Class of 2019 NextGens

Tarik Serri is an outspoken member of the alternative investment community with a number of accomplishments under his belt. As director of hedge funds and alternative investments at Air Canada’s pension, he is credited with leading the charge in designing and employing the institution’s absolute return and hedge fund programs. Today, he is primarily maintaining oversight of the pension’s $2 billion hedge fund portfolio and has consistently delivered strong performance numbers while being a hard-line negotiator and saving the institution millions in manager fees. He also leads the private debt portfolio inclusive of co-investments comprised of $1.5 billion of investment commitments, including niche and bespoke strategies targeting mid-teen returns.

Tarik joined the pension plan in 2011, and took the lead in its efforts to grow its portfolio’s exposures to a wide range of emerging markets that ultimately helped position its portfolio as the profitable machine it is today.

He earned his MBA from HEC Montreal, and subsequently completed a number of educational initiatives including the CFA, the CAIA, and a machine learning certificate from the Massachusetts Institute of Technology.

CIO: What makes 2019 an interesting investing climate? How are you handling it?

Serri: For private markets, the chase for yield by investors and the tsunami of capital accumulation has compressed spreads in the market and increased valuations. Markets are relatively expensive compared to history, multiples are high, close to 2007 or even higher, so it’s more challenging to find value in these asset classes today, especially after a 10+ year bull market and where we are in the cycle. This is also a testimonial that a lot of capital is being raised by many managers with similar skills. So what do we do as LPs? We don’t want to run with the crowd and generate the benchmark. We want to generate value, so we decided to invest in niche, esoteric, and hard–to–access investment opportunities globally through funds and co-investments. There aren’t many players, so competition is limited. This also offers upside potential. We like that!

Our current governance structure, one–portfolio approach, and risk budget framework permit us to dynamically react to market opportunities with the flexibility to pivot between asset classes and investments on a timely basis.

How do we do it: we have no silos and no target allocation assigned to any sub-asset class to allow us to remain flexible and opportunistic. This structure allows for collaboration among the team and enables investment in “best ideas.” As a result, the team has successfully deployed billions of dollars over the years across private market assets while generating north of mid-teen returns. 

CIO: After this year, what are the largest opportunities and the largest threats you see on the horizon?

Serri: Opportunities: The pressure on emerging markets (EMs) is creating winners and losers. It is becoming more difficult to combine all EMs in one basket. Although, it has been a volatile and challenging period for the EM asset class, both debt and equity. The poor performance of EM markets in 2018 was triggered by volatility in foreign exchange (FX) markets. The strong US dollar and higher US Treasury yields, and a number of idiosyncratic stories across EMs has hit valuations both on the local and external side, e.g., Turkey, China, Brazil, and Argentina. However, forecasts for EM growth have changed now and a pause in US rates increase and dollar strength (as the Fed has taken a dovish tilt recently) support EM markets. Valuations remain interesting in spite of the recent rally. We expect more frequent dislocations to occur in EM debt and equity so we have been focusing on finding investment opportunities in EM LATAM and EM Asian countries.

Threats: Although the opportunity set for 2019 looks interesting, there remains potential risks and threats on the horizon, including the impact of stretched valuations across asset classes (albeit less for EMs), changing geopolitical landscape, trade uncertainty (the recent resurgence of trade conflict between US and China), and diverging monetary policies.

Not a threat per se, but a big unknown, is that it is still unclear how the long-term results of the massive monetary experiment implemented by global central banks will unwind and play out in the market. In the short term, it has increased valuations and distorted asset prices away from their fundamental values.


CIO: How did you arrive at your current position? And why did you choose this part of the financial services industry?

Serri: I have always been curious of how things work. I arrived at my position because of my thirst for learning. I developed a strong interest in alternative investments and investment management in the early part of my career. I find that it’s never routine. If you are not learning new things, you stop contributing and doing great things. That every day is different is what I like most about the job!

The asset owner/allocator role is intellectually stimulating and provides the opportunity to research various investment strategies globally. Also working and meeting brilliant personalities and industry heavyweights is a lot of fun! This coupled with the opportunity to be part of a team in building a strong–performing investment portfolio to secure pension payments for retirees is very rewarding.

I also have been extremely fortunate to have great mentors at Air Canada that helped me develop my career path as an investor. It’s a real honor to work with committed and thoughtful colleagues that I like and a job that I enjoy every day.

CIO: What was the most important strategic allocation of your career?

Serri: On a personal level, joining the Air Canada team and seeing it build up to one of the prominent investment teams in Canada is very gratifying, by turning a severe pension deficit of CAN $4 billion into a CAN $2.5 billion surplus today. The pension’s performance has been ranked first quartile amongst Canadian pension fund peers over the last eight years. I have been privileged to work with such a talented team.

On an investment level, to be a key member of the team responsible for the design and build-up of a successful hedge fund/absolute return program [has been wonderful]. The strategic allocation to hedge funds as a portable alpha strategy has effectively contributed to the pension’s plan value–add. It’s an overlay to the total pension plan where we segregate alpha from beta and want to see a manager demonstrating skill over time under different market conditions, and not only capturing exposure to the market. We also want to pay for alpha and not beta. The objective of the program is to provide alpha return, diversification, and downside protection.

CIO: Tips for money managers who want to work with you, especially what not to do?

Serri: Two tips can seem obvious but it’s surprising that not many do it:

• Not to deflect questions or attempt to omit information. Money managers should be clear and transparent in their language and presentation. The real transparency comes from having an open and honest dialogue with the manager, not only receiving standard exposure and performance reports on a monthly or quarterly basis that could be interesting. I strongly believe that a manager’s culture based on transparency leads to stronger and heathier relationships, long-term partnerships and better alignment. With that, I do feel that we have great partnerships in our portfolio.
• Not to push irrelevant products to investors. The manager needs to listen and understand the asset owner’s investment objectives and goals before pitching any fund. They need to be a solution provider and not just a seller pushing down products.

CIO: Biggest goof a money manager has made with you? 

Serri: Funny story, I was at a conference after my panel waiting in line in the washroom, and unexpectedly a hedge fund marketer cut the line right in front me to start a conversation and sell me his product. Awkward!

CIO: Who in the financial world would you like to have lunch with and why?

Serri: I would love to have lunch with Ray Dalio from Bridgewater. I have always admired his macro investing style and his courage when taking a contrarian market view. I also believe he does a great job explaining how the economic and fundamental market machine works and the intertwined factors driving it. Additionally, how many hedge fund managers can say they survived and performed strongly in multiple market cycles and been in the business for 30+ years?

CIO: What are changes you’d like to see the institutional investing community make in 10 years? 
Serri:

• To see managers with more diverse backgrounds (not only Wall Street–focused or coming from the largest investment banks) which can provide unique and differentiated perspectives. This can also avoid crowded thinking and ultimately investments.
• To think holistically in the context of one investment portfolio versus to think in silos across asset classes, in terms of new investments, asset allocation, and risk management. This approach has worked for us as we do not have a target allocation, so each investment is considered individually and compared against other asset classes at the total pension plan level as discussed above.
• To increase interest for the investor/asset owner community to get together and collaborate on important items in the industry,g., working together towards better alignment of interests between asset owners and money managers or impact investing implications on long-term returns and its responsibility to move society forward. I understand that we all are busy working on our day–to–day jobs but would recommend finding time to engage with peers and asset owners to compare notes and exchange ideas on respective portfolios and industry aspects. There is so much value as we can do much more collectively.

CIO: What are your hobbies not correlated to work?

Serri: I like to run, play basketball, and love to travel. It’s much easier when you work for an airline!