“David runs the internal portfolios under June Kim. David has helped expand our directly managed passive portfolio in GE to over 70% of the total over the past 7+ years.”
—Christopher Ailman, CIO, California State Teachers’ Retirement System
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 David Murphy.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
My initial thoughts were along the lines of ESG analysis and integration or technical skills, such as artificial intelligence. While these skills are vital for the future, I firmly believe that developing soft skills is the most important – that’s what differentiates the great leaders from the average ones. Early in my career, I was fortunate enough to have extraordinary mentors who helped guide and shape me into the professional that I am now. With their guidance, I learned that communication, collaboration, relationship development, and emotional intelligence are just as crucial as successfully managing portfolios. These mentors also taught me that the most essential assets of an organization are the people. As a leader I don’t just think about how to generate more alpha from an investment portfolio, I also think about how I can generate more ‘alpha’ from the team. ‘Alpha’ in this sense is creating a culture that fosters productivity by motivating and keeping staff highly engaged. I can’t express how critical culture is for any organization, and it’s the leaders who establish and, most importantly, maintain it.
CIO: How will the pandemic ultimately change the economic/financial world?
When we were instructed to stay at home in March 2020, little did we know that this ‘temporary’ measure to combat a novel coronavirus would extend to years and cause so much devastation to our world. The pandemic has left an indelible mark on the global economy, especially the just-in-time (JIT) supply chain framework that seeks to streamline manufacturing processes and reduce storage requirements, which ultimately cut costs. Maximizing profitability through JIT supply chains will now be reevaluated, as the pressure to onshore these supply chains has increased and whispers of deglobalization has reemerged. Although domestic manufacturing will increase and more materials will be domestically sourced, it appears that companies will focus on diversifying their supply chains without the draconian response of eliminating trading partners. While globalization may have plateaued for now, the world remains interconnected, and the web of international trade should remain. Another outcome of the pandemic impacts not only how we work but where we work. Initially, I was very skeptical that we could perform at a high-level working in a remote environment. Even though I personally believe working in the office promotes better relationship building, mentoring and organic idea generation, we’ve demonstrated that working remotely has not impacted our productivity. For the foreseeable future, a hybrid work environment combines the best of both worlds and will likely be the most effective solution.
CIO: What is the best way to bring more diversity to the financial industry?
The investment management community needs to start with actions — not words — and commit to increasing diversity within their own organizations. To make a meaningful change, it must start at the top and truly become a foundational part of the culture. CalSTRS is intentionally a very diverse organization across a variety of factors, including education, work experience, background, ethnicity, age, and gender. When we recruit for talent, we focus on casting a wide net to get a broad pool of candidates by searching via non-traditional channels, along with the traditional ones. We also actively participate in conferences and organizations which promote diversity such as Beyond Talk, Girls Who Invest and AAAIM to name a few. While I’m encouraged with what we’ve accomplished, I believe investment professionals should hold each other accountable and explore new ways to increase diversity. At a local level, we should start generating interest in investment careers at a younger age by supporting (or creating) mentorship programs for diverse and underrepresented students, which would be a rewarding experience for these students but also for ourselves.
CIO: Which asset manager (exclusive of their firm) has most influenced your growth as an institutional asset manager?
Not only was David Castillo a colleague and a dear friend he had the most brilliant investment mind that I’ve known. Before he passed from a tragic biking accident, he was by far the most influential person in my growth as an asset manager. Starting his career as a structured finance lawyer he didn’t follow the typical path to an asset management career, and quite frankly, he didn’t follow the typical path for anything in life. Anyone who worked with him immediately noticed his intelligence, thoughtfulness, and investment passion (though some would call it intensity). During our due diligence meetings, he was always tough on the issues but not on the people. Throughout our time working together, he showed me the importance of having the courage to question everything, being an independent thinker, reading voraciously, not succumbing to group think, and always doing the right thing, even when it’s not popular. Back in 2013, I’ll never forget a meeting we had with an asset manager. During the meeting, the company’s CEO discussed the various high priority initiatives, including their focus on increasing gender diversity. In true David Castillo form, he looked around the room and then proceeded to ask the CEO why there were no women in the meeting if this is such an important initiative. Although the question was eventually addressed, the awkward silence seemed to last forever. Did the confrontation make people feel uncomfortable? Yes. Was it the right thing to do? Absolutely. In our main conference room, a plaque was installed in his honor which epitomizes the way he approached work and life, “Failing is not the worst thing in the world, the very worst is not to try.” I couldn’t agree more.
CIO: What investing decision have you made for your organization that you’re most proud of?
The best decisions in my career were not necessarily related to ideas that we’ve implemented, but the deals/managers that we’ve turned down. It can be discouraging to spend a lot of time and effort conducting due diligence and not move forward, especially when the idea/strategy had so much promise initially. However, avoiding a bad investment decision in many cases is more important than making a great funding decision.
CIO: Is cryptocurrency an institutional asset of lasting value?
As of today, I would argue that cryptocurrency is not yet an institutional-quality asset – let me emphasize the word ‘yet’. Evaluating this asset with a Graham & Dodd / Warren Buffett lens, it’s difficult to understand its intrinsic value. In addition to valuation, I struggle with the inherent volatility, uncertain regulatory environment, scalability issues, and exchange security that’s susceptible to hackers, which all need to be address before I have a constructive view on cryptocurrency. “The more I live, the more I learn. The more I learn, the more I realize, the less I know.” – Michel Legrand. I’ve always loved this quote, and it’s been a driving force in my continuous journey of learning. That’s why I’ll continue to have an open mind about cryptocurrency’s potential role as an institutional investment. I recognize that cryptocurrency offers a decentralized framework that levels the playing field. It eliminates intermediaries and allows businesses and individuals to be in complete control of their transactions without intrusion from banks or other central authorities. Blockchain is the technology that enables the existence of cryptocurrency, and I cannot ignore that this technology will probably bring meaningful innovations to the financial industry.
