09. How to Navigate Risk, Change, and Uncertainty with Siddharth Chakravarty

In this episode of The CIO Chair Podcast, we sit down with Siddharth Chakravarty, Vice President of Investments at Coaction Global. We explore the realities of modern investment leadership and the evolving responsibilities of today’s chief investment officer.

The conversation covers how CIO's make decisions in uncertain markets, balance long-term strategy with short-term pressures, and build investment frameworks that can withstand volatility and structural change. We also discuss governance, risk management, portfolio construction, and the human side of leadership inside institutional investing.

Throughout the episode, Siddharth brings a measured, analytical perspective to complex investment questions, while also showing a natural curiosity and openness that reflects how he approaches leadership and learning. Rather than relying on rigid market narratives, Siddharth emphasises adaptability, long-term thinking, and the importance of staying intellectually honest when conditions change.

Siddharth reflects on his career journey, the lessons learned from navigating complex market cycles, and the mindset required to lead investment teams effectively in today’s environment. We also explore the future of investing, including how technology, private markets, sustainability, and changing client expectations are reshaping the CIO role.

Whether you’re a chief investment officer, institutional investor, pension professional, or aspiring investment leader, this episode offers practical insights into how the industry is evolving, and what great investment leadership looks like in practice. 

Enjoy! And please consider leaving us a review/rating on your podcast platform of choice.

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Transcript

SPEAKER_03 0:10

Welcome to the CIO Chair, a podcast hosted by the CIO Investment Club in collaboration with the Pension Insurance Corporation. In each episode, we will sit down with the top chief investment officers to explore their unique investment philosophies, decision-making processes, leadership strategies, and personal career journeys. Now let's get started. Welcome everyone to the CIO Chair, hosted by me, Sean Thompson. And me, Hartej Singh. The CIO Chair's guest today is Sid Harf Chakravati, the Vice President of Investments at Coaction Global Speciality Insurance Group. Sid Harf oversees investment strategy and portfolio management for a $3 billion multi-asset portfolio spanning public and private markets. He leads strategic asset allocation, manager selection, and risk analytics with a focus on private credit, infrastructure, asset-backed finance, and real assets within a regulated insurance framework. Previously, Sidhoff held senior investment roles at NSTAR Group and AIG, supporting large globally diversified portfolios and firm-wide capital markets and risk initiatives. Welcome to the CIO chair, Sidhoff. It is a pleasure to have you here. And as I always say to our guests, I hope you are sitting comfortably.

SPEAKER_01 1:43

Thank you, Sean. That is it's wonderful to be here, and it's a pleasure to be with you in Hot Tage for this conversation. Looking forward to it.

SPEAKER_02 1:51

So so what we like to do is start at the very beginning. So when you were studying, if you had sort of forecast when you were during your study years, which direction it would have gone in, would it have gone in the direction that it went in?

SPEAKER_01 2:04

Yeah, so I'll start from the very beginning. My career started as an engineer. I studied mechanical engineering with a focus on semiconductor process engineering. That's mouthful to begin with. So that's the kind of work that takes you to work inside fabs, the yellow lights, sitting hours and hours in front of a microscope, looking at those 25, 30 meter, nanometer lines, making sure everything looks correct. That was the kind of experience my career was supposed to be built on. At that point of time, the plan was clear. Build a career in deep tech, probably in hardware design, or focus on process engineering. That was a goal. But finance was not even on the radar. But in hindsight, 2020, the analytical rigor that came in with engineering, like breaking down complex problems, looking at stress testing assumptions, understanding how small variables can make big impact and large outcomes. And that's exactly the kind of mindset you need to have when you are an investor. So I didn't know at that time that all that would play out, but here I am talking to you about my career path. So yeah, definitely not what I started off at, but where where I'm at today is definitely a very interesting position in my career.

SPEAKER_02 3:25

That's fantastic. So did you ever work as a mechanical engineer or did you go straight into finance?

SPEAKER_01 3:31

I actually did work as a mechanical engineer. So my career started working for a startup company. I started in the US and then started to work my way into wafer fabs across the world, designing processes in the US, China, Taiwan, Singapore. I used to manage a supply chain of network of vendors spanning across the world. That was kind of my work. It was very technical, focused on things like yield optimization, process control. It's a kind of precision that does not allow for grounding errors. Now that's a world where I started off with 90 nanometers and 65 nanometers lines, where now we're talking about three to four nanometers as being the tech stack right now. But what's interesting is that looking at where the deals I did as an engineer. And now when I look at what's happening today in this world, a day and age of AI, semiconductors, everything else, there's a lot of strong resonance of what I did. So when I go into a room and the manager tells me, yes, I have a GPU financing deal of XYZ, that rings a very strong bell. I understand where the tech stack is and what it took for that chip to make its way into the hands of where it stands today. So in today's day and age, somehow my background as skill set is just proving to be a valuable edge when it comes to underwriting.

SPEAKER_02 4:52

That's that's incredible. So from the move from the engineering world or the semiconductor world into finance, were there any risks you took along the way in order to get where you are? Or conversely, were there any lucky breaks or people sort of giving you a chance?

SPEAKER_01 5:07

Honestly speaking, I didn't plan for anything. It just happened and I navigated my career across it. So when I started working for the startup company and then eventually made my way working as an investment analyst, working for mobile investment, I moved from the tech side to the investment side. So that was my first, I would say, my break into it. And as it goes in shing, saying in insurance, you don't find insurance, insurance finds you. And that sort of happened to me. It's like first EIG came calling, then was NSTAR, then came coaction. And each layer of my career has added a layer of education and layer of experience that has been elitive to my overall career growth. So starting with mobile investments, very, very high-level macro, top-down view, looking from investor and analysis point of view, moving on to AIG, life insurance, big book, a lot of complexity, how you manage the book. Coming to NSTAR, a reinsurance company, similar to a very strong player. And now at Co Action, where I'm now heading of the investment, starting from ground up, focused on a PNC. So I've sort of seen the three legs of the insurance industry and how all the three asset managers sort of work in different, let's say, sandboxes. That's been quite additive to me. To your point on the lucky break, I think it's mainly been about perseverance grit that has sort of worked for me. Um luck was there when somebody did take a chance with me. When, you know, when AIG first gave me the job offer, they saw that yes, this person doesn't actually have the finance background, but they saw the analytical rigor that I had, which maybe other candidates didn't have. So that was the luck that sort of paid in. But for most part of the time, it was me just kind of going along and making sure that I'm putting my hours into it, making sure that I'm speaking with the right people, networking the right folks. And then it was just a matter of opportunity, hard work, and somebody take a chance with me.

SPEAKER_02 7:06

That's amazing. So not only is it sort of exceptional, you've got a background in deep tech and uh finance, but also you seem to have had an incredible number of international experiences. I would love to hear about that. Specifically, like where does it help you having worked in so many different environments?

SPEAKER_01 7:21

Yeah, and like as a matter of background, so I grew up in India. That's where I started from. Then from India, I moved to for my education in the US. And then after I graduated, I decided I wanted to kind of see the world. So I said, okay, fine, let me take my chance at my career. So I started working with a startup company. And I moved to Taiwan, I lived in Singapore, then came back to the US. So that's what gave me that cultural, I like to call as fluidity. And that actually turns out matters a lot, especially now when you're sort of looking at investment across the board. So let's say when we're evaluating a deal for infrastructure in Iceland or Australia, you know, it's not just looking at the deal structure, that's just one part of it. There's tons and tons of amount of work that's to be done on the regulatory framework. It's about the political stability in the region, it's looking at the local market dynamics. And having sat across people from other seats, it sort of gives you a different view on looking beyond the commercial norms and asking questions where how you invest domestically versus how you invest internationally is very different. And the second thing that the international experience teaches me is the intellectual humility. That I think is way more important. You know, learn quickly that the way we do things isn't universal, right? You there is a competitive advantage when you are trying to find non-consistent opportunities. Just because it hasn't been done before in your box doesn't mean it cannot be done before. So that's the sort of the intellectual humility that you always have to approach every investment thesis without this could be the next big thing or this is different.

SPEAKER_02 9:03

That is a fascinating background, and thank you very much for sharing. So if we go now towards your current role and what coaction speciality does, what does coaction specialty do? And what is the role that their investment portfolio plays?

SPEAKER_01 9:17

Absolutely. So coaction specialty insurance part has been equally interesting as that of mine. So I guess that's why we resonate so much. So we start off as a company called ProSite. Uh, this was back in the days. We were a publicly listed company. And then back in 21, 22, we became private, taken by two sponsors for the global and tower brook. On the liability side, we write policies which are short tail PNCs. And if you think about that, this is across seven lines of businesses we write is property, casualty, excess casualty, directors and officers, insurance, there's entertainment, there's catastrophe, and there's specialty insurance. That's those are the biggest lines we write right across. And on the asset side, this is where I come in. We the book, as you mentioned, is around $3 billion, but plays a very important role uh in terms of the investment portfolio and also in terms of the ROE of the company. We are managing the book not like a typical fixed income book. The book is diverse and we're building upon it slowly, but also very, very deliberately, partnering with managers that we think will add value for us. So the overarching goal for us is that we are looking to expand the book with the goal of having capital preservation, regular compliance, and also book yield maintenance. That's how we sort of thinking how the book and the liability sort of interact with each other.

SPEAKER_02 10:47

That's incredible. And and so how does that mandate influence your risk budget? And specifically, how does that influence your strategic asset allocation?

SPEAKER_01 10:56

So the strategic asset allocation and the risk marketing, I would like to say is as two separate components of it. So starting with the risk budgeting, right? On the risk budgeting, we have what we call as three non-negotiable parameters. The first one is cat preservation, the second one is regulatory compliance, and the third one is basically booked maintenance. These constraints always come first and are the foundation of our book. And because we write PNC, PNC is very different from life. It's short tail, it tends to be a lot more volatile, it tends to be a lot more lumpier than a life is. Life is more predictable. You can do a cash flow matching, ALM matching very nicely, but a PNC book is very different. So when we are writing the book and we are writing against the book and we're doing risk management, it's usually duration match. We cannot do a cash flow matching for the portfolio. It's very difficult to do it. So which means that we have very limited tolerance for illiquid positions. So, because if there is a scenario in which there's a big cash need, you know, we don't want to be forced sellers in the market. So it's a balance about having liquidity, but at the same time staying invested. So from a risk budgeting point of view, this is where the portfolio construction comes along. So the code book, which I think is the bulk of the book, that is duration matter, is conservative. It focuses on capital preservation and book yield. On top of that is my core plus portfolio. This is where I express my tactical sector views. This is where I'm working with specialist managers, whether that be in non-agency, RMPS, private placement. And then finally comes the charity in the topic, that is my private credit book. Smaller, but growing, but that is what is sort of giving me some of the duration exposure and also increasing the bookkill as a portfolio starts to grow. So that's how I think about the mandate that I have on capital reservation and the same time how I budget the risk across the different asset classes and different risk buckets that I have.

SPEAKER_03 13:06

Sidhav, based on those different types of allocations, does your view change when you're thinking about it from what's happening in the financial markets and when things are going around the world as we see it today? Do you change those allocations from your core and your core plus?

SPEAKER_01 13:24

So I think Sean, let me take a step back away here. So when we start our strategic asset allocation framework, it's a three-step process, what I call as a three-layer framework. The first layer is basically based on quantitative foundation. This is where we incorporate our assets and liabilities, our return assumptions across asset classes. And then we run what is called as our optimization platform. And this gives us, let's say, a bunch of model portfolios. And this is our base view across sectors. Once we have those base views, we then layer on as our top-down assumptions, which is macro views. This is where we think where rates will be, spreads will be, where we think more values come up. And then we discuss across our network of managers and sector specialists to see where are the bottom-up view in terms of actual sectors that we should be investing in. Using these three frameworks, we form our baseline. This is my starting point from today's year onwards. That does not change. I do not change that because that is what my guiding post is. That's what my IC approves at. But as the year progresses, there's always an opportunity. So think about that the SAA as not being the straight jacket. When markets move, we move with it. And we evaluate our performance as we go along. Like, did I make the right decision? Did I invest in the right strategy? What was the relative value versus what I had originally planned to be? Where did I go wrong? And what should I do differently as year progresses? So it's always trying to have a baseline and then measuring your performance on that baseline. So the year end, you can evaluate yourself in a much more cogent manner that where you started from versus where you ended, how far off were you? Did you do better or did you do worse? And what decisions you made along the way that sort of were either favorable or unfavorable for you. So that's how we think about the entire SA framework. And to give an example, when the Liberation Day happened, that opened up pockets of opportunity. And that's the kind of things we're trying to look for. And we say, okay, was that a good move or was it a bad move? That's how we think about the SA framework and how it sort of changes or doesn't change across for a few months or just a year.

SPEAKER_03 15:47

So does your SAA give you sort of quite a lot of um leniency in terms of being able to allocate at any time, or do you have to go through that process of going to your board, your investment committee to get it approved each time, which delays the opportunities that might be available?

SPEAKER_01 16:06

The SAA permits us to deviate from sector view. So there's one view in which we are marginally increasing allocation to one sector. But if you're now going to go for an entire new sector allocation, let's say I didn't have any allocation to EM debt, but I want to now add allocation to EM debt because I feel that is a good way for me to express sector diversification and also move away from the concentration AI. In that case, yes. I have to go back to the IC. There's a full process. It takes six to nine months for doing that. So yes, marginal allocations, no problem, but big sector changes that goes through full process. And that of course takes time.

SPEAKER_02 16:50

So when you're sort of putting together the different assets that you can allocate in, is it a sort of stress test? Is it um a volatility type of calculation? And how do you incorporate, for example, sort of extreme events, whether it's a recession or some sort of geopolitical event?

SPEAKER_00 17:07

I did you're asking the question, which is sort of so so so appropriate right now.

SPEAKER_01 17:12

So let me take a step back here. So we start off with any investment with doing stress stretch across three things. We do our spread, we do our credit spreads, we'll do moan past scenarios, we'll do the stress setting on geopolitical scenarios. So we have all those things built up recessions, regional banking crisis, all things are there. What we have added to this whole bucket of stress testing are two additional components. I call them as taco and nacho. And this is essentially my view of how the supply chain constraints, the new geopolitical paradigm that's shaping up. There's no playbook for that right now that exists. We do not know how this oil shock will shape the economy. We do not know how the new orientation of global alliances will shape up the economy. We do not know how the AI will play out. Those are scenarios that we do not have a playbook for, but we need to say, be invested, stay invested, but have that in our hindsight and have that in our purview that we are not over-allocating to a certain risk scenario that we did not contemplate for. So we try to model these things to the best of our abilities, but there is nothing in the textbook that tells us what will happen next. So those are the two scenarios that I do not know the outcome for, but we're at least thinking about them and thinking about how we should invest in the ideas, but also be aware that there is risk on the horizon.

SPEAKER_02 18:55

That is fascinating. And I think I think specifically with the oil shock, that is something which I think we've experienced in a short period of time in Russia-Ukraine, but actually for a prolonged period has been more difficult. How have you thought about that? Is that is that a high inflation environment, or have you gone into sort of where the where the choke points start arriving?

SPEAKER_01 19:14

So I let me start with this. So there's an oil analyst on Bloomberg, Javier. I think he explains oil dynamics the best. So I usually take his playbook a lot. And he sort of helped me to dissect like what's going on in the oil market. Now, from where we sit, it's a headline risk. We think that the oil supply is going to be detrimental in the future. Oil prices are here to stay higher for longer. Now, of course, oils do move up on tweets these days, they do not move on fundamentals, and that's a challenge right now. How do you factor that in investment thesis? It's difficult to do it. So we're not taking a view on what the oil will do. We are taking on what the Fed will do and what the economies will react with. So our reaction function is second order, is that yes, this will create stress in the consumer. This will create a higher for longer. This will create opportunities in the energy sector. That's the second order impact that we are investing in. So starting from the consumer side, we view that yes, the lower leg of the K cycle will get impacted a lot more. These are your consumer subprime borrowers. So let's not leg into that. We are thinking that energy investment, energy transition will be a new thing. We also think that green energy will make a comeback because there is a scarcity of power coming in. So now we are starting to look into sectors that are starting to avoid sectors based on the headline or based on what we think the longer-term impacts of this will be. And just to add to that, this also makes us to think where should we invest next apart from the US? Like, are there new geographies that we are not thinking about? Are there investment thesis happening across the ocean that we should now be more concerned and more thoughtful about in investing in as well?

SPEAKER_02 21:12

And I think that neatly sort of comes onto so how do you think about diversification in a US dollar fixed ticket portfolio?

SPEAKER_01 21:20

So when we think about the entire USC portfolio, since we are US domiciled company and we basically write insurance premiums within the US, we are always 100% invested in the US dominant currency. That's our predominant stake. But if you look at what's going on in the US market, it tends to be overly saturated with few key suppliers, and the AI theme sort of touches everywhere. So looking beyond the ocean, if you look at countries such as Europe, you look at Southeast Asia, look at South America, look at Mexico, these are turning out to be very interesting opportunities where there is an AI component to it, but it's not. Directly linked to it. There's more material, there's more commodity, there's more manufacturing, which we think this has more legs and more room to run versus just being with the crowd investing in over the saturated and overly complicated and financially engineered AI related investment. Now, don't get me wrong, I think this is a great opportunity. This is once-in-a-lifetime investment supercycle. You just cannot sit on sidelines, but you need diversification that. So, this is how we're thinking about non-US investment is not to sit out the supercycle, but hedging our bets appropriately across sectors and geographies just to make sure that we do not get caught on the short end of the stick in case the bubble burst.

SPEAKER_03 22:44

How do you work with your team and challenge the ideas that they may give to you when thinking about different uh asset classes that you might want to allocate to in the future? I mean, how how do you work together?

SPEAKER_01 22:56

So for me, we are a very small team. We manage a $3 billion book. It's myself and three individuals. And we rely 100% on our external managers for asset allocation. So when it comes to a new idea, it's not a solid decision investment process. We are looking for the team to challenge every investment thesis that I bring to the table or they bring to the table. So it's a very cohesive process. We are constantly debating, we're constantly talking about whether this investment makes sense or does it make sense? We're talking from not just diversification, we're talking from a relative value perspective, we're looking from complexity. Are we getting compensated for duration? Are we getting compensated for the risk we're taking for it? Do we have enough liquidity in the investment if it needs be so? Because those are the factors that we have to invest ourselves across. And the next step comes is when we're doing a major allocation, let's say I'm talking about EM debt, that's where the FNIC, our investment company, comes into place. The thing that we do differently here is that we are not going to the investment committee after we have formed our thesis. We are constantly in engagement with our investment committee members, bouncing ideas with them, having more informal discussions, getting their views on it before we go to the board and ask for approval. That makes for a much more better use of our time and also the investment committee's time as we think about new ideas. And because we are backed by private equity sponsors, and both the sponsors have seen credit cycles in their lifetime. So they give us so much ideas and they also test our assumptions so that when we are finally presenting our investment thesis, it's airtight. We are making sure that what we're investing in makes sense for us, it makes sense for the company, and the board is approving it and we're making the best use of the time as well.

SPEAKER_03 24:57

And with regards to the external asset managers that you mentioned, I mean, can I ask, how many asset managers do you work with, partner with for your $3 billion portfolio? And how do you allocate the asset classes across those asset managers in terms of what they may be investing for you?

SPEAKER_00 25:17

Yeah, absolutely.

SPEAKER_01 25:18

So we right now work with 16 managers. That's my roster of managers. And we have two core managers, which sort of form my bulk of the book. That's basically my liquid portfolio. And then we have a set of specialist managers, specialist managers. These are our CRO managers, non-agency managers, municipal managers, prior placement. They're the ones in which they are replicating ideas that my generalists cannot do it. They are rotating in the sectors which they have specialty. And this is all they do. This is what they live and breathe in. They know this sector way better than anybody else does know it. And the lastly is the product credit managers. This is where we are now staying into, let's say, the senior secured part of the market, upper middle market, lower middle market, and also getting towards aspect financing. We're doing infrastructure with them. So this is where the diversification comes. And so we have really tried to diversify our book away from core into core plus, into private credit, but at the same time, not take too much of risk. My mantra always is that this is an insurance balance sheet. This is not a hedge fund. Treat it like one. Yeah. Put in risk, but don't take excessive risk. The goal is for to have capital reservation, RBC treatment, and book enhancement. Enlist on those three pillars. Do not try to take excessive risk on the book, because that is not how this book is supposed to be run. That's how I sort of manage the books.

SPEAKER_02 26:48

That makes loads of sense. So let's say it's very clear that because of your background, you know, you're going to have a fairly unique insight into AI. And for a number of sort of market commentators, they see this as a theme that whether or not you're directly investing in AI, it will have an impact on your portfolio one way or the other, either positively or negatively, depending on the sector you're in. How are you thinking about AI and what are the kind of expressions that people can make within a fixed income environment?

SPEAKER_01 27:18

So the AI infrastructure buildup is probably the most important structural investment of this decade. But I would push back on the idea that it's purely just a data center financing. The expression of this thing is what makes this sector that much more challenging. Now, the market today is pricing in roughly $7 trillion to come in by 2030. So that's roughly a period of around a trillion dollars coming in every year into this sector. That is an extraordinary amount of funding that is coming through at a very fast clip. And that is what's pushing the spreads down. It's also weakening some of the documentation. And this is also where the tools arrive. And this is where the discipline on writing sort of matters the most. Now, to your point on how you express it, that it is fascinating how you can do that. So let me break it down so it'll help you understand how I'm thinking about it. So I think about investing in AI as part of a whole. The goal is to be invested in the supercycle, but the idea is to put specific parts of the credit market, the capital structure, the geography, the instrument type, where you think that you're being compensated to take the risk on it. And I think about this thing from two lenses. One is the investment stack, the second is the tech stack, and then the last one, which sort of spans both of them, is the geography stack. So if you start from the investment stack, this is where the first thing comes your investment rate bonds, your ABF. Easy. That's the first thing you can buy in, no problem. There's plenty of it to buy through from. This is where you get your IG exposure. This is where you have your strong tenants, your hyperscalers, good credit quality that you can lead into. Now, the next step of this is your high yield and bank loans. This is where your new scalers or your emerging data center markets are coming in. So that's one way to take a risk. Then move into is your private placement market, your 144A market. Very, very tight covenants. You're seeing better documents coming in, but the deals tend to be more lumpier. It's hard to get a pacing cycle over there. Now you log into the last spectrum of the investment that is your private credit. This is where everything falls into place. It's your data center, your aspect financing for your GPUs, you can do realistic on-a-shell investment for just the built-out, you can do power. There's many ways you can play that part of the sector as well. Then comes is the tech stack. So when we first did investment data centers, it was just financing the whole data center. But now when I say you can take parts of a whole on the tech stack, you can literally break down the components of where you think the real value is. You can start from one end of the spectrum, the lowest duration paper, which is your GPU financing. You can make your way up into fiber, you can do dark fiber, you can do lead fiber, you can do battery power, you can do turbine financing, you can do wind financing, take a step back up, you can pick up the entire data center. And take a step back up, you can finance the equity as well. So pick your spot where you want to invest in. And it's up to the allocator to decide where he finds the best risk reward and real value and where he's over or underinvested. And then you take that whole sphere and you take it from a geography point of view. North America has the highest amount of data centers populated in one area, Northern Virginia. Now you're seeing parts of Texas, Lower World coming up as well. You go across the Atlantic, you have Europe coming in, Iceland is also in game, you have Latam coming up, you have Southeast Asia coming up as well, Australia, and so you have geography as well. To note out a little bit more, you take everything that I spoke together, the credit cycle, the credit component, geography, and the tech stack, there's literally 150 ways in which you can invest in AI today itself. That's a lot of ways to invest in AI. You just have to pick the stack that you feel has the best real value for it. And now the idea is that you just have to avoid risk on your book. So right now, the biggest challenge for us is that every AI-related investment that we are doing, we're going back and looking at that component. Like we financed a GPU financing deal, not just GPU financing. Who was the back off taker for the deal? Was it Microsoft? Was it Amazon? What's responsive risk for me? That is the level of role through we have to do today just to stay invested and also to express our views in this AI superside.

SPEAKER_02 32:36

Yeah, that's a really, really comprehensive sort of framework to invest through. So thank you very much for that.

SPEAKER_03 32:42

Does that mean that in theory you could look for a pure allocation into an AI strategy that is looking at all of the things that you've just mentioned as a as a mandate, as a fund, as opposed to what you're then saying you could also be doing, which is actually looking at the individuals within the individual asset classes that you have and looking at AI within, or should you be doing it as a separate uh asset class altogether?

SPEAKER_01 33:13

It is all depends upon your risk profile. Once you take on the entire data center, you're taking on two risks. You're taking on a duration risk, you're taking on a credit risk as well. If you do a GPU financing, you're not taking off so much of a duration risk, but that paper will amortize in the next three and a half to four years. You'll get paid off, and you're not taking off much of risk except for technology risk on that part. So the two spectrums of investment will give you a different duration, risk profile, and a different sponsor exposure as well. So I don't think there's a right answer to your question. It matters is what you feel comfortable in doing. And it's the exact same thing when it comes even on the equity markets. Not that we invest in equity markets, but you could buy financing, or you could buy equity for Nvidia, or you could buy the equity for Microsoft. Where do you have the highest conviction on? Do you believe that it's the likes of Microsoft and Apple and Amazon that will drive the AI supercycle, or is it likes of GPU drivers from Nvidia or Broadcom and et cetera, that will drive the next supercycle? Or you believe are the optical company manufacturers, the connings of the world, the microns of the world, those will drive the next supercycle? It's a flavor of the month, I would say, for equity markets, but us as credit investors, we are long-term investors. So we have to really think about this thing from a long-term investment perspective. So it just comes down to is what's real value for me? And do I want to take on the risk at the point of time?

SPEAKER_03 34:49

And last question on AI for me. Do you think that asset owners, asset managers are using AI to come up with the decisions that they may be making on the allocations that they are allocating to? And how is that going to change or affect portfolios in the future?

SPEAKER_01 35:11

I think it will be a tremendous change in terms of how we do our jobs in the future. Um, but it's all about data. I always say like just dumping your investment thesis into Chat GPT or Cloud, pick your flavor. It's not the right way to do it. You need to spend time on training your agents, training your models to help you out. And we've been spending a lot more time with our counterparts to understand how we can teach our models better, how to provide it context. The whole idea of prompt engineering, the whole idea of contextualization of an idea within an AI model, that's the first thing. And unfortunately for us, insurance companies are not the best data keepers. We still work out of Excel files. And that's not the way to do it. You need structuring your data, you need to train the model to do that. So we should have a different podcast we will talk about. Yeah, and this is one thing I'm very passionate about, at least on the application side and also on the investment side. So yeah, we should definitely follow up on that next year and have more conversations to see how things evolved.

SPEAKER_02 36:22

We'll definitely take you up on that. Absolutely. So sort of zooming out, and obviously over your sort of investing horizon, um, you're gonna have made some trades that you're really proud of and ones that you've sort of learned from. So starting with like an investment or a decision that you've taken that you're really proud of and that's worked out well. Could you share that with us? Absolutely.

SPEAKER_01 36:43

So on the investment trade ideas, it's like picking my favorite child. You know, all have been decent, they all have worked out pretty well for me. Uh, but an investment decision that we made, which I'm actually very proud of, is securing our membership to the Federal Home Loan Bank of New York. It's basically building out of our FHLB spread learning program. Now, most of the audience outside the US may not even know what this is. So I'll give you a brief overview of what this is. So the FHLB is essentially a member bank. You apply for it, uh, you get membership into it, and you can post collateral. And based on the collateral you post, you can take out advances from the bank. And this is a very low-cost advance that you can take out. And the advances can be used for a variety of purposes. It could be used for MA, it could be used to fill up a liquidity need in a portfolio, and also can be used for spread lending. Essentially, what spread lending is that you're borrowing at a lower cost, you're investing at a higher basis. The delta between that is your income, and that flows right away through your net investment income. And that is essentially taking on leverage on your portfolio, but in a much more prudent manner. What makes this thing more meaningful is that the admission to FHLB New York is one of the most selective and one of the most demanding endeavors that we have carried out in the last nine months. That's how long it takes for us to get admission to it. And the requirements for collateral, the requirements for getting uh application through is one of the most rigorous ones of all the FHLB institutions that exist in the US. So getting admission has really paid off in real time. We now have a dedicated spread lending program, which meaningfully increases my book yield, my spread on top of my existing portfolio, which means that I can maintain the overall quality of my portfolio. At the same time, I'm increasing the yield and the funding costs have to come down a bit more. The other dimension, the other two dimensions, which basically that adds value to this achievement, is that AM Best, which is our rating authority, actually looks on membership to FHLB very favorably. So when structured properly, this is not treated as a financial leverage, it's treated as operational leverage. It's a very legitimate way of taking on leverage on the portfolio, enhancing your investment income without taking a risk on the portfolio. And second is that it also improves on how they assess our membership. And so this kind of adds a lot more value for us in terms of a PC company on how we manage our balance sheet and how we can leverage our balance sheet in a more structural way. And privacy is the biggest contribution that it'll have in my company because doing this thing has been one of the most important things I've done since I joined the firm.

SPEAKER_03 39:44

Congratulations.

SPEAKER_02 39:46

Thank you. I I I could tell from the way you're describing it, it wasn't a straightforward process. No, it definitely wasn't. It definitely wasn't. That's brilliant. So so what about um one of the more difficult investment decisions you've made and something that you've learned from?

SPEAKER_00 40:03

Yeah, so when I first joined the firm, you know, the product credit market was booming.

SPEAKER_01 40:08

And almost every peer of mine was investing in product credit. And while I wanted to invest more aggressively into it, there were needs within the firm that had that had pressures in which I couldn't do it. So having a full more that the entire market is going past us was a difficult job to solve. When I started looking at the deals that were coming on our desk and the managers we were speaking with, I found out that there were more of refi deals rather than actually good deals coming in the book. So hindsight 2020, there were a lot more tourists coming in that when we were planning to invest in the market. So the decision to stay back and sort of stay patient and let's see how the market plays out actually was a difficult decision to play out, but it actually worked out in our favor. You know, as an allocator, the job is not just to invest, but it also is to decide when not to buy. And that's what we did. And it was a difficult decision to make, but it actually helped. You know, the market was moving, but being patient actually helps.

SPEAKER_02 41:16

So now if we can sort of go over to leadership and influence, obviously the role of a sort of senior investor is to also make teams work to get outcomes. Um, so could you describe your team? What does it look like and how have you organized it?

SPEAKER_01 41:31

So it's a small team. I said three people for three brand of our portfolio, and that's intentional. So now we compensate for size. Uh our manager relationships is basically my extended team. Being 16 folks, I they don't work for me. They are basically my colleagues. We are in constant dialogue with each other. We are always trying to ensure that the relationship is genuine. That's the kind of insight I will not get talking to or reading through a paper. It's not just about execution for me with these managers, it's basically me having a very close relationship with them. So it's the team that I found inside. It's basically the structure of the team is very non-siloed. We don't have boundaries in terms of who does what. There's a lot of overlap. Like I could be filling up forms in one day, and modern is doing investments. So we have a lot more flexibility in terms of what we do. So the thinking is that we we want to take the advantage of this cross-siloed structure we have and also use our extended network of managers to amplify our leverage that we have with our education and knowledge so that the team can stay lean, but we can also invest with managers and work with managers that can add value to the portfolio overall.

SPEAKER_02 42:53

And I guess when you sort of think about that relationship with managers in terms of your selection process as well as sort of the maintenance of a good ongoing relationship, what are the ways that they can differentiate themselves?

SPEAKER_01 43:04

It's less about pedigree. It's more about the manager's investment thesis. It's investing for an insurance company is very different. And this is where you can start to sort of see the difference between a tourist versus a manager who understands insurance. We have had managers come in with great ideas, but not having a good bearing about what it means to invest for an insurance company, not understanding RBC capital charges, not understanding any IC framework, not understanding how investment works within a recruited framework, not understanding the differences between versus, you know, let's say Bermuda, those are the complexities that come with investing for an insurance company. So that's the first thing we look for. Second is looking for the team. The investment thesis is good, but the thesis is as good as the people who are behind it. So we're looking for team turnovers, like you know, how long has the team stayed in place? You know, are the key members of the team still there? Or was this a handover strategy of someone else who is now gone and start his own shop back somewhere else? We're looking for all those red flags and avoiding to make sure that we are still invested with a team who has a skin in the game even till date. And you can go beyond that. But at the same time, when new managers come in, we have worked with one manager whose investment thesis we really liked, but they haven't had any experience working with insurance companies. But trying to make them understand what they could do for us and what we could do for them, you know, that's the kind of experience we're always looking for. And we're always looking to seek out managers who do not have a leg in the insurance companies and not to be little, the bigger folks out there. And they do a fabulous job, but they are the beta of the market. You can make alpha out of other managers who are emerging who may have a unique deal flow that others do not have. So they're a combination of the uniqueness of a manager's strategy, their originational platform, their teams, their team structure, their longevity, all of that kind of comes into place when we're looking for managers to partner with. So it's a very complex cycle to say. It's not as simple as just checking a box out. And to be honest with you, I also like the in-person conversation. That's where you sort of get to know the team more fluidly. And so I spend a lot of time with not just the key portfolio managers. I want to meet with your analysts. I want to talk to your risk person. I want to see how your team interacts together with each other. He's talking to the founder of the company. It's a very interesting exercise when you take on this endeavor to onboard a new manager. It gets almost very personal sometimes working with them and you're like, yes, I like this guy, I don't like this guy. So you have to put your feelings aside and be objective. But at the same time, there is a little bit of personal touch that comes along with uh the whole manager selection exercise, not as quantitative as one might think it is.

SPEAKER_02 46:04

Yeah, that's uh that's that's a very good answer. Um, and and so when you're thinking about your own team or you're conducting interviews for some of the other teams in the firm, what are the things that you really look for that others might sort of underweight or overlook?

SPEAKER_01 46:19

So when you first asked me that how I made my way into the industry, is you know, somebody took a chance with me and wasn't a resume reader. You know, you kind of look beyond that. And that's really what I'm trying to do here is like I'm trying to look beyond your credentials. I'm trying to look for an attitude, I'm trying to look for someone who is thirsty for knowledge, who really wants to come in, roll up his sleeves, ask questions, and carry along. That's the kind of personality I'm looking for. I don't really care about whether you have a degree in philosophy or a degree in finance. If you can prove to me that yes, you're someone who I can count on, you will take decisions on your own. You're a team player, you're on.

SPEAKER_03 47:09

I'll send you my C V. I think that's a that's a beautiful answer, and I think it's so it's so true, and it's something that I uh always uh look at as well. Um I didn't uh I didn't come out with a degree, um, so I always look at people um you know in the same light, regardless of who they are and what they might have achieved so far in their lives. Um absolutely right. Um we're sort of coming towards the end, but I think there's a couple more questions. I'm gonna ask one and then I'm sure Hartej will ask the other. So thinking about your career and thinking about what you've achieved and where you've come from and where you've got to, what advice would you give to someone early in their investment career? Either just starting out or maybe sort of thinking about moving into the role of a CIO?

SPEAKER_01 47:59

Be intellectually curious. Network and stay informed. I mean, those are some of the key pillars that'll help you. Now, to say that it has changed, yes. The allocated community is very tight-knit. It's not something that people can get into very easily. This is one side of the investment sphere that actually not a lot of people know about. And it someone goes back to the comment I made earlier. It's not just the allocation industry with an insurance, it's the entire allocation industry, whether that be pension, whether it be family offices. It's very tough to break into it. It's not that easy. So I did say that yes, there's attitude, there's commitment, there's the personality, but there is some amount of education that you definitely have to have. You know, making sure that you understand the basics of finance. And the bar to get inside investment is going to just get higher and higher. Because as you asked me the question earlier, Sean, like how we plan to use AI, that will essentially disrupt a lot of the junior level jobs as an analyst, right? Or as an associate. Those things can now be done more effectively through AI. And I think that is going to happen. So coming in, you need to be sort of at a level where you now, when I first started my career, it was about me understanding how to use Power BI, Python, and such that. Nowadays, you need to understand how to model, develop cloud. You need to be a, I would say, almost a AI-focused investment professional. I think that's a new key buzzword that will come up. And though people will be seeking individuals who have a financial background, but also are very proficient in expressing those views through an AI intrinsic model and understanding how to build pipelines and connectors and how to develop dashboards and how to invest within the whole investment cycle of AI. And this thing is here to stay. But the core skill sets of people coming into it is now, yes, you need to have a financial background, but do you know how to use AI? And that's the next that's a question that you get asked a lot more, I think.

SPEAKER_02 50:20

That's brilliant. And and the question I had is uh what's one book that's really influenced your thinking?

SPEAKER_00 50:27

So it's not a finance book.

SPEAKER_01 50:30

It's a book by Charles Pearl. It's called Normal Accidents. If you haven't read it, I highly recommend reading that. And I'll kind of start with this. So the idea here is that he talks about that accidents when they happen, they are not a nature of an individual component that is failing. It is because of how complex systems in which each of the individual components, how they react under stress, is what causes a system to fail. If you now draw the analogy to what's happening today, and we just talked about in great length about how the AI cycle is there, if you think about it, you have this very, very complex system of AI engineering, including from your GPU, your data fibers, your power, your data centers coming up. That's now getting led upon by financial engineering, which is this slew of investment coming across from investment rate, direct credit, ABF, infrastructure. Everything is getting very, very tightly coupled together. We do not know how these things will interact with each other. We can stress, I can stress my GPU financing. I can figure out yes, if the the dealer forgets of the off-taker is not going to pay, how will it impact my amortization schedule? But I do not know how will that interact with the entire data center ecosystem. And if now all the data centers have this problem, how does the interaction sort of play in? So it's not just about stress testing an individual component. The hard part is the correlation. We do not understand that fully yet. So this book by Charles Pro basically talks about the same concept of how in a complex system it is not just N1 component feeling, it is the interaction of how those components come together under stress that what causes NTASIS to collapse. And that's what is I don't want to be the doomsayer here, but we need to keep an eye out for it. The correlation will matter.

SPEAKER_03 52:46

Thank you, Sid Hav. I want to now end on a positive and high note. Listen, it's been an absolute pleasure. Um thank you so much for joining Harteja and I. Before we go, we always do a very quick fire round, um, which not everybody realizes we're going to do, but we're going to ask you your favorite things. So, favorite sport? Kickboxing. Kickboxing. Oh, wow. Okay. No one's mentioned kickboxing before. Do you do you kickbox?

SPEAKER_00 53:17

Yeah. I do kickboxing and MMA both.

SPEAKER_03 53:21

Fantastic, fantastic. Uh favorite film or TV drama?

SPEAKER_00 53:26

Uh I can't think of one right now.

SPEAKER_01 53:31

It had to be uh Star Wars The Return of the Empire.

SPEAKER_03 53:37

Return of the Empire. Excellent, excellent. Uh favorite drink?

SPEAKER_00 53:41

I like my whiskey a lot, so there's no cocktails left. Give me a good scratch, and I'm golden. If you had to name it, it would be the Brigali. That's my favorite whiskey right now.

SPEAKER_03 53:53

Wow. Fantastic. Uh favorite hobby?

SPEAKER_00 53:57

Uh, I like traveling. That's my favorite hobby. I love traveling, that's always my thing.

SPEAKER_01 54:02

I I feel that it gives you so much more exposure. Uh, so that's always my number one thing. At least I was in Morocco a few weeks ago. Fabulous place to go. I loved it.

SPEAKER_03 54:13

Fantastic, fantastic. Siddhartha, thank you so much. Thoroughly enjoyable. Thank you.

SPEAKER_00 54:18

Swan Hartes, thank you so much for the invite. This has been an amazing podcast. Thank you for the time. Much appreciated.

SPEAKER_03 54:23

Thank you so much for listening. Be sure to stay tuned. In the meantime, follow the CIO Investment Club on LinkedIn, Threads, and X to stay in the loop about our upcoming guest interviews on the CIO Chair Podcast. For more information about us, please visit our website at www.cioinvestmentclub.com. Thank you and goodbye.