Episode 50

Scott Powers on trends in asset management

Scott Powers, director at Sun Life and incoming Chairman, discusses trends in asset management and the benefits of being backed by an insurance company.

Steve Peacher: Hi everybody, thank you for dialing in to this episode of “Three in Five,” this is Steve Peacher from SLC Management and I’m really pleased today to have with me Scott Powers, and Scott Powers has been a director at Sun Life for a number of years and is going to be the incoming Chairman at Sun Life, but also has a career that was spent in asset management, and so very relevant to what we do every day at SLC Management. So, Scott thanks for taking a few moments.

Scott Powers: Steve thanks for having me it's great to be here and I’m looking forward to the conversation.

Steve Peacher: As I mentioned you've been you've run big asset management firms, you've been involved in asset management for your entire career, which spans a long time, not giving away your age. You know the industry has, like every industry has morphed certainly since the 80s when I got involved, what are some of the biggest changes you've seen that may have surprised you the most?

Scott Powers: Steve there have been a lot of changes in the industry and you and I’m a little older than you so when you say the 80s, that's one thing I’m kind of going to hearken back to the early 80s. And what surprised me the most over the course of my career and in many cases the investing careers of the folks that are listening on this call, how resilient financial markets have been on a positive basis since call it 1982. So, we're in 2022 so, 40 years and if you look back coming out of the 70s we had a pretty extended and severe bear market in equities and interest rates were at all-time highs and we had a slow economy, and yet we had inflation, so we had stagflation. And if you had said to me as a young person coming into this business, that we were going to see a 40-year run and largely upwardly sloping valuations for equities, and given the falling interest rate environment, the positive tailwinds and backdrop for fixed income, I never could have imagined that that would be the case. But you know, not to say we haven't had corrections, when we haven't had significant volatility in relatively short windows over that four-year period, but the thing that surprised me the most has been the amazingly resilient capital markets. And that's created wealth for a generation of folks, if they had a combination of a long-term investment horizon and a willingness to stay the course with an asset allocation that was pretty well diversified, as opposed to kind of be more tactical traders or market timers, because I think it's been difficult to show that market timing actually has any real benefit versus a long-term investment horizon of a well-diversified portfolio.

Steve Peacher: You mentioned interest rates and the 40 year decline in interest rates, which has been a huge drivers as you mentioned. As we look forward that may not be there. We've seen a backup in rates recently and mathematically they can't get much lower, though we've seen negative rates. So, when you look forward over the next three years, five years 10 years what do you see as some of the forward-looking trends that are going to shape the industry?

Scott Powers: There's a trend line in in kind of broad asset allocation and the emergence of lower correlated, less liquid asset classes that at SLC you know well, because the whole genesis of SLC was to create the type of skill sets and asset class exposures that we could offer to our clients, both on the institutional side and on the private wealth side, that could give them the opportunity to take advantage of longer term horizons, but less correlated asset classes that provide income that might offset some of the negative returns you see in traditionally traded publicly traded fixed income instruments. So that emergence certainly is it's been in place for a number of years now.  And I see it continuing to emerge, whether it be in real estate, infrastructure, alternative credit. Everyone, in my mind, who has a portfolio, whether it's on the institutional side or on the wealth management side and particularly in the wealth platforms, there's a real demand for that type of investing skill. And the tricky part is creating vehicles and access points so that a broad array of investors can take advantage of those types of asset class exposures. So, I really think that is going to continue to be the trend line and I think that the corollary to this, and this is a more practical aspect of it is, if you look at the emergence of defined contribution plans around the world at the expensive defined benefit plans, creating the types of vehicles where defined contribution investors, ultimately the individual investor, can access those capabilities in a way that fits into the construct of a defined contribution plan. And I also think there's going to be a continued tailwind here because it's been a big surprise to me that over the last 30 plus years we haven't seen the emergence of compulsory investment funding of defined contribution plans, right. And if you look at the retirement readiness of American investors in defined contributions plans it's pretty bleak. And you only have to look down to Australia to look at the superannuation funds that have a compulsory funding at 10% of earned income, so those could be you know more tailwinds to the investment in alternative asset classes such as we have at SLC.

Steve Peacher: It’s interesting, in that vein I saw this weekend there was a fair amount of reporting would cryptocurrencies be allowed inside a 401k platform, and that'll be an interesting one for the industry and regulators to wrestle with. As I mentioned at the outset you've been director at Sun Life for a number of years and, of course, within Sun Life, MFS for many years, but recently SLC have added to the asset management component of have Sun Life’s business and it's now a major component. And given your background and given your directorship at Sun Life, what would you say are some of the advantages that an insurance company has when it owns and is involved in asset management and what are some of the challenges that an insurance company may face by being involved in the industry?

Scott Powers: This is a great subject it's been kind of debated many times over the years as to whether insurance companies can in fact be good quote unquote owners of asset managers. The landscape is littered with lots of examples of how it can go wrong. But I think most of those missteps were really related to culture, and I think the thing that Sun Life has done really well, and it's got a proof statement in it's long standing relationship with MFS, is Sun Life appreciates the difference between an asset management culture – which is really kind of intellectual capital lead and the ability to kind of provide an independent environment where investors can gather together and feel like they're pulling their oars collectively toward an outcome that benefits clients and then get rewarded for that – and an insurance company which is typically more financial capital lead. So, a big part of in the insurance company success is having strong capital, having a strong balance sheet, being able to match the long-term liabilities that derive from insurance products with a portfolio that is skewed toward long and very stable results. The two cultures, asset management and insurance, have a lot in common, but they have some very distinct differences. And I think most times where I’ve seen insurance company’s misstep in asset management is when they fail to recognize those differences in culture. And so, autonomy, independence, the freedom to make good investment decisions based on your clients’ expectations, those are things that are critical for success and asset management, and I think Sun Life really does stand, if not alone, then in very select company with insurance companies that understand the asset management business and are willing to take a long-term view of success in asset management, so I think we're well positioned there.

Steve Peacher: We certainly feel, every day, some of the dynamics you just mentioned, which is Sun Life’s willingness to accept different cultures, but then also have that stable support behind the asset manager and the ability to co-invest, which is a real advantage of being connected with a financial institution that's highly rated with some similar investment objectives.

Scott Powers: Well Steve, that co-investment benefits the insurance company, because we get access into the general account portfolio to skill sets that we might not be able to get otherwise. And it's a great proof statement to our clients that you know we eat our own cooking and we're investing side by side, alongside third-party clients that you're providing SLC capabilities to, and that should give the client some comfort and it certainly is a significant advantage for Sun Life as well.

Steve Peacher: Can we pivot quickly here at the end here and ask you a personal question – you were a hockey player in college, rough and tumble sport. So, how did that experience impact your career?

Scott Powers: I was thinking about this recently because I got a bunch of my old college teammates together to see the Frozen Four in Boston we got together and we're comparing notes over a long time away from each other, and we all collectively kind of agreed that the things you learned in that locker, the things that we learned on the ice about teamwork, about trust, about accountability and responsibility to do your job. And everybody on a team like that has a job, they've got a role to play, you may not like it all the time, right? And some of the things that I had to do to ensure the success of the team weren't exactly covered me and personal glory. But you know, knowing that everybody in that team depended on me doing my job, just as I did on my teammates doing it, really is a corollary to success in our business. Because you know, not everybody is going to be that topflight portfolio manager. Somebody's got to go out and do the blocking and tackling, people have to go out and gather assets, we have to make sure the client experience is great. So, it's very, very similar and analogous to being on a team where everybody's got a role to play, and if everybody does their job you can have great success and there's nothing more gratifying.

Steve Peacher: Well, we talk about that all the time, actually, this is a team sport, maybe a full contact team sport, and to some extent it's one of the reasons I think Covid has been a challenge, because I think teams need to be together and work together to maintain that culture and it's certainly, I couldn't agree more, it's key to the success that asset management, you have to think like a team, and if you do that then you could do the best job for your clients, so we try to focus on that every day.

Scott Powers: Well, it's been great to see over the last five plus, now seven plus years since SLC was originated, to see the success, to see the growth and assets, to see the great results we're delivering to our clients and see the collective success of the various companies that have come together. And I really think it is the sum of the parts are worth a heck of a lot more than their individual contributions, and we're looking forward to seeing more of that in the years to come.

Steve Peacher: Well, thank you Scott for taking some time today, I really appreciate it, and thanks everybody for listening in to this episode of “Three in Five.

 

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