175: "The Consultant’s Edge" - Are Investment Consultants Indispensable? With Michael Manning, CEO of NEPC
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Welcome to the Money Maze podcast. If this is your first time joining us, I'm the host, Simon Brewer. And in this show, we talk to proven leaders and thinkers from the worlds of business, investing and beyond. To stay up to date with every episode, please do sign up to our newsletter via moneymazepodcast.com.

Episodes are also published on our YouTube channel and we're active on all major social media platforms. Thank you for listening. From the 1950s onwards, the foundations of investment consulting were laid as pension funds and institutional investors sought professional guidance on asset allocation and portfolio management.

This was enhanced in the 60s and 70s by the introduction of modern portfolio theory by Harry Markowitz and the capital asset pricing model by William Sharpe as the concepts of optimising portfolios and understanding risk moved centre stage. Today, the investment consulting industry has become a vast cog in the investing machinery, extending its reach from institutional to individual investors.

One such organization, NEPC, with nearly $2 trillion under advice, has grown rapidly and embodies these shifts. And over from the US today, in fact, just off a plane, we have the CEO of NEPC, Michael Banning. Michael, welcome to the Money Maze podcast. Well, thank you for having me. Glad to be here. Well, great. You are not showing any signs of a short night. Where did you fly in from? From Boston. From Boston. And where's home originally?

Born in Boston, but grew up until I was around 13 or 14 in rural Georgia, north of Atlanta, but pretty far out. And then both my parents are from Boston, so moved back there for high school. Well, we might talk about golf later on, but having just seen this magnificent ending of the Masters, I bet you get asked sometimes this time, are you a member? We're just a consulting firm, so no. Okay. So tell me, Michael, how and where did you earn your first dollar? Well, it's probably back there.

You know, had a lawnmower and went around and tried to convince people to let me mow their lawn, you know, which was a relatively good trade for them given the prices I was charging. So, did that and learned some interesting lessons from it. One, I should have learned to be in a business that was more scalable because it's just a time for money business. You can only mow so many lawns and even hired a couple other kids to help me on some projects. But then you realize the accountability stops with you when they flake out and decide they don't want to keep going. You've got to go finish the work yourself. Yeah.

Well, I note that you went to the University of Notre Dame. That's a first on this show. And then Chicago for your MBA. And I wondered what one specific thing each of those institutions armed you with.

For Notre Dame, it was probably just an amazing group of friends and connections that have stayed really close for the 35 plus years we've been out. And just having that group of people with the shared experience, the people who rely on through good times and bad has been awesome. Chicago for me was a chance to sort of

prove my investment chops, if you will. I was a psychology undergrad at Notre Dame, being able to go back to the University of Chicago, which was so technical and quantitative, which is an area that I'm really comfortable in, but it balanced out the resume, I guess, a little bit.

It was Nikolai Tangan who runs the Norwegian Suburban Wealth Fund who said that every investment person should take a degree in psychology. So there you go. You were early on that trade. And did you plan your career meticulously or did it just sort of fall into place? Totally haphazard.

First job? First job out of college was working on the phones at Fidelity. So back in the early 90s, if you dialed 1-800-FIDELITY, you got me. I joked that I was doing the same thing then that I'm doing now, which is helping people with asset allocation, manager selection, and guiding them through the investment process. So that was not a planned career to be in investment consulting. I didn't really know anything about it. But if you look back on it, you could weave a thread and make it seem like it was meticulous, but it was a little bit more opportunistic than that. Okay.

Great. Give us the high-level description of any PC today.

So at our core, our job is to help asset owners deliver for their organizations and then for the clients that depend on them. And so we are, at least from my perspective, the most diversified of all the investment consulting firms. Many will focus on one or two types of clients, whether that is pension and 401k, whether it's families and endowments or public funds or union pension funds.

We cover across all those. We have different practice verticals, which I think is a real strength for us because ultimately we're working with clients to understand the investment landscape, where the opportunities are, and then solve their particular problems. And the fact that we're solving them across multiple dimensions, we can learn from how a corporate plan that's

managing its liabilities to a hospital that's trying to navigate what's going on with their cash flows. And we're able to cross-fertilize ideas and problem sets across those. So it's a real benefit. And employees and offices? 370 or so employees. Headquarters is in Boston, but we've got offices in Charlotte, Atlanta, Las Vegas, San Francisco, Charlotte. I think I said that one already. Okay.

And Chicago. I hope I didn't miss any. And London. Actually, we just talked about that. We've got an office here in London. Great.

I want to dig into this world of investment consultancy because in just over five years of podcasts, we've only had one investment consultant on before, which was Willis Towers Watson. And that was a long- You were absolutely right. So it's now my turn to be corrected for not getting my list right. But you are. We can redo that. I shouldn't be correcting you, but I- No, no, no, no. Happy, you know, Michael. It happens all the time. Can we cut that out? No, no, no. But people might like it in, I guess, you know.

I don't want to do that. Now the hard questions are going to come. I'm in trouble. Sorry. People will say they should be corrected more. However, let's just talk about how in the last decades the world of consulting has changed.

Yeah. So I can't speak a lot to the UK market. The UK market is certainly different. But in the US, I mean, I think some of the big changes are, one, you've seen a lot of consolidation in the industry. What was a cottage industry a lot, you've now seen a lot more consolidation, which makes sense because the resources required to...

help the clients are greater and greater, whether it's on a regulatory standpoint or if I think back to when I started in the mid-90s or even before that, a lot of it was just 60-40. And it was fairly easy to navigate a 60-40 portfolio and most clients were the same. Fast forward to today, it's not just stocks and bonds. You're going across the globe, certainly for stocks and bonds, but also into alternative assets, whether that be

real estate, infrastructure, private equity, private debt. So that range is a lot different. And then each client is trying to solve their situation in a different way. So it's just multiplied the range of outcomes you need and the range of resources you need. So

It's no surprise we've seen consolidation. So that's one. And then the second is the types of services that consultants do has evolved. So I think about at NEPC, there are some clients where we're just advisory only and others where we're taking a more active role, whether it be OCIO or helping them implement the portfolio in some way. And that obviously requires a lot of resources as well. So I would say the big changes are the consolidation, the breadth of

items or parts of the portfolio that we're weighing in on. And then the service model is a little bit different. Thank you.

One strand of this consulting universe is the OCIO market, the outsourced CIO market. I sit on two investment committees. We've engaged with a couple of OCIOs. Can you again, maybe just because people won't be as familiar generally with it as why that has gained such traction? Again, as a consultant, a lot depends, right? So that's the challenge with me answering your questions. But I think each client comes at it from a different way.

And there are some elements which drive OCO. I mean, one is the hope and expectation that you'll get better outcomes because the investment advisory firms are closer to the market. They're going to be able to change the portfolio a little bit faster. And maybe you don't have the governance structure that's set up to do that. You know, in other cases, the investment function is not core to the entity. And so maybe you're trying to run a defined contribution plan or a pension plan and don't want to spend –

valuable executive time on that. You'd rather just hire someone to oversee and then you oversee that person. So, and then as the markets have gotten more complex, just what I talked about going from 60, 40 to where it is today, implementing that takes a lot more time than it used to. And some would rather just outsource it. So before we continue this conversation, we're going to take a short break to have a note from our sponsors.

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Visit lseg.com via the link in the show notes to see how they're driving the future of finance. So the other shift has been, and we're going to talk a little bit about the merger that you undertook later, but has been, if you like, the extension of your business from the institutional space into the individual space. And is that because there just wasn't enough growth in the institutional business or?

Well, NEPC has evolved since we started in 86. If you go back to the mid-90s, we brought in someone and he helped us start our defined contribution or 401k consulting business. In the late 2000s, early 2010s, we invested more in the healthcare practice. In 2017, we brought on some people to augment our private wealth practice. And so, all of those were

opportunistic because we found great people, but there was also, we saw a strategic opportunity to do it as well. But certainly it's the biggest untapped market and frankly, the private wealth business. And I think, you know, maybe isn't served as well as it could be. And so I think when

When you're bringing the institutional quality, the independence and the fiduciary element to it, I think that's good for everybody. And so we do think it's a growth market, certainly. So again, this is a little bit of the two countries separated by different languages. In the US, we have the RIA, the Registered Investment Advisor, whereas here we tend to have private wealth, high net worth, sort of the individual market.

And I was intrigued as I got to understand your business a little better is that you're taking this institutional advice and you are now transposing it or making it available to the individuals. If you're sitting there at UBS or Morgan Stanley or Goldman Sachs, isn't your argument, well, we're doing that already? I'm sure it is. So you tell me, you tell me what's your edge.

I think the edge that we hope to bring is the independence. You know, we're not selling some of those organizations are getting paid in different ways from managers or with different layers of fees or have different incentives than we do. So I think just first and foremost, that fiduciary element.

independence and that lack of conflicts, I think is a big one. I would hold our investment research engine up against anybody's as well. So I do think that's an edge also. And then the way that we've done a good job constructing portfolios and how we can develop portfolios that are then effective for the individual. And just to be

clear. At NEPC, we are not working directly with the individuals. We are with really high net worth families. So a family office, families with $50, $100 million or more will come to us directly. But we do work with some multifamily offices where we help them structure the products or the vehicles or the advice that they're then going to give to the family. So they know the clients exceptionally well, and they're just relying on us for the research.

One of our former guests, Luba Nicolino, who was at Willis Towers once and now is at IFM, said that a number of firms are launching interval funds for the private wealth channel. I had to go and look up what interval funds are. Could you just explain what they are and why they're appearing?

So if you are, let's start with a private markets vehicle, which is a typical drawdown vehicle you might find in a private equity fund. The challenge that is great for an institutional investor, which is set up organizationally to operationalize those cash flows. It gets a lot harder to

for whatever word you want to use here in the UK to manage that across a lot of clients. So if I've got 200 clients, how do I navigate those cash flows and operationalize it? What an interval fund does, it allows...

It's almost like an evergreen fund, a one-time investment that then you can keep in over time. Now, in order to do that, you need to have other sources of liquidity. So there's a potential drag on the – if you assume that – let's just take it in an equity portfolio. If you assume that private equity is going to get a higher return than listed equity, you do have to keep some listed equity or cash in.

to help meet some redemptions in the portfolio. But I think the real benefit is the operational ease for the end client and not having to worry about those cash flows back and forth. That's one. And then two, just from a tax reporting standpoint, it's one item that you keep on forever as opposed to a lot of K-1s, which you might get in the US. The other shift that I discerned is that there's now growth within the consultancy industry.

of specialist private market consultants. And I wondered how you think about that because...

It's appearing to become more multi-layered than it ever was. An institution that is thinking about using an investment consultant might have gone to you or to a Mercer or a Cambridge, and now there's a whole layer of, I presume, counter-argument, which is, well, they're fine, but they don't give you the absolute level of insight into private markets. Yeah, and that is the argument that they would make, is that they've just got this more narrow or defined scope of expertise that

And we see that and we have to work with clients across multiple dimensions. There are some clients where we manage or advise on the whole portfolio. There are others where we have to work with a specialist firm that specializes in hedge funds or real estate or private equity. And some of those, I think what you've seen in many of those is a trend towards starting to manage products as opposed to just being an advisor.

And before we leave consulting, what would you say that the industry at large, what's its biggest challenge for the next few years? The biggest challenge for us is always talent, right? You've got to find and develop and keep great talent. And so I don't know that that changes.

The other, you know, speaking at this from a U.S. lens in the time we're living in is there could be a lot more idiosyncratic challenges for our clients. For example, if some of the things that are being talked about by the administration as it relates to a tax on an endowment or

or changing spending of research, which has a big impact on hospital budgets. That can have an impact on our end clients and how you customize for this. I don't know if that's an industry challenge, but I think that's something that we as advisors are going to have to potentially work with them to develop that. I'm probably pretty well equipped to do that because...

Changes the constant, as they say, which leads us nicely to a conversation about the investment terrain. And starting at the high level, we all know that passive has become the ubiquitous, dominant, for all reasons that we understand. And that game is the biggest game until, at some point, maybe it isn't. And we might talk about that. But when you're thinking about alpha and beta, where and when do you want to pay? Yeah.

So you'd prefer not to pay at all, obviously, but that's good. So we take a pretty systemic approach to this. And so we look at where has the average manager been able to beat its benchmark? And then where is the range of outcomes of managers reasonably wide? So part of it is just a function of where you're going to spend your energy and efforts. And so we think, no surprise, in the large cap equity space, that's

The managers have not done a great job beating the benchmark over the years. And the range of outcomes of the managers isn't that wide. So that's a place where you start thinking like this is the place to index. Whereas if you get more global, if you get a little bit more esoteric in the asset classes, they will have been more successful. And the range of outcomes is wider. So you think on average, we can win in this space.

And if the range is wide enough, if we do a really good job of identifying the managers, then we can improve our odds of winning by even more. And so, you know, I would say there are certain asset classes. I mentioned large cap equity. Tips is another example where it's hard to make a lot of money on active management and other parts of the marketplace, whether it's small cap or high yield or international or emerging markets. We think being active makes sense.

So we're going to come on to some of those, but I want to just pause on large cap. And it may be because I've been doing this for so long that I've been itching for the pivot in the market that may or may not have begun. But when we do get a change in pivot and we saw it post the dot com or we've seen it post the GFC, is that leadership changes?

And we have this abnormal situation of the concentration of the Magnificent Seven. We've got companies out there like NVIDIA, as Rob Arnott pointed out, whose margins are, by all historic standards, unsustainable. And when and if you get that leadership change, the role of the active community in large cap comes center stage. It does. How do you adapt?

So to your point, going back through both of those periods that you mentioned, and even in 22 was another example, when the market sells off, active management tends to do better. And so I think part of that is you can manage that in the asset allocation as well by being diversified and not just being in the US. If I'm more worried about those stocks today,

then I think being diversified is more helpful. You know, whether that's into private equity, whether it's using hedging strategies, whether it's being more global in your mandate, because, you know, when those stocks go down, it's going to take the U.S. markets will go as well. And so, I think we'd probably rather do it with asset allocation because trying to time when it's going to work and when it's not going to work is really difficult. And so...

I'm sorry I answered your question. Yes, you have, and you've spawned another question, which is...

If, and it was a daft title, US exceptionalism, but putting the hyperbole aside, if we accept that there is potentially something going on that is an important pivot, what are the steps that occur that get you to go to your client base? Okay, it might be appropriate to increase international at the expense of the US. Yeah. So I think for starters, just to understand where we come at

the world is we tend to be long-term and strategic. And so from an investment approach, we want to be diversified. Then we want to be disciplined, which is rebalancing to where you are, even in the tough times. And the tough times go both ways. When the market's going up and you have the runs with large cap stock, trying to get people to sell out of that into any other asset class is tough. And likewise, when the market went down in 22, getting clients to rebalance. So that's the discipline part.

But then you're talking about the dynamic part, which is how do you adjust at the margin what the portfolios are? And I think that's where, from an asset allocation standpoint, we have a team that focuses on that and tries to understand where the opportunities are in the world and how those things are shifting. And certainly some of the elements of what's been happening over the last month, two,

intensity or us three weeks in intensity but certainly over the past so far this year you know is causing us to start to look and rethink those things yes and embedded within that is a big question about the dollar and you know it's amazing you go through long periods when people don't talk about currency and then you can suddenly find yourself and again it's a little bit of history i remember starting the business but nobody wanted to touch the dollar and then you know

the world changes. Just before we leave passive, we had a question from Barclay Douglas of a firm called Criterium Advisors. He's a highly regarded consultant. He said that should the active-passive ratio be different at different times? Absolutely. But

Knowing when those times are is the hard part, right? So. And is it the step down from that, which is that, you know, does it also have an element of being quite client specific? It does. And the elements of the client specificity are driven by a few things. One, maybe the bandwidth that they have of time that they want to be able to focus on it. So if

If the committee doesn't have a lot of time, I'd rather focus the time in areas where we can add more value, whether it's alternatives or other parts of the portfolio. The other element is what the committee governance structure is like. And if you get a lot of turnover in a committee, then what can happen is just take the period from 2011 or so to 2019, where you had a dominant one-way market and

new committee member comes on, like, why are you doing this other stuff? You should just be in the U.S., the U.S. exceptionalism. And if you get a lot of that turnover, you can get whipsawed. So I think understanding the decision-making focus for clients and how long-term they can be helps with it. So that's, again, probably not a place where we want to be too dynamic because it's really hard to time. And like I said, jokingly said, in hindsight, you can see it, but it's a little hard to see it in advance.

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For all of us in this business, there is a danger of hindsight. And that brings me right square into private equity, because I have sat there listening to not your firm, but some consultants who have given a whole bunch of statistics on risk reward and private equity versus public equity. And I go, hang on, we've got 100 years of data in the public equity space, and we haven't even got half of that in the private equity. Then last week, we get an announcement from Yale that, of course, under David Swenson had

had not just pioneered the book, but had pioneered the large allocation, I think, in a 30% of total assets in private equity. And suddenly a discussion about maybe selling off as much as a third in part a response to lower returns and smaller distributions.

Private equity had a big tailwind for a long time. Yes, it did. And the world is not surprisingly changing. How are you at least processing that segment of allocation? Yeah. So I think there are a few elements of it. The first is to have realistic return expectations.

And I agree that the returns that we've had in the past in private equity are unlikely to be the same returns we're going to have going forward because of the risk-free rate, because there's a lot more private equity dollars at work. At the same time, I don't think that's the question. The question is not, can I earn what I earned in the past? The question is,

is it worth it to go into private equity relative to other parts of the portfolio? And we still think it is. We still think the value added, can you get 3% to 4% over what you can get in listed equities? I mean, in some ways, it comes back to what you're talking about, about a 10-stock dominated S&P 500. Private equity gives you some exposure to now increasingly large companies,

not at the same level that we're talking about with those 10 stocks. But you get exposure, a broader exposure across the economy. And we think there's a – with the –

active ownership and effective active ownership, you can get that 3% or 4% over. That said, part of the work that our team has to do is make sure that the GP of those private equity funds are going to be effective active owners, that they're not just levering the portfolio up. They're not just doing financial engineering. They're having a positive impact on buying it

operationalizing it and then knowing when to sell. And an argument that's been put to me, and I'm intrigued by this, is that whilst the headlines have been full of the decline of public markets, and I think the stats is they're half the number of listed companies in the US than they were 20 years ago, and it's mirrored in the UK, et cetera, et cetera, is that with this indigestion, which is perhaps euphemistic in private equity, but the unsold companies and valuations that may not have been marked correctly,

Is in fact the irony that perhaps it's the public markets that offer the exit route to that bloated PE universe? Yeah. So is that a question? Yeah, it is. I shouldn't try and make this a statement. I agree. You know, to the extent to which, you know, it's easy to write off, you know, public markets, but in fact, they've become that. You think that makes sense?

Yeah, they play a really important function in price discovery and valuing not just their own firms, but they set sort of the valuation parameters for a lot of private equity firms. I do think we're seeing more private equity operating on a longer term, maybe not fully permanent, but there are some that are starting to think about how can I own these companies for longer, whether it's a continuation vehicle or whether it's a

Yeah.

being privately owned has some benefits to it. So I think it's not just because there's private equity dollars. I think management in certain situations can benefit from private equity ownership.

And the other part of that universe is the private debt universe, where we've again seen allocations climb, banks being disintermediated. How do you reflect on that slice of the allocation pie? Yeah, we were really early into that coming out of the GFC. We saw a lot of opportunities with leverage loans that were, if not busted, certainly the prices were way down. And so we've been, I think, one of the true leaders in that space.

And again, the returns there, the question is, can you beat the returns on

public debt markets. And certainly, you're taking a little bit higher risk with a lot of the private debt space. But private debt for some just means regular way direct lending. We look at it in a much more holistic perspective. And there are a lot of really good opportunities. And we think you can build a portfolio that has a very good risk return characteristic. And I think some of those dynamics are going to shift here in the near term if

If some of the tariffs or the rising interest rates or if there's inflation, if those things create stress for companies, that creates stress on the bonds. And that gives an opportunity to come in and either buy at a lower price or work its way through bankruptcy or to create customized capital structures that help companies solve their problem. And you get paid to navigate that complexity. So we see that as a really important.

Thank you. Well, staying within private assets, it was, again, Luba Nikolina from IFM who made the point that for her, it's not a good opportunity.

there seem to be echoes in infrastructure of where PE was 20 years ago, i.e. more interest, allocations particularly outside of Australia and Canada beginning to rise. When you're thinking about infrastructure and you're talking to or your team's talking to would-be investors, how do you represent it and think about it? Again, it comes back to what role is it playing in the portfolio? And I think some elements of infrastructure are meant to be more true cash flow, you know,

I would say lower risk because of the guaranteed cash flows, but it's a cash flow, high income, yield generating part of the portfolio. There's other parts of the infrastructure marketplace, which are a little bit like private equity in that there may be some developments, a higher risk return opportunity to get to those guaranteed cash flows. And then there's obviously, to the extent that it's structured in whichever strategy, the potential for some inflation protection in there as well. And a bigger, deeper market there,

would help solve, I think, one of the problems historically, which is how do you get liquidity out of some of the big trophy assets that people owned? If there's not that many buyers, it's hard to figure out, okay, how do I get out at some point or how does the GP get out at some point? And with a deeper market of capital, I think that helps mitigate it a little bit. And if you were to take a sample shot across cloud portfolios, infrastructure allocations might range between what and what?

zero, and probably 5% or 7% on the high end. And that is really client-specific because some client types don't really have privates in the first place and others' infrastructures, usually not the first place you're going to look because other places, a lot of clients say, if I'm going to take your liquidity, I want to get a really high return for it. And so they're going to focus on private equity or venture or growth equity, things like that. So

I think from my standpoint, the infrastructure wouldn't be the first or second place that you'd go. So if you're going to have a broader illiquid portfolio, then infrastructure fits in that, but it's probably not the first or second step. Which leads me into real estate. And I know there is some debate, is it data center infrastructure or is it real estate? But we've got the head of real estate from Brookfield coming on in a month or so, but there's been some turbulence clearly in the commercial real estate market, both sides of the Atlantic.

How are you thinking of that on a multi-year view? Again, I mean, the turmoil in this, I'm going to take a step back to one of your other comments. Where's the price discovery, right? It's less so in real estate than it probably is in private markets because you don't have the same comparables. Although you do a little bit with REITs,

And now we think it's, again, a better opportunity. I think one of the elements of, I hope, our firm and I hope the industry at large is that when there is disruption or dislocation, that's actually the time to step in a little bit. And so...

You know, for our clients that do have real estate exposure, we've told them to stay the course. You know, maybe if you are just looking at core real estate, you're thinking about something a little bit more risk and return into it because you're able to buy at lower prices now. We're starting to see a secondary market in real estates as people, you know, for those clients, not clients, those...

Other investors who were overextended are looking to change out of the real estate part of their portfolio a little bit. Although that's abated somewhat because that was a big problem at the end of 22 because the rest of the portfolio went down and real estate was still hanging in there. And what's happened since is the rest of the portfolio has gone up in 23 and 24, whereas real estate, as the prices have come down, it sort of evened out the allocation within the portfolio. Yeah.

We've talked about some but not all asset classes, but I wonder whether there are other investment trends you see at work that you think might develop over coming years? I think you touched on it a little bit with data centers. Is it real estate or is it infrastructure? And we've seen a lot of...

whether that be somewhere between private equity and private debt or private debt in real estate. And the ability to not just think of the world in these silos or little boxes, there's stuff in the liminal space there in between where we think there's good opportunities. And to the extent that you can provide capital, the managers that can provide a really good solution in those spaces, they're a little bit under followed and under trafficked. And so I think trying to identify those areas, which some organizations,

organizations are structured. This person looks at private equity. This person looks at hedge funds. This person looks at private debt. Well, there's things in the middle of those that make a difference. They're not making a difference that you can find, which doesn't fit neatly into any one of those. But if you can identify those and you're a provider of capital, it can work out well for you.

So we had a conversation with Scott Kleinman, president of Apollo, and we talked about their move into private assets going into the individual space. In many ways, that's being mirrored by what you're up to. And as I think about that, my concern, I suppose, is that the individual universe ends up having a chunk of their portfolio with a lot less liquidity. Yes. I mean, how do you weigh up that trade-off?

For starters, many individuals already do if they own a home, right? That is a lot less liquidity than any private equity portfolio they have. I think, again, it really is client-specific and what they're building for in the future. Many of these are either – I heard their interview with Scott. He talked about 401Ks or defined contribution plans. These are investments that are going to be there

for 30 or 40 years. Because even if you retire, you're still going to hold on to like, to the extent that you can get, if you believe the thesis that private equity gives you a higher return than public equity. And if you can truly stay invested for that long period of time, it makes sense to do it with a portion of your portfolio. It can't be 40 like some endowments because that doesn't make sense. And likewise, you know, I think there are a lot of families out there who are investing for the next generation and the pool of assets they have

it would be a really dark scenario where they would have to touch all those assets. So if you can, you put 10% of that portfolio into something that's going to earn a higher rate of return. It's not right for everybody. And I think one of the, it may have been in your interview that you talked about sometimes by the time that it gets to the retail space, it's all the returns are already out of it. And again, I don't think the returns are going to be the same going forward, but philosophically, if you can earn more from private equity than you can in public equity, then

And a lot of those assets are, if not permanent, really long-term. Then that part of the portfolio is eligible for

or appropriate for private equity. So I think that's a very good and clear argument you've made. Have the rest not been good and clear? Did I forget the word particularly? However, implicit within that is returns that are eroded by fees. Yes. Where's the fee pressure? The financial services industry, as we know, has paid lots of

participants very handsomely and has commanded very large fees in certain areas, particularly the less liquid, the higher the fee. Where might you expect fee pressure, downward fee pressure that is, to develop? Well, it's certainly developed already in the active management space for sure. And I think if you talk to any active manager or even the passive managers are seeing the fee pressure, maybe they'll say liquid instead of active.

in the liquid spaces. And we're starting to see it a little bit more in the private space. The, you know, certainly if you can be an early mover with a strategy, if you can commit early, you can get fee breaks on those. And I think it's our job and our, one of our roles in the industry is to make sure that you made a joke earlier about, you know, where do you want to pay for alpha and beta is making sure that the price you're paying for alpha is fair. Yeah.

and not guaranteed. And so I think we've done a really good job of negotiating fees on behalf of our clients. And we save our clients more in fees every year than we make as a firm. And

And I think that's a really good statement for what we're trying to do. I do think you'll continue to see some fee pressure. And some of the things that I, in particular, like are, you know, for strategies which are based on a cash plus that you shouldn't earn a fee for cash. You should earn a fee over cash. Right.

That's an example. The different within the private wealth space, there are some firms that get paid by the manager to put them on the platform. I don't know why that exists, why there shouldn't be, why they just shouldn't discount the fees to the end client. So there are some examples which I hope we'll see changes for, I mean, ultimately.

As an industry, we've got to do right by our clients. If you don't do right by your clients in the long term, you're not going to have an industry. So we've got to make sure that we're treating the end client fairly. So when you talk about your firm, you underwent a merger with Hightower last year. Yeah. They've been an acquisitive firm. They merged with you. Yeah. Technically not a merger. So we're still operating completely independently. So ownership stake. Ownership stake. Okay. What level ownership stake? 80%.

A big one. A big one. Probably in English, we would say that's a takeover, but practically you're keeping your operational independence for the moment. Yes. For the moment. Why did you determine that Hightower was the right partner?

Yeah. So we've had a lot of opportunities over the years, you know, given the strength of our firm and the reputation of people that wanted to invest in us or in some case merge or take over. And, you know, for us, the important part was finding someone that was

similarly aligned in terms of their focus on the client, in terms of the way that they embrace the partnerships with the firms that they work for. And this also strategically gives us an opportunity to work in that RAA space without having to do it on a one-off basis and provides another engine for growth. So everything that we've known about them and the way that they've engaged with other firms that they have rolled up into the Hightower entity is that they're a great partner and we're seeing that same thing so far.

A lot of it is about cultural fit and also the ability to continue to do what we do. The institutional business is always going to be a really important part of our business. And we didn't want someone that was going to come in and tell us we had to change how we're doing or we can't focus on that line of business and continue to invest. So that's a really important part for us. And I actually was looking on my bookshelf and there was a copy of Small is Beautiful. It made me think,

Why in an industry which loves size and growth, et cetera, why isn't smaller better? So one of the things that we talk about when we're talking with clients and with prospects is that we want to be big and feel small.

And the be big is to have all the resources at their disposal for them to know that we've solved clients' problems along the way, that we can negotiate fees on their behalf, and that we've got the scale to help them meet their needs wherever they want. The feel small is that we're divided into segment teams. So someone that works with healthcare, someone that works with families, endowments, corporate pension funds, all those. And we want every client to feel like

They've got an intensity of client service that doesn't happen in a big organization. And I think we've been able to do that. So we're divided into smaller segment-focused teams that really understand the challenges in that business. And I think we've done a great job of having all the resources you could want, but not to feel like it's a big company. People get the access. Our clients get the access.

You know, they want to our research team, to senior management, to their consulting team, to whomever. So I think I agree with the small, but you have to have the size and heft to be able to solve their problems. And when we think about culture, you're leading this organization. It's easier to write about culture. It's much harder to do. Yeah. What would you say are the things that you've learned most about effectively developing culture? Yeah.

So, this has been a journey for us to effectively develop it, communicate it, to embrace and highlight the things that people do that support the culture. And we've got the cultural values that we talk about. And, you know, I think part of it is you hire right. You want to hire people that you think are going to embody those. You know, a couple of key ones are, do you put the clients first? You know, another one is we before me. Or, you know, if you're a

We want people that are comfortable working in a team environment. It's not just about what I'm doing. It's about what we're doing as a collective of people who sort of acknowledge like, hey, I'm not going to get everything right, but I'm going to work to be better. So if you hire right, and then we are very deliberate about communicating about those values and highlighting them. So we do a monthly call every month and we try and highlight somebody who's, we have something called the tokens of appreciation. If someone gets one of those,

We'll highlight them on the monthly call, highlight one of the people who gets them and say, here's what they did. Here's how it aligns with our values. We do something at the end of every year called the DNA Awards, which those are people who are embodying those. I just think you've got to communicate, live it, reward it. And then also the people who aren't, you've got to make, you've got to

figure out if they're the right long-term fit and, you know, if they can learn to adapt to it. And again, like there are other organizations in this industry which are going to be much more individual focused and that's great and that can work in other places. But for us, there are elements of the culture which aren't negotiable. So you had a highly successful footprint in the US. You have a small office here in the UK. Does this lend itself internationally? Yeah, we do have international clients already that came from

either by way of a US client that knew someone somewhere else or by way of the money manager community touting the expertise that we have. So our footprint here in the UK is predominantly meant to be a research arm because there are so many great managers in London and we were coming over all the time anyway. But being closer to the community helps, we think, expand our knowledge and understanding of what's going on here.

Great. And fantastic value in the UK equity market, as I have said boringly on this show before. Now, I've got some general questions, but anything I haven't asked you about any PC you would like me to have asked? No, I don't think so. Okay. So, Margo, now the pressure's off you. I can ask you some general... The pressure's off or off? Off. I know those questions. I don't know what's coming next. I gather that you are an enthusiastic golfer, as am I. Yes.

and where's the one place that you would love to play and who would you want to play with?

Wow. I've never played St. Andrews. And I would play with my five boys. I'd play with them and my dad and my wife. Wow, fantastic. So can we have an eat some? Would they mind? Well, so you've come to the right place because Will Campion is a member of St. Andrews. So there you go. But I don't know whether you'll be able to get all of those on the tee at the same time. And how do you relax? Golf is one of them. And relax, it's sort of funny if you're an avid golfer, you know that golf isn't relaxing all the time. But it's a...

It's a good release or a good way to get away. And then if I can find a really... I love historical fiction. If I can get lost in a book...

Then you just forget about everything else, you know, imagine what it's like living as that character or those characters for a while. So probably both of those. And which is the book you would want to give to somebody, a piece of historical fiction you love? Pillars of the Earth is probably my favorite book. Okay, okay. Well, we're just thrilled because Peter Frankerban, who authored The Silk Roads, Professor of History at Oxford, has just joined our advisory board. And if you haven't read The Silk Roads, that's one of the great – it's not historical fiction, but it's fantastic history –

And one of the questions that we like to ask because of the young folks who are important listeners now in all sorts of parts of the world is if you could tell them just one thing. Yeah. Like any good consultant, it's going to be more than one probably. You're allowed to do more than one. Thank you. And this has got layers to it, but I would say focus on relationships and not the transactions.

Because, you know, so much of today is about we live in a soundbite world. It's like, what am I getting for this? You know, over time, you look back and you talked about Will and your relationship with him and how you ended up working with him here now and just the relationships you develop. And if you do the right thing and treat people fairly, I mean...

We live in a world where in our business, there have to be transactions. But if you can do them effectively, you can get sometimes to a better outcome. And it's not just that one transaction. So I would think about the relationships and spend your time as a young person. Early in your career, so many people are focused on, do I get the next promotion? Do I make the next raise?

Like I try and tell my own boys and then also the young folks who start at NEBC is like, early in your career, you just want to learn as much as you can. So, if someone asks you, say yes. Like just say yes, get a bunch of different experiences because you never know how that will marinate and come back to you later in life. You know, two, make connections. You know, that gets back to the relationship part. You know, meet people, get to know them because again, those come back. You may not realize it. And then the third is have fun. You know, like as a young person, enjoy yourself. Yeah.

Yes. Wow. I'm writing it furiously down here. I love that term, marinate, because that's great. I'm going to be adopting that one. And I may not give you credit for it. That's fine. Let's make sure we keep that in the podcast. I mean, I'm going to conclude by saying this was really refreshing. I love the way you've answered some of the questions with great clarity and balance. And thank you. I'm not here to be anything other than hopefully a fair interviewer, but I really, you know, that

Some of those have struck with me in three particular things. I like that culture that you say you espouse of we before me, because it isn't everywhere that you find it. I equally like that term that you want people to focus on relationships, not transactions, because we live in a soundbite, short transactionary.

world. And as a firm, you're trying to be big and feel small. And that's a great challenge. It's a very difficult challenge for institutions. But I think it's absolutely an important aim that many corporates inevitably struggle with as they get larger. And all we need to do for you is sort out a tea time at St. Andrews. For an eightsome. Ha ha ha ha!

So, Michael, thank you for coming. I'd like to see you come all the way just for a Money Maze podcast interview. I know you have other meetings here, but, you know, you very kindly have taken time to come to my elemental studio and it's great to meet you. And good luck in your mission. I appreciate it. I've listened to a bunch of the podcasts and it's an amazing group of folks you had on and me too. So thank you. Michael, thank you. Great having you here. I appreciate it.

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