How would you describe your first five months as CIO of People’s Partnership?
If I had to pick one word: fast. It has been a pretty fast start. I have had the opportunity to get straight into some big projects, which has given me the chance to get to grips with things pretty fast.
I love being challenged, and coming in and doing things straight away has been great for me.
Have any particular challenges stood out?
The role in respect to what I have done before is quite interesting, because half of it is familiar. Working with trustees on investment strategy and discussing asset classes and allocation is something I have done before.
But there are some different aspects. I have never been part of an organisation that has a mass customer service operation. Getting to grips with what that means for the organisation, and my role, has been an interesting new area for me.
Why move from being a consultant to a hands on investment role?
Asset owners are special. They have this independent position within an influential industry. This gives asset owners a platform to challenge the industry and shape things. I have been fortunate to work with a great number of asset owners throughout my career as an adviser.
The role was just a huge opportunity. To not only be part of an asset owner, but also get the opportunity to build one out over a period of time and exercise those judgements on investment myself.
Has it been everything you expected it to be?
It has, but it is early days. I’m still in the honeymoon phase. There is a huge cultural focus at People’s Partnership around putting members first and delivering outcomes for them. And being on the investment side of things, I’m at the business end of delivering that.
What are your priorities?
I am a big fan of focus. If you are going to achieve things you need to focus on a small number of things that have the biggest impact on member outcomes.
It may seem obvious, but if you, for example, think through asset allocation from the point of view of member outcomes you may come to a different position than if you think about what is topical. So concentrating on the impact of outcomes is what I’m determined to stay focused on.
I’m a big fan of simplicity. So keeping our investment solutions as simple as we can is also a big priority. I like small teams operating with conviction. These are the things that have been at the forefront of my mind.
Looking to the future, People’s Partnership is expected to become one of the UK’s largest defined contribution asset owners: how does that shape your role?
It shapes it a lot. I see my role as laying the foundation to become a £50bn-plus UK asset owner, which is where we will be in four or five years’ time.
I view us as an asset owner who happens to be a DC fund. I don’t see us as being defined by the fact that we are a DC fund. We are an asset owner first and a DC fund second.
In how that shapes my role, it puts everything on the table – it requires me to have a deep think about our objectives: what do we want to achieve? What are our investment beliefs? What teams and systems do we need to deliver those? And the partnerships that we need, all the way through to the asset classes and the strategies and the way we want to manage those assets.
Having that £50bn-plus UK asset owner in mind is a good perspective for me when trying to build something that will endure over that period of time and be built to last.
Was that a big appeal of the role?
Absolutely. It is a huge appeal. It isn’t something that you get many chances to do through your career. So that journey is fundamental. There are not many examples of pension funds that have been on that journey.
How do you see the DC market developing in the next decade?
I, and People’s Partnership, look to the Australian market on how the DC market has evolved. One important issue in Australia is the concept of scale. Having more scaled up asset owners is important. A feature of the UK pensions landscape is that it has been fragmented.
I have been involved with pensions for 20 years and that fragmentation has always existed. And it is accepted as a feature. The UK industry looks at a £20bn scheme and thinks: “You are huge,” whereas that is not the case when you look at global scale asset owners. It is a level bigger than that for true scale. And it is that level that the Aussie superfunds are at.
So getting to a place where there are a small number of scaled up asset owners who have the flexibility to do a lot of things well is an under-estimated aspect. But dealing in the fragmented system we have makes it difficult to envisage something else.
The other exciting thing is what we call in the profession the ‘at retirement proposition’ or what regular folk call ‘taking out a pension’. This is going to be big over the next decade.
It is why pension funds are here: to help people draw income in their retirement. But because of the maturing DC marketplace, this is going to be a big focus of what we are doing as an organisation.
On the investment front, how we invest for all of that is going to be an interesting challenge. Especially addressing those in the growth part of their investment life.
What is in your investment portfolio?
It is pretty straightforward. Our default growth fund, which is where most assets are invested, breaks down as 80% in growth and 20% in fixed income. So that 80:20 split is where we have landed. It also has an inflation-plus target.
It is implemented via index-tracking portfolios across liquid markets all around the world. We end up investing in about 8,000 companies from the US, Europe, Japan and emerging markets, with investments in government bonds and high-grade corporate debt as well.
It is a diversified mandate. But generally it is based around index tracking, which is an efficient way of delivering investment returns.
DC. An industry fund management model is an important step to consider. Also, illiquid assets can be good investments, but agency issues are real and can cost all the extra returns investors may enjoy from those assets through paying fund managers, for example. You need proper structures in place to ensure this does not happen.
I also reject the framing of illiquids as if they are a coherent asset class. The argument that they are good investments because they are illiquid, is a bit back to front.
Are you planning to make any adjustments to the portfolio?
Yes. There is more on that, but I cannot comment any further at the moment, so stay tuned.
What is your investment philosophy?
I am a big believer in owning your conviction as an asset owner. You cannot outsource your core conviction. You need to own your ideas. Some of the behavioural aspects of investing are also under appreciated. The environment you surround yourself with is surprisingly important. And I believe in deep partnerships.
What do you make of the government’s efforts to nudge DC investors into illiquid assets?
I get what they are trying to do. As a general observation, if you look at the Australian market, the small number of scaled up asset owners operating at a true scale means [illiquid investment] probably happens anyway. So there is no need to nudge. And more things need to be in place for it to work. I worry that there is a short cut to maturity – there needs to be more scale in DC.
An industry fund management model is an important step to consider. Also, illiquid assets can be good investments, but agency issues are real and can cost all the extra returns investors may enjoy from those assets through paying fund managers, for example. You need proper structures in place to ensure this does not happen.
I also reject the framing of illiquids as if they are a coherent asset class. The argument that they are good investments because they are illiquid, is a bit back to front.
How important is ESG to The People’s Pension?
It is important. We are a broadly diversified asset owner, or a universal owner, on behalf of our members. What that means is where you have externalities created in one company they will get internalised costs elsewhere. So we need to focus on externalities, things like pollution, carbon emissions and environmental degradation.
Some companies ignore these but we do not because they have an implication elsewhere. We also have a responsibility, as asset owners, to act as responsible stewards in the businesses we invest in.
Do you bring a different perspective to the role due to your consultancy background?
One of the benefits of a consultancy background is you get to see different approaches. You get a feel of which work well and which do not. You get to see across the whole industry. We need to select the approach that works for us.
There has been a mismatch cited in how asset owners and asset managers approach ESG. Is this something you want to prioritise?
I recognise that issue and recognise some work published on it. What the results of that research showed, which tallies with my experience, is not that there is just a mismatch between asset owners and asset managers, but there is real nuance in what asset managers are doing.
I have always felt there is a small minority of asset managers who think like asset owners. Then there is a large spectrum of the rest, all the way from thinking like asset owners to thinking the opposite way. So there are not simply two camps. And it is not just a case of trying to close the gap.
What are the big economic and geopolitical challenges going forward? And how will they impact your investment approach?
For me, the issue is trying to move away from the short-term headline stuff and draw out longer-term timeframes. I love commenting on geopolitical events, but if we stretch the timescale on what will impact on our members we have to go out at least a decade. Then, it changes what you focus on.
Of course, we don’t want to just wave our hands and say, “it is all long term”. That is not true either.
But on the economic front things that matter for asset allocators include: what is the stable long run rate of inflation and interest rates in the developed world?
Those matter for long-term capital allocation. And then question: are we in a new environment or not? And getting a sense of what are the stable features we can depend on? These are tough questions. You cannot start from scratch every year.
Although, that said, we are in a different world today than three or four years ago, which has implications for asset allocation. But what is important is focusing on the right questions. You can navigate geopolitical events pretty well if you are diversified globally in your portfolio.
What has been the biggest lesson you have learned during your career?
I have written a number of blogs and articles throughout my consultancy career which addresses that question.
The first is I have learned that good writers are good thinkers. When I write something it is not necessarily for people to read, it is great that they do, but more that it helps me order my thoughts.
Second, everything comes down to people. Everything is a people issue.
The third is a beautiful line I read that your personal experience makes up 0.001% of what has ever happened but explains 80% of how you see the world. Which is such an important insight to remember about how you believe the world works.
DAN MIKULSKIS’ CV
September 2023 – present
Chief investment officer, People’s Partnership,
provider of The People’s Pension
February 2019 – July 2023
Partner
Lane Clark & Peacock, London
June 2012 – November 2018
Managing director
Redington, London
September 2010 – March 2012
Cross asset trader
Deutsche Bank, Australia
February 2009 – July 2010
Quantitative analyst
Global Trading Strategies Investment Management, Australia
January 2008 – December 2008
Quantitative analyst
Macquarie, Australia
September 2003 – December 2007
Associate
Mercer (Investment Consulting) London
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