Transcript

Matt Heine (MH): 

Hello Kate, welcome to the show.

Kate Temby (KT):

Well, thank you for having me.

MH:

Now, Kate, you're actually the first time I've had one of the Netwealth directors on the show, and I thought it'd be a fantastic opportunity for the listeners to get to know you, but also to do a bit of a deep dive, not only into your career, but some of the other areas that I know you're very passionate about.

KT:

I look forward to having a chat.

MH:

The way that we typically like to start these shows is just to get a little bit of background on yourself and I'm personally always interested to know, how did you get into financial services or what was it about the industry that first attracted you?

KT:

Matt, my background is pure accounting, I was one of those 1990 graduates where a job market wasn't too strong. And I looked around me and I could see those that were doing accounting seem to get employed. I started the good old days in auditing and understanding balance sheets. I think really that did progress into understanding equity valuations. And I moved into JBWere as a junior analyst, and then progressing, both engaging with clients about how they create returns and wealth. I think very early on, I would say that that fascination around how you both grow organisations, and then finally how you do it so the actual employees having a good time in doing it. That combination I think was really was my fascination.

MH:

So JBWere, has an investment analyst and she moved through, you ended up at Goldman Sachs, not too long after that?

KT:

Yeah, JBWere, I was an investment analyst and then about after 18 months moved to New York, with the offer from Craig Drummond, ex Medibank, to take a role as research analyst. That's really working and research sales in the New York office. You are talking to US fund managers about Australian stocks. It was a very exciting time to be in New York, around 2000 to 2005, not only to live in New York, but where really the decoupling I think of Australian stocks to the US market, was really identified. To me that was a chance to really understand what's driving a growing market from an Australian perspective. At that stage then Goldman Sachs bought a portion of JBWere, then obviously the history tells us that they bought a 100% of JBWere and I came back to Australia in more of the asset management focus, really thinking about, this is a growth industry in Australia, and it certainly was at that time 2005, the nascent days of the future fund and now what we see is the large industry funds and then really focused on how we can build wealth for superannuates.

KT:

And now more broadly, right across advisors and platform. So it's been a spance across the whole financial services, but I think at the heart of it is understanding what the client or the investor really needs and listening to that and to providing transparency is really at the heart of what I'm interested in.

MH:

Absolutely, and the time in New York must have been great fun, was the change of pace a bit of a shock for you initially?

KT:

Well, the change of pace, for those that have been in research analyst roles in Australia working in covering global companies the pace was always a bit odd, because you'd have to be up at strange hours, you might be covering News Corp and they'd have their media release at 10:00pm at night. Strangely while the hours were still long in New York, they're a bit more predictable, so we started early actually, we started at six o'clock in the morning because we're covering yesterday's news, but in strange life of banking, you're finishing a bit more predictably around seven. And you only had New York to enjoy , so I really enjoyed the lifestyle and it was absolutely a highlight both from a career perspective, but personally where I narrowed my husband there and they had two children. It's been a pretty big part of our lives.

MH:

And how did you go with managing all of that? One of the things that I know that you wish you can juggle a lot of things at the same time, but small children, a very busy and demanding job, a new husband, how did you balance all of that?

KT:

It was a different time, there were not many females on the desk, both in New York or in Australia. I'm very logical Matt, and I think I am efficient, so I think that is a helpful area, a helpful skill that I've got. But when I was pregnant with my first child, which is now 19 years ago, I came up with the smart idea that, well, why can't I just be at home half the day and work in the morning? Because, largely the traffic of our work was in the morning and notably technology there was a Blackberry, so I still look back and I think, how did I do that? But it took some conversations with the leadership back in Sydney, to talk about how that would work. I think we've seen an absolutely catapulted with working from home now, but the shift it takes for people to re-imagine, how you're working and then how you do that at scale is an issue.

So we might do it for one person, but can we do it more broadly? I was just really focused on doing it from one and I did, I started working in the mornings and then I'd be home by one o'clock and still contactable, but I would have that regular day at work and also a regular day with the kids. Had a lot of help, really great nannies are on tap there in New York and, always had thought I can't do everything. I think that was one of my early premises, that I'll just decide what I can do and maybe it's not the washing and a few other domestics, but I've navigated it and moved in and out of flexible work practises for many years. It's a delight to see the rest of the world coming along.

MH:

Absolutely, because you would have been in many ways, flying solo at times from a flexibility perspective.

KT:

Absolutely and it's still a conundrum. I know we talk at Netwealth about that around how do you offer flexibility and the boundaries for people. But also that ability that you can still be generating the work and you can still also have time to build the relationships. I acknowledge that there are some roles I think that you can do when you're in and out of the office. There are others that you probably need to be in contact with people or your customers more. And so it is a bespoke model and I think these are the challenges we're now going to be faced with when we come out of COVID, and into the new world. I think we will be better for it, employees will have a better, teams will have a better experience, but it's not going back to anything that we had before.

It's finding that new normal and I think it's very similar to what I've done every year or so. I think your circumstances do change, whether it's with young children, or whether it's children that are growing and have challenges, or whether it's yourself, your health or your parents, you really do need to sit back and say, okay, how is work, fitting into my life? And with the challenges I have around me in that year, then be able to have those conversations with your manager or your teams, and that suppose what I've done over my career.

MH:

It's a really interesting point, I think that the management and leadership challenges that this new world present are very different. I know this is nearer that you spend a lot of time thinking about and practising . Thinking back on your career? What were some of the, or who were some of the best leaders that you had, what made them stand out? And do you think that those leadership traits are going to be important moving forward? Or are they going to have to radically change again?

KT:

I've had some really great people that I've worked for and worked with in my career, two stand outs. One is actually the partner, when I was with PricewaterhouseCoopers, I spent three years working in Toronto, and I worked with the first female partner of Canadian partnership there, Diana Chan, and she was a standout because she had no mould she was working with, she was outside the mould and she was brave, she was brash, but her work ethic and what she delivered to clients was outstanding. I was around that, I could feel is a brave leader. The other standout was Craig Drummond, because I think he's a human centred leader. He actually understands different people and is not afraid to bring their strengths forward, and so it's the power of the team and listening to what they need and building models around that.

And I think I would credit Craig, too absolutely, as I've worked through both transitioning to New York and also back to Australia. Then I think more recently Steven Fitzgerald, who I work with now, is a leader who can think to bring the future. And I can see this a bit in Netwealth, in yourself and also Michael, really being able to say system change. That takes another level of insight, but also how you bring people along, it's great to have a vision, those visionary leaders like Steven, that can be too far ahead sometimes, but it's how do you really bring everyone along? And it's lot of work. Different traits have stood out at different times.

 

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MH: 

Bringing people along to a really interesting one, as you say, you can have great ideas, but if no one else believes in them, it's going to follow them. They're they're wasted ideas. What are some of the things that Steven does on an ongoing basis or systematically to make sure that the team is engaged and following?

KT:

I think there are some programmatic, daily occurrences. And this is my role at Affirmative Investment Management, where we're a small team, effectively five years in startup, as they say within the asset management area. And we focus on just managing impact bond portfolios, global portfolios that have an environmental or social income, impacts with a mainstream returns. Steven, founded that business and I think very early on he was about collaboration, so he both builds individual relationships with the team and when you've got 22 people you can do that, acknowledging that when you get larger it's harder, but also bringing the network of teams together. It's that balance between a flat structure, but communication. One example of that was when we went working from home from London and globally, Japan and Australia, is we had daily meetings on zoom and it all of a sudden brought everyone together.

KT:

Now the frequency and cadence of that doesn't need to be as much anymore, but that really allowed the flow of information when we knew we weren't in person. Secondly, Steven is very good at bringing the outside world into an organisation. He has variety of interests and I'm sure that's why he's supportive of me having a portfolio or [inaudible 00:12:53] is my main full-time role, is that you learn a lot from other industries, other people, other experiences and he openly talks about that. I think that openness allows for innovation for others to do the same. And in that leadership, it really does foster innovation.

Where my interest came with Affirmative, my kids would say I'm a really bad at recycling and I know I am, but when I left Goldman Sachs 2017, I could see sitting back there was a mega trend about to happen. And that was this movement of capital towards transition and really trying to solve the global climate bond crisis. And we've seen where we are now it's really an exciting time, particularly going to COP26, in the next couple of weeks. So many corporates, as well as governments moving to net zero transition. But what I could identify is that when you see that absolute move in financial services, we often lose transparency and authenticity. One thing that I'm very passionate about is telling a truthful story, taking the complex into the simple, and so I could see that there was a role to play both in doing that.

And if I could help raise capital that could help finance this transition, then that would be a great way of spending the next 10 years of my career. Which way do you go? Where do you see it? When it comes to green bonds and green bonds are just like any other vanilla bond. It's a global listed bond, it pays a coupon, but the difference is it's use of proceeds, so it's particularly used to finance environmental or social projects. Why I liked it is very transparent, there is very clean line between the investor and what is the purpose it's going to do. Unlike ESG and we could have a whole podcast about that, Matt, around what ESG gives us or doesn't. The idea that you could really see at a project level, what your capital is being used for. Now, you need some verification and you need to assure that that is actually, that the story that is being told is actually happening and the impact and be measurable, but I really liked the clarity from a bond investors perspective.

MH:

And should you expect a list for a greater yield on these bonds or are they very similar to what you would expect from any corporate?

KT:

It's a very common question and you see the topic of greenium. You love these new markets, there's all these new names and a greenium is really saying exactly that, is there a premium? Do I expect a lower yield for financing? There is really no evidence of a persistent greenium, any survey out there we'll use certain issuance, but it's more a supply and demand and the liquidity challenge. I think the point being is at any time in our market, some bonds pay high yield or at a lower yield, so you not only need to find those that are true and authentic you need to find managers who are managing your portfolio for financial returns.

Interestingly at Affirmative, we build our universe of what we think meets our criteria, and then it's separately up to the PM's to use that universe and deliver financial returns. If there is a premium at some point you don't pay overs. And we all know there's plenty of conversation now in the press and financial service commentary around the flight of money. We all know what happens in a market when there's increased demand and not as much supply, we know that prices will be [inaudible 00:17:17] . It's ensuring more than ever that there's a discipline around your portfolio construction in this space.

MH:

I think it was interesting about the green bonds is that, the bond issuance doesn't necessarily have to a big company, it could be at a project level. So a global mining company that produces coal for example, could actually issue a green bond for a environmental project. Is that right?

KT:

Absolutely. And this is where we come into the world of transition, because green bonds you are absolutely right, is use of proceeds. At Affirmative we look at the behaviours of the issuer and the responsible issuance issuer can end the issuance. Those two criteria are very important to us, as well as good old fashioned credit work like any fixed income manager. But I would say that there are some tolerances, if you have a company that says it's going to become renewable, issue a green bond, and it looks like it's into all the right projects. However, six months later we see that they've invested in the new coal mine, well that would not meet our criteria. There is absolutely a subjective nature to this, but it's consistency, what technology and what expertise do you have to apply that.

The second part to your question is around transition finance. And really the world we're thinking about is beyond use of proceeds. We are going to have just general purpose bonds now issued, that's going to help fund the transition. We know that over 50% of governments, as well as corporates now have set net zero targets. So for them to get to their net zero target, they need financing to do that. I think this is going to be a bigger piece of the market map in the next coming five years, is transitioned finance around that and how do you verify that, that is happening?

MH:

So the auditors must be loving this?

KT:

Yes. So verification, verification, verification. And then if you verify, do you need someone else to verify your work. But what we can do is we can rely a little bit on some standards. The work of TCFD and all those other task force disclosure, and there are a lot of working groups that are coming forth with standards. And what we can see is there is a bit of a synthesis. As we see in the early stages, there's often a prolification and there's too many standards, but I think the market is evolving where it needs to land on a few key areas. And for investors, that's not only with the issuance, but that's also with the asset managers. And the SFDR, another nice acronym for you, the standards of financial disclosure, they have issued in the EU, requirements around funds, around different levels of ratings.

They call them article nine or article eight, or article six, sorry, I don't know where seven went. But that is legally binding in regards to your perspectives, if you say you have an impact, you need to evidence that. Now at the moment it's self certified, but that will shift as well. I see it's positive that we've got some standards coming out, because it does help at the end of the day, it's the investor who needs to have some confidence of the reporting, the asset management behaviour, and then the quality of what's being delivered.

MH:

And I think that's a really good point. It's something that we've talked about a little bit around, just the data that is available when it comes to ESG or impact investing. It's very difficult for investors and particularly for financial advisors to try and work out what is actually happening under the hood. And we've heard about brainwashing and get given that it is such an important [inaudible 00:22:15] . And one that we've ended up talking about quite a lot on this podcast series, as far as maturity of the industry goes and the data and the research that sits around it, where on the journey do you think we are ?

KT:

I can give you two examples, I think that we're on a journey, absolutely. And I think we're not even halfway there, I think we've got some ways to go, which is really hard for the investor when those crediting agencies, whether it's the Morningstars, then the Rhea globally, SNP, they're normally where we look to and they've got established processes. They're now establishing their ESG or their impact analysis. The good news is that I can see in the last 18 months, the quality of expertise within those organisations has increased, secondly are the quality of questioning has increased. So we are many a conversations around digging deeper on what we do, but that's good news because if they're digging deep, it means we're going to work out the quality and the not so good quality, but those frameworks are still being delivered.

The other piece is the data, I'll give you a good example. So SNP provide some reporting against green bonds. Some of the criteria and at one of the hallmark that we report on at Affirmative is our annual impact report, where we measure across each portfolio at a project level, or might have a hundred frameworks in a portfolio that would be over 2000 projects. It's a huge amount of data, as you imagine. And we re calculate some of the data, so it's consistent. We saw the SMP on their data would only get 50% coverage of that sort of portfolio. So that's not enough for us, we need 90 to 100% to show that that was the impact. So the close your eyes met, that's commoditized in three years time.

That is going to get there, then you sit back and say, well, what actually differentiates managers? And it's going to be their expertise as it is in any other piece of the market. We don't say to a portfolio manager, how did you get your financial statements at the company, well, that's all automated now, but we do say what's your skill and understanding that industry and seeing the value proposition in your portfolio construction. That's where I think it's going, but we are on that journey.

MH:

And, and the addressable universe for managers is going to explode over the next couple of years. I think there was in the rest of the reporting season, nearly all of the top 300 companies put out some sort of a CSR report. So where an ethical manager and ASG manager previously would have been quite constrained about who they could invest into, presumably the market starts to look more like the market again.

KT:

Well, this is the perennial question. Is it a specialised area of investment or is it just mainstream? Is it now that the investors are expecting, these are the practises and just reading a number of articles, the FT'S, Financial Times in UK is very good at profiling this, but the two sides of it, is there value, additional value in investing in ESG? Well, I'm not sure. Is that the question or is it that there is a standard that we require about companies and then the additional value is how they execute against their strategy and the opportunity. I think we're all evolving to its main strength.

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MH: 

Definitely, which is a great overcome for the clients and the companies that they support. Kate, what the value to still explore the various cycles of grain? Are Impact investing different to what you're doing at Affirmative you're on the investment committee of Conscious Investment Management in Melbourne. How does what you're doing at Conscious differ to ESG investing or what you're doing at Affirmative?

KT:

I was part of a great panel session Netwealth hosted recently where we talked about the spectrum of responsible investment. And I think it's interesting that we still see that there's different silos. So the initial silo is one of exclusions, I can get a portfolio that I want initially, but if I exclude all those bad things, then that will help me build something that I feel good about. Well, I think the jury has now coming in on that, that exclusions don't really help me influence companies and the shift. I then move on from that and I say, okay, well, I just need ESG, give me some good behaviours, and I'll be great. Well, I think the jury is out on that one, because we've just said ESG needs to not be a silo. It's actually a banner that everyone needs to do.

Therefore, where do I get to around my positive impact? And so then it's discussing, do I want a portfolio that has a positive impact in listed market and environmental or social and that sort of an affirmative at a large scale, or do I want a positive impact on a domestic market in Australia? And that would be more of a conscious, so Conscious Investment Management focuses on investing in coming together with not-for-profits and helping finance property developments and silo developments, really to roll out a positive environmental or social impact on the ground in Australia.

You may have seen the AFR it's very timely today, just announcing their partnership with Housing First, in Victoria, to roll out quite a number of social housing within Australia. That's partnering both with the government and partnering with the not-for-profit, and then the financing from a Conscious Investment perspective. Now, importantly, all the parallels, there are one for financing, but the impact, and is it measurable? And can you really take care of your customers, that impact. And I think that is on the ground very important when you're talking about social impact. It is true in environmental as well, but how are we looking after those that are moving into social disability housing or moving into social housing, that longevity. And I think that model of partnering with a not-for-profit is a really important criteria in that regard.

MH:

It's still a very niche area, although we are seeing more and more funds launch, almost on a weekly or monthly basis at the moment, many of them and certainly the ones I've looked at recently seem to be for wholesale, sophisticated investors only ignoring institutional. Is it because the underlying assets or the constructs and more complex, or is he something that could be available to retail investors in the future?

KT:

I think it's an interesting question. One is around both supply, so is there the supply in the models out there that you can put money to work? And I think Conscious and many others in social disability housing is showing that you can, if you get the model right. The model that Conscious has developed, I think is actually and we're showing it in social housing recently about in other sectors will be able to be rolled out. So we'll be able to get the scale in the first instance, secondly, and I'm a good old, I'm an old fashioned investor, so I like portfolio construction there. You are not a one trick pony that you found a good renewable asset and that's who you are, what are you offering to your investors? And that requires discipline in regards to that portfolio construction.

Then the next piece is how do you package it up for that investor? Is it via platform or we are seeing many, whether it's super funds, such as Future Super and Australian Ethical, far more available to express that on a more frequent basis, almost recently, you would have seen in the press last week is Bloom. I hadn't heard of them before, they're a new startup that is investing from a micro investing into this area. I have to get my mind around how you micro invest into large, I don't know enough about the back end, but what I'm saying is it is moving, Matt. But I think investors can't lose sight of, it doesn't matter what marketing you put around any of this, you can't lose sight of. There has to be a quality investor team behind it for it to really be valuable, regardless of how you access it.

MH:

Absolutely. I don't think it's moved on, people not only want to deploy capital and do the right thing and do good, but they also expect to return these days.

KT:

Yeah, and I think the evidence is there that you can do both.

MH:

We're unfortunately going to run out of time shortly, but it would be remiss of me not to address the next topic with you, which is no doubt, the favourite one that everyone love to talk to you about, how did you end up on Survivor?

KT:

There's nothing like having a bit of a career break and thinking what will I do? Well, I thought I would just sort of write a few good books, but my kids thought that coincided nicely by submitting an application to be on survivor. As I mentioned, we lived in New York, so my husband and I were for many years been the US version of Survivor fans. But I'm not a number one Survivor diehard, but I am about giving the opportunity to tell your story. And I thought it would be great exercise for my kids to do a pitch, love a pitch. And so they did an excellent pitch of me, both from a video and a written perspective, and the pitch was so good I got interviewed and I made it through the cut. So of course, when we're at the stage of, I think I'm nearly might be going to some bizarre island for who knows how long, I said to my family, well, come on.

I think we've achieved what we wanted to achieve here. And they're like, of course you're going. Nothing like rising to the challenge and getting physically fit. And there I was, and it was an amazing experience, Matt. I think also the isolation, COVID is not too similar in some ways, but lockdown and isolation was pretty unique back in 2017, as well as coming together with a very broad range of people. And then the physical and the mental of being in rainy Samoa and working, dealing with the lack or the skill, whatever it is on Survivor being booted, and working through that. So it was amazing experience.

MH:

How fun did you make it through?

KT:

I was third.

MH:

They obviously saw you as a threat did they?.

KT:

Of course Matt, of course.

MH:

And just out of interest, did you go in there with a strategy? Because, there's obviously a lot of people that have spent a lot of time studying Survivor and the way to win. Did you go in there with a bit of a strategy or had you put a lot of thought into it by yourself or with the kids?

KT:

I had gone into a strategy, one strategy was that because that was on the older side of it Matt, I needed to be physically fit. So I did have that strategy that I just needed that endurance. The other thing I thought that you could build personal relationships and I would work to be lower, unseen. That was sort of my strategy, but I forgot I was just an older woman. So I just stood out in who I was. That was probably a flaw in reflection to my strategy. And then it is about building those relationships. That was my aim when I came into my alliance.

MH:

Dissolved, and what was the worst challenge you had to do on the whilst on Samoa? You didn't have to eat bugs or anything, did you?

KT:

No, because it's not like celebrity Survivor. It is about endurance, I think the most memorable one is when you're standing on top of a five metre, their challenge is a large, a sort of a three metre ball with a rope above your head and you've got to go about five metres, pulling yourself, standing on the ball. So some of them are quite scary, you do it. And then I had a ring that I had to throw over to toss over it, like a quoits ring. And one thing that I would say in training, my husband and son were very keen to teach me how to throw. Apparently, I didn't know how to throw Matt, but I trained for that and it worked. I was able to do it, so that was both scary, but also pretty exciting when you think, well, I'd pull that off.

MH:

And would you recommend it to other people?

KT:

I would, I always recommend things that take you out of your comfort zone. Two things that do that I think is learning and that whole fascination of just searching for new things to learn and then the physical and I think Survivor did both of those. It absolutely got me away from 17 years at Goldman Sachs.

MH:

So much for the career break.

KT:

Exactly.

MH:

Kate, I think it's going to be pretty hard to top that experience. So thank you so much for coming on the show and providing so much wisdom and experience about ESG, impact and the other things that we've talked about and look forward to catching up soon.

KT:

It's great Matt, and thank you for having me.