Speaker 1:
From the Library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision, and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearinghouses around the world.
And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
You probably know who you use for auto or home insurance, the stuff we regard as personal property and casualty coverage. You may use your local insurance agent with their shingle up along Main Street or go right to your carrier through an online portal like State Farm, Geico, or Progressive, but that's just a sliver of the insurance industry. For big, hairy commercial risks like a skyscraper looming over a city, a spaceship ascending to the heavens, or a ship plying the ocean, you'd probably start with a conversation with one of the three major brokers, Willis Towers Watson, Aon, or Marsh McLennan. Our listeners may recall that for many years I worked at Willis.
Before it was acquired by Towers Watson, it used to be listed here under the ticker symbol WSH. Back in 1912, Willis was the broker tasked by the White Star Line to cover the risk to the hull of the Titanic and its sister ship Olympic. And needless to say, the 1 million pounds of coverage on losses in excess of 150,000 pounds was paid out quickly after the great ship went down on April 14th of that year. Similarly, during World War II, President Roosevelt looked to the brokerage established by Henry Marsh and Don McLennan to place a third of all of the war risk insurance, which continued after the war, to handle marine insurance under the Marshall Plan, which helped replenish a devastated Europe.
The insurance brokers of old are still there, but they've diversified by necessity and competition. Willis Towers Watson, Aon, and Marsh, have all acquired numerous other businesses over the decades to put their capital to work, covering ever greater ranges of risk and providing a broader range of services to their customers. Marsh McLennan, for instance, that's NYSE, ticker symbol, MMC, with over 85,000 experts operating in more than 130 countries, includes Marsh, its property casualty broker, Guy Carpenter, the world's leading reinsurance broker, Oliver Wyman, a global leader in management consulting, and Mercer, which is redefining the world of work, reshaping retirement and investment incomes, and unlocking real health and wellbeing for its clients today and tomorrow by understanding data and applying it with a human touch.
What we do and how we live is driven every day by how we consume data. That data could be as simple as an address and a phone number. It could be as complex as investment device or information on sustainability efforts. Whatever data we seek, there's always a need to increase what we know. In the case of Marsh's subsidiary, Mercer, they've been at the forefront innovating the way investment data and information is gathered and dispersed. Through various mediums, Mercer is connecting investors and allowing each to share what they know.
Helping Mercer foster connections and share information is Rich Nuzum, Executive Director of Investments and the Global Chief Investment Strategist, working in markets like Tokyo, Singapore, and the US. During his over 30-year career with the company, Rich has used his experiences to decipher the information that investors need to help create platforms that allow them to consume the data that they need.
In a minute, we're going to talk with Rich Nuzum on Mercer's path to spread data and information from investor to investor, as well as what's next for the company heading into 2024. All that and more coming up right after this.
Speaker 3:
Connecting the opportunity is just part of the hustle.
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Opportunity is using data to create a competitive advantage.
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It's raising capital to help companies change the world.
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It's making complicated financial concepts seem simple.
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Opportunity is making the dream of homeownership a reality.
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Writing new rules and redefining the game.
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And driving the world forward to a greener energy future.
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Opportunity is setting a goal.
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And charting a course to get there.
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Sometimes the only thing standing between you and opportunity is someone who can make the connection.
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At ICE, we connect people to opportunity.
Josh King:
Welcome back Inside the Ice House. Remember to subscribe to the show wherever you listen, and rate us on Apple Podcast.
Our guest today, Rich Nuzum, has spent over 30 years at Mercer, a subsidiary of its parent company, Marsh McLennan. That's N-Y-S-E M-M-C. Since August of 2022, Rich has served as the Executive Director of Investments and the Global Chief Investment Strategist. Rich, thanks so much for joining us Inside the ICE House. Glad to have you back here at the New York Stock Exchange.
Rich Nuzum:
Thanks for having me, Josh.
Josh King:
You've had quite the corporate journey, Rich, spending time in a few different locations over your three decade career at Mercer, but through your travels, I think have had occasion to visit here at the NYSE once in a while. What are your vivid memories of the place?
Rich Nuzum:
It's always really interesting to come here. All the history, all the continued power. I work with stock market investors every day, and the NYSE still shows up as almost a cathedral to them and how they think about the world.
Josh King:
Did the Nuzum family ever do the classic New York City vacation, including a trip to the Visitor Gallery, or did the first opportunity to visit come after your career began?
Rich Nuzum:
We're 19 years in New York and still haven't done the tourist things. We've done them in just about every other major city on the planet, but at home, unless we have visitors, we don't make it in for any of that. Sorry.
Josh King:
Where did you grow up, actually?
Rich Nuzum:
Toledo, Ohio, and then St. Louis, Missouri. So in the middle of the country with the cows and the chickens and the corn.
Josh King:
Were your parents in financial services at all?
Rich Nuzum:
No, they're both teachers, so they gave me a really good education. But when I went off to engineering school, they thought the engineer was the guy who rings the whistle on the train.
Josh King:
As we all did.
Rich Nuzum:
Yeah.
Josh King:
You got that degree in mathematical sciences from Rice in 1990. And earlier this year we had Bobby Tudor on the show, a Goldman Sachs legend, also a college hoop standout who's been a big supporter of this school. What brought you from the Midwest and the Ohio area to a place like Houston and Rice?
Rich Nuzum:
Well, Rice gave me a full scholarship to study, and George Will said it was the Harvard of the South, so that proved very accurate for me. It was a great experience. I learned a lot. But also Houston, you play volleyball in December or January. It's got the best weather in the country.
Josh King:
A career in financial analysis and investment consultation is a niche space in the business world, I guess. What drew you toward that from when you got your degree in your hand from Rice?
Rich Nuzum:
It was actually luck. I had taken a fellowship after undergrad to study at Tokyo University in the International Economics program, and coming out of that, it was Gulf War one, it was a recession, so all the management consultancies, investment banks that had wanted to hire me coming out of undergrad weren't hiring anymore. I joined Mercer to launch an investment consulting practice in Japan. The market had just deregulated. I had no idea what an investment consultant did. I didn't really know that industry existed.
So I just lucked into something that played really strongly to my strengths. I'm a generalist. I like to learn every day. And investment consultants sit in between 7,000 investment managers and thousands of institutional investors, and our job is to help capture innovation in the real economy, innovation and help people invest, and bring that from the investment management industry into our client portfolios.
Josh King:
Again, thinking about this sort of zigzag journey from Ohio down to Texas and then across to Japan, we're going in increasing levels of culture shock. Why was Japan your destination of choice? You could have gone other places, but you were ready to pack your bag and really head halfway around the world.
Rich Nuzum:
I took that decision across 1988, '89. If you think back to that period of time, Japan was on top of the world. The Japanese stock market had more capitalization than the US stock market. Japan had taken some industries away from the US, at least it looked like that. It had hugely entrepreneurial creative companies like Sony, and really looked like there was a lot to learn from Japan. But certainly, I wanted to get into international business. And although I spoke Spanish, lots of people in Texas speak Spanish, that wasn't really differentiating. But I wanted to learn Japanese and work on that really important bilateral economic and business relationship between Japan and the US.
Josh King:
Just judging by the time you graduated college of a similar age, and you mentioned that you'd taken Spanish, I guess, in high school and some college and, as did I, and I have two kids, one is a freshman at college and one's a junior in high school, they've both taken Spanish. Is there something about education these days where kids are a little less adventurous in terms of exploring more complex languages that might suit them better in the business world like Japanese, Mandarin or Arabic?
Rich Nuzum:
I think it's tougher to learn those languages than a language like Spanish that has similar grammar and some of the same vocabulary. It's also tougher because if you have friends that speak the language as native, that's easier. My kids are all half Japanese, and we tried to get them to speak Japanese, but even their Japanese friends spoke English or spoke Spanish. So they're all fluent in Spanish, but none of them are actually fluent in Japanese, even though they've got that heritage.
If I could go back 30 years, I would've learned Mandarin, probably instead of Japanese. I love Japanese culture and visiting Japan, but China's been on a rise for 30 years. Japan's been a bit economically stagnant. So if I could go back with perfect foresight. I backpacked around China in 1991 and there was no way to tell at that time that China would become what it has. It felt like rural Mexico. When I visited Beijing, there was no building in the city above six stories. And what was there, wasn't capitalist yet.
Josh King:
What motivated you to backpack around China?
Rich Nuzum:
Again, it was luck. We had planned to go to Southeast Asia and do more touristy destinations, and with the war on, we were warned there was a travel advisory not to go to any Muslim nation, so we switched tact. China had just reopened post-Tiananmen Square, and we were among the first foreign backpackers allowed into the country.
Josh King:
So on Japan, we had Aflac's CEO Dan Amos on the show maybe last year at some point, talking about how Japan proved to be this great market for the kind of insurance that Aflac sells. What were the struggles that you and the team faced while you were starting up Mercer's business in Japan? What lessons did you take away from that level of diversity?
Rich Nuzum:
We were trying to get into a market that's very mature and where the competitors are strong and entrenched for investment management, investment consulting, retirement consulting. The Japanese trust banks and life insurance companies really dominated the market back then, and there was deregulation. Aflac was already a success story back then in a case study of using innovation to crack into a market and find ways to meet client demand that the local industry hadn't thought of. So we tried to do the same thing around international investing, investing in alternatives, bringing global into Japan, global best practices, to differentiate from our vastly larger Japanese competitors.
We also took a B2B to C approach where we partnered with some of our direct competitors to actually help them do a better job with their client bases and disrupt their competition. So it was an interesting chess match where we were competing with them head-to-head, and then the next day we were collaborating with them to help them beat their established domestic competitors.
Josh King:
As you think back about those years now, I guess 30 years in the rearview mirror, and you mentioned the maturity of the Japanese marketplace at that point, the entrenched competitors, the domestic strength of those companies, what lessons did you take away as you eventually would move back West about competition building businesses, having started up and grown Mercer's business in Japan back then?
Rich Nuzum:
The biggest lesson I took was around soft skills and the value of relationships. The way we really cracked into the market is when we were given the chance to do work for somebody, we did a really good job, and then they would want us back, and they would also tell their friends.
One of the really cutting edge projects I got to work on earlier in my career was introduction of 401k into Japan. I remember my senior colleague trying to tell the Ministry of International Trade and Industry, and [inaudible 00:13:23], which is the Japanese Chamber of Commerce and Industry, "You can't call it 401k. You've got no risk of legislation. You've got no paragraph 401k." But the Japanese knew about US 401k. They wanted to find contribution to make the labor market more flexible.
And we got that because we'd done a really good job for the heads of investment at IBM and at Hitachi. Those two guys took to the Chamber of Commerce and Industry, we need to introduce DC into Japan to have a more flexible labor market and to keep up with other economies globally, and Mercer's the partner to do it, even if they're going to charge us a lot more than other competitors, they've done a good job for us, and they'll do a good job for you.
Those guys went out on a limb for us. They really put their reputations at stake on the job we would do for the government, for the Chamber of Commerce and Industry on this important piece of lobbying and legislation to get a big change in retirement benefits in Japan.
Josh King:
I guess at this point, when we think about Marsh McLennan, MMC, and we go to the website, and we look at Marsh and Guy Carpenter and Oliver Wyman and Mercer and wonder how these four elements fit into the whole, give us a little 401-1 on exactly what Mercer does.
Rich Nuzum:
Mercer has three main lines of business around health, wealth, and career.
In the health space, we're mainly helping employers find the best health insurance for their participants, and then helping make sure the participants can make effective use of different coverages because it's mainly participant choice now of coverage around the world.
In the career space, it's around how you attract, retain, engage and pay people, and create a culture that drives your company forward and outperforms your competitors.
And in the retirement investment space, what we call the wealth business, we're helping mainly employers with delivering retirement benefits and other savings benefits for employees, sometimes working for government in countries like Singapore where all savings is through the government and the employer just sends a contribution. But in most developed market economies, the employer plays an intermediary role.
So we're working with employers about what is the benefit design, how do you fund that, how do you account for it, how do you communicate it, and then the investment of those planned assets.
We also work with investments on other types of clients; insurance companies, sovereign wealth funds, financial mediators, family offices, endowments, foundations, not-for-profit hospitals, but we started in the investment business working with defined benefit and defined contribution plans for employers.
The other three operating companies; Marsh is the largest intermediary on property and casualty insurance globally. So it sits between the insurance community and anybody who needs to manage risk. And there's lots of things that wouldn't happen in the economy you kind of referenced in your intro, but that wouldn't happen in the economy without risk coverage. And so Marsh is a big player there.
Guy Carpenter does the same for reinsurance. Sitting in between the insurance community as its clients and then the reinsurance community, and doing innovative things around catastrophe risk for hurricanes, trying to maintain coverage in places like Florida or California that've been hit over and over and over.
One of the most innovative things Marsh has done recently, and it links to my work on the Catalytic Investment Exchange, is help the Ukrainian government get grain shipments going again. Helping come up with insurance in an active war zone for grain shipments, that's not easy to do, and they've managed to pull that off with some partners.
And then Oliver Wyman is one of the world's strongest strategic management consultancies with some really deep industry expertise.
I think what all four operating businesses have in common is we sit in between client needs and an innovative provider community. In Mercer's case for investments, it's the investment management industry. For health, it's the health insurance industry. For Marsh, it's the insurance industry. For Guy Carpenter, the reinsurance industry. But we get innovation from that provider community, and we match that up with client demand every day. And every day we wake up and there's new things happening in the world, and those providers are thinking about how to manage risk and grab opportunity, and we're looking at what our clients need, and trying to match the two up.
Josh King:
So before we get into some of the Mercer innovations that you mentioned, like the exchange, the company did go through a leadership transition a little over a year ago, as well as you departing your role of almost five years as President of Mercer's Wealth Business to assume this new position as Executive Director of Investments and the Global Chief Investment Strategist. What prompted you to make the change, Rich, and what excited you back then about the position that you're currently in?
Rich Nuzum:
One of the ways that we've grown through time is through acquisitions of other firms with very strong talent and that needed to navigate ownership or leadership succession, or in some cases have been disrupted by regulation. About two years ago I started working on a combination with what we call a master trust, a multiple employer defined contribution business of Westpac Banking Group in Australia. We announced that combination last year, and we closed that this year. That's the largest investment-only deal in Marsh McLennan's history.
I had some conversations with our CO, my boss, around, "Well, how do we do more of those?" And wanted to work on that kind of thing and also on innovation, which I'm sure we'll come on to, and spend more time with clients. And the conversation was around can't really do that and also run half of Mercer, which is our retirement investments business, with 8,000 colleagues needing management support and so on and regulated business and all that.
I had the chance to work with her on the design of my new job. I kept mergers, acquisitions, but also innovation and spending a lot of time listening to and talking with our largest clients about what's going on in the world and how commercially evolve our services to meet that. I like to tell people I kept the fun part of the job and gave up the other stuff to three other colleagues, in particular McDempsey, who took over day-to-day leadership of our investments and retirement businesses, doing a wonderful job.
Josh King:
So let's talk about some of those innovations. When we did our deep dive into Mercer, the firm really seems to value its communication channels and its sense of community that include all of its stakeholders. Before we talk about some of the more specific programs, why does Mercer put such a focus on bringing people and the information that they have together?
Rich Nuzum:
Well, nothing happens without people. The investment business, in particular, is a people business. I talked earlier about the value of relationships when you're dealing with clients. In most of the areas that we work with, both Mercer and Marsh McLennan, even though our clients are very smart people, they're trying to run a day business, and they're probably a lot more expert than we are in their particular business. They're bringing us in partly for our technical expertise, but in many cases they won't know for years whether our technical advice was right, and they won't ever know whether our technical advice was better than the next best candidate that they might've considered.
What they'll know immediately ongoing is how good was the service and do we seem to have their interests at heart? Are we helping them achieve their business objectives? Are we helping them beat their competitors? All that trusted advisor and soft skills stuff.
What all four Marsh McLennan businesses have in common is we work really hard to earn trusted advisor status with our clients so that they'll come back to us again and again. If they switch organizations, they'll bring us into the new organization. They'll tell their friends, "Hey, you're facing a trust problem. It's mission-critical for you. You want Mercer. You want one of the Marsh McLennan businesses to help you with that."
Josh King:
So among the innovations that we're going to talk about, let's start with the Mercer Insight Community. The platform provides personalized, curated content to help make informed decisions about investments. I guess it might be sort of like Yelp, but for investing. Specifically, when it comes to the investor, how does the community help them make better investment decisions?
Rich Nuzum:
What the community is, is like Yelp or Netflix or another consumer application, but for strategic investment research aimed at an institutional investor. As we sit here today, we have more than 400 investment managers, Mercer ourselves, some of our competitors, some index providers, some think tanks, publishing on the database. The strategic research is crowdsourced, and then it's crowd curated. There's 3000 Mercer investment staff and more than 5,000 in-house staff at large sophisticated asset owners. Some are our clients, some are just prospects that we're aware of, but there's 8,000 investment professionals reading that content every day.
If I search on plant-based protein investment, or you mentioned space exploration earlier, if somebody wants to invest in that or something more mundane like passive S&P 500 index fund management, whatever keywords you search on, you'll get some papers and some webcasts and other intellectual capital coming up, but they'll be rated from one to five stars like we're used to in the consumer space, but they're rated by readers like you, whose jobs are on the line based on making good investment decisions, who are mission-oriented about helping their organization optimize its investment results. So they're reading it with serious intent, and they're rating the content on how good it is.
Contrast that with the experience people had before we created this thing, where they'd get hundreds of emails a day from investment managers, but it was the managers they knew, the managers that had their email address. And no human can even read through the headlines of that and get any sleep. So you don't know what's good. You don't know what's important. And so we've solved that information overload problem, but we've also democratized the flow of intellectual capital.
A chief investment officer at a family office in Singapore or at a sovereign wealth fund in Malaysia can go on there and find papers and webcasts that are perfect for what they're trying to do, the questions they're trying to answer, from firms and authors they never heard of, and firms that don't have their email address and never would've got that paper in front of them.
So digital is disrupting every part of the industry. We have tried hard to be the disruptor in our industry.
Another use case is I used to get asked by an investment manager, they talked to me about some really interesting investment thesis, and then they'd say, "Well, Rich, which of your clients would be interested in this, and how do we get it to them?" And in a human world, I'd say, "I don't know. I may have just come out of a meeting with a chief investment officer, but I don't know if he's got a staff member two levels down, who's looking for exactly what you have and I can't read his mind. We talked about maybe six issues, you just raised a new one. I don't have time to call him back." And that's one contact out of our thousands of client contacts and tens of thousands of prospect contacts.
But with the database, it's self-service, on demand. Three in the morning my time, if a contact I've never met in the Middle East looks up on a topic, they're going to find the five to seven papers and webcasts that are best for that topic.
So that matching of niche demand, when it matters, it solves that problem, which has eliminated a huge frustration for our investment management partners because they'd spend time with somebody like me educating me. And then say, "Well, how do we get this to your clients?" I'd say, "Other than random luck, I don't know. I don't know all my clients of the firm." I know a few dozen well and might trigger an interest, but with the digitization that matching is happening all the time.
Josh King:
You mentioned it earlier, but another innovation that helps differentiate Mercer is the recently launched Catalytic Investment Exchange. Walk us through how this idea was hatched, how it works.
Rich Nuzum:
Okay, probably easiest to start with how it works and then back up to how it was hatched.
What it is is a due diligence questionnaire for preliminary due diligence on private market direct investment opportunities. So think of a green infrastructure project. A city state somewhere in Africa wants to establish a reliable power grid or migrate as a power grid from coal to natural gas or natural gas to renewables. They need somebody to fund that project with capital, but they also need technology transfer and management know how to get the project done. And then there are global infrastructure investors and strategic investors and direct investors and donors who would love to fund that kind of project. Well, how do you match them up?
What that project sponsor used to do was contract with an investment bank to try to publicize that deal and make it bankable, and that bank might know 45 investors and bring it to those investors. What happens with the Catalytic Investment Exchange is that project sponsor, and their bank will fill out 40 or so questions, which the general partner community, the investment managers that invest in those types of deals, have told us these are the first 30 questions we'd ask. And then we integrated across a bunch of them, got to about 40 and tested that with them, and they said, "Yeah, we'll all use that."
So now when that deal goes on the database, there's more than a thousand capital providers that can look at it. And because it's digitized, they can screen for, is this an industry we're good at? Is this a ticket size, a deal size that's the right size, not too big, not too small. It's what we want to do. Is there a stage in the development cycle from greenfield through to revenue producing that we play in? Is it a fit for us?
And so they can screen for fit and focus on deals, and then they can read the 40 questions and say, "Yeah, this deal looks bankable. This is good." Or, "This one needs political risk insurance or credit enhancement insurance." Or, "It's in the wrong currency." Or, "We just don't understand this part." And they can give that feedback electronically back to the deal sponsor. And so the physical meetings happen, the in-person meetings happen once a deal's been qualified, but there's a lot of useful feedback coming back and there's a lot of visibility for deal sponsors.
Now, why is that necessary in the world? It came out of really three experiences.
We worked for three years with the World Economic Forum around the topic of transformational investment. And we asked the world's largest asset owners; insurance companies, sovereign wealth funds, pension funds above 50 billion each in assets, what are the biggest risks facing the planet? And one of the six was climate change. And then we asked them, "Well, what would you like to invest in?" And they said, well, green infrastructure projects, but only if they're above 250 million or above 500 hundred million because otherwise it doesn't move the needle for us. And they're horribly difficult to due diligence. We wish the local governments would speak in investor terms, and they don't. They send us these confidential information memorandum that are 100 pages long. We dig through them, and we maybe get the answer to four questions, and there's no comparability across them."
So by standardizing this in a digital database and asking the exact questions that those direct investors want answered, we've made the deals more visible. We've reduced the cost of due diligence. They were willing to provide capital, but they were complaining around the cost and difficulty of doing it and that the local governments didn't really speak their language.
My second story goes straight to that. I was at COP27 in Egypt. I got invited to the villa of a woman who represents an African government, and she was there with some leading management consultants, not Oliver Wyman, but others. They were trying really hard to attract green infrastructure investment into her country. And they didn't even know the names of the major global infrastructure investors. I was really unimpressed with their management consulting support. They might've called Oliver Wyman. But anyway,
Josh King:
Right, maybe they will now.
Rich Nuzum:
Maybe they will now. But they just didn't know how to make that project bankable. She had the authority to award contracts for green infrastructure investment for a nation, and no idea what to do with the projects that they were baking up or how to make them bankable or even how to talk to investors or who the investors were. That was before we launched the Catalytic Exchange, but I came away from that experience thinking there's got to be a better way.
And then last story, I met a German scientist, who was walking around at COP27 in Egypt with a six-foot section, pretty large of a girder, that he'd made from recaptured carbon. And he had a couple scientific papers that were pretty thick about how strong it was and how heat-resistant-
Josh King:
Probably paid excess baggage to get to Sharm el Sheikh in the first place.
Rich Nuzum:
Yeah, I had no idea how he got it there, much less through security. He's walking around with these two things. Him trying to get a business card out was... He was a nice guy. He was pretty tall. You could see him across the room. He's got this girder. And then I met a venture capitalist who was looking for building materials, green building materials, and I thought, "Those two guys should meet." And I mentioned this guy to the venture capitalist.
And then I'm at a cocktail thing, and I watched them walk past each other just five feet apart. And even though the German scientist is carrying this girder, and I'd mentioned him to the venture capitalist, they didn't talk. They just walked past each other and kept going. I thought, "Wow, okay, this space needs to be digitized because I just was at the villa and here's the government with projects that doesn't know how to get to the investment community. And here's two people who traveled all the way to Sharm el Sheik, Egypt, not an easy place to get to, and should have had a conversation and didn't." And so by digitizing, we're making it a lot easier to match that up.
Josh King:
I mean, as you're talking Rich, I think about the Intercontinental Exchange ICE origin story that goes back to 2000 and Jeff Sprecher thinking about digitizing an analog process that had previously been sort of monopolized by Enron. But when you digitize a process, when you put all the information up there in a database and allow everyone to see it in a very transparent process, buyers and sellers can meet in the form of a power exchange, and in the form of a Catalytic Investment Exchange, I think you're doing the same thing.
Rich Nuzum:
Absolutely. And when you digitize things, it's amazing what you find out that you didn't know and what you can do that you couldn't do in an analog world.
When you see green infrastructure projects announced, often it's a coalition. It's a local investor. It's a global investor. It's a donor. There's some coalition of parties that are bringing different things to the table.
By digitizing through the Catalytic Investment Exchange with permission from the project sponsor we can feed back to the investors, "Hey, of the thousand plus that could have looked at this deal, you six are seriously interested, you might want to talk and see if you can form a coalition." And maybe those six had never collaborated before and wouldn't have known each other in the real world, and the investor without the exchange wouldn't know who went all the way on due diligence. They'd know who they met with, but they wouldn't know who's really interested. So if they tried to do that on their own, they'd be lobbying it to a bunch of people, most of whom don't actually have serious interest, but were too polite to say so. But we can tell from the digital exchange how far somebody went. We can get their indication of interest, and see if they're willing to try to build a coalition.
One of the things happening with anything climate-related is there are donors and impact investors for whom investment return is not the primary objective. And then there are return-oriented investors that do want a return, are going to bring management know-how and technology transfer. When you pair them up, you can get more projects done more cheaply.
So it's in the interest of the project sponsor to see those coalitions form. We see it in the analog world, but it's amongst people who've done it repeatedly together. It's not these random matches. And there's a large and growing number of donors that are willing to fund things in the green space, some at small ticket sizes. So when you digitize things, you open up possibilities that weren't there in the analog world.
The other big one is on feedback. Some governments don't know how to speak investor and don't know how to make their projects bankable. And it can be really difficult for their staff to go back to the minister of environment or the head of state and say, "Hey, I know we love our local currency, but we have to do this in dollars. Do a swap. Do something. Get it into dollars, or it won't work." Or, "We need credit enhancement insurance because our sovereign credit's not investment grade." That feedback can be hard to carry back. With the exchange, you get the feedback in writing on an anonymous aggregated basis from the capital providers.
And so the staff can go back and say, "Hey, boss, 100 people looked at our deal, 98 of them dropped out because of this issue. We really need to fix this issue. This is the issue we need to fix." And that will carry more weight than if it had been done word of mouth, if the message even got there through the telephone game.
Josh King:
So it's kind of early days. This is only launched in September. What's been the level of enthusiasm among the internal and external stakeholders for the Catalytic Investment Exchange over what you would say, what, first 90, 100 days?
Rich Nuzum:
Huge enthusiasm externally and not just from the donor community but from commercial investors who would say to us, "We don't need the donor community. We're doing these deals on our own, pure risk return basis." We'd meet with them and get their input in the questionnaire and tell them about the exchange. And typically the portfolio manager would say something like, "Well, I'll do these two things by way of follow-up," and they'd commit on a couple of things by way of follow-up.
And then every week for six to eight weeks, Diane Alalouf, who's our project champion for the exchange, would get an email or two from them saying, "Hey, you should talk to this person. You should talk to that person." They wake up in the morning, and they've made a contact, and they're forwarding onto us because we're not competing with them, we're improving their ecosystem, so they're doing us favors, even the purely commercial side.
The donors are very enthusiastic because they've been frustrated about... So the challenge in emerging markets, the big challenge is, most of the money for green infrastructure investment, clean tech and green tech venture capital investment is going into developed market countries that have strong rule of law, where the private equity and infrastructure industries is well established, and that's great, but the developed market economies have already bent the curve on carbon emissions. So if you're trying to solve climate change, emissions are down 20% over the last 10 years in the developed economies. In the emerging economies where populations are growing and GDP is growing, and power grids are meeting more demand, emissions are rising, and yet that's not where the money is going because rule of law is weaker, credit quality is weaker. The governments haven't done this before. It is just tougher.
And so the marginal benefit for a donor of putting money to work in the emerging markets is higher, but even though they're willing to do that donorship, they've had trouble attracting the private sector investors because it's just so difficult, and the deals are smaller. And it's easy to put money to work in the developed market. It's not easy, but it's easier than in the emerging frontier economies where we most need it and the benefit would be higher. And even the expected return would be higher once you get through the due diligence. The actual projects are quite good. Getting there is quite tough.
Josh King:
Getting there is quite tough. Projects are quite good. So I'm a listener to the Inside the ICE podcast. I'm listening to Josh King and Rich Nuzum talking about the Catalytic Investment Exchange. How do I learn more about this and take advantage?
Rich Nuzum:
You just do the digital thing, and you search whichever search engine you like. And on Mercer Catalytic Investment Exchange, if you're a deal sponsor, a venture capitalist, an entrepreneur, government sponsoring green infrastructure projects, you can register as that. And if you're an investor or donor or strategic investor, you can register on that side. We do some anti-money laundering and know your client checks on both sides. And then you get your user credentials within a day or two, and you're good to go.
Josh King:
After the break, Rich Nuzum and I are going to continue to talk about Mercer's innovations, as well as what he sees as the company's future. That's all coming up right after this break.
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Josh King:
Welcome back. If you're enjoying our conversation and want to hear more from guests like Rich Nuzum of Mercer, subsidiary of Marsh McLennan, that's NYSE ticker symbol, MMC, remember to subscribe to the Inside the ICE House podcast wherever you listen, and give us a five-star rating if you would, and review us on Apple Podcasts, so other listeners know where to find us.
Before the break, Rich Nuzum and I were discussing his career arc, the Mercer Community Insight platform, and the Mercer Catalytic Investment Exchange. Early on, the focus of the Catalytic Investment Exchange seems to be on green infrastructure. We were talking about that during the break.
Why did you and the team at Mercer decide to focus on those types of investments? And is there a market that you're specifically targeting as everything gets underway? We were talking more about underdeveloped nations. Are there specific countries where you think the opportunities are more fertile than others?
Rich Nuzum:
I think anytime we've tried to do something new digital in the investment space, we've tried to focus initially on a pilot field of play where things are most broken and keep the scope manageable and learn from it and go from there. Whenever you do anything digital, you're going to learn things you didn't even know to ask the question, and it'll surprise you.
We started out with African green infrastructure investment, and did our pilot event in Climate Week in New York back in September. And that's a particularly tough field to play. There's no African country that has an investment grade sovereign credit rating. So you're asking investors to put money in the ground on infrastructure investment for 30 years in a country where, if they held the government debt, it wouldn't be investment grade.
Many African countries, the electrification law hasn't been changed to allow sale of renewable power back into the grid. So you're asking infrastructure investors to invest in a renewable energy project, they have no legal mechanism to sell that to the country. And the ministers will say, "Well, we'll work that out." No, no, no, no, no. If you want us to put money in the ground for 30 years, you're going to work it out ahead of time, and we're going to put some insurance around that, guys.
It's just a really tough field to play, but the needs are huge. As we sit here today, there's as much decentralized diesel generator capacity as there is grid capacity, but the biggest source of energy still in Africa is burning charcoal. That's hugely admitting. So Africa has the opportunity to leapfrog technology. Renewable energy is actually cheaper in lots of applications than traditional carbon sources. It has the opportunity to leapfrog into green, but needs huge amounts of investment, and that's on current technology. If through clean tech and green tech venture cap, if we drive the cost of renewable energy generation transmission storage down further, it'll become economically more attractive.
And I'm focusing on the economics of it because African nations have other development needs; food, water, education, transport, security for people, just roads and bridges and tunnels and ports. They need everything. And so the governments don't have money to focus on climate risk mitigation, but if this is the cheapest way to get reliable power, then they'll make room in their budgets for it. So that's where clean tech and green tech come in in terms of further cost reduction.
Josh King:
I mean talking about transport, roads, bridges, tunnels, ports, traditionally this is a space that's been challenging for investors in the West and one that they have, I don't know, from a legacy basis, chosen to avoid. It's also one that has been taken on with gusto by the West's adversary, the People's Republic of China, through their Belt and Road projects. Where do you see this as a real opportunity from a geopolitical level for Western investors to get into what China has tried to make an inroad in?
Rich Nuzum:
I absolutely agree with you on the opportunity. I've got some differences of opinion with your premise, but we'll come back to that.
Josh King:
Sure, let's take it on.
Rich Nuzum:
But on the opportunity, traveling around Africa, Latin America, developing parts of Asia, I'll typically meet with the Minister of Finance of a country, and I'm there trying to get them to use us for their sovereign wealth fund investment consulting. And they'll flip the tables on me and ask, "Well, how do we attract infrastructure investment? How do we create a venture capital hub in Lima, Peru or Johannesburg, South Africa," or wherever I am. And the Chinese are there with Belt and Road, but it hasn't gone that well.
I think a few years ago, there was lots of promise to Belt and Road. What's happened in practice is a lot of the projects that were committed haven't actually been built and delivered on time. That's not uncommon for development projects, but it gets branded as Belt and Road. And at this point, the Chinese want money paid back on loans they made, and some of the governments are having trouble with that.
So the US, other donor nations, that tend to do donorship and tend to do infrastructure development support in a different way than Belt and Road, they have a real opportunity to step in now with a different approach; private sector, investment capital, some donorship to smooth the way, some insurance to help smooth the way, and step in and really help with infrastructure needs. And if there is competition between China and its trading partners around who's going to be the best partner for developing countries, there's a chance for the other major economies to step in and do it differently and better than Belt and Road. And the Catalytic Investment Exchange is intended to help with that.
Josh King:
We've been focusing quite a bit now on Africa, but you mentioned Lima, Peru. Give our listeners a little bit of a tour around the road of some of the other places where the Catalytic Investment Exchange and opportunities exist that may not be sort of front and center for us in terms of our thinking.
Rich Nuzum:
For COP28, and we're only a couple of weeks out now, we've widened out the focus of the exchange. It's still in pilot mode, but for COP28, the fields of play are green infrastructure again, clean tech, green tech, biodiversity and natural capital, and any country in the world that's not applicable to some kind of sanctions. So that includes Latin America. It includes Southeast Asia. A place like Bhutan, which is already net negative in terms of carbon emissions, they've got huge hydro power, river power, and they export power to India and Bangladesh and other countries already, so they're an exporter of carbon negative or carbon neutral power. Any country where you've got an opportunity is potentially... Including developed markets, which maybe don't need it as much, but develop markets for exchange.
I mentioned, I disagreed with part of your premise. Outside the US and other developed countries; Australia, the UK, Canada, infrastructure has been an established asset class. Those governments worked out how to do it. So private sector capital has funded roads, bridges, all that stuff. I think the reason we haven't had that in the US is actually a sign of strength of our municipal bond market. Cities and states have been able to raise money to do those things without turning to private sector capital as much. That's changing in the US. The US has managed to have the infrastructure we have without relying as much on the private sector as some other developed countries. But there are other developed countries where it's a very well established asset class. It's 10 or 20% of portfolios for sovereign wealth funds in those countries, and they're very comfortable with it. So those are our natural investors for the Catalytic Exchange.
The US pension community is interested in principle, doesn't have the same experience of doing global infrastructure investment that their global peers do. So it's actually a little bit tougher in my home market to bring that to investors.
Josh King:
Another information we should spend a little time on is Mercer's 2024 Large Asset Owner Barometer. Barometer seeks to share information from some of the world's largest asset owners. How does the Barometer work, Rich, hand-in-hand with the other two innovations that we've been talking about, or are they supposed to work independent of one another?
Rich Nuzum:
So I think humility is really important in investing at every level. It's not that our clients aren't smart and well-resourced; they're competing with other asset owners that are smart and well-resourced. So there's a global war for talent. There's an arms race around digital data and technology. Everybody's looking for an information edge, and it's a people business. So I think you have to be humble.
In terms of expressing that ourselves, we try hard to listen to asset owners. So the Large Asset Owner Barometer is a formal survey. We got more than 60 responses from asset owners, 5 billion up to trillions in assets, on a bunch of questions to kind of inform our innovation agenda and what we're trying to bring back to them and just check, are we listening properly?
A separate component of that, I've met with C-suite level CIOs or heads of strategy or COs of more than 80 large asset owners over the last nine months. In a good meeting, they do more than half the talking. If I can get them to do 90% of the talking, that's a great meeting because then I'm learning. I'll come in with what's in my head and the firm behind me, but when I learn something new, that's something we can respond to.
So we're in the game of innovation capture, helping our clients as asset owners capture innovation in the real economy, innovation in how to invest, and listening actively to market is really an important component of that.
Josh King:
So in advance of COP26 in Scotland, we had Mark Carney, the former head of the Bank of England, here to give us a little preview of it. COP27, you mentioned a little bit of it, a guy with a girder in Sharm el Sheik. Now we come to COP28 coming up in Dubai, and this episode is going to air after COP28. You're going to be there, but paint the picture of what it's like to be there, what Mercer accomplishes when it's on the ground, and what do you expect to come out of this COP, given that there have been many sort of optimistic pictures painted like Mark did sitting in this chair that you're sitting in now after COP26, but we're really early innings of the game?
Rich Nuzum:
So Josh, I just want to flag, you've just given an investment strategist his worst nightmare. You're asking me to make a prediction. You're going to run it after people know whether it's true or not.
Josh King:
Sorry. It's the vagaries of the schedule.
Rich Nuzum:
Degree of difficulty very high here.
Josh King:
But just, you're going to fly across the world to Dubai and do Mercer's business. What are you going to accomplish?
Rich Nuzum:
For my universe, there's four key things that will happen at COP28.
The scientific community will update us on what's going on, and they will do their best to communicate in a way that impacts voters because in general, the scientific community is very worried, and they don't think voters globally are getting it. And if voters don't get it, then policymakers can't act. So there's almost a panic in the scientific community about things are getting worse and worse and people don't seem to believe us. So the scientific community will update us.
The governments will negotiate and announce things. And I'm not optimistic that we'll see much concrete progress from the governments because I don't think their voters collectively in general are demanding action, and that makes it tough for politicians to get out in front of their voters. So we'll watch that space. I would love it if there was some type of movement there, but I just don't see that happening.
The third and fourth spaces are much more important to me.
The third space is local governments bringing green infrastructure projects to the global investment community and trying to publicize those and figure out how to speak investor, all the things that Catalytic Investment Exchange is aimed at, but trying to do that in other ways besides just the exchange and get money into the ground based on current technology to provide reliable power at lower emissions than is done today.
And then the fourth stream is around the scientists again, but a different type of scientist, and entrepreneurs and venture capitalists trying to either create technology, commercialize technology, or if they've got proof of revenue, sell it to a strategic player that can bring it into global distribution quickly. And that's where the oil majors and the mining companies and other big companies come in, including companies that have significant brown businesses in their portfolios. Because if you're looking for 90 engineers to do something in a city state, if you're looking for a global company that can bring a renewable energy source into global distribution, that's probably going to happen with one of those established energy players.
And so that may not be a very popular view with the activist community, but the best way, in my opinion and experience to commercialize renewable technologies, is if one of the big energy majors really gets behind it for purely economic reasons and tries to drive it into the chain globally.
Josh King:
As we discuss renewable technologies and sustainability more broadly, Rich, I want to ask your thoughts on the future really of ESG. It's a topic that has been highly debated and politicized. We've talked about it on this show many times. Larry Fink has said that the term's been weaponized, and it seems like it will never again come forth from his mouth or in one of his annual letters.
What does the future of ESG investing look like now and then 5, 10, 15 years from now?
Rich Nuzum:
In my experience, ESG is not new. We were incorporating environmental, social and corporate governance factors into client portfolios 31 years ago when I started in the industry. And I could give examples. The South Africa freeze is the most prominent one. But we had asset owners economically target investors. We had asset owners reflecting values and portfolios investing for impact 31 years ago. We just didn't call it ESG yet. And I don't think we're near the end.
31 years on, we're in the messy middle. ESG is not one size fits all in terms of the issue that an asset owner thinks is going to impact security prices or cares about from a value's perspective, and those are two different things, or they can be two different things. What you think will drive security prices depends on government policy and consumer preference and so on. What your own values are may differ from that in some way.
So that gets to the other part. The approach that investor takes differs from investor to investor. Are they looking for risk return maximization? Are they looking for consistency with the values of their funding entity or their funding stakeholders? Are they looking to have a positive impact on an issue?
So ESG is not one size fits all. Every client I talk to has a different set of issues and a different approach. We go in and ask questions and listen, and then we try to help them implement. Because while they're talking about it and not taking action, they're not optimizing their portfolio, we have to bring the diversity of their investment committee and staff together to get them to agree on what do we believe, what are we trying to do and how did we then want to act. And it's different for every asset owner.
Josh King:
As we wrap up, Rich, I mentioned at the beginning of our conversation that you've been at Mercer for over three decades. You just talked about this 31 year journey arc that you've been on, seen so much of the company's growth in Asia, as well as here in the US. But over these last 30 years, how have you seen the overall field of financial analysis and investment consultation change since that day that you took your Rice degree and took your first gig at Mercer in Japan?
Rich Nuzum:
I'll give you three headlines.
One is it's vastly more global today and less so for US domicile investors because US stock market's done so well for so long, so consistently. Peer group, median benchmarking, just what's worked, why is US investors tend to overweight the US stock market still against the rest of the world. And the rest of the world because the US has done better, home country bias is largely gone, and there's global diversification, but much more global.
Secondly, is the rise of private market asset classes. We've talked a bit about infrastructure today. I've touched on venture capital and early stage private equity. But private equity and private credit infrastructure, real estate, even hedge funds, esoteric securitization of various asset classes, those alternatives are no longer alternative. Those are core asset classes for most institutional investors rising past 20, 30, 40%. There are sovereign wealth funds that are 70% in private markets, because they offer diversification and return enhancement versus the public stock market and investment grade fixed income.
So the rise of the "alternative asset classes" and the importance of private markets and global economy, there's less than half the publicly traded companies in developed markets today that were there 30 years ago when I started my career. So the public market has actually shrunk in terms of number of names that you could invest in.
Innovation is front-end loaded in the private markets with venture capital in the early stage. One CIO a couple of years ago told me, "I have to invest in venture capital and early stage growth private equity because if there's two kids in the garage that are going to take down the entire industry, I own the industry in my public market portfolio, I've got to hedge that by overweighting the innovation in private markets." And today we have private market companies going to billion, 10 billion market cap. We talk about unicorns. We talk about decacorns. On a regular basis, it's not even rare anymore. Whereas historically, those companies would've gone public at say 700 million.
So as we sit here at the New York Stock Exchange, that's probably not great news that they're waiting longer to go public. The public markets are still really important to the global economy, but the private markets have become more important.
And then I think the third thing is the impact of innovation. When I started my career, we'd have an investment manager come in, and they'd say something like, "Our teams have been together 20 years. We've done this the same way for 20 years. It's worked. You should hire us." And based on the past, they'd make a case that we should hire them for the future.
Today, if a team came in and said that, we'd start asking tough questions about, "Okay, well the data that's available to you and your competitors has changed, the technology you can use to implement, that has changed. What do you mean, you've been doing it the same way for 20 years? Like ChatGPT and generative AI hit the market 50 weeks ago. You've done nothing with that? Really? And you expect us to believe you're going to beat other equally smart, equally well resourced, equally successful in the past, investors?"
They're doing everything they can to innovate, and everything they can to grab new data and manipulate in new ways, and get what they can out of the machines. Couple that with human ingenuity to outperform the market, it's just such a competitive game now that everything's about innovation capture in the real economy and in how people run money.
Josh King:
Everything's about innovation capture, Rich.
To end our conversation, what do you think the future looks like for Mercer? And are there any other innovations or new technologies that we should look forward to in the months and years to come when Rich Nuzum is going to come back inside the ICE House and tell us about them?
Rich Nuzum:
Well, there's a benefit in focusing.
So on the innovation front, we're still trying to scale the Mercer Insight Community, that Netflix or Yelp for strategical capital. There's 5,000 external users. There could be 50,000 that are in those types of seats that should be using that every day. And they're at a real disadvantage against their competitors, who are reading using the database, because they're probably reading some stuff where 10 minutes in they realize this was a waste of time. And if I'd gone on a curated database, three of my peers would've already determined that, I never would've touched this paper. So no matter how much money you have, you can be at a $2 trillion Sovereign Wealth fund, you can't make another minute. So time is of the essence.
So we'll scale that. We'll scale the Catalytic Investment Exchange, still in pilot phase, still focused just around climate issues at this point. But we plan to scale that to other fields of play, potentially helping with rebuilding the Ukrainian economy, infrastructure investment and entrepreneurial investment across Ukraine, not just green, but anything, and on from there. So we'll focus on scaling those two things.
In terms of Mercer, every time I talk to my colleagues, I remind them that the trusted advisor status we have with our clients is a privilege, and we have to earn that every day. It's things like if a client emails you, they get a response that day. Even if you can't answer all their questions, they know you're working on it. If they call you, they get a call back. They call you at 8:00 PM, they get a call back before 11. Those types of service things clients understand.
And then really we get to borrow our client's mission. It's whatever our client's mission is, whatever they're trying to do in the world, we're only supporting them on their investment portfolio. In my field of play or retirement investments, Mercer works more broadly. Marsh McLennan works more broadly. They're bringing us in for some help in one area. But if I do good work for a not-for-profit hospital, there's poor people who are going to get better care cheaper because I did that. If I work for a university endowment, I can see the results when I walk around campus in terms of scholarships for kids and so on.
So it's really easy to extrapolate from our client's missions to our work, and we should feel good waking up in the morning to do that, but they're trusting us with their portfolios, and so we have to earn that trust every day.
Josh King:
Trusted advisor status is a privilege. Well, Rich Nuzum, it has been a privilege to have you Inside the ICE.
Rich Nuzum:
Thanks for having me, Josh.
Josh King:
And that's our conversation for this week. Our guest was Rich Nuzum, Executive Director of Investments and the Global Chief Investment Strategist at Mercer, subsidiary of its parent company, Marsh McLennan, NYSE ticker symbol, MMC.
If you like what you heard, please rate us on Apple Podcasts, so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, or to hear from guests like Rich Nuzum, make sure to leave us a review or email us at [email protected] or tweet at us @ICEHousePodcast.
Our show is produced by Lance Glynn with production assistance, editing and engineering from Sam Ninotie. Pete Asch is the Director of Programing and Production at Ice. And I'm Josh King, your host, signing off from the Library of the New York Stock Exchange. Thanks for listening. Talk to you [inaudible 00:56:43].
Speaker 1:
The information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information, and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.