Transcript
ANNOUNCER: TD Asset Management welcomes you to this week's podcast. As a reminder, this podcast cannot be distributed without the prior written consent of TD Asset Management.
JASON McINTYRE: Hi, this is Jason McIntyre head of retail distribution at TD Asset Management, and I'm very pleased to be joined today by Mark Cestnik head of institutional distribution for our newly created Global Investment Solutions. Marcus joining us today to share his unique perspectives on a number of topics related to the institutional asset management space. Mark, thanks for taking the time to join me today.
MARK CESTNIK: Jason, it's a pleasure seeing you. Thank you for letting me come to your home.
JASON McINTYRE: Here comes the energy. I love it. Thanks, Mark. Listen, you know, we are in a bit of an enviable position. I would say both on the retail side and on the institutional side. Retail mutual funds were number two in market share in Canada, Institutional were number one and have been for quite some time in terms of asset management assets under management.
JASON McINTYRE: So just your perspective, you've been here for a while.
MARK CESTNIK: How long? 26 years.
JASON McINTYRE: That’s a while. Wow. Congratulations.
MARK CESTNIK: Thank you.
JASON McINTYRE: Why are we doing so well in the institutional business? What's happened over time? Maybe give us a little bit of your insights there.
MARK CESTNIK: Okay. So I would say a lot of people often ask me this question, why have we been so successful? So the first thing I would say to everybody is our people. So it's the people managing money. It's the people taking our clients calls. It's everything associated with the client experience. And so for me, first and foremost is how do we hire amazing talent and that, in my personal opinion, is why we've created such success, both at the institutional level and at the asset management level.
Okay. So in my situation within the institutional world, what that means is people that are engaging are really highly sophisticated clients and really trying to understand their needs. So if you can drill down to better understand the needs of a client where they're going to be able to present the most appropriate solution to address their challenges. And that's really what has allowed us to build these really wonderful relationships with clients and then know what ends up happening?
They give more and more of their investible assets to us. So this has been driving our firm success, basically building really amazing relationships with clients, listening to what their their needs are, and then building the types of solutions. If we don't really have it, figure out do we have the ability to go out and build these solutions? So that was one of the reasons why we made the acquisition of Greystone.
So listening to clients.
JASON McINTYRE: It's so interesting, right? Like when you think about the synergies between institutional and retail, because if you go out to a retail advisor, it would be the same thing. Lead with relationships, lead with understanding the needs of your clients. And it's just there are so many similarities. It's fantastic. And there's no question that the success of our business overall starts with the people maybe touch on and continue on this.
You know, you mentioned Greystone on the portfolio manager side, the capability is that we have I mean, we talk about it a lot with advisors on our side, maybe touch on that from an institutional perspective and the benefits that the capabilities and the people we have on the portfolio manager side, what that's meant to our business over time.
MARK CESTNIK: Okay. So when we think about our firm and how we've evolved, let's go back 26 years, let's go back 30 years. When I started here on the institutional side, we had six index funds. That's it, six public market index funds. And over that period of time, we back 26 years ago when I started, we had $10 Billion of Institutional Assets.
Today we've just passed through 200. This is the reality of it. We have basically leveraged the might of where our clients are asking for us to evolve and then supporting that by hiring exceptional talent, going out into the marketplace, thinking about what solutions we don't have available, and then filling those holes where necessary. If we have the ability, we will support them immediately.
And if not, if questions keep coming back to us and saying, Hey, this is where we where we think we have an opportunity or a challenge, can TDAM support us? And if not, how can we then as an organization listen to them and think about how we evolve? That was the genesis of Greystone. Alternatives was such a driver in the market and institutional market over the last seven, eight, nine years, clients kept talking to us about it, and that's sort of why we moved forward in introducing private debt and then moving forward and making the acquisition of Greystone.
You know, this is this is an evolution of our organization. Everyone has to realize, too, you know, we're dealing with such highly sophisticated entities. We can't just sort of throw something at them and just hope that they'll be responsive and start making investments with us. No, we have to build really high quality solutions with the conviction and ability to deliver.
And if we do that, they're going to be able to reward us by basically placing their confidence in us. And I think that's what that, you know, that's where the listening and the interaction with our clients really bears great fruit for this firm and for our clients.
JASON McINTYRE: Yeah. And I think, you know, certainly one of the things that, you know, I've been here 26 years, I've been here a lot less than that, probably almost five. And just in that time to think about the addition of a Greystone at a time when we were already leaders in the institutional asset management business and as you say, the listening part and the investment that was made is a benefit not only to institutional but to our retail clients as well.
Let's flip gears here for a second. And it's always interesting from my perspective to get yours on institutional asset managers, what are they doing, especially coming at a time where we've seen historic rises in interest rates over the last year, 18 months, we've seen volatility in the markets, we've seen a lot of money in the retail business moved to things like dry, seasoned cash, and that's pretty typical.
But we've seen it in spades this time. Talk to me about the institutional asset management, the consultants that you work with and what are some of the things and the challenges and the way that they've been managing their portfolios? How has that changed over the last year?
MARK CESTNIK: Yeah, So the first thing I would say to everybody is that in the institutional space, they really are married to their investment policies. So what they spend a lot of their time on is the plan. What as an institutional investor are we trying to accomplish. And then they said it and then they don't play around with it a lot.
What they're doing on a regular basis is rebalancing. So you can see that over the last several years, oh my goodness, since the pandemic, there was a collapse in the equity markets, a rise in the equity markets, a great deal of volatility. What we found with our clients, though, is that they stayed really true to their asset mix, to the plan and they didn't really monkey around with it a lot.
They didn't really you know, you made the comment, oh, you know, going to cash, you would never see that in an institutional space. You can't it would be career suicide for a bunch of trustees who are fiduciaries, turning around with their pension plan and going, oh, you know what, markets are going down and we think the markets are going to go down.
We're selling out, we're going to cash. You can't do that. So the reality of it is they really stay true to the investment policies that govern their plan. They spend a great deal of time revisiting it but they stay true to that plan and then they just basically make adjustments accordingly. And that's the rebalancing. And so let's think about that plan.
How is that plan evolved? So if you go back 20 years ago, the plan really was 60/40, right? Bunch of equities, some fixed income. Years ago, you would actually sort of tactically call out how much do we go into EAFE, how much do we have in Canadian domestic equities? How much do you have in U.S.? Then you start to see people were missing that call.
And so they really moved more into global exposure or Canadian and global maybe ACWI. And that's sort of how they built their equity portfolio. But then over the last decade, 12, 14 years, you start to see alternatives come into play. In Canada. It started with real estate, then into mortgages and private debt and now more recently into infrastructure.
What it didn't call up was private equity and hedge funds. Well, some of the biggest plans in Canada, like CPPIB or OMERS, Teachers (OTTP), they make those types of investments. For a lot of the plans that are smaller in size, they probably won't dabble in those types of asset classes. Okay. So in our case, that sort of fits the profile of where we felt we had ability to serve our clients and create solutions to support them.
JASON McINTYRE: So just curious, what would be an average exposure to this alternative asset class that you say again, you know, 15 years ago it was zero or close to that. What would it be now for an average pension fund?
MARK CESTNIK: So this is the thing. If it's an average pension plan, you're probably leaning and creeping closer towards 20%. If you're thinking of the big giant pension investment entities here in Canada or even globally, that number could be close to 40, 50%. I know that sounds like a really big number, but that's sort of where they're driving their alternative exposure and their private exposure.
JASON McINTYRE: Interesting. Maybe again, switching gears, you know, recently you've been asked to lead our new Global initiative. I would love to understand a little bit more from your perspective what that looks like. It means it's exciting for us as a business. I know to be looking at some of these markets globally that we haven't been in before. What does that look like?
How do you feel about that? And I guess, you know, from a shareholder perspective, which I am, you know, what does that add to our business?
MARK CESTNIK: So the first thing I'd say is it's a bit humbling for me anyways. I think, you know, it's great to see our organization be the largest institutional asset manager in Canada, but in a global perspective, we have a long way to run. And so the first thing I think everyone needs to be - is we have to be very measured and how we want to grow our global footprint.
And so what that really means is thinking about going back to the first principles, listening to prospects in this case, not clients, but prospects to better understand where do we TDAM have a competitive advantage? Where do we have capabilities that large investment entities all over the world aspire to want to partner with us? If we can do that effectively, and I think we can, we have a number of different capabilities that really demonstrate ability where we've been winning against global asset managers in Canada, even though they're from different parts of the world and now being able to go and compete with them in the global marketplace.
So it's an ambitious undertaking, but I think we've definitely demonstrated that in Canada, and we can definitely do that globally. So that's the first thing I would say to everybody. The next thing, though, for Canadian investors is as we start engaging these different investment entities, we may see where we have abilities either in-house or where we have the ability to grow our franchise and introduce even new solutions that will be available to Canadian investors as well as global investors.
So it's a great opportunity for us to basically leverage our core capabilities on the investment side, be able to sell it more globally, but at the same time learn from them and potentially build out even different capabilities or just be able to grow different investment capabilities currently in Canada and make them a little bit more broadly focused.
JASON McINTYRE: So you and Bruce Cooper were just on a trip to meet some prospects and hopefully some clients. How about a quick highlight of your trip with Bruce?
MARK CESTNIK: So the first thing I would say is there is ... so Bruce and I went to Singapore, Seoul, Seoul, South Korea and Tokyo, Japan, and the first thing we both agreed was, wow, there's like a being a Canadian asset manager captures a lot of people's attention because it provides a unique and responsible alternative to a lot of prospects globally in the APAC region.
MARK CESTNIK: Second thing, wow, there is a lot of opportunities, everybody. So some of the things that we do really well in Canada really captures a lot of people's interest. It's always seen that. So we have a really successful asset liability management franchise here in Canada, definitely captures some of the thinking we're doing in that space. Definitely resonates with some of these foreign investors.
Secondly, in some of the alternative buckets I know might surprise a lot of you, but if you have a trillion dollars, you definitely want to invest in Canadian real estate, even if you don't live anywhere close to Canada because it provides an amazing diversifier to your existing portfolio that resonated also our infrastructure capability. It's an open ended structure.
Again, very different. Most people are going to offer solutions in a closed vehicle that resonated with a lot of the investors. And then some of our equity capabilities is the one that resonated the most. Is Capital Reinvestment, an (TD) Epoch solution, which again, very impressive numbers, solid performance processes, and it just generates people's interest. So for us anyways, having these types of conversations really resonated with both of us to say, Wow, like there's so many different investment capabilities that we offer across different teams within, you know, TDAM, TD Greystone, TD Epoch.
It's just a great story.
JASON McINTYRE: Mark, I really appreciate you taking the time. It was fantastic to catch up. It's always great to hear not only about the similarities between our institutional clients and those that we work with on the advisor side, but also some of the differences and the way that money's managed and the approach to investment that I think we can take a lot of learnings from.
So I really appreciate you taking the time today. Thanks so much for joining us.
MARK CESTNIK: Thanks, Jason, for letting me speak with you and your colleagues and clients. Have a great day.
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ANNOUNCER:
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