View from the Top with Sanjay Chawla, CIO of FM Global

Sanjay Chawla, FM Global


Stewart: Welcome to another edition of the Insurance AUM Journal podcast. My name is Stewart Foley, and I’ll be your host standing with you at the corner of insurance and asset management with a very special guest today. Mr. Sanjay Chawla from FM Global, CIO is here today. Welcome Sanjay.

Sanjay: Thank you, Stewart.

Stewart: We are very fortunate to have you in studio today. You’re a very unique case. You came out of corporate America pension environment into the insurance space. Heaven only knows why you’d do that. I want to hear that story. That’s a good one. But before then, I think what a lot of people want to hear, not only more seasoned professionals, but especially students and young professionals want to know: How does a guy like Sanjay Chawla end up as the CIO of a major insurance company. What’s that path look like?

Sanjay: Thanks, Stewart. This is a great opportunity actually, to be able to share some thoughts, so thanks for having me on the podcast today. It’s been an amazing journey, I have to say. I’m absolutely gratified for the path that I’ve had. It starts off with some great values that your parents pass along to you and then the education system.

Sanjay: I grew up in New Delhi in India. I went to a private school there. So my parents both came from a service pedigree as well. My mother was an English teacher and my dad was in the financial services industry at the time. That was at a bank.

Sanjay: Just coming from that part, an education was absolutely key. We spent a lot of time, just going through different things about the quantitative side of things, as well as… I also had the chance to get very passionate about basketball growing up in school, and went on to play some serious basketball in high school, as well as in college level. So much so, even at the national level for a couple of years, which was very fortunate. I share with my kids today is, “Make sure you’re part of a sport,” especially a team sport which actually just gives you so much to learn from, leadership levels and the collaboration as well. So that was, to me, that was a key part of how I grew up from there. I came to the US for grad school, went on to actually work in Washington DC at a law firm. Ironically it happened to be … How it all comes around, a law firm that was specialized and actually one of the top firms in corporate pensions, as well as in insurance.

Sanjay: So it comes around full circle on that front. After that, I had the chance to go work for Dow Chemical. I spent 18 years at Dow Chemical in various corporate treasury, regional finance roles, leadership roles. And it was just an amazing career. I say that’s very gratifying manner, because where you start from, the sponsors, the mentors that give you that support, that build the trust and the confidence level, work ethics was extremely important for me, subject matter expertise.

Sanjay: That got noticed very quickly at Dow. And I had just an exciting career that took me to the other part of the world, Asia as well on expert assignments for nine years, actually, which was really phenomenal system, amazing amount of learning from a financial market standpoint, as well as then from a geographic perspective as well.

Sanjay: Right, came back, joined the pensions’ group. That’s where I spent about six years in corporate ventures as the head of asset allocation, looking out for about 85% of the assets. At that time an amazing opportunity came, Raytheon was looking for a CIO and took that risk. It was one of the best places I worked at as well and just amazing confidence level. Some of the sharpest people I’ve worked with and just a phenomenal organization on that front.

Sanjay: So it was a very difficult decision to leave such a great job, but the CIO job at FM Global came to me. As I thought through that as well, it very much had a combination of internal as well as external management of the investment portfolio, did very much front and center on the balance sheet of the company, as well as we’ll have the pensions as well. It was just a unique opportunity. And as I talked to leadership, it was just an amazing culture. I have to say, it’s been all upward surprises on that front, as apposed to, as we call it doing due diligence to everything at the start and it turned out to be that and better.

Stewart: That’s great. That’s a great review. I appreciate that very much. The differences between running corporate pension money and insurance GA money, it’s night and day. I’m sure you knew that doing your due diligence coming in, what’s the reality versus your expectation, coming in, realizing what investing for an insurance company environment is like versus not? How do you rate that change?

Sanjay: Yeah, it’s a great question. It actually has for me, it’s been really powerful, right? Certainly corporate pension, I mean, we, you’re in a very responsible job where you’re looking out for the retirement nest egg for over 100,000 people in that respect. So it’s a very gratifying role. I remember when I was actually getting the job, I was telling my kids at the time, “I’m not kidding, but our lives will change, because you will find less of me, because I now have a fiduciary level responsibility, which I’ll put that ahead of anything and everything else, along that as well.” So that is something which you train yourself on as well, right? That mindset where you engage firstly on anything and everything on that front, and an arms’ length manner on that front. Yeah, as you come onto the insurance side of things as well, as I talk about it, is the title is chief investment officer.

Sanjay: So the, “I” is common, whether you do that for the pension portfolio, as well as the insurance portfolio on that front. So that’s something which is the common base that my expertise, my subject matter expertise is very much on the investment side. You do that in the best interest of the pension plan, when you were doing that for pension, large corporate pension portfolio. You do that the same way for an insurance portfolio as well. In addition, we have our pension portfolio as well, right? Which is smaller compared to some of the larger organizations, but the underlying principle, the subject matter expertise is exactly the same.

Sanjay: What is nice about what I do in the insurance world, it’s also puts together all the years I spent at Dow in corporate treasury and risk management. As we talk about it, one of my mentors used to say, “It’s all about risk management, whatever we do, even as you’re taking risk on, you need to make sure you’re managing all the risks around a different perspective, because that is where it starts.” You’re okay to take that risk if you have an expected commensurate, the word that comes out of that as well. Right, so it’s been actually very good.

Stewart: I mean, you’re a man of your word. It’s been an incredibly volatile 2020 year to date, and you have been working extremely diligently because we’ve had a tough time getting this call on the books and it’s completely understandable. There’s a lot of balls in the air. I know that you, FM Global looks at the world in terms of total return. Some insurance companies look at the world in book yield-terms, I’d say more do than don’t. What are the differences? How do you see those? Compare and contrast?

Sanjay: Yeah, I mean, I think for us, we, FM Global is an amazing company, we’re a 185 plus years-old company, great business model, very strong surplus situation. We’ve got a pretty balanced asset allocation framework. That’s something which we continue to build on as well, right? So we’re able to run some growth assets as well in addition to just fixed income assets. Which a lot of the life insurance companies will end up looking at that, and managing that portfolio almost holistically in that respect, with a smaller piece of other risk assets.

Sanjay: Our policies are much shorter-dated in that respect, and given the strong surplus, we can run the portfolio that way. So that’s how we approach it. We periodically will run a strategic asset allocation framework, what makes best sense that help us manage the risks and take advantage of the opportunities in the market space? But then I do see my job as CIO, is to make sure I manage the portfolio in as diligent manner, where I manage the downside in the best possible perspective, keeping the upside open as well, right? So the total risk-adjusted return, from an optimal perspective, becomes my most important driver of my fund.

Stewart: I mean, you mentioned your former mentor talking about risk-management being the most important goal there. There’s a lot of things going on, unemployment all over the place. You’ve got a lot of exogenous shocks, lot of protests, COVID-19. I mean, unprecedented levels of things going on, within and outside the markets, right now that has a lot of impact on insurance companies, portfolios, but in various different ways. Where do you think the risks are in the capital markets? Let’s just start with the capital markets. How are you feeling about things at the moment?

Sanjay: Yeah, I have to say, as we do this as well, equity markets have come back up in a very strong manner, which obviously, the markets are expecting things to come back to normal much faster than what was visible a month ago or two months ago in that manner. I think one of the things that has been talked about is just being a huge disconnect between financial markets and the economic outlook as well. We did get a strong, we say that as a strong number on a marginal basis on the employment side last week. Having said that, it still keeps us at a very, significantly high unemployment rate number, 13% is still a very high number. But it was much lower than what the market expected it to be. Or the economist expected it to be.

Sanjay: So that is the one part, there’s so much lack of transparency and the whole framework right now, as taught for longterm investors. You want to have, the future is never absolutely clear, but there’s more transparency in what companies can do, what the economic outlook can be in that respect. Be it from a growth perspective, inflation, as well as from an employment standpoint. The use-consumer had been the strongest pillar out there as we approach this year as well. So everything was looking very solid actually for this year to be delivering another double digit equity return.

Sanjay: Yet, when we had this COVID-19 risk become a little bit more real in mid to late February from a market standpoint, and as March unfolded, it was absolutely, as you talk about an unprecedented time, in that from a capital markets perspective. What really, I think there’s certain key things that happened, which has as we look to make similarities with 2008-crisis or 9/11, for that matter, by far the pace of it was so sharp that it very much exceeded anything that we had seen in recent times on that front.

Sanjay: So that makes it very hard because I mean, right now the market is very much trading on a lot of optimism, but a lot of the cash flows that we look at from a valuation perspective, that needs to come through with a little bit better, in a higher probability of that to take realization on the front. So it is the biggest disconnect at the present time. And,  as a lot of experts have said, what happens with COVID-19 and how that evolves in how the vaccination happens, how the therapeutics come around.

Sanjay: That will very much determine in how that the fear level that is out there in the broad population, how that changes to something that we get comfortable living with this fall, right? So that will be one thing that will very much determine how we evolve through this capital markets. That’s, as you said, exogenous, right? And that’s not something which we have seen, to this scale, going back several decades right now.

Stewart: It’s interesting. I mean how quickly markets react, right? Not necessarily capital markets, but down the street from our house, somebody’s selling, has a sign in the window, “Designer masks,” there’s a market, all of a sudden for cool looking masks. If you’d have told me that six, I don’t know, maybe a year ago, I’d have been like, “Are you kidding me?” It’s like, “Yep, that’s that’s life today, right?” So in the insurance space, you’re running a bunch of money. You’ve got a lot of interesting asset classes. You’re a unique insurance company. How are you managing these risks in that framework? I mean, where do you think the biggest risk is for yourself on the insurance side and maybe insurers more broadly?

Sanjay: Yeah, sure, what really actually, when you think about it, the story, is what happened in the second half of March when the Fed and Treasury came out with the Asset Purchase Program and then the Congress had the stimulus come through. That’s very much put a nice floor in the markets on that fund. Yet the certainty was not absolutely there, because as we know, it always takes time, and the markets to evolve further, to be able to get the fear factor to come down to a certain level. And as I mentioned, what we’re dealing with is something which has been driven by an exogenous factor, not a whole lot of transparency on that front. When we think about the insurance portfolio, how do we look to manage that at this point? As I mentioned I think it’s really all about managing the downside risk and leaving that upside open on that front.

Sanjay: So, which is as you, as you pointed out as well, it’s been, as we tried to schedule the call as well, it took a little bit longer, because the markets have been very very active on that front. There’s clearly, I think if you think about different factors as well, sectors will respond differently at this time. Fixed income markets, right? I mean, you think about investment rate credit. Spreads had moved out so significantly over a few days, and they moved back down as well. The moment the Fed announcement came in play. There’s a lot of moving parts. I think there was one time, I think right around mid-March, when the markets almost froze, and that was the scary part in the markets. Once the Fed came out, we started to see that reversal; come through.

Sanjay: Now the equity markets having moved up significantly like that, the question then comes, as you have the Asset Purchase Program that came out from the fixed income side of things, leads into the growth in the equity market. There’s just tremendous liquidity in the market.

Sanjay: As rates have gone down so low as well, where else do you put the money to work as well? Especially as high yield became a large component of the Asset Purchase Program. But the reality was the Fed essentially put a notion in place where, “We’ll do whatever it takes to bring normalcy back into the market and help out on the economy on that front.” So far it’s been working well.

Sanjay: The concern that remains is very much how long does the COVID-19 risk continue to draw out, is there a new normal now of operation on that front? So from that standpoint, as I think about managing an investment portfolio, I’m okay to give up some of the upside as long as I can manage the downside. Because as we have seen when the downside does come, then I see it comes very quickly as we saw in March as well. Not just one day, several days when minus 9% move in the equity markets was seen more than one time as well.

Stewart: Yeah, it’s scary. I mean, and it comes out of nowhere, right? It’s frightening. You’ve been at this awhile and I have to. So quarterly, your asset manager trots in, and they hand you a book and there’s performance in it versus a benchmark, and that’s all good. But we both know, and I think we haven’t discussed this, but I’m hoping you agree with me that there’re good reasons to outperform, and then there’re bad reasons to outperform. If you didn’t do something you said you were going to do, and you outperform, that’s a bad reason. So it’s not just the pure number a lot of times that you’re looking for. How do you look at performance and maybe differentiate between performance and skill of your internal or external managers?

Sanjay: Yeah, no, that’s a great question. I go back to our ultimate objective. What is my mission in that respect, now my mission is to make sure I do the best possible management around the portfolio that allows the insurance company to run the business smoothly. That’s how I think about, strategically have I achieved what I’m in my job to do on that front right? So a proper, a very detailed assessment of the risks that are out there. So that is a core part. When I think about how are, even as you get higher managers, they will actually obviously have strategies they’re running. I have the portfolio constructor down, looking out for different styles and different diversification components that are coming from different strategies, internal as well as external on that front.

Sanjay: So that is something I spent a lot of time, how is that portfolio construction coming through? So as a callback, it’s almost a fairly commonly used word in the investment world, is you try to create an all-weather portfolio. You try to make sure that the portfolio is much more resilient than a commoditized portfolio that you have out there, or most portfolios, that it can handle the downside better. We saw that on the way down on that front, when markets were lower. On the upside, to be able to have that better downside reduction, you have to give up some upside. You just don’t want to give up a lot on that front, because as we have seen markets come back with a force as well on that front, right?

Sanjay: Rightfully or too optimistically at this point, the next several months will tell us that. But that is how you want to approach that as well. When I construct the portfolio, as we do hire external managers as well, you’re underwriting a certain style. You’re underwriting a strategy based on how they will do on an upside and downside markets. We just want to make sure that they’re doing what we underwrote and what they told us what they’re doing as well on the external side. On the internal side, you obviously have more day to day oversight on that once you’re tracking that fairly closely, and you see that as well, right? But as you construct the portfolio from a total perspective, you’re factoring in the strengths and weaknesses of different components that are making a portfolio as well.

Sanjay: When you do get that diversification effect there, it is doing what you’re trying to put out there as a portfolio. So that’s how I see the success of our portfolio construction. Within that, you’ve got to make sure if you underwrote a manager or strategy for being able to do 400, 500 basis points, in a down-market, better than what the index, or I call it less worse than what the index said, they’ve done, their job. Because that’s how it will likely happen in that place as well. So you just don’t want the style drifts, you really want to make sure the strategies and managers you have in place are high conviction-strategies and managers, where they deliver what they’re expected to deliver on that front. It will not be a 100%, but in majority of the times that you want to get that, for sure.

Stewart: It’s interesting, it’s always, as I teach and whatnot, it’s a difficult concept to get across to a retail investor, this idea of sticking to your knitting. You don’t want style-drift, right? You bought exposure and you want that to stay there. And that makes total sense to me. I want a couple of questions wrapped into one. In a percentage terms, how’s the portfolio shape up in terms of risk assets, in other words, non IG-fixed? And how do you feel about privates in a portfolio for a company with short-tail liabilities?

Sanjay: As I say, we’re patient capital. We’re very long-term investors. In some ways that is a differentiator versus some other investors as well. Although I do say our core differentiation comes from talent. As we construct the portfolio, it’s also about the talent construction on that piece as well, right? So that is, when you think about that, if I have to hedge a library that’s long duration than I would have a lot of fixed income. The fact that we’re a commercial property insurance company, and shorter-dated policy. I mean, I say that shorter-dated, or different duration as well, we can actually very much, as I said, look for the best risk-adjusted returns that we can get.

Sanjay: When we do that, it’s a fairly balanced portfolio in that respect. We will run. It is very much, when you think about risk assets or interest rate assets that we have, we run about almost 50-50 on that front. When you think about it, when we say that as well as that will comprise of equities and will also include the private investments, and as I said, the longer-dated private equity, private structures as well. Also we do use, once again, high conviction in a multi-strategy, absolute] recurring mandates as well. That very much in a time, like what we did see in early, in Q1 of this year, those multi-strat funds were very positive from a contribution perspective, to adding to that resilience on that front. So that’s something in a quick nutshell, I would say. The longer-term private mandates allow us to continue to have the longterm expected return come through. That adds to our differentiated risk-adjusted return from an optimal standpoint.

Stewart: Lots of asset managers want to get into the insurance asset management business. Thank Heaven, otherwise we wouldn’t have a business at all. So what advice would you give them?

Sanjay: As you think about it as well, from an insurance perspective, it is a core component of … You have to understand what, what each insurance company does. So what is the strategic objective or not? You can’t paint all the insurance companies with one broad brush on that front. There’s certainly has been a lot more interest of asset managers getting into working with insurance companies. Always, one advice in an informal manner that I share as both from an asset management perspective, is you really have to think about how can you help the insurance client? It’s really helped us meet our strategic objectives, understand what we’re trying to do. We’re passionate, and I say that this is all I do, right? I mean, there are times when you’re sitting on a dining table and one of the kids would say, “Mom, dad’s still thinking about work.” So it’s very … You live and breathe this stuff. Although you have a five day job, but as we all know, you never stop on that front, right?

Stewart: Right, absolutely.

Sanjay: These are, we run, we run these … We’re not a large team. So any of the experts, the subject matter experts that are out there on the asset management side want to make sure our program is set up to leverage on that expertise and on the asset flows that we will not see as an insurance company, we’ll actually end up getting that knowledge transfer as well as the sharing from very large asset managers. That is something you’ll over time make sure there’s a good, solid, collaborative effort that we can expand that potential of higher risk-adjusted returns that we can generate.

Stewart: Okay, so we’re down to two questions and one’s going to be very fun. And this one, I think you’re going to have a great answer for this one. So we all have heard a lot about FinTech. We’ve all heard a lot about InsureTech, all roads lead to tech. How do you think, or do you think technology is going to impact investment management, insurance investment management, any of the above?

Sanjay: Yeah. I mean, it’s, as we’ve seen in this last few bunches, while technology is a key positive differentiator advantage, I think what we saw in the markets as well over the last few months, just shows what an accelerated path that could be. Some of the cleansing out in markets has been what people were expecting in a two, three, five years down the road, started to become a reality almost at this time as well. So that’s for sure, even for business continuity when you think about it, as leveraging on technology is going to be a key strength from that standpoint as well, right?

Sanjay: On the investment side of things, as you think about it, there’s just so much importance technology plays. I’ll mention the simple ones where we rely heavily on numeric and modern like Numerix, and other risk systems, that you can leverage off, that give you enough information that you are actually able to make solid investment decisions. The other part, which once again, collaborating with other asset managers as well, that have robust platforms for data science, right?

Sanjay: This is a time where you have less transparency on what’s out there from an economic/market perspective. Data science can actually give you some of these indicators or leading indicators for that matter in a much more plausible manner as well. So that is another piece where, as we talk about diversification within the portfolio, we may not have a large amount, be it from a factor strategy or one that uses different forms of AI, that is here to stay right. It comes out to be, internally we ran our fundamental strategy and we look to wrap that with other strategy approaches, where we can take advantage of technology advancement that has happened at the investment management shops. Things that we can then apply from a holistic perspective as well. Not an expert on the InsureTech side, given the focus on investments, but very much, those are areas that are coming up in a very strong manner as well.

Stewart: That’s really cool. I just am fascinated with it, and I think things that were impossible just a few years ago are a phone app. It’s just incredible the pace of change, I can keep up with it, some of it I can’t, but it’s remarkable. I want to paint a picture for you. I was a professor at Lake Forest College for six years, and we frequently had executives in to be on a panel. Ultimately what would happen, is the executive would say, “Are there any questions?” And no one would raise their hand.

Stewart: It’s just like a board meeting, “Any questions,” and nobody, right? But afterward there’s a line, and there would be a line of people waiting to speak to you. A young man walks up, or a young woman, but I’m going down the path with you. The young man is a senior in college. He’s 21 years-old and he’s from New Delhi. He would say, “Mr. Chawla, what advice would you give me?” What would you say to him?

Sanjay: Yeah, no, that’s a great question. I have to say, having kids around that age, I do that a lot, and I think you get the title of the lecture guy in your household. But it’s just such a fascinating thing, because when you look back … When I look back at my life, and it’s all the things you could do, I think the one thing that is very clear, if you pick things up early, you have such a differentiated environment, right? As I tell our kids as well, “Pick up your passion, you can modify that passion as you go along, but make sure you are thinking of what you want to do,” because the best thing you can do is become experts in things early on. Whatever area or field you decide you want to pursue, look to become an expert. As I call it, in the seat I sit in, I have laser focus on results and the portfolio and the investment management. That is what I coach.

Sanjay: And I have to say, it’s really amazing, gratifying to see the kids already have that focus area significantly, right? So that is, “Find your passion, pursue that diligently.” I want to tell you this, I would drop off our daughter at high school and I would say “Enjoy learning,” and I would get that look, like, “Dad, what are you talking about?” It’s really that part. You always want to learn. You always want to excel, because the sooner you travel that road, the avenues and the horizon just expand significantly. So I think, I feel very grateful for all the support that I got, because it was also because I was very focused on what I wanted to do and the work ethic was strong.

Sanjay: And I actually, as I look back to some roles where you’re even guiding some of the younger analysts, there’s always what I would see is there is a certain amount of hunger and progression that I want to do something else. And one piece of advice I would always give them, is just make sure whatever job you’re in, you do that in the best possible manner. And that is the best way you will get the job you really want to do in the long run. Every job, everything you do is a stepping stone in the learning process. The sooner you pick that up, the better you will have your path laid out for you down the road as well.

Stewart: That’s fantastic advice, I love that. I can’t thank you enough for being on today. If you don’t know Sanjay Chawla, I’m here to tell you, it’s a joy. We haven’t known each other very long, but you’ll never meet a nicer or smarter guy. And I really appreciate you taking the time and fitting us in this time around. So Sanjay, thanks so much. Thanks for being here. Thanks for listening. My name is Stewart Foley and this is the Insurance AUM Journal Podcast.

Sanjay Chawla is senior vice president and chief investment officer at FM Global, one of the
world’s largest commercial and industrial property insurers, where he manages all the company’s investment functions. Assets managed include general account and pension assets, combined total in excess of $20B. He is based in Waltham, Mass., USA.

Chawla joined FM Global in March 2018 from Raytheon Company where he was vice president and chief investment officer, responsible for pension assets investments. Investment management responsibilities included portfolio construction and asset allocation across public and private markets, risk management, operations, ongoing performance and managers’ monitoring and diligence.


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