“Tom heads global equity at Raytheon. He is a star in analytical work and finding new powerful investment themes. He is also strong on decentralized finance, crypto, blockchain and all technology-related investing.”
—Robin Diamonte, CIO, Raytheon Technologies
The CIO Editorial Team shared a dozen questions with all of our NextGen nominees and asked them each to pick six to answer. Their answers informed our decision to include them as a NextGen. Below are the answers from Thomas Shippee.
CIO: How are you dealing with rising inflation and interest rates?
Shippee: From the perspective of a corporate defined benefit plan investor, an environment of inflation and rising interest rates is welcomed. Post-COVID inflation has impacted our portfolios in the standard ways you’d imagine on the asset side. However, rising interest rates are beneficial to our DB plans’ funded status as the present value of liabilities decrease with rising discount rates. From a liability perspective, our plans do not have COLAs and are mostly closed and frozen, therefore pension liability monetization through inflation has been positive from a funded status perspective.
In terms of overseeing our company’s 401(k) plan, environments like this highlight the importance of offering professionally managed and diversified investment options for our valued participants. Low-cost target-date funds, which are designed to maintain course while offering exposure to inflation-sensitive assets, remain appropriate for many savers. However, this period of higher rates will start to separate 401(k) plans like ours, which offer a Lifetime Income Strategy. In this environment our Lifetime Income Strategy program has been increasingly offering some of the highest guaranteed withdrawal benefits to participants we’ve ever seen—projecting very meaningful guaranteed income in retirement. Of course, for those participants that wish to build their own retirement portfolios, thoughtful plan design that offers standalone access to an Inflation Sensitive Assets Fund, a competitive Stable Value fund and Multi-Market Risk Party are all ingredients to a best-in-class 401(k) plan.
CIO: What is the best way to bring more diversity to the financial industry?
Shippee: I firmly believe that just as diversification is good for our portfolios, it’s good for our teams and the investment managers that we work with. In order to bring more diversity to our industry, there are best practices that already exist which many firms could learn from. For example, widening the scope of target schools for new hires, partnering with DEI-oriented organizations, and pushing to include diverse slates when filling open jobs. My company, Raytheon, has shown leadership in this area. It’s done a good job supporting diversity by partnering with organizations such as TOIGO, offering support to employee resource groups such as our Finance Women’s Forum, hiring a chief diversity officer and even tying employee bonus compensation to certain DEI initiatives. In addition, in our immediate area we’ve begun to survey the DEI metrics of the investment firms that we work with. While we don’t have any hard targets in terms of assets managed by diverse firms or individuals, by asking for DEI metrics we hope to send a message that best practices in this area are important to us.
CIO: How will the pandemic ultimately change the economic/financial world?
Shippee: During the pandemic we all witnessed the lockdown of entire populations for the health and safety of everyone on planet earth. This was a logistical challenge for many countries, and somewhat routine for others. From an economic standpoint it tested the ability of central bankers to provide market liquidity at a rapid pace.
This episode changed the financial world by, first, forcing our labor force to learn the skills necessary to work and add shareholder value from home, and second, showcasing the abilities of central bankers and policy makers in providing market liquidity in record time, relative to the preceding Great Financial Crisis and other crises.
Today, we have the largest employers in the world who are able to send all of their employees home without missing a beat in terms of productivity, while having access to the tools and technology necessary to get their jobs done. This additional flexibility being offered to workers is for the most part welcomed by our society, as evidenced by the hesitancy of returning to the office. Until productivity suffers, I believe that this added work-life-balance is for the benefit of our society as a whole.
CIO: What role do blockchain or tokenization have in the future of institutional investing?
Shippee: Blockchain and tokenization will play a role for the future of institutional investing in two ways: by reducing the economic friction cost of putting large pools of capital to work and by reducing start-up cost and barriers to entry for raising capital. Return degradation from fees, transaction costs and general capital markets practices adds up in the end, and these technologies will have implications on accruing more benefits to end users and allocators. As Andreessen Horowitz says, “Software is eating the world.”
CIO: What are the most important alternative asset classes for institutional investors, and why?
Shippee: The most important alternative asset class for institutional investors in my mind would be hedge funds in a portable alpha framework. True alpha/beta separation is important, and assembling a 20- to 25-name portfolio of uncorrelated, nondirectional managers as the alpha engine and overlaying cheap beta exposures on top is a unique and powerful tool. This provides allocators with a real sense of “you get what you pay for” and a lot of flexibility when adjusting exposures. This is all said in the context of proper risk and collateral management practices.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Shippee: The main skill I believe allocators need to be successful leaders in the field over the next 10 years will be an informed, data-driven decisionmaking process with a paranoid approach to understanding and vetting out bias to arrive at conclusions.
We just recently completed a book club with one of our managers, Wellington Management, reading Nate Silver’s “Signal in the Noise.” The main takeaway is that we are being thrown more data or “noise” than ever and as humans we are instinctually, and most of the time emotionally, trying to find the correct path forward, or “signal,” fighting bias along way. One might say that more data is better when it’s actually causing more confusion.
As allocators, and especially in this new paradigm of work anytime and anywhere, talk to anyone, and unlimited data, the noise level has increased exponentially. We all will need to update our thought processes to avoid bias and improve decisions affecting our beneficiaries, participants and companies.
