1 00:00:04,080 --> 00:00:07,020 Sean Aylmer: Welcome to The Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:07,410 --> 00:00:10,950 Sean Aylmer: Last week was a pretty extraordinary time for financial markets. 3 00:00:10,980 --> 00:00:13,080 Sean Aylmer: Shock inflation figures out of the U. S. saw Wall 4 00:00:13,080 --> 00:00:16,829 Sean Aylmer: Street tumble, and the ASX followed suit. It's not easy 5 00:00:16,829 --> 00:00:19,920 Sean Aylmer: being an investor in this kind of environment. Luckily, our 6 00:00:19,920 --> 00:00:21,810 Sean Aylmer: guest today can talk us through what it all means 7 00:00:22,110 --> 00:00:25,620 Sean Aylmer: and hopefully what lies ahead. Remember, this is general information 8 00:00:25,620 --> 00:00:29,190 Sean Aylmer: only, and you should seek professional advice before making investment 9 00:00:29,190 --> 00:00:32,520 Sean Aylmer: decisions. Rich Nuzum is the President of Wealth at global 10 00:00:32,520 --> 00:00:35,790 Sean Aylmer: investment giant Mercer. Previously, he's joined us from New York, 11 00:00:35,790 --> 00:00:37,650 Sean Aylmer: but he's in Australia at the moment, so we took 12 00:00:37,650 --> 00:00:40,500 Sean Aylmer: the opportunity to speak to him again. Rich, you're becoming 13 00:00:40,500 --> 00:00:41,010 Sean Aylmer: a regular. 14 00:00:41,820 --> 00:00:43,860 Rich Nuzum: Yeah, thanks for having me on, Sean. This is my 15 00:00:44,070 --> 00:00:47,040 Rich Nuzum: third week- long or longer trip to Australia year to 16 00:00:47,040 --> 00:00:49,890 Rich Nuzum: date. It's a really important market for us and we 17 00:00:49,890 --> 00:00:52,710 Rich Nuzum: just had a client conference with more than 300 participants 18 00:00:52,710 --> 00:00:57,510 Rich Nuzum: for a day and a half. Spent time talking about the economy, market opportunities, 19 00:00:57,750 --> 00:01:01,380 Rich Nuzum: all things superannuation, all things environmental, social, and corporate governance- 20 00:01:01,380 --> 00:01:04,050 Rich Nuzum: related, so a really good week 21 00:01:04,260 --> 00:01:06,449 Sean Aylmer: Just before we go into what's happening on Wall Street 22 00:01:06,450 --> 00:01:09,720 Sean Aylmer: and financial markets, as an outsider coming into Australia, what's 23 00:01:09,720 --> 00:01:11,459 Sean Aylmer: the mood like amongst investors? 24 00:01:12,030 --> 00:01:15,240 Rich Nuzum: Pretty sanguine given everything that's going on in the world, and 25 00:01:15,240 --> 00:01:18,420 Rich Nuzum: I think part of that is a general sense that 26 00:01:18,420 --> 00:01:22,319 Rich Nuzum: the superannuation sector, with some minor wrinkles we could talk 27 00:01:22,319 --> 00:01:27,390 Rich Nuzum: about, is delivering against its mission of providing both strong 28 00:01:27,390 --> 00:01:31,319 Rich Nuzum: retirement income replacement ration outcomes to Australians, but also visibility 29 00:01:31,319 --> 00:01:33,600 Rich Nuzum: on that ahead of time. People know their account balance, 30 00:01:33,600 --> 00:01:37,289 Rich Nuzum: they know how they're tracking. Then, we are still playing 31 00:01:37,290 --> 00:01:39,900 Rich Nuzum: with house money, and what I mean by that is 32 00:01:40,319 --> 00:01:44,220 Rich Nuzum: the 10 calendars years ended December were the best 10 33 00:01:44,220 --> 00:01:49,050 Rich Nuzum: years ever for a 60- 40 stock- bond portfolio in recorded history, 34 00:01:49,230 --> 00:01:51,900 Rich Nuzum: certainly for most major developed market currencies, U. S. Dollar 35 00:01:51,900 --> 00:01:55,470 Rich Nuzum: and so forth. Australian investors have done really well up 36 00:01:55,470 --> 00:01:58,980 Rich Nuzum: until this year, and this year has been tough in 37 00:01:58,980 --> 00:02:01,559 Rich Nuzum: terms of stock returns, tough in terms of bond returns, 38 00:02:01,560 --> 00:02:05,490 Rich Nuzum: tough in terms of the stock- bond diversification benefit that 39 00:02:05,490 --> 00:02:07,320 Rich Nuzum: had been there in the last couple of crises, not 40 00:02:07,560 --> 00:02:10,500 Rich Nuzum: playing off this time. There's obviously a lot of uncertainty, 41 00:02:10,860 --> 00:02:14,250 Rich Nuzum: but I think the mood's strong because underlying economic growth 42 00:02:14,250 --> 00:02:18,299 Rich Nuzum: is actually reasonably strong. Resources markets are up and Australia's 43 00:02:18,300 --> 00:02:22,739 Rich Nuzum: participating in that. Employment is at full employment or beyond. 44 00:02:22,889 --> 00:02:24,660 Rich Nuzum: That's part of our problem that we're trying to rein 45 00:02:24,660 --> 00:02:27,630 Rich Nuzum: in, but on the investment side, we're playing with house money. We're 46 00:02:27,630 --> 00:02:30,090 Rich Nuzum: down, but not on a three- year basis, not on 47 00:02:30,090 --> 00:02:32,250 Rich Nuzum: a five- year basis. We're still ahead of our long- 48 00:02:32,250 --> 00:02:34,230 Rich Nuzum: term expectations over, say, a 10- year period. 49 00:02:34,860 --> 00:02:37,380 Sean Aylmer: Okay, so let's get onto what happened last week. The 50 00:02:37,380 --> 00:02:39,150 Sean Aylmer: inflation figures out of the U. S., the sell- off 51 00:02:39,150 --> 00:02:42,180 Sean Aylmer: on Wall Street that filtered through to the rest of 52 00:02:42,180 --> 00:02:45,780 Sean Aylmer: the globe, including Australia. There wasn't quite the bounce back 53 00:02:45,780 --> 00:02:47,970 Sean Aylmer: that you sometimes see. What do you make of it all? 54 00:02:49,020 --> 00:02:51,750 Rich Nuzum: Well, I'm going to make a technical distinction that's probably 55 00:02:51,750 --> 00:02:55,830 Rich Nuzum: not terribly helpful to clients. We had a surprise in 56 00:02:55,830 --> 00:03:00,209 Rich Nuzum: terms of inflation and particularly core inflation coming in higher 57 00:03:00,210 --> 00:03:04,290 Rich Nuzum: than expected, and the central problem facing the global economy 58 00:03:04,290 --> 00:03:07,530 Rich Nuzum: right now is whether monetary authorities will be able to 59 00:03:07,530 --> 00:03:11,010 Rich Nuzum: reign in this wage- price spiral without putting us into 60 00:03:11,010 --> 00:03:15,209 Rich Nuzum: recession. Even though the miss against expectations for the month 61 00:03:15,389 --> 00:03:19,889 Rich Nuzum: wasn't large, what it signaled is we're not winning that 62 00:03:19,889 --> 00:03:22,860 Rich Nuzum: battle. It's not going the way that we expected. The 63 00:03:22,860 --> 00:03:25,200 Rich Nuzum: Fed, the ECB, other central banks are going to have to 64 00:03:25,200 --> 00:03:27,480 Rich Nuzum: be even more hawkish than we all thought they would 65 00:03:27,480 --> 00:03:30,930 Rich Nuzum: be, and so the probability that we're going to end 66 00:03:30,930 --> 00:03:33,990 Rich Nuzum: up seeing the economy have to go into recession, see 67 00:03:33,990 --> 00:03:38,040 Rich Nuzum: unemployment spike up to zap this wage- price spiral went 68 00:03:38,040 --> 00:03:40,560 Rich Nuzum: up. We had a directional move in the market, and 69 00:03:40,560 --> 00:03:43,350 Rich Nuzum: the technical distinction I'll make is we had the worst 70 00:03:43,350 --> 00:03:48,300 Rich Nuzum: trading days for stocks since June of 2020. We had 71 00:03:48,300 --> 00:03:52,170 Rich Nuzum: a really bad day, a really sharp move, but the forward- 72 00:03:52,170 --> 00:03:56,040 Rich Nuzum: looking volatility is not super elevated. The VIX, which is 73 00:03:56,040 --> 00:03:59,280 Rich Nuzum: a publicly traded index that measures one- month- forward expected 74 00:03:59,280 --> 00:04:03,150 Rich Nuzum: volatility, people are betting serious amounts of money on whether 75 00:04:03,150 --> 00:04:05,970 Rich Nuzum: they get that volatility measure right. It's still trading below 76 00:04:05,970 --> 00:04:10,500 Rich Nuzum: 30, so it's elevated, but it's not even above it's long- 77 00:04:10,500 --> 00:04:14,070 Rich Nuzum: term historical norm, so a one- time directional move as 78 00:04:14,070 --> 00:04:17,670 Rich Nuzum: opposed to a sudden move out of uncertainty. We've got 79 00:04:17,670 --> 00:04:20,279 Rich Nuzum: a reading that changes our view of the future. It 80 00:04:20,279 --> 00:04:24,240 Rich Nuzum: doesn't make the future a lot more uncertain than it was. 81 00:04:24,870 --> 00:04:27,720 Sean Aylmer: Yeah, okay. It's like... Was it one swallow doesn't make 82 00:04:27,720 --> 00:04:29,729 Sean Aylmer: a summer? Or something or the other? I mean, I'm 83 00:04:29,730 --> 00:04:32,460 Sean Aylmer: going to use another economics euphemism, the trend is your 84 00:04:32,460 --> 00:04:36,060 Sean Aylmer: friend, so just a one- month number doesn't necessarily alter... 85 00:04:36,420 --> 00:04:38,820 Sean Aylmer: It may matter in moment, but in the long term, 86 00:04:38,820 --> 00:04:39,330 Sean Aylmer: it may not. 87 00:04:40,140 --> 00:04:42,150 Rich Nuzum: Well, I think in this case, it's almost the opposite, 88 00:04:42,150 --> 00:04:44,969 Rich Nuzum: Sean, and I'm glad you switched metaphors because I didn't 89 00:04:44,970 --> 00:04:48,870 Rich Nuzum: recollect the swallow one. In this case, we now know 90 00:04:48,870 --> 00:04:51,900 Rich Nuzum: the trend is worse than we thought before the report 91 00:04:51,900 --> 00:04:55,080 Rich Nuzum: came out, but the volatility around the trend, the uncertainty 92 00:04:55,080 --> 00:04:59,400 Rich Nuzum: around the trend, is not higher. We are in a 93 00:04:59,400 --> 00:05:02,430 Rich Nuzum: different future, a less benign future than we thought, but 94 00:05:02,430 --> 00:05:04,320 Rich Nuzum: not with greater underlying uncertainty. 95 00:05:04,890 --> 00:05:06,660 Sean Aylmer: Stay with me, Rich. We'll be back in a minute. 96 00:05:12,870 --> 00:05:15,870 Sean Aylmer: I'm speaking to Rich Nuzum, President of Wealth at Mercer. 97 00:05:16,710 --> 00:05:21,690 Sean Aylmer: Okay, so how does central banks play it? Certainly in 98 00:05:21,690 --> 00:05:24,150 Sean Aylmer: Europe, there's a real risk of recession. The U. S., 99 00:05:24,210 --> 00:05:26,940 Sean Aylmer: there's probably a greater risk of recession now. You mentioned 100 00:05:26,940 --> 00:05:29,370 Sean Aylmer: earlier on that Australia was a commodities market, and in 101 00:05:29,370 --> 00:05:31,500 Sean Aylmer: some ways that helps us a lot, but still, there's 102 00:05:31,500 --> 00:05:34,830 Sean Aylmer: a risk of recession here. Central banks are going to 103 00:05:34,830 --> 00:05:38,279 Sean Aylmer: keep lifting interest rates. They've made that very clear. Very 104 00:05:38,279 --> 00:05:40,170 Sean Aylmer: fine line to walk, I'd imagine. 105 00:05:41,520 --> 00:05:43,620 Rich Nuzum: It is, and I'm glad you went to the regional 106 00:05:43,620 --> 00:05:47,760 Rich Nuzum: differences because there's at least three major regional stories that 107 00:05:47,760 --> 00:05:50,580 Rich Nuzum: are different. In the U. S., we have a wage- 108 00:05:50,580 --> 00:05:54,630 Rich Nuzum: price spiral. We have the Dollar strengthening. We have 5. 109 00:05:54,960 --> 00:05:59,250 Rich Nuzum: 2 million job openings, more than individuals available to fill 110 00:05:59,250 --> 00:06:02,130 Rich Nuzum: them, so huge mismatch in the labor market. The U. 111 00:06:02,130 --> 00:06:05,430 Rich Nuzum: S. is a resource exporter. The U. S. has not 112 00:06:06,000 --> 00:06:10,680 Rich Nuzum: directly and closely impacted by disruption to Russian energy supplies 113 00:06:10,680 --> 00:06:12,839 Rich Nuzum: in the way that Europe is. In the U. S., 114 00:06:12,839 --> 00:06:15,720 Rich Nuzum: the issue is around the wage- price spiral and overheating. 115 00:06:16,470 --> 00:06:19,740 Rich Nuzum: When you go to the European picture, the disruption in 116 00:06:19,740 --> 00:06:23,610 Rich Nuzum: energy supplies is a really big deal, and so Europe 117 00:06:23,610 --> 00:06:26,070 Rich Nuzum: is much more likely to go into recession than the U. 118 00:06:26,070 --> 00:06:29,370 Rich Nuzum: S. because of the impact of energy price and food 119 00:06:29,370 --> 00:06:32,820 Rich Nuzum: price and just having the war up close on confidence 120 00:06:32,820 --> 00:06:35,760 Rich Nuzum: and sentiment and real incomes. It's much more likely to 121 00:06:35,760 --> 00:06:39,150 Rich Nuzum: go into recession irrespective of what the monetary authorities do. 122 00:06:39,630 --> 00:06:43,860 Rich Nuzum: Somewhat counterintuitively, the monetary authorities in Europe have an easier 123 00:06:43,860 --> 00:06:47,040 Rich Nuzum: job in terms of reigning in the wage- price spiral. 124 00:06:47,460 --> 00:06:50,790 Rich Nuzum: Getting inflation under control is actually, at least core inflation, 125 00:06:50,790 --> 00:06:52,260 Rich Nuzum: is less of an issue in Europe than in the U. 126 00:06:52,260 --> 00:06:56,370 Rich Nuzum: S. because the labor market's not overheating as much and 127 00:06:56,370 --> 00:07:00,180 Rich Nuzum: because the economic sentiment is not as strong given the 128 00:07:00,270 --> 00:07:04,529 Rich Nuzum: close impact of the Russia- Ukraine conflict. The third regional 129 00:07:04,529 --> 00:07:06,839 Rich Nuzum: picture that we should cover is China. I think last 130 00:07:06,839 --> 00:07:10,020 Rich Nuzum: time we talked a few months ago, China's Zero- COVID 131 00:07:10,020 --> 00:07:13,800 Rich Nuzum: policy and its impact on global supply chains was a 132 00:07:13,800 --> 00:07:17,430 Rich Nuzum: second massive stagflationary shock on top of the Russian invasion 133 00:07:17,430 --> 00:07:20,250 Rich Nuzum: of Ukraine that the global economy was dealing with. That's 134 00:07:20,250 --> 00:07:23,130 Rich Nuzum: morphed a bit now. China has done a better job 135 00:07:23,130 --> 00:07:25,500 Rich Nuzum: of getting COVID under control. The supply chains globally have 136 00:07:25,500 --> 00:07:30,720 Rich Nuzum: unraveled, but because of changes in local housing market policy 137 00:07:30,990 --> 00:07:34,050 Rich Nuzum: and just general management of the Chinese economy by the Chinese 138 00:07:34,050 --> 00:07:39,270 Rich Nuzum: government, China's looking at a 3% GDP growth for 2022. 139 00:07:39,300 --> 00:07:42,480 Rich Nuzum: That's very low by Chinese standards and not what the 140 00:07:42,480 --> 00:07:45,810 Rich Nuzum: world has gotten used to seeing from it's second largest 141 00:07:45,810 --> 00:07:50,760 Rich Nuzum: economy. That locomotive for our global economy, the Chinese economy, 142 00:07:50,760 --> 00:07:55,020 Rich Nuzum: really isn't functioning and that's a problem. Last time we 143 00:07:55,020 --> 00:07:57,510 Rich Nuzum: talked, the issue around China was supply chains. Now it's 144 00:07:57,510 --> 00:08:01,290 Rich Nuzum: around China's actually moving to lower growth, maybe not technically 145 00:08:01,290 --> 00:08:03,750 Rich Nuzum: a recession, but it certainly feels like a recession compared 146 00:08:03,750 --> 00:08:07,350 Rich Nuzum: to historical levels of Chinese growth. That big locomotive, the 147 00:08:07,350 --> 00:08:10,950 Rich Nuzum: Chinese economy, now that we've had Brexit, the Chinese economy 148 00:08:10,950 --> 00:08:13,620 Rich Nuzum: is bigger than the EU economy, so it's a big 149 00:08:13,620 --> 00:08:16,410 Rich Nuzum: deal to have China not growing, so different differences by 150 00:08:16,410 --> 00:08:17,100 Rich Nuzum: region, certainly. 151 00:08:18,150 --> 00:08:21,030 Sean Aylmer: Okay, so let's bring this back to investors. You talked 152 00:08:21,030 --> 00:08:24,300 Sean Aylmer: early on about the 60- 40 equity bond having 10 years 153 00:08:24,300 --> 00:08:27,420 Sean Aylmer: of great returns. If I'm an investor, how should I 154 00:08:27,420 --> 00:08:29,250 Sean Aylmer: be thinking about all of this? Now, I've got a 155 00:08:29,250 --> 00:08:30,900 Sean Aylmer: hundred dollars to spend, where am I putting it? 156 00:08:31,920 --> 00:08:35,579 Rich Nuzum: We see investors doing three things. One is revisiting their 157 00:08:35,580 --> 00:08:38,429 Rich Nuzum: objective. Now that that every strong run is over, what 158 00:08:38,429 --> 00:08:40,410 Rich Nuzum: do I think I'm going to get going forward from 159 00:08:40,410 --> 00:08:43,980 Rich Nuzum: different asset classes? Is it enough? Do I need to 160 00:08:43,980 --> 00:08:49,230 Rich Nuzum: amend my plans for spending or what I'm contributing? Revisiting 161 00:08:49,260 --> 00:08:52,290 Rich Nuzum: investment objective as part of financial plan. Then, as they 162 00:08:52,290 --> 00:08:55,860 Rich Nuzum: look at the markets, the general trend is, " I have 163 00:08:55,860 --> 00:08:59,010 Rich Nuzum: to diversify better." If I'm an institutional investor, I'm moving 164 00:08:59,010 --> 00:09:00,630 Rich Nuzum: as much money as I can as quickly as I 165 00:09:00,630 --> 00:09:06,570 Rich Nuzum: can into private debt, private equity, real estate, infrastructure, all 166 00:09:06,570 --> 00:09:11,069 Rich Nuzum: globally diversified. I'm revisiting whether to have a hedge fund 167 00:09:11,070 --> 00:09:15,990 Rich Nuzum: or liquid alternative allocation and probably revisiting that favorably and 168 00:09:15,990 --> 00:09:18,120 Rich Nuzum: moving back into that space. You know, I may have 169 00:09:18,120 --> 00:09:20,100 Rich Nuzum: given up on hedge funds in the last 10 years 170 00:09:20,100 --> 00:09:23,880 Rich Nuzum: because anything with a market data below one wasn't keeping 171 00:09:23,880 --> 00:09:26,819 Rich Nuzum: up with the stock market. It was insurance that didn't 172 00:09:26,820 --> 00:09:29,700 Rich Nuzum: pay off. Well, they've paid off really well year to 173 00:09:29,700 --> 00:09:32,640 Rich Nuzum: date, and all of those private market asset classes, private 174 00:09:32,640 --> 00:09:35,010 Rich Nuzum: equity and debt, real estate infrastructure, paid off really well 175 00:09:35,010 --> 00:09:39,990 Rich Nuzum: year to date. Investors have been reminded diversification smooths the 176 00:09:39,990 --> 00:09:43,230 Rich Nuzum: ride. If I need to make my portfolio work harder 177 00:09:43,260 --> 00:09:45,510 Rich Nuzum: because I'm not happy with where I'm going to get 178 00:09:45,510 --> 00:09:47,400 Rich Nuzum: to as I look forward if I just stick with 179 00:09:47,400 --> 00:09:51,270 Rich Nuzum: he stocks and bonds, then, I can move money into 180 00:09:51,270 --> 00:09:55,170 Rich Nuzum: these other asset classes, target a higher return, but actually 181 00:09:55,170 --> 00:10:00,240 Rich Nuzum: reduce my overall market volatility through diversification. Diversification remains the 182 00:10:00,240 --> 00:10:03,540 Rich Nuzum: main free launch and investors moving into that. I think 183 00:10:03,540 --> 00:10:05,369 Rich Nuzum: the third thing, and this is really different from the 184 00:10:05,370 --> 00:10:10,230 Rich Nuzum: last two crises. In the COVID drawdown in March 2020, 185 00:10:10,410 --> 00:10:15,450 Rich Nuzum: or during the GFC, those were liquidity crises, and the stock- 186 00:10:15,450 --> 00:10:18,750 Rich Nuzum: bond diversification actually works. Stocks got crushed, but bonds actually 187 00:10:18,750 --> 00:10:21,569 Rich Nuzum: perform well in the short term, but liquidity dried up, 188 00:10:21,570 --> 00:10:25,979 Rich Nuzum: and so there were screaming buying opportunities for anyone who 189 00:10:25,980 --> 00:10:29,729 Rich Nuzum: had liquidity, high- yield debt, distressed debt, private market asset 190 00:10:29,730 --> 00:10:32,130 Rich Nuzum: classes being sold on the secondary market at 60 cents 191 00:10:32,130 --> 00:10:35,340 Rich Nuzum: on the dollar. We're seeing none of that this time, 192 00:10:35,670 --> 00:10:38,130 Rich Nuzum: so it's a very different market environment than the last 193 00:10:38,130 --> 00:10:40,890 Rich Nuzum: two crises. We have clients coming to us and saying, " 194 00:10:41,100 --> 00:10:43,229 Rich Nuzum: Hey, Rich, hey, Mercer, is now the time to buy?" 195 00:10:44,010 --> 00:10:46,620 Rich Nuzum: The last two crises taught everybody when you get a 196 00:10:46,620 --> 00:10:49,530 Rich Nuzum: market crisis, it's a buying opportunity. We do think it's 197 00:10:49,530 --> 00:10:52,530 Rich Nuzum: a buying opportunity in places like immersion market equities or 198 00:10:52,530 --> 00:10:55,200 Rich Nuzum: private market asset classes and so on, but we don't 199 00:10:55,200 --> 00:10:58,170 Rich Nuzum: have a liquidity crisis this time. There's plenty of cash 200 00:10:58,200 --> 00:11:01,829 Rich Nuzum: out there in the system, even with quantitative tightening and 201 00:11:01,830 --> 00:11:04,199 Rich Nuzum: raising interest rates. There's a lot of cash on the 202 00:11:04,200 --> 00:11:08,700 Rich Nuzum: sidelines and not a liquidity crisis, and so we're advising 203 00:11:08,700 --> 00:11:11,189 Rich Nuzum: clients this is not a time to try to time 204 00:11:11,190 --> 00:11:13,920 Rich Nuzum: the market. Figure out what you want to do and 205 00:11:14,070 --> 00:11:18,479 Rich Nuzum: get there over time. You can dollar cost average in. 206 00:11:18,510 --> 00:11:20,190 Rich Nuzum: We're not telling clients this is going to bounce back 207 00:11:20,190 --> 00:11:22,590 Rich Nuzum: quickly, given the underlying economic uncertainty. 208 00:11:23,640 --> 00:11:26,340 Sean Aylmer: The other point in this, Rich, just listening to you, 209 00:11:26,580 --> 00:11:29,160 Sean Aylmer: for years it seems like passive investing hasn't been a 210 00:11:29,160 --> 00:11:33,839 Sean Aylmer: bad option, but in times of change, active investing is 211 00:11:33,840 --> 00:11:35,550 Sean Aylmer: perhaps the way to think about things. 212 00:11:36,660 --> 00:11:39,930 Rich Nuzum: I do think that if you're in a position where 213 00:11:40,290 --> 00:11:45,179 Rich Nuzum: you can pick your active managers based on qualitative, deep, forward- 214 00:11:45,179 --> 00:11:49,020 Rich Nuzum: looking due diligence, do they have the competitive advantages and 215 00:11:49,020 --> 00:11:54,750 Rich Nuzum: idea generation portfolio construction implementation to beat their very smart, well- 216 00:11:54,750 --> 00:11:57,420 Rich Nuzum: resourced peers on the active side? We do believe in 217 00:11:57,420 --> 00:12:01,410 Rich Nuzum: active management, and this environment is better for that than 218 00:12:02,370 --> 00:12:04,830 Rich Nuzum: kind of a raging bull market lifting all boats where 219 00:12:05,070 --> 00:12:08,400 Rich Nuzum: risk doesn't seem to matter. Having said that, passive is 220 00:12:08,400 --> 00:12:11,610 Rich Nuzum: still a really good option. If you don't have that 221 00:12:11,610 --> 00:12:14,309 Rich Nuzum: level of sophistication, that level of resourcing for your manager 222 00:12:14,309 --> 00:12:16,710 Rich Nuzum: selection, you can free ride on market efficiency and you 223 00:12:16,710 --> 00:12:19,830 Rich Nuzum: can do it practically for free, but you can only 224 00:12:19,830 --> 00:12:22,500 Rich Nuzum: do that in the public markets. All those opportunities I 225 00:12:22,500 --> 00:12:25,170 Rich Nuzum: talked about a few minutes ago, private debt, private equity, 226 00:12:25,170 --> 00:12:29,820 Rich Nuzum: real estate, infrastructure, hedge funds, and liquid alternatives, you can't 227 00:12:29,820 --> 00:12:32,550 Rich Nuzum: do those passively, and from time to time we see 228 00:12:32,550 --> 00:12:34,199 Rich Nuzum: somebody come to market with a product and say, " Oh, 229 00:12:34,440 --> 00:12:36,990 Rich Nuzum: this is the passive equivalent to those alternative asset classes." 230 00:12:37,559 --> 00:12:41,010 Rich Nuzum: It doesn't work and those asset classes, you're giving liquidity 231 00:12:41,010 --> 00:12:45,270 Rich Nuzum: to people who literally have inside information. They have material 232 00:12:45,270 --> 00:12:48,750 Rich Nuzum: nonpublic information. These are not publicly traded securities. When you 233 00:12:48,750 --> 00:12:51,929 Rich Nuzum: negotiate with a real estate counterparty around buying a building, 234 00:12:52,470 --> 00:12:55,710 Rich Nuzum: you're relying on them. You may contract with them not 235 00:12:55,710 --> 00:12:59,069 Rich Nuzum: to misrepresent things to you and so on and so forth, but it's 236 00:12:59,070 --> 00:13:01,469 Rich Nuzum: a private market transaction. You're not protected by all of 237 00:13:01,470 --> 00:13:04,200 Rich Nuzum: the regulation that helps us in the public securities market. 238 00:13:05,070 --> 00:13:08,189 Rich Nuzum: You can only do passive investing for publicly traded stocks 239 00:13:08,190 --> 00:13:12,030 Rich Nuzum: and bonds. There are less than half the publicly traded 240 00:13:12,030 --> 00:13:15,870 Rich Nuzum: stocks available in developed markets that were available 20 years 241 00:13:15,870 --> 00:13:18,990 Rich Nuzum: ago. Yeah, the private markets are just becoming more and 242 00:13:18,990 --> 00:13:23,160 Rich Nuzum: more important. Venture capital, private equity, infrastructure, more important as 243 00:13:23,160 --> 00:13:26,429 Rich Nuzum: part of the overall economy, and so not being able 244 00:13:26,429 --> 00:13:30,540 Rich Nuzum: to participate there puts you at a disadvantage. One way 245 00:13:30,540 --> 00:13:33,270 Rich Nuzum: to look at it is if you think about where 246 00:13:33,270 --> 00:13:36,300 Rich Nuzum: there are two kids in the garage that are innovating 247 00:13:36,390 --> 00:13:39,150 Rich Nuzum: and looking to take down an entire industry sector, they're 248 00:13:39,150 --> 00:13:41,400 Rich Nuzum: in the private markets. They're in the venture capital space 249 00:13:41,400 --> 00:13:45,179 Rich Nuzum: or early- stage growth. They're privately owned, and that established 250 00:13:45,179 --> 00:13:48,959 Rich Nuzum: industry sector doing something in a traditional way is in 251 00:13:48,960 --> 00:13:52,439 Rich Nuzum: the public markets. When you invest passively, you're loading up 252 00:13:52,440 --> 00:13:55,290 Rich Nuzum: on past success. You're loading up on established business models 253 00:13:55,710 --> 00:13:59,820 Rich Nuzum: and you're structurally underweight innovation compared to an investor that 254 00:13:59,820 --> 00:14:02,579 Rich Nuzum: can do private markets. My last comment on this, I 255 00:14:02,580 --> 00:14:05,280 Rich Nuzum: always love coming to Australia because this is the geography 256 00:14:05,280 --> 00:14:07,469 Rich Nuzum: where the government and regulators in the industry have done 257 00:14:07,470 --> 00:14:11,280 Rich Nuzum: the best of making private markets available to retail and 258 00:14:11,280 --> 00:14:15,809 Rich Nuzum: defined contribution investors. When I travel around the world, an 259 00:14:15,809 --> 00:14:22,020 Rich Nuzum: Australian superannuation investor can get 35% in alternatives, professionally managed 260 00:14:22,020 --> 00:14:24,630 Rich Nuzum: by a combination of in- house staff and third parties. 261 00:14:25,020 --> 00:14:27,180 Rich Nuzum: You can just walk in off the street and pick 262 00:14:27,180 --> 00:14:29,550 Rich Nuzum: a super fund and get that, and that's not true 263 00:14:29,550 --> 00:14:31,290 Rich Nuzum: in the U. S. That's not true in most markets 264 00:14:31,290 --> 00:14:33,810 Rich Nuzum: around the world. Access to private markets is a real 265 00:14:33,810 --> 00:14:36,420 Rich Nuzum: problem for the Mom and Pop and man in the 266 00:14:36,420 --> 00:14:39,030 Rich Nuzum: street. It's not in Australia, and I think that's a 267 00:14:39,030 --> 00:14:40,830 Rich Nuzum: wonderful credit to the local industry. 268 00:14:41,100 --> 00:14:42,600 Sean Aylmer: Thanks for talking to Fear and Greed. 269 00:14:43,020 --> 00:14:45,870 Rich Nuzum: Thanks, Sean, so much for having me. Just to kind 270 00:14:45,870 --> 00:14:48,180 Rich Nuzum: of sum up, we think if you're a long- term 271 00:14:48,180 --> 00:14:50,250 Rich Nuzum: investor, now's a great time to be putting money to 272 00:14:50,250 --> 00:14:54,810 Rich Nuzum: work. We are living through uncertain times, interesting times, and 273 00:14:55,050 --> 00:14:58,170 Rich Nuzum: some big uncertainties out there, but long term things are 274 00:14:58,170 --> 00:15:01,620 Rich Nuzum: very bright. Ultimately, the problems we're having are driven by 275 00:15:02,310 --> 00:15:05,940 Rich Nuzum: full employment, overemployment, too much economic growth, too much stimulus. 276 00:15:06,300 --> 00:15:09,420 Rich Nuzum: It's relatively good problems to have against the grand scheme 277 00:15:09,420 --> 00:15:09,900 Rich Nuzum: of history. 278 00:15:10,020 --> 00:15:13,050 Sean Aylmer: That was Rich Nuzum, President of Wealth at Mercer. This 279 00:15:13,050 --> 00:15:15,630 Sean Aylmer: is The Fear and Greed daily Interview. Remember, the information 280 00:15:15,630 --> 00:15:18,450 Sean Aylmer: is general in nature and you should seek professional advice 281 00:15:18,450 --> 00:15:21,540 Sean Aylmer: before making any investment decisions. Join us every morning for 282 00:15:21,540 --> 00:15:23,850 Sean Aylmer: the full episode of Fear and Greed, Australia's most popular 283 00:15:23,850 --> 00:15:26,700 Sean Aylmer: business podcast. I'm Sean Aylmer, enjoy your day.