“Amit is an insightful investor who has negotiated the mandates of some of our most interesting and long-standing relationships. He has been involved in every facet of our investment program, and his colleagues see him as a strong resource they can rely upon.”
—Donald Pierce, CIO, San Bernardino County Employees’ Retirement Association
The CIO Editorial Team shared a dozen questions with all 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 Amit Thanki.
CIO: How are you dealing with rising interest rates and economic uncertainty?
Thanki: At the implementation level, the portfolio has features that perform well irrespective of the macro environment:
- Lower emphasis on growth assets: The equity portfolio (public and private) is 46%, a relatively lower percentage relative to our institutional peers;
- High cash yield generating focus: In addition to generating high contractual returns, the portfolio coupon is floating rate and has a significantly lower duration exposure; and
- A larger allocation to cash (approximately 6% currently): A large cash balance allows SBCERA to play offense by purchasing assets from stressed owners at significant discounts in the current market.
At the asset level, SBCERA continues to target investments that have defensive characteristics:
- Businesses that have a robust balance sheet with the ability to withstand significant cash flow disruption and that are not growth- or leverage-dependent; and
- Focusing on higher credit quality and being senior in capital structures.
CIO: What asset classes offer the best options for avoiding or mitigating drawdown risk in an institutional portfolio?
Thanki: In the current environment, focusing on assets that are senior in the capital structure, that have a lower duration and that have a floating nature to their yield component are most attractive. Direct lending, asset-backed lending and CLO debt are good examples of investment opportunities that provide a good risk-adjusted return in the current environment.
CIO: What asset class or investment troubles you most right now, and why?
Thanki: U.S. public equities, for the following four reasons:
- Historically high valuations;
- Extreme levels of concentration in the top 4 to 5 names;
- High-quality companies are making the active decision to remain private. This action is further diminishing the value of the current public market composite; and
- A good number of publicly traded companies are seeing diminished benefits of being publicly traded and are being taken private.
CIO: What should be an investment trend, but isn’t (yet)?
Thanki: Cash and liquidity management. Too often sophisticated institutional investors find themselves in a liquidity crunch or out of compliance with asset allocation policies. The typical approach is to sell assets on the secondary market at a discount. This cure is unnecessary and has become the go-to method for institutional portfolios to correct portfolio construction flaws.
Having unencumbered cash as an asset mix allows institutional portfolios to be nimble at times of market stress by investing in better-valued assets, fund commitments and meet[ing] cash needs. Institutional investors focus on return-generating decisions like asset allocation and manager selection. However, those decisions are dependent on “normal” functioning of markets and long-term correlation measures. However, capital markets tend to be irrational at best, and diversification benefits disappear at the wrong time.
CIO: Which asset manager (exclusive of their firm) has most influenced your growth as an institutional asset manager?
Thanki: I have had the good fortune of working with some very bright individuals over my career, but Mike Levitt at Irradiant Partners has influenced and continues to influence my growth as an investor.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Thanki: The asset management ecosystem in many ways is an echo chamber for consultants, asset managers and asset owners, as too many arguments are accepted at face value. To take on the challenges presented by the modern institutional portfolio, CIOs need to be in the present and in the now, current on how the world is evolving, and nimble in implementing investment philosophy.
