June 30, 2025 • 50 mins
In this episode, I speak with T.C. Wilson, Chief Investment Officer of The Doctors Company (TDC Group), the nation's largest physician-owned medical malpractice insurer with $7 billion in assets under management. T.C. shares how he built an internal investment office, how insurance investing differs from endowment and foundation models, and why he treats surplus like an endowment portfolio.
We dive into his framework for portfolio construction, his views on innovation in asset management, the underrated value of evergreen structures, and the specific ways GPs can tailor their approach to win over insurance LPs. T.C. also shares why he’s cautious on large-cap private equity, how he thinks about downside protection, and what extreme ownership has taught him as a leader.
If you want to learn how a CIO with decades of experience invests across public and private markets with an eye toward solvency, surplus growth, and long-term resilience, you’ll want to listen to this one.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
So tell me the story of how you became the CIOof TDC Group.
(00:04):
It goes back to 1996, when I left Mercer.
I moved, into the investment consultingpractice where I kinda learned about asset
allocation, investment policy work, managerresearch.
'96, I had the opportunity to start, aninstitutional consulting group with a local
broker dealer, in Richmond, Virginia.
They had a large producer who had a couple ofbigger accounts, institutional accounts, and
(00:29):
many of them were insurance companies.
One was in San Francisco.
So a couple times a year, I'd go out to SanFrancisco.
It wasn't the doctor's company.
About three years after that, the CFO of thedoc of, of that company that I was consulting
to introduced me to the CFO of the doctor'scompany.
(00:50):
Yeah.
He was in need of external investment guidance.
Portfolio had grown about 700,000,000 inassets.
So that that kinda started my involvement withthe doctor's company for eighteen years.
So in 02/2017, the TTC portfolio had grownabout 4,000,000,000.
So I approached him.
I said, look.
You've known me for eighteen years.
You know, I I love the way this company ismanaged.
(01:13):
I really see an opportunity for growth, notonly personally, but for the company as well.
So in September of seventeen, I became thefirst CIO, and I proceeded to build an internal
team, kind of like a internal consulting teamwith staff that was already on board.
And it was very important to have that support.
(01:33):
While I had the investment background for allthe reasons that I mentioned and what I had
learned over the years, a few things that I Ididn't I wasn't aware of, it was treasury and
cash management, and investment accounting.
So I I chose two individuals identified twoindividuals, in the company.
Wilma Uribe, she is my, director of investmentsand treasury now, and then Harlan Shadig, who
(01:58):
is in director of investments, but he has thatinvestment accounting expertise, which is which
is critical to my job.
So, with them, you know, we've beeninstrumental in the growth of our portfolio.
We're at 7,000,000,000 in assets undermanagement today and about 3,200,000,000 in
surplus.
Insurance companies like endowments have thisoutflow of capital every year that they have to
(02:21):
make in order to satisfy the insurancepayments.
How do insurance companies differ fromendowments and other type of allocators, and
what makes them unique as an asset class?
First of all, we are not tax exempt, so wedon't have those those requirements.
We are a taxable entity.
(02:41):
And and, really, it it comes down to, you know,what our our claims are and what the severity
is and being able to meet the obligations ofour shareholders.
I'm in a very unique position with a verystrong company where I've never had to sell a
security to pay a claim.
(03:02):
We are positive cash flow, so we don't have anyrequirements, if you will, similar to
endowments and foundations to distributeassets.
You guys have a $3,200,000,000 surplus asinsurance company.
How does that change the way you go aboutinvesting your capital?
The the surplus, it's important.
It's one of the key indicators of our financialhealth, and it was a reflection of how well our
(03:26):
company has managed.
It's really important because it does reflectour ability to absorb losses and remain
solvent, even during the most extreme periodsof high claims.
And it also allows us to remain reasonable whenwe seek to raise rates, and and increase
premiums.
Now from an investment perspective, it gives myteam more latitude when investing across, you
(03:47):
know, whatever asset classes are out there.
You know, having more surplus and somebody toldme this years ago, and I've always kind of
applied it to surplus.
Treat the surplus kinda like the traditionalendowment foundation model, whether it's sixty
forty equity debt, seventy thirty, whatever.
You know?
That's where you can that's where we can takeour risk, and our risk is anything that's mark
(04:11):
to market and includes equity and many otherasset classes.
It's the fun part of the job.
Right?
Because 3,200,000,000, that's a portfolio.
I can invest, in basically anything that'sallowed by the states, and, it's a pretty it's
a pretty wide range.
So, our strong surplus is a competitiveadvantage.
(04:33):
So when it comes to attracting new members, youknow, members want to work with a company
that's financially secure.
And and clearly, we're one.
We're rated a by AM Best, which is excellent anexcellent rating and with a stable outlook.
And, surplus is is certainly a part of thatassessment.
And you alluded to it.
(04:53):
You're a taxable investor.
How does that change how you invest in yourportfolio construction versus maybe a investor
like a foundation or an endowment?
We do have a small allocation to municipalbonds, you know, that that obviously, you know,
have have tax exemptions on the income, but itreally doesn't change it too much.
(05:19):
All of our assets are externally managed.
Okay.
So where it does impact us is if our manager ifwe get a high turnover manager in our
portfolio, that usually doesn't bode well forus.
We don't have any.
Right?
We don't want them booking gains or lossesactually okay, but we don't want them booking
excessive gains.
I know that sounds kinda counterintuitive, but,we we, me and, my team
(05:44):
So you're you're taxed on the distribution ofcapital, not just all things being equal, you
want it to compound a while before it comesback into your portfolio.
That's correct.
So, you know, that's it.
So, again, I think that was a longer answer towhat you asked, but it really doesn't impact us
too much with the exception of what I justdiscussed.
We don't want that high turnover manager.
(06:06):
I don't wanna age you.
You've been asset management for thirty fiveyears.
You certainly don't look that way.
But going back to 1990 at Mercer, you've beenreally compounding your knowledge in the space.
What do you believe differentiates the GPs thatgo the distance versus those that maybe do one
or two funds?
What are some of those differentiating factors?
(06:27):
You know, I hate to use a word that we hearevery day or read about every day, but, you
know, and it's, changes definition over theyears, but it's innovation.
You know, clearly, those that have embracedinnovation and expanded their investment
management options, they've persevered becausethe universe, as you're well aware of, and
(06:47):
investment options has grown significantly.
You know, the public available, security,universe has shrunk, but that doesn't mean
there haven't been other options.
And those have kind of embraced that, certainlyhave persevered.
You know, there are more vehicle options, forcompanies like mine who like liquidity as I
discussed earlier, having an evergreenstructure or these rated feeder notes that have
(07:11):
come up lately.
Those those really, resonate well with me.
And those are more kind of recent.
I know we're looking thirty five years.
Most of those are in the last, you know, fiveto to ten years at most.
I think some that have persevered have madesome of their products more accessible to
retail investors, like exchange traded funds.
(07:32):
You can go back and look at a twenty five yearhistory and the growth of ETFs.
It's just been extraordinary.
I don't think I'm gonna see it stopping.
In fact, I was in DC this week at a fixedincome leaders forum, and they were talking
about ETFs and fixed income, which basicallyweren't available or not not available or
weren't as prevalent, you know, not not toolong ago and how that's expanding.
(07:54):
And we use a lot of those.
On the alt side, you know, we see a lot offirms that are you that are surviving that are
not using leverage as much, and they're usingmore kinda operational improvements.
Obviously, that gets into AI, and that's awhole another discussion, And those who are
(08:15):
willing to cut fees.
Fee compressions, I don't think Christina endof that.
Now last thing I'll say, given my, again, myMercer days, but really when I left Mercer and
joined this regional broker dealer who had theinsurance, and I started learning about
insurance, investments.
It was it's an it was a different world.
Those who, can provide regulatory support.
(08:38):
So just think outside of investment, onlyinvestment management services, But those who
can provide some of the other bells andwhistles, if you will, for me, certainly have
persevered.
So if they've, like, carved out internal teams,to support noninvestment insurance management
needs, so think about operations, filings,rating agency support.
(09:01):
Anything that's kind of, you know, additive oraccretive to just straight investment
management, those companies have have certainlygone the distance.
What's an example of a firm that's done thatwell, and what exactly have they done?
And there were some that were doing it in themid nineties, and I first when I first met
them, you know, I'm really gonna date myself,and many of your listeners might not even know
(09:22):
this firm, but, you know, Scutter, Stephens,and Clark, you know, back in the mid nineties,
they had a big insurance, group, and theybasically took me under their wing, taught me
all the the ins and outs of insurance assetmanagement, but then they went beyond that
because they already had that team in place.
So, other companies that have come in, and Imentioned earlier, they've started to
(09:47):
understand our business a little bit more,understand the challenges that we face from a
regulatory perspective mainly, and then from areporting perspective.
So the creation of, like, rated feeder notes.
Right?
That's been really good.
The evolution of private credit in the vehiclesto get access to private credit.
You know, the that's a market that's expanded.
(10:09):
So those that are kind of open to, to thoseideas and willing to commit the resources to
it, certainly, you know, meet our initialscreens and then some.
Tell me about rated feeder notes.
So the rated feeder note let me just use anexample that we're invested in.
So we've got we've got a limited partnership.
(10:29):
We're invested in limited partnership, that hasa rated feeder note structure.
80% of that LP is a note that's yielding 8%.
It's a fixed rate, so we're getting that 8%.
The other 20% is the equity piece.
So, it can be mostly it's it's mostly inprivate credit.
(10:50):
So when I say the equity piece, it's the piecethat's mark to marketing adds the juice over
top of that, that 8% note.
The beauty for investors like me, when I amrestricted on my schedule b a and I am
restricted by my state my state my statutory,laws, I don't have to count that 100% of that
(11:14):
LP on my schedule b a.
I get to take that 80%, move it over from b aonto my schedule d.
And then so I'm only counting 20%.
So all of sudden, I'm getting a diversifiedexposure to market.
In this instance, I'm referring to middlemarket direct lending, but I'm not having to
account for 100% of my allowable limit in that.
(11:39):
And this is extremely attractive to insurancecompany investors.
Yeah.
Because of the income and then because of theaccounting benefit.
Yeah.
Because you get to put that that 80% orwhatever it is on schedule date.
Perhaps it's a little bit naive.
Insurance strikes me as one of those industriesthat has 8,500,000,000,000.0 in assets that a
(12:01):
lot of managers somehow don't focus on.
Managers think oftentimes about how do youdifferentiate yourself to LPs?
Well, one way to differentiate is to appeal toa certain part of LP based, like insurance
companies.
What else what are some other best practicesfor how managers could make themselves more
attractive to insurance company investors?
(12:21):
Knowing our business, right, I think it'simportant.
Go back to the mid nineties, Scudder, Stevens,Clark.
They understood insurance.
So they came in.
They were telling me things I didn't even Ididn't even know existed.
Yet here I was, you know, as an OCIO, and Ishould know these things.
But it's really kinda knowing our businessoutside of the investment manage space.
(12:43):
There are plenty of great managers out there,who can manage assets and total return, in ad
alpha, over the long haul.
But in our space, if you understand ourbusiness, understand the dynamics that we're
faced with because it's always changing,understanding our accounting requirements,
understanding the regulatory environment.
(13:04):
I think those are ways that, you know, managerscan certainly, you know, distinguish
themselves.
We don't have managers that are simply managingto a benchmark, which is kinda
counterintuitive, that, you know, here here's amanager.
They want our business.
And the first thing they say is, well, here'sour track record.
I'm like, okay.
(13:25):
What's your track record to my guidelines?
They're like, well, we haven't seen yourguidelines.
I'm like, exactly.
So the ability to customize portfolios, for usis critical.
And we've had a we've had some good managersthat have been able to adapt kind of their
standard strategy into what's best for thecompany.
I asked this question of like, what are thecouple things that you need to know for
(13:46):
insurance companies?
But the real answer is you need to spend yourtime and know your customer.
It's like selling software to a tech companyand knowing nothing about tech companies.
You can't just get one or two insights abouttech companies.
You have to go in there, spend years kind ofdeveloping this competency.
You've had multiple decades in assetmanagement.
You're in the OCIO space.
(14:06):
One of the things that I'm really trying todouble click on is how do managers get from
monoline to, you know, Blackstone at the at themost extreme?
How do they evolve from a fund to a franchise?
What have you found to be some keycharacteristics or leading indicators that a
manager will be able to cross the chasm ofbeing a monoline fund to an a large asset
(14:31):
manager?
It's it gets back to the innovation that we'vetalked about and the ability to to kinda have a
little humility and say, okay.
We're not doing things as well as we should.
We need to expand our options and ourstrategies that that we offer.
And, you know, those that have done thatcertainly have have have persevered, through
(14:55):
some pretty challenging times.
The the ability to kinda think outside the box,always looking to improve.
There are a lot of companies and managers outthere who, hey.
We do this.
We do it really well.
We really don't we don't wanna kinda kinda moveto the next level.
That's fine.
You know, they may get hired for their specificniche, but, longer term, there's gonna be a
(15:17):
market that's really gonna impact that onestrategy, and it's gonna blow that firm up.
I've there's plenty of examples to go back tothe .com bubble, and the GFC.
But those, again, who have been use innovation,evolve, and always look for improvement, I
think that's, you know, that that's a telltalesign of a successful company.
(15:38):
Sometimes not taking a risk and expanding couldbe extremely risky because you have a chance of
blow up any year.
Some percentage chance of blow up even of theentire asset class.
Maybe the entire asset class will no longer beinvestable or will not be hot.
Diversifying multiple funds itself could couldbe diversifying.
You you mentioned innovation.
I'm gonna ask you to pick one of twostrategies.
Do the best managers push innovative productsto LPs?
(16:03):
Or are they more pulling?
And I know push could have a negativeconnotation, but are they more kind of first
principle to here's what I think the marketshould have, and I'm gonna now educate my LP
base?
Or is it more like LPs are asking for this,We've run internally.
We think it, you know, matches the the criteriafor a good strategy.
We're gonna now release that.
(16:24):
What have you seen in your experience?
Yeah.
I've seen a little bit of both, but, more ofthe former.
So push might might not be the right word.
I'll say, I'd rather use introduction.
The good managers have come to me and said,hey.
This is what we're thinking about.
This is what the market is looking for.
We're getting some feedback.
(16:45):
Here's what we're doing.
We're not doing it now, but we're starting toput this in place.
And in twelve months from now, we're gonna havesomething up and running I think you're gonna
be interested in.
Now that gets my ear as opposed to, hey.
Here's what the market's asking.
We created this last night.
You know, here here are the terms.
You know, are you interested in getting in?
(17:05):
No.
Thank you.
So those ones that are more patient, and it'susually the larger firms that come in with that
approach as opposed to the smaller ones reallytrying to ramp up AUM overnight, you know, in
the latter, example that you that you wentthrough.
When I sat down with Cliff Asness, he said, I'mnot
a
broker.
Meaning, he doesn't just do trades that peopleask for.
(17:28):
They have to they may get ideas from theircustomers.
They may get a sense for what customers wouldwant, but it has to be this co centric of
something they would put in their own money andsomething that customers want.
Yeah.
It's exactly right.
I agree completely.
You guys are at 7,000,000,000 AUM.
After your acquisition, you'll be at12,000,000,000 AUM.
Tell me about your portfolio construction.
(17:49):
So, it is the proposed acquisition.
You know, that was announced back in mid March,and expected to close in the first half of next
year.
So right now, I'm just focusing on that7,000,000,000.
We're an insurance company.
It's a general account.
We're relatively conservative.
80% of our portfolio is in what we call nonVAR.
(18:10):
So we that's non value at risk.
And for us, being private and being a statutoryfiler, these are assets that we don't mark to
market.
The other 20% is in, you can figure it out, theVAR.
So the value at risk.
That's kind of the fun stuff.
Right?
That that's that's everything that can be markto market.
(18:31):
So, you know, that's kind of our general toeighty twenty.
And, again, after tax income is our primaryobjective.
Broadly speaking, looking 100% general account,we have about 50% in, US investment grade
bonds.
We have you know, there are minimumrequirements, that we have to have, in that
area, but we complement that with a significantlist of different assets, whether it's US
(18:55):
treasuries, short term credit, short duration,high yield.
Real assets, we love.
We ramped that up a couple years ago.
It's real estate, infrastructure, renewables.
We have a dedicated convertible bond portfolio.
We do have US stocks mostly passive through theuse of ETFs, private debt, private equity,
opportunistic credit, and even some venturecapital.
(19:18):
I know we said I said earlier, we we we wekinda stay away from that, but, we do have a
little, a little bit of exposure to that area.
And you mentioned some income producing assets.
In the 20% value at risk, double click on yourportfolio construction on, you know, the the
value at risk, what you call the fun stuff.
What's in that portfolio?
(19:39):
The whole objective, this goes all the way backto my cutting my teeth at Mercer on on
portfolio construction.
At the end of the day, we want the best riskadjusted returns with a with a little bit of an
income kick.
And we've we've been able to do that.
So in that 20%, we target 50% public equity,25% real assets, and 25% of other.
(20:03):
Our equity portfolio has about a 5% dividendyield, so you can kinda see, you know, where we
are with that.
It's more on the value side income generation.
So we're not really holding the S and P.
In the real assets, we've got, real estate,infrastructure, renewables.
Then in the other section is where I hold myLPs and non rated, ETFs.
(20:26):
So I think opportunistic credit, privateequity, venture capital, and then that equity
sleeve and the rated feeder note that Imentioned earlier.
There's this meme now that private equity hasnot done as well last few years, and there's
different views on whether it's gonna be agreat asset class in the future.
(20:46):
How do you how do you look at private equity inthe next five, ten, twenty years?
I kind of agree with with that meme, if youwill.
We take a different approach.
So our private equity investments, and thiswas, again, a unique opportunity, and it was
(21:07):
really me knowing people or people knowing meand my needs in the field, out there.
Someone came to me a couple years ago and said,hey.
I got this great private equity investmentopportunity for you.
It invest in the portfolio is alreadyestablished.
All your capital will be called on day one.
You'll get a 4 and a quarter percent dividendyield.
And, oh, by the way, if you want an off ramp infour years, you can put in redemption and have
(21:29):
your money back in five in a year.
So that's not your typical private equity, butit was great.
I was like, okay.
I kinda get this, but I need to understand alittle bit more.
So the the the the companies were alreadyestablished and had strong cash flow, and the
investor, the GP went in there and said, we'renot coming in here to change everything.
(21:51):
We're injecting capital to make it even better.
We're keeping management.
We're keeping staff.
We're keeping, you know, the way that thingshave been done, but we're gonna make things
better.
And it spanned a bunch of different industries,including some that were health care related.
So, again, for us, private equity has adifferent definition than the standard that
(22:12):
we've all come to know.
And, again, we're not we're not investing in insomething that twelve to fifteen years, we're
gonna have to wait and see what the what ouroutcome's gonna be.
Just to play devil's advocate, there'sliterally millions of private companies under
25,000,000 revenue.
It seems like an infinite pool of potentiallyinteresting companies.
(22:35):
Why are they so bearish on private equities, oror is it just late stage and and large cap
private equity that people are more bearish on?
Yeah.
I think it's I think it's that.
I think it's the late stage, you know, thatthat's where people are more bearish on it.
We're we're more, proponents and supporters ofkind of early stage, especially if it can tie
(22:57):
back into that mission that I mentionedearlier.
So, yeah, I'd have to agree that, you know,very bearish on the late stage.
And there it's just so many companies outthere.
And I know the private universe is expandingovernight, but there are just so many companies
out there that that are trying to do this now.
You know, you can invest in 10, and all ittakes is one or two, and you're gonna hit a
(23:20):
home run with the fund.
But we don't really wanna take that type ofrisk.
You're a big fan of evergreen funds.
What are the different types of evergreenfunds, and which ones do you like to invest in?
From where it gets back to reporting.
So if it's not an evergreen fund and say weinvest in fund two of whatever, just pick
anything, And that closes, and then we love it.
(23:41):
And then fund three comes up, like, okay.
You can invest in fund three.
Also, now I've got two separate items that Ihave to deal with, that I have to report on,
that I have to account with, and I'm locked upfor significant amount of time.
The beauty about the evergreen funds, at leastfor us, is that it's only gonna be one,
investment over time, and we can add to that ifwe if we want to.
(24:02):
So I think that's very important.
And then, typically, most have favorableredemption terms where I can get out in thirty
to sixty days, which is pretty good, when whenyou're thinking about a more illiquid
investment.
That that hits, that hits home for us and isright in our right in our wheelhouse.
(24:23):
There's a bit of a paradox also with theseevergreen structures as a taxable investor.
If you think about a private credit fund havinga certain term term limit, so ten year fund,
another way to look at a ten year fund or afive year fund is that it's a forced
distribution.
So whether or not you need liquidity at yearfive, you're forced to take it out.
(24:44):
You're gonna get it.
So you Correct.
You have you have zero liquidity until month60, and then 60 month 60, you have forced
liquidity.
Obviously, there's there's extensions,different investments, return capital,
different amounts.
But with an evergreen fund, you really do havethe best of both worlds in that you have
liquidity when you need it, but you also don'thave liquidity when you don't need it.
(25:08):
So you're not forced to take liquidity andforced to take the the tax hit.
That's a great point, David.
And and for the doctor's company, we do look atthat, and it is nice.
If we need liquidity and need a redemption,it's nice to have that lever, but we don't ever
expect to pull that.
Right?
The only reason we would pull it is if the teammanaging the fund up in left or there were some
(25:31):
significant organizational issues there.
So we wanna continue to grow, but that's a verygood point.
If I did need it, if I did have liquidityissues, if I didn't have a strong cash flow as
as I do across the portfolio, then then itwould certainly be helpful to be able to
withdraw when I wanted to.
Investment management space for thirty fiveyears.
(25:52):
You've seen so many cycles up and down.
Do you focus on preparing for the next downturnand how the doctor's company and how your
investment committee will act in the nextdownturn, or is this something that you take
just in time?
Well, it's definitely not something we takejust in time.
And, you know, in our business, there's basedyou know, there there's the underwriting.
(26:18):
Right?
And then there's the investments.
At the underwriting, we're taking on risk allthe time.
So we gotta kinda always have that balance withthe investment side of it.
So we do look at our investment portfolio, in avery conservative nature as I mentioned
earlier.
But downside risk protection is very importantto us.
And, you know, I can give you a great exampleas it applied to the doctor's company.
(26:42):
I went through all the assets that wereinvested in, or at least at least the asset
classes that were invested in.
And it was hard.
So you think of 2023, 2024 when the S and P wasup 25% each year.
We weren't up that much in our risk portfolio.
Right?
We were up, you know, ten, eleven, 12% eachyear.
(27:03):
You know, it's hard sitting back and seeingthose unrealized gains, you know, potential for
unrealized gains, not available to us justbecause of our strategy.
I could have easily changed, but I didn't.
Fast forward to 2025, peak to trough, this yearwhen the S and P was down 19%, you know,
through that April, we were down not even 5%.
(27:29):
So that's really a testament to, the the focuson risk that we have.
Not a proud that we lost money, but, it reallywas a reflection of, hey.
We've kinda built the portfolio to withstandthese significant drawdowns.
We're gonna give up the upside.
We capture about 65% of downside historically,but we only capture about 90% of the up.
(27:54):
That's okay.
That's kinda consistent with our overall,philosophy of the investment and the overall
management of our company.
Couple years ago, I listened to an interview byStan Drunkenmiller, arguably one of the
greatest traders of all time.
And he said that nothing looks as cheap asafter it's gone up 40%.
So a stock goes up from $10 goes up to $14, andyou're like, this is a great time to buy.
(28:18):
And it's this evolutionary wiring that we had.
And as soon as I heard one of the greatesttraders in history say that I gave myself the
grace knowing that I could never have a betterpsychology than the best trader in the world.
So I focused more on structurally building myportfolio that's resilient to these kind of
(28:39):
Yeah.
Evolutionary biases versus trying to go againstmy programming and trying to be a better trader
than Stan Drunkenmiller.
It it's so easy to say, and I agree completelywith you.
But so go back to the first week of of Aprilthis year, and the markets again were down 20%
or we'll just I mean, yeah, we'll just callthem 20%.
We actually put some money to work.
(29:00):
Right?
Because history shows when the markets are down15%, they may go down a little bit more, but
history clearly shows that, you know, you'regonna get it right more times than not over the
over the long haul.
So I kinda had to hold my nose and, and and putmoney to work.
But, to your point, you know, it just it wasthe right thing to do, and I had some excess
(29:25):
there.
And I know since we're strategic with ourinvestment approach that, you know, putting a
little bit to work at that time, could onlyreally help over the long haul.
And it's been two months and it has helped, butit's still too early to tell.
It's it's hard to think about this withoutthinking from a evolutionary biology
standpoint, where basically you have theamygdala, which is our oldest part of the brain
(29:48):
that's kind of fight or flight.
And then you have a prefrontal cortex, which iskind of the human brain and the rational brain.
And a lot of people focus on how do you turnoff the amygdala, and how do you like not
panic.
But the answer is actually building up thefront part of your brain.
And how do you do that?
You do that through studying history, seeinghow markets fluctuate, and really getting more
(30:10):
and more conviction and taking right action atthe right time versus focusing everything on
how do you not panic.
Because that's Yeah.
Both that is actually what's even deep moredeeply wired in our brains from an evolutionary
biology standpoint.
Much easier to say it than to do it, but doingit is is certainly set.
And there's a sense of satisfaction when you doit because you know it's the right thing.
(30:32):
It's just as hard.
So It's it's one of the things I've beenexploring, the the virtue of illiquidity.
It's a paradoxical belief that actuallyilliquidity in many ways and in many contexts,
not in every context, of course, and you alwaysneed some liquidity, but could actually
severely hinder your portfolio returns.
And what's most interesting to me and maybemost entertaining kind of in a in a dark way is
(30:58):
that when I talk to people about this, theyalways say, yeah.
I get it.
Other people, they they panic.
That's not gonna be me.
And then every single every single crisis, andthen I literally just saw it in April.
It happened again.
It's like, no.
I could control myself.
And then they sold again.
It's almost like Groundhog's Day, seeing peopledo the same illiquidity value destruction over
(31:22):
and over and always thinking, like, next timewill be different.
Right.
We we spoke earlier a bit about you're not asbullish on private equity, specifically large
cap.
What would compel you to invest in a newprivate equity manager today?
If it aligns with our mission, I think that'sthat's a benefit.
(31:44):
So the the private equity investments that wedo have, the small amounts, really have
investments that somehow impact health care.
And, you know, that that's that's veryimportant.
And there's there's just a few companies outthere.
So if you bring me an idea that has that, I Ithink, you know, that's very compelling to me.
(32:06):
But you also have to have a track record, and Iknow you mentioned smaller kind of, you know,
start not start ups, but but smaller firms thatare coming without with a private equity
strategy.
And I know they don't have a track record inthis, in this specific mandate, but I did need
to know that there's experience, in similar,situations or similar type portfolios that I
(32:29):
can go back and say, hey.
These guys just didn't, you know, open up ashop, put a shingle up yesterday, and also
we're gonna do health care, private equity.
They've gotta have some kind of they've gottahave some kind of background in that.
We don't mind being early.
You know, I I love being in this positionbecause being a seed investor or an early
(32:50):
investor, if we do our homework and our duediligence and spend our time understanding it,
when I say we, it's me and the team that Imentioned earlier.
You know, we it it may kinda pass our finalscreens.
So I I think that's, you know, something thatthat has worked well for us recently, and it's
(33:11):
something we're gonna continue to build out.
There's a famous study in 1986, Brinson Hoodand Bebauer that showed that 90%, 90% of
returns came from portfolio construction, notmanager selection.
This was 1986, so I was one years old at thetime.
This was nearly
40 ago.
Book, by the way.
(33:31):
So do you believe that that still holds todayfour decades later?
Yeah.
I don't know about the 90%, but I woulddefinitely say a majority comes with the asset
allocation decisions.
And I don't know what the number is.
I mean, that was that's a dated study.
(33:52):
But the challenge is, you know, with theevolution of passive vehicles and, you know,
you can get that beta in almost any market now,you can get beta, exposure.
Take the risk and pay the fees for activemanagement when you can get beta and say that
90% still holds today.
That's where you're gonna make all your money.
(34:12):
Just set a strategic asset allocation.
Go ahead and invest across whatever you believein, and, you know, that should hold true.
So I'm gonna say yes.
I still believe it.
I just don't know what the exact number is.
And being strategic and not trying to time themarket, is very important.
And that's us.
We talked about we we we talked earlier, wetalked about, you know, not making moves, you
(34:36):
know, when the markets are, you know, rampingup or or drawing down significantly, not making
major moves, especially on the upside, how thatthat hurts long term.
So strategically, if you're an asset allocatorlike I am, kind of sticking through those tough
times, I think you're gonna be rewarded at theend and that's consistent with that study.
(34:58):
I also think of it from the size of the LP.
So if taken to extreme, you have a$1,000,000,000,000 LP that's made thousands of
bets.
They're essentially gonna get the beta of theirstrategy.
Not beta or not S and P 500, but they're gonnaget the average of their portfolio
construction.
Some managers will outperform, some managerswill not perform.
But if you have somebody investing $10,000,000,they might it might be much more about manager
(35:23):
selection because they're able to say, wantthis manager.
I want don't want this manager.
So it's also, I think, a function of the sizeof the LP as well and and the LP strategy, not
just the GP strategy.
Agree.
And to be honest with you, yeah, when I wasable to as a consultant, I was in many
boardrooms, and we spent a majority of the timetalking about relative performance.
(35:44):
You know, why a manager particularly on the onthe downside, why a manager was was
underperforming.
There may have been some that wereoutperforming, and, typically, there were.
But it just seemed to me, and and I believe inactive management, to a degree, but it just
seemed to me, why are we spending all this timetalking about, you know, underperforming by
(36:06):
ten, twenty, 30 basis points?
And why aren't we spending more time on thestructure of the portfolio, which asset classes
we should be investing more in or making ortake making tactical shifts in either to the
upside or the downside.
And it just kinda got old to me.
So that's one of the reasons the doctor'scompany is mostly passively managed on the
(36:28):
equity side.
And then even on the some things outside ofequity, we're getting beta exposure on that.
My boardroom, we're not talking about relativeperformance.
We're talking about things that are happeningnow, things that are happened, that that we're
planning to do in the upcoming year, in theupcoming months.
And I think that's just been more productive,in our room as opposed to, again, talking about
(36:51):
man why managers outperform or underperform.
I think that's one of the reasons our managerslike me because they always used to start with,
hey.
Here's my performance.
Here's my benchmark.
I'm like, stop.
I know your performance, and I know yourbenchmark.
Tell me about what's happening in the portfolionow and what you're thinking going forward.
Shock when I say that.
It's so interesting because if you think aboutthe energy or the conversations that might
(37:16):
happen on IC level, there is an opportunitycost.
So one would say, why not optimize?
Why not get the last 10 basis points on yourrelative performance?
Of course, you wanna have that in a theoreticaluniverse where you have millions of hours.
If you have finite focus, finite energy, youshould be focusing it on the thing that
matters, not on these kind of long tail issues.
(37:38):
I
agree.
You just mentioned your conversation with GPs.
What are some pet peeves that you wish GPswould avoid when dealing with LPs?
That's pretty simple for me.
It's it's really, you know, not doing yourhomework before contacting me.
Look.
We're a private company, but you can see whatwe file.
You can see our balance sheet.
You can see our investments.
(37:59):
The data's out there.
So take a look at that before you call me.
Right?
Don't call me or send me an email and say, I'dlike to learn more about your investment
portfolio.
Delete.
Right?
Or, you know, that or I might forward it on.
That doesn't get my ear.
Rather, you know, I see you have about xmillion dollars in infrastructure debt.
(38:22):
I'd like to learn more about your process andrationale on that exposure.
Okay.
You've done a little bit of homework, and youknow what I hold.
I'm gonna reply to you.
So just not doing your homework in this day, ofelectronification and, data availability, and
how quickly things can be, attained, I justfeel like some managers get lazy, and it's not
(38:47):
the managers.
It's more of the client relationship and themarketing.
Some get lazy, but in doing their job.
You know, know my business.
We talked about that earlier.
Insurance is not an endowment.
It's not a foundation.
And, again, know my portfolio.
It's out there.
You could look you can look it up, spend alittle time doing that.
(39:07):
And if you do, then, you know, the door's open.
I might not have anything for you, but at leastnow you've kinda got that foot in the door and,
the discussion is open and, you know, maybe ayear from now, you know, may have an
opportunity.
I'm gonna ask you a difficult question.
If you take out your crystal ball and you tryto predict what AI how AI will change asset
(39:29):
management in the next five to ten years, whatwould be your prediction?
For quant managers, I think their shelf lifewill be shortened.
You know, they'll ultimately be a perfectportfolio that any of us can build whether
you're a retail investor or an institutionalinvestor at the click of a button or, in this
case, a voice command.
Or who knows?
(39:49):
Five, ten years now, we might even just have tothink about it and, you know, we'll get a
response, in one form or another.
So I think that that that's a reality in thesequant managers, who have built these, you know,
sophisticated quantitative models.
I think that's gonna be a commodities, in fiveto ten years.
(40:10):
Not to say that and they'll argue against that,of course.
Not to say that there isn't, you know, valuefor for human input into it.
But if you or I wanna build a portfolio, we cankinda do it now.
But in five to ten years, we input ourparameters.
You know, what's our time horizon?
What's our spending habits?
What are our retirement needs?
So forth.
(40:32):
That's that's gonna be that's gonna be easy forus.
Fundamental research, I think, will beaffected, but I think will be even better.
The screens that that managers do, will be muchfaster.
And, you know, getting boots on the groundmeeting with management, I think we'll yield,
better opinions but in a much quicker fashion.
(40:53):
Fees will continue to go down.
I think AI will, they're already coming down,but there's much more room for lower cost.
And I think AI efficient efficiencies willdrive that.
As I look at it for my business, as I mentionedat the outset, a 100% of our assets are
externally managed.
But, you know, will AI invest advancement makeit possible for me to move my asset management
(41:18):
in house more quickly at much lower cost?
I'm not ruling that out.
So, you know, we pay, you know, x x dollars forfor, for asset management today.
If the way the economy is a scale working, Ithink AI is gonna make it possible for me to
bring a majority of that in house, whether I'mat 7,000,000,000, 12,000,000,000,
(41:40):
20,000,000,000, whatever.
I think any of us sitting in my seat, will havethe ability to to kind of effectively manage a
portfolio, themselves as opposed to, having anexternal relationship.
The the Canadian pension system and theCanadian Canadian fund strategy apply to more
(42:00):
asset managers, more more allocators.
What what do you think is overrated as it comesto being investor and allocator, and what do
you think is underrated?
That's a tough question because now you'reyou're asking me to, talk a little bit about
things that that I think are a little bitoverrated for what I do.
What's underrated is keeping up with strategiesand information and, things that could
(42:27):
immediately impact your portfolio in a good wayis getting more challenging.
You mentioned earlier, you know, all thesesmaller private equity firms coming out.
Just the availability and the speed of dataright now, it's really it's becoming almost
overwhelming.
So I think it's underrated, and I'm alwaysthinking about it.
(42:48):
I can turn on the television or open, you know,my iPad and and and look at a news article and
say, man, why am I not doing that?
Years ago, you didn't have that.
You kinda set it and forget it.
Just to double click on that, it's really whatwould be underrated is the systems on how to
process that.
Right?
So maybe UTC has one person, you have finite,but creating the rails and the ways to handle
(43:13):
that influx could be a very useful skill for anallocator.
Absolutely.
And it's one that I I feel like I'm challengedwith, and it's only gonna get more challenging.
So I gotta figure out a way to do that.
I've it's not gonna be TC Wilson figuring out,but some someone in the industry or something's
gonna come out to make it more manageable andapplicable to maybe.
(43:35):
Yeah.
Right.
What is overrated?
If we
don't manage, and trade our portfolios, I thinkthat that's something that's a little bit
overrated for us right now.
We and what what I'm trying to say about thatis a lot of people think that allocators sit
here and all day and are looking at a Bloombergscreen or trading platform and making
(44:00):
decisions.
So I think what's overrated for an allocatorwho doesn't manage internal assets is the
thought that, you know, I'm stuck to my deskevery day looking at this.
Right?
What I'm doing more is thinking ahead.
You know, what's next for the portfolio?
Where can we expand?
(44:21):
How can we make it better?
So I think it's overrated that that some peoplethink that that's what we do, and it's not it's
definitely not the case.
It's interesting because if you take it down toneurobiological level, refreshing your
portfolio, very fast feedback response loopfrom dope dopamine neural pathways versus
(44:42):
thinking about the future, Very long termfeedback loop, hard, amorphous, takes a lot of
energy.
So we are literally conditioned nearbiologically to actively manage versus handle
the the the more the bigger context questions.
If you could come go back thirty five years agoto TC Wilson when you were starting out in 1990
(45:05):
and give you one investment principle to knowthroughout your entire career?
What would be that one investment principle?
I I wish I knew more of the principles ofextreme ownership, and I think that applies to
the investment management as to to themanagement of the investment portfolio as well.
So when I'm talking about extreme ownership,there's a, those are principles that were put
(45:28):
out by two Navy SEALs.
I don't know if you're familiar with them ornot, Jocko Willink and Leif Babin.
But they wrote a book on their experiences withthe military in war and and to lessons for
effective leadership both in and out of thecorporate setting.
And I've I've used those, and we've embracedthose here at the doctor's company the last few
(45:48):
years.
And I've used those in in the investments of,when making investment decisions.
So, basically, the core concept of extremeownership is to take ownership of things up and
down the command chain and how the mosteffective teams embrace these specific
principles.
If you have good teams, you know, ultimately,you're gonna most likely have good results.
(46:09):
So for for me, thirty five years ago when Ididn't know something, I was afraid to ask my
boss at Mercer who in the investment consultingarea because I thought that, you know, there
would be some retribution.
Maybe he wouldn't think I was capable of doingthe job, and I might even get fired in
hindsight when in fact, knowing what I knownow, it should have been just the opposite of
(46:30):
that.
Should have checked my ego, should have hadmore humility, and I should have understood and
understood that not by not asking, I washolding up the team and the progress.
So I'll take that blame, but my boss at thetime should have also encouraged me to speak
up, giving me the comfort that there would beno retribution, and he didn't.
You know, there was really no extreme ownershipcountry, principles at that time.
(46:52):
I give my team, you know, always the confidenceto speak up.
There's no retribution.
There's no wrong answers.
If you're holding something back, you're onlyhurting the team, and and they have no problem
doing that.
I think that's what makes us a betterorganization to it.
So I was fortunate enough, fortunate enough, acouple weeks ago to present, the second
(47:17):
principle to my my company, no bad teams, onlybad leaders.
And it was such an honor to be given that,because it was a reflection of of the
leadership, that skills that that I havedisplayed with my small team, but it was, it
was nice to get that recognition.
Knowing these principles thirty five years agowould have made me much more effective leader,
(47:38):
and teammate, and, you know, who knows wherethat would have ended up today.
I I love Jocko Wiggle Link, and I did readExtreme Ownership, several years ago.
And the best analogy for that is, to use amilitary analogy, is you might be in the line
of enemy enemy fire and you're just runningthrough it.
And what most people don't realize is duringduring war, it's just complete chaos and
(48:03):
complete randomness.
Every second, there might be a point fivepercent chance that you get shot and you get
killed.
And yet, there is still even if there's 10% ofcontrolling your destiny, do have something you
can focus on.
Maybe you're running faster.
Maybe you're avoiding certain angles fromsnipers.
And focusing even though you have 90% thingsout of your control and even facing imminent
(48:28):
death, you still can focus on that 10% of whatdo you control.
And if you could do that for war, you could dothat for business where the stakes are
significantly lower to say the least.
It's a very high agency weight to look at theworld.
Absolutely.
And I'm so glad our firm our company embracedthose years ago.
(48:48):
Again, we had Jocko out a couple times,presenting to senior, leaders.
And and it's a reflection on on all theaccolades our company gets, you know, when it
when it comes to Net Promoter Score or bestplaces to work.
The doctor's company is really kind of, on onthe very positive side on almost every metric
(49:11):
that comes out.
And I truly believe that, a majority of that isdriven by what extreme ownership principles
we've learned because our management and ourboard is so strong, and each are aware of
these.
So we again, introducing this and having Jockoout has has made us the company that we are
today.
Almost analogous to this 90% of your returnsare linked to portfolio construction.
(49:34):
It's maybe 90% of success of a firm is based onprinciples and culture.
These amorphous things that seem soft, youknow, I wanna focus on the returns.
I wanna get that ten ten basis points.
But if you actually build build the culture,the recruiting, and everything that it takes to
build a great organization, those microdecisions will be downstream of that culture.
(49:56):
And and the culture is something you couldactually affect versus kind of the day to day
is a little bit harder to affect.
Absolutely.
Well, TC, this has been a master class oninsurance companies.
We gotta do this again soon.
How should people get in contact with you?
Oh, they can reach out to me.
Send me an email.
I don't mind.
It's tc.wilson@thedoctors.com.
(50:16):
That's probably the best way to do that.
Awesome.
Well, thank you, TC, and look forward to seeingyou down soon.
You're welcome.
David, thank you for having me.
Thank you for listening.
To join our community and to make sure you donot miss any future episodes, please click the
follow button above to subscribe.
So tell me the story of how you became the CIOof TDC Group.
(00:04):
It goes back to 1996, when I left Mercer.
I moved, into the investment consultingpractice where I kinda learned about asset
allocation, investment policy work, managerresearch.
'96, I had the opportunity to start, aninstitutional consulting group with a local
broker dealer, in Richmond, Virginia.
They had a large producer who had a couple ofbigger accounts, institutional accounts, and
(00:29):
many of them were insurance companies.
One was in San Francisco.
So a couple times a year, I'd go out to SanFrancisco.
It wasn't the doctor's company.
About three years after that, the CFO of thedoc of, of that company that I was consulting
to introduced me to the CFO of the doctor'scompany.
(00:50):
Yeah.
He was in need of external investment guidance.
Portfolio had grown about 700,000,000 inassets.
So that that kinda started my involvement withthe doctor's company for eighteen years.
So in 02/2017, the TTC portfolio had grownabout 4,000,000,000.
So I approached him.
I said, look.
You've known me for eighteen years.
You know, I I love the way this company ismanaged.
(01:13):
I really see an opportunity for growth, notonly personally, but for the company as well.
So in September of seventeen, I became thefirst CIO, and I proceeded to build an internal
team, kind of like a internal consulting teamwith staff that was already on board.
And it was very important to have that support.
(01:33):
While I had the investment background for allthe reasons that I mentioned and what I had
learned over the years, a few things that I Ididn't I wasn't aware of, it was treasury and
cash management, and investment accounting.
So I I chose two individuals identified twoindividuals, in the company.
Wilma Uribe, she is my, director of investmentsand treasury now, and then Harlan Shadig, who
(01:58):
is in director of investments, but he has thatinvestment accounting expertise, which is which
is critical to my job.
So, with them, you know, we've beeninstrumental in the growth of our portfolio.
We're at 7,000,000,000 in assets undermanagement today and about 3,200,000,000 in
surplus.
Insurance companies like endowments have thisoutflow of capital every year that they have to
(02:21):
make in order to satisfy the insurancepayments.
How do insurance companies differ fromendowments and other type of allocators, and
what makes them unique as an asset class?
First of all, we are not tax exempt, so wedon't have those those requirements.
We are a taxable entity.
(02:41):
And and, really, it it comes down to, you know,what our our claims are and what the severity
is and being able to meet the obligations ofour shareholders.
I'm in a very unique position with a verystrong company where I've never had to sell a
security to pay a claim.
(03:02):
We are positive cash flow, so we don't have anyrequirements, if you will, similar to
endowments and foundations to distributeassets.
You guys have a $3,200,000,000 surplus asinsurance company.
How does that change the way you go aboutinvesting your capital?
The the surplus, it's important.
It's one of the key indicators of our financialhealth, and it was a reflection of how well our
(03:26):
company has managed.
It's really important because it does reflectour ability to absorb losses and remain
solvent, even during the most extreme periodsof high claims.
And it also allows us to remain reasonable whenwe seek to raise rates, and and increase
premiums.
Now from an investment perspective, it gives myteam more latitude when investing across, you
(03:47):
know, whatever asset classes are out there.
You know, having more surplus and somebody toldme this years ago, and I've always kind of
applied it to surplus.
Treat the surplus kinda like the traditionalendowment foundation model, whether it's sixty
forty equity debt, seventy thirty, whatever.
You know?
That's where you can that's where we can takeour risk, and our risk is anything that's mark
(04:11):
to market and includes equity and many otherasset classes.
It's the fun part of the job.
Right?
Because 3,200,000,000, that's a portfolio.
I can invest, in basically anything that'sallowed by the states, and, it's a pretty it's
a pretty wide range.
So, our strong surplus is a competitiveadvantage.
(04:33):
So when it comes to attracting new members, youknow, members want to work with a company
that's financially secure.
And and clearly, we're one.
We're rated a by AM Best, which is excellent anexcellent rating and with a stable outlook.
And, surplus is is certainly a part of thatassessment.
And you alluded to it.
(04:53):
You're a taxable investor.
How does that change how you invest in yourportfolio construction versus maybe a investor
like a foundation or an endowment?
We do have a small allocation to municipalbonds, you know, that that obviously, you know,
have have tax exemptions on the income, but itreally doesn't change it too much.
(05:19):
All of our assets are externally managed.
Okay.
So where it does impact us is if our manager ifwe get a high turnover manager in our
portfolio, that usually doesn't bode well forus.
We don't have any.
Right?
We don't want them booking gains or lossesactually okay, but we don't want them booking
excessive gains.
I know that sounds kinda counterintuitive, but,we we, me and, my team
(05:44):
So you're you're taxed on the distribution ofcapital, not just all things being equal, you
want it to compound a while before it comesback into your portfolio.
That's correct.
So, you know, that's it.
So, again, I think that was a longer answer towhat you asked, but it really doesn't impact us
too much with the exception of what I justdiscussed.
We don't want that high turnover manager.
(06:06):
I don't wanna age you.
You've been asset management for thirty fiveyears.
You certainly don't look that way.
But going back to 1990 at Mercer, you've beenreally compounding your knowledge in the space.
What do you believe differentiates the GPs thatgo the distance versus those that maybe do one
or two funds?
What are some of those differentiating factors?
(06:27):
You know, I hate to use a word that we hearevery day or read about every day, but, you
know, and it's, changes definition over theyears, but it's innovation.
You know, clearly, those that have embracedinnovation and expanded their investment
management options, they've persevered becausethe universe, as you're well aware of, and
(06:47):
investment options has grown significantly.
You know, the public available, security,universe has shrunk, but that doesn't mean
there haven't been other options.
And those have kind of embraced that, certainlyhave persevered.
You know, there are more vehicle options, forcompanies like mine who like liquidity as I
discussed earlier, having an evergreenstructure or these rated feeder notes that have
(07:11):
come up lately.
Those those really, resonate well with me.
And those are more kind of recent.
I know we're looking thirty five years.
Most of those are in the last, you know, fiveto to ten years at most.
I think some that have persevered have madesome of their products more accessible to
retail investors, like exchange traded funds.
(07:32):
You can go back and look at a twenty five yearhistory and the growth of ETFs.
It's just been extraordinary.
I don't think I'm gonna see it stopping.
In fact, I was in DC this week at a fixedincome leaders forum, and they were talking
about ETFs and fixed income, which basicallyweren't available or not not available or
weren't as prevalent, you know, not not toolong ago and how that's expanding.
(07:54):
And we use a lot of those.
On the alt side, you know, we see a lot offirms that are you that are surviving that are
not using leverage as much, and they're usingmore kinda operational improvements.
Obviously, that gets into AI, and that's awhole another discussion, And those who are
(08:15):
willing to cut fees.
Fee compressions, I don't think Christina endof that.
Now last thing I'll say, given my, again, myMercer days, but really when I left Mercer and
joined this regional broker dealer who had theinsurance, and I started learning about
insurance, investments.
It was it's an it was a different world.
Those who, can provide regulatory support.
(08:38):
So just think outside of investment, onlyinvestment management services, But those who
can provide some of the other bells andwhistles, if you will, for me, certainly have
persevered.
So if they've, like, carved out internal teams,to support noninvestment insurance management
needs, so think about operations, filings,rating agency support.
(09:01):
Anything that's kind of, you know, additive oraccretive to just straight investment
management, those companies have have certainlygone the distance.
What's an example of a firm that's done thatwell, and what exactly have they done?
And there were some that were doing it in themid nineties, and I first when I first met
them, you know, I'm really gonna date myself,and many of your listeners might not even know
(09:22):
this firm, but, you know, Scutter, Stephens,and Clark, you know, back in the mid nineties,
they had a big insurance, group, and theybasically took me under their wing, taught me
all the the ins and outs of insurance assetmanagement, but then they went beyond that
because they already had that team in place.
So, other companies that have come in, and Imentioned earlier, they've started to
(09:47):
understand our business a little bit more,understand the challenges that we face from a
regulatory perspective mainly, and then from areporting perspective.
So the creation of, like, rated feeder notes.
Right?
That's been really good.
The evolution of private credit in the vehiclesto get access to private credit.
You know, the that's a market that's expanded.
(10:09):
So those that are kind of open to, to thoseideas and willing to commit the resources to
it, certainly, you know, meet our initialscreens and then some.
Tell me about rated feeder notes.
So the rated feeder note let me just use anexample that we're invested in.
So we've got we've got a limited partnership.
(10:29):
We're invested in limited partnership, that hasa rated feeder note structure.
80% of that LP is a note that's yielding 8%.
It's a fixed rate, so we're getting that 8%.
The other 20% is the equity piece.
So, it can be mostly it's it's mostly inprivate credit.
(10:50):
So when I say the equity piece, it's the piecethat's mark to marketing adds the juice over
top of that, that 8% note.
The beauty for investors like me, when I amrestricted on my schedule b a and I am
restricted by my state my state my statutory,laws, I don't have to count that 100% of that
(11:14):
LP on my schedule b a.
I get to take that 80%, move it over from b aonto my schedule d.
And then so I'm only counting 20%.
So all of sudden, I'm getting a diversifiedexposure to market.
In this instance, I'm referring to middlemarket direct lending, but I'm not having to
account for 100% of my allowable limit in that.
(11:39):
And this is extremely attractive to insurancecompany investors.
Yeah.
Because of the income and then because of theaccounting benefit.
Yeah.
Because you get to put that that 80% orwhatever it is on schedule date.
Perhaps it's a little bit naive.
Insurance strikes me as one of those industriesthat has 8,500,000,000,000.0 in assets that a
(12:01):
lot of managers somehow don't focus on.
Managers think oftentimes about how do youdifferentiate yourself to LPs?
Well, one way to differentiate is to appeal toa certain part of LP based, like insurance
companies.
What else what are some other best practicesfor how managers could make themselves more
attractive to insurance company investors?
(12:21):
Knowing our business, right, I think it'simportant.
Go back to the mid nineties, Scudder, Stevens,Clark.
They understood insurance.
So they came in.
They were telling me things I didn't even Ididn't even know existed.
Yet here I was, you know, as an OCIO, and Ishould know these things.
But it's really kinda knowing our businessoutside of the investment manage space.
(12:43):
There are plenty of great managers out there,who can manage assets and total return, in ad
alpha, over the long haul.
But in our space, if you understand ourbusiness, understand the dynamics that we're
faced with because it's always changing,understanding our accounting requirements,
understanding the regulatory environment.
(13:04):
I think those are ways that, you know, managerscan certainly, you know, distinguish
themselves.
We don't have managers that are simply managingto a benchmark, which is kinda
counterintuitive, that, you know, here here's amanager.
They want our business.
And the first thing they say is, well, here'sour track record.
I'm like, okay.
(13:25):
What's your track record to my guidelines?
They're like, well, we haven't seen yourguidelines.
I'm like, exactly.
So the ability to customize portfolios, for usis critical.
And we've had a we've had some good managersthat have been able to adapt kind of their
standard strategy into what's best for thecompany.
I asked this question of like, what are thecouple things that you need to know for
(13:46):
insurance companies?
But the real answer is you need to spend yourtime and know your customer.
It's like selling software to a tech companyand knowing nothing about tech companies.
You can't just get one or two insights abouttech companies.
You have to go in there, spend years kind ofdeveloping this competency.
You've had multiple decades in assetmanagement.
You're in the OCIO space.
(14:06):
One of the things that I'm really trying todouble click on is how do managers get from
monoline to, you know, Blackstone at the at themost extreme?
How do they evolve from a fund to a franchise?
What have you found to be some keycharacteristics or leading indicators that a
manager will be able to cross the chasm ofbeing a monoline fund to an a large asset
(14:31):
manager?
It's it gets back to the innovation that we'vetalked about and the ability to to kinda have a
little humility and say, okay.
We're not doing things as well as we should.
We need to expand our options and ourstrategies that that we offer.
And, you know, those that have done thatcertainly have have have persevered, through
(14:55):
some pretty challenging times.
The the ability to kinda think outside the box,always looking to improve.
There are a lot of companies and managers outthere who, hey.
We do this.
We do it really well.
We really don't we don't wanna kinda kinda moveto the next level.
That's fine.
You know, they may get hired for their specificniche, but, longer term, there's gonna be a
(15:17):
market that's really gonna impact that onestrategy, and it's gonna blow that firm up.
I've there's plenty of examples to go back tothe .com bubble, and the GFC.
But those, again, who have been use innovation,evolve, and always look for improvement, I
think that's, you know, that that's a telltalesign of a successful company.
(15:38):
Sometimes not taking a risk and expanding couldbe extremely risky because you have a chance of
blow up any year.
Some percentage chance of blow up even of theentire asset class.
Maybe the entire asset class will no longer beinvestable or will not be hot.
Diversifying multiple funds itself could couldbe diversifying.
You you mentioned innovation.
I'm gonna ask you to pick one of twostrategies.
Do the best managers push innovative productsto LPs?
(16:03):
Or are they more pulling?
And I know push could have a negativeconnotation, but are they more kind of first
principle to here's what I think the marketshould have, and I'm gonna now educate my LP
base?
Or is it more like LPs are asking for this,We've run internally.
We think it, you know, matches the the criteriafor a good strategy.
We're gonna now release that.
(16:24):
What have you seen in your experience?
Yeah.
I've seen a little bit of both, but, more ofthe former.
So push might might not be the right word.
I'll say, I'd rather use introduction.
The good managers have come to me and said,hey.
This is what we're thinking about.
This is what the market is looking for.
We're getting some feedback.
(16:45):
Here's what we're doing.
We're not doing it now, but we're starting toput this in place.
And in twelve months from now, we're gonna havesomething up and running I think you're gonna
be interested in.
Now that gets my ear as opposed to, hey.
Here's what the market's asking.
We created this last night.
You know, here here are the terms.
You know, are you interested in getting in?
(17:05):
No.
Thank you.
So those ones that are more patient, and it'susually the larger firms that come in with that
approach as opposed to the smaller ones reallytrying to ramp up AUM overnight, you know, in
the latter, example that you that you wentthrough.
When I sat down with Cliff Asness, he said, I'mnot
a
broker.
Meaning, he doesn't just do trades that peopleask for.
(17:28):
They have to they may get ideas from theircustomers.
They may get a sense for what customers wouldwant, but it has to be this co centric of
something they would put in their own money andsomething that customers want.
Yeah.
It's exactly right.
I agree completely.
You guys are at 7,000,000,000 AUM.
After your acquisition, you'll be at12,000,000,000 AUM.
Tell me about your portfolio construction.
(17:49):
So, it is the proposed acquisition.
You know, that was announced back in mid March,and expected to close in the first half of next
year.
So right now, I'm just focusing on that7,000,000,000.
We're an insurance company.
It's a general account.
We're relatively conservative.
80% of our portfolio is in what we call nonVAR.
(18:10):
So we that's non value at risk.
And for us, being private and being a statutoryfiler, these are assets that we don't mark to
market.
The other 20% is in, you can figure it out, theVAR.
So the value at risk.
That's kind of the fun stuff.
Right?
That that's that's everything that can be markto market.
(18:31):
So, you know, that's kind of our general toeighty twenty.
And, again, after tax income is our primaryobjective.
Broadly speaking, looking 100% general account,we have about 50% in, US investment grade
bonds.
We have you know, there are minimumrequirements, that we have to have, in that
area, but we complement that with a significantlist of different assets, whether it's US
(18:55):
treasuries, short term credit, short duration,high yield.
Real assets, we love.
We ramped that up a couple years ago.
It's real estate, infrastructure, renewables.
We have a dedicated convertible bond portfolio.
We do have US stocks mostly passive through theuse of ETFs, private debt, private equity,
opportunistic credit, and even some venturecapital.
(19:18):
I know we said I said earlier, we we we wekinda stay away from that, but, we do have a
little, a little bit of exposure to that area.
And you mentioned some income producing assets.
In the 20% value at risk, double click on yourportfolio construction on, you know, the the
value at risk, what you call the fun stuff.
What's in that portfolio?
(19:39):
The whole objective, this goes all the way backto my cutting my teeth at Mercer on on
portfolio construction.
At the end of the day, we want the best riskadjusted returns with a with a little bit of an
income kick.
And we've we've been able to do that.
So in that 20%, we target 50% public equity,25% real assets, and 25% of other.
(20:03):
Our equity portfolio has about a 5% dividendyield, so you can kinda see, you know, where we
are with that.
It's more on the value side income generation.
So we're not really holding the S and P.
In the real assets, we've got, real estate,infrastructure, renewables.
Then in the other section is where I hold myLPs and non rated, ETFs.
(20:26):
So I think opportunistic credit, privateequity, venture capital, and then that equity
sleeve and the rated feeder note that Imentioned earlier.
There's this meme now that private equity hasnot done as well last few years, and there's
different views on whether it's gonna be agreat asset class in the future.
(20:46):
How do you how do you look at private equity inthe next five, ten, twenty years?
I kind of agree with with that meme, if youwill.
We take a different approach.
So our private equity investments, and thiswas, again, a unique opportunity, and it was
(21:07):
really me knowing people or people knowing meand my needs in the field, out there.
Someone came to me a couple years ago and said,hey.
I got this great private equity investmentopportunity for you.
It invest in the portfolio is alreadyestablished.
All your capital will be called on day one.
You'll get a 4 and a quarter percent dividendyield.
And, oh, by the way, if you want an off ramp infour years, you can put in redemption and have
(21:29):
your money back in five in a year.
So that's not your typical private equity, butit was great.
I was like, okay.
I kinda get this, but I need to understand alittle bit more.
So the the the the companies were alreadyestablished and had strong cash flow, and the
investor, the GP went in there and said, we'renot coming in here to change everything.
(21:51):
We're injecting capital to make it even better.
We're keeping management.
We're keeping staff.
We're keeping, you know, the way that thingshave been done, but we're gonna make things
better.
And it spanned a bunch of different industries,including some that were health care related.
So, again, for us, private equity has adifferent definition than the standard that
(22:12):
we've all come to know.
And, again, we're not we're not investing in insomething that twelve to fifteen years, we're
gonna have to wait and see what the what ouroutcome's gonna be.
Just to play devil's advocate, there'sliterally millions of private companies under
25,000,000 revenue.
It seems like an infinite pool of potentiallyinteresting companies.
(22:35):
Why are they so bearish on private equities, oror is it just late stage and and large cap
private equity that people are more bearish on?
Yeah.
I think it's I think it's that.
I think it's the late stage, you know, thatthat's where people are more bearish on it.
We're we're more, proponents and supporters ofkind of early stage, especially if it can tie
(22:57):
back into that mission that I mentionedearlier.
So, yeah, I'd have to agree that, you know,very bearish on the late stage.
And there it's just so many companies outthere.
And I know the private universe is expandingovernight, but there are just so many companies
out there that that are trying to do this now.
You know, you can invest in 10, and all ittakes is one or two, and you're gonna hit a
(23:20):
home run with the fund.
But we don't really wanna take that type ofrisk.
You're a big fan of evergreen funds.
What are the different types of evergreenfunds, and which ones do you like to invest in?
From where it gets back to reporting.
So if it's not an evergreen fund and say weinvest in fund two of whatever, just pick
anything, And that closes, and then we love it.
(23:41):
And then fund three comes up, like, okay.
You can invest in fund three.
Also, now I've got two separate items that Ihave to deal with, that I have to report on,
that I have to account with, and I'm locked upfor significant amount of time.
The beauty about the evergreen funds, at leastfor us, is that it's only gonna be one,
investment over time, and we can add to that ifwe if we want to.
(24:02):
So I think that's very important.
And then, typically, most have favorableredemption terms where I can get out in thirty
to sixty days, which is pretty good, when whenyou're thinking about a more illiquid
investment.
That that hits, that hits home for us and isright in our right in our wheelhouse.
(24:23):
There's a bit of a paradox also with theseevergreen structures as a taxable investor.
If you think about a private credit fund havinga certain term term limit, so ten year fund,
another way to look at a ten year fund or afive year fund is that it's a forced
distribution.
So whether or not you need liquidity at yearfive, you're forced to take it out.
(24:44):
You're gonna get it.
So you Correct.
You have you have zero liquidity until month60, and then 60 month 60, you have forced
liquidity.
Obviously, there's there's extensions,different investments, return capital,
different amounts.
But with an evergreen fund, you really do havethe best of both worlds in that you have
liquidity when you need it, but you also don'thave liquidity when you don't need it.
(25:08):
So you're not forced to take liquidity andforced to take the the tax hit.
That's a great point, David.
And and for the doctor's company, we do look atthat, and it is nice.
If we need liquidity and need a redemption,it's nice to have that lever, but we don't ever
expect to pull that.
Right?
The only reason we would pull it is if the teammanaging the fund up in left or there were some
(25:31):
significant organizational issues there.
So we wanna continue to grow, but that's a verygood point.
If I did need it, if I did have liquidityissues, if I didn't have a strong cash flow as
as I do across the portfolio, then then itwould certainly be helpful to be able to
withdraw when I wanted to.
Investment management space for thirty fiveyears.
(25:52):
You've seen so many cycles up and down.
Do you focus on preparing for the next downturnand how the doctor's company and how your
investment committee will act in the nextdownturn, or is this something that you take
just in time?
Well, it's definitely not something we takejust in time.
And, you know, in our business, there's basedyou know, there there's the underwriting.
(26:18):
Right?
And then there's the investments.
At the underwriting, we're taking on risk allthe time.
So we gotta kinda always have that balance withthe investment side of it.
So we do look at our investment portfolio, in avery conservative nature as I mentioned
earlier.
But downside risk protection is very importantto us.
And, you know, I can give you a great exampleas it applied to the doctor's company.
(26:42):
I went through all the assets that wereinvested in, or at least at least the asset
classes that were invested in.
And it was hard.
So you think of 2023, 2024 when the S and P wasup 25% each year.
We weren't up that much in our risk portfolio.
Right?
We were up, you know, ten, eleven, 12% eachyear.
(27:03):
You know, it's hard sitting back and seeingthose unrealized gains, you know, potential for
unrealized gains, not available to us justbecause of our strategy.
I could have easily changed, but I didn't.
Fast forward to 2025, peak to trough, this yearwhen the S and P was down 19%, you know,
through that April, we were down not even 5%.
(27:29):
So that's really a testament to, the the focuson risk that we have.
Not a proud that we lost money, but, it reallywas a reflection of, hey.
We've kinda built the portfolio to withstandthese significant drawdowns.
We're gonna give up the upside.
We capture about 65% of downside historically,but we only capture about 90% of the up.
(27:54):
That's okay.
That's kinda consistent with our overall,philosophy of the investment and the overall
management of our company.
Couple years ago, I listened to an interview byStan Drunkenmiller, arguably one of the
greatest traders of all time.
And he said that nothing looks as cheap asafter it's gone up 40%.
So a stock goes up from $10 goes up to $14, andyou're like, this is a great time to buy.
(28:18):
And it's this evolutionary wiring that we had.
And as soon as I heard one of the greatesttraders in history say that I gave myself the
grace knowing that I could never have a betterpsychology than the best trader in the world.
So I focused more on structurally building myportfolio that's resilient to these kind of
(28:39):
Yeah.
Evolutionary biases versus trying to go againstmy programming and trying to be a better trader
than Stan Drunkenmiller.
It it's so easy to say, and I agree completelywith you.
But so go back to the first week of of Aprilthis year, and the markets again were down 20%
or we'll just I mean, yeah, we'll just callthem 20%.
We actually put some money to work.
(29:00):
Right?
Because history shows when the markets are down15%, they may go down a little bit more, but
history clearly shows that, you know, you'regonna get it right more times than not over the
over the long haul.
So I kinda had to hold my nose and, and and putmoney to work.
But, to your point, you know, it just it wasthe right thing to do, and I had some excess
(29:25):
there.
And I know since we're strategic with ourinvestment approach that, you know, putting a
little bit to work at that time, could onlyreally help over the long haul.
And it's been two months and it has helped, butit's still too early to tell.
It's it's hard to think about this withoutthinking from a evolutionary biology
standpoint, where basically you have theamygdala, which is our oldest part of the brain
(29:48):
that's kind of fight or flight.
And then you have a prefrontal cortex, which iskind of the human brain and the rational brain.
And a lot of people focus on how do you turnoff the amygdala, and how do you like not
panic.
But the answer is actually building up thefront part of your brain.
And how do you do that?
You do that through studying history, seeinghow markets fluctuate, and really getting more
(30:10):
and more conviction and taking right action atthe right time versus focusing everything on
how do you not panic.
Because that's Yeah.
Both that is actually what's even deep moredeeply wired in our brains from an evolutionary
biology standpoint.
Much easier to say it than to do it, but doingit is is certainly set.
And there's a sense of satisfaction when you doit because you know it's the right thing.
(30:32):
It's just as hard.
So It's it's one of the things I've beenexploring, the the virtue of illiquidity.
It's a paradoxical belief that actuallyilliquidity in many ways and in many contexts,
not in every context, of course, and you alwaysneed some liquidity, but could actually
severely hinder your portfolio returns.
And what's most interesting to me and maybemost entertaining kind of in a in a dark way is
(30:58):
that when I talk to people about this, theyalways say, yeah.
I get it.
Other people, they they panic.
That's not gonna be me.
And then every single every single crisis, andthen I literally just saw it in April.
It happened again.
It's like, no.
I could control myself.
And then they sold again.
It's almost like Groundhog's Day, seeing peopledo the same illiquidity value destruction over
(31:22):
and over and always thinking, like, next timewill be different.
Right.
We we spoke earlier a bit about you're not asbullish on private equity, specifically large
cap.
What would compel you to invest in a newprivate equity manager today?
If it aligns with our mission, I think that'sthat's a benefit.
(31:44):
So the the private equity investments that wedo have, the small amounts, really have
investments that somehow impact health care.
And, you know, that that's that's veryimportant.
And there's there's just a few companies outthere.
So if you bring me an idea that has that, I Ithink, you know, that's very compelling to me.
(32:06):
But you also have to have a track record, and Iknow you mentioned smaller kind of, you know,
start not start ups, but but smaller firms thatare coming without with a private equity
strategy.
And I know they don't have a track record inthis, in this specific mandate, but I did need
to know that there's experience, in similar,situations or similar type portfolios that I
(32:29):
can go back and say, hey.
These guys just didn't, you know, open up ashop, put a shingle up yesterday, and also
we're gonna do health care, private equity.
They've gotta have some kind of they've gottahave some kind of background in that.
We don't mind being early.
You know, I I love being in this positionbecause being a seed investor or an early
(32:50):
investor, if we do our homework and our duediligence and spend our time understanding it,
when I say we, it's me and the team that Imentioned earlier.
You know, we it it may kinda pass our finalscreens.
So I I think that's, you know, something thatthat has worked well for us recently, and it's
(33:11):
something we're gonna continue to build out.
There's a famous study in 1986, Brinson Hoodand Bebauer that showed that 90%, 90% of
returns came from portfolio construction, notmanager selection.
This was 1986, so I was one years old at thetime.
This was nearly
40 ago.
Book, by the way.
(33:31):
So do you believe that that still holds todayfour decades later?
Yeah.
I don't know about the 90%, but I woulddefinitely say a majority comes with the asset
allocation decisions.
And I don't know what the number is.
I mean, that was that's a dated study.
(33:52):
But the challenge is, you know, with theevolution of passive vehicles and, you know,
you can get that beta in almost any market now,you can get beta, exposure.
Take the risk and pay the fees for activemanagement when you can get beta and say that
90% still holds today.
That's where you're gonna make all your money.
(34:12):
Just set a strategic asset allocation.
Go ahead and invest across whatever you believein, and, you know, that should hold true.
So I'm gonna say yes.
I still believe it.
I just don't know what the exact number is.
And being strategic and not trying to time themarket, is very important.
And that's us.
We talked about we we we talked earlier, wetalked about, you know, not making moves, you
(34:36):
know, when the markets are, you know, rampingup or or drawing down significantly, not making
major moves, especially on the upside, how thatthat hurts long term.
So strategically, if you're an asset allocatorlike I am, kind of sticking through those tough
times, I think you're gonna be rewarded at theend and that's consistent with that study.
(34:58):
I also think of it from the size of the LP.
So if taken to extreme, you have a$1,000,000,000,000 LP that's made thousands of
bets.
They're essentially gonna get the beta of theirstrategy.
Not beta or not S and P 500, but they're gonnaget the average of their portfolio
construction.
Some managers will outperform, some managerswill not perform.
But if you have somebody investing $10,000,000,they might it might be much more about manager
(35:23):
selection because they're able to say, wantthis manager.
I want don't want this manager.
So it's also, I think, a function of the sizeof the LP as well and and the LP strategy, not
just the GP strategy.
Agree.
And to be honest with you, yeah, when I wasable to as a consultant, I was in many
boardrooms, and we spent a majority of the timetalking about relative performance.
(35:44):
You know, why a manager particularly on the onthe downside, why a manager was was
underperforming.
There may have been some that wereoutperforming, and, typically, there were.
But it just seemed to me, and and I believe inactive management, to a degree, but it just
seemed to me, why are we spending all this timetalking about, you know, underperforming by
(36:06):
ten, twenty, 30 basis points?
And why aren't we spending more time on thestructure of the portfolio, which asset classes
we should be investing more in or making ortake making tactical shifts in either to the
upside or the downside.
And it just kinda got old to me.
So that's one of the reasons the doctor'scompany is mostly passively managed on the
(36:28):
equity side.
And then even on the some things outside ofequity, we're getting beta exposure on that.
My boardroom, we're not talking about relativeperformance.
We're talking about things that are happeningnow, things that are happened, that that we're
planning to do in the upcoming year, in theupcoming months.
And I think that's just been more productive,in our room as opposed to, again, talking about
(36:51):
man why managers outperform or underperform.
I think that's one of the reasons our managerslike me because they always used to start with,
hey.
Here's my performance.
Here's my benchmark.
I'm like, stop.
I know your performance, and I know yourbenchmark.
Tell me about what's happening in the portfolionow and what you're thinking going forward.
Shock when I say that.
It's so interesting because if you think aboutthe energy or the conversations that might
(37:16):
happen on IC level, there is an opportunitycost.
So one would say, why not optimize?
Why not get the last 10 basis points on yourrelative performance?
Of course, you wanna have that in a theoreticaluniverse where you have millions of hours.
If you have finite focus, finite energy, youshould be focusing it on the thing that
matters, not on these kind of long tail issues.
(37:38):
I
agree.
You just mentioned your conversation with GPs.
What are some pet peeves that you wish GPswould avoid when dealing with LPs?
That's pretty simple for me.
It's it's really, you know, not doing yourhomework before contacting me.
Look.
We're a private company, but you can see whatwe file.
You can see our balance sheet.
You can see our investments.
(37:59):
The data's out there.
So take a look at that before you call me.
Right?
Don't call me or send me an email and say, I'dlike to learn more about your investment
portfolio.
Delete.
Right?
Or, you know, that or I might forward it on.
That doesn't get my ear.
Rather, you know, I see you have about xmillion dollars in infrastructure debt.
(38:22):
I'd like to learn more about your process andrationale on that exposure.
Okay.
You've done a little bit of homework, and youknow what I hold.
I'm gonna reply to you.
So just not doing your homework in this day, ofelectronification and, data availability, and
how quickly things can be, attained, I justfeel like some managers get lazy, and it's not
(38:47):
the managers.
It's more of the client relationship and themarketing.
Some get lazy, but in doing their job.
You know, know my business.
We talked about that earlier.
Insurance is not an endowment.
It's not a foundation.
And, again, know my portfolio.
It's out there.
You could look you can look it up, spend alittle time doing that.
(39:07):
And if you do, then, you know, the door's open.
I might not have anything for you, but at leastnow you've kinda got that foot in the door and,
the discussion is open and, you know, maybe ayear from now, you know, may have an
opportunity.
I'm gonna ask you a difficult question.
If you take out your crystal ball and you tryto predict what AI how AI will change asset
(39:29):
management in the next five to ten years, whatwould be your prediction?
For quant managers, I think their shelf lifewill be shortened.
You know, they'll ultimately be a perfectportfolio that any of us can build whether
you're a retail investor or an institutionalinvestor at the click of a button or, in this
case, a voice command.
Or who knows?
(39:49):
Five, ten years now, we might even just have tothink about it and, you know, we'll get a
response, in one form or another.
So I think that that that's a reality in thesequant managers, who have built these, you know,
sophisticated quantitative models.
I think that's gonna be a commodities, in fiveto ten years.
(40:10):
Not to say that and they'll argue against that,of course.
Not to say that there isn't, you know, valuefor for human input into it.
But if you or I wanna build a portfolio, we cankinda do it now.
But in five to ten years, we input ourparameters.
You know, what's our time horizon?
What's our spending habits?
What are our retirement needs?
So forth.
(40:32):
That's that's gonna be that's gonna be easy forus.
Fundamental research, I think, will beaffected, but I think will be even better.
The screens that that managers do, will be muchfaster.
And, you know, getting boots on the groundmeeting with management, I think we'll yield,
better opinions but in a much quicker fashion.
(40:53):
Fees will continue to go down.
I think AI will, they're already coming down,but there's much more room for lower cost.
And I think AI efficient efficiencies willdrive that.
As I look at it for my business, as I mentionedat the outset, a 100% of our assets are
externally managed.
But, you know, will AI invest advancement makeit possible for me to move my asset management
(41:18):
in house more quickly at much lower cost?
I'm not ruling that out.
So, you know, we pay, you know, x x dollars forfor, for asset management today.
If the way the economy is a scale working, Ithink AI is gonna make it possible for me to
bring a majority of that in house, whether I'mat 7,000,000,000, 12,000,000,000,
(41:40):
20,000,000,000, whatever.
I think any of us sitting in my seat, will havethe ability to to kind of effectively manage a
portfolio, themselves as opposed to, having anexternal relationship.
The the Canadian pension system and theCanadian Canadian fund strategy apply to more
(42:00):
asset managers, more more allocators.
What what do you think is overrated as it comesto being investor and allocator, and what do
you think is underrated?
That's a tough question because now you'reyou're asking me to, talk a little bit about
things that that I think are a little bitoverrated for what I do.
What's underrated is keeping up with strategiesand information and, things that could
(42:27):
immediately impact your portfolio in a good wayis getting more challenging.
You mentioned earlier, you know, all thesesmaller private equity firms coming out.
Just the availability and the speed of dataright now, it's really it's becoming almost
overwhelming.
So I think it's underrated, and I'm alwaysthinking about it.
(42:48):
I can turn on the television or open, you know,my iPad and and and look at a news article and
say, man, why am I not doing that?
Years ago, you didn't have that.
You kinda set it and forget it.
Just to double click on that, it's really whatwould be underrated is the systems on how to
process that.
Right?
So maybe UTC has one person, you have finite,but creating the rails and the ways to handle
(43:13):
that influx could be a very useful skill for anallocator.
Absolutely.
And it's one that I I feel like I'm challengedwith, and it's only gonna get more challenging.
So I gotta figure out a way to do that.
I've it's not gonna be TC Wilson figuring out,but some someone in the industry or something's
gonna come out to make it more manageable andapplicable to maybe.
(43:35):
Yeah.
Right.
What is overrated?
If we
don't manage, and trade our portfolios, I thinkthat that's something that's a little bit
overrated for us right now.
We and what what I'm trying to say about thatis a lot of people think that allocators sit
here and all day and are looking at a Bloombergscreen or trading platform and making
(44:00):
decisions.
So I think what's overrated for an allocatorwho doesn't manage internal assets is the
thought that, you know, I'm stuck to my deskevery day looking at this.
Right?
What I'm doing more is thinking ahead.
You know, what's next for the portfolio?
Where can we expand?
(44:21):
How can we make it better?
So I think it's overrated that that some peoplethink that that's what we do, and it's not it's
definitely not the case.
It's interesting because if you take it down toneurobiological level, refreshing your
portfolio, very fast feedback response loopfrom dope dopamine neural pathways versus
(44:42):
thinking about the future, Very long termfeedback loop, hard, amorphous, takes a lot of
energy.
So we are literally conditioned nearbiologically to actively manage versus handle
the the the more the bigger context questions.
If you could come go back thirty five years agoto TC Wilson when you were starting out in 1990
(45:05):
and give you one investment principle to knowthroughout your entire career?
What would be that one investment principle?
I I wish I knew more of the principles ofextreme ownership, and I think that applies to
the investment management as to to themanagement of the investment portfolio as well.
So when I'm talking about extreme ownership,there's a, those are principles that were put
(45:28):
out by two Navy SEALs.
I don't know if you're familiar with them ornot, Jocko Willink and Leif Babin.
But they wrote a book on their experiences withthe military in war and and to lessons for
effective leadership both in and out of thecorporate setting.
And I've I've used those, and we've embracedthose here at the doctor's company the last few
(45:48):
years.
And I've used those in in the investments of,when making investment decisions.
So, basically, the core concept of extremeownership is to take ownership of things up and
down the command chain and how the mosteffective teams embrace these specific
principles.
If you have good teams, you know, ultimately,you're gonna most likely have good results.
(46:09):
So for for me, thirty five years ago when Ididn't know something, I was afraid to ask my
boss at Mercer who in the investment consultingarea because I thought that, you know, there
would be some retribution.
Maybe he wouldn't think I was capable of doingthe job, and I might even get fired in
hindsight when in fact, knowing what I knownow, it should have been just the opposite of
(46:30):
that.
Should have checked my ego, should have hadmore humility, and I should have understood and
understood that not by not asking, I washolding up the team and the progress.
So I'll take that blame, but my boss at thetime should have also encouraged me to speak
up, giving me the comfort that there would beno retribution, and he didn't.
You know, there was really no extreme ownershipcountry, principles at that time.
(46:52):
I give my team, you know, always the confidenceto speak up.
There's no retribution.
There's no wrong answers.
If you're holding something back, you're onlyhurting the team, and and they have no problem
doing that.
I think that's what makes us a betterorganization to it.
So I was fortunate enough, fortunate enough, acouple weeks ago to present, the second
(47:17):
principle to my my company, no bad teams, onlybad leaders.
And it was such an honor to be given that,because it was a reflection of of the
leadership, that skills that that I havedisplayed with my small team, but it was, it
was nice to get that recognition.
Knowing these principles thirty five years agowould have made me much more effective leader,
(47:38):
and teammate, and, you know, who knows wherethat would have ended up today.
I I love Jocko Wiggle Link, and I did readExtreme Ownership, several years ago.
And the best analogy for that is, to use amilitary analogy, is you might be in the line
of enemy enemy fire and you're just runningthrough it.
And what most people don't realize is duringduring war, it's just complete chaos and
(48:03):
complete randomness.
Every second, there might be a point fivepercent chance that you get shot and you get
killed.
And yet, there is still even if there's 10% ofcontrolling your destiny, do have something you
can focus on.
Maybe you're running faster.
Maybe you're avoiding certain angles fromsnipers.
And focusing even though you have 90% thingsout of your control and even facing imminent
(48:28):
death, you still can focus on that 10% of whatdo you control.
And if you could do that for war, you could dothat for business where the stakes are
significantly lower to say the least.
It's a very high agency weight to look at theworld.
Absolutely.
And I'm so glad our firm our company embracedthose years ago.
(48:48):
Again, we had Jocko out a couple times,presenting to senior, leaders.
And and it's a reflection on on all theaccolades our company gets, you know, when it
when it comes to Net Promoter Score or bestplaces to work.
The doctor's company is really kind of, on onthe very positive side on almost every metric
(49:11):
that comes out.
And I truly believe that, a majority of that isdriven by what extreme ownership principles
we've learned because our management and ourboard is so strong, and each are aware of
these.
So we again, introducing this and having Jockoout has has made us the company that we are
today.
Almost analogous to this 90% of your returnsare linked to portfolio construction.
(49:34):
It's maybe 90% of success of a firm is based onprinciples and culture.
These amorphous things that seem soft, youknow, I wanna focus on the returns.
I wanna get that ten ten basis points.
But if you actually build build the culture,the recruiting, and everything that it takes to
build a great organization, those microdecisions will be downstream of that culture.
(49:56):
And and the culture is something you couldactually affect versus kind of the day to day
is a little bit harder to affect.
Absolutely.
Well, TC, this has been a master class oninsurance companies.
We gotta do this again soon.
How should people get in contact with you?
Oh, they can reach out to me.
Send me an email.
I don't mind.
It's tc.wilson@thedoctors.com.
(50:16):
That's probably the best way to do that.
Awesome.
Well, thank you, TC, and look forward to seeingyou down soon.
You're welcome.
David, thank you for having me.
Thank you for listening.
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