Stewart: Welcome to another edition of the InsuranceAUM.com podcast. My name’s Stewart Foley. I’m your host and today we have a very special guest, the soon-to-retire CIO at Aegis, Rip Reeves. So this, Rip, is going to be a podcast. This is your life. Welcome aboard, man. How are you?
Rip: I’m fine. I’m a little nervous now.
Stewart: Well, you should be. Fair warning to our audience, you and I have been friends for a long time, and we’re good friends and I’m thrilled to have you on. You’ve been very accomplished in this business. People love you. You are so well-known all over the place and I want to talk about all of that. But let’s start off this way with the way we start them all. What is your hometown? What was your first job? And I’ll provide your fun fact.
Rip: I’m assuming you’re going to tell the story about when we first met.
Stewart: That’s exactly right. Yeah.
Rip: My hometown is Harahan, Louisiana. Spent a lot of time in Lafitte, Louisiana, and my first real job-
Stewart: No, no, no, no, no, no, no, no. Your first job, period.
Rip: Oh, my first job, period, was cutting lawns. Cutting lawns and working on the family shrimp boats, the family tug boats, the oil rigs, all that kind of stuff which everybody in my family, if you’ve seen the movie Forrest Gump, the part where they have the shrimp on Bayou La Batre, I think in the movie, it was that type of a setting for our family businesses, but only it was Bayou Barataria outside of Lafitte. Those were my first jobs, working on the boats because everyone in my family either worked on an oil rig or a fishing boat or a shrimp boat, or a tugboat. That’s all I remember growing up.
Stewart: That’s cool. And your fun fact. I was working as a third party. I was actually working at GR-NEAM and I was going to Bermuda, NEAMs where based outside of Hartford, so I was in Boston heading to Bermuda and I was in the requisite Bermuda outfit, which is a pair of slacks, an open-collared shirt, and a blue blazer which-
Rip: And you look like a total goober.
Stewart: Yeah, thank you. Hello. And so people who don’t know you, I sit down and I had heard your name. Your name is Rip Reeves, so it’s a very unique name. Everybody knows it. And I sit down and here’s this guy next to me who’s… What are you? Are you 6’6”?
Stewart: You’re 6’5”. I’ve always described you as an overgrown Ken doll. And so there you are in shorts and a t-shirt. And I sit down next to you and I said, “You look like you’re going to be having a whole lot more fun than I am on this trip.” And your reply to me was, “No, we’re doing the same thing. You’re just dressed more appropriately than I am.” I think was your response. Right?
Rip: Well, the first thing I was going to do when we got there was go for a run and jump in the water. Because that was probably the only window I had to do anything physical other than sitting.
Stewart: From a personal perspective, you are a super adventurous, active guy. You’ve done triathlons, you’ve done bungee jumping, you’ve vacationed all over the place. You do stuff that… I think I’m relatively adventurous and you make me look like I’m sitting in the library all day. Give us a little bit about your background on triathlons and whatnot.
Rip: Oh geez. One of my jobs to help pay for college was I worked for the PE department at LSU, and the PE department back in, I want to say it was… I might be off by a year or two, but I’ll say 1980, 1981, we put on the first UREC which was the PE group mini-triathlon. And I was working for the… At the time, I was actually teaching an aerobics class. And when it was just calisthenics to music. And I was lifeguarding at the LSU pool, which is actually how I met my wife. She came in to swim. She was very serious. She had on a strapless swimsuit, they were very serious. And we put on a little triathlon. And so I said, “Well, shoot, I’ll go do it.” Because I swam for exercise, I ran and I rode my bike all over campus cause it was just a lot easier, given the working challenges.
I did my first triathlon and I think it was ’80 or ’81, completely got hooked, loved the variety of working out, not doing the same thing every day. I got very lucky that my then-girlfriend, then-fiance, now-wife of 35 years now is just as eager to do all this stuff as I am. And when we first moved to New York City after I got out of graduate school and she got out of undergraduate school; she’s very quick to say that she’s a trophy wife because she’s three years younger than me. I call challenge on that. But anyway, we had never traveled much, never seen… I was the first person in my family to go to college. I just wasn’t very educated and or well-traveled.
They used to have what was called the Bud Light Triathlon Series that would come out and it was a race in San Diego, then two weeks later it’d be one in Seattle, then it’d be one in Madison, Wisconsin. It was all over the United States. And so we started taking one a month and using them as an excuse to go see a part of the country. And then while we were there we did a race. And so it was just a lot of fun and we had a lot of fun. We got to go see all types of places all over the United States. We ended up going to the championships and it was just a lot of fun. And we did that for probably about five or six years until we started having children.
And then we started doing it just locally, racing for… The kids were born in Greenwich, Connecticut. I was commuting into the city, and Susie was working for the sporting news, selling ad space, and then organized pregnancy and working mother magazines. And we were racing for the Treads & Treads or Threads & Threads. It used to be on Post Road at the top of Greenwich Avenue, their team and doing all the local races. And then we started with the Boston triathlon team and it just went on from there. For probably about 20 years, we just were pretty active in racing and triathlons of all the lengths. We did the Canadian Ironman together, we did Tupper Lake, was a half. It was just a lot of fun because we were doing it together and we were working out together. It wasn’t like it was something that was taking away from our time, it actually enhanced a lot of the time that we spent together, training, and then traveling to all these fun, cool places. Because the races are usually at a really cool spot, a pretty lake, the ocean.
So it was just a lot of fun. And then what happened was triathlons became very popular and you had to sign up for most of them, sometimes the really good ones a year in advance. And we had three kids. And so it was really hard to do that. So we started venturing into more adventure-type stuff. One, we were getting a little tired after two decades of this. We’re like, “Let’s go do something different.” So the first thing we did was we went… “I said let’s go hike Mount Rainier.” Because at the time I had been managing money for the Blue Cross Blue Shield plan of that area, which is now called Cambia and also for University of Washington. And I’d always see it when I’d fly into Seattle and I said, “Let’s go hike that.” So we did. And she’s always game for all of these crazy ideas that I come up with. And we had a lot of fun with that.
And then we went and did the Grand Teton and then I said, “Well, let’s go do a real one.” And so I approached her about attempting to summit Aconcagua which is the highest peak in the Western hemisphere. It’s almost 23,000 feet in Argentina. And she said, “Okay.” And the kids, they thought I was trying to kill their mother. And so we slept in a hypoxic tent for a month, went and spent two… It took us two weeks to summit, to the top of it. And Susie beat me up to the top of the mountain. And in the process we’ve done relay swims of the English Channel. We’ve done… Gosh, we did the TransRockies trail race, which is not quite… It’s six days, it’s almost a marathon a day in the Colorado Rockies, and we did it with two of our kids.
And we went to Nepal. I actually asked her… I was about to sign up both of us to go and attempt to summit Mount Everest. And this is the one time she’s told me “No.” Right as I’m about to commit us to this. She said, “No, I think it’s above our pay grade,” which is probably right. So the compromise is we went and spent almost a month trekking all around Mount Everest and the Himalayas with two of our daughters and their now-husbands. And we ran what was called… You descend down to Everest Base Camp, which is not quite 18,000 feet. And then the Everest Marathon starts at base camp and then you run. All of us successfully did that together and it was just a blast. And COVID put the kibosh on a lot of this stuff because obviously you couldn’t travel. And at the moment we’ve got an application in to do a family relay of the Strait of Gibraltar from Spain to Morocco. That’s what’s on the list. That’s the kind of stuff that we’ve been doing lately.
Rip: It’s just so cool that Susie is into it as I am. She’s just as capable mentally and physically, so that’s great. The kids are wanting to do it with us. It’s been a lot of fun. It’s been a lot and it’s a lot of quality time with a lot of quality family time.
Stewart: And how old are the kids now?
Rip: Kids are 27, 28, and 29. All girls.
Stewart: And one just got married, right?
Rip: Two just got married.
Stewart: Two just got married.
Rip: Emily and Sebastian got married in Rainier National Park on the mountaintop, she had her backpack. They put her wedding dress in her backpack and they backpacked five miles to this totally random site. And then Taylor and Eli got married at Camp Hale on August. And so our youngest daughter, Claire, is the single one. She’s 6’1”, if there are any single very tall men out there, I have a girl.
Stewart: You’re 6’5”. Your wife is tall as well.
Rip: She’s about 5’10”, 5’11”. She’s the short-
Stewart: And all three daughters are fairly tall as well?
Rip: They’re a little over 5’11”, a little over 6’0” and a little over 6’1”.
Rip: When the five of us walk by, people think we’re a volleyball team or something like that.
Stewart: And so, your career, which I almost hate to talk about business at this point because I love your personal stuff, is so interesting. But you’ve been on both sides of the ball. You’ve worked as a third-party asset manager for insurance companies. You’ve also been CIO at a couple of places. I was on the phone actually a day or so ago with Mark Rose, who’s a friend of yours, of course. Everybody is a friend of yours. Everybody in this business is a friend of yours and which is… You’re actually retiring in December. Talk about what you’ve seen change in this business over the course of your career. Just at a high level. What’s a couple things that you’ve really seen change?
Rip: The single biggest one I would suggest is technology. We were talking a little bit earlier, when I left Salomon Brothers, I was one of the derivative guys on the mortgage trading desk when we started to use self-enhancement, credit enhancement on non-agency mortgage loans, on credit card receivables, both loans, home equity loans. Because in the early days in the mid, late 80s, we were using a lot of the Japanese… We were using LLCs from a lot of the AAA rated Japanese banks. And when they started losing their AAA status, that’s when we started looking at self-enhancement. So, a lot of the product creation, IOs and POs in, I think it was January, February of 1987 when I sat down with the finance folks at Salomon Brothers and they go, “Oh, we have this great idea, we’re going to strip apart the interest in principle.” And I’m like, “Who’s going to buy that?” Then we had CMO residuals.
All of the really funky, the funkiest, most sophisticated things that were coming out of the brain trust from a product standpoint and some of the strategies that we were using these instruments with. I remember we were doing LDC swaps with Latin and South American debt that banks held because they were defaulting. The Venezuelan debt had perpetual maturity to it. So we were swapping credit risk with some of these commercial banks with their LDC debt to CMO residuals. The strategies and the product innovation over the years just continues at a breakneck speed. That’s absolutely one thing that has totally changed over the years since I’ve been involved.
The second one I would say is really technology. When I first got into my initial asset allocation introduction was with… I was a portfolio manager at JPMorgan Investment Management, now I think it’s Asset Management. And I was the bond guy on balanced accounts. And at the time that was where I would go with the equity folks and we would decide what percentage of the portfolio is going to be bonds and what’s going to be equities. And the amount of data that we had at our fingertips was really just performance data and characteristic data of the various indices. There was no internet, there was no models that projected this or that. It was a lot of judgment by the decision-making group.
Now we still use a lot of judgment, or I, personally, think you should be using a lot of judgment in the asset allocation process, especially for insurance companies given their tailored nature to the enterprise. But the amount of data that we now have at our fingertips. Yes, the markets are much more sophisticated, they’re much more technical, the product innovation and strategy innovation is causing volatility that is definitely different from when I was a young person in the business. But we’ve also got technology. The amount of technology and data that I have at my fingertips is beyond anything that I could have comprehended back then.
I remember in the late 80s when we first started playing with option-adjusted technology. Now OAS is like… Every little model you can imagine runs an OAS on mortgage-backed securities or any kind of callable or puttable corporates. It would take us weeks to run this data in ’87 and ’88 when it first started coming out. The technology is just tremendous. And the fact that I can do almost everything on my phone is just. I scratched my head and I go, “God, this is really kind of cool.” Which is why you can almost do this job anywhere. But technology is a huge one.
The continued product and strategy innovation I think makes this job so much fun. I’m like a kid in a candy store on all the opportunities that you have, and all the things that we can do to solve certain issues. Not just from an investment strategy or an asset allocation process, but also with the role of the investment portfolio for an insurance company. What we can help solve on an enterprise level as well. I think it’s a fascinating puzzle to work on.
Stewart: In general, and I mean you’ve had umpteen conversations with a zillion people over your life. I’ve always been more of a P&C guy and that’s been your area too, I think. How big of a deal is the liability structure, payout pattern, tail, whatever, of a P&C company liability stream? How big of an impact does that have on the asset allocation? In particular, the bond duration posture and yield curve position? How much do you care? And I don’t want to talk specifically about your company because I know you can’t, but in general, how much do you think… My experience is usually people are running long, their liabilities, particularly on a dollar duration basis because insurance companies are cash flow positive and you’re not drawing down the portfolio to pay claims. Is that the case? Talk to me a little bit about that. And I know it varies from company to company, but in general, how does the liability side impact the bond portfolio in particular?
Rip: The short answer question, and I think it’s very impactful, and I think of it as the starting point. For example, when you’re a portfolio manager running money, the starting point for your asset allocation in your portfolio is whatever the benchmark that you’ve been given by the client. And so that’s going to be the starting point of your duration. That’s going to be the starting point of your allocations along the curve. It’s going to be the key rate durations, it’s going to be the starting point of your asset allocation. It’s your definition of neutral. And from there you start to have then conversations of whether you want to be long because you can, you want to add more risk to the portfolio because from an enterprise standpoint, you can, or if you want to be short, like we’ve decided to do in anticipation of rates rising in ’21 and in ’22.
Stewart: You’ve actually been actually shortened?
Rip: Yep. I still think to this day one of the most underrated asset classes is effective cash, not cash, but effective cash, which is a quarter or half a year, three-quarters of a year duration bond portfolio or mandates. But as a portfolio manager, there are absolute underperforming or negatively performing asset classes or environments where cash looks really good, just it looks really good right now, like it did in March of 2020, like it did from June of ’08 to March of ’09. There are definite periods where that is the case.
One of the things that I enjoy a little bit more, and I’m generalizing and there’re exceptions to all of this, is on the PC side, they, generally speaking, will can be a little bit more total-return-focused, whereas on the life side, you tend to be more yield-focused and that dramatically changes the amount of flexibility that you have. Again, generally, you’re going to have a little bit more flexibility with a P&C client coming up with an asset allocation or a proposed strategy if you’re more return focused. But again, your starting point, in my humble opinion, should be all of the basics of the enterprise of what the liabilities. Because the vast majority of your insurance companies still to this day, which I think is the correct way to approach it, look at the investment function as a support role to the enterprise.
Because as much as I want investments to be first and foremost, I work for an insurance company, our role is to underwrite insurance. And so I need to be very respectful of my role to not only make as much money as I can for the enterprise, but do it in a very suitable, from a risk perspective, way and then still allow us to have all the liquidity to pay the claims and so forth, operating expenses, in our case, reinsurance. I view the liability side of the equation as your neutral point and then you make decisions collectively from there.
Stewart: Yeah, it’s interesting, I always… When you teach it, if you say, in a traditional portfolio allocation efficient frontier, whatever, cash is the riskless position, but cash isn’t the riskless position when you’ve got liabilities, liability neutral is the riskless position. To your point, if you’re going to come off of that position, you’re adding risk and you need to be, A, aware of it and B, are you being properly compensated for it. Is that how you come at it?
Rip: I do, but I want to point out one thing. The characteristics of the liability that you put in the portfolio technically will make it riskless from an enterprise standpoint, but it’s still not riskless from a pure investment standpoint. And that’s one of the interesting things I think about. I think there are several interesting things about being the investment person in an insurance company, is you’re going to get judged. Your report card is not what your nominal return is. But you can sit here all day long and if your return has been hampered, for example, by a business decision that you put in the portfolio, the minute you point that out, it certainly looks like sour grapes. We’re also the easiest business segment of the enterprise to Monday morning quarterback because everybody’s got the returns in black and white right in front of them and you can what-if it and Monday morning quarterback it to death. The other thing that’s also, I think, a totally fun challenge in addition to all the ones that are mentioning is that everyone is an investment expert.
Stewart: Oh yes, they are. Tell me if you’ve ever experienced this, the portfolio is 99.7% investment grade fixed income and 0.3% equities. What dominates the conversation? The equity portfolio. Because it’s just like, “Okay, oh yeah. Oh you own what?” I’m like, “Oh my, ugh.” How many times have you had that conversation?
Rip: Not only that, but also I’ll be asked a lot of questions about some specific muni, geographic munies and I’m going, “We don’t own any munies. Oh, you do?” Yeah. That happens a lot too. But that’s fine. Again, all of these, when I first started my career, I did all pension plans and foundations, and endowments. And that’s what I cut my teeth on as a portfolio manager at JPMorgan. And because of my mortgage background in the early, early 90s, mortgage-only portfolios were in vogue. Like you have credit opportunity funds that have been in vogue for a while now.
I was brought to these insurance strategy meetings by the insurance PMs and I thought, “Ah.” My first one, I said, “Well, what do you want me to prepare?” And they go, “No, no, no, no. This is going to be a brainstorming session. We’re going to sit down for about an hour, just bring a blank sheet of paper and a pen.” I’m like, “Really?” And it was the most fascinating conversation because the guy that I was meeting with started talking about what their liabilities look like, and it was just the intricacy of the portfolio discussion. The one thing that they brought me into in for was just a small piece of all the inputs that went into the decision of what we ultimately ended up… It was a huge learning experience for me on just how unique.
And then the second conversation was about the same mortgage portfolio, but it was a completely different set of circumstances because it was a completely different P&C underwriter. And I just fell in love with it. I thought it was a blast. I loved the challenge of all of these things that we’re talking about. And then I would go and talk to some of my friends who were PMs at a hedge fund and they’d go, “Oh, I have to worry about unrealized gains and losses. Shoot me before I have to do that.” It is different strokes for different folks. I just think it’s a much more complex puzzle to play with, and I enjoy that.
Stewart: No, it’s great. I’ve always been amazed at how pensions and endowments and foundations think that they’re so much more sophisticated than insurance companies. It couldn’t be farther from the truth. The insurance company portfolios look the way they do because of exactly the point you made earlier, which is that you are running a portfolio within the belly of an operating entity. And what happens on the investment portfolio has an impact on the entity’s ability to write business. And so all of those complexities have to be considered when you’re making investment decisions, which is certainly a labyrinth of considerations for sure.
Rip: The one thing I will give my pension, foundation endowment peers is they do get to play a little more in the cool stuff, so to speak, than we do. The cool stuff that we get to play with is just what you were pointing out. The fact that we’ve got to coordinate our investment strategy with internal capital model and the risk modeling for the whole firm with the financial planning and the accounting group with a lot of the enterprise risk functions that the chief risk officer does. That coordination is a real… I think, what we have spent a lot of time in the past few years. And I believe will continue to be probably one of the biggest challenges for my peers that will be taking care of things after I leave in December. But the fun, cool new products are generally a much smaller portion of our portfolios. My pension and endowment and foundation peers, they get to do big allocations to all the sexy things. I give them that. I definitely give them that, they get to play.
Stewart: For sure. Believe it or not, we’re coming up on time. Listen, here’s what I want to do. As I mentioned earlier in the podcast, this is your life, Rip Reeves. You are, I believe, the world’s most rabid LSU fan, but you are quick to point out that you’re just middle of the pack. You also are an annual participant in Mardi Gras, in no uncertain terms. Have you been Mardi Gras king before?
Rip: No. No, no, no, no, no, no. No.
Stewart: I’ve seen some of these outfits, brother, and I… You’re my hero in this regard. What are you going to do? You have moved back home to Baton Rouge and you are going to get to… Which I think is one of the coolest things. You’re going to have a chance to teach at your alma mater LSU, and you are now going to be able to walk to the football games and the whole ball of wax. Can you talk a little bit about what’s next in the life of Rip Reeves?
Rip: Well, you just spelled it out. COVID, I think for a lot of people, I don’t think it changed the direction that we were heading in, but it certainly, I think, it sped it up a bit like it did with a lot of folks. My mom unfortunately died. Susie’s dad died. The rest of our family is still very healthy. And we’re like, “What are we waiting on? Let’s go.” We purchased a home on the University Lakes. Half of the shoreline of the lake is the LSU campus, the other half are these beautiful old southern homes. I can walk to school. We’ve been walking to the football games, we run around the lakes. We’re just a lot older than when we were doing this in our twenties when we were young adults. And I have been working with the investment lab and the kids at LSU that have expressed interest in coming up and working on Wall Street like I have. And we’ve had very good success on those that have wanted to do it to place them.
I definitely had over the past, probably two or three decades some exposure with the finance department at, not only at LSU, but also Tulane. And so at Christmas time last year, I called a couple of them up and said, “This has been something you’ve always offered. Is it for real?” So I will start teaching asset allocation and investments at LSU next year and attending every game I can get my hands on tickets.
Stewart: That is a great story. And I will say in all sincerity, Rip, I think that by virtually every measure, people in this industry, you are one of the good guys in this business. You’ve had a terrific career. People genuinely love you. You’ve got a 10,000-watt smile and you have been a joy. I’m thrilled to be your friend on an ongoing basis, but it has been a wonderful relationship to be your friend while you’ve been in the industry. And I think on behalf of a lot, a lot of people, we’re sad to see you retire but thrilled for you at the same time. Thanks very much for being on.
Rip: This must be ‘be nice to an old man day’.
Stewart: What are you talking about? We’re almost the same age. I’ll retire when I’m 101. Are you kidding me? I don’t think you’re much older than me. Just a little bit. It’s ‘tell the truth to Rip day’ today. We’re thrilled to have you on, Rip, really, seriously.
Rip: Thank you. It’s been a lot of fun.
Stewart: It’s been fun. All right, so with that, Rip Reeves, this was your life. This is the end of our CIO spotlight. We appreciate our audience listening. Our podcasts have been growing in popularity and we’re thrilled and it’s because of fun guests like you. If you have ideas for podcasts, please shoot me a note at email@example.com. My name’s Stewart Foley, and this is the InsuranceAUM.com podcast.