143: From the Archives – Tanya Branwhite on TPA

In this From the Archives episode, we revisit a conversation with Tanya Branwhite, former Head of Portfolio Construction at TCorp, which was originally released in March 2023. Tanya takes us through her unconventional path into investing, from her early days as a credit analyst in the "whiz-bang" late 1980s, through more than a decade at Macquarie, to her move into asset owner organisations at the Future Fund and, eventually, TCorp. In early 2023, TCorp was already wrestling with questions around how to best shape the total portfolio approach for the organisation, as well as how to deal with higher inflation, rising rates and the true cost of implementation, topics that have only grown in relevance today. We did a deep dive into TPA at TCorp and why it thinks about risk rather than asset classes. We spoke about how equity, duration, credit and FX risk together explain the vast majority of portfolio behaviour, and how a "prepare but don't predict" mindset shapes decisions on liquidity, implementation and diversification. **Overview of Podcast with Tanya Branwhite, TCorp:** 01:00 Starting out as a credit analyst with Elders Finance Group: "It was a fairly interesting baptism of fire…" 03:00 The Macquarie years. The 'loose/tight' culture of rules and entrepreneurship 05:30 During the GFC, I wrote research highlighting that a number of Macquarie vehicles had significant financial risk. That wasn't well accepted within the organisation at the time. But I learned to stand by the rigour of my analysis. 07:30 Ultimately, it made my career at Macquarie, because I became sought after for client work 09:00 Leaving Macquarie for the Future Fund 11:30 The Future Fund didn't feel like it was a restrictive environment from a government-owned perspective. It is a company that is owned by the government, not a department of the government 13:30 How has a Total Portfolio Approach changed the investment portfolio? 17:00 Risk is at the heart of what we do, because we can only control risks and outcomes are the result of that risk. 18:00 Equity risk is at the centre of this model. 21:00 Diversification away from equity risk in an environment where equity and bond correlations are positive 23:00 Not just unlisted assets, but illiquid assets can help diversification. For example, we own a number of hydroelectric dams in Canada. 26:00 Challenge in fixed income is even higher than before, because real returns are a challenge 26:00 Bonds almost had their own global financial crisis last year; it was a three standard deviation event 28:30 We prepare, but we can't predict 34:00 On valuation frequency of unlisted assets: we do try to de-smooth valuations of unlisted assets. And sometimes these assets need additional capital from investors during periods of crisis; that is not often thought about 36:00 Managing liquidity 39:00 We are looking at natural capital and opportunistic liquidity 40:00 Reducing the number of managers, has this work finished? 42:00 On implementation and efficiency **Full Transcript of Episode 143** **Wouter Klijn**  00:11 Tanya, welcome to the podcast. **Tanya Branwhite**  01:21 Good morning, and I'm really pleased to be here, Wouter. Thanks for the invitation. **Wouter Klijn**  01:25 Thank you. We always ask a little bit about people's background and how they got into investing. So what made you decide to pursue a career in investing? I think you started out initially as an analyst at Deutsche Bank. **Tanya Branwhite**  01:38 Well, actually, if we really want to go back, I wouldn't say that I pursued a career in investing. It sort of happened, so I won't say there was any great design in where I've ended up. I actually started off as a credit analyst, and I did that in the whiz-bang years of the late 1980s and early 1990s. Being a credit analyst at that time, for Elders Finance Group, was a fairly interesting baptism of fire. We went from one extreme, operating in an environment where there was a lot of money available, to the other, and I ended my career with Elders Finance working out a range of corporate finance lending that had gone sour, with not many other people left in the organisation to work it out. So that's really how I started off. I then moved to Citigroup, and as part of what was still almost a graduate training programme at that stage, ended up in their investment arm, and that's how my investing career started. So it wasn't by any great design, but much more a journey of serendipity and opportunities presenting themselves. **Wouter Klijn** Fair enough. Now, you also spent a significant time at Macquarie, I think more than 10 years. **Tanya Branwhite** Yes. **Wouter Klijn** Can you tell us some of the highlights from that period? **Tanya Branwhite** Look, my career at Macquarie was an extremely fulfilling, challenging, and enjoyable part of my career. At the time I joined Macquarie, I'd certainly been on the asset management side, the asset manager's side, in listed equities, but I'd also worked on the broking side at Deutsche Bank, writing research. So having had the opportunity to see both sides, the client side and being a client, I think that really gave me a very good perspective. Macquarie is, as we're all well aware these days in Australia, a very unique organisation, very successful, and there's no doubt culture is at the heart of that success. They have a very clear way of encouraging you, though I'm not sure to what degree people are aware of how their culture has been described internally. When I began, it was called "loose-tight," which meant there was a set of rules you had to obey, but once you understood those rules, they encouraged you to be as entrepreneurial as possible, to see it as your own business, take ownership, and be empowered. I'm a few years out of Macquarie now, so I'm not sure how they describe their culture internally these days, but it later became known as "freedom within boundaries," which is probably a clearer way to articulate it. Boundaries and risk are at the heart of the organisation, but within that set of boundaries, people are fully encouraged and empowered to bring their best ideas, find opportunities to do new things, and challenge others. **Wouter Klijn** What were the highlights at Macquarie? **Tanya Branwhite** Well, I was at Macquarie through a really turbulent period in investment markets. I started in 2004, **Wouter Klijn**  05:06 right, **Tanya Branwhite**  05:07 and I didn't leave until 2015. So in 2004, we rode the whole wave leading to the GFC. Macquarie, like many other investment banks, had to stand back and reassess itself and its business model, but one of the things Macquarie is extremely good at is pivoting, and it pivoted very quickly. Some of the research I wrote, particularly around the GFC, under the understanding that we were completely independent in the securities division writing institutional research, highlighted a number of Macquarie vehicles as having significant financial risk. That wasn't well received internally within the organisation at the time, and it caused me quite a lot of angst in terms of what it feels like when the organisation's pressure bears down on you, challenges you, and really tests your resolve as to whether you stand by that research. When I wrote the research, the full GFC had not really occurred, and this wasn't crystal-ball gazing, it was straight financial analysis. We were analysing the cash flows of companies right across the listed spectrum. A number of Macquarie vehicles were highlighted through that analysis, and I simply shared those companies, as well as a number of others, that were in a business model which, from a cash flow perspective, would come under pressure if the environment we were operating in at the time continued. And that proved prescient. But I learnt to trust not my instincts but my analysis, trust the rigour of that analysis, and be prepared to stand by it if I truly believed that what I was writing and the work I was doing were the right insights to share with our institutional clients at that time. **Wouter Klijn**  07:10 Because you stayed on for quite a while after that, it obviously didn't cause any sort of permanent disruption for you? **Tanya Branwhite**  07:17 No, it didn't. In fact, in some respects it made a little bit of my Macquarie career, because in having stood my ground, and the organisation, people talk, particularly at senior levels, so my name became known through that period. I was then sought after internally, over the ensuing six, seven, or eight years, to help other divisions, the investment banking division, see investment banking clients, and give advice on some of the transactions they were looking at. So it actually opened up a much broader engagement internally and with a broader client base ultimately. So for a short period of very deep pain, there was some very nice payoff, ultimately, for my career at Macquarie. **Wouter Klijn**  08:06 Yeah. So that almost harks back to what you mentioned about freedom within the rules. You did have enough freedom to have a bit of a critical voice out there. **Tanya Branwhite**  08:15 Yes. I think that's absolutely correct, and real credit goes to the person who was my divisional director at the time, Roy Laidlaw. He asked me directly, amid all the angst going on, "Do you stand by the research? Do you think there are any errors in it? Are you confident about what you've written?" And I said, "Yes, I am." And he said, "Fine, that's all I need to know." So he was very much the one who stood behind me and beside me against some of the other people within the organisation who were, to put it mildly, very angry with me. **Wouter Klijn**  08:51 Yeah, so a true merit-based system. **Tanya Branwhite**  08:53 Correct. A true merit-based system. **Wouter Klijn**  08:55 So, from Macquarie you joined the Future Fund, which is a government organisation. I imagine that would be quite a different environment from the corporate environment at Macquarie. **Tanya Branwhite**  09:07 Yeah, it was. But that said, I made an active choice. By the time I left Macquarie, I had been in the listed equity strategy space for the Australian market for a very long period, over 20 years, and the teams I'd worked with had, I think, been recognised for doing very high-quality work. We were well rated by clients, both globally and domestically. There does come a point in your career where you say, "Well, I'm going to continue to do this," or "I'm going to jump off the cliff and do something a bit different." I won't say it was completely different, going to the asset-ownership side, but the opportunity to join the Future Fund presented itself. The Future Fund, I'm not sure to what degree, having been an insider, it's still an enigma, but I think it was an enigma at that time. In 2014, it had only really been established for about six or seven years, so it wasn't that well known and didn't have as much of a public face. So it was quite an interesting place, and even then there was a recognition of an institution of great quality doing things differently, and that intrigued me. I like to do things differently, I like to challenge boundaries, and to the extent that aligned with my own personal values, I was really delighted to go to the Future Fund. I moved to Melbourne as well, so from a personal perspective there was a bit of a change, moving from Sydney to Melbourne. **Wouter Klijn**  10:44 Yeah, for sure. But was the government environment a bit of a culture shock, coming from a more hard-nosed commercial environment? **Tanya Branwhite**  10:52 It's really funny. I've now worked for two government organisations, one federal and my current one, which is state. You do feel the effect of government being the client. As to the culture, though, I think the culture of government organisations can still very much be a reflection of the approach of leadership. Certainly there are constraints to working for a government entity, and remember, the Future Fund is not a government department, it's effectively a government-owned corporation, the same as T Corp is. So the Future Fund didn't feel like I'd gone from a free-flowing corporate organisation to one that was restricted by government ownership. The Future Fund, I felt, was very clear on its objective and very clear on its stakeholder and what it was there to do, and while that stakeholder has great, deep interest, oversight, and engagement, it didn't feel like a restrictive environment, if that's where your question was leading. We were still given a lot of opportunity to operate the investment model in the way the organisation had laid it out. **Wouter Klijn**  12:15 Well, if the Future Fund is an enigma for you, then it's definitely one for me. I didn't have any preconceived ideas, but I could imagine the objectives and focus are quite different between the two organisations. **Speaker 2**  12:28 Yes, but also **Wouter Klijn**  12:29 I presume it depends largely on the quality of the people there, and the Future Fund has some very good people. **Tanya Branwhite**  12:35 Yeah, and I think, to the extent that the Future Fund has an alignment with Macquarie, it went down the path of an investment approach that was different because it believed that brought better outcomes on behalf of the client. The profit motive is obviously the big difference, but you can somewhat transfer "profit motive" to "performance outcomes," and being successful in delivering the client's objective. **Wouter Klijn**  13:09 So now you're at T Corp, and you focus on portfolio construction. We've seen a lot of changes recently, over the last couple of years, at T Corp, with the various mergers and new team structure, and one of the changes is that T Corp has embraced the total portfolio approach. **Tanya Branwhite**  13:30 Yes, **Wouter Klijn**  13:30 Can you tell me a little about how that changes your focus, and how it changes the investment portfolio in practice? **Tanya Branwhite**  13:39 Given that the Future Fund had operated with a total portfolio approach, and each organisation can interpret what that means a little differently, broadly speaking the focus of a total portfolio approach is ensuring you're focused on whole-of-portfolio outcomes, not assuming that the pieces brought together will bring you the best outcome. A very simple, and perhaps silly, analogy is thinking about a recipe. You can have all the best ingredients, but if you don't know how to bring them together in the right way, the cake you end up baking may not be as good as if you'd really thought about how these things interact and come together. Are you exposing it, to use the cake example, to a particular underlying taste or flavour that, when brought together, might overwhelm the outcome? So a total portfolio approach is, first and primarily, a mindset change. If you don't think that way, and if the whole investment team isn't thinking about their role in that total portfolio outcome, then whatever structure or data you put in place, you're not going to be successful. The cultural experience was very different between the Future Fund and T Corp, because the Future Fund was founded on a total portfolio approach, it was incepted with that mindset and that approach. So when I joined, that was already the case. That's not to say there aren't always tensions. I think in any organisation with really motivated individuals trying to achieve something, there'll always be some competitive, creative tension. But it's a very different mindset, thinking about what you're doing and how you're using that capital to bring the best outcome at the total portfolio level. For T Corp, it was a journey of change, one where not only were three different investment teams being amalgamated, but that amalgamation then progressed into a complete change in the way money was managed, and in how the clients' objectives were thought about and articulated. So there's no doubt the change at T Corp has been profound, holistic, and complete. There isn't an element of what T Corp now does that hasn't been touched by that change, beyond the amalgamation, the underlying change in the investment model and mindset. **Wouter Klijn** How do you describe the difference in the total portfolio approach? **Tanya Branwhite** Well, first of all, I think the other way we've been disciplined in our total portfolio approach mindset is that we say risk is at the heart of what we do, founded on the belief that we can only control and manage risk, outcomes are a result of that risk. So perhaps there's a nuance there: it's not only a total portfolio approach, but it's risk-based, and we think about the underlying risks that drive asset classes. Our risk exposures transcend the definition of asset classes, so when we're thinking about different asset classes, we think about the small group of similar risks we may actually be exposing the portfolio to, and that may take the form of, for example, infrastructure, or it could take quite a different form. The asset class definition isn't really the basis on which you think about constructing a portfolio. **Wouter Klijn**  17:41 Right, and I believe central to this model is equity risk, which is the measure against which you measure other investments and how it all fits together. Can you tell us a little more about that? **Tanya Branwhite**  17:54 Yes, you're right. Our view, reflected in our beliefs, is that we need to take risk in order to generate return. The risk factor, as we'd call it, that you're effectively awarded for taking, and that's likely to deliver the highest level of return for the highest level of risk, is equity risk. So the way we engage with our clients, across the 14 portfolios we manage, is to think very clearly about the risk budget, and then translate that risk budget into how much equity risk is likely to be required for the client's objective to be met. Now, equity risk isn't the only critical risk we think about. We have four primary risk factors. Equity risk is the most important, because without taking equity risk we know we're not really going to be able to, over the long run, have any real prospect of achieving the client's return objective. Most of our client objectives are CPI-plus type objectives, so we have to generate a real rate of return. The other three risk factors inherent in the opportunity set, in an investment market context, are term risk, credit risk, and, interestingly enough from an Australian perspective, FX risk. Our analysis suggests those four risk factors account for about 95 to 96% of total portfolio risk behaviour, and the risk premia associated with them account for a similar amount of the expected return. So equity is very much the defining risk factor, but we do think about it within that broad primary risk factor framework. **Wouter Klijn**  19:55 So I assume credit and term risk relate mostly to fixed income type investments. Looking at the environment we've just come out of, a period of very low rates, how do you diversify away from equity risk, because that seems to be the only risk significantly driving the portfolio? **Tanya Branwhite**  20:19 Yes. As we should all be well schooled, the only free lunch in investing is diversification, and equity risk diversification is at the heart of what we seek to do. But you're right, Wouter, to call out that those other risk factors are diversifying, but not always, and there is a risk, pardon the pun, at the moment, that there may be a secular change in the relationship between equity risk and term risk in particular. We've gone from more of a negative correlation to more of a positive correlation, so that correlation change is also something we need to think about. It's the interrelationship of these risk factors that you're calling out. But I think the total portfolio approach, and the idea of diversification, is that idiosyncratic, or differentiated, types of risk really do have a disproportionate benefit to your portfolio. If you can identify investment opportunities that bring a different set of risks to the portfolio, still a set of risks, but different, particularly from those primary factors, then that's very valuable and hugely beneficial, particularly in periods of dislocation. Most clients with capital invested for some sort of real return are comfortable when things are going well, it's the left tail that matters. So what we focus on is how, in stressed market environments, those differentiated or idiosyncratic risks can further diversify away from those primary risk factors, and hopefully reduce the volatility of the portfolio's behaviour as it moves through different investment environments. **Wouter Klijn**  22:24 So where do you find this idiosyncratic risk? Is it mainly in equities active management, or also in the unlisted market? **Tanya Branwhite**  22:33 Yes, very good question. Active management is certainly an idiosyncratic risk. It's generally seen, and our analysis and work reflect this, we construct portfolios on the basis that it should be highly uncorrelated to our primary risk factors, because it's a reflection of skill. So it's valuable, but beyond active risk there are other things in the idiosyncratic space that can be beneficial. A good example, and you're right to point to the illiquid space, not just unlisted assets but illiquid assets, is an investment we hold in the portfolio: a series of hydroelectric dams in Canada. We were fortunate to be able to purchase, under a bilateral arrangement, a half share of that set of investments from a Canadian investor looking to reduce their exposure. That has its own series of risks, but primarily it's a hydrology risk. They're set up to sell electricity into the Ontario grid, so if there's no water in the dams, that's clearly a risk, but it's a different risk. It's generally not correlated to economic risk, and that's an example of a part of our portfolio that has provided us with a high degree of resilience through the last few years. **Wouter Klijn**  24:09 Yeah, and that's probably also a regulated asset, so there's some certainty around return and yield. **Tanya Branwhite**  24:16 It has a degree of regulation, there's no doubt about that, but if you stand back, a collection of hydro dams in the current environment is, I'd argue, quite a unique and difficult asset to replicate. So there's a barrier to entry that adds to the benefit of the asset, and it also has a sustainability element, because it's valuable to any electricity grid, being green energy. **Wouter Klijn**  24:48 Yeah, so it plays a role in the energy transition. **Tanya Branwhite**  24:52 Correct. So it has characteristics that are positive for the sustainability solution. **Wouter Klijn**  24:58 Yeah. So we're now in a higher interest rate environment, and there's still a lot of risk with higher inflation. You mentioned the positive correlation between debt and equity. Does the higher interest rate environment give you more levers to play with from a risk perspective? I can imagine bonds will probably have more of a role to play than, say, five years ago. **Tanya Branwhite**  25:22 Yeah, we'd think about it more in terms of term risk, which is effectively the sensitivity of the portfolio to interest rate changes. Does it give us more levers? To the extent that the nominal return on cash, and the yield you may be generating from your term risk premia, is there, but I'd highlight that in a real-return environment the real-return hurdle has increased substantially. So in nominal terms you might say there are some other assets that at least provide a higher nominal return than in the past, that's true, but the real-return hurdle has also gone up, so I'd actually argue the challenge is probably even higher than before. What other levers does it give us? I think it suggests we need to hunt more deeply and take a much broader perspective on what is differentiating. I think the real lesson for everybody in investment markets last year was the behaviour of term and equity risk. Equity risk behaved in a fairly typical fashion for what you'd call an economic shock, but if you look at term risk behaviour and its return, it was really a three-standard-deviation event. It was almost as if bonds, and their associated term risk, had their own global financial crisis last year. So the focus now isn't so much on equity risk, which we're looking to further defray, it's about finding proxies for term risk that aren't so directly linked to term. In other words, they still diversify equity risk, but aren't necessarily highly correlated to term risk, and that's a real challenge. If you look across the spectrum of assets, some toll roads, for example, or unlisted assets, will often have CPI kickers as their underlying revenue drivers, some sort of revenue reset tied to a level of CPI or a minimum change. Those are the sort of underlying cash flow drivers that are very beneficial to a portfolio, and they come in all sorts of different wrappers from an unlisted assets perspective. **Wouter Klijn**  27:49 With inflation at around 8%, real returns are really problematic. **Tanya Branwhite**  27:54 Yes, **Wouter Klijn**  27:55 But over the longer term I think the general expectation is that inflation might come down to maybe 3 to 4%, not quite the RBA's 2% target, but maybe 3 to 4%. Does that mean you're looking at taking on longer-duration investments in anticipation of inflation coming down? **Tanya Branwhite**  28:16 I'll certainly offer the mantra we have at T Corp, which is one of great humility: we prepare but can't predict. My own personal view, having observed many commentators in markets over a long period of time, is that it's very hard to predict short-term outcomes, and when you have very large institutional portfolios, you can't position them on that basis. I think it's very risky and challenging to position large institutional portfolios on a shorter-term view. The way we approach portfolio construction is very much around a longer horizon. Most of our portfolios have a long horizon, some a little shorter, but generally speaking we think about portfolio construction with that long-term perspective. We're focused on a stream of work at the moment which we're calling "journey risk management," thinking about how the portfolio moves through time and through different market environments, and again using the risk lens to think about where the level of risk presented by a particular opportunity or asset class isn't being rewarded, either because return expectations in the shorter term are too low, or because return expectations are much higher and the market isn't appreciating that. But we're very humble in saying that will be a modest part of our portfolio and how we manage it. In some cases what we're trying to manage isn't picking a path, but being aware of the path dependencies of a portfolio in the environment we're in, making sure the portfolio, particularly around diversification, can reduce some of that path dependency. So it's trying to narrow the expected volatility of a portfolio, but let's be open and transparent, this is a very challenging environment in which to be confident about how you do that. **Wouter Klijn**  30:28 Yeah, that long-term focus reminds me, a couple of weeks ago I interviewed Ken Marshman. Looking back at his career, he's more or less retired now, he's well known from his time at JANA and, later in his career, as chair of Rest. At one point he lamented that the investment focus has become shorter and shorter term, to the point that people are looking too much at short-term price changes rather than the underlying fundamental drivers behind businesses or other investments. T Corp also has a long-term focus. Do you recognise some of his comments, in terms of the changes you've seen compared to when you started out? **Tanya Branwhite**  31:19 Yes. I think there's always the temptation and pressure to think short term, and certainly, given we have a very broad range of asset managers who are closer to the market, they may be aware of opportunities that present themselves, from a risk or return perspective, to take advantage of. So the question is where you seek to have that shorter-term perspective reflected in your portfolio. Some might argue that shorter-term perspective, at the manager or asset-class level, is the skill, that's the skill base of an asset manager, so that's really where active management should be delivering your return. I think moving your portfolio construction building blocks to think in a short-term context is certainly not the most effective way to deliver the returns for the risk your clients are seeking. One of the things we also do, which I think is important to your question, is that if you feel you have to be short term, it may be because you don't have the kind of relationship with your clients where you've really articulated what the journey of a portfolio may feel like in the worst times, not the best times. So we have a very deep engagement with our clients around establishing their risk appetite, what sort of risk they can stomach at different points in the portfolio's journey. Over a short horizon, can they tolerate being down 8%, down 10%? If you've had those conversations, then the pressure to move things on a shorter-term basis tends to go away. That said, there are strategies we may have in place, for example, we run a risk overlay, particularly around equity risk, through options, where we're looking to mitigate deep left-tail drawdowns in equity markets, and in that case you have to be willing to act within the moment of a short-term market move. We learnt that during the COVID drawdown, the benefit of being disciplined about saying "this is a short-term opportunity" and how we wanted to manage the portfolio of options we held, in particular for one of our clients. **Wouter Klijn**  33:47 Yeah, talking about that COVID period, one of the things that came out of it was the stark difference between listed and unlisted assets, and I think the regulator has been thinking more about how often unlisted assets should be valued. Did you draw any lessons from that period, where you thought maybe we should look at this a little differently? **Tanya Branwhite**  34:12 Yes. I think it comes down to the fact that illiquid assets do require an illiquidity premium because of the constraints they place on your portfolio construction, but it's naive to think that because the valuation mark on an unlisted asset happens once a year, the valuation volatility only reflects that one-year mark. I'd argue we should have learnt that from the global financial crisis, because property, in particular in this country, had some fairly significant challenges, and some assets through COVID were at risk of potentially needing cash injections. The listed market does this through capital raising, but in the unlisted space, the risk of needing additional cash from shareholders is perhaps not thought about as much. We try to desmooth the way we understand the behaviour of unlisted assets, and there's a whole range of quantitative and technical techniques you can apply, so we do think about that, and there are some benchmarks that are helpful in giving a better understanding. The other interesting observation was that some of our clients, given they're very aware of their fiduciary obligations around money that may be transacting through that period, actually asked for valuations of unlisted assets to be done more regularly, in some cases quarterly. So it's interesting to observe that unlisted assets aren't as stable in pricing terms as the regularity of the valuation mark might suggest. **Wouter Klijn**  35:58 So how do you approach liquidity from a portfolio construction point of view? Can you manage that at the TPA level, the total portfolio approach, or does it really differ from client to client? I think T Corp has quite a wide variety of clients, some with more of an insurance element. How do you manage that liquidity? **Tanya Branwhite**  36:17 Yeah, so to be clear, we apply TPA to each individual portfolio, so each portfolio has its own TPA focus. Again, in our engagement with clients, understanding the various natures of the funds, liquidity is a very critical part of our consideration. We have a number of funds where we have quite clear expectations of regular cash outflows. We also have a number of funds funding various New South Wales government projects, particularly in infrastructure, so we have a very clear understanding of the expected cash flows, although those cash flows do change through time. We need to be mindful of aligning the portfolio construction to the liquidity requirements of each fund, and the illiquidity we build into the fund needs to be able to cope with some uncertainty around that liquidity requirement. So yes, it's an inherent part of each of our individual portfolio construction reviews. **Wouter Klijn**  37:31 So what's on your agenda for the next couple of months? Are there any big asset class reviews coming up? **Tanya Branwhite**  37:37 We undertake an asset class review for all asset classes each year. T Corp is probably in the first 12 months where a lot of the restructuring, the change, the rethinking of how we approach investment opportunities and put them together, has happened. We're now much more in a phase of review: how do we utilise the structures, and what we call access points, to different investment opportunities? How do we make sure we're getting the most value out of those? How can we improve them? How can we bring further diversification? So if there's a project, it's not an asset class project, it's much more about intensifying our diversification. That's probably the best way to describe the project in front of us at the moment, and again, from a longer-term perspective, really trying to find that space that isn't easily defined by asset class terms but that might be beneficial to longer-term portfolio outcomes. **Wouter Klijn**  38:43 So are there any innovative new asset classes you're looking at? **Tanya Branwhite**  38:48 It's not so much asset classes, but different ways of thinking about comparative advantage. We've certainly been looking at natural capital in a way that has a sustainability lens to it as well, which is very beneficial. I think there's increasing acknowledgement of investments in that space that could be quite different, diversifying, and still have sustainability benefits. We're also looking at what I'd call not necessarily fully illiquid investments, but within that spectrum, having some illiquidity, and in a more volatile market environment there can be different pricing opportunities that present themselves. These are more in the space where drawdowns cause some friction, and that friction may require an investor to have some liquidity to hold through to maturity. We're calling that "opportunistic liquidity," so we're looking at some investment opportunities there as well, and really scouring across the investment space to see if there are things we're not currently exposed to that might be valuable. **Wouter Klijn**  40:03 Yeah, I think as part of the changes, T Corp has also been reducing the number of external managers it uses, to build more meaningful partnerships. Has that finished, or is there still some way to go? **Tanya Branwhite**  40:18 I think it's a constant. It's a constant set of reviews. We're always looking at our portfolio, always testing ourselves, asking, is there a better way to implement this? Are we ensuring there isn't duplication? If we have active management, is it delivering to the portfolio as we've set the expectation for it to play that role? So I don't think you can ever say never, but a very large part of the initial phase of review and change is complete. We're always reviewing the active element of our portfolio, and in fact there's been a fairly important, and I think ultimately very valuable, project on how we think about active risk allocation, where it's actively allocated across our total portfolio, thinking of an active risk budget as a total portfolio risk budget rather than a single asset class risk budget. That's certainly brought some insights that I think will be valuable for the next 12 months. **Wouter Klijn**  41:24 Now, T Corp isn't subject to the Your Future, Your Super environment, which I'm sure you're glad about. **Tanya Branwhite**  41:32 Yes. **Wouter Klijn**  41:32 But I think one of the interesting things to come out of the focus on those benchmarks is that super funds are much more aware of how they implement their investments, because every basis point saved is almost outperformance. How do you think about implementation? Because in the context of this dynamic with external managers, of course they need to deliver, but switching in and out, terminating managers, reallocating capital, also comes with a cost that adds up at the total level. How do you think about implementation in that way? **Tanya Branwhite**  42:10 You're absolutely right, implementation certainly involves complexity, cost, and dislocation, as well as the time and effort it takes for an investment team to make changes to how it implements things. Without doubt, you have to be very careful, and considered, in the way you approach both your implementation and any changes to it. I think it's important to stand back and ask, if we're looking at a particular opportunity, what is the complexity of that implementation? Sometimes that complexity, and the cost to the team of managing, overseeing, and understanding it, isn't as deeply considered as it should be. But there are times where that implementation complexity is valuable because it brings a certain type of outcome or characteristic to the portfolio. So it's a deep consideration. In the listed market you have to think about to what degree you're looking to replicate what we call the betas, to what degree you want active risk as an element, and to what degree there's more of a quantitative or factor-based approach. So you need to think, in each asset class, about what implementations are available, and what opportunities and costs they bring. At the total portfolio level, if you've got complex and very diverse implementations across your whole portfolio, and that's probably where T Corp was when I first joined, we had a lot of different asset classes that had gone down quite complex and detailed implementation paths, what you actually got was a very large amount of complexity, significant challenge for the team to oversee, and, ultimately, over-diversification. So yes, implementation is a critical element of what we do. **Wouter Klijn**  44:24 Yeah, and it comes back to that total portfolio approach. Does all that complexity add up to extra return, in the end? **Tanya Branwhite**  44:33 Correct. **Wouter Klijn**  44:34 Well, Tanya, thank you very much for your time. This was a great discussion, and thanks for coming to our office. **Tanya Branwhite**  44:38 Thank you. It was fun, I enjoyed it. Thanks, Wouter. \_\_\_\_\_\_\_\_\__ [\[i3\] Insights](https://i3-invest.com/about/i3-insights/) is the official educational bulletin of the Investment Innovation Institute \[i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe. The \[i3] podcast is available on iTunes, Google Podcast, Spotify, Amazon Music, Stitcher or your favourite podcast platform.