“Terry’s experience as an Air Force officer equipped him with a keen sense of order and the ability to tackle multiple projects simultaneously and with efficiency. As an analyst, he can keep the big picture in view while simultaneously getting into the weeds. His people skills are also top notch—as useful in dealing with consultants, vendors, and managers as it is with staff.”
— Cameron Black, Vice President and CIO, Blue Cross Blue Shield of Arizona
Terence Thompson is an accomplished investor who’s taken on many initiatives to bolster Blue Cross Blue Shield of Arizona’s portfolio via outside-the-box thinking and the confidence to present ideas to peer groups, management, and investment committees. His opportunistic ambitions in private market investments and keen eye for alternative sources of returns has led the portfolio to operate on a more contemporary basis that, while complex, is grounded in academic theory, but also practically accessible and active in more niche corners of the market.
Thompson has worked for over six years at Blue Cross Blue Shield of Arizona, after having previously served as an Air Force Officer, reaching the rank of Captain and working as the lead financial advisor to the highest-ranking General Officer in the Southwest. He earned finance degrees from the University of Arizona‘s Eller School and the University of Portland‘s Pamplin School of Business. He discusses with CIO what he thinks works best for the health insurer’s portfolio at what could be the near end of the credit cycle, and some of the fonder moments over the course of his career.
CIO: What makes 2019 an interesting investing climate? How are you handling it?
Thompson: Nothing is a screaming buy! The low-hanging fruit has been picked over at this point in the cycle. Fundamentals indicate that valuations are fair to stretched across asset classes, and we’re seeing even more excess in select pockets of private markets, which has our antennas up. Cash has a yield again, which seems to be a fleeting consolation prize… but the optionality that cash provides is perhaps its most valuable attribute. We’ve increased the flexibility of our portfolio at the margins, allowing us to be nimble and opportunistic when dislocations inevitably occur. We’ve traded up in the capital stack where we can, swapping out equity for debt in areas like real estate, and have modestly moved up in quality across our credit book.
CIO: After this year, what are the largest opportunities and the largest threats you see on the horizon?
Thompson: The two are interrelated; pick any one of the geopolitical risks on the horizon and if you believe in any form of mean-reversion, the inevitable panic will provide a more attractive entry point for risk assets.
Short-term: Can Twitter be considered a risk?
Intermediate term: Geopolitics, Fed over/under-shoot, regulatory headwinds, EBITDA adjustments, and leverage in private markets are all dynamics we are watching closely.
Longer term: There are corners of the market ripe for disruption based on demographics, the nature of work, and transformational technologies. I believe mass adoption of fleet-based autonomous vehicles in major MSAs (Transportation as a Service) is closer to a reality than the market is discounting… and just think of the ramifications there, from areas like residential real estate, land-use and zoning, retail foot-traffic, commuter productivity to the broader auto industry, and P&C insurers.
CIO: How did you arrive at your current position? And why did you choose this part of the financial services industry?
Thompson: I knew investments would be my eventual career path very early on. I was an active participant in student-led investment clubs both as an undergraduate and grad student. But my family has a very long history of military service that I was passionate about preserving. So after five years as an Air Force Officer, I transitioned directly to BCBSAZ as the company’s second dedicated investment staff and first analyst. I’ve found the allocator track on the buy-side to be a fantastic path to stay connected to markets, work with and meet incredibly smart, dedicated individuals, and at the same time support the priorities of a mission-centric entity like BCBSAZ.
CIO: What was the most important strategic allocation of your career?
Thompson: While I can’t take any credit for initiating it, on a risk-adjusted basis, private credit has definitely been a standout performer across our portfolio. The composition of that bucket has changed considerably from the post-crisis non-agency RMBS trade, and is now much more well-rounded with everything from plain-vanilla direct lending, bridge financing, opportunistic credit, mezz, stressed, distressed, commercial real estate lending to regulatory-driven recaps. Its success has been validated by the rest of the allocator community tripping over itself to beef up allocations there in the last few years, which is now starting to give us pause.
CIO: Tips for money managers who want to work with you, especially what not to do.
Thompson: Explain your strategy concisely, answer our questions, and let us conduct due diligence. Blatantly zealous sales tactics will get you nowhere. Oh, and chew with your mouth closed. No joke, at lunch with a manager, and from across the table, my face was the nonplused recipient of a bite of burger from a client rep at a very large asset manager. That’s a tough one to recover from.
CIO: Biggest goof a money manager has made with you?
Thompson: Poor communication is the most frustrating, as one would think it would be the easiest to maintain or fix. As a taxable entity that files statutory financials, we are very sensitive to realized gains/losses and the associated turnover. Managers that are used to dealing with tax-exempt entities and refuse to understand that dynamic typically don’t have a very long shelf life.
CIO: Who in the financial world would you like to have lunch with and why?
Thompson: What’s the going rate for a Buffett lunch these days? Unless that has a few less zeros attached to it, I’d have to say someone plugged into the intersection between politics and markets, as that dynamic seems to be driving the vast majority of short-term volatility. At this point, Rajeev Misra must have some fascinating unicorn stories. But as a statutorily regulated (predominately) fixed income investor, I believe I’m somehow contractually obligated to say Jay Powell.
CIO: What are changes you’d like to see the institutional investing community make in 10 years?
Thompson: Less groupthink seems like too tall an order… so I’ll go more nuanced and say more responsible use of subscription lines on the part of GPs. We’ve actually been pitched an investment vehicle to INVEST IN subscription lines! This is a clear example of financial perversion overwhelming a tool with harmless enough intentions. The LP community needs to do a better job of holding our GPs accountable to spend more time on creating tangible value and less time on financial engineering & IRR management.
CIO: What are your hobbies not correlated to work?
Thompson: Does doughnut hunting count? Staying active is more aspirational than a hobby, as I’m doing my damnedest to keep up with my wife and beagle… which would be irrefutably easier if I weren’t such an exceptional doughnut hunter. I’ve always enjoyed traveling; cooking and photography seem to be the limits of my artistic expression.
