Patrizio Urcioli - Mon, 04/03/2023 - 19:33

Executive Spotlight: Patrizio M. Urciuoli, Head of Strategy and Asset Allocation for Liberty Mutual Investments


Stewart: Welcome to another edition of The Podcast. My name's Stewart Foley and I'll be your host. There's a lot of smart money in the insurance asset management industry, but none smarter than Liberty Mutual investments. And we are joined today by Patrizio Urciuoli, who is the Head of Strategy and Asset Allocation at Liberty Mutual Investments. Patrizio, thanks for being on, thanks for taking the time, particularly given all the news flow that's going on right now.

Patrizio: Thanks, Stewart. Thanks for having me. It's a pleasure to be part of your podcast.

Stewart: We are doubly blessed because I know that you get a lot of requests and I know that you have limited time. And you are a really good speaker. You're also passionate about teaching. There's a lot of stuff we're going to talk about today and I'm thrilled to have you. We're friends and it'll be a good deal. So before we go too far, I want to start us off with the well-known now icebreaker. Where did you grow up? What was your first job? And what's a fun fact?

Patrizio: I grew up in Nettuno, which is a small beach town near Rome. An interesting fact about that town is that's where the Americans landed in 1944 during the Second World War. Not many know because the name of the town used to be very different and the battle had a different name. But maybe that's the reason I fell in love for the USA many years ago, given conversation with the family members, and fell in love with the concept of land of freedom, land of dreams and so on. My first paid job was as a sailing instructor. I used to be in a summer camp on this small island near my town, Ventotene, and used to do a little bit of everything from cooking, cleaning the dishes, serving tables. But with the real aspiration to become one of the instructors, which was the coolest job in the camp.

And eventually I did. And that became my life passion: a passion for the ocean, a passion for sailing. Even as of today, not only do I enjoy sailing , but I also draw a lot of parallel in my daily activity with my team, with my strategy about sailing and leadership. In terms of fun facts, let me think ... Well one thing that I love is, I don't know if it's fun or not, but I like to design, build, construct things. I'm really a handyman. And so I spend, whenever I have time either with my kids or alone, to build stuff. With my sons, for example, we built recently... actually not that recently, but during COVID we built a little fish pond with a river and waterfall. Maybe more recently, we built a nice skating rink, which honestly given the warm weather this year never really froze, except for a couple of days. But we did have a lot of fun doing that. So a lot of activities.

Stewart: Turned into a fishing pond annex.

Patrizio: Correct, correct. It's just a bigger pool for the fish rather than a skating rink. But I like to do fun stuff of that kind. It is a way to spend time with the kids, but also enjoy the designing and the construction aspect of things.

Stewart: Man, I love it. So, just to chat a little bit about leadership, you drew some parallels between your first job of sailing and leadership. Can you expand on that just a little bit?

Patrizio: I don't think many feel that the two topics may be highly related or correlated, but I really do believe that there is a lot in common. In fact, for example, in both cases sailing, like in business, they both require a clear vision, a strong sense of direction. When you sail you need to focus on where you need to get to, your destination, versus just thinking to follow the wind and let the wind bring you where he wants. So a clear sense of destination. You need to be always prepared to anticipate change, the wind change, the weather change. And the same in business and investments with all the variables that we need to manage, from market, macroeconomic environment, the news. There is always something changing around you. You need to be able to navigate those challenges and those obstacles, but at the same time you have to have a clear vision of where you want to go in the long term.

I see many occasions where business strategy or the business leader, they tend to follow the wind, thinking that they're going fast, but in reality they are going in a circle. Versus maybe in a certain time, you may want to take the slower route and maybe the longer route, but can get you to your destination faster than just following the flow of the wind. And then there are all sorts of things that I always talk with my team in terms of skills: the charisma, the confidence, the ability to inspire and motivate others, the ability to communicate clearly and effectively. There is plenty, so I could go on for hours. But certainly, I always think about this parallel between the two passions, my passion for my job and my passion for sailing.

Stewart: I love it. And you and I have both taught and my students... Liberty Mutual is one of the companies that people, like just my students, would know who they are. Because your marketing team does an amazing job of brand recognition, and they have cute commercials and they're easy to remember and whatnot. And sometimes they're a little on the silly side, but people in our industry that run money know that Liberty Mutual Investments is a smart money place. And I'm not saying that for your benefit. I think anybody listening to this podcast would agree. So can you talk a little bit about, just give me an overview of Liberty Mutual Insurance for our audience so that they get a sense of where you work and what that company's all about?

Patrizio: So, look, first of all, as you know, many people may recognize liberty for the jingle and some of the marketing aspects and those are definitely very powerful, particularly on the retail side of the business. But Liberty Mutual Group is much more than just auto and home insurance. So Liberty is one of the largest global property and casualty insurance company. We are a Fortune 100. We have a global footprint in more than 20 countries, in fact almost 30 countries. We have 50,000 employed. And so to your point, really there is one part of the business that is the most well-known to people, which is the retail market. Home, auto and or small business. But we have an extremely successful specialty and commercial insurance business, which we call the global risk solutions.

And then to your point, the third piece of the business is the Liberty Mutual investment which manages the asset for the insurance. in Liberty, we have, I believe this unique perspective, where we really see the three business units equally contributing to the success and the capital creation of our enterprise. So, we see literally the three of us being together to make investment and business decisions such that we can succeed for our policyholder, and for our customer together.

Stewart: And so, as I brought up on the top of the show, Head of Strategy, Asset Allocation. You're on the executive team at Liberty Mutual Investments. Can you talk a little bit about your role and Liberty Mutual in a little bit more detail? Assets under management, asset classes that you're involved in, so on and so forth, just whatever you feel comfortable sharing with us just so we can get a better sense of it.

Patrizio: Absolutely. Look, as the name implies, strategy and asset allocation, we have a very broad spectrum of responsibility. We often call my team the nerve center of LMI because we really sit at the center of our investment business unit. Not only do we set and inform the investment strategy and asset location, we also oversee the portfolio management of the domestic and international entity. We directly manage our public equity portfolio and overlay portfolio. Most recently we started a new impact mandate and also, we manage the pension asset. But my team, as the office of the Chief Investment Officer, also influences all aspects of portfolio management process and business strategy.

So, we also influence and contribute to the overall enterprise initiative from business strategy, M&A activity, internal capital allocation on both sides, the balance sheet between insurance and investment. In terms of what LMI manages, as a group, we invest in the full spectrum of asset classes. From the most traditional fixed income and public equity to several private investment strategies across private equity, venture capital, real estate, private credit, and energy transition. We often talk about being partner-led because we have been investing in the private space since the 80’s, and we have extremely strong partnerships on the private market. And we ourselves work closely with them to bring synergies on the two sides and bring opportunities for both for us, but also for our partner in the way we interact with them.

Stewart: That's fantastic. And I think when you talk about the investment philosophy of LMI and how it fits into the overall Liberty Mutual Strategy, Liberty Mutual is... There's some uniqueness there. There's a company that I used to manage the money for that was taken into Liberty Mutual that writes Oceangoing Hall for example. So you do a lot more than... It's sort of like an iceberg. There's the part you can see, which is the part that is on television all the time, but there's so much more that you're doing. So can you talk a little bit about how the philosophy of LMI fits into the overall strategy there and anything that you think makes it unique?

Patrizio: Interesting question, very broad question. Let me start by saying something maybe simple about the strategy and the mission. I will say on the investment side, our mission or our objective, whatever we want to call it, is on paper remarkably simple. We are here to create capital for Liberty Mutual. But what really matters is why we are here to create the capital. It's because we want to ensure that the obligation to our customers, to the people, to small businesses, that we can make those obligations for them, and we can grow the capital for Liberty Mutual such that Liberty can provide more protection to those customers. So at the core of this, it's something that we often at Liberty discuss, which is, we want to be winning with purpose. One thing is, we as a company need to deliver on our promises to our customers, to our partners, and to be there when they need it the most.

And so, in order to do that and never fail on that mission, you need to have the capital. And as I say, in order to grow it and do more, you need to grow that capital. Liberty is a mutual company, so as such, really self-generating capital is only a source to meet that mission. And so that's where investments play a critical role. Now in terms of uniqueness, I will say first of all, as someone that has been working in Liberty for more than 15 years, I will say that there is a lot that is unique about Liberty Mutual. But within this context, I recall something that, I mentioned earlier, what is unique is this ability to equally contribute to this creation of capital. So, the business of investment and the business of insurance, they're equally sitting on the table deciding together where is best the place to invest our marginal dollar of capital, how we can ensure that we meet our obligation, but also how we ensure that we can maximize our capital creation possibility.

Stewart: That's interesting because I think a lot of times in some companies the insurance operation and the investment side of the business is not always well-integrated, or that there's the allocation of capital. It's not always the case. But in theory, what they teach you in school, I remembered Professor Stow in 1985 at the University of Missouri said, "Insurance companies and banks manage their assets versus their liabilities." I wrote it in my notebook. But when it really gets down to it, there's not a lot of companies, maybe not as many as people would think that have a really integrated approach the way that you guys do. It's quite an accomplishment really that you view it in that way because there is only one pile of capital and it's being put at risk when you're underwriting and it's being put at risk when you're investing it.

Patrizio: And look, and I will also add on that, still there is also not only there is the maximize of, call it the risk-return across the units, but also there is a lot of synergies that can be created by the corporation on the two side of the business, to really maximize or enhance the opportunity set on both sides of the balance sheet.

Stewart: Absolutely, it makes total sense. So let's talk right now just a little bit about the macro review of the current economic state, how we got here and what the implications and outlook are. And as you and I are making this recording, it's Monday morning of March 20th, there's been a lot of news. Credit Suisse just got sold yesterday. There's been a joint statement of central banks across the world backstopping the banks. There's just a lot of news flow. And I want to get in here to tell you, I know for a fact how busy and how much news flow you've got going, so I appreciate you taking the time. But we don't want need to talk about those specifics. But just in broad terms, where are we, how do we get here and what do you think it looks like going forward here?

Patrizio: Stewart, this is an interesting question all the time to answer, but particularly in times like today or this past week when things are evolving so quickly that it's very difficult to even discuss about where we are today. And potentially by the time this podcast will get released, the word may shift in one direction or another. But maybe what I'll do is, I'll step back. Let's step back a little bit and think about how I approach those questions when I actually make investment decisions. I generally tend not to be in the camp of trying to predict the future. To me it's more about thinking about what are the possible scenarios out there and how is my portfolio positioned to take advantage or react to those scenarios, and over time how those scenarios evolve and the probability of one versus another can evolve.

So maybe I'll step back and let's say look, entering this year I felt reasonably good about 2023, particularly given how the market behaved in 2022. The economy was decently resilient. There was a certain amount of positive signs versus realistic expectations in six months prior. Inflation was starting to cool off even if not at the speed we were hoping for. China suddenly reopened and abandoned the zero COVID policy which potentially will provide positive impulse to the global economy. Europe avoided the energy rise at least in size that we were expecting even six months ago and so on. So there were positive signs things were moving in the right direction. But the reality is that we're still going through this complex turbulent recalibration. We went through a pandemic, an unprecedented response, monetary and fiscal, a spike on inflation that we didn't see in decades, and then a reaction of spike and rate and speed at which is creating potential other imbalances. And now with the banks, we're seeing some of those effects.

So the credit condition are deteriorating really quickly. Every day in the last week we see signs of the deterioration happen. And so it's very difficult to make one specific conclusion. But what I tell you is, again, I believe that predicting the future is lousy business in general. So to me it is: let's evaluate all those variables and see how those variables, what those mean and what those changes mean for our portfolio. To me, the best way I can serve my company is to take in all this information and build a resilient portfolio that can perform under several scenarios. And then on top of that, in these times maintain enough flexibility such that if there is market opportunity or dislocation or things are deteriorating, I have enough flexibility to reshape the portfolio and take advantage of those opportunities.

Stewart: And so when you look out right now, and this is a tough question, man, but if you could just point out a couple, what headwinds or risks are you most focused on right now?

Patrizio: Yeah, again, if I step in very closely to what happened today, market volatility and obviously tighter credit condition are top of mind because of really what we're experiencing in these couple of days. But if I step back again, I think still the elevated inflation, if we can’t control that, will be something, particularly for an insurance company, of high headwind, because we know that's something that will potentially impact both sides of our balance sheet. Not only on the investment side, but also in the way the business of insurance can operate. Catastrophic event again is something that is always top of mind for insurance and continue to be elevated. And so also even if it tends to be a headwind in the way we think about insurance, but also can have implication on liquidity in the way you manage the asset. Particularly in situations where most of the insurance balance sheets analyze losses given where the rate moved.

But in terms of other headwinds, again stepping back a little bit, certainly, geopolitical landscape is getting much, much more complicated. In the recent past, there is the concern about the US / China relationship. But of course the war in Ukraine and Russia and how that also is makes it even more complex. The relationship between the West Country and China, they're top of mind. Lastly, maybe I'll throw another one because again, because of the relationship that can have an impact both on the investment side and on insurance is a cyber risk. Although cyber is also potentially a great opportunity for insurance companies to do what they do best, eventually they start to price those risks and create business opportunities for the future. Every time I think about risk and headwind, I always trying to think about, "Okay, what is the opportunities out there for us?" And not just looking at the risk side.

Stewart: All right, so I want to really shift gears here a little bit. So, the regulators are asking insurance companies to report more information about ESG. And the data's a challenge. There's greenwashing of investments. It's a big topic. Some CIOs I've talked to, just, man, they don't want to talk about it, not interested. My sense is that you guys are forward in your boots, if you will, about ESG. How do you think about it? And I don't know if you want to wrap energy transition in there too, but how do you think about ESG?

Patrizio: It's curious, this is another topic always that is a good discussion in our industry. Maybe I'll start by saying something that you know that I strongly believe, and we’ve discussed this in the past. Look to me, at the core of what insurance is and what insurance business does, is that we are a socially responsible product. And it's up to us as an insurance company to make sure that we deliver on the security for individuals and businesses. So, at the core we are socially responsible. Then I'll get a little bit more into the detail of the ESG. I'm not in the camp of focusing on just one aspect of ESG. There are many definitions of ESG. I tend to take a very holistic approach about ESG and what does it mean for our investment and our investment process. To me considering sustainability or environmental, social governance factor in our investment process is as simple as making smarter decisions and making more informed decisions than if you don't take in consideration of those additional factors.

Internally, I believe we have already a super strong investment process, and so by adding some more information we can just get better. I think what is important about ESG is, in my view, and I go back maybe to my parallel with sailing, is that you need to have a clear vision of: what does it mean for you and for your company? What is material for you? What are the problems you are trying to tackle? Because ESG is so broad that they really cover pretty much everything that we do on a daily basis. And so, you have to have a clear mission, clear vision, and then you can start to execute without being swung by the wind. Because we saw this wind shifting, a few years ago, there was almost everyone shifting one direction of acceleration in conversation on ESG. Now there is counter-pressure and political pressure about going in the other direction.

To me, I will not want to be influenced on the direction, I just need to move in my direction. My direction, broadly speaking, is I don't think about ESG as a mechanical exercise where you create some sort of a screening tool and you score things and you say this thing is better than others. I don't think in terms of simply set some exclusionary rules and move on. I think about what are the consideration that I want to include in my investment process to make better investment decisions. It's about opportunities. Is there an opportunity to enhance our return?

And maybe then I'll close on your second part of the question, you ask about energy transition. And I believe there is an immense amount of opportunity out there, and so a few years ago we started the energy transition infrastructure strategy. And some of those investments have been great performing investments. Last year it was probably one of best asset classes. But even in that case, we don't think of that as an exclusionary approach, but we think more realistically. What are the opportunities for us to best serve our company? Energy transition, Stewart, is a super important topic, but we also must be balanced and realistic about the speed at which we can implement that transition.

Stewart: For our audience that may not be familiar or if we can just level set it, can you help define what you mean when you say energy transition?

Patrizio: Yeah, so an energy transition is broad. I would say that it is not just the energy production through renewable energy. There is a lot, from production, storage, distribution, technology. I believe technology has to play a critical role in the advancement of the transition. There is opportunity to transition for companies that are historically more focused on traditional fossil fuel generation to other sources of energy. So, there is a way that capital from investors and government can accelerate or help some of those businesses to transition. Think about insurance, for example. How can someone transition from one approach versus another unless there is the ability for insurer to provide insurance to those new businesses to grow? And so bottom line is, one, I believe there is an immense investment and business opportunity in the space, but, two, we need to be an enabler of the transition without being too narrow on the definition of how we can accelerate that transition. Does that help?

Stewart: Yeah, absolutely. And by enabler you mean... I'm interpreting that to mean someone providing the insurance coverage to these new companies so that they can grow and thrive. Is that what you mean? How you mean enable, or is it more providing capital or both?

Patrizio: It can be both, for certain, it can be both. Insurance products and can be capital from investment. Both are going to be needed for those companies to grow. There is going to be opportunity to work together on defining what the risks are. So it's very broad spectrum of opportunity, and at least at Liberty Mutual we are taking this very holistic approach where we want to try to help on any front.

Stewart: All right, so here's an easy one. If there was one thing you could change about the insurance industry, what would it be? I'm kidding about it being an easy one.

Patrizio: Look, let's say it like this, both of us have been in this industry for a long time. And actually, very recently I've been starting to use this joke, and I say, "I was in insurance before it was cool." Everyone knows. That a lot of private equity firms are now getting into the insurance space and looking for the insurance capital. And some of them actually, their phrasing now, "At the core we do insurance and then manage some of those assets." And so, I like that joke about, "I was in insurance before it was cool." But the reality is that that perception of our job or of our industry is not still as exciting to people the way I believe it should be. I love my job, and it is extremely challenging because you have to deal with so many variables that I will argue that they're much more complex than just focusing on allocation, and on the asset side of the balance sheet, it is always different. I don’t remember two years that had the same challenge in a row. And so, it's a good place for talents to grow, to develop opportunities for careers of people but also there is an opportunity to change the perception of our industry, in general, out there. Because from an industry perspective, I think the population in general to underestimate what a huge contribution the insurance industry plays in the growth of our economy, in the growth of wealth on countries and people and businesses. We talked about it maybe earlier indirectly. We are an enabler of this growth. And so, I guess that’s a loaded question with a loaded answer, with the positive attitude, I think we are in an amazing industry and I wish we did a better job to show out there how cool and exciting our world of insurance and management is.

Stewart: It's funny, from your lips to God's ears. When I was teaching, I did a lot of talking to students to say, "The insurance industry is a really interesting industry, on both sides of the balance sheet." And I think the insurance asset management industry is very interesting. I'm on my soapbox right now and I'll just tell you, I think insurance is, by far, the most sophisticated sleeve of institutional asset management. It is far more complex and more heavily regulated and there's far more variables than any other institutional sleeve. And I think that when young people listen to a podcast like this, I want them to know that Liberty Mutual Investments is a very smart money shop and someplace that they should be thinking about from a career perspective. And not only Liberty Mutual but other insurance companies, other insurance asset management shops on both sides of the balance sheet, on the asset management side, and on the insurance side.

It's very different... You're dealing with different issues, but I really want to get that. I share that with you. So you and I both share a passion for teaching. I would love to know, I think you know this, but I started this business in an effort to try to provide education to the insurance investment community. The insurance companies own something on the order of a third the world's invested assets. But if you say, "Well where do I go take classes to learn how to manage that money?" It's like, well, there's not really a good place. CFA doesn't have a certificate or Kaya, nobody. It's always kind of on-the-job training.

And what we're trying to do is provide real deal, usable skills in the insurance asset management industry on our platform. And talking with people like you benefits a lot of people, especially, I'm hoping, people early in their careers. So when you think about teaching and it's in my mind bigger than just teaching in an academic setting, it's also professional development within your organization which I know Liberty Mutual Investment does an amazing job of. How do you think about the importance of teaching? What advice can you give me to do a better job of being an educational resource to the industry?

Patrizio: Another loaded question, Stewart. Look, let's start by saying that, first of all, I'm a big believer on learning through experience of others, in addition to the more traditional academic learning. So, to me personally, I've been teaching for about 15+ years at the University of Boston University. And it's one of the most rewarding things I've ever done, because teaching either in schools or to the talents on my team and transferring knowledge, is just one way. One simple way among others to give back, to give back to either our communities or our employees and so on. So that is the key. I will also, unfortunately, share the news with you that recently I actually dropped my commitment on teaching at the university during COVID. Unfortunately, with my wife being an emergency doctor and all sorts of complexity during the period, I didn't have the possibility to do it because of some family difficulties and challenges we face. I had to prioritize that. But it's certainly something that I want to continue to do and hopefully soon be getting into again.

The last thing I will add is that I started my career as an actuary, but always focusing on the investment side of the balance sheet, always thinking about what else and how the skillset that you acquire in academia can be used on different fronts. And that was really something that I learned at the beginning when I was still an academic. So, in terms of teaching and advice to you, it's always like there is always a different way that the life and the career of people can evolve. It's important to learn from others and that's where it's an amazing opportunity for all of us to teach to others so that they can learn and take something from you going forward.

Stewart: You know what, I really appreciate you. We've become friends over the years, and you're always so thoughtful. You've always got an interesting point of view. And you've always been very kind and generous with your time and accessible. You're a very humble guy that has extraordinary talent. And you've always got a huge smile on your face whenever we talk. And I just wanted to say thank you very much for being on, and I've learned a lot today. And just particularly, as I mentioned earlier, with all the news flow, you could have easily canceled this. So Patrizio, really, thanks for being on.

Patrizio: Thank you Stewart. Thanks for inviting me. It was a pleasure.

Stewart: We have been joined by Patrizio Urciuoli, Head of Strategy and Asset Allocation at Liberty Mutual Investments. He's also on the executive team there. Thanks for being on. And if you like us, please review us, rate us on Apple Podcasts. It's very helpful to us. Tell your friends we're on. We'd love any help and suggestions that you have. You can email me at Thanks for listening. My name is Stewart Foley and this is The Podcast.

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Authored by: Patrizio Urcioli
Authored on: Mon, 04/03/2023 - 19:33

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