In this episode, I speak with Ashby Monk, who is Executive & Research Director at Stanford Long-term Investing, a part of Stanford University in California. Ashby has been advising most of the large superannuation funds in Australia on governance, organisational efficiency and knowledge management. He is a regular visitor to our country, and has been here 55 times. We discuss the future of the superannuation industry and the role of innovation. Unsurprisingly, this means that we spend a fair amount of time talking about artificial intelligence and the changes it might bring to the industry. Ashby is of the opinion that it will be transformational, while initial problems such as hallucinations are quickly being dealt with. What does AI mean for the super industry? Well, consultants might be in trouble as AI systems will come to play a critical role in providing alternative views or in red teaming. Asset managers, too, will come to feel the heat, and boards might want to add directors with deep technological knowledge. Enjoy the Show!
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Overview of Podcast with Asby Monk, Stanford University
03:30 I’ve never met a pension fund with an R&D unit.
09:00 I’ve seen Australia as the future of pensions
10:00 People in Australia don’t quite know how cool it is, the member first culture
12:00 There is no professional School of Investing in the world; it is an apprenticeship
16:00 The secret sauce for a pension fund is in understanding your own advantages, weakness and goals
20:00 You can have a culture of knowledge sharing or a culture of secrecy and I don’t think you need to do much more than to say those words to understand what is implied
22:30 What attracted me to the asset owner industry is that it is a mission-driven culture
26:00 The AI boom…, everybody acknowledges that particularly our industry is going to be transformed
28:00 AI for knowledge management; the hallucinations are starting to go away. We are very close
32:00 Red teaming with AI; ask to replicate what your analysts are doing to see if you get a different view
33:00 Consultants might be in trouble, unless they move fast towards AI
34:00 Anybody who provides advice…, even me, you could probably ask an AI: ‘How would Ashby respond to this idea?’
36:00 The big asset managers that we can think of right now, their existence is threatened
37:30 There are about eight Australian super funds that can be world role models
39:00 I often ask: ‘Who on your board has technological expertise?’ and the answer is often ‘none’.
41:00 Deep thoughts to conclude
Paper: “The ‘Investor Identity’: The Ultimate Driver of Returns” by Ashby Monk and Dane Rook, 2023
Full Transcription of Episode 120
Wouter Klijn
Ashby, welcome to the show.
Ashby Monk 02:27
Thank you so much. It’s an honour to be here. Truly. I think that if I didn’t have my job, I would want your job.
Wouter Klijn 02:35
It’s pretty fun.
Ashby Monk 02:39
Yes, you know, because the investment Innovation Institute almost sounds like my life’s work, but you’ve already got it, so I’ll have to find something else. But it’s, it’s a it’s a pleasure to be here, in large part because I think you and I are working on very similar things.
Wouter Klijn 02:57
Thank you very much for that. And you also have your own podcast, which has an interesting name of ‘Don’t get fired’. Why did you choose this title,
Ashby Monk 03:05
Don’t get fired Podcast, yeah, so that is meant to celebrate the heroic nature of innovation and institutional investment. Oftentimes, I’m sure you’re aware the pathway to doing creative things, especially as it relates to the asset owner side of things, that pathway generally flows through a courageous person that is deciding, I’m going to do things differently, and in the process, generally takes career risk. And so the don’t get fired podcast is meant to be somewhat funny, but it’s also meant to acknowledge, like, we don’t have standard pathways of innovation in this industry. You know, I’ve never met a pension fund with, like, a well formed R and D unit. Oftentimes, it’s just a person who is ready to take on a challenge and and I think we do need R and D units, and so the podcast is all about different pathways to innovation.
Wouter Klijn 04:06
Yeah, yeah. It’s interesting because I think that’s my cat.
Ashby Monk 04:13
Hello Kitty. That’s a perfect that cat wants to talk to us about innovation,
Wouter Klijn 04:16
Exactly, but yeah, no, it’s, that’s, that’s interesting because I listened to your last episode with Mark Delaney, and he made a reference to that where, I think, before he joined the superannuation industry and became CIO, now of Australian super, he worked for an insurance company. And he said, he sort of made his remark that at the beginning, when he worked, there was one of the most innovative companies in Australia, and then over time, they became scared of innovating, and it actually ended up collapsing. And he for part of it was because of a lack of innovation, which is basically goes to the core of your premise with the podcast.
Ashby Monk 04:57
I mean every, every, long-lived organisation faces this challenge around how much to exploit and how much to explore. So you exploit the assets, you have to generate performance, and then you also have to explore in order to, you know, go out and find new things to exploit in the future. And there’s a balance, and I think it was the Winner’s Curse, or the winner’s winner’s dilemma, maybe, where those organisations that are very successful often end up in a pattern of exploitation, and then that ultimately sows the seeds of their demise, those organisations that go on for generations. So these family owned companies that you know, go hundreds of years into the future. They build very deliberate innovation practices and and the funds that you and I study, these are funds that have stakeholders rather than shareholders. We know these funds are going to live for centuries. You know, like obviously, many of the super funds are fairly new on that time scale, but University endowments, sovereign funds, etc, they’re looking out 100 years into the future. Those organisations are going to have to balance that exploitation, exploration dilemma. And I’m not sure most of them are ready for that.
Wouter Klijn 06:24
Yeah, it’s sort of a fine balance between sticking with a winning formula and doing enough innovation to stay relevant, I suppose. And you’re right, the super funds are relatively young, so maybe they are a bit scared to, you know, do too much innovation and and mess it up, but, yeah, it’s a developing industry, but one of the things that I thought was quite interesting when when you spoke to Mark, is that you mentioned you’ve known him for 13 or 14 years. And I know you have been advising a number of funds here in Australia, but your interaction with the funds goes back quite some time. How did you first get involved with the Australian funds?
Ashby Monk 07:04
Well, my mentor, my academic mentor, is a guy named Professor, Gordon Clark, who is Australian who, I think you probably know Gordon, I think he still comes down to Melbourne once a year, for a month. He might even teach a class at Monash, one or two classes every year. And really, he was the one who introduced me to the Australian superannuation industry. And as somebody you know, obviously very interested in the future of pensions, you can’t help but be blown away by what’s happening in Australia. So I would argue the accumulation side of the equation is basically solved in Australia. Now, the de accumulation, the retirement side of things, there’s still some challenges, and people are working on those challenges, but the superannuation industry, by and large, feels like the future for the rest of the world defined contribution, so you’re not taking that longevity risk pooled, so you’re getting the best asset management the lowest cost. And then also there’s the regulatory aspects, where you know you have to contribute, so there’s that mandate, and so that combination of everybody contributing professional management and really getting this accumulation running puts Australia in a very rare community in the world where it feels like you got your pensions organised. The Canadians seem pretty good, but those are mostly DB plans and so we all wonder what happens when the nanobots get injected and we live for 200 years? How are we going to manage that? They would tell you that they can manage that through maybe renegotiation. But in the Australian case, you won’t have to. People are just going to have to work for longer because there won’t be as much money there. And so, you know, obviously I’m, I’m talking like a true Stanford engineer. People are going to live forever with nanobots, but, but really, politicians everywhere are trying to figure out how to manage the unfunded liabilities for old age retirement security, and so you have that there. And so I know there’s a long winded answer, but going back 14 years, I was introduced to the Australian super folks. And really, as sad as this is to say out loud, I think I’ve been back 55 times. Wow. I owe a lot of trees to the world. I got to plant some trees, but that’s largely because I’ve seen Australia as the future of pensions.
Wouter Klijn 09:42
Yeah, yeah, it’s an interesting system, because my background is Dutch, so I grew up in defined benefits schemes as well, and I know that my dad retired in his late 50s with 70% of his last earned wage for the rest of his life. So that’s that’s not really working, if you and is he still going? Lift to 100 he’s still going. He’s still there.
Ashby Monk 10:04
Yeah, pretty great if you can get it,
Wouter Klijn 10:07
yeah, although it did require along the way some adjustments, like they did realise at one stage it wasn’t affordable, so they had to make some adjustments as well to the benefit formula.
Ashby Monk 10:17
But you thought just one thought, well, we’re on the Australian uniqueness. Because I think, you know, people in Australia don’t quite understand how cool it is the member first culture. The it may frustrate you as a superannuation fund that your members can stand up and leave and go to a different superannuation fund, but it also means, when you’re talking to your board of directors and you’re saying, we need to do this innovative thing, it’s for the member the board listens. When you go to a fund that has a monopoly over their asset base, over their membership, they don’t necessarily have to listen to that. And so, you know, the Australian superannuation industry is not only the future, but it’s the most innovative. It’s in competition with each other, and there’s been some deviations recently where there’s the my super, there’s the you know, the different benchmarks that feel like maybe they are making the innovation less palatable, but compared to the rest of the world, the Australian industry feels dynamic and in constant renewal.
Wouter Klijn 11:28
Yeah, yeah. It’s interesting to see where that will go with the especially the performance test, because I think the main reason behind it was to force some of the smaller funds to merge. But we’re almost getting there. So is that still going to be relevant going forward? Because, as you said, there are some, there are some restrictions to what it put in place with tracking error and peer awareness. So yeah, that will be interesting to see whether that gets solved or not.
Ashby Monk 11:57
And if it’s solved, does it just put you like, let’s say pure awareness becomes a, in quotes, problem. Doesn’t that just make you the same as the American endowments that stare at each other all day long, or the Canadian pensions, you know, like, by the way, like this right now in the rest of the world is an industry that 100% herds the way best practices are communicated in this industry. I’ll remind you, like there is no professional school of investing in the world. It’s an apprenticeship. The way best practice gets communicated is by peer imitation. Follow the leader. And so right now, Australia is becoming the leader in many domains. And then the question I think you and I are asking is, how do we keep that innovation going so that you’re not just exploiting the assets you’ve developed over the last 10 years, you’re continuing to explore, but most of the other funds are are exploiting, you know, like the Yale models everywhere,
Wouter Klijn 13:00
yeah, but especially as well going into retirement, because, as you said, I think accumulation has probably been more or less solved. Retirement hasn’t, and it almost seems that some of the solutions that are also palatable to members almost have an element of defined benefit to it, where funds can pull again and an income stream is being formed, and one that is not relying on, you know, an insurance type of arrangement.
Ashby Monk 13:30
But even there, you know, you’ve got organisations in Australia that are really taking retirement seriously, whether they’re hiring a chief retirement officer, or they’re naming their new fund with the word retirement in the title, right? And so in that sense, like I’m really excited about this future of mass customised deaccumulation. I know that’s a mouthful, but you can imagine technology enabling people to communicate scenarios, goals, you know, health status, things like that, and start to build portfolios that meet your retirees where they are well, of course, managing the you know, the downside risks that Come with living much longer than you expected, but I am really excited about moving beyond just annuities or the simple defined benefit structures. And I think in Australia, where you have so much data on your members, you might actually be able to use this innovation mindset to build the future of retirement, the accumulation
Wouter Klijn 14:41
And that sort of ties in with what I wanted to talk to you about as well with long term investing. Because, you know, these are problems that have a very long term horizon, and sometimes, you know, we do get a little bit stuck in, you know, what’s the next quarter of earnings? You know, is this manager under or out? Performing, but there’s some fundamental questions that lie beneath a successful pension system. And basically I was talking in a previous podcast to Eduard van Sheldon, who has been sometimes your collaborator on some papers, and he’s now involved with fclt Focusing capital on the long term. And so for this might be a nice extension of that concept, because…
Ashby Monk 15:25
Are we in competition with FCLT at i3, you know, if I, if I’m here as your representative, do you see that as you know your your competition, or are they part of the family?
Wouter Klijn 15:41
We’re all friends, aren’t we?
But, but I thought it was interesting because it ties back into some of your ideas that you put in a paper around investor identity, which I think has also been part of your work with some of the Australian funds here on basically, not so much identity as you know, what do we stand for? But more? What can we do? What is our operational capabilities? What is our skill? And I sort of was amused by the fact that you describe it in the sense of how you put a chocolate chip cookie together, yeah, which my daughters love. So I see a lot of that. And sort of this, this idea of, how do you cook up your own risk adjusted return? Yeah, to stay with that analogy is that where you think the secret sauce is?
Ashby Monk 16:29
So the secret sauce is in understanding your own advantages, weaknesses and goals. So that’s the first thing to just throw out there. The identity was meant to say, after travelling the world for 20 years and consulting, but then also writing books and papers, this realisation that, first, most of academia is not paying attention. So we’ve got 10,000 business schools. The last I checked, there’s no professional schools of investing in the world, but to understand how CalPERS or ADIA or Future Fund or New Zealand superannuation fund, how they make decisions and operate and optimise for their stakeholders, it’s not necessarily the kind of thing you learn in A Business School. Singapore’s GIC. The G stands for government. And so in many cases, you really need to understand how you operate inside government. And so all of this is to say we didn’t have models of Investment Management. And I mean that isn’t from an academic model perspective, to allow people to understand, hey, this is how I should run my fund again, the role of models like the Canadian model, the Yale Model, the Australian model, the Norwegian model, the Dutch model. These were ways to be inspired, but there’s nothing that says the Canadian model should or needs to be implemented in Australia, right? The Canadian model is a defined benefit model, a Crown Corporation model, the Australian model might be an industry fund model and a defined contribution model. And so understanding those details are critically important. And so we wrote this paper about the investor identity, which has a thumbprint in the middle, fingerprint, ultimately, to say, Yeah, we may produce returns with the same core ingredients, but there is no, you know, there is no chocolate chip cookie that is the same, perfectly, the same from kitchen to kitchen, from batch to batch. Frankly, no chocolate chip cookie is the same. And so acknowledging that broad differentiation and that your people are going to be different. If you’re in Juneau, Alaska, or if you’re in Abu Dhabi, your culture will be different. If you’re a member driven fund sitting in Melbourne, or your public pension plan in Iowa, your technology will be profoundly different if you’re sitting in Silicon Valley versus sitting, I don’t know, in Oslo. You know, the thing we wanted to at least acknowledge. And so the identity is meant to be an irreducible model of the inputs and enablers that long term investors use to drive return, and I can talk you through them. But ultimately, it was really meant to be a model that allowed boards of directors, CEOs, heads of strategy, heads of asset allocation, to begin to think about this is our organisation. These are the inputs we have. Here’s what’s good, here’s what’s bad. Here’s an asset allocation or an implementation we can pursue and have high conviction that will outperform.
Wouter Klijn 19:47
Yeah, I’ll put a link for the paper so people can go really in the weeds. But I thought what was quite interesting as well that you gave some practical examples of how this model can be applied to investors and. To their long term strategy, and one of them looked at private markets, and they decided that maybe they needed to have more exposure to private markets. And then when they actually went through the exercise of what is our capability, what what is the expertise of the people we have, that they found some gaps in technology and expertise that they realised they had to pluck first before they could, you know, spend the money. And that’s, I quite like, the fact that it’s a very practical framework as well, where it’s not just, you know, people in boardroom talking about great thoughts, but actually still doing the same thing that it always done. There are some practical implications of this. And you also describe that within the core ingredients, there are ways to improve it. And you give three high level elements, there governance, culture, technology. And I wanted to pick out one of them, because I think culture is sometimes not always well defined, but you say at one point it is Shadow governance. What do you mean by that?
Ashby Monk 21:09
Culture are the norms and procedures, often unwritten governance protocols. So it’s our expectations of each other. It’s our routines. You can have a culture of knowledge sharing, or you can have a culture of secrecy, and I think you don’t need to do much more than say those words for you to understand what’s implied. You know, you can have a radical candour culture, like a certain hedge fund in Connecticut, or, you know, you can have a, you know, a collaborative culture. All of these things imply something about process, information, flows, recruiting and retention of talent, and so it sits atop the key inputs and helps you drive better investment decisions. I mean, that’s assuming you have a good culture, effective culture, I’ve seen many times where the culture is not effective, and understanding that you need to improve your culture is actually really important, calling it out for people and saying, Look, this isn’t a constructive culture that you’re creating here. You know that’s also actually a valuable part of the process and understanding your identity and your strengths and weaknesses.
Wouter Klijn 22:24
And how do you think how malleable is that culture? Because we talked a little bit about the nature of a large part of the Australian pension system, where, you know, they come from a background of not for profit or profit, to members. That’s already like a vastly different starting point than when you look at commercial asset management firms. Can you change a bad culture, or is it just tinkering at the edges?
Ashby Monk 22:53
I think first thing to say is, I think part of what attracted me to this industry, so that is, let’s call it the asset owner industry, whether it’s Dutch, Canadian, American or Australian, is that it is a mission driven culture. Most of the people inside these funds are there because they believe in the mission, and they are willing to forsake some compensation, usually, but some corporate benefit in pursuit of this higher purpose. What a cool job. And, oh, by the way, like, you can be paid pretty well and like, it’s a really fascinating job where you’re constantly learning on and on and on. But at the core, we’re mission driven in this industry. We’re trying to protect nation states through sovereign funds, retirement security through pension funds, on and on and on. So I love that aspect to it, and it does take a huge amount of time and effort to build that type of mission driven culture inside a commercial enterprise, and they’re constantly trying right like this is partly why here in Silicon Valley, people are always changing the world. You know, with their search algorithm or their, you know, whatever is the new cryptocurrency they’re going to change the world. They’re trying to tap into that mission driven culture. And in our industry, we have it and so, protecting it, nurturing it, using it for the recruitment and retention of people, using it to guide that decision making. You know, beyond our own tenure at an organisation is really important and valuable, like think about making decisions for the benefit of members long after you’ve stopped working there, if you’re buying a real estate asset or an infrastructure asset or a timber asset. You’re thinking about the members benefit decades from that, or you should be. So I think that’s a very powerful meta layer inside these organisations.
Wouter Klijn 24:55
And the other element of it is technology, and we’ve spoken in the past a little bit about. At knowledge management and the interaction with technology and how to retain, you know, core information and the knowledge build up over, you know, decades of doing transactions and issuing mandates, but that’s only one part of it. Of course, now we’re looking at integrating artificial intelligence. Do you think that it’s more important these days to get a technology right? Is it playing a more important role?
Ashby Monk 25:27
Tech is the crack in the door for innovation. So if you know, you’re down in Australia, which means you think innovation is probably a little bit easier than it is elsewhere. Now you may work at a superannuation fund and think to yourself, gosh, it’s so hard to do innovation, but you’re better off than you are if you’re in an American public pension plan. And in part that is that competition that all those things, but wherever you are, okay, technology is changing so quickly that boards of directors are asking their C level executives, what are we doing about this? It’s becoming a crisis, and I know that most big organisations wait for crises to drive huge change, whether it’s moving from a product based asset allocation to a risk based asset allocation, or, you know, strategic asset allocation to dynamic asset allocation. These are usually in response to crises. Well, the AI boom, and it may have a bust, because we’re seeing some pretty wild valuations and a lot of capital flowing into the space right now. I saw today some wild news, but everybody acknowledges that our industry is is in particular, our industry is going to be transformed now, people, anybody that’s using a spreadsheet listening to this, if you have a spreadsheet as part of your core day to day, that’s probably going to go away in the Next 10 years, yeah, okay. Like, that’s a crazy thought. How many people see spreadsheets as a critical piece of their day to day in the investment industry? Fine, maybe it’s 20 years. But 20 years from now, if you’re writing in spreadsheets, you’re doing so, you know, because you’re ironic, like people typing on typewriters today, you know you’re doing it because you think it’s cool, like listening to record players.
Wouter Klijn 27:25
You know that is cool. Vinyl.
Ashby Monk 27:26
That is cool. I agree with you. It is cool. I love the vinyl, but, but you know you’re doing it because it’s like fun. It’s old timey. AI will connect to your PDFs, your email, your Word documents, extract the data you need, clean it, ingest it, and, even better, overlay it on top of other data sets, so you start to get a rich sense of what you own. And then this is just getting the data organised. Now that the data is organised, and in a dashboard, you’re having these epiphanies about it. Oh, I didn’t think I owned that there in that structure. Can you model it, modelling into the future, new knowledge, new intelligence, and then you start opening up new markets, investing in nature as an asset class, investing in compute as an asset class. And you know, there’s new things that will start to emerge out of this that are really excited, exciting outer space people are going to be investing in.
Wouter Klijn 28:30
Yeah, I think I’ve seen some startups on mining in outer space, which is quite, yeah, yeah, but, but coming back to sort of the AI bit, and we’ve spoken a little bit before about the role that AI can play in knowledge management, and I think this was around the time that GPT three came out, and was this example with Morgan Stanley that applied it in his wealth management. And I asked you whether this was the tool that we all had been waiting for to now, you know, probably manage our knowledge. And I remember you gave this illustration of well, almost because you asked it to write your resume based on information that you gave it, and then it came up with a resume that basically said, included universities that you never went through, papers, you never written, but all sounded possible. Yeah. And do you think we’ve moved on from that? Is it more reliable to for organisations to actually the outcomes,
Ashby Monk 29:33
The hallucinations are really going away. I still spot hallucinations, but it’s so good. So if, if Google is what chat GPT truly has the how. Okay, so, so, like that, just that’s a very simple way of thinking about what the gpts are going to deliver you out and like right now. Yeah, and so in that sense, I think we’re in this map quest moment. For those of you that are old like me, you grew up with paper maps, and then once paper maps were going away, you ended up with this platform called Map Quest where you would literally go in and you would prompt the system to say, imagine I was here, and I needed to go there write me directions. And it would write them point by point, and you would print these things out, and you would literally get in your car with printouts from MapQuest, and you would go point by point. And occasionally it would be wrong. You’d be like, Oh crap, there’s construction here. What do we do? And you’d have to figure it out. Chat. GPT, to me, feels like an incredible Mapquest style prompt. Hey, my neck hurts. Can you teach me how to diagnose my thing and it will give you point by point diagnostics. You still need to do it yourself. And so in that sense, we haven’t quite taken that intelligence layer, we’re kind of at the artificial knowledge layer, where it’s delivering you the knowledge, but then it’s up to you to decide how you apply it. AI will be when you say, you know, I need to figure out if I have a, you know, a bulging disc in my neck, or if I just have a sore tendon, as an example. And the AI goes into your watch, and it can see your gait, and it can, you know, pull the readings off your phone and immediately tell you that you know, based on your ear bud readings from your ear that it’s a disc that’s AI, a k is, here’s how you go and figure it out on your own. So I think we’re close to, like, the true AI moment, but, but not quite there, but like, it’s, it’s around the corner,
Wouter Klijn 31:51
Yeah,it feels very close.
Ashby Monk 31:51
Like it’s very close. And like, I, I think, like a an easy way to see the power is to use AI as a red team. So you’ve got, you’re making your decision, you’ve got your own process, your own people, your own information, your own risk management, and you’ve got this AI system, and everybody should have a budget for whatever system. This is where you’re experimenting and learning, and you’re asking it to replicate what your current analysts are doing and just see, like, what are you missing? You know, run ask the AI to run this memo through your system and point out what’s missing. What are the things that we should be asking? And then have your investment committee ask that when the person is presenting the memo, those are the easy ways to start to use AI, and in doing that, you’ll start to understand where it’s hallucinating, where it you know is going wrong, and how to apply this artificial knowledge, which is what we’re getting. You will also start to prep yourself for the era of A i, not just the a k, where it is now able to turn the plane for you, you know, like a true copilot, where the pilot is sitting there and the plane is flying itself,
Wouter Klijn 33:09
Sounds a bit like an asset consultant. Are they in trouble?
Ashby Monk 33:17
Oh, boy, I think so.
Wouter Klijn 33:20
Well, maybe this is just a third voice,
Ashby Monk 33:22
Or maybe, or maybe they’re gonna be there. They’re going fast towards AI. Who knows? But? But, I mean, you know, if you think about, like the headlines about McKinsey or any of these consulting businesses, like they’re in trouble, you know the the moat here is the data, the information, the knowledge. And so if you have these walled gardens of data, then you’re probably safe for a little while. And I do think that’s where the consultants have a moat. They have the historical data, they have the fund performance. They haven’t really made use of it in the way that I think we’re talking about. So they themselves will need to use AI to ingest every single report they’ve ever done, every transcript, every call, and they’ll begin to formulate their own llms slash ontologies, you know, gpts that are providing these insights. But, yeah, I think anybody that’s in the business of advice, even me as an academic, you know, you could probably go into chat GPT to say, and say, How would Ashby respond to this idea? And you probably get a pretty decent response, because I’ve written eight books and 180 papers, which are definitely in there.
Wouter Klijn 34:40
Yeah, yeah, yeah. That’s interesting because I was recently talking to sue brake, former CIO future highlights. She’s now involved with an AI company called dragonfly oh and and, but part of what they do there is basically creating. In expert personalities using AI, feeding all the data in it, and then almost question it like an interview. So the example that I gave is that they they try to understand the perspective of a mega Trump person. So to build this model, and then try to ask it questions in how somebody like that would look at economic, financial questions. That’s one example. But I can build a whole bunch of personalities, but it sounds a bit like that, maybe they can build an Ashby personality, or maybe I should.
Ashby Monk 35:33
Won’t people be shocked when we tell them that this isn’t actually Ashby? This is Ashby’s robot on this podcast,
Wouter Klijn 35:41
I would be in trouble then.
Ashby Monk 35:43
No, you know, this is really me but, but I do hear stories of investors wearing, you know, lapel mics, and they’re they’re trying to capture as much of their audio, because they’ve got this in their mind, magic that they want to bottle. And it is super wild the moment we’re in. I mean, I just marvel that we get to live in this moment where, yeah, this industry is about to be transformed. It is interesting. And if you’re an asset owner, you have a mandate to be there for it. If you’re an asset manager, you don’t know, interesting. Nothing says the companies are going to stay forever, you know, like the big asset managers we can all think of right now, their existence is threatened right now. Australian super A R T aware, like they’re going to be there. They’re, you know, they have stakeholders. They’re not shareholders. And so it is. It is a really wild moment for me to think about what is this entire industry look like 24 years from now. Just put, like a, sometimes I put a very precise number on these things to help clarify. Like, okay, my kids are this my kids are in their, you know, late 30s. And what is the world like? Well, pension funds. Do they have global offices anymore? I don’t know. Do they?
Wouter Klijn 37:13
It seems that most Australian funds are building global offices.
Ashby Monk 37:16
Well, I know, and I might have even helped with some of that.
Wouter Klijn 37:21
To go into that, I think you advised most of the top eight Australian pension funds, if you look at sort of those high level areas, governance, technology, culture, what do they need the most help with? Where they pull you in?
Ashby Monk 37:38
Oh, they need so little help compared to, like, the typical county pension plan in America. I mean, it’s all it’s like, you know how, like, coaches pay, you know, they coach the people who are the best the most. Have you heard like this? You know the it’s like, I’m trying to create global role models. And it happens that in Australia, you have about eight that could be global role models truly like in the way that the Canadians were in the knots. You know, every one of those funds that you’re thinking about right now, they’re taking a slightly different perspective. Some care more about impact. Some care about insourcing. Some care about being the world’s best partner to the world’s best managers. Some have the built environment. So, you know, on and on and on, there’s really interesting things happening in that geography. And so when they come to me, usually it’s, it’s about, hey, we’re trying to reach we’re trying to do something better. We’d like to do X, and then where I can offer some information is, here’s the organisational gaps you have today that might inhibit your ability to be successful at that thing. And so do you need to change a delegation framework? Where should we get inspired for that. Do you need to change a compensation policy? How much, how far you know, is it going to change your culture? Do you need Board education? Do you need to pay a lot of money for data? Do you need to hire somebody on your board that has a background in data analytics? You know, one of the things I find myself saying a lot to people is like, who on your board is an expert in technology? It’s like, none like, we’ve just spent all this time getting investors on the board just in time for the investors to be less valuable than the software engineers or the, you know, AI architects, you know, and some of these funds are spending meaningful dollars on their tech stack, and so, you know, that’s an area where I might help
Wouter Klijn 39:49
That’s quite interesting, because getting tech savvy people on board might be not as easy as just, you know, finding somebody with the right background. On because highly trained, highly technical people do not necessarily other people that you know. Take a step back. Look at a broader picture as a board member. Have you? Have you seen it done?
Ashby Monk 40:13
Well, that’s it’s a challenging question, my friend,
Wouter Klijn 40:18
That’s what we’re here for.
Ashby Monk 40:21
I know, I know it’s like, if I know, if I say no to that, I’ve just threw everybody I know under the bus. Look, I think people are trying really hard to get this right, and and part of like, what we do in this industry is like, we are doing our best with scarce resources, and so most of the time, the boards are struggling to understand the complexity of what we’re doing, whether you’re in Australia or you’re in Riyadh, you know, these organisations are investing huge quantities of money through very sophisticated vehicles with a huge tech overlay. It’s all changing right now, and so it’s hard. I do think these pension funds need safe spaces to learn from each other, which is why I think what you’re doing is so important. Again, like, just, I mean, obviously, like, I’m here talking but, but other people here talking about what they’re experiencing and doing and learning. This is the pathway to avoiding big problems, mistakes, but it’s also about CO opting each other’s legitimacy. So just me saying right now, hey, every board of directors on a pension fund really needs at least one person with a skill set around data tech and not just like it. You know, this isn’t about putting Norton Antivirus onto an iPad. This is about making a plan for data governance, you know, data management, data cleaning, all of this stuff. I think just saying that on a podcast, people like, oh, gosh, maybe we do need that. And what was the question? I know I had to dodge it, but
Wouter Klijn 42:03
I’ll let you dodge it. So coming back to the interview you did with Mark Delaney, he spoke a little bit about resistance to change and the obstacle that can form to innovation when you go into these funds. Do you find a lot of resistance to your IDs? What are sort of the main things that I push back on?
Ashby Monk 42:28
Oh my gosh. Every single time my friend, in fact, I would say my job is there some person in an organisation, pension fund, sovereign fund, endowment, that knows they want to do something, and they’re looking, they’re looking to catalyse that change. And so they go out and they’re like, who can I bring in to talk to my board, or talk to my staff, or or, you know, write a report? And inevitably, they tumble around and somebody asks them to talk to me, and they say, you know, will you, you know, fly to this city. I can cover coach, airfare and a night at the Motel Six, and nobody is as crazy as me. I’ll say yes, and I’ll go and I’ll do it. You know, fly to Juneau, but, but usually, my purpose in those places is to stretch the imagination of what they can do, but also, like what they should be doing. Some of that is, this is what your peers are doing, because there aren’t great resources explaining everything that your peers are doing. First of all, telling you who your proper peer group is. That’s like, incredibly valuable. Like, oh, you’re doing this, this, and you have this implementation, you should talk to these three plans, yeah, you know, that’s incredibly valuable. So, you know, I am the person stretching the imagination. And then generally, there’s some CIO or CEO who comes in and is, like, That guy, Ashby, like, I’m glad he’s out of the room. He’s crazy, but let me tell you, like, I just want to, I want 22% of what he just asked for. And I knew that. I mean, I’m probably giving away now, but like, I know that I’m asking for the stars, and then ideally, you go land on the moon, yeah.
Wouter Klijn 44:18
Well, every organisation changes with just like one idea at a time, right? It’s like an old brand new framework. We might just end up with a last question, and I’m going to steal this from your podcast just for this episode. All right, you have a section in your podcast. It’s called deep thoughts, and so if I put you on the spot once again, what deep thoughts should pension funds have in Australia by the current state of the industry?
Ashby Monk 44:49
The Deep Thought I have is just that good decisions compound. I find myself thinking this lately, and I think there’s. The first time I’ve said those words. So I think it’s not a new thought in our industry, like compounding of returns, but I do think, if you just take a second and think, hey, every decision we make, whether it’s to internalise an asset, hire a great lawyer, bring in a new data provider, if they’re well executed decisions, those decisions compound on each other. Hey, we’ve got a great lawyer and we’ve got a great data set. Can we bring in a new analytics provider and that lawyer will think creatively about AI on top of that data set, and now you’ve got aI on top of a data set, you might say, do we still need to pay that overlay manager, all that we’re paying maybe not. Whoa. There’s another good decision. All of a sudden, you’re bringing some of this internally, these decisions about your organisation, your portfolio, and its implementation, when done with, call it self knowledge, self awareness, and in a deliberate process of trying to generate the best ideas and pursue them, I think you end up in a really great place 1020, years from now, too often, our decisions in this industry are about t equals zero. Should we do this? Manager, that manager or in house? And so you choose the manager that offers you the fee discount without necessarily realising that that decision to fund that manager, it it means you won’t have that internal expertise. Alternatively, you decide to bring that expertise internally, and you decide to set up an office in Singapore or wherever. Maybe that wasn’t the right decision either, right? So these are all of the things that like feel obvious, but I think when you start thinking around as an organisation, where are the opportunities to compound good decisions and do so within our organisation over time? I think that’s my deep thought. Fair enough, may have been shallow, it may have been shallow, but it’s, it’s still, I’m still refining my deep thought.
Wouter Klijn 47:10
I think there’s a lot of areas where we can have deep thoughts about but we will have to wrap it up at some stage. So Ashby, thank you very much for coming on the podcast. Much appreciated.
Ashby Monk 47:20
Oh, I love coming on here. Thank you for having me anytime.
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[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 Apple Podcast, Spotify, Amazon Music, YouTube Music, or your favourite podcast platform.