Swiss Re's Velina Peneva on the Business of Reinsurance

Barry speaks with Velina Peneva, group chief investment officer at Swiss Re about the business of reinsurance, managing risk, her career path and more. Peneva started her career at Bain & Company in 1998 and later became Partner in 2011. While she was there, she worked with fund managers and investors, became a leader in the private equity practice in Zurich and became a member of the firm's global investment committee. Peneva joined Swiss Re in 2017, becoming co-head of client solutions & analytics, before being named Group Chief Investment Office and member of the Group Executive Comittee in 2023. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

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  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:13Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 1:54Barry Ritholtz?

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  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:43Barry Ritholtz?

  On the latest Masters in Business podcast, I have another extra special guest. Velina Peneva is Group Chief Investment Officer for insurance giant Swiss Re. 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 Re 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

• 3:28Barry Ritholtz?

  of business. She has a fascinating career. She helped develop the private equity group for Bain and 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 Velina Peneva. Velina Peneva, welcome to Bloomberg.

• 3:53Speaker 04

  Thank you, Barry. It's a pleasure to be here.

• 3:55Barry Ritholtz?

  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?

• 4:12Speaker 04

  So I was one of the first generations of Eastern Europeans after the wall came down, who had the opportunity to come to the US. If I had not come to the US, uh, my passion was to become a doctor.

• 4:27Barry Ritholtz?

  Uh huh.

• 4:27Speaker 04

  And in Bulgaria, where I came from, getting a medical degree meant that after high school, you go to medical school for five years.

• 4:37Barry Ritholtz?

  No college, high school.

• 4:38Speaker 04

  No college.

• 4:39Barry Ritholtz?

  Wow.

• 4:39Speaker 04

  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 some generic biology and chemistry for four years.

• 4:55Barry Ritholtz?

  Right.

• 4:56Speaker 04

  Then I have to apply to medical school. Then I have to go to residency.

• 5:01Barry Ritholtz?

  Right.

• 5:01Speaker 04

  And during that whole time, I have to keep on accumulating debt. And at some point in my late twenties, I may be able to practice.

• 5:09Barry Ritholtz?

  Right, it's like a twelve year process. It's pretty, it's pretty intimidating for, for, and yet, all the medical schools seem to be filled up.

• 5:18Speaker 04

  Exactly, but for me, this was not an option.

• 5:21Barry Ritholtz?

  Uh huh.

• 5:22Speaker 04

  Um, 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 ninety-four, it was the early days of.

• 5:39Barry Ritholtz?

  Punch cards? Were you, were you still in the punch?

• 5:41Speaker 04

  No, but I was, I started coding in Pascal.

• 5:44Barry Ritholtz?

  Okay.

• 5:44Speaker 04

  So I, I think a lot of your listeners probably don't know.

• 5:47Barry Ritholtz?

  Right.

• 5:47Speaker 04

  What that computer language is. So it was Pascal, then C plus plus.

• 5:51Barry Ritholtz?

  Mm-hmm.

• 5:52Speaker 04

  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.

• 6:06Speaker 04

  Um, 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, and actually going into business was what I decided to do after the second year at Wellesley.

• 6:23Barry Ritholtz?

  That, that's really, that's really interesting. So at some point, you spend time within the high-speed data division of a company that eventually uh became part of AT&T. Uh, that was in the nineteen nineties. What was that experience like?

• 6:38Speaker 04

  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. Uh, it is very difficult to get an internship in junior year. Um, 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 Cont- um, no, it was, it used to be called Continental Cable Vision. 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, rolling out high-speed data through coax cable.

• 7:20Barry Ritholtz?

  So broadband before we really knew broad, what broadband was?

• 7:25Speaker 04

  Absolutely, and the team actually that did all the technology in Media One ended up being uh the core technology team for Cisco. So it was really cutting edge at that point.

• 7:38Barry Ritholtz?

  Huh, huh, really interesting. So how did you end up uh as a consultant in Boston at Bain? Uh, when did that start?

• 7:45Speaker 04

  So if the company had stayed in Boston, if Media One had stayed in Boston, I probably would have gone back after uh 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, um, 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.

• 8:18Barry Ritholtz?

  And Bain and Company is one of the biggest consultancies in, in the United States. What was it like working uh in Boston at Bain? What, what sort of projects were you working on?

• 8:29Speaker 04

  So Boston is the headquarters. Um. Biggest office when I joined and was a huge variety of projects. So I did. Um. A project for MX, looking at their credit card. Solicitation program, how can 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.

• 8:56Barry Ritholtz?

  Mm hmm.

• 8:56Speaker 04

  So Bain was the pioneer in consulting to private equity companies. Uh. Focusing on strategic due diligence of M and A transactions. And it was very pass fa- uh fast-paced um 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. Um. Could be backed by the analysis the Bain team was doing.

• 9:30Barry Ritholtz?

  So this is in the nineteen nineties, private equity was still relatively small back then. This is uh almost thirty years ago. Did you have any sense as to how rapidly private equity would grow and how big it could it eventually became?

• 9:48Speaker 04

  I mean, it was, I would say, in its second inning.

• 9:51Barry Ritholtz?

  Uh huh.

• 9:51Speaker 04

  Back in the nineteen eighty, like nineteen ninety eight. Yes, ninety ninety seven, ninety eight. Um. 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 uh very compelling, right? I mean, the returns at those times were easily in the mid to upper twenties.

• 10:23Barry Ritholtz?

  Really? Wow, that's impressive. At the time, I remember NASDAQ was similarly putting up high twenty percent. Twenty, twenty-five, thirty percent returns, very unusual number of years in a row. Um. 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?

• 10:49Speaker 04

  So I spent in total nineteen years at Bain, if you add the time I spent in business school. Um, and I I was in, I was first in Boston. I actually spent um six months in Australia as well.

• 11:02Barry Ritholtz?

  Wow.

• 11:03Speaker 04

  Um, and then I moved to San Francisco after business school um and was again quite focused on the private equity space. Right before two thousand and nine, I felt I was ready to do something else. And that's something else was renewable infrastructure, private equity. So that was an emerging space back then. And my-

• 11:28Barry Ritholtz?

  Renewable infrastructure. So this is everything from solar and wind to battery to more efficient power lines. Um, still a burgeoning area. How how long did you work in that space?

• 11:40Speaker 04

  So I didn't.

• 11:41Barry Ritholtz?

  Oh, you did not?

• 11:43Speaker 04

  The catch was that the fund had to raise money.

• 11:46Barry Ritholtz?

  Uh huh.

• 11:46Speaker 04

  And me going to that fund was contingent on them raising the next, the next round.

• 11:53Barry Ritholtz?

  Yeah, and oh nine got in the way?

• 11:55Speaker 04

  And oh nine got in the way. And I had already told Bain, I had told Bain, listen, I, you know, I've I've been here for a long time. It had been, you know, ten years by then. I need to look at something else. I need to do something else. Um, 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 US 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 wanna still leave or pick up and um and go down the partner track.

• 12:36Barry Ritholtz?

  So that that was six months and that six months turned into how long?

• 12:40Speaker 04

  That six months turned into a year.

• 12:42Barry Ritholtz?

  Uh huh.

• 12:42Speaker 04

  And that year turned into a permanent relocation.

• 12:47Barry Ritholtz?

  So how long did you stay with Bain in Zurich for?

• 12:50Speaker 04

  So I stayed in, oh, until I came to Swiss Re. So I moved to Zurich in two thousand and nine.

• 12:56Barry Ritholtz?

  Mm hmm.

• 12:57Speaker 04

  And I left Bain in two thousand seventeen.

• 13:00Barry Ritholtz?

  So US, London, a lot of money centers were kinda imploding.

• 13:06Barry Ritholtz?

  Um, during two thousand nine, what was the view like from, from Zurich?

• 13:11Speaker 04

  I would say not that different.

• 13:13Barry Ritholtz?

  Really?

• 13:13Speaker 04

  It was a glo- we call it a global financial crisis. Um, so business was difficult across the globe.

• 13:19Barry Ritholtz?

  Uh huh.

• 13:20Speaker 04

  Um, Europe was in a difficult situation. I mean, I was in Zurich, but I was serving a lot of the European clients. Um, and it was hard, but the, what was different about Zurich compared to San Francisco is Zurich at that time was a very small office with very few partners um, on a growth trajectory. So it felt like going from a well-established company to a startup.

• 13:46Barry Ritholtz?

  Mm hmm.

• 13:47Speaker 04

  And that's where I could develop also business lines and service areas that were not so um, established across Bain. So institu- now supporting institutional investors, right? We had worked a lot with private equity funds. Um, 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.

• 14:26Barry Ritholtz?

  So, so you have a history and an expertise in private equity consulting, analysis. Um, just generally the space which was small but rapidly growing. Um, 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, as a consultant. I really wanna deploy capital in the space.

• 14:55Speaker 04

  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

• 15:07Speaker 04

  Setting up of 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 um in this deal or in in this new asset class. But then it's up to the client to implement it.

• 15:29Barry Ritholtz?

  Right.

• 15:30Speaker 04

  Um, 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.

• 15:42Barry Ritholtz?

  We're going to come back to Swiss Re in in a few minutes. I want to just stay with your time at Bain in Zurich. So you're on the investment committee at i i in Zurich. Were you looking at global opportunities, um just Europe, uh the rest of the world ex U S? What what was your playground?

• 16:03Speaker 04

  So I I'll 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. And

• 16:25Barry Ritholtz?

  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.

• 16:31Speaker 04

  Absolutely. Well, it it's a it it helps with a with kind of the broader relationship. And um it's it's an attractive opportunity for for the employees of Bain um who invest in those co-invest vehicles because you're able to do that co-investment without fee and carry.

• 16:51Barry Ritholtz?

  Wow.

• 16:51Speaker 04

  And as you know, well, those fee and carries are a pretty big chunk of 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.

• 17:17Barry Ritholtz?

  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.

• 17:25Speaker 04

  Well, and you need to be willing to say no to colleagues and friends 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.

• 17:38Barry Ritholtz?

  Right, really. So, 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?

• 17:50Speaker 04

  I think that 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.

• 18:16Barry Ritholtz?

  Huh, really, really interesting. So the question that's going to lead us to Swiss Re is, how did your time at Bain and Company influence your approach to investment management, strategy, private equity selection? This had to be pretty seminal in your development as a, as an investor.

• 18:37Speaker 04

  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 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. Um. And I think, you know, 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.

• 19:23Barry Ritholtz?

  Um hum. It it's um. The venture capitalists say we like to bet on the jockey, not the horse.

• 19:29Speaker 04

  Um hum.

• 19:29Barry Ritholtz?

  It's very much a people business. You have to be able to evaluate not just folks' ability and and insight, but their ability to execute and and make stuff happen. Uh. So is it safe to say uh all of the decade you spent in private equity at Bain carried forward to Swiss Re?

• 19:49Speaker 04

  No, absolutely. And maybe there are two two more things that I would say.

• 19:53Barry Ritholtz?

  Um hum.

• 19:53Speaker 04

  Um carry over. When we talk about investing, we really focus a lot on macro, right? 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? Uh. And micro, right? And uh understanding how different segments of the economy, how different businesses make money, make profit, what, you know, not everything is correlated to GDP growth. And I think that balance, I I brought that balance from my consulting days. Because a lot of the colleagues um in the investment organization think first macro and then micro.

• 20:38Speaker 04

  And I think both in private equity and in consulting, it is more of that balance.

• 20:43Barry Ritholtz?

  Really, really interesting.

• 20:44Speaker 04

  And the third is decision making, right? So decision making, um 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 how the data and how the analytics drives a decision, but then also how did the biases of different stakeholders drive the decisions?

• 21:14Barry Ritholtz?

  Absolutely fascinating. Coming up, we continue our conversation with Valina Penova, Group Chief Investment Officer for Swiss Re, discussing how she found her way to the insurance giant.

• 21:26Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance, and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 21:58Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices. But according to recruiters, advisors,

• 22:43Speaker 01

  and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

• 23:20Barry Ritholtz?

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

• 23:35Speaker 04

  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 invest and implement a strategy

• 24:20Speaker 04

  was extremely exciting.

• 24:22Barry Ritholtz?

  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?

• 24:47Speaker 04

  I don't think it's lack of agency. I think it's lack of opportunity to follow through. I mean, consultants are expensive.

• 24:53Barry Ritholtz?

  Right.

• 24:54Speaker 04

  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...

• 25:14Speaker 04

  Why are you then at the client in the first place?

• 25:17Barry Ritholtz?

  Right.

• 25:18Speaker 04

  If the, if the, if the problem is not hard. Um, 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, it's the cost benefit is just not there.

• 25:43Barry Ritholtz?

  Hmm.

• 25:44Speaker 04

  Um, so I think if you ask many people who were in consulting, that's always the complaint that they have is, uh, yes, I follow through. You, you know, you obviously keep in touch with your client. You have multi-year clients, but you, you have a huge sense of ownership for the solution you have created. You have a huge sense of responsibility.

• 26:05Barry Ritholtz?

  Hmm.

• 26:06Speaker 04

  But then you don't have control. You don't have control over the outcome.

• 26:10Barry Ritholtz?

  So you moved to Swiss Re in 2017. Um, as head of private equity, did you have ownership and control? What was that transition like?

• 26:21Speaker 04

  Absolutely. I had a P and L. So, um, the mandate that I had, um, 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.

• 26:42Barry Ritholtz?

  Hmm.

• 26:43Speaker 04

  Or the equity benchmark with that selection.

• 26:47Barry Ritholtz?

  How, how do they figure out what the targets are for private equity? I know there's a bunch of different benchmarks. There's US, there's Europe, there's global. Um, 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?

• 27:08Speaker 04

  So I was also responsible for deciding that. And ultimately the decision was to focus more on developed markets. So we, we really emphasize US, Europe, developed Asia. Um, we.

• 27:21Barry Ritholtz?

  Which is primarily Japan and Korea or?

• 27:24Speaker 04

  Australia, Japan.

• 27:25Barry Ritholtz?

  Oh, okay, sure.

• 27:26Speaker 04

  Korea, yes.

• 27:27Barry Ritholtz?

  Hmm. All right. So how long were you running private equity for Swiss Re before they said, hey, uh, we think we have bigger things in mind for you?

• 27:37Speaker 04

  So sadly, only two years. It was a exciting.

• 27:40Barry Ritholtz?

  Sadly, you got a giant promotion. Why sadly?

• 27:43Speaker 04

  Well, because I had just set the mandate up, right? It was, it was a lot of effort to, you know, get the relationships back with, with private equity funds.

• 27:52Barry Ritholtz?

  Right.

• 27:52Speaker 04

  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. Um, you know, opportunity knocked and I had to jump into a completely new and unknown area to me at the time.

• 28:11Barry Ritholtz?

  So we'll, 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 B funds, a little bit of everything, what, how were you allocating Swiss Re's internal capital?

• 28:41Speaker 04

  So it's a little bit of all, but it's mostly investing in private equity funds. So I would say about seventy, eighty percent of the allocation is in, in funds. And then the rest is in co-investments alongside the funds that we have invested in.

• 28:57Barry Ritholtz?

  Really interesting. All right, so two years later, you get a promotion. You're head of Swiss Re's group, your chief investment officer for Swiss Re's group. That's their internal pool of assets they invest.

• 29:12Speaker 04

  Not yet, not yet.

• 29:13Barry Ritholtz?

  Not yet, so what's?

• 29:13Speaker 04

  I had an intermediate promotion.

• 29:15Barry Ritholtz?

  So what was the 2019 promotion?

• 29:17Speaker 04

  So the 2019 promotion was head of client, co-head of client solutions and analytics. And I was focused more on the ALM side of the business.

• 29:28Barry Ritholtz?

  ALM being?

• 29:29Speaker 04

  Asset liability management. So it was, if you think about insurance asset management, we have, you know, 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.

• 29:53Speaker 04

  Business unit and legal entity asset allocations.

• 29:56Barry Ritholtz?

  So, so how long did you do that for? From 2019 till when?

• 30:00Speaker 04

  Until I got the CIO job.

• 30:02Barry Ritholtz?

  Which was?

• 30:03Speaker 04

  In 23.

• 30:04Barry Ritholtz?

  Okay, so 17, 19, 23. So for the past two years, you've been Chief Investment Officer for Swiss Re's Internal Fund, which is a hundred something billion dollars, is that right?

• 30:18Speaker 04

  Hundred and eight, hundred and ten.

• 30:20Barry Ritholtz?

  Hundred and eight. 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?

• 30:39Speaker 04

  So maybe before I answer this question, I, 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, you know, the answer will make a lot more sense with that, 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. We'd focus on stable, sustainable returns and cash flows.

• 31:17Speaker 04

  And our liabilities, if you think about especially the life business, are super long-term.

• 31:23Barry Ritholtz?

  But you do have annuity ta-

• 31:26Speaker 04

  We don't have annuities, but we have-

• 31:28Barry Ritholtz?

  Not annuities, I'm using the wrong word, so I'm gonna have to pull that out. You, you have life expectancy tables, so you have some sense of what you're-

• 31:35Speaker 04

  Exactly.

• 31:36Barry Ritholtz?

  Life insurers have a sense of, hey, we have this much of a future liability-

• 31:40Speaker 04

  It's contractual, exactly.

• 31:41Barry Ritholtz?

  Twenty, twenty-five, thirty years down the road. We don't know who's gonna pass away when, but with a large enough group, we can more or less have a sense of future liabilities.

• 31:51Speaker 04

  No, no, we have a, we have a decent sense of, of future liabilities, but we also need to make sure we have a portfolio that's resilient across cycles.

• 32:01Speaker 04

  The second pillar is asset liability management, right? 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. 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,

• 32:43Speaker 04

  which means that the cost that we have for holding certain higher volatility asset classes is very high, such as equities or high yield. And that means that we maximize return on a risk-adjusted basis. So it's maximizing risk-adjusted return per unit of capital.

• 33:05Barry Ritholtz?

  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 stagger that. So there's always some fund 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.

• 33:36Speaker 04

  On the life side. I mean, we also have a property and casualty business, which is much shorter.

• 33:41Barry Ritholtz?

  More random, yeah.

• 33:42Speaker 04

  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.

• 33:56Barry Ritholtz?

  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, a tornado hits, a wildfire happens. All these things just seem to come out of nowhere.

• 34:27Speaker 04

  Also, 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 liabilities. 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.

• 35:01Barry Ritholtz?

  We're in a lot of alternatives, we're locked up, we can't help.

• 35:03Speaker 04

  Exactly. So you need to really keep that in mind.

• 35:05Barry Ritholtz?

  And then what about, you know, in the US, I think Swiss Re is known primarily as a giant reinsurer. Same situation, obviously, you never know when some insurance company gets to 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.

• 35:30Speaker 04

  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 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.

• 36:12Barry Ritholtz?

  So so it's interesting because you spend so much time in private equity, but it sounds like.

• 36:19Barry Ritholtz?

  What Swiss Re does internally is gonna be a little less alternative focused, a little more liquidity focused. Is that a fair statement?

• 36:30Speaker 04

  No, absolutely. And if you look at our portfolio, we are eighty-five percent fixed income.

• 36:36Barry Ritholtz?

  Oh, no kidding?

• 36:36Speaker 04

  Of which half is government bonds.

• 36:39Barry Ritholtz?

  Uh huh.

• 36:40Speaker 04

  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 have participated in for a long time, but where we're seeing a lot of opportunities. So if you say eighty-five percent fixed income, the rest is private equity, listed equity, we have some minority positions, and then real estate.

• 37:08Barry Ritholtz?

  Huh. That's, that's really fascinating. I wouldn't have guessed so much were in government bonds, but I guess if you want liquid and you want stable and you want despite, what's the ten year now, four and a half percent?

• 37:24Speaker 04

  That's not so bad.

• 37:26Barry Ritholtz?

  Well, with inflation, two and a half percent, it's not so good.

• 37:28Speaker 04

  Yeah.

• 37:29Barry Ritholtz?

  So what do you, how do you think about the return? It's, it's really more about staying ahead of inflation than it is about generating market beating returns. Is that, is that fair?

• 37:42Speaker 04

  Well, you wanna, so as, as I mentioned, we, we do focus on long-term value creation, right? 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 of-

• 38:05Barry Ritholtz?

  Define accounting returns versus economic returns.

• 38:09Speaker 04

  So economic returns is, you know, if you have a bond and, you know, the market value of that bond moves. In a negative direction, even if it pays your yield, you know, 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 and L.

• 38:32Barry Ritholtz?

  Right. So. Because you'll eventually get par when it.

• 38:35Speaker 04

  Because we hold it to maturity.

• 38:36Barry Ritholtz?

  Right.

• 38:37Speaker 04

  Exactly.

• 38:37Barry Ritholtz?

  All right.

• 38:38Speaker 04

  Uh, so what features into our IFRS result is only the yield on that bond, not the market movement.

• 38:46Barry Ritholtz?

  So here we are in 2025, we're still debating whether or not the Fed is gonna cut. How much attention do you pay as as chief and 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 and or insignificant is everything around central bank activity?

• 39:15Speaker 04

  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, uh, what the Fed will do impacts markets, impacts valuations, um, impacts interest rates. So of course, we follow it. We are long-term investors, so we try to, while we, I'd say sometimes obsessively follow the market news, we we try to separate the noise from what we really need to do.

• 39:48Barry Ritholtz?

  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 and the history of Swiss Re in this space.

• 40:07Barry Ritholtz?

  You have your favorite places to play in. You know the funds you like, the private credit shops you like. Like, how are you looking at the change in private credit over the past five years? How is that affecting your investment strategy?

• 40:22Speaker 04

  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.

• 41:05Speaker 04

  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.

• 41:20Barry Ritholtz?

  So I mentioned the 10 years, about 4.5% today. 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?

• 41:52Speaker 04

  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. 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 gonna lie. You're looking to, you're reaching for yield, right, in those, in those moments.

• 42:21Barry Ritholtz?

  Well, there's reaching for yield like people did during the financial crisis. And then there's senior secured privately due diligence.

• 42:31Speaker 04

  Yes.

• 42:32Barry Ritholtz?

  Debt that didn't carry the same leverage and risk characteristics like we saw with securitized junk mortgages. That was a very different world, but I, I, I guess the insight that I'm picking up from you is hey, two decades of zero percent interest rate from the US central bank and other central banks really is the key driver of what's expanded private debt, private core edit, private equity, and a whole slew of alternatives that substituted for sovereign treasuries and other issuances. Fa- fair insight?

• 43:11Speaker 04

  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 two thousand and ten, there hasn't been a real credit crisis to really test the quality of these, of these products. And I think they, they have, you know, new, 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.

• 43:54Barry Ritholtz?

  Well, twenty twenty two was pretty much a down fifteen percent year for treasuries and down twenty plus for equities. That's kind of unusual. I think you have to go back to nineteen eighty one to have them both down double digits in the same year.

• 44:10Speaker 04

  But we had no defaults, so our portfolio had no defaults.

• 44:14Barry Ritholtz?

  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, so.

• 44:23Speaker 04

  Well, we care about quality because what hurts us is defaults and reratings.

• 44:29Barry Ritholtz?

  So you had no defaults, any reratings?

• 44:32Speaker 04

  We've had some reratings, but I mean, we were, we also have middle market lending. So we have been expecting to see some wobble.

• 44:41Barry Ritholtz?

  Right, but not so much.

• 44:43Speaker 04

  And not so much, yeah. And I think, and, and, you know, you always attribute good outcomes to skill when maybe some of it is attributable to luck, but so far, our very conservative underwriting has paid off.

• 44:59Barry Ritholtz?

  Really, really very interesting. Coming up, we continue our conversation with Alina Pennova, Group Chief Investment Officer for Swiss Re, discussing the state of markets and fixed income today.

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• 47:35Barry Ritholtz?

  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?

• 47:50Speaker 04

  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.

• 48:01Barry Ritholtz?

  Whatever you hear where?

• 48:03Speaker 04

  In Davos, at the World Economic Forum.

• 48:05Barry Ritholtz?

  Oh, Davos, okay, yeah, yeah. So, yeah, Davos has a tendency to pick tops and bottoms accidentally.

• 48:13Speaker 04

  Exactly. But back in January, the sentiment was super bullish. It was all about US exceptionalism, it was all about AI and how AI will drive returns to the moon.

• 48:29Speaker 04

  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.

• 48:45Barry Ritholtz?

  To be fair, as much as the US 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

• 49:26Barry Ritholtz?

  by that. And should we have been? Should we have expected 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?

• 49:51Speaker 04

  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, you know, we are a risk company, we're a risk knowledge company.

• 50:01Barry Ritholtz?

  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.

• 50:16Speaker 04

  I think the extent of the announcement on April 2nd was a shock, right? 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, right? And what the formula was and what it really meant. But I think the direction of travel. Um, was, you know, if you had listened to also what the president said before the election, you know, that, you know, we, we expected some level of increase in tariffs. I think it was just the way it was communicated.

• 50:52Barry Ritholtz?

  Right.

• 50:53Speaker 04

  Um, and, and the execution of it that, that caught many, including us, off guard.

• 50:58Barry Ritholtz?

  It, it seemed to be a little ham-fisted, especially when we see how the pains the Federal Reserve takes to not surprise the markets. Hey, there's a rate increase coming, couple of months, get ready. Hey, we're two months away. Look at CPI, look at, 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?

• 51:35Speaker 04

  I think the good news for us was that we don't hold a lot of listed equities.

• 51:39Barry Ritholtz?

  Right.

• 51:39Speaker 04

  Right, so, um, it was more an opportunity to think about our playbook of when do we add exposure in the market? Versus, you know, stressing. So we actually, if we, 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, right? It was about, you know, are we still comfortable with the portfolio we are holding? Um, we had come into the year with a cautious optimism, right? But I think the emphasis is on cautious. Um, and we felt comfortable holding the risk that we had in the book. Um, at the same time, we were surprised by the resilience of the market, right?

• 52:21Speaker 04

  I mean, this was a very sharp reaction, but the recovery was also lightning fast.

• 52:29Barry Ritholtz?

  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. And resilience in, in both equity and bond markets. Um, it seems that you can throw anything at this economy and this market and at least so far, it brushes itself up, off and, and just keeps going. How surprising has that been?

• 52:59Speaker 04

  I mean, if you look at the the valuations, if you look at the fundamentals, it is 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 is is is not looking as promising um as a few months back. So from 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.

• 53:43Barry Ritholtz?

  Endless endless amounts of capital sloshing around.

• 53:46Speaker 04

  And there's not that many assets to invest in. So if you look at the size of the US 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.

• 54:06Barry Ritholtz?

  And isn't the same true in sovereign treasuries, not just the US, 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.

• 54:21Speaker 04

  Well, and if you think about also IG credit, investment-grade credit, you could almost argue, you know, the the other surprise has been how tight spreads have become in in high-quality credit.

• 54:36Barry Ritholtz?

  Right. Why go risky if you're not getting paid to take that risk?

• 54:39Speaker 04

  But if you think about what companies are issuing that credit, these are

• 54:46Speaker 04

  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, you know, some investment-grade credit even goes tighter. You know, there could be a crazy, yeah, Microsoft could have negative spread.

• 55:05Barry Ritholtz?

  Right. Microsoft is more creditworthy than a lot of large nations out there.

• 55:10Speaker 04

  Exactly.

• 55:11Barry Ritholtz?

  That that that's

• 55:12Speaker 04

  And that is what I think has been keeping, you know, both equities higher and spreads as tight as they are.

• 55:19Barry Ritholtz?

  So you mentioned, uh, we're in the top decile of valuation in the US, but for almost a year now. Europe has been outperforming very quietly, at least for the first, for the, for the tail end of 2024, but a little more visibly in 2025, Europe has been significantly outperforming the US. 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

• 55:58Barry Ritholtz?

  being driven by policy, by the US dollar, by a return of capital away from the United States? What is leading to this outperformance elsewhere in the world?

• 56:09Speaker 04

  So I want to start by saying that Europe still has a lot of catching up to do.

• 56:14Barry Ritholtz?

  For sure.

• 56:15Speaker 04

  So if you look at multiples in, in Europe, they're in kind of the mid teens now. Multiples in the US are, you know, mid twenties, low mid twenties. 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, in, in the equity space than in the last year than, you know, than in the last 10. But I think the gap is still

• 56:56Speaker 04

  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, and reducing a bit the regulatory burden that.

• 57:25Speaker 04

  That we've had on companies on the continent.

• 57:28Barry Ritholtz?

  It it it's much greater on the continent, but the flip side of that is I I vividly recall in two thousand, 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 what happens if my kid needs a surgery?

• 57:52Speaker 04

  Hmm.

• 57:53Barry Ritholtz?

  Um, in Europe, people were still having cappuccino and cigarettes in the cafes. There was, it 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 a a a fast growth tech companies, but we have a better lifestyle. Uh, how do you, how do you respond to that sort of position?

• 58:19Speaker 04

  I mean, I think the European expectation for what a good life is is probably quite a bit different.

• 58:25Barry Ritholtz?

  Mm hmm.

• 58:26Speaker 04

  Uh, from the American definition. I think that there's some, but people see certain elements of government, uh, service as basic, right? So it would be healthcare.

• 58:40Barry Ritholtz?

  Right.

• 58:40Speaker 04

  Education, right? I can, I can send my kids to a Swiss university for, I don't know, a thousand francs.

• 58:46Barry Ritholtz?

  Wow.

• 58:47Speaker 04

  A year and, you know, you can get an MIT type education for, you know, a small fraction of what you pay in the US.

• 58:53Barry Ritholtz?

  Right.

• 58:54Speaker 04

  And and that's considered a social good, right?

• 58:56Barry Ritholtz?

  Right.

• 58:57Speaker 04

  So I think.

• 58:57Barry Ritholtz?

  But the taxes are much higher. So you're paying for it one way.

• 59:01Speaker 04

  Taxes are higher, um, 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.

• 59:14Barry Ritholtz?

  Right.

• 59:15Speaker 04

  On the street to the degree, um, you don't have, you don't have some of these, you know, extreme situations that you you have in the US. And I mean, the question is how far is, you know, what's the right balance? So I'm not saying that it's all good, right?

• 59:29Barry Ritholtz?

  Right.

• 59:30Speaker 04

  Because you also, um.

• 59:33Speaker 04

  Have a generation in Europe that expects this but doesn't understand the cost that it comes it comes at and expects a lifestyle and expects work like life balance but at the same time um you know doesn't have the work ethic required um to to keep to keep the economy successful.

• 59:56Barry Ritholtz?

  Hmm, so we're recording this, uh, the Russian Ukraine war is still ongoing, the Israel Hamas war has now become an Israel Iran war, there are all these geopolitical um tensions and shifts taking place, how do you think about what's going on in the broader geopolitical area uh when you're thinking about making investments for ten, twenty 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?

• 1:00:32Speaker 04

  So if you look at history and what impact wars have on markets, um, the conclusion is that yes, there's a short term shock, but in the long term, even within a few months, that that dissipates, so making near term investment decisions give driven by geopolitics is probably not the best investment strategy.

• 1:00:59Barry Ritholtz?

  No, you say the least.

• 1:01:00Speaker 04

  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 the value we bring is that we can we can ensure tail risks because we can diversify a lot of tail risks at a global level, right? We ensure.

• 1:01:37Speaker 04

  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 what, how does that impact truly global businesses? So, 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.

• 1:02:21Barry Ritholtz?

  So, 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? What, what do you, where do you see opportunities? Where do you see risks?

• 1:02:41Speaker 04

  So I would say that, and, 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

• 1:03:22Speaker 04

  find a lot of deals but also have a lot of opportunities. So you, you need to think of it from a macro perspective. Um, of what, you know, where is the need for capital? And can, do we have the expertise as a team to provide a solution that is uniquely fitted to that?

• 1:03:42Barry Ritholtz?

  So, so you mentioned private equity and private credit. Uh, European Central Bank has cut rates recently a number of times. Does that work as a tailwind for, for private credit? How, how does that impact what you see out there?

• 1:03:57Speaker 04

  It's definitely a tailwind for private equity, right? So what we see is European funding cost has actually fallen twenty basis points since Liberation Day. Uh, versus in the US, funding cost has gone up.

• 1:04:12Barry Ritholtz?

  Gone the other way, yeah.

• 1:04:13Speaker 04

  Twenty points.

• 1:04:13Barry Ritholtz?

  Yeah.

• 1:04:14Speaker 04

  Um, and if you think about what makes private equity successful, it is, you know, it's a leveraged buyout, right? That's, um, ultimately part of the value of those transactions is in the leveraged part. And lower interest rates clearly, um, are beneficial for the private equity space.

• 1:04:31Barry Ritholtz?

  So the, the phrase we hear, and, and quite honestly, hear way too much in the US is so much uncertainty. So much economic uncertainty. How do you see this lack of clarity, at least around policy decisions in the US, affecting your outlook for, for the markets, for the economy? How, how does this sort of new regime in, in Washington DC affect the global economy?

• 1:05:01Speaker 04

  So if you think about how we plan, right, on an annual or three-year basis, um, for many years, we, we would have a baseline, right? We would say, we think there's a seventy percent 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. Um, you know, wh- water, you know, how how could we assess whether we're moving into those scenarios? Today, our baseline quote unquote is a forty percent odds. So I I I don't wanna even call it a baseline. Um, and we have moved from thinking in baseline and other scenarios to what is the range of outcomes that we should expect?

• 1:05:46Speaker 04

  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? Uh, but if you have that path, you have fewer surprises, right? 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 an a survey of fifteen investment committee members to say, you know, what do you think the odds are? It's kind of the wisdom of the crowds idea. Mm hmm. Um, and we discuss, you know, where in in which scenario are we moving? So that that's one thing we have done, and I think that provides a lot more flexibility in thinking.

• 1:06:32Speaker 04

  And the second is, we think ahead of risk events. So markets are much more volatile today. And typically, at the depth of a correction, um, 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, this is, these are the levels at which will add risk. This amount of risk and is, you know, as the market goes down, will continue to add risk.

• 1:07:16Speaker 04

  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, um. You know, much less stressful in a way to execute on strategy.

• 1:07:36Barry Ritholtz?

  Cause you have a plan that you created when you were calm and relaxed.

• 1:07:40Speaker 04

  Exactly.

• 1:07:40Barry Ritholtz?

  As opposed to responding when you're stressful. I'm kind of fascinated by the seventy percent baseline in normal circumstances. But this year it's more of a forty percent baseline. It sounds like you're saying that tail risk is rising. Is that a fair assessment?

• 1:08:02Speaker 04

  Yes, this is you call it fatter tails.

• 1:08:04Barry Ritholtz?

  Mm hmm.

• 1:08:05Speaker 04

  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.

• 1:08:17Barry Ritholtz?

  Including the possibility of something really extreme on, on either end of the tail.

• 1:08:23Speaker 04

  Exactly, and we do, I mean, again, we're in the business of tail, tail risk.

• 1:08:27Barry Ritholtz?

  Right.

• 1:08:28Speaker 04

  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 broad, more broadly at the group level.

• 1:08:39Barry Ritholtz?

  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?

• 1:08:57Speaker 04

  So I have two kids.

• 1:08:58Barry Ritholtz?

  Uh huh.

• 1:08:59Speaker 04

  And I try to show them some more, you know, intellectual programming.

• 1:09:06Barry Ritholtz?

  Right.

• 1:09:06Speaker 04

  And the latest show we've been watching is called The Real Bug's Life.

• 1:09:11Barry Ritholtz?

  Okay.

• 1:09:11Speaker 04

  On Disney.

• 1:09:12Barry Ritholtz?

  Uh huh.

• 1:09:12Speaker 04

  Uh, which is, um, if you know The Bug's Life, it was a Disney movie.

• 1:09:17Barry Ritholtz?

  Right.

• 1:09:17Speaker 04

  This is real, so, um, it's amazing technology that's being used to, to record this. But it follows different insects in their natural environment at a very, uh, with, with amazing cameras, right? So they have, um, you, you basically get a, a macro view of, you know, how a dragonfly, um,

• 1:09:41Speaker 04

  Flies and how a dragonfly, you know, runs away from from its uh from frogs or other animals. So it's a it's it's a fascinating show. So that's on the on the TV side. On podcasts uh in good company.

• 1:09:55Barry Ritholtz?

  Uh huh.

• 1:09:56Speaker 04

  I guess this might be a competitive uh podcast to yours. It's Nikolai Tangan.

• 1:10:02Barry Ritholtz?

  That uh who who hosts that?

• 1:10:04Speaker 04

  It's Nikolai Tangan. He's the CEO of the Norges Bank. So that's the largest sovereign wealth fund in in Norway. And they're a large equity investor and they

• 1:10:17Barry Ritholtz?

  I'm gonna look into that. That sounds interesting.

• 1:10:19Speaker 04

  They hold one or two percent share in some of the largest companies.

• 1:10:22Barry Ritholtz?

  Right.

• 1:10:22Speaker 04

  So he gets to interview CEOs of these companies and it's a it's a always pretty fascinating discussion.

• 1:10:29Barry Ritholtz?

  I'm gonna definitely check that out. That sounds good. Tell us about your mentors who helped to shape your career.

• 1:10:36Speaker 04

  Early on, it was definitely my grandmother.

• 1:10:38Barry Ritholtz?

  Mm hmm.

• 1:10:39Speaker 04

  She um she was a professor of agronomy back in the day.

• 1:10:46Barry Ritholtz?

  Agronomy?

• 1:10:46Speaker 04

  Agronomy is the science of agriculture.

• 1:10:49Barry Ritholtz?

  Uh huh.

• 1:10:50Speaker 04

  And uh she took a keen interest in my education um and really pushing me to push myself to do better, to have the right moral compass. So some of the lessons that weren't instilled in me are are still from her time. Um and then during the Banyers, uh 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.

• 1:11:22Barry Ritholtz?

  Right.

• 1:11:23Speaker 04

  Um permanently after I came in two thousand and nine. Uh 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. Um and really being an invaluable friend and coach.

• 1:11:43Barry Ritholtz?

  Hmm. Let's talk about books. What are some of your favorites? What are you reading right now?

• 1:11:49Speaker 04

  I'd say my all time favorite is The Three Body Problem. It's a trilogy by, uh, now mispronounce the name Luo Tsushin.

• 1:11:59Barry Ritholtz?

  Right.

• 1:12:00Speaker 04

  Um, and it's sci fi mixed with history, philosophy, game theory. You name it. Uh, I don't know if you are familiar with.

• 1:12:11Barry Ritholtz?

  Oh, I'm very familiar with the book and I actually watched the Apple TV series.

• 1:12:16Speaker 04

  Yeah, which is not as good.

• 1:12:18Barry Ritholtz?

  Well, it it seems like it just pulls a handful of things out of it. Although, uh, uh, to be honest, I started reading the first book. Uh, 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, the range of outcomes are practically infinite. And you really have no idea where these three gravitational bodies are gonna are gonna take us. Um, but it was, I believe the author is Chinese. It was originally written in Chinese and then translated. The US translation is a little challenging to fight your way.

• 1:12:55Speaker 04

  Especially the second book, I'd say, yeah.

• 1:12:57Barry Ritholtz?

  So I I 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 their native language.

• 1:13:08Speaker 04

  But the concepts were pretty fascinating, yeah. To think about, I mean, I mean, it was a lot about game theory, right? And and and and the fact that humanity lacks the ability of reacting to, you know, exit existential long term threats, right? And what is the psychology behind it? Even when faced with something that, you know, guarantees destruction of humanity, we still squabble, um, around more earthly earthly problems.

• 1:13:37Barry Ritholtz?

  Tribal arguments as opposed to, hey, we're all gonna die. We better do something.

• 1:13:42Speaker 04

  The aliens are coming.

• 1:13:43Barry Ritholtz?

  Right, that's right. And we know you got fifty years to prepare.

• 1:13:45Speaker 04

  Yeah, it was five hundred in the book.

• 1:13:47Barry Ritholtz?

  Oh, was it five hundred?

• 1:13:48Speaker 04

  Yeah, and even with that, I mean, on the positive side, it also awoke amazing innovation, right? So it shows you also the best of humanity that, you know, when when people put their mind to it, they can solve really impossible problems.

• 1:14:05Speaker 04

  Um, but I think that the outcome is a mixed bag for humanity.

• 1:14:08Barry Ritholtz?

  And what else are you reading? What else are you enjoying?

• 1:14:10Speaker 04

  So today I'm reading a book called Humankind. Uh, it's by a Dutch writer called Rutger Bregman. And the premise of the book is that humans are innately kind. And um, and meanwhile, so our, our human nature is not savage. But it's actually good, right? And he goes through, um.

• 1:14:35Barry Ritholtz?

  Cooperative social primates, right?

• 1:14:37Speaker 04

  Exactly. Uh, but a lot of history has been telling us that, you know, we have this veneer of civility. And underneath, we, uh, we're untrustworthy and evil beings. And I think he goes through a lot of that, and this proves a lot of historical, uh, beliefs. Um, and it, it, you know, in, in this day and age, you need some optimism. And I'd say this, this book gives you, um, belief and trust in humanity.

• 1:15:03Barry Ritholtz?

  So, so humankind, kind of the opposite of sapiens.

• 1:15:07Speaker 04

  Exactly.

• 1:15:09Barry Ritholtz?

  Like, um, that, that, that book was fascinating, but like a little bit, gee, we really suck as a species, don't we?

• 1:15:17Speaker 04

  Yeah, or the selfish gene, right? That's a Richard Dawkins book that also, I mean, he, this author disproves some of the thesis, right? Because Richard Dawkins basically says, well, our genes basically make us, you know, the, the species we are. And there's a lot of not so good features. Um, this version says, well, there, 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. Um, you know, 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.

• 1:16:01Speaker 04

  So most of the deaths were done by, you know, grenade or kind of indirect means. Uh, because ultimately, you know, humans don't want to hurt other humans.

• 1:16:11Barry Ritholtz?

  That's, 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, or finance?

• 1:16:25Speaker 04

  I would say, don't narrow down uh your options too early. Um as as I've experienced in my career, I've 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, uh a better leader. And I think a lot of young people today come in to the workforce and say, I I know what I want to do. Um and I think that they actually don't.

• 1:16:56Barry Ritholtz?

  Right, and your experience going from consulting to private equity to being CIO, did you have any idea that would be your path when you first started?

• 1:17:06Speaker 04

  Well, I thought I wanted to be a doctor.

• 1:17:09Barry Ritholtz?

  Well, so so not just one pivot, but multiple pivots.

• 1:17:12Speaker 04

  Exactly, so I think that that young people really need to be open minded and explore and, you know, take opportunities um for what they are, right? 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 thinking of what could I learn, what, how could this be good for me? Uh because I think that richness of experience at the end makes you makes you a better better business person.

• 1:17:39Barry Ritholtz?

  And and our final question, what do you know about the world of investing today? That would have been helpful back in the nineties when you were first getting started.

• 1:17:48Speaker 04

  Well, so when you study in academia, you do a lot of analysis, right? So we talked about markets are overvalued, multiples are high.

• 1:17:58Speaker 04

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

• 1:18:18Speaker 04

  Technicals, flows, that is the way you get a fuller picture of the investment space. And I think we talk a lot, 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.

• 1:18:35Barry Ritholtz?

  Huh, really, really, really fascinating. We have been speaking with Velina Peneva, Group Chief Investment Officer for Swiss Re. 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

• 1:19:15Barry Ritholtz?

  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.

• 1:19:41Speaker 06

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