Free Money S02E10 Transcript
Featuring Oregon State Treasurer Tobias Read
Hello and welcome to Free Money, a podcast/newsletter from Sloane Ortel and Ashby Monk about how long-term investors can free themselves from the shackles of short-term thinking.
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And now, a transcript of this episode. Just a quick reminder first: none of this is investment advice. Also, this transcript has been edited for clarity and may differ somewhat from the recording. Enjoy!
Sloane Ortel (00:00:10):
Welcome to the free money podcast. It's where we bring you the Brooklyn-Bay Area consensus about institutional investing that you desperately crave.
Ashby Monk (00:00:17):
Yes, you do welcome. I guess for us it's Friday for everybody else it's Tuesday. Sorry it's Tuesday.
Sloane Ortel (00:00:23):
I mean, hopefully the fiscal crisis everywhere has been resolved by then. Right?
Ashby Monk (00:00:31):
I think we can hold out hope...no, It's 2020 Sloane, that's not gonna happen.
Sloane Ortel (00:00:37):
Yeah. I mean, it's really dire straights. I just searched fiscal crisis in Google news and the stuff that, I mean, it's like every state and local newspaper has a thing about the fiscal crisis. New York city is facing the worst fiscal crisis since the 1970s it's bleak.
Ashby Monk (00:00:54):
In California I think we're going to have like a 25 billion shortfall. And what a lot of people don't know about state governments, unlike federal governments is they have a balanced budget rule.
Sloane Ortel (00:01:12):
Oh yeah.
Ashby Monk (00:01:12):
That means they actually have to find a way to fill that shortfall before, you know, for the end of the budget year. So that's going to be some serious pain for a lot of States.
Sloane Ortel (00:01:24):
Yeah. I mean, like one of the ways that they're looking at resolving it in New York, I mean, cause we have a separate issue with the metropolitan transportation authority that runs this subways, the bridges and the tunnels. Like is just res taking off the subsidy on the subway and on the tunnel is making it like, which would, I think make the subway like $4.75, a fare up from $2.75. You know, that wouldn't cause added pain at all.
Ashby Monk (00:01:48):
No, no. And you know, talk about added incentive to get inside a subway with people coughing in the middle of COVID.
Sloane Ortel (00:01:57):
Oh, you know, I literally haven't been back in the subway since March. I can't believe I'm saying that, but yeah. I mean, like, it reminds me like when I was at Oppenheimer, I had this colleague Meredith Whitney who issued this, like at the time was like this really ballsy proclamation. And she had just called Citigroup cutting its dividend so people were really listening to her. And she was like, 15 States are going to go bankrupt in the next year.
Ashby Monk (00:02:23):
This is a bold statement.
Sloane Ortel (00:02:29):
I mean, especially, cause I'm not sure that we know how to have a state declare bankruptcy.
Ashby Monk (00:02:35):
No, I think we talked about this one time already where we're like, actually can go bankrupt. I think you'd actually have to change the rules. Yeah, yeah, yeah, exactly.
Sloane Ortel (00:02:44):
I mean, like there was a great back and forth between Cuomo, the governor of New York and Mitch McConnell like two or three weeks ago where he was like, I dare you, you know, change the law, I got your bankruptcy right here.
Ashby Monk (00:02:58):
Then they could dump public pension liabilities on the PBGC. Oh yeah. That would be a screw you to the federal government.
Sloane Ortel (00:03:09):
But like, honestly, what's kind of amazing to me about this is like every time I read, like, you know, Peter Orzag who was Obama's budget director you know, wrote something in a Meredith Whitney's case, were all about pension liabilities, grinding states out of economic relevance.
Ashby Monk (00:03:24):
Totally.
Sloane Ortel (00:03:25):
And here we're actually talking about it. It's kind of maybe a, like an eventuality that may happen to some States and pensions had nothing to do with it.
Ashby Monk (00:03:35):
I think what's, what's amazing about this moment is this, this COVID crisis has just like completely screwed over States. A lot of the unemployment that, you know, many of us are getting States are paying for a big chunk of that. And worse, we don't even quite know how bad the revenue situation is because I think most States allowed us all to like delay our filing. And so like they're all sort of sitting there looking at way bigger numbers going out than they expected. And they don't quite know what's going to come back in in terms of, you know, tax revenue. And so it's a pretty precarious situation for states right now. We could see like, you know, mega cuts or even some wacky bond issuance that, you know, gets them where they need to go.
Sloane Ortel (00:04:36):
Yeah. Cue the benny hill theme song in the muni bond markets. I mean, it's crazy. It's like, this is just the sort of thing that Ben Bernanke has famously written his dissertation about right. Like the counter cyclical, you know, the need for a countercyclical investor and these economic downturns. Because like when the States get strained, right, as like, you know, the rest of us are all strained, they wind up exacerbating the existing downturn. If they're not careful,
Ashby Monk (00:05:06):
it's like Greece. It's like the last thing you want to do when your economy is tanking is cut all spending. You want to actually get the economy humming again by, you know, freeing up some cash and getting people out and spending if we're, you know, cutting jobs and cutting projects and, you know, doing all this sorts of stuff that you do when you have to balance your budget, it will, it will truly exacerbate this crisis. Not that anybody realizes there's a crisis because financial markets continue to hit all time highs.
Sloane Ortel (00:05:42):
I mean, no problem. As long as the Dow is at record highs, I don't care. You know, like who cares if a bunch of people starved, sorry, I just threw up in my mouth.
Ashby Monk (00:05:56):
How do you really feel?
Sloane Ortel (00:05:58):
I mean, it's, it's this funny thing where we just don't acknowledge this reality. That's right in front of us. And like, you know, the last time in the, you know, the big, great depression, right? The one that we all refer to, not the great recession you know, we had like the works progress administration that came out and basically just employed Americans to do all kinds of stuff. Right. Basically pick up a shovel and do anything. And like, that wound up creating some - like kind of in the vein of our conversation with Tom last week, right, where you can't really predict the nature that innovation is going to take in the future - I was playing around with a works project administration tool last weekend. That was like a whole bunch of pictures of New York city in the forties. And they just like, scraped it together with open data and made like an actually very cool thing out of it.
Ashby Monk (00:06:50):
Oh, wow. Yeah, it is interesting. One of the things, so not only are like there, not a lot of jobs and if, if States ended up cutting jobs in order to meet these like really difficult financial circumstances, but I also have a suspicion because I am at a university, but there are a lot of students taking this year off looking for jobs.
Ashby Monk (00:07:17):
You may actually end up with this like big influx of people that are taking a gap year or, or, or basically saying, look, I don't want to go do zoom phone calls for a year. Like, yeah, by the way, any student that comes to me, that's like, what should I do this year? I'm like take a year off. Like, by the way, this is not official Stanford policy, but like, like you don't have sports, you can't go to the dining hall, this sucks. And if you do something that like boosts your CV a little bit go do it. And it's like, those public works, like put Americans to work type projects. I could see a lot of young students wanting to go get involved with, but then I started thinking, Oh wait, like we want to hire Americans right now that really need jobs. You know? So it's hard. I mean, like we,
Sloane Ortel (00:08:16):
I guess we just gotta create a capacity to take as many of them and get them to do stuff, you know, and pay 'em for it, like some kind of basic income thing. But I hadn't even thought about the, you know, the ranks of college students joining the labor force suddenly.
Ashby Monk (00:08:31):
I can think of a few cases in the past week where people have sent me notes saying I'm taking the year off. Cause if you believe we're going to get a vaccine, you know, I think, our dear leader in his big speech yesterday promised to have a vaccine before election day. So if you actually believe some of that, then why the heck would you go to college this year when you could delay it for a year and have a normal life and you're off in college. And it was one of the greatest things I ever did.
Sloane Ortel (00:09:04):
Well I did too. And that's why I still work in finance and arguably it's not the greatest thing I ever did. I worked as a stockbroker.
Ashby Monk (00:09:08):
But I had two discs out in my lower backs so I was kind of obligated to take a year off. I remember I did like an internship at Bloomberg and all kinds of stuff that year. That really kind of helped me when I actually went to go get a job. So strange, such a strange existence right now, everybody trying to navigate this like completely crazy situation.
Sloane Ortel (00:09:41):
I mean, we're kind of just jerks who are Naval gazing, right? You know, we're sitting here like this could be an issue for the labor market, any grey Poupon I think maybe let's call someone who might be a little bit closer to the action.
Ashby Monk (00:10:04):
Let's do it. Who are the people who run finances at States?
Sloane Ortel (00:10:09):
Their treasurers. And shout out to Treasurers of states.
Ashby Monk (00:10:11):
Let's call a treasurer of a state.
Sloane Ortel (00:10:17):
We've been accused of being very New York and California-centric. So you know, let's, let's call the treasurer of Oregon.
New Speaker (00:10:23):
Let's do it. Tobias Read is a good friend of mine. He's agreed to subject himself to our banter.
Sloane Ortel (00:10:33):
Yes.
Speaker 2 (00:10:38):
Hi Guys!
Ashby Monk (00:10:38):
You've got Ashby and Slonae from the free money podcast, we're calling you quasi-live. How are you today?
Tobias Read (00:10:46):
I'm worried about F-Anon, but I'm a believer. Maybe that's for another time.
Ashby Monk (00:10:56):
We don't want to... although it's probably useful for our conspiracy theory to have a state treasurer, legitimize F Anon.
Tobias Read (00:11:01):
I just need to know the secret handshakes and the symbols and the mythology, and so on. But it seems like something we should really be worried about.
Sloane Ortel (00:11:17):
Yup.
Ashby Monk (00:11:17):
Before we jump into the questions that we have a few questions for you treasurer Read, let's just check in on you and your family. Are you guys, is everything okay there in Oregon?
Tobias Read (00:11:29):
I've been saying to everybody is that there are two things that are simultaneously true. We feel very lucky that everyone is healthy and that the adults are employed, but at the same time, and I know, you know about this, we have a 10, almost 11 year old daughter and a 7 year old son, so it's really hard. It's really hard. Both of these things are true. We are not alone in it by any stretch. It's an hour by hour kind of thing. We're both MBA's, my wife and I, but we're not educators. And so that's a challenge.
Ashby Monk (00:12:01):
Super hard. I mean, I have to tell you just like a random story. I almost put my hand through the wall the other day when the internet went out. Because like, both of my kids are on zoom we're doing remote school. I hear my kids rustling upstairs, and this is the hour when they're supposed to be occupied pstairs and I'm like, Whoa,
Speaker 3 (00:12:20):
Occupied.
New Speaker (00:12:21):
Our kids have unerring ability to discern the one or two times a week when both Heidi and I have some significant call or zoom meeting, and pick that time to have the physical fight or a meltdown. and it's unbelievable how they figure it out. By the way, this is also... I don't know quite as much about the Brooklyn seismic risk versus Bay area seismic risk. But in Oregon, I've been telling everybody, this is just practice for the aftermath of the Cascadia subduction event that is coming. There's a 40% chance of a nine or greater earthquake sometime in the next 50 years. And then we're going to look back with great nostalgia for that time we were quarantined with electricity and the internet and everything else. So this is just practice.
Sloane Ortel (00:13:30):
Wow.
Ashby Monk (00:13:30):
And so one of the things we wanted to jump in with you first, before we get into the pensions on or anything else, we're going to ask you a little bit about the budgets and how you're managing it. Sloane, why don't you jump in?
Sloane Ortel (00:13:41):
Yeah, yeah. I mean, so I was reading some local press in Oregon and I saw that, you know, reports that Oregon was facing like a $1 billion budget deficit this year. But I also saw, you know, some stuff about a coalition of five Western States, which includes Oregon requesting like a trillion and California as well requesting like a trillion in federal aid through this Western States pact. That order of magnitude difference kinda makes it hard to understand what's going on fiscally. Can you maybe set us straight a little bit?
Speaker 3 (00:14:11):
Sure. So the first thing is every, every treasurer in the country has a different set of responsibilities. And in Oregon, I've got, you know, it's a microscopic almost invisible bully pulpit, but outside of that, I don't have a direct role in the state budget. So I can't, I can't speak to the specifics of that trillion dollar ask, but I do have a pretty decent understanding of, of how the budget works, why the support is critical for state and local governments. And here's what I know. Oregon in particular is way too reliant on the personal income tax. In fact, I think I've seen this somewhere in a legitimate academic analysis. We're more dependent on that source than any other state on any other single source. And of course that means that we go up and down with the rest of the economic cycle and that's what creates this projected $4 billion shortfall and over the next several... that is by the way over a about a $21 billion general fund budget over a two year cycle.
Tobias Read (00:15:20):
So if you add in that impact over the next five years, it's probably about $10 billion. And this comes in the context of an environment where we were just finally starting to make some significant improvements or investments in the K-12 funding. That's the biggest part of our budget. That's, you know, probably three decades after we started to see a property tax rebellion. We can thank you guys in California for that unwelcome export.
Ashby Monk (00:15:56):
Sorry.
Tobias Read (00:15:56):
We're back in this place where where this massive decline is hitting us right at the time and at the wrong time. And I think people forget how much the federal government and state governments are partners. You know, we're delivering a lot of those things and we are the ones that have to make sure that that social safety net is intact, but we don't have the ability to deficit spend or print our own money. So that I think is really what, what fits to the to the opportunity for, for States to band together. And I'd sure like to see the Congress, the Senate in particular doing their job, because, you know, as you guys know better than I, when when interest rates are this low, we can at the risk of being a little bit crude, we can sort of say "debt, schmedt, we got, we got immediate problems to fix."
Ashby Monk (00:16:54):
This is a family show.
Tobias Read (00:17:02):
So that's kind of the context. And the legislature has the governor has some really difficult choices right now, because we were in a, in a better position in one sense that we have a decent amount of reserves socked away from the economic expansion. But politically, increased revenues are not, not that viable right now. So they have to choose between how much reserves to use right now and how much to make cuts. And because we don't know the depth nor the duration of what we're in the middle of. To the extent legislators want to listen to me, I've been drawing on the experience of the school district, where we live in the last recession. Understandably, they did everything they could to avoid cutting teachers and days. And when they got to the end, it was a cliff, not a glide path. I've been saying to legislators, you know, Glidepath beats cliff. So be thoughtful.
Sloane Ortel (00:17:58):
That's really interesting. I mean, I guess whenever you hear like budget shortfalls I mean, I guess what if you're, if you've got the disease that Ashby and I have kind of what comes to mind is, is, you know, an opportunity for funding creativity.
Tobias Read (00:18:11):
I have that disease too. I think that's right. And you gotta think creatively, you got think long term. And I mean, lots of people said never waste a crisis, but we're in that spot.
Sloane Ortel (00:18:23):
Yeah. We were just talking right before about like kind of the need for some sort of, you know, force to be an investor. And, you know, and I wonder, like in terms of opportunities to raise funds, like I know that, you know, we're going to talk about ESG later, but you're an ESG issuer as well. You know, that seems like a, you know, something that may give you some experience and maybe some opportunities to raise some funds. Like how, how have those bonds been met in the market and like, what have you been able to use the proceeds for?
Tobias Read (00:18:53):
They are really attractive. We've done three different issuances. In our case, all of them to support affordable housing in different forms. The last one in June was $95 million, 15 year taxable, what we call sustainability bonds. And they, I think they were three or four times over subscribed. So that obviously has an impact and gives us the ability to get good terms and make sure that those, that those dollars can go further for us. It's been working really diligently to make sure that that we're confident about what we're representing to the lenders and, and developing the reputation. We're fortunate in Oregon to have a strong credit rating and we want to protect that and the chance to kind of expand that and take advantage of what I feel like people have associated with Oregon as a brand, really gives us hope, but we're trying to take that carefully and cautiously so that we don't get ahead of ourselves.
Tobias Read (00:20:01):
This affordable housing has been a good start. I'm hoping that we'll be able to put those other good, good uses as well.
Ashby Monk (00:20:10):
That's, that's interesting. I think shifting gears a little bit I want to talk to you about for a second, the Oregon public employee retirement fund, which those of us in the know call OPERF. You guys have actually made changes as a result of COVID-19. I think I saw there was like a push to reduce some risk, add some fixed income, but also talk around actually changing how you access opportunities, some shifting internally. Could you just talk a little bit in your capacity of being on the board there about how you've kind of made that fund, more resilient?
Tobias Read (00:20:56):
I'd be glad to, but let's, let's set some expectations here. Let's, let's admit that you two have surely forgotten more than I will ever know on the technical aspects of this. What I, what I think I can add here is, is in the role as an elected person. I mean, I try to be the skeptical consumer of the, of the technical experts that we're privileged to work with at treasury and represent the public in this, in this space. So the thing that I think is to start with is, is the approach we're really trying to take in general, not specific to COVID, but to acknowledge that we have, I know you guys have talked about regularly on the podcast expectations and obligations that go out a long, long way, which gives us the chance to think differently than a lot of other investors.
Tobias Read (00:21:55):
So we're never going to be, or at least we're trying never to be the highest of the high in bull markets. Similarly, we don't want to be the lowest in the low and in bear markets. So 2018 and 2019 are good examples of this. And in 2018 all in, we got 0.56%. When I say that to the public, they sort of gasp, and I say, this will sound better when I remind you that California lost 3.5% percent in 2018, then they sort of look a little more mollified. And I said, but then think about 2019 when we got 13.6%, almost twice our assumed rate of 7.2%, but that put us in like the 90th percentile of our peers. So we're gonna try to get what we can, but, but limit that risk over, over time. Our former CIO had had a nice analogy in explaining this and sort of making the point that there are different tools for different purposes. if I was going to go to the to the grocery, which, you know, we try to only do every two or three weeks these days, the electric car that sits in our driveway, the Ford focus - which by the way, I do not like very much at all - is perfectly appropriate, but if I'm going to go try to win the Indianapolis 500, I'm going to need a very different sort of car. So one way that we've had had, we tried to take this on, is to say, there are certain parts of the portfolio where we can hire people at much lower rates in Tigard, Oregon, then we might have to in, in Manhattan. And there are other places where we need that expertise those relationships and so on. And so we do have to buy the investment equivalent of the, of the race car.
Speaker 3 (00:23:44):
So that attitude really flows into a bunch of different parts of the portfolio we have, as you said, changed, changed our attitude about, about fixed income, really tried to emphasize lower risk approaches there. We've adjusted some of our, our allocations and targets. We've taken on a risk parity allocation for example, for the first time we've, we've added a currency overlay, not, not in seeking returns, but as a risk management strategy. One other one that, that I think totally flew under the radar we have a hybrid pension. So particularly for more recently hired people, there's a defined contribution portion of the pension. And until recently that portion was invested completely the same as the defined benefit portion. So you had the hypothetical 28 year old with the exact same exposure as the hypothetical 62 year old. And I don't have to be very smart to say that's a, that's a bad idea.
Tobias Read (00:24:50):
So there was a lot of behind the scenes maneuvering both on the implementation and on the politics. But we got that changed. So that defined contribution portion now slides into a suite of target date funds, which helps their, their individualized risk exposure, of course, but also insulates the fund as a whole from runs on the corpus, which could happen at the exact wrong time. So those are all elements and we recognize that this is going to be an ongoing journey. I really like the team that we have in place to keep us going in the right direction,
Sloane Ortel (00:25:34):
That also supports the long-term F anon deep state conspiracy to deliver risk adjusted returns to pensioners.
Tobias Read (00:25:39):
I like this part of the conspiracy, this is good. I can be on board with that.
Ashby Monk (00:25:46):
And that leaders in the government are actually trying to solve the defined contribution governance problem. Nobody realizes, we all joke about how bad the pension fund governance is for DB plans. But then we forget, so many of the defined contribution plans are leaving people completely unprepared for retirement because they're not managing the risk to the stage of life that they're in. So kudos to you.
Tobias Read (00:26:13):
And it's not just public pensions to, because as we've talked about before Oregon, and I'm flying our flag and saying this we're the first state in the country to operate an opt out IRA for people in the private sector who don't have it, we can call it Oregon saves, and we can pass a law that says, if you're an employer in Oregon that doesn't offer a retirement plan, you're now obligated to facilitate Oregon saves. And so it means, you'll say to your employees, unless you tell me otherwise 5% is going into your, to your IRA. And we've made that really simple too. So there's only three choices. You can, you have a capital preservation option, obviously low interest, low returns. You have an S&P 500 index. That's the most risky we get. And then a suite of target date funds. And if you don't tell us anything else, you wanna put your first thousand dollars in the capital preservation fund, and then everything else after that, into the target date fund, based on your age, you can adjust if you want to, but we've got now three years in, we've got 72,000 people who have funded IRAs, an average balance of about 800 bucks in a total of around $65 million, which goes up about a million dollars a week. So we're on our way helping people get there too. And that's proving to be really important in the COVID times because it's a roth, so they can use it as a, as an emergency fund if they need to. Some people are, but the really best news about that is even when they're using it, they're staying in the, in the, in the program. So continuing to save.
Sloane Ortel (00:27:40):
That's so cool. As the kids say, that's rad.
Speaker 3 (00:27:48):
If you asked me "how would you design it?" Basically exactly how you just described it. Preservation? That's your rainy day fund. Then the rest of it goes into appropriate risk return investments.
Sloane Ortel (00:27:59):
I have no edits.
Tobias Read (00:27:59):
There are few audiences, where I can actually quote a Nobel prize winner in a, in a sort of self-congratulatory way. But back in the days when there was a local financial press and we were rolling this program out the Oregonian reporter called me and asked me about it and I said, Hey, this is, you know, this is Richard Thaler's idea. So he called Richard Thaler. This was at the time when we were taking our art, we were doing our design and Washington state when a slightly different direction where they just created a marketplace. Well, the marketplace, we now know it didn't really work because nobody did anything with it, but they went this reporter who was doing his job, went and interviewed Thaler. And I should have cut this out of the, out of the paper and framed it. But the quote, the money quote from Thaler was "Oregon's approach is clearly superior." I'm very, very proud of that. And I have to find an old copy of the library or something.
Sloane Ortel (00:28:57):
Yeah. You finally got one over those suckers in Washington. And obviously, shots fired at Washington, at California, and at the Ford Focus.
Tobias Read (00:29:14):
I can't wait till the lease runs out, you guys have to tell me what the next electric vehicle needs to be.
Sloane Ortel (00:29:22):
That that's a, that's beyond my competence.
Tobias Read (00:29:25):
Why do you got a car? You talked about the lease options, right?
Sloane Ortel (00:29:32):
Yeah, yeah, yeah, yeah. It was. I mean, I am personally a subscriber to the "buy a 15 year old Toyota" school of car ownership.
Tobias Read (00:29:42):
We're about net neutral cause our electric vehicle is good. And then we have a gas hog car that has, cause we have to have a third row for carting around, you know, in the before times when Carpools were possible. So on that base our 15 year old Volvo is probably in line with your Toyota.
Speaker 4 (00:30:02):
It's good to get, to make sure that we compare you know, we're both indexed properly in the gas guzzling, third row seat department. But like I have an investing question for you, which is like, I was Googling around and I was really surprised, like I was reading a a piece somewhere and somebody was like, you know, yeah. "The Yale model for private equity investing", which is basically invest a ton in private equity works for all sorts of places. "It can work for States too! Look at Oregon. Oregon is a notable success story in private equity investing." And like, you know, I guess famously was one of the earlier investors in Kohlberg, Kravis and Roberts, which is now a behemoth. But like I, you know, I poked around your website a bit and from what I saw, it looked like the fund is kind of paring back private equity exposure.
Tobias Read (00:30:57):
Yeah, there's a couple of wrinkles to that story. I think we are, I think proud of the fact that we were the first state to be into private equity and that, that continues to to pay us dividends in terms of the relationships we've had. But we're, we're being, I think, smart about it and, and we are paring back the overall expansion. Our target right now is 17 and a half percent. We're a bit over that right now, but looking to draw that down over time. And I think that's really just a reflection of trying to take, take our foot off the gas a bit, but we've also been trying to make some other changes to the PE portfolio, which I think might even be potentially more significant. And that's in terms of how how we want to, the relationships we want to have.
Tobias Read (00:31:48):
So we've been trying to go fewer and deeper. We're very proud of our one of our investment officers who's developed, I think a pretty innovative way of saving money here in terms of co-investments. And we can talk about this cause it was a big part of of a public meeting several months ago. We're not so naive as to think we have special ability to pick the winners from losers in co-investment opportunities. So what we've done is to say we're going to take up proportional exposure to all the coinvestment opportunities and, and use that as a way to drive down fees and to better adjust our pacing challenges. We're a relatively big investor in this sense, and putting, putting those dollars to work at the right, the right pace can, can be challenging depending on what our limited number of relationships, how they line up in terms of timing.
Tobias Read (00:32:49):
So that's been, that's been exciting. And then, we're in the early stages of figuring out how an emerging manager program would work for us. I'm hopeful that that's not going to be too far in the future. How do we get that get that right. In terms of the benefits of being exposed to investors that are earlier on. That emerging manager term, I know it's kind of loaded. But I like it for removing one of the barriers we've seen in terms of high high end high tech size. So I actually, I would love to turn this question around for a minute and ask you guys, if we're able to go down this path, what kind of questions do you think we should be asking as we think about what that looks like and how to be effective in it?
Ashby Monk (00:33:41):
I'll start. Yeah. I mean, I think the term emerging manager is loaded with awesomeness. It's a license to innovate, which is one of the things I've always been good at. You know, you were one of the first to do evergreen. You did an evergreen private equity fund at one point, you know, an emerging manager program can be incredibly powerful because it gives you an opportunity to go and partner with really early stage managers. And if you get the governance right, if you get the funnel right, you should outperform. right. I mean, there's cases in particular, in the great state of Illinois where these programs don't outperform because they aren't great in terms of the governance and the oversight. I think you guys could do it and actually generate higher risk adjusted returns because the evidence is clear in small private equity funds, outperform big private equity funds. It's just hard to justify for pension funds, the hiring and the resourcing to run small mandates. Every single pension fund on earth is only investing in the behemoths. Well, where did the upstarts come along to challenge the status quo. My desire is for all the public pension plans to build emerging manager programs. If only to challenge the status quo and keep the fees and costs down.
Tobias Read (00:35:10):
This is what I mean. I think it gives us a chance to have those costs, benefits, and what I've been asking all the time, how do we avoid missing out on that smart team that figured out something new, but we can't, we can't talk to them cause they can't handle $150 million check.
Sloane Ortel (00:35:29):
And, you know, you may wind up like, I don't know, for some people emerging manager winds up touching on like diversity stuff.
Tobias Read (00:35:36):
That's what I meant by loaded as a term.
Sloane Ortel (00:35:40):
You know? And it's like, I, I think what's really interesting about that is like, I think the overall cause of diversity has been weakened by people using diversity as sort of an ex post justification for those sorts of programs. I E yeah, we didn't deliver return, but look at all the diverse managers we back. It is fine to view diversity as a good enough itself in my view. But you know, I think I would be explicit about that from the get.
Ashby Monk (00:36:11):
I think that's right. It's an ancillary benefit. We're doing this because we want returns. We'll also get a much more diverse cognitively and demographically and everything else before the next question, I will say, I think the fact that we have a lot of bias in financial markets in which, you know, people of color women don't get the interest from the LPs that maybe is fair. And I did a research project on this. You can actually negotiate better terms with diverse managers. And so in theory, you're capturing a mispricing and generating higher returns. And so those LPs that move aggressively into diverse managers may actually see out performance if it is done well. And I actually can think of one city pension plan, not far from me, that is literally conceptualizing a part of their venture program that is about making money, but the thesis is women and minorities as an access point that is not sufficiently mature. And so that's where they're kind of allocating their capital.
Ashby Monk (00:37:25):
But let me the question I want to ask you to buy us as we're kind of taking more of your time than we promised.
Tobias Read (00:37:31):
This is lots of fun for me. So I can go as long as you want.
Ashby Monk (00:37:35):
One of the things that for me, like the great missed connection, you know, and the great Wikipedia, if you ever read those missed connections. Anyways, the great missed connection in Oregon was the moment when I thought the Oregon investment council was going to be spun out into a management corporation, akin to the Canadian crown corporations, which would have allowed you to resource the platform as if it was truly an asset management platform. And, and for me, somebody that's constantly fighting for more resources in public pension plans. It was this great moment all the way up until the legislature voted it down. And so my question for you given you're an MBA and you kind of know how to properly resource organizations, are you still sending personalized hate mail to these legislators, or have you switched to anonymous pizza delivery?
Tobias Read (00:38:32):
Well, it's a good question first. I guess I would somewhat have to send them to myself cause I was there. I was, I was a legislator. So I got to correct one piece of it. They never voted it down. They just never voted, which was the problem. And I, I can, I can recall, you know, I served in the legislature for 10 years and I was never more mad than when I sat there. It was in the last days of the session, I got the bill to the floor of the house and I had the votes. And what I needed was a rule suspension to move it up for a vote in order to get there. And the the house Republicans would not grant the rule suspension cause they were mad about something else and the Senate Republicans and it was a whole thing. So we never got there.
Speaker 3 (00:39:28):
But at least you got close.
Tobias Read (00:39:32):
We did, and I think there's, there's a real silver lining in that because it, that effort revealed the potential of that spin out which is, which is, as you just said about having the resources and the independence and the autonomy, but the Oregon legislature was just not, not ready to go all the way there. And of course we're all familiar with that insanity definition about doing the same thing again and again. So that ultimately that was like the, I think the third try when we got that close. And so when I became treasurer, I did not want to keep banging my head against that wall. And I sort of took advantage of that, the contrast and, and went to the legislative leadership and said, look, there's a real need here. And there's some real benefits, but if that, that piece that, that having the public oversight in the form of the legislature is what you need, let's try to get the wind and, and have a more productive relationship. And so we've got just about all of it in terms of, of the the resources, the positions. That's there, we have to go back to the legislature and, and report in that way. And, you know, even if you, if you think that's not as healthy or not, as ideal as, as the Canadian model we've been, we've been given the positions that we've asked for. We've been able to maintain our constitutional independence on IT and the back office functions and all that sort of stuff. So I'm not sending them anonymous pizza, but there's, but there's also not hate mail going back and forth. So, you know, maybe we get to share a pizza when we, when we get back to that, that possibility in the in the after times.
Ashby Monk (00:41:20):
Sounds very practical.
Tobias Read (00:41:21):
It's the political answer, but it's true. Cause cause now we can do a lot of stuff that we, we weren't able to do before. One of our investment officers said we were, we were emaciated aspiring to skinny. Now we're kind of skinny on the, on the staffing levels, but that's better than emaciated.
Sloane Ortel (00:41:49):
Yeah. I want to also ask, I mean, like it's funny, I was, I was sitting with my girlfriend, last night and we were watching your reelection commercials.
Tobias Read (00:41:58):
You've got to get a better plan for your next next evening together.
Sloane Ortel (00:42:07):
Yeah. There's definitely an "angry at the movie choices" constituency in the free money listenership. It's funny, you know, we watched the most recent ones which I want to ask you about, but you know, we also left it on autoplay and we've seen the change in the way that you're running, right? Like the first time you kind of like ran as a regular treasurer and there was like the, you know, there were all the kids and there was the school district and stuff. Whereas this time your commercial is just sort of like, hi, I'm Tobias, I'm the treasurer. Have you guys heard about compound interest, which is highly rad a relative call, like, you know, you're not as great as compound interest or sort of an absolute call where, where you're sort of thinking, I am just not that great. I'll just change this.
Tobias Read (00:42:59):
Well, I guess it's some, some of both like, you know, if there's it's an acknowledgement that this is not about me, in a serious sort of way. Some other people have asked me, like, did you know, you're just assuming everyone knows you're great and maybe that's it, I don't need to remind people. But but joking aside, it's this is about, you know, an issue and an opportunity and I'm privileged to hold, hold the office. And I hope I can be reelected and keep doing it, but I'm not going to be treasurer forever. And if I can use the time I am able to be treasurer to drive that sort of interest to use the word, that's better. We made that video before COVID, so we also have to acknowledge that things look really different now, but at the same time that issue and the notion of thinking about the long run is always relevant. So whenever I get the chance to talk about financial security, whether it's, you know, Oregon saves or as that video talks about, the notion of saving for aspirations around education, I'm going to do it. And, and that gives me a better chance of achieving my own measure of success, where we're about to you know, start thinking about what our our commercial and our communications look like for the last nine and a half weeks of this campaign. And I don't know what it's, what it's going to be exactly yet, but I'm pretty confident. We're going to try to talk about the reality that people are experiencing right now around financial anxiety, and the ability to think about how interest can compound is a powerful thing.
Sloane Ortel (00:44:52):
Yeah. And it's an important message to get out there. I mean, just very, very cool.
Ashby Monk (00:44:57):
Remember when you sent, when you sent me some of those, and I was thinking to myself, political advertisements to go out of interest to people that was a requirement, and then you have to put your name at the end.
Tobias Read (00:45:22):
That's totally it. And we, I mean, when we talked about this, it was like, Oh, we would spend money on this. Let's do some place, something of value. They don't particularly care who is the person that's going to be treasurer. I mean, frankly, you know, when I'm, when I'm doing campaign calls right now, I typically get the answer like we have a treasurer. You're on the ballot?
Tobias Read (00:45:45):
Yes, yes. But here's why it's important and compound interest and help people get farther ahead. And it's also a really bipartisan nonpartisan issue. Cause I can say to my most conservative Republican friends listen, even if, you know, your only interest is in small government, you should like this because more people saving their own money means they're going to need less help from taxpayers later on. They can, they can get down with that. Now that's a bipartisan message, creating wealth and compounding. Treasurer Read. Thank you so much for sharing the insights of what it is to be managing a state's finances in the middle of a crisis. We just really appreciate it. So thanks again and have a great weekend listening to the podcast. So thank you for, for doing it. It's been fun to to promote what you're doing to to a variety of other people. I talked to a city economist yesterday who was not aware of the free money podcast, hopefully we'll we'll be adding to the listenership.
Sloane Ortel (00:46:53):
And hopefully the the F Anon faithful will speed you to a Swift and early reelection.
Tobias Read (00:46:59):
Is there anything I should should start saying in, in, in zoom rooms that would you know, send the message to the, to the right people in the right way
Sloane Ortel (00:47:09):
The code is to start a lot use a lot of words that begin with the letter F.
Tobias Read (00:47:15):
Dangerous. Yeah. Perfect. Perfect. I'll talk a lot about the Ford Focus.
Sloane Ortel (00:47:33):
That was a great interview.
Sloane Ortel (00:47:39):
Ford Focus: A car that Treasurer Read does not like, at all.
Sloane Ortel (00:47:45):
I absolutely hate it, but I support F-anon, you know, it's actually fun fact. My first car was a Ford focus.
Ashby Monk (00:47:55):
I thought Ford Focuses were like fun, Zippy, little cars, you know, they even have these like like sport versions that the guys on top gear thinker are amazing.
Sloane Ortel (00:48:06):
I had a little hatchback, he might have the, you know, the electric without his wasn't very Zippy, but, but I'm having so much fun imagining what, like Joe Biden's public service announcement commercial might be like, you know, I'm Joe Biden, have you guys heard of the Amtrak? This thing is great. You know, like Donald Trump's like, what's a federal agency he loves? Anyway....
Sloane Ortel (00:48:35):
It's time for Dear Ashby. This is the segment where we take questions from listeners and pretty please if you're out there listening, Send in a question. Write to freemoneypod@gmail.com. That's freemoneypod@gmail.com and let us know what's on your mind. And you know, while you're at it, why not also leave us a review on the iTunes store? That's all for the greater good.
Ashby Monk (00:49:06):
if you liked, right. If you liked what Treasurer Read had to say, give us the credit. You know what I mean? We got him on the show,
Sloane Ortel (00:49:16):
The trademark free money alignment right here. If you like, what our guests say. All good things... all our doing. All bad things... not our fault.
Ashby Monk (00:49:30):
It's very true. Very true.
Sloane Ortel (00:49:33):
Well, here's a good question. We got right in from a listener. The listener writes, I've interviewed at some public pensions over the years, and my impression has been that at least for like mid career kind of non CIO investment positions, that there's a huge preference for promoting from within. I'm just wondering if this is accurate and if it's another manifestation of like the whole organization wide risk aversion thing that we talk about all the time. I'm sort of also wondering, like, what are the characteristics of plans that are more likely to hire from the outside?
Ashby Monk (00:50:04):
Yeah, that's a really awesome question in part, because I feel like we should be demystifying the process to get a job at these plans. These are great jobs often times, and you know, you learn a lot and you get to meet some incredible people in the process. So I have a suspicion that our question writer lives in America. Okay. I don't have only an American audience, but my guess is this person lives in America because in America getting a job at a pension fund is often like getting a job at the government. It's weird. You know, you get to fill out weird forms. Are you in the union? You know, it's strange questions. Whereas if this listener was maybe in Canada or in Australia, it would feel a lot more like a traditional finance job where the competencies brought to the table would be sufficient to get the job in the U S it can be more difficult than that. And and so that's a big part of like, when I talked to Treasurer Read about like properly resourcing pension funds and like, you know, that's about getting the hiring process, right. And like giving clarity to people who apply to jobs, what the process is, you know, transparently inform people. What are you looking for? What are the standards too often? I hear people say, I don't even know how to like, get a job at a county pension plan, you know, like go about doing that. Like, and if they ask me, I'm like, I think pensions and investments magazine has the list of jobs? Like a job board. I don't even know how to tell you to look. I mean, we're working,
Sloane Ortel (00:51:48):
We're working on getting a recruiter on as a guest in a future episode for help to help us demystify it so that we can demystify it for you.
Ashby Monk (00:51:59):
I have to also admit, like, I get emails all the time from people in the industry that are like, Oh, shoot, CalPERS has a CIO job. Like, how the hell do I even apply for, you know, getting a bunch of CVS this past week because Ben's leaving. And everybody's like, I don't even know how to apply, you know? And so I think somehow this has to be a little bit simpler than what it appears to the outside world. Like we need to work on that.
Sloane Ortel (00:52:30):
Yeah. I mean, like one thing that's kind of crazy about this stuff is how much hiring tends to be predicated on like pedigree.
Ashby Monk (00:52:36):
I know, like,
New Speaker (00:52:37):
which is just so, I mean, it's like inherently eugenics, it's literally eugenics, but literally yeah, exactly. Anyway more on that later, stay tuned.
New Speaker (00:52:52):
Yeah, stay tuned for our next episode on eugenics.
New Speaker (00:52:52):
Or getting a job, you know, we'll see. It's a grab bag. There's some contention over - this is another question - over whether having operations in the West bank, the contested region claimed by both Israel and Palestine is an ESG issue. And you know, I'm curious what your take is on this.
Ashby Monk (00:53:20):
Yeah. It's a boy. It's the type of question you could get yourself in trouble on.
Sloane Ortel (00:53:25):
Yeah, a non-controversial one, right?
New Speaker (00:53:29):
Yeah. I had, I had one of those last week. I got a little bit worried about, but I'm not going to mention it again. Anyway. I think it should not be an ESG issue because I think local prosperity in, in these regions often will drive more international interests and a deepening of international relationships. And so where we have like international actors investing in West bank or territories or wherever, I think there's probably more eyeballs on it, which forces people to be more, either respectful or respect the rule of law or whatever. I think the worst thing you can do is completely ignore it. It's not quite the same as like the argument people make around like, Oh, I'm invested in Exxon so I can vote my shares. I'm not trying to make that argument. It's a little bit different. It's like, first of all, we want to lift these people up out of poverty and like they're living in poverty and they can't travel. We all seen the, you know, seeing what's going on. But at the same time, like getting international exposure and, and giving people, actually giving investors a stake, like a literal economic stake in the wealth of this region in my mind, can't help but improve the overall situation. I don't want to legitimize any like, you know, political activity that is you know, not necessarily legitimate, but I do try and raise these people up and give them a better life and, and paying attention to this zone in a way that isn't totally politicized will sort of open the door for more opportunities. That's my incredibly diplomatic response to a tough, it's a really tough, I mean,
Sloane Ortel (00:55:22):
like it's kind of an interesting meta-issue, right? Like, remember when we did, we did that thing on the I think it was a while ago, there was an ETF that got issued that it was, that was like betting against the LGBT agenda.
Ashby Monk (00:55:35):
That was the Christian values ETF, right?
Ashby Monk (00:55:44):
Its prospectus was like, we avoid the gay industries.
Sloane Ortel (00:55:52):
Yeah, exactly. All we do is, you know,
Ashby Monk (00:55:55):
trucks and trucks.
Sloane Ortel (00:55:58):
Yeah like, well, sweetie, if you don't think truck stops are gay, I have something to tell you. But the near Ashby, Oh yeah. Oh man. I don't have the horn handy. But yeah, cause like, I obviously don't think that's an ESG issue, but I guess in some ways, ESG is in the eye of the beholder.
Ashby Monk (00:56:23):
Yeah. The S means Social. And so people are thinking, you know, there's a, there's a whole society in the West Bank That's getting, you know, marginalized. And so should we be in that marginalization? And you know, this is one of the hardest things to figure out.
Sloane Ortel (00:56:41):
And to your point that like, just being there is good. I mean like foreign corporations, when they show up demonstrably improved conditions, a lot of the time, like all American corporations have to do foreign corrupt practices, act stuff, and they're still subject to American law overseas. That's right. Anyway last question of the day this is I'm very excited about this one, as you know the federal reserve has decided to allow inflation to go higher than the Fed's 2% target during a boom period, which effectively means rates are gonna be lower for longer. That's just forever, you know, lower forever. Would that solve the student loan and debt crisis?
Ashby Monk (00:57:23):
Let's take the first part, which to me it's hilarious. It's like the whole point is inflation. Like, yup.
Sloane Ortel (00:57:33):
That was the express point, but there's no inflation.
New Speaker (00:57:36):
Yeah. So that's great. So let's keep rates low. I mean, to me, this is like, how can we juice the stock market even more? Let's tell the market that even if inflation goes up, it doesn't have to worry. We're going to keep rates low, right? Because if inflation ticked up, markets would get hammered because everybody would assume, Oh, the fed is going to lower rates. But so now the fed has even preempted that by say, Hey, if you see inflation go up, don't worry. We're going to keep the taps on. You're going to have your party until the election and then we'll figure it out. So that's the first part, which I think is like almost blatantly political, even though people will tell me it's not political and that this is all just about economics. But to me that.
Sloane Ortel (00:58:21):
The federal reserve is a hundred percent independent. How dare you suggest it could be subject to political interference?
Ashby Monk (00:58:27):
This was a Jackson hole policy development. It's like, come on. The neat thing is, you know, a lot of loans are tied to interest rates. And like, there was always this balance where, you know, as inflation crept up, so did your borrowing costs, right? So there was always this notion that like, you, you know, heads, you win tails, you lose when it came to your debts, but like the fat, you nailed it in your question or whoever is it's like, actually, if they're gonna leave rates low in the face of inflation, you actually could get cheaper loans because the dollars you're sending in are worth less, but your borrowing costs are staying low. And so this person has astutely pointed out that, yeah, it's not going to resolve the crisis because I don't expect we're headed to 50% inflation.
Sloane Ortel (00:59:26):
And that would create other crises,
Ashby Monk (00:59:28):
But might you have 14 extra dollars at the end of the year? Yeah, you might.
Sloane Ortel (00:59:33):
Hey, that's something right. You know, 14 bucks, 14 bucks a pay period. Hell yeah. An extra movie on Comcast or whatever.
Sloane Ortel (00:59:46):
Exactly. You can give it to the monopolists immediately. Well, I guess that about does it for this week. And you know what I guess, because of the inflation at the end of this, I have a special treat for all of you out there and listen to our land. Ashley knows what's coming hit it. It's the is the bank of Jamaica's song about stable, predictable inflation, which just dropped today. Enjoy have a great time. We love you. Bye.
Bank of Jamaica Inflation Song (01:00:18):
When inflation stable and predictable, that's the way to go into a new inflation beat. We have a brand new son [inaudible] but brave doesn't get busy. [inaudible] The private sector. No, no, no. When inflation stable and predictable, that's the way to go.