Peter Warne, interim chair of TCorp and chairman of Macquarie Group talks to Investment Magazine, about governance, the evolution of his leadership style and the transformation of the investment and financial management partner of the New South Wales public sector.
You have been interim chair of the TCorp board since March. Given your background does this appointment mark an important shift in the governance of TCorp?
I don’t consider this marks any shift. The board is comprised of highly-qualified directors with deep expertise in various aspects of financial services and TCorp has always had strong governance. I have been entrusted with the role of interim chair to continue the outstanding leadership Phillip Chronican displayed since he was appointed chair in 2016.
TCorp has a very high-profile board with vast experience in investments as well as a strong understanding of government. The board recently appointed industry veteran Michael Dwyer as director. How important is this firepower when strengthening TCorp’s partnership with the NSW Treasury and for strategic goals generally?
Sound governance and a high quality and experienced management team are both critically important given that TCorp is a major financial institution with a balance sheet of $75 billion and funds under management of $107 billion as at 30 June 2019. It has a vital role in the operation of the NSW public sector and an important role in Australia’s capital markets.
I’ve already mentioned our board; their capabilities, depth and diversity of experience, along with the deep skill base of the management team have allowed TCorp to continue to build on our strong partnership with Treasury. This is evidenced by the NSW Generations Fund (NGF), conceived in partnership with Treasury and the Department of Premier and Cabinet. In early 2018 we started working closely with them both to establish the NGF, a world-first sovereign wealth fund, with a dual purpose of keeping the state’s debt levels at sustainable levels, and community-led investment.
How would you describe your leadership style?
I would like to think that it is open and transparent, collaborative and encouraging, but also challenging. Ultimately it is focused on getting the best outcomes for our stakeholders, particularly our clients, shareholder and the broader community. All my former managers have influenced my leadership in one way, shape or form. Some did things incredibly well while others showed me how not to do things. We take notice of people we’ve associated with and I believe we learn from all of them. Over the years, my fundamental values – being intellectually honest, fair, open, and transparent – have remained; my leadership style has naturally evolved as I learn “new tricks” and more about myself.
What is the most important conversation you’ll have around the board table this year?
Actually, we will be having several important conversations this year and they will focus on the finalisation of the investment management transformation project, investment performance in what might be a tough environment, the implementation of our significant debt funding program for FY20 and the challenges our clients will be facing. We will also concentrate on our culture and behavioural expectations, risk management, our shareholder’s expectations and our financial performance.
TCorp is an agile organisation and continues to evolve. The restructure of our investment management leadership team was completed late last year, and the implementation of our new state-of-the-art information technology platform is another key element of our transformation. We expect it to be fully operational this financial year. And we continue to strengthen our overall approach to how we think about and manage our clients’ monies.
While this transformational change has obviously been an important area of focus for TCorp over recent years, we ensured it was not at the expense of our day-to-day performance. We achieved strong investor performance against a backdrop of robust risk management with no slippage in business-as-usual activities. While ambitious change is exciting, it is critically important to achieve such change without taking unnecessary risk or negatively affecting the bottom line for us and our clients.
We will continue to build on what has been created over the last four years to further strengthen our capabilities and enhance the services we can provide the NSW public sector and, ultimately, the people of NSW.
What are the most pressing governance issues?
We can divide this into internal and external focused issues. Internally we need to focus on risk management, and our own culture and conduct. Externally we need to consider the expectations and the issues affecting each of our stakeholder groups, our clients, our shareholder and the broader community.
Our culture review suggests that ‘how’ we work is as important as ‘what’ we achieve. TCorp has a track record of executing on its strategy and going forward we will place equal, if not more, emphasis on the culture and conduct of our people in how they go about doing their work.
More recently there has been a demand for more transparency and clarity. As TCorp grows, how do you think about governance now given this?
I assume that you are referring to the impact of the findings of the Royal Commission. While not directly implicated, TCorp is supportive of the findings on the importance of culture and conduct. We have used the opportunity to review our corporate culture and to better articulate the kind of people and workplace needed to execute our long-term strategy that will deliver on promises to our partners and stakeholders. This was a very detailed process undertaken with the support of the Board, senior management and all staff.
Our review concentrated on transparency, governance, respect for clients and each other, reliability and working collaboratively. We looked at how we can better deliver on our promises, with a strategic, high value-add, client-centric focus.
What are some practical ways your organisation has improved transparency and have you made any changes during your tenure?
We undertook a board review last year and observed that there were further opportunities to develop how we function. For example, we now have more interaction with far more members of the management team so that we discuss issues with them directly. In reviewing our corporate culture, we have been deeply involved throughout the process and working more closely with senior management and all staff. This project involved all staff, management and the Board. This year will see a focus on the implementation of the outcomes of this review.
What is your commitment to ESG and how does this translate in a practical way?
One of our core investment beliefs is that managing ESG issues will result in superior risk-adjusted outcomes for our clients. This shapes our stewardship approach in managing investment portfolios.
The importance of being effective stewards of the capital entrusted to us is paramount for TCorp. We believe taking a proactive approach to exercising ownership rights will enhance and protect long-term value on behalf of our clients. In January 2019, TCorp commenced implementation of its active ownership strategy which brings proxy voting decisions in-house and includes direct engagement with Australian corporates.
TCorp is one of the five largest asset owners in Australia. How important is scale in the industry? What will the landscape look like in five years?
Scale gives us access to a range of investment opportunities that are not typically available to smaller asset owners. Like-minded organisations, both locally and globally, are now seeking us out on opportunities to co-invest given our scale, reputation and partnership approach. Scale also provides the opportunity to drive cost efficiencies, improve risk monitoring and management.
In five years’ time, I imagine that the asset owner industry will continue to consolidate, with the current trends away from traditional active management and increased investment in private markets likely to progress. In addition, the increase in focus on regulation and the importance of conduct will persist. The investment sector, particularly superannuation, will be under increasing scrutiny and in the public spotlight.
Asset owners face a decade of ultra-low rates and mediocre growth. How challenging is the low return environment?
We have been in challenging return environments before; we will continue to seek out opportunities and build diverse portfolios which best meet our clients’ risk and return requirements so that they can realise their objectives.
It is increasingly looking as if we will be in a low growth, low inflation, low interest world for some time to come, maybe many years. This will increasingly put a focus on cost efficiency and sound risk management.
The industry is facing a raft of changes. Does that mean boards will look for a different skill sets in their top executives? What are those skills?
Boards are well-served by a diverse set of skills, with enquiring minds prepared to ask tough questions. As the needs of our clients change and financial markets continue to evolve, we may need different professional skills and if so, we will be ready.