulatory risk 24:00 Are people taking more risk because of the odd YFYS benchmark? Yes, we are seeing that 26:00 Atmos Renewables, a key example of how Igneo invests 27:00 We’ve moved away from large caps, because we see more opportunities, better bolt-ons and better bilateral deals in the mid-market space 30:00 Today, our focus is on taking ownership stakes of 50 - 100 per cent, so we are driving the bus 35:00 Large, hyperscale data centres today are probably more frothy than other parts of the market 36:30 Australia’s power consumption will double between now and 2050. Where is that power going to come from? The potential conflict between energy transition, decarbonisation, and the reliability and affordability to support growth is a huge thematic across the globe. 38:00 Natural gas does have a long term role as a transition fuel 41:30 In the UK, the last coal-fired power plant has been shut down. In fact, one of the last assets we’ve acquired in the UK was a waste-to-energy asset that is located on an old coal-fired power plant site. 44:00 In a waste-to-energy model, you get paid for your fuel. So it is quite a different model. 46:30 In Australia, we are actually not that good at recycling water. One of our businesses takes wastewater and uses that to water the McLaren Vale wine region. 50:00 Adjacency benefits: Amazon has just bought the plot of land next to our waste-to-energy plant in the UK 54:00 AI and infrastructure; is it all about data centres?   Full Transcript of Episode 116 Wouter Klijn  00:00   Hello and welcome to the i3 podcast: ‘Conversations with Institutional Investors’. My name is Wouter Klijn, and I'm the Editorial Director for the investment Innovation Institute. For more information about our educational forums for institutional investors, please visit our website at www.i3-invest.com. That's the letter i and the number three at invest.com. There, you can also subscribe to our complimentary newsletter. I3 insights in which we discuss investment strategy and asset allocation questions with asset owners from around the world. Now, as you all know, we love our disclaimers in this industry, so here's ours. This recording is for educational purposes only. It does not constitute financial advice and is intended for institutional and wholesale investors only. Please enjoy the show   This episode of The i3 podcast was sponsored by Igneo Infrastructure Partners. As such, the sponsor may make suggestions for topics, but final control over the podcast remains with the investment Innovation Institute.    Welcome to Episode 116, of the [i3] Podcast, Conversations with Institutional investors. In this episode, I'm speaking with Danny Latham, who is a partner and head of Australia and New Zealand for Igneo Infrastructure Partners, a manager that's owned by First Sentier Group. Danny and I are discussing the new wave of infrastructure assets, also referred to as Infrastructure 2.0. What is this and how does it fit in with an existing portfolio of assets? Are they riskier than traditional core assets, and what's their return profile? We take a look at assets such as waste to energy in the UK, where Amazon has just bought a plot next to Igneo's plant, we will discuss gas as a longer term transition asset and the national security aspects of it. Finally, we talked about capturing and repurposing wastewater and of course, AI, please enjoy the show.   Danny, welcome to the show.   Danny Latham  02:26 Thank you very much.   Wouter Klijn  02:27 So tell me a little bit about your background before we get into all the details of the deals and the pipes and everything. Why investing and why particular infrastructure?   Danny Latham  02:37 Sure. Yeah. So thank you. Thank you for the opportunity to be here. So in some respects, sort of my, my journey to infrastructure really started with, I guess my first exposure to the investment industry was more in mortgage securitization, okay, so back in the sort of the early 90s. So yeah, been around a little while, and so as part of that sort of evolution. So been involved in sort of a lot of the, I guess, a lot of the foundations around, sort of credit analysis and the like and, and I guess, sort of some of those learnings for being sort of good stead for, I guess, sort of the subsequent career in infrastructure. And I guess, sort of some of those principles around, if you like the four C’s of lending,   Wouter Klijn The four C's?   Danny Latham  The four C's, yeah, so capacity, capital, collateral and character.   Wouter Klijn Okay, so last one is a bit different than the first three?   Danny Latham  Absolutely. And I think this is sort of a, I think it's probably an hour, an area that's sort of less focused on. But when it comes to investment, investing, whether it be in the public markets or the private markets, a lot runs, we are still fundamentally a people business. And so as part of that people business, character becomes important, right? So who are you dealing with? Who are you backing? What are their values? What are their ideals, in terms of, sort of managing money as part of that fiduciary responsibility, in terms of whether it be in the infrastructure world, about or even in my previous life, in the mortgage securitization world, is, if you lend someone money, are they going to pay it back?   Wouter Klijn  04:20 Yeah, yeah. It's kind of important. What about the other three C's?   Danny Latham    04:29 Yeah. Well, I think that is actually a very direct correlation across to sort of investing in all its guises. So it's understanding where the cash flows are coming from the variability of those cash flows, the capacity of the business to to pay. And this is sort of, I touch on, sort of in other aspects, but it's also about this sort of financing versus funding sort of ability. So I think, as a general rule, there's plenty of money out there to. Finance things. But in a cost of living pressured world, are people prepared to pay for the for the services and the products, and whether it be infrastructure, whether it be anything, so that's sort of that, I think that that funding capacity is often sort of under, under appreciated and and so it doesn't matter what you put into a model you need to under underpin that was sort of saying, what is the partly comes back to the character, what is the ability and propensity of people to pay?   Wouter Klijn  05:32 Yeah, yeah. So we'll go a bit deeper into the investment process later on as well. But do you still remember your first infrastructure deal?   Danny Latham    05:42 I do actually, and and essentially. So if I sort of segue from my journey from sort of mortgage securitization, yeah, into infrastructure. Mortgage securitization was great, and was lending, it was getting people into houses and so forth. But fundamentally it was, it was sort of just financing, yeah, and so for me, I guess intuitively, it was about sort of what's what's more real, and infrastructure became something that is more real. And so I grew up on a farm. My dad was a builder, so a lot of my sort of upbringing was about real stuff. Yeah, yeah, tangible stuff. So that sort of segued into, sort of my, my jumping from sort of financing, which was a little bit less real, into something much more real and tangible. And my first opportunity, as I sort of looked at the as I jumped into that sort of infrastructure space, was actually a social infrastructure asset in in rural Victoria, basically the sale of a prison. So, so a very atypical journey into, sort of jumping into that sort of infrastructure space. But then sort of that was sort of a more of a lending type deal, the real big sort of infrastructure. First asset was the Melbourne City Link deal, where it was, it sort of quite interesting this sort of, we were the, we were the underbidder to what became Transurban, yeah, sort of way back there in the in the 90s. So, so that was sort of the, if you like, that, sort of that start of definitely something real in the context of of a new build toll road, in a fundamental piece of infrastructure in Victoria. Yeah.   Wouter Klijn  07:32 So how do you go from mortgages to a prison, which is a form of housing, to a toll road?   Danny Latham    07:39 Yeah, good question, because if you unpick it all, it all goes back t