Boeing CIO Liz Tulach
As the Chief Investment Officer (CIO) at Boeing, Liz Tulach is partly responsible for the retirements of tens of thousands of past and present employees.
Insuring and helping to protect many of the largest companies in the world against property loss is the job of FM Global. Ensuring resilience in managing the insurance assets for the optimal risk-adjusted return and to further grow the strong policyholder surplus and employee pension assets is the job of Sanjay Chawla.
Chawla is the chief investment officer at FM Global, charged with overseeing the firm’s general account and pension assets. Recently named one of the top 10 corporate CIOs by Chief Investment Officer, a major industry publication, Chawla joined FM Global in 2018 after serving as CIO at Raytheon, and prior to that occupying a host of senior roles at Dow Chemical.
PGIM recently spoke to Chawla about the challenges confronting markets and the global economy, and also got his views on some of the key issues he faces as the CIO of a large, international insurer.
Let’s begin by talking about your background and how you got started in the investment industry.
As I started working after my graduate studies, I spent a fair bit of time in financial analysis and pensions, and when I joined Dow Chemical I spent 18 years in the treasury, finance and portfolio investments areas. I started at Dow’s global headquarters in Michigan in corporate treasury, including corporate finance and financial risk management, and went on to become the Treasurer and CFO for Dow and affiliates in India. As the Asia expatriate assignments continued, I then spent seven years in Singapore running all of Asia-Pacific financial, treasury risk management. When I returned from Singapore, I spent some time in enterprise-wide risk management and also had a chance to look at other opportunities within the company. While I was interested in M&A, I really thought my true calling was in pension investments and asset allocation because that’s where I felt my background could add the most value for the company, leveraging my global markets experience. Starting in 2008 I spent about six years in that role, during what was a really volatile time in the markets. I then joined Raytheon in 2013, eventually taking on the very gratifying role as CIO for Raytheon’s pensions in early 2015. In 2018 I joined FM Global as SVP, CIO. It has been a very exciting journey and my almost two years at FM Global have gone by very quickly.
What would you say is the biggest challenge in your role?
For me, and I’m sure for other CIOs, it’s scarcity of time. In my role as an asset owner, I am laser focused on doing the best job I can on the portfolio, for the stakeholders and beneficiaries. We’re focused on making sure that we generate the best risk-adjusted return on the portfolios prudently, and for the pension assets that also means ensuring a strong pension funded status amid varying markets and interest rate environments. We spend a lot of time on rigorous investment and operations due diligence. In addition to that, there are the uncontrollable factors such as the geopolitical considerations that have an impact on top-down market conditions, and we need to ensure that the portfolio remains resilient. We want to make sure we’re ready to navigate through the uncertainty and volatility of the markets, so prioritization and making the best use of time from a portfolio, investments and fiduciary perspective is key.
Talk about the importance of taking a long-term view in your role and how it impacts your team’s investment decisions.
I’ve always viewed the role of CIO as one where it’s vital to keep a long-term perspective. Of course you will have short-term considerations that will come into play, and it’s equally important to have strategies that will allow you to selectively add to positions and take advantage of attractive valuation levels. Bottom-up portfolio construction is where the long-term horizon kicks in, and you have to stay on top of the markets at all times. In the market correction in the fourth quarter of 2018, for instance, very strategic, long-term managers benefited greatly because it allowed them to add securities that they had been looking to add to their respective portfolios. That dislocation in the market worked to their advantage and also to the advantage of the asset owners. And even if institutional investors did nothing in that period, as long as they had that long-term view they would have come out in good shape. But simply reducing equity risk at that time is something that would have been short sighted, locking in the market correction levels. Having a long-term perspective is absolutely critical for prudent portfolio investment management.
Any thoughts on the debate over active and passive?
Having a balanced approach between active and passive is key. I am very much a believer in active management. For managers searching for consistent alpha with a proven track record, the more investment diligence they do on strategies, firms and managers, the higher conviction they build over long periods of time, which is critical for building a long-term portfolio for more successful active managers. It is challenging to generate consistent alpha in certain asset markets, where information is commoditized, and that is where the use of passive strategies make sense for a part of the portfolio. Overall, a blend of active and passive strategies is good, but building conviction over actual investment experience with strategies and managers creates good solid competitive edge, and I believe there is good value in prudent active management.
Can you offer your views on the role diversity plays in your business?
This is very much front and center for me. Coming to the U.S. as a graduate student from India, I am a product of diverse backgrounds, cultures and getting tremendous respect and support from my mentors. I want to make sure that I do whatever I can for others on my team, and in the workforce in general. Within the investments industry, what one hears from very experienced balanced leaders is that sometimes there is a lack of resumes coming in from a diverse group of applicants. Sometimes, as a result, we may need to think of a job or job description differently, because if you keep an open mind you can onboard some great talent that can help you accomplish great results and ambitious milestones. Focus on Diversity is a very positive progression for the financial services, investments industry and something we at FM Global support fully. Our company is very committed to diversity and inclusion.
Are you seeing increased interest in ESG-related investments?
Yes. I see this especially in the insurance industry, and in particular there’s a heavy focus on this from European insurance companies. The investment management industry is going through the realization that ESG could be a key building block. That said, at some point there will need to be the shift from just branding something as “ESG,” or checking the box, to thinking more about how this strategy offers real, positive ESG consideration and whether it can offer better performance on a risk-adjusted basis or not. Fundamentally, when you think about ESG it should give you better returns than the rest of the market in the long run. The interest is ongoing, it’s just that getting the right ESG performance and results-based strategies in place is going to be key as ESG gains further attention from companies.
We recently saw a “phase one” trade agreement between the U.S. and China. What are your thoughts on the trade issue?
The U.S./China trade conflict has surfaced in a very meaningful way over the past several years, which is a critical shift from the prior global economic and geopolitical environment. The issues that have been brewing over time are not just economic, but include technology, intelligence, intellectual property and social matters as well. I think the longer-term solution is to find a middle ground between the two economic superpowers. The pace of change going on in China is absolutely phenomenal, and institutional investors need to be mindful of trying to keep the economic assessment and investments-related decision making very balanced from a long-term perspective. Despite the fact that China’s growth has slowed, it’s still solid, and the quality of the growth is very different than what it was in the past. I think the rest of the world just needs to be mindful of that, and it’s best to resolve issues in a constructive manner using a diplomatic approach. The U.S., meanwhile, continues to have the most sophisticated and developed economic and financial-markets framework globally.
What are the business concerns that keep you up at night?
My focus is very much on building a resilient portfolio that benefits on the upside, weathers short-term volatile periods, and navigates through any major corrections as well, with prudent downside risk management. I continue to think about some of the deeper issues going on in the market today, and one of those is the increased use of leverage, given easy monetary conditions in principle along with strong asset valuations. After the global financial crisis, there was more discipline around this, but in recent years the use of leverage has increased across the board, along with some of the associated risks that come with it, such as covenant-lite loans and significant increase in private credit. It is definitely an area we are vigilant about. Institutional investors also should make sure anything they do is of higher quality and can get through a downturn with better positioning. As CIOs, we always need to be watchful for excesses and signs for when the music starts to slow down.
You mentioned earlier that scarcity of time is a challenge. When you do have some downtime outside the office, what do you like to do to unwind?
The most relaxed time I have is with my family -- my wife, three daughters and son. I also like to share with the kids general learnings from my perspective so they can apply those in their lives, as applicable. For instance, our youngest daughter wants to become a surgeon and we try to put into perspective, in a positive manner, how important school, true learning and excellence are. If you really want to be a surgeon, think about what the difference is between 100% and 98%. If you’re going to save two extra lives you would genuinely want to work towards excellence and perfection, with a positive, not stressed, approach. On the lighter side, we like to go see movies, or sometimes watch a play, and I enjoy reading and listening to music. And thanks to having a 15-year-old daughter, I actually know who Shawn Mendes is.
PGIM’s Vantage Point Series is written for C-level executives and is intended to offer a glimpse into the issues that are important to these decision makers. The stories look at the challenges facing CIOs and the industry trends they see as most vital, along with a broader range of topics relevant to institutional investors. For more information about the series, or to be featured in an upcoming installment, please contact IRG.