Swiss Re's Velina Peneva on the Business of Reinsurance
01:12:58 Share

This is an iHeart Podcast. When you're with Amex Business Platinum, going the extra mile for your business pays off.

With five times membership rewards points on flights and prepaid hotels booked through amxtravel.com, you can earn more points to help grow your business. And with access to more than 1,400 lounges globally through the American Express Global Lounge Collection, including the Centurion Lounge. Can I get you a refill? You can stay fresh wherever your business travel takes you. That's the powerful backing of American Express. Terms apply. Learn more at americanexpress.com slash amxbusiness.

In business, they say you can have better, cheaper, or faster, but you only get to pick two. What if you could have all three at the same time? That's exactly what Cohere, Thomson Reuters, and Specialized Bikes have since they upgraded to the next generation of the cloud, Oracle Cloud Infrastructure. OCI is the blazing fast platform for your infrastructure, database, application development, and AI needs.

where you can run any workload in a high availability, consistently high performance environment, and spend less than you would with other clouds. How is it faster? OCI's block storage gives you more operations per second. Cheaper? OCI costs up to 50% less for computing, 70% less for storage, and 80% less for networking.

Better? In test after test, OCI customers report lower latency and higher bandwidth versus other clouds. This is the cloud built for AI and all your biggest workloads. Right now with zero commitment, try OCI for free. Head to oracle.com slash strategic. That's oracle.com slash strategic.

Did you know using your browser in incognito mode doesn't actually protect your privacy? Take back your privacy with IPVanish VPN. Just one tap and all your data, passwords, communications, browsing history, and more will be instantly protected. IPVanish makes you virtually invisible online. Use IPVanish on all your devices, anytime you go online at home, and especially on public Wi-Fi. Get

IPVanish now for 70% off a yearly plan with this exclusive offer at IPVanish.com slash audio. Bloomberg Audio Studios. Podcasts. Radio. News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

On the latest Masters in Business podcast, I have another extra special guest. Valina Penova is Group Chief Investment Officer for insurance giant Swiss Ray. She runs their private internal fund, about $108 billion that she manages primarily in

Fixed income, private credit, a variety of other assets. Really a fascinating conversation with someone who is uniquely situated in the investment world. Swiss Ray is a global, very well-known insurer and reinsurer. They cover just about everything that's out there. Not only are they the insurance company for insurance companies, but they have a variety of lines of business. She has a fascinating career. She helped...

develop the private equity group for Bain & Company in Zurich before heading over to Swiss Re. I thought this conversation was fascinating, and I think you will also. With no further ado, my discussion with Swiss Re's Valina Penova. Valina Penova, welcome to Bloomberg.

Thank you, Barry. It's a pleasure to be here. Well, it's a pleasure to have you. Let's start out with your background. Bachelor's in economics and a BS in computer science from Wellesley in Boston and then an MBA from Harvard Business School. What were the original career plans? So I was one of the first generations of Eastern Europeans after the wall came down who had the opportunity to come to the U.S.,

If I had not come to the U.S., my passion was to become a doctor. And in Bulgaria, where I came from, getting a medical degree meant that after high school, you go to medical school for five years. No college, high school, right? No college. And then after five years, you can practice. So I arrived at Wellesley with the plan to do pre-med. And when I got there, I realized that pre-med meant that I study medicine.

some generic biology and chemistry for four years. Then I have to apply to medical school. Then I have to go to residency. And during that whole time, I have to keep on accumulating debt. And at some point in my late 20s, I may be able to practice. Right. It's like a 12-year process. It's pretty intimidating for her. And yet,

all the medical schools seem to be filled up. Exactly. But for me, this was not an option. And what I decided to do is just experiment and see what else I could do. And I'm pretty mathematically oriented. I took a lot of math classes. I took a computer science class, which I found super fascinating. I mean, back then in 94, it was the early days of... Punch cards? Were you still

No, but I started coding in Pascal. Okay. So I think a lot of your listeners probably don't know what that computer language is. So it was Pascal, then C++. And then I took an economics class, and that's when the lights went off because it was a very mathematical field in many ways, but also with a link to the real economy. I couldn't give up math and computer science, so I ended up

finishing with two majors and a minor. But business and applying economic concepts and actually going into business was what I decided to do after the second year at Wellesley. That's really interesting. So at some point, you spend time within the high-speed data division of a company that eventually became part of AT&T. That was in the 1990s. What was that experience like?

So when I was a junior in college, I tried to get an internship and I was looking at the

typical paths of consulting or banking, it is very difficult to get an internship in junior year. And I had a professor in economics who suggested that I look at this company called Media One in Boston that had recently been acquired by, no, it used to be called Continental Cablevision. It had been acquired by US West, a Denver-based company, and they had rebranded it as Media One.

And there I worked in strategy, and the strategy focus was on rolling out high-speed data through coax cable. So broadband before we really knew what broadband was. Absolutely. And the team actually that did all the technology in MediaOne ended up being the core technology team for Cisco. So it was really cutting edge at that point. Huh, huh, really interesting. So-

How did you end up as a consultant in Boston at Bain? When did that start? So if the company had stayed in Boston, if MediaOne had stayed in Boston, I probably would have gone back after I graduated. I had an offer, but they decided to relocate to Denver. And I really wanted to stay on the East Coast. So given I'd been doing strategy work and...

The fact that I wanted to learn as much about business as possible, I thought consulting would be the right next step. So it was similar enough to what I'd been doing, but consulting would allow me to broaden the view. And Bain & Company is one of the biggest consultancies in the United States. What was it like working in Boston at Bain? What sort of projects were you working on? So Boston is the headquarters, biggest office when I joined, and...

was a huge variety of projects. So I did a project for MX looking at their credit card solicitation program, how they can be better competitive with other credit card companies. I worked for Motorola. And then I spent...

quite a bit of time in the emerging private equity practice. So Bain was the pioneer in consulting two private equity companies focusing on strategic due diligence of M&A transactions. And

It was a very fast-paced environment. You do a due diligence in one, two, three weeks, and you need to basically keep pace with the private equity team to make sure that the assumptions they need for the model and the conviction for buying an asset are

could be backed by the analysis the Bain team was doing. So this is in the 1990s. Private equity was still relatively small back then. This is almost 30 years ago. Did you have any sense as to how rapidly private equity would grow and how big it eventually became? I mean, it was, I would say, in its second inning back in the 1980s, like 19...

Nineties, yeah. Nineties, yeah. It was, I mean, it was attracting a lot of talent. So if you look at who was going to private equity, it was the best from the consulting teams. It was the best from the investment banking teams. And I think the value proposition was just very compelling, right? I mean, the returns at those times were easily...

in the mid to upper 20s. Really? Wow, that's impressive. At the time, I remember NASDAQ was similarly putting up high 20%, 20, 25, 30% returns, very unusual number of years in a row. I had no idea private equity was putting up those sort of numbers back then. You end up as the head of Bain's private equity experience. Was that in the US or overseas?

So I spent in total 19 years at Bain, if you add the time I spent in business school.

I was first in Boston. I actually spent six months in Australia as well. - Wow. - And then I moved to San Francisco after business school and was again quite focused on the private equity space. Right before 2009, I felt I was ready to do something else. And that something else was renewable infrastructure private equity.

So that was an emerging space back then. Renewable infrastructure. So this is everything from solar and wind to battery to more efficient power lines. Still a burgeoning area. How long did you work in that space? So I didn't. Oh, you did not.

The catch was that the fund had to raise money. And me going to that fund was contingent on them raising the next round. Yeah, and 09 got in the way? And 09 got in the way. And I had already told Bain. I had told Bain, listen, I've been here for a long time. It had been 10 years by then. I need to look at something else. I need to do something else. And they told me, listen, instead of leaving...

Why don't you do a six-month transfer in Europe? Why don't you go to Zurich, for example? It's a small office. There's interesting clients. There's quite a lot of U.S. partners there. Why don't you see how you like another office? And then you can come back in six months and we can think about whether you want to still leave or not.

pick up and go down the partner track. - So that was six months, and that six months turned into how long? - That six months turned into a year, and that year turned into a permanent relocation. - How long did you stay with Bain in Zurich for? - So I stayed until I came to Swiss Re. So I moved to Zurich in 2009,

And I left Bain in 2017. So U.S., London, a lot of money centers were kind of imploding during 2009. What was the view like from Zurich? I would say not that different. Really? We call it a global financial crisis. So business was difficult across the globe. Europe was in a difficult situation. I mean, I was in Zurich, but I was serving a lot of the European clients there.

And it was hard. But what was different about Zurich compared to San Francisco is Zurich at that time was a very small office with very few partners on a growth trajectory. So it felt like going from a well-established company to a startup. And that's where...

I could develop also business lines and service areas that were not so established across Bain. So supporting institutional investors, right? We had worked a lot with private equity funds.

but we had not done as much work with sovereign wealth funds, pension funds. And the problems that those institutional investors face when investing in private markets are well served by the knowledge that Bain had in the space. So that's where I found the niche and that's where I focused when I moved to Zurich. So you have a history and an expertise in private equity investing

consulting, analysis, just generally the space, which was small but rapidly growing. How far were you able to take that for Bain? At what point did you realize, hey, I've gone as far as I can go with this. We can only do so much as a consultant. I really want to deploy capital in this space.

So that had been on the back of my mind for a long time. I mean, obviously, when you work with investors, you're always quite vested in the decisions being made. You're advising on setting up a new mandate or executing an investment strategy. And that's super intellectually challenging. But the issue is that at some point, you need to hand it over, right? Here is the plan. Here's how you should go about it.

in this deal or in this new asset class. But then it's up to the client to implement it. And what Swiss Re provided me with was the platform to actually do the investing and to take the strategy that I'd helped them develop and implement it. We're going to come back to Swiss Re in a few minutes. I want to just stay with your time

at Bain and Zurich. So you're on the investment committee in Zurich. Were you looking at global opportunities, just Europe, the rest of the world, ex-US? What was your playground? So I'll give a bit of background on what this investment committee is. So Bain does a lot of due diligence for private equity clients. And as part of that relationship, we as a partnership were

allowed by the private equity fund to co-invest in transactions that we had diligenced. That's a vote of confidence. Oh, we think you should put money into this and we're going to co-invest along with you. Absolutely. Well, it helps with kind of the broader relationship between

And it's an attractive opportunity for the employees of Bain who invest in those co-invest vehicles because you're able to do that co-investment without fee and carry. Wow. And as you know well, those fee and carries are a pretty big chunk of the cost of the product. So the investment committee...

was a small group of global partners that had to decide which ideas that came from the teams we would put into the Bain Co-Investment Fund. So we were the diligence on the diligence team. Wow. So you really have to know your stuff if you're doing the due diligence for the due diligence team. I mean, that's... Well, and you need to be willing to say no to colleagues and friends who...

who then have to deal with the repercussions of saying to the private equity fund, well, we think it's a good deal, but our investment committee decided to pass. Right. Really? So does that create a problem or is it, hey, we only have so much money to do and this is broader than we usually like or how do they manage around that? I think that the

the clients understand that when you're thinking about portfolio construction, you can have only so much allocation to a given geography, to a different industry. So I think that nobody took it personally. I think if you consistently say no to a co-investment from a particular client, it may raise questions. But generally, the quality of those proposals was very high. Really, really interesting. So the question is,

That's going to lead us to Swiss Re is how did your time at Bain & Company influence your approach to investment management, strategy, private equity selection? This had to be pretty seminal in your development as an investor. Yeah, so if you think about what you learn as a consultant, first of all, you observe a lot of management teams, right? So ultimately, it's all about the team, right?

And the quality of the team and the people, that's both with clients and also within Bain. And I think that's also very true about how you set up an investment organization. You can have the frameworks, you can have the processes, but at the end of the day, it's about the quality of the team, the trust between team members and the culture you create.

And I think you may be surprised to hear that's the first thing I start with, but I truly believe that quality investment requires just a very strong team behind it. Venture capitalists say we like to bet on the jockey, not the horse. It's very much a people business. You have to be able to evaluate people.

not just folks' ability and insight, but their ability to execute and make stuff happen. So is it safe to say the decade you spent in private equity at Bain carried forward to Swiss Re? No, absolutely. And maybe there are two more things that I would say carry over.

When we talk about investing, we really focus a lot on macro. But at the end of the day, good investing is a good balance between macro thinking, so what's happening with the global economy, what's happening with interest rates, what is the Fed going to do, and micro, and understanding how different segments of the economy, how different businesses are.

make money, make profit. Not everything is correlated to GDP growth. And I think that balance, I brought that balance from my consulting days. Because a lot of the colleagues in the investment organization

think first macro and then micro. And I think both in private equity and in consulting, it is more of that balance. Really, really interesting. And the third is decision making, right? So decision making, I'm an analytical person. And in consulting, you focus on the data on the model, but also observing behavior and stakeholder management. So understanding the

how the data and how the analytics drives the decision, but then also how the biases of different stakeholders drive the decisions. Absolutely fascinating. Coming up, we continue our conversation with Valina Penova, Group Chief Investment Officer for Swiss Ray, discussing how she found her way to the insurance giant.

We get it. There are too many car insurance companies trying to convince you that they have the best car insurance rates. We don't think we need to convince you. We're rude, and we do car insurance differently. We don't think it makes sense to only base your car insurance rate on things that have nothing to do with your driving, like your occupation or education.

When you take the test drive using the Route app, we price your car insurance rate primarily on how you drive. It's that easy. Just download the Route app, drive around like you normally would for a couple of weeks, and get a quote based primarily on how you actually drive.

Good drivers could save up to $900 a year when they switch to Root. We're taking an old industry and making it fair. Root Insurance, because better drivers deserve better rates. Download the app today and see how much you could save. Terms and conditions apply, subject to underwriting review. See Root.com for details.

Did you know using your browser in incognito mode doesn't actually protect your privacy? Take back your privacy with IPVanish VPN. Just one tap and all your data, passwords, communications, browsing history, and more will be instantly protected. IPVanish makes you virtually invisible online. Use IPVanish on all your devices, anytime you go online at home, and especially on public Wi-Fi. Get

IPVanish now for 70% off a yearly plan with this exclusive offer at IPVanish.com slash audio. The data that matters for your investments. The entire auto sector is higher today. And analysis on the companies making news on Wall Street. Tesla's been a stock that's been in focus. Shares have really been all over the map this morning. Listen to the Stock Movers Report from Bloomberg. Let's talk about

Let's jump into Swiss Re a little bit. You joined in 2017 after you had been a consultant for Bain & Company for 19 years. What motivated the transition to full-time asset management?

So Barry, as we spoke, consulting is exciting because you get to work on your clients' most challenging problems. It is super intellectually stimulating and rewarding. However, you lack ownership in the solution that you bring.

So for me, that was always the one piece missing in my consulting job. You can come up with the best framework with the best answer, but then you hand it over and how it gets implemented and whether it succeeds, you don't get to follow the whole journey. So the opportunity for me to come to Swiss Re and actually work

invest and implement a strategy was extremely exciting. I'm curious if consultants run into the same problem that I call it the cocktail party problem. If someone asks you about a particular stock at a cocktail party and you give them an answer, well, if it works out, it's because they're a genius. But if it doesn't work out, it's your fault.

Do consultants run into that same lack of agency issue?

I don't think it's lack of agency. I think it's lack of opportunity to follow through, right? I mean, consultants are expensive. Right. So if you're a company and you want to hire consultants, you want to focus them on getting you the answer that's hard, right? Consultants often ask the question, why is the client's problem so hard? And if you can't really answer that question, then it's, you know, why are you then...

at the client in the first place if the problem is not hard. And that's why companies focus their resources on consulting on really solving the hardest piece of the problem.

But companies run big operations and the implementation is typically something that takes a long time. And even if you were to bring a consultant in to help you with implementation, the cost benefit is just not there. So I think if you ask many people who were in consulting, that's always the complaint that they have is, yes, I follow through. You obviously keep in touch with your client. You have multi-year clients.

But you have a huge sense of ownership for the solution you have created. You have a huge sense of responsibility. But then you don't have control. You don't have control over the outcome. So you moved to Swiss Re in 2017 as head of private equity. Did you have ownership and control? What was that transition like?

Absolutely. I had a P&L. So the mandate that I had to set up was selecting private equity funds, co-investments, secondaries to put into Swiss Re's portfolio.

And then to make sure that we beat the private equity benchmark or the equity benchmark with that selection. How do they figure out what the targets are for private equity? I know there's a bunch of different benchmarks. There's U.S., there's Europe, there's global. Did you have the mandate to go anywhere, just find us the best deals? Or were they focused...

focusing you in particular sectors or geographies? - So I was also responsible for deciding that. And ultimately the decision was to focus more on developed markets. So we really emphasize US, Europe, developed Asia.

Which is primarily Japan and Korea? Australia, Japan, Korea. All right. So how long were you running private equity for Swiss Re before they said, hey, we think we have bigger things in mind for you? So sadly, only two years. It was exciting. Sadly? You got a giant promotion. Why sadly?

Well, because I had just set the mandate up, right? It was a lot of effort to get the relationships back with private equity funds, to build the team, to build the operations, to build the systems. And just when things were running and were looking like you could cruise for a while, right?

opportunity knocked and I had to jump into a completely new and unknown area to me at the time. So we'll talk a little bit about your role as group chief investment officer for Swiss Re but I'm curious as when you're running private equity are you allocating capital to different private equity funds? Were you investing directly into private equity opportunities?

As a co-investor along with PE funds, a little bit of everything, how are you allocating Swiss Ray's internal capital?

So it's a little bit of all, but it's mostly investing in private equity funds. So I would say about 70%, 80% of the allocation is in funds. And then the rest is in co-investments alongside the funds that we have invested in. Really interesting. All right. So two years later, you get a promotion. You're head of Swiss Raise Group. You're chief investment officer for Swiss Raise Group. That's their internal company.

pool of assets they invest? Not yet. Not yet. I had an intermediate promotion. So what was the 2019 promotion? So the 2019 promotion was a co-head of client solutions and analytics. And I was focused more on the ALM side of the business. ALM being? Asset liability management. So it was...

If you think about insurance asset management, we obviously serve the group, but we have business units and legal entities. And each of these business units and legal entities have their own strategic asset allocations. So my role was to manage those assets.

business unit and legal entity asset allocations. So how long did you do that for from 2019 till when? Until I got the CIO job. Which was? In 23. Okay, so 17, 19, 23. So for the past two years, you've been chief investment officer for Swiss Ray's internal fund, which is a hundred something billion dollars. Is that right? Yeah.

108, 110. 108. What's a billion or two between friends? How much of that is allocated to private equity and alternatives? How much of that goes to public assets like stocks and bonds? Is it a different set of strategies, a very different mandate than you had when you were running private equity?

So maybe before I answer this question, for your listeners, I want to give a very quick primer of what insurance asset management is and how it's different from asset management for other institutional investors. Because I think the answer will make a lot more sense with that in mind. So if you think about...

Insurance asset management, the optimizing function that we have is in three pillars. First is long-term value creation with focus on stable, sustainable returns and cash flows. And our liabilities, if you think about especially the life business, are super long-term. But you do have annuity... We don't have annuities, but we have... Not annuities, I'm using the wrong word, so I'm going to have to pull that out.

You have life expectancy tables, so you have some sense of what you're... Exactly. Life insurers have a sense of, hey, we have this much of a future liability... It's contractual. ...20, 25, 30 years down the road. We don't know who's going to pass away when, but with a large enough group, we can more or less have a sense of future liabilities. No, no. We have a decent sense of future liabilities, but we also need to make sure we have a portfolio that's resilient across cycles. Mm-hmm.

The second pillar is asset liability management. So because we have a view on our liability profile, we need to make sure we match our assets on a currency, duration, and liquidity basis. So the strategy is very intricately linked with what's happening on the other side of the balance sheet. Mm-hmm.

And then the third pillar is capital efficiency and diversification. I think that is one of the big differences with other institutional investors. We are regulated and we have a risk-based capital regime, which means that the cost that we have for holding certain higher volatility asset classes is very high, such as equities or high-yield assets.

And that means that we maximize return on a risk-adjusted basis. So it's maximizing risk-adjusted return per unit of capital. That makes sense. When we were talking about private equity, I was thinking about those future liabilities. A lot of people realize private equity tends to be illiquid for five or seven years at a time. But I would imagine that you could ladder or standardize

stagger that so there's always some fun coming up when a future liability arises. It may be illiquid for five years or seven years, but you're talking about 20, 30, 40 years in the future. On the life side. I mean, we also have a property and casualty business, which is much...

Shorter. A little more random? Yeah. Well, it's annual renewal. And it's a function of what happens with natural catastrophes. So whether you have a hurricane or an earthquake, but that business renews every year. So it's a very short tail. On the liability side of that, it feels these days like natural catastrophes are not just more frequent, but so random. I don't know if we're just paying more attention to them.

or if they're actually happening more frequently, how do you manage around having that sort of future liability when it kind of feels a little random when a hurricane hits or tornado hits, a wildfire happens? All these things just seem to come out of nowhere. Well, so I think that's why the whole element of liquidity and stability is so important on the asset side. We need to have a sustainable portfolio.

regardless of cycle and regardless of what happens, which means we need to hold more liquidity than you would think at first glance, and we need to have a portfolio that can cover liability. So it cannot be the case that if a hurricane hits,

and we have claims, and people are waiting to get paid to rebuild their roof. We say we're sorry, but there is a market crisis. We're in a lot of alternatives. We're locked up. We can't help you. Exactly. So you need to really keep that in mind. In the U.S., I think Swiss Re is known for...

primarily as a giant reinsurer. Same situation, obviously. You never know when some insurance company gets to make a claim on their reinsurance policy. I'm going to assume that having stability, sustainability, and liquidity is really important for those future liabilities as well. No, no, absolutely. I mean, we are ultimately the insurer of insurance companies. We insure the tail. So...

Every time you open the paper and there's a big event, you should think of Swiss Re and what the impact is. So whether there is a, you know, the Suez Canal is blocked or there's a big earthquake or the airplanes have been, cannot be returned to the lessors in Russia, all of these macro big events ultimately hit reinsurance. Or if there's a big pandemic and the...

The Tokyo Olympics are delayed. That is a reinsurance level event. So it's interesting because you spend so much time in private equity, but it sounds like what Swiss Re does internally is going to be a little less alternative focused, a little more liquidity focused. Is that a fair statement? Yeah.

No, absolutely. And if you look at our portfolio, we are 85% fixed income. Oh, no kidding. Of which half is government bonds. And we use government bonds to match liabilities. That is our risk-free way of matching liabilities. And then the rest is corporate credit and private debt. And private debt has been one of the asset classes that we...

participated in for a long time but where we're seeing a lot of opportunity so if you say 85% fixed income the rest is private equity listed equity we have some minority positions and then real estate huh that's that's really fascinating I wouldn't have guessed so much were in um

government bonds, but I guess if you want liquid and you want stable and you want, despite, what's the tenure now? Four and a half percent? That's not so bad. Well, with inflation, two and a half percent, it's not so good. So how do you think about the return? It's really more about staying ahead of inflation than it is about generating market beating returns. Is that fair? Yeah.

Well, you want to – so as I mentioned, we do focus on long-term value creation. And if you think about, again, our optimizing function, most institutional investors focus on economic returns. We focus on economic returns and accounting returns. And we always need to strike that balance. Define accounting returns versus economic returns.

So economic returns is if you have a bond and the market value of that bond moves in a negative direction, even if it pays your yield, net-net, you might be losing economic value on holding that position. In IFRS, if you hold a corporate bond, the market movements do not go through P&L. Right.

Because you'll eventually get par when it matures. Because we hold it to maturity. Right. Exactly. All right. So what features into our IFRS result is only the yield on that bond, not the market movement. So here we are in 2025. We're still debating whether or not the Fed is going to cut.

How much attention do you pay as chief investment officer to all of the noise around, will the Fed cut? Will they not cut? Are they staying put? Oh, here comes the dot plot. Like how noisy and or insignificant is everything around central bank activity?

We start the year always with highlighting where we think markets will go and what is our baseline and what are our scenarios. So, of course, what the Fed will do impacts markets, impacts valuations, impacts interest rates. So, of course, we follow it. We are a long-term investor, so we try to, while we...

I'd say sometimes obsessively follow the market news. We try to separate the noise from what we really need to do. You guys were in private credit before it became very popular, as it seems to have done recently. At what point does that become a little bit of a crowded trade? Or given the size and the history of Swiss Re in this space,

You have your favorite places to play in. You know the funds you like, the private credit shops you like. How are you looking at the change in private credit over the past five years? How is that affecting your investment strategy? Private credit is in the news a lot these days. The reality is that private credit...

is not one asset class. There are many, many flavors. And you have private credit that is mostly IG-like, investment grade-like, senior secured loans. You have some pretty speculative asset classes. And

Swiss Re has been focusing on the former. So we started building and we play in that asset class in a more direct way. So we provide infrastructure loans directly to projects and we underwrite each of those loans. So

We have a pretty high bar of what we see as quality and also the private debt premium. So that's the premium above the spread that those loans provide in order to put those in our portfolio. So I mentioned the 10 years, about 4.5% today. Okay.

go back before 2022 and the yield on government bonds were, you know, half or worse. What were you guys doing when we were in an era of

1% inflation and 2.5% yield, does that get you to where you want to be? Or is that still, did that raise problems for big insurers like Swiss Re? I think this was a problem for the whole industry, especially for the insurance industry, given how much reliance we have on fixed income. And that was the driver in a way for us to start looking at areas like private debt. Mm-hmm.

Because there you have bespoke transactions and you can definitely earn a premium versus what you get even in the corporate bond space. But I mean, I'm not going to lie. You're reaching for yield in those moments. Well, there's reaching for yield like people did during the financial crisis. And then there's senior secured bonds.

Yes.

I guess the insight that I'm picking up from you is, hey, two decades of 0% interest rate from the U.S. central bank and other central banks really is the key driver of what's expanded private debt, private credit, private equity, and a whole slew of alternatives. Mm-hmm.

that substituted for sovereign treasuries and other issuances. Fair insight? No, it's a fair insight. And I think if there's one concern that we have is if you look at when this space really exploded, it was after the financial crisis. And there hasn't been a test of the market. So since 2010, there hasn't been a real test

credit crisis to really test the quality of these products. And I think they have, you know, new products have kept coming to the market, some with a very short history.

And we still don't know how private credit will actually react in a more prolonged crisis. Well, 2022 was pretty much a down 15% year for treasuries and down 20 plus for equities. That's kind of unusual. Yeah.

I think you have to go back to 1981 to have them both down double digits in the same year. But we had no defaults. So our portfolio had no defaults. So the fact that and the accounting hold till maturity means we don't care what the noisy day-to-day stuff is. We're in it until this matures. Well, we care about quality because what hurts us is defaults and re-ratings. So you had no defaults, any re-ratings?

We've had some re-ratings, but I mean, we also have middle market lending. So we have been expecting to see some wobble. But not so much. And not so much. And I think, you know, you always attribute...

outcomes to skill when maybe some of it is attributable to luck. But so far, our very conservative underwriting has paid off. Really, really very interesting. Coming up, we continue our conversation with Alina Penova, Group Chief Investment Officer for Swiss Re, discussing the state of markets and fixed income today.

Hey, good drivers. Yeah, we're talking to you. The ones who don't speed, the ones who avoid those fender benders, and who always use their turn signal. Congratulations, you're a better driver, and that means you could get better rates with Route Insurance. It's time to stop paying for other people's bad driving habits. You know, like the ones who cut you off just to slam on their brakes. Woo!

or the lead foot speeding to work every day. With Root Insurance, you'll get a quote based primarily on your driving. Just download the Root app, drive around like you normally would for a couple of weeks, and boom, you'll get a quote that actually makes sense. It's that easy. Root. Because better drivers deserve better rates. Download the Root app today and see how much you could save. That's Root Insurance. Terms and conditions apply. Subject to underwriting review. See Root.com for details.

Yeah.

The

Let's talk.

So it's 2025. The year is just about halfway done. Kind of been a wacky year. What surprised you most about the global economy in 2025?

So I have to say, coming into the year, sentiment was very bullish. I was in Davos in January, and there's always the joke of whatever you hear in Davos, the reverse will happen. Whatever you hear where? In Davos at the World Economic Forum. Oh, Davos. Okay, yeah, yeah. So yeah, Davos has a tendency to pick tops and bottoms accidentally. Exactly. But back in January, the sentiment was super bullish. It was all about...

U.S. exceptionalism. It was all about AI and how AI will drive returns to the moon. And the sentiment has vastly shifted. So just the speed with which we saw sentiment reverse and the narrative reverse this year, a few times now, has been to some degree surprising. To be fair, as much as

The U.S. president has been talking about tariffs his whole adult life. It's his favorite word. Call me tariff man. You know, I believe that everybody saw his first term. All right, we'll get some 10% tariffs. We can live with that. It feels like a collective failure of imagination as to what took place on April 2nd. I'm loathe to call it Liberation Day because—

The only thing that was liberated were a bunch of people were liberated from their money. But other than that, everybody seemed to be surprised by that. And should we have been? Should we have expected that?

that or just collectively knowing why would you mess with this? This is going so well. Seems to be the Wall Street consensus. Hey, you've inherited a great economy and the stock market's trending higher. Just leave it alone. Like, how does that perceived from Europe?

So I wish I said that we were super surprised. I mean, we do always tend to be a little bit glass half empty because we are a risk company. We're a risk knowledge company. Bond investors are always about return of capital, not return on capital. So you're the glass half empty. The equity side is the glass half full. But even given that, it still feels like this was really a surprising year. Yeah.

I think the extent of the announcement on April 2nd was a shock. I don't think that, I mean, if you remember that day, people couldn't understand the magnitude of some of the numbers that were shown on that chart and what the formula was and what it really meant. But I think the direction of travel was different.

If you had listened to also what the president said before the election, we expected some level of increase in tariffs. I think it was just the way it was communicated and the execution of it that caught many, including us, off guard. It seemed to be a little ham-fisted, especially when we see how the pains the Federal Reserve takes to not surprise the markets is

hey, there's a rate increase coming, couple of months, get ready. Hey, we're two months away, look at CPI, look at PCE. And then all the Fed governors go out and they all speak at the various clubs. Like the Fed really takes pains to not surprise the market. It kind of felt like this was a purposeful surprise to the markets. How big of an impact did that have?

I think the good news for us was that we don't hold a lot of listed equities. Right. So it was more an opportunity to think about our playbook of when do we add exposure in the market versus stressing. So we actually, if we look back...

At that period of about a month where you had extreme volatility, we didn't make a lot of sharp turns. It was about, are we still comfortable with the portfolio we are holding? We had come into the year with a cautious optimism, but I think the emphasis is on cautious. And we felt comfortable holding the risk that we had in the book.

At the same time, we were surprised by the resilience of the market, right? I mean, this was a very sharp reaction, but the recovery was also lightning fast. So I'm glad you used the word resilience because that's the word that keeps coming up. Resilience in the economy, resilience in consumer spending, even if their consumer sentiment is kind of weak. Right.

And resilience in both equity and bond markets, it seems that you can throw anything at this economy and this market. And at least so far, it brushes itself off and just keeps going. How surprising has that been? I mean, if you look at the valuations, if you look at the fundamentals, it's surprising, right? Because you would expect, I mean, you're seeing the consumer...

slowing down, you still have high interest rates. Valuations, especially in the US, are in their top deciles. And outlook is not looking as promising as a few months back. So I think from a pure fundamentals perspective, it's surprising.

But markets are not, you know better than me, markets are not driven purely by fundamentals. There are a lot of technicals that have maintained the resilience of the market. First of all, there's just a lot of money out there. Endless amounts of capital sloshing around. And there's not that many assets to invest in. So if you look at the size of the U.S. stock market versus the amount of money that needs to be invested...

you have a bit of a supply-demand imbalance, which basically is keeping valuations higher than historically. And isn't the same true in sovereign treasuries, not just the U.S., but there really isn't a lot of sovereign paper, at least A-rated paper, around. It's almost as if there's a shortfall of sovereign treasury paper. Well, and if you think about also...

IG credit, investment grade credit, you could almost argue. The other surprise has been how tight spreads have become in high quality credit. Right. Why go risky if you're not getting paid to take that risk? But if you think about what companies are issuing that credit, these are...

Maybe this will sound controversial. Some of these companies are more creditworthy than some governments. So in a way, you could imagine a situation where

some investment-grade credit even goes tighter. There could be a crazy... Yeah, Microsoft could have negative spread. Right. Microsoft is more creditworthy than a lot of large nations out there. Exactly. And that is what I think has been keeping both equities higher and spreads as tight as they are. So you mentioned we're in the top decile evaluation in the U.S., but for almost a year now,

Europe has been outperforming very quietly, at least for the first, for the tail end of 2024, but a little more visibly in 2025. Europe has been significantly outperforming the U.S. You know, people have been waiting for this mean reversion to take place, this leadership swap.

For a decade, it finally seems to be happening. First, why do you think that is? Is it strictly a function of valuation or are some of these things being driven by policy, by the U.S. dollar, by a return of capital away from the United States? What is leading to this outperformance elsewhere in the world?

So I want to start by saying that Europe still has a lot of catching up to do. For sure. So if you look at multiples in Europe, they're in kind of the mid-teens now, multiples in the U.S.,

are, you know, mid-20s, low mid-20s. So there's still a pretty big valuation gap. And some of that is just the constitution of the market. You know, you have more high tech, more high growth. But some of it is kind of a European penalty, just given all the, you know, regulation and slow growth and challenges that Europe has been facing. So yes, we have done better in Europe in the equity space than in the last year than, you know,

than in the last 10. But I think the gap is still pretty meaningful. And I think there's some level of optimism that Europe will need to really speed up investments, whether it's military or infrastructure. I think that Europe has woken up to the fact that in order to, quote unquote, survive in this new geopolitical environment, they need to get their act together and they need to start focusing on investing and reducing a bit of

the regulatory burden that we've had on companies on the continent. It's much greater on the continent. But the flip side of that is I vividly recall in 2000, right in the middle of the dot-com implosion,

going to London, going to Brussels, and New York was very stressed out. Hey, I lose my job. I lose my health care. What happens if my kid needs a surgery? In Europe, people were still having cappuccino and cigarettes in the cafes. It just felt a lot looser and a lot less stressful.

Is that simply a quality of life trade-off that, hey, the Europeans know how to live? Yeah, the Americans can make fast-growth tech companies, but we have a better lifestyle. How do you respond to that sort of position?

I mean, I think the European expectation for what a good life is, is probably quite a bit different from the American definition. I think that there's some people see certain elements of government service as...

So it would be healthcare, education. I can send my kids to a Swiss university for, I don't know, 1,000 francs a year. And you can get an MIT-type education for a small fraction of what you pay in the U.S. And that's considered a social good. But the taxes are much higher. So you're paying for it one way. Taxes are higher. But there is this social...

Web that you know that people value right you also, you know, you go to most European cities You don't see homeless people right on the street to the degree You don't have you don't have some of these, you know Extreme situations that you you have in the US and the question is how far is you know? What's the right balance? So I'm not saying that it's all good because you also

a generation in Europe that expects this but doesn't understand the cost that it comes at and expects a lifestyle and expects work-life balance but at the same time doesn't have the work ethic required to keep the economy successful. So we're recording this

The Russian-Ukraine war is still ongoing. The Israel-Hamas war has now become an Israel-Iran war. There are all these geopolitical tensions and shifts taking place. How do you think about what's going on in the broader geopolitical area

when you're thinking about making investments for 10, 20 years down the road? Is it significant or is it something that, hey, there's a war every year, it's just something we have to deal with? So if you look at history and what impact wars have on markets, the conclusion is that, yes, there's a short-term shock there.

But in the long term, even within a few months, that dissipates. So making near-term investment decisions driven by geopolitics is probably not the best investment strategy. No, to say the least. I think what matters is what is the symptom behind these events. So these wars are a symptom of the fact that we have deglobalization.

We are moving in different spheres of influence. And Swiss Re is a truly global company. So the value we bring is that we can ensure tail risks because we can diversify a lot of tail risks at a global level. We reinsure earthquakes in California and in Japan and hurricanes in Florida and...

pandemics, and those risks are uncorrelated at a global level. And in order to provide that extra cover, you need to have a global mindset. And in an environment where

globalization is no longer what it was 10 years ago, one needs to think about how does that impact truly global businesses. So we think about it as long-term trend and impact on where we think the portfolio needs to go versus making tactical decisions.

influenced by short-term events. So given that, that you're a long-term thinker, you're not playing the tactical game, you still end up with these disruptions and risks and opportunities. How do you assess the state of the market today? Where do you see opportunities? Where do you see risks? So I would say that...

and maybe that's my private markets background, I continue to see opportunities in private markets. In part because you have imperfect information, you can actually add value to your portfolio if you really have the channels and expertise. I think areas like infrastructure debt are ones that will only grow in the next few years because the world needs a lot more new infrastructure.

And companies that provide loans but also equity in the infrastructure space will both find a lot of deals but also have a lot of opportunities. So you need to think of it from a macro perspective.

of what, you know, where is the need for capital? And do we have the expertise as a team to provide a solution that is uniquely fitted to that? So you mentioned private equity and private credit. European Central Bank has cut rates recently a number of times. Does that work as a tailwind for private credit? How does that impact what you see out there?

It's definitely a tailwind for private equity, right? So what we see is European funding cost has actually fallen 20 basis points since Liberation Day.

versus in the U.S., funding cost has gone up 20 points. And if you think about what makes private equity successful, it's a leveraged buyout, right? That's ultimately part of the value of those transactions is in the leveraged part, and lower interest rates clearly are beneficial for the private equity space. So the phrase we hear, and quite honestly hear way too much in the U.S., is

So much uncertainty, so much economic uncertainty. How do you see this lack of clarity, at least around policy decisions in the U.S., affecting your outlook for the markets, for the economy? How does this sort of new regime in Washington, D.C., affect the global economy?

So if you think about how we plan, right, on an annual or three-year basis, for many years, we would have a baseline, right? We'll say, we think there's a 70% chance that this will happen, and we'll set up our portfolio and our decisions based on this core scenario. And then there's some tail scenarios, which we will assess and we'll look at, you know, what are, you know,

how could we assess whether we're moving into those scenarios. Today,

our baseline, quote unquote, is a 40% odds. So I don't want to even call it a baseline. And we have moved from thinking in baseline and other scenarios to what is the range of outcomes that we should expect? And what do we need to be tracking on the macro side, on kind of the high frequency data side to understand are we moving from the scenario we think we're in right now to something else?

But if you have that path, you have fewer surprises. So that's one thing that we have done. And we dynamically assess the probabilities of those scenarios on a monthly basis. We have an investment committee.

And we do a survey of 15 investment committee members to say, what do you think the odds are? It's kind of the wisdom of the crowds idea. And we discuss in which scenario are we moving? So that's one thing we have done. And I think that provides a lot more flexibility in thinking. And the second is we think ahead of time.

risk events so markets are much more volatile today and typically at the depth of a correction You're scared you Don't know how to interpret the information you're getting and you're paralyzed in making decisions. So what we do is we have playbooks to say if the market moves

up or down at certain levels. These are the levels at which we'll add risk, this amount of risk, and as the market goes down, we'll continue to add risk. And then we have playbooks to think about, okay, at what levels if the market recovers, has it gone too far, and we lighten up on risk. And those playbooks have taken the emotion and the bias out of the decisions, and it makes it much easier

you know, much less stressful in a way to execute on strategy. Because you have a plan that you created when you were calm and relaxed. Exactly. As opposed to responding when you're stressful. I'm kind of fascinated by the 70% baseline in normal circumstances. But this year, it's more of a 40% baseline. It sounds like

you're saying that tail risk is rising. Is that a fair assessment? Yes, this is, you call it fatter tails, right? So we see...

we see the, you know, more uncertainty means that it's less clear what will turn out to be. So there are more scenarios that are more likely. Including the possibility of something really extreme on either end of the tail. Exactly. And we do, I mean, again, we're in the business of tail risk. Right. So we also do think about what,

could be a really, really tail scenario and what that means for our business. But we do it not just at the asset management level, more broadly at the group level. You do it across the entire insurance company, I would imagine. All right, I only have you for a few more minutes. So let's jump to our favorite section, our favorite questions we ask all of our guests. Starting with, what are you watching or listening to these days? What's keeping you entertained?

So I have two kids and I try to show them some more, you know, intellectual programming. Right. And the latest show we've been watching is called The Real Bugs Life on Disney, which is, if you know the Bugs Life, it was a Disney movie. Right. This is...

So it's amazing technology that's being used to record this, but it follows different insects in their natural environment at a very – with amazing cameras, right? So they have – you basically get a macro view of, you know, how a dragonfly –

and how a dragonfly runs away from frogs or other animals. So it's a fascinating show. So that's on the TV side. On podcasts, In Good Company. I guess this might be a competitive podcast to yours. It's Nikolai Tangen. Yeah.

Who hosts that? It's Nikolai Tangen. He's the CEO of the Norges Bank. So that's the largest sovereign wealth fund in Norway. And they're a large equity investor. I'm going to look into that. That sounds interesting. They hold 1% or 2% share in some of the largest companies. So he gets to interview CEOs of these companies. And it's always a pretty fascinating discussion. I'm going to definitely check that out. That sounds good.

Tell us about your mentors who helped to shape your career. Early on, it was definitely my grandmother. She was a professor of agronomy back in the day. Agronomy. Agronomy is the science of agriculture. And she took a keen interest in my education and really pushing me to push myself to

to do better, to have the right moral compass. So some of the lessons that were instilled in me are still from her time. And then during the Bain years, a partner called Dan Haas, who was one of the founders of our private equity practice back in Boston and whom I met in Zurich and who I blame for staying in Zurich. Right.

permanently after I came in 2009. But he really has played a fundamental role in kind of coaching me, you know, on both my career moves, on how I approach problems, just listening at times, and really being an invaluable friend and coach. Let's talk about books. What are some of your favorites? What are you reading right now? I'd say my all-time favorite is The Three-Body Problem.

It's a trilogy by, I'll mispronounce the name, Luo Cuxin. Right. And it's sci-fi mixed with history, philosophy, game theory, and...

You name it. I don't know if you are familiar with the book. Oh, I'm very familiar with the book, and I actually watched the Apple TV series. Which is not as good. Well, it seems like it just pulls a handful of things out of it. Although, to be honest, I started reading the first book, and the three-body problem for those people who aren't physics nerds are we can predict two bodies, but once you introduce a third body, they're...

The range of outcomes are practically infinite and you really have no idea where these three gravitational bodies are going to take us. But it was, I believe the author is Chinese. It was originally written in Chinese and then translated. The U.S. translation is a little challenging to fight your way through. Especially the second book, I'd say. So I found the first book difficult.

Like it's a little, like you could see that whoever did the translation, English wasn't necessarily their native language. But the concepts were pretty fascinating. Fascinating. To think about, I mean, it was a lot about game theory, right? And the fact that humanity lacks the ability of reacting to, you know, existential long-term threats, right? And what is the psychology behind it?

even when faced with something that guarantees destruction of humanity, we still squabble around more earthly problems. Tribal arguments as opposed to, hey, we're all going to die. We better do something. The aliens are coming. Right, that's right. And we know you've got 50 years to prepare. It was 500. In the book, it was 500. Oh, was it 500? Yeah, and even with that, I mean, on the positive side, it also awoke a

amazing innovation, right? So it shows you also the best of humanity that, you know, when people put their mind to it, they can solve really impossible problems. But I think that the outcome is a mixed bag for humanity. And what else are you reading? What else do you enjoy? So today I'm reading a book called Humankind. It's by a Dutch writer called Rutger Bregman. And the premise of the book is that

Humans are innately kind and mean. So our human nature is not savage, but it's actually good, right? And he goes through— Cooperative social primates, right? Exactly. But a lot of history has been telling us that, you know, we have this veneer of civility and underneath we—

We're untrustworthy and evil beings. And I think he goes through a lot of that, and this proves a lot of historical beliefs. In this day and age, you need some optimism, and I'd say this book gives you belief and trust in humanity. So humankind, kind of the opposite of sapiens.

Exactly. Like that book was fascinating, but like a little bit, gee, we really suck as a species, don't we? Yeah, or The Selfish Gene, right? That's a Richard Dawkins book that also, I mean, he, this author disproved some of the thesis, right? Because Richard Dawkins basically says, well, genes basically make us

you know, the species we are and there's a lot of not so good features. This version says, well, there's a lot of misrepresentation there and ultimately he shows examples of, you know, why people, I mean, he gives them the example of when soldiers in the First World War were,

what percent of deaths was caused by people directly shooting at the enemy? And that was a tiny percent because soldiers had a very difficult time to look the enemy in the eye and kill them. So most of the deaths were done by grenade or indirect means because ultimately humans don't want to hurt other humans. That's really fascinating. Our final two questions,

What sort of advice would you give a recent college grad interested in a career in either investing or private equity or finance?

I would say don't narrow down your options too early. As I've experienced in my career, I've done a lot of different things and I learned in each experience, even though they might not look related, I've learned things that have made me a better investor, a better leader. And I think a lot of young people today come in to the workforce and say, I know what I want to do. And I think that...

They actually don't. Right. And your experience going from consulting to private equity to being CIO is...

Did you have any idea that would be your path when you first started? Well, I thought I wanted to be a doctor. So here we go. There you go. Well, so not just one pivot, but multiple pivots. Exactly. So I think that young people really need to be open-minded and explore and take opportunities for what they are. So if you're given the chance to, if you're loving what you do, but you're given the chance to experiment with something else, instead of immediately saying no, think twice and think, what could I learn? How could this be good for me?

Because I think that richness of experience at the end makes you a better business person. And our final question, what do you know about the world of investing today that would have been helpful back in the 90s when you were first getting started? Well, so when you study in academia, you do a lot of analysis, right? So we talked about markets are overvalued, multiples are high, etc.

I think when I was starting out, I had a lot more belief in rigorous analysis and numbers give you the right answer. I think investing is much more messy. So putting in the rigor of the analysis with understanding behavior and human biases is

technicals, flows, that is the way you get a fuller picture of the investment space. And I think we talk, I mean, there's a lot of very smart people that are very good with numbers. But I think understanding behavior and people is just as important. Really, really, really fascinating.

We have been speaking with Valina Penova, Group Chief Investment Officer for Swiss Ray. If you enjoy this conversation, well, be sure and check any of the 500 we've done over the past 11 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

Be sure and check out my new book, How Not to Invest, the ideas, numbers, and behaviors that destroy wealth and how to avoid them. How Not to Invest, wherever you find your favorite books. I would be remiss if I did not thank the crack staff that helps put these conversations together each week.

Peter Nicolino is my audio engineer. Anna Luke is my producer. Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

The data that matters for your investments. The entire auto sector is higher today. And analysis on the companies making news on Wall Street. Tesla's been a stock that's been in focus. Shares have really been all over the map this morning. Listen to the Stock Movers Report from Bloomberg. Let's talk about.

This is an iHeart Podcast.