Welcome back to the Rate of Change with York Wealth Management. As
advices to some of the wealthiest families in the country, the Rate of
Change is a podcast designed to help you in the pursuit of building long term
wealth through the insights of some of the brightest minds in asset management.
I'm your host, Mirroq Gaddi. And in today's Rockcast, we're speaking with
Ian McCowan, the Managing Director of Pinnacle Investment Management Group.
Pinnacle is a growing multi-boutique, which provides their affiliates, non
investment funds, management services, enabling the investment managers to
focus on what they do best. Currently, they oversee $90 billion worth of
FUM across 15 affiliate firms in various asset classes, which provides
investors options across the most market cycles. Along with holding equity
interests in their affiliates, they provide seed funding, global
institutional and retail distribution, and industrial grade middle office and
infrastructure services. For me, I really enjoyed hearing Ian break down
how Pinnacle came to be and why they've chosen to work with specific fund
managers. He unpacks what services they offer to fund managers, how the
business operates, and where new technological advancements such as
artificial intelligence are being used to improve the managed fund services
industry. Before we get into the podcast, I'd also like to encourage you to
listen to the disclaimer at the end of this Rockcast and to keep your feedback
coming. You can reach me at mgatty at ywm.com.au. So with that being said, I
hope you enjoy this conversation as much as I did. So sit back, relax and
enjoy.
Ian McCowan, welcome to the rate of change with York Wealth Management.
Thanks Murdoch. Thanks for having me.
It's really good to have you on in I've been using your funds for a while and
we've had many, you know, guests on from some of the fund managers, you know,
which are underneath your stable. So I think this is gonna be a very
interesting conversation for for us, I'm going to find it very interesting and
for our listeners as well. Yep. So why don't we kick things off. And I always
like to start with learning a bit about yourself. So how did you get into the
world of finance? And do you mind giving us a little bit of an insight into your
formative years? Yeah, absolutely. So I knew from quite an early age, really,
that money and finance and all things financial could make a big difference to
people's lives. And I was really interested in commerce and financial
matters. And so I just knew I wanted to go to university and do commerce. You
know, I think I think you're lucky if you just have this inherent, strong
feeling as to what things interested interest you. And so I was lucky enough
to have that. So I grew up in Rockhampton, actually in central Queensland.
I took a bonded scholarship to do commerce at university that led to
internships and a really good job at Queensland Treasury. So most people are
surprised that I started in the public sector. But that was actually fantastic
training ground. I loved it from the day I started. Because I loved it, I worked
hard, got, you know, rapid promotion. And long story short, I ended up as the
first CEO of Queensland Investment Corp as a brand new corporation. I just
turned 33. And that's how I got into investment management.
Yeah, right. I always find the some people have straight paths and other
people proceed to you know, you would never understand the path how they got
there. But then when you look back at it, it's essentially the, you know,
without that journey, they would not be where they are. And they wouldn't be
able to have the insights and the ability to run such an operation.
Absolutely. And look, the older I get, the more I want to help young people,
especially young people coming into our industry, we have women in finance
scholarships, etc. And what I say to them is, get in touch with your your
feelings as to the sort of thing broadly you're interested in and then get
started. And then the journey will go as it goes. And you'll have choices to
make along the way. But as long as you're reasonably self aware, it'll take
you in a good path, probably very different from what you initially
imagined. I had no idea I'd end up in funds management. It was really because
of the superannuation, you know, the growth that we could see ahead in that
and the impact it could have on people's lives that got me so excited
about investment management rather than, you know, running a treasury.
Yeah, look, it's so true. Like, even my background, what I went Joey's was
really, I really enjoyed the architecture. So I want to become an
architect, then marrying architecture with the maths and the engineering level
behind it ended up at Sydney University, didn't do architecture, but all my
mates were architects. And what I learned was, if you're not the top 10%
in architects, you males will have a cab license. And some of these some of
these kids are sitting in university, some of my friends were just so
talented. Yeah, and then and then but the other thing on which I realized,
you know, going through that channel of friends is there's different ways which
you can get into building beautiful things and the other and one of them
which I thoroughly enjoyed was, you know, the finance side of things, right?
And we'll get into it as well. But like, you know, one fun which we've had, you
know, on before, which is Palisade, they're just doing such a great work for
the Australian community in the mid tier infrastructure space. But you know, at
the end of the day, everyone just wants to be a part of beautiful things being
built. Yeah, quite interesting. It's fantastic. And you know, that tech
background, I see computing and so on, that will stand you in very good stead in
the future, because maybe we'll get into that the use of technology will
be very important in delivering, you know, excellent investment outcomes to
people who have a great need. Yeah, anyway, it's so funny you say that I
did a bachelor of design and computing, I thought it's completely out of the
waste of time, because I just wanted to roll at Sydney University and have fun
and go to state and, you know, do the trans house man and all the types of
jobs. But then fast forward 10 years, it's probably one of the best
foundations for the modern world we're in. Yeah. Yeah. And then you know,
master commerce, a bit of fun. But yeah, look, tell me about Pinnacle and how
that came to be.
Yeah, so I and my colleagues, who I guess you'd say were the founders of
Pinnacle, we cut our teeth, got our early experience at institutional funds
managers, you know, most fund managers were owned by banks or life companies
and so on. And we were ultimately disillusioned at the ability of those
kind of structures to provide the right environment for investment excellence,
for the most talented investment professionals to get on with that
extremely difficult but incredibly important job of delivering investment
excellence, investment outperformance, you know, and also importantly in
sustaining investment outperformance. Everyone was looking to take shortcuts,
we were poaching each other's people, which our clients hated, by the way.
It's the last thing clients wanted, they wanted stability. And, you know, the
talent and investment professionals were distracted in so many ways. And the
industry just wasn't set up to deliver what we were promising our clients. So
we felt that there has to be a better way, a better environment for these
talented, scarce, amazing people to go about, you know, this incredibly
important task. So we came up with this, what we call the multi-boutique
model, which we felt was the best of both worlds. We felt that the boutique
environment was very likely to enable the most talented and experienced people
to deliver the best outcomes. But a standalone boutique could be fragile.
And the investment people could be distracted by the other functions. So
to be an excellent investment management business, you have to be good at
distribution, you have to have all the infrastructure to a truly excellent
standard. And yet these people have to focus on investing. So how can you do
all of that? So our solution was the best of both worlds. The boutique
environment for these investment professionals, but with the functions
where scale could be a benefit, you know, those were shared functions. And
we took the responsibility for delivering those functions to the
investment professionals to a very high standard and saying, if you don't want
to, don't worry about these things. You just get on and investing. That's the
scarce and precious piece. We'll do the other bits. So that's really, well, for
me, it was perennial first, that was the first multi-boutique. And then in the
end, things changed there. I went looking for another backer, because I was such a
believer, I was just a passionate believer in this multi-boutique model.
And it didn't really exist. So we had to build it. We had to build it from scratch.
So I, for example, boring, you know, public servant ended up an entrepreneur
out of necessity, because the model that I believed in didn't exist, we had to
build it. And that was 17 years ago. It's been a long journey. And there were a
lot of skeptics in the early days, but not too many skeptics anymore, Murdoch.
People generally are believers that it's a great model.
The brave go into the fray. Yeah, brave go into the fray. Indeed. Look, I've
always respected entrepreneurs. And, you know, the people that can see that
something there's a need, and it doesn't exist. And there's a whole lot of people
that are going to hate you for it. But the thing is, at the end of the day, if
your products sound and you know, there's a need, and you're actually
giving people what they want in a better format, it just benefits everyone. And
just to give for our listeners, I'm not really familiar with what a boutique
fund manager is. Maybe we can discuss it in the concept of horses, right? It's a
very nice way to putting it. So you know, everyone loves horses, but only some
people can afford to, you know, own multiple horses, house them, warehouse
them, feed them. And then but some people just want to ride horses or race
horses, right? So would it be the correct analogy saying that you essentially own
a horse stable, which enables people to, you know, own horses and keep them in
your stables and make sure that everyone's looked and fed and then when
they want to ride them, they can ride them.
Absolutely. I'd go even further and say that the people who look after those
horses can just focus on the horses and the looking after them, they don't have
to worry about the broader aspects of the business and making sure that
everything else is organized and so on. But yeah, it's a good analogy. It's all
about focus and people doing the things that they're good at and not having to do
everything.
Yeah. Teams, teams make more money than an individual.
Absolutely. And it's also a stronger and more resilient business model. If you
only own one horse, you know, you'd have to be very lucky for it to be
successful. Whereas if you do own a stable of them, you're going to have some
winners.
The other thing which I wouldn't mind discussing and your thoughts on this is
that we saw when there was a big move into managed funds, what 20 years ago,
you know, for Australians, which was everyone normally just had a ComSec
account in Australian property. But the world of, you know, high end wealth
management, you know, people were looking for incredibly brilliant minds to run
wealth in particular asset classes, we did see a trend of a number of great
firms coming out that started with one particular strategy and all of a sudden
they had 10. But one thing I always thought was quite challenging for those
firms was, you know, what happens if your main speciality is just say growth
assets or your main specialities property or it's just fixed income? You
know, we hope this isn't the case. But as we've noticed that nearly every single
investment out there does have a particular cycle to it. It's short term
or if it's long term. So why so with with the funds you currently have, how
many funds are there and why have you chosen the particular strategy
strategies in the portfolio? Is that to diversify against that cyclical risk?
Or as it were? Absolutely. So we wanted to have a strong and resilient business
that no one ever has to worry, could you be in trouble during a particular stage
of the cycle? So we have 15 affiliates. We believe they are all amongst the
best of their kind. And they all specialize in particular areas. And as
you say, they're all different. And it's quite diverse. You know, we have
Australian equities, global equities, global REITs, more recently, more private
market asset classes, metrics is, is, you know, private credit. Cooler bar is
listed credit, 5V is private equity, etc. So it covers a big range. So, you
know, our proposition is simply, we don't have to do everything. But
everything we do, we have to be excellent at. And we will deliver to our
customer base, a range of investment capabilities, which are in need, which
people are looking for, to a very high standard. With the talent investors
focused on delivering just that, just their specialization.
So let's let's discuss some of the actually, let's just let's do this, like
say right now. Is there a particular asset class that's not currently in the
stable that you're looking to, you know, find a partner for like, what's the
Yeah, so there are quite a lot of the Murdoch. It's, it's amazing. People
say to me, oh, you've got 15, surely you don't know. You know, the needs of
investors are increasingly diverse. And there's a lot more out there that we
could do. But we don't say we want to have one of these and one of these and
one of these, the most important consideration for us is with a
particular investment team that we discover, whether they approach us or we
go looking for them, are they the real deal? Are these people the best in the
business with a proposition that investors need? And if that's the case,
then we'll back them and we'll deliver that to the market. Unfortunately, you
know, we're listed and it's normally confidential when we're talking to
people, they may well be working for a big institutional funds manager at the
moment or
I didn't ask the name. I just said, Hey, what's interesting in an ASSA class?
Yeah, no, no. But, you know, we're talking to quite a lot of people at any
point in time. And to be honest, many of them don't end up having us back them.
In fact, I, you know, we do a huge amount of work with people, we need to
get to know them extremely well. I used to say that of the people we look at
closely, we probably only do one out of 10. And now it's probably one out of 20.
So the bar is very high. The standard is very high because we're about
investment excellence. And if we are not completely convinced about the
proposition and the team, we'll say no, we don't have to do everything. We've
got a great stable already. We think our existing strategies can go from 90
billion to probably 400 billion in time. They don't exceed their capacity, but
they've got a lot of capacity left. So if the new things we do have to be great,
really great. But if you if you'd indulge me, if you're allowed to discuss
that, I'd love to take a look under the hood about you know, how you have the
business actually works and operates. So how has the mechanics of it actually
work and operate?
Yeah, so our business model is pretty straightforward. The investment
professionals are the majority owners of their own business. They're an
affiliate. And they can go about their job focus on investing. And we provide
all the other services, institutional grade, distribution, infrastructure,
they can choose to use all or any of our services, but they don't have to
there's no compulsion. That's just there to support them. We make our money
through the minority equity we own in those boutiques. So it's highly aligned.
Most of our investment professionals are investors in their own funds. And we
often invest in those funds as well. So there's just a tremendous amount of
alignment. They make the decisions on when they're out of capacity, or
whether they add any extra strategies. And we're there to support them. And
they generally do use our services so that they can stay focused on investing.
But it's a pretty simple model, minority equity, but we like it to be really
real equity. We have arrangements with them for the recycling of equity. As
younger investment professionals emerge. And when founders or older people look
to retire, we expect that equity to be recycled because we're building
businesses for the very long term. We expect...
Am I just giving a bit more clarity on what you mean by recycled?
Yeah. So there are arrangements whereby when the time comes, and we don't push
for this to happen any sooner than it needs to, but when people are looking to
step back or step down, they have to sell their equity to either emerging
executors, often with loans from Pinnacle, or sometimes Pinnacle will buy
that equity and over time, sell it to emerging executives.
Is that contractional? Or is it more as you said with loans, it's in the
capital stack that there's an agreement that you're first in the queue if
someone's looking to retire and a key manager is looking to exit, you're
first in the queue to have the rights but not the obligation to purchase that
equity in the business? How does that work?
Yeah. So it's all about ensuring succession and longevity of the
businesses. It is contractual that they have to sell because we don't want
people sitting on equity beyond them making a contribution anymore.
One of the observations we make is that investment management firms around the
world do succession poorly. And it's sad. People hang on for whatever
reasons, ego or whatever. And we could name some big fund managers,
who've had to dynamite out founders and who lose key emerging people because
they don't do succession. But yeah, that's part of our secret source,
Murdoch. It's part of the deal that we do when we partner with investment
professionals, we contemplate succession, even though that might be 20 or 30
years away, because it's too late once you're getting closer to it,
to try to put arrangements in place.
Yeah, it's very similar with conversations that we're having with
wealthy families. Where the issues come is when someone makes a decision or
health or something equivalent, or they want out tomorrow, and no one's had a
conversation, no one knows what's going on, there's no communication. And then
it's a dumpster fire of an event and emotions get involved and it's very
difficult to handle.
It's too late. And what a tragedy. Someone has spent a lifetime building
something and it's a mess. That doesn't have to be that way and it shouldn't be
that way. But you've got to be thoughtful from quite a long time earlier, way
before it's imminent. And it's not perfect, but you can set things up to give
the maximum prospect of good succession.
Well, let's discuss that key person risk in some of these managed funds. Some of
the fund managers I've met over time, they are the business. There's a very
high profile one that was the number one player in global and is on its way back,
but it's gone the way of Manchester United. How do you deal with having such
a prolific figure leading the charge and then an event occurs and you do have
that transition, but it's not exactly the shop that it was before. How do you
help that firm in the old times?
Yeah, we call them rock star fund managers. We don't do rock stars. So this
is, I mentioned before that when we set up Pinnacle so long ago, it was to
overcome the weaknesses we saw in the industry. One of the weaknesses was
firms built on rock stars. And this happens all around the world. And we
think that's a problem. We want teams, not individual rock stars. Now, of
course, we do have key people. Every fund management businesses has key people.
You need leadership, but there's a big difference. It's a little bit subtle.
It's a fine line between good leaders, investment management leaders who are
always talking and thinking team and rock stars who talk and think I. I
mentioned we spent a lot of time with people before we decide whether to
partner with them or not. And you can tell when people are talking more
about I than we and, you know, that they're really on about, they think
they are everything. And they may have people around them, but that's their
servants rather than their colleagues. And we don't like that. We think that
makes for a fragile business. Sure, it can blossom for a period of time and
sort of slightly sadly, they attract people, they attract investors to them.
People love to see a hero, you know, I want to believe in this guy. But the
rock star thing has a terrible downside to it. So we spend a lot of time, as I
said, working on succession and teams building and growing. And that's the
reason we want to build long term enduring sustainable businesses. Yeah.
Yeah, it's quite interesting. You know, I can't help myself, but I keep saying on
the buses everywhere, the the new Napoleon movie coming out. Yeah, yeah.
Well, there's there's been a number of phenomenal people in history, but the
within the rise of fools and empires. But that's what I find quite fascinating
about fund managers. And the conversations that I'm having with, you
know, clients and friends and family members is, you know, this fund manager,
oh, they're great, they're great person, they're making money, but then
something changes. And what I've also noticed is with a lot of Australians
that is so used to a standard Australian equity portfolio moving into managed
funds, because they've had superannuation, a number of these last
institutions, they're so they think that I stick my money in. And then these
people are going to be able to manage that regardless and always get me the
result. They don't understand that a funds business, they're just people,
right? You're playing the person not necessarily and the team, it's not like
you're purchasing an index fund or whether there's an algorithm going into
it. No, it's quite interesting how you manage it, because by the sound of it,
you're essentially running administration business for managed funds
and your currencies people is that correct?
People is everything. People is the absolute core. And I would say don't be
in the funds management business. If you don't understand that these talented
investors, investment professionals, they have certain personality traits,
they can be difficult to work with, and so on. And it's a complex, it's a whole
environment. It's not just one person out there being a genius, because the
downside to that is just crash and disaster. Now we say that is not
necessary. It is not inevitable that you'll get crashing. But you have to plan
for it well in advance, you have to be able to work with these people. And you
know, it's a day by day proposition. As issues start to emerge with people, you
need to address them so they don't become big problems. Whereas, you know,
with a rock star, people just convince themselves, it'll be okay, it'll be okay,
you know, but it won't.
Yeah, the only constant in life is change. So very true. So with just
getting back to the mechanics a bit, how much with all the funds, the 15
underneath Pinnacle now, how much money are they overseeing?
A bit over 90 billion.
$90 billion.
Yeah, it's grown tremendously. Yeah, we've been listed now for seven years.
And I think, I think we're probably about, you know, 20 billion, when we
listed and we've grown very, very strongly, I think our CAGR, it's well
over 20% per annum. So which just goes to show if you get something right,
and it's not easy, and you have to execute continually, but if you get it
right, people love it, and you will grow rapidly. But you need to be, you
need to plan for rapid growth as well. And you know, our model is quite
modular. So it can grow rapidly without problems.
Can the fund managers work anywhere in Australia? Work from home? Or are they
just required to? Yeah, so the requirements of the funds or?
The overwhelming issue is what delivers for clients. That's what matters.
So now certainly, we have some affiliates, as they become more and
more global, you've got people in different parts of the world, and so
on. But, you know, the majority of our affiliates now have their people in
the office most of the time, because of those subtle benefits that they
have, because of those subtle benefits of sort of collaboration and sparking
off each other's and sharing ideas and so on. That's why it's turned out.
Not because anyone's mandated it, but because, and each affiliate makes its
own rules, you know, but that has tended to be the case. Investing is hard,
but it's not going to be going for you. And so most of our affiliates have
ended up figuring, but even though, you know, they like flexibility, and
talented people need a degree of flexibility. They also need to work
together quite a lot.
Teams make more money. Yeah, very, very true. The other question I had is, is
it predominantly Australian domiciled funds? Or do you have any
considering any international domiciled funds?
So at the moment, just because of our history, 13 of our 15 affiliates are
sort of headquartered in Australia. A number of those have people located
overseas, in the US, Canada, London, and Europe, etc. But 13 of them are
headquartered here. Our two most recent builds, or what we call Horizon 2,
where we build things from scratch, are overseas. One is AICIA, which is
based in London. Although a couple of the key people are out here at the
moment, Ashish presented at Hearts and Minds on Friday. But they're based in
London, and Greg Dean and the Langdon team are based in Toronto, Canada.
They do global small caps. And they're based there. Yeah, we think we're
becoming increasingly global. It's a global industry. And we're finding a
demand for what we do overseas, as well as in Australia. We've been doing
distribution overseas for a while. About 11 billion of our 90 comes from
overseas investors, and that's growing rapidly. So we think we will we will
end up with quite a few more affiliates based overseas in global global asset
classes. Yep.
So if I'm understanding you correctly, the Australian domiciled business is
going quite organically. And you're having a conversation with a lot of
people. So as you said, you choose your one out of 20. So, you know, that's
quite stable. Are you saying that your main, from a growth focus,
internationally, is on the mind? Is that what you're saying?
Yeah, and we don't rule out excellent things that are Australian based. And
we tend to know the people here. But yeah, I think there'll be more done
overseas than in Australia now. And Australian investors need global asset
classes, a range of asset classes, and we'll, we'll deliver those.
If the international business grows, and you probably can't talk about this
because you're listed, would international listing be potentially on
the cards? Look, a dual listing at all?
Or? Yeah, look, I don't really think so, Murdoch. We love the Australian,
you know, the ASX is a great base for us. We have, you know, a lot of
Australian fund managers, institutional shareholders, but we have some foreign
ones as well. But they don't, they don't seem to be calling for us to be listed
over there. They seem to be able, you know, they're global equities managers,
they seem to be able to invest in a company listed on the ASX. I just think
we need to stay focused and true to what has made us what's made us great. And
we don't want to get over our skis. Yeah, yeah, we how many times we've seen
that before when you've done so well in your, you know, your little patch, and
then companies try to overextend in particular areas, like look at Starbucks,
right? Yeah. Or, you know, going to the foray and then realize, hold on a second,
you know, people in particular countries do not like coffee. Yeah,
absolutely. And we've said, as we do things overseas, we're going to be
incredibly careful. Because we're acutely aware of those mistakes. Yep. You've got
to keep the right culture. So we talked about, okay, what's a day in your life? So
for me, I'm a servant leader, my the most important aspects of my job, making sure
that we are doing an excellent job of supporting our affiliates. So I'm on the
board of many of our affiliates, plus where their distribution partner, where
their ops partner. I say to people, I spend most of my time on worrying about
the things that could go wrong. And any issues that are emerging, because I've
always had this philosophy, if you address things early, as soon as they are
emerging, then nothing becomes a really big problem. So a day in my life, often
affiliate board meetings, but I also catch up informally with a lot of people
in our affiliates. And then our people in distribution and all of our ops, etc.
I'm sort of there at their disposal if they need me, if there's anything
complicated or important that they need me. I also have to stay open to our
shareholders. I mentioned institutional shareholders, we've got to keep them
informed. Twice a year, we have results, annual results, half year results, we
spend a week out on the road talking to shareholders. So that's one aspect. But
we keep it a flat structure, we keep it tight, we keep the personal
relationships strong, we need to know what's going on in our people's lives.
How many people in Pinnacle now?
There are about 120 in Pinnacle itself. And broadly, about half of those are in
distribution, marketing, etc. Australian wholesale and retail distribution
institutional offshore, and about half are operations. You know, responsible
entity, middle office, finance, risk, insurance, all that stuff. All the
stuff that just has to be done very well so the investment professionals don't
have to worry about it.
Do you see any changes? I did a podcast yesterday and one of the he's asked him
what was the main risks he's currently facing. He said the main risk is
essentially regular regulation risk, you know, with the government. Is there any
big risks coming down the pike with regulation? Like, you know, I'm a
financial advisor, we just went through the phaser. I think there was what 16,000
advisors and then went down to 8000 now. Massive.
Pass the test and there's fantastic investors, you know, 60 year olds, 50
year olds that are essentially being forced out purely because they did what
probably all of us should have done and, you know, not spent five years and, you
know, how many hundreds of dollars in education and they just went straight
into the game and they're probably some of the best advisors that I've ever seen
or had the privilege of working with. But there's continuous changes. What do
you see happening?
Absolutely. And, you know, we're sort of a market led organization. We brought
ourselves on being very close to our clients and customers and understanding
how their needs are changing, how our industry is changing. But yes, we are in
a very heavily regulated industry and I would say rightly so. We are entrusted
with other people's money. That's a huge fiduciary responsibility. It's
important to understand where the regulators are coming from and stay ahead
of all of that. We put a lot of emphasis on it to make sure we're not ever going
to be in trouble. We're ever going to be doing anything that might cause us to
run foul of the regulator. We put a lot of emphasis on, you know, just ethics
and having high standards and always thinking about our investors, the people
whose money it is. Our mission or purpose of our company is enabling better lives
through investment excellence. So we're always thinking about our customers. So
there have been changes for fund managers in regulation. Your super your
future was one that made some changes. But it's more the investment environment
is changing. I mentioned it's globalizing, etc. So another thing is
technology is going to change things a lot. You know, people are talking about AI,
but I think we generally only have a very vague idea of what it means. To me,
it will be enormous. And I want to make sure that we understand the potential of
all of these new tools, the new data, the computing power, what can be done to
gain insight to make better investment decisions. That's going to be quite big.
All of our affiliates are working on it in one way or another, but it's quite
uncertain. As you say, uncertainty is uncertainty prevails. But, you know,
these are also opportunities. If you're focused on excellence, if you're
focused on doing everything you can to be the best investors you can be, then
you don't miss these things. You know, you are there.
Let's keep going on the tech and the AI and just the evolution that is the
access to information. Like I was listening to Joe Rogan and Elon Musk
discuss AI the other day. He says that he's actually quite cautious about
the damage which it can do. But then I speak, I use it myself in a number of
aspects and it takes tasks that might take four hours down to like 30 minutes.
You can phrase an article as a particular question and then you get
talking points and it just completely has expanded. And like me personally,
around my own business, we all call off management, used to be with
showing partners. But if you look 20 years ago, I've got a number of friends
that came through JB, we're Morgan Stanley, a number of these fine
institutions, but they held the keys to you know, if you're an advisor, you had
to work at a large institution if you wanted any research fast forward 20
years. And, you know, I'm very privileged to now be able to do what I do because
I have now access to so many fantastic third parties that have just evolved
efficiently providing access to efficient, accurate on time information
that just makes my life able to live the life which I do. Like how are you
finding the evolution of technology and AI in the business?
Yeah, absolutely. So, I mean, technology is the secret to improving
productivity and to overall advancement of standards, ultimately to improve
lives and living standards. Of course, all technology can be dangerous or
damaging if it's used the wrong way and we do need to be careful about that.
But the big risk is missing the opportunity and not being on the front
foot and taking advantage. I mean, I think even of the internet, people
ask me about AI and I say, well, think about the internet. When it started,
it was some vague, only techos had any idea about it really and this idea
about the cloud and email and all this stuff. It was just mind boggling. But
then we started to see the practical applications and it's been a revolution.
And, you know, how much improvement has occurred. AI will be the same, but
you'll need to understand it. You'll need to have the resourcing. You know,
it means adding some expense and, you know, studying the emerging
capabilities that are available to you. Sort of two categories. One is massive
improvements in efficiency, as you've talked about, which we are onto. And
that will be tremendous. But in investing, better investing insights.
I mean, I've always said investing is pretty simple, really. It's
researching and uncovering the information that you need. Then it's
analysing it and gaining insight out of it. Pretty simple, really. And, you
know, over the decades, I mean, back in the day, people spent the first
majority of their time trying to find the information. Now, finding it, you
still have to be smart enough to know what data you're looking for and so on.
But the tools are there. The computing power is enormous. So, you know, if
you're not onto it, onto figuring out how you can use this emerging AI type
technology, which will be completely different and keep evolving
enormously, you just won't be a good investor in time.
I find this quite interesting, this particular topic, not just for funds
management, but just human beings. I've got two kids, a four-year-old, I'm
turning six, right? So, you know, we're looking, you know, at the school
system and going, okay, well, you know, it was once created by a good old
Rockefeller and Ford to essentially put everyone into an industry. And then
1957, you know, they said, hold on a second, we want to stick people on
NASA and then my mom got free education in university because they
wanted doctorates and etc. But, you know, I think there's been a change in
New South Wales recently, an update to how they're educating kids. But I
still find it's behind. And what I mean by this is I still find that, yes, you
need to teach the reading, the writing, the arithmetic, but then arithmetic,
sorry. But as you said, accurately, is it's not before it was, hey, let's
fill everyone's brain up with information. And then, you know, you may
have a task where you can use it. But what you're really talking about is
comprehension skills. Like there is so much information readily available at a
drop of a hat. I think South Park just came out with an episode, I won't touch
the Disney subject, but they were discussing how AI that you know,
normally, yeah, you know, people that are unlicensed immigrants over in America,
they'll go to Home Depot to get a job as but they're the wealthy ones, some of
my friends are making more money than God, you know, as plumbers and
everything, because no one knows how to do anything anymore. Right. And
they're holding signs going, I've got a $250,000, you know, debt, you know, with
a particular university for a geology degree. Right. Yeah. Which it is
ridiculous now because you just anyone can just search with AI, you know,
how does geology work? Right. So what's your suppose the where I'm going with
this is there's a lot of young people probably listening this podcast as well
that want to get into funds management or, you know, your business or be a fund
manager or the investment guy. What's your, you know, counsel, you know, to to
them with how do you deal with, you know, AI and then building their skill sets to
essentially embark on the journey that you've had? Yeah, so look, I think
things will change massively and radically. So I agree with you. You can't
fill your brain with all the things you need, because as soon as you do, it's
redundant. But as I said at the beginning, because some things never
change the the essentials. And as long as you stay focused on the essential
aspects of what need are you seeking to meet? Because, you know, people's need
for investing will never go away. It's a matter of how you can how you can
achieve it and get it to them. So what I'd say to young people is, well,
absolutely, you need to study some tech, you need to be tech aware. And the
specifics of it to some degree don't really matter. I would also say you need
to make a start in finance somehow. You know, you have to be a tech
expert. You know, you have to show your interest in your aptitude. And by the
way, do a good job of it, because employers are looking for talented
people. And we need to see some evidence to say, yes, I want this person and
not that person. So you need to get in and just start to demonstrate your
interest and your ability. But it's not about the specifics. Once you get
started, you know, get started in your career, because so much of the
learning that you find mentors, and you develop so much once you start, and
you may change exactly what you're doing, you probably change many times.
And your kids at four and six, they will change many times. But the basic
idea of thinking about who your customer or client is, what their needs
are, and my job is to find ways to meet that need, that'll never change. It's
just the specifics of how you deliver it that change. And also people, as
we discussed, put time into your relationships. And I think the younger
generation do that better than I did, my generation did. You need to work with
people, it'll always be teamwork. I don't care what the computers and the
tools are, you still need to collaborate and work with other people.
Yeah, I couldn't agree more. There's Elon Musk was discussing how he
pulled his kids out of school, and then he built his own school. I call it
the synthesis or something equivalent. And the entire thing was they got rid
of, you know, ages for schools, and it was about on aptitude. And the entire
thing was from the starting the age of seven, they're playing games like high
end comprehension games, essentially like Fortnite on steroids. Yeah, it was
and they had like four or five kids. And then there was there was no
instructions. There was no nothing. It's just, you know, keep having a go at
this. And what they found really quite interesting is, is some leaders came
out, the doers came out, you know, if something's, you know, kids have the
ability to essentially explore, find themselves and then do teamwork. And
the more I read about this, the more I think, you know, you know, my kids or
friends kids, right, that that particular skill set, you know, when
we're, you know, working in our my business, your business, or a farm
manager or something equivalent, it's all teams, right, the ability,
everything changes every single day. Nothing's everything's fluid, every,
you know, and then how do we, as you said, what I asked you, what are you
doing your day? And you said, well, predominantly creating solutions to
problems that arise, right? Every single day, problem solving, right?
Working with people to do that. Yeah. And it's essentially people, people,
people, it's people and problem solving. It's just so interesting.
So every discussion system is going to have to change a lot too. But they'll
have some good tools. We hope we've got good people doing the redesign.
Yeah, that's a whole topic for another conversation. Don't put anyone
offside. But look, a lot of great teachers out there that have done a
great job. You know, they're working again, it's a system, right? You know,
we're discussing regulatory changes, you know, what are the changes in the
system? And you know, how do you go about that to essentially improve
one's life, which is everyone's thinking, correct? Yeah, using the
technology that's becoming available. Yeah. The other question I had is
there's some shareholders probably listening in. And there's some people,
you know, that may want to go down the journey of building, you know, a stable
of fund managers. What are the numbers? You know, what type of profit margins?
You know, how does it, what are the numbers of the business? Yeah. So the
way we have always operated, the way we've built Pinnacle, we don't say, oh,
we want to get to a certain level of profit, even a certain level of funds.
We've essentially said, look, we're on a mission here. We believe, you know,
with every fiber of our body, that there is a better way of doing funds
management. And we think we need, we know what the key ingredients are, you
know, the talented professionals in a certain environment supported
properly. So if we just go out and we find the best people in a range of
fields, we do a good job of taking that to clients, well, it'll be a success,
you know? And I'd have to say it's been successful beyond anything we
imagined. But it's a platform now and it will grow a lot from here. I wish I
was 20 years younger because, you know, you ain't seen nothing yet. But it's
about doing an excellent job and doing it for the customers and meeting the
needs you know they have. If you keep doing that, the numbers will work out.
So, you know, as it's turned out, we've all made more money than we ever
imagined, not because that's what we set out to do. We set out to do
something that we thought was important and do it better. And so it turns out
lots of people want to invest with our affiliates. That's, you know, young
people sometimes say to me, as I say, I talk to a lot of them, I try to help,
they say, hey, we want to be like you. And you say, well, what do you mean by
that? And if it turns out they're saying, I want to make a lot of money for
myself. So you'll almost certainly fail, young man or young woman, because if
you do that, you'll take shortcuts. You will not do the right thing by your
customers. But if you are on a passionate journey to deliver a need
that is a major need, and you're just devoted to doing that, you find people
who are also devoted to it, get on with it, you'll make quite a lot of money.
You know, our market caps about one and a half billion dollars. It was three
billion, you know, our share price is half in the last two years as we've
gone through that difficult stage of the cycle. We're not fussed about that at
all. We're focused on the medium term. We always have been. So look, the
numbers work out. Well, it's quite profitable. We always price our things
very fairly, we want to be good value for our investors. But it also has to
be a successful commercial proposition for your shareholders. We talk about four
groups of stakeholders, our clients or customers, number one, our
shareholders, our people, we have to have an environment where top quality
people love working. And then the community, the broader community, where
we're doing lots of things. You mentioned some of our managers, you've seen what
amazing things they're doing for, you know, climate and the environment and
society generally. Of course, our fundamental purpose is helpful to
people's lives, enabling better lives. So that's the main game. And the
financial numbers fall out and end up being pretty good if you're good at it.
And if you're not, you'll fail.
I think that's quite good advice, build something that people want to play with.
And then if they want to play with it, they play with it. And then essentially,
you know, don't focus on the money. That's actually been the whole core of
what FASIA is about. Don't focus on conflict and mutilation. If you build
and generally look after your family or the people you're looking after and you
want to build a service and you want to do it to the highest standard, and
essentially the rewards follow. Don't put the car before the horse.
Correct.
So what keeps you up at night and what gets you out of bed in the morning?
So look, to be honest, I sleep pretty well, Murdoch.
I mean, look, part of that's deliberate because I am interested in health and I know that
sleeping well is very important to that and to functioning at a high level.
I mentioned before that I work hard to address issues as they emerge.
And I work with my colleagues to do that. And if you do that, which is not easy,
because people's natural tendency is to dodge hard things. But if you do it,
nothing becomes a big problem. The sort of things that really will keep you awake at night, all night.
So I feel, you know, very good about the quality of the people around me and our business
and our business model and our capabilities and so on. So the things that you might think
might keep me up awake at night really don't.
And that's not that I'm complacent, but that we address things.
I mentioned before the changing nature of investing and technology, whether we'll be able to adopt
the right new technologies and data and so on. I hate the thought of me being a
good investor. I hate the thought of missing opportunities and not being as good as we can
possibly be. That's one thing I do worry about. In the end, it'll be younger people than me who
have the responsibility of delivering that. But you know what I worry about most of all
is the people who are missing out. There are so many people miss out, for example, on the benefits
of investing. There are so many people out there who just don't know what to do about money.
And with their money, they don't know where to get help. So sadly, just sort of out of fear
or just not knowing, money is not used in the way that it ought to be. And you know, you are not
going to get the sort of outcomes you need with your money if money is left in bank accounts
or cash or just the wrong kind of investments. And you know, I said to a good friend of mine
recently who's very involved in financial literacy, I said to him, you know, Paul,
I'm afraid that I'm going to end up retiring not having been able to do anything about the fact
that investors come pouring to the equity market after equities have gone up a long way,
and they come out after it's gone down. And it's just a tragedy. And he said to me, well, you know,
Ian, it's in our DNA, fear and greed, and so on. So we need to take some responsibility for helping
people. But I do worry that we as an industry don't do a good enough job in helping people
to get the right outcomes with their money. Yeah, it's always an interesting one. How do you
get people on the right path of education? Hopefully someone someday may petition the
government to allow their finance to be taught in schools, accounting, legal, just shake things up,
or, you know, anyone out there that runs an institution or thinking about, you know, opening
up an institution, preferably someone in Lankov, you know, that, you know, offers primary or high
school and, you know, the ability to educate, you know, young minds early on in the piece to like,
even if even if someone wants to get it sparky or get a chippy trade, like the majority of my
friends that do that, they run their own business anyway. And then they need to know, okay, what do
I do with that money? And I think at that point, you touched on before the majority of families,
as I speak to, they're phenomenal. They've done the same thing over and over again, to a point
of excellence for 30 years running their own thing. And one of the most troubling conversations I have
is they just think that they can take what they've been doing for the past 30 years, they get a very
large windfall when they sell their business or retire or something equivalent, a lot of money,
tens of millions of dollars. And then they think they can do the exact same thing in the finance
world. But the first year, if it's a good year, and it's a COVID and everything moves up, they
think they're heroes, they don't need any help. There's always a winter around the corner. And
what they don't realize is the number of variables associated with our industry. And they get confused
and they don't know where to hide. And they go screw this, they toss in the towel and throw the
money in the you know, in an asset class, they think is safe. But yeah, I just think we don't
agree that just a pathway for you know, education or just the ability to find information. Yes.
So important. Yeah. So financial literacy is just a fundamental life skill. Yeah. Like learning
English or basic maths and so on. So and it's not that hard. So yes, there should be attention given
to that. And then yes, help people to understand, you don't have to do it yourself. If you're
an expert in your trade or your field, you don't have to be an expert in investing. You just have
to know how to find the right people to help you. It doesn't happen often enough.
Yeah, I completely agree. So with that being said, Ian, look, it's been a pleasure having
you on. I've learned a lot from today and hope everyone has felt the same.
Yeah, I've enjoyed it. I'm sorry if I've taken us off on a few tangents. But
look, that's the reason look, in all honesty, Joe Rogan has been such a fantastic person for
the podcast genre of these long format conversations. This is the most enjoyable part when you go on
tangents, and then you're not in particular places, but it's all associated with financial markets.
It's so interesting. And again, I really thank you for your time, Ian.
No, you're welcome. You're talking about things that I'm passionate about. So that
isn't that the keto a happy life?
It is. Absolutely. Yeah.
All right, Ian, have a great day.
Great. You too. Thanks a lot.
Bye.
Bye bye.