“Tom has brought a deep understanding of business models and equity valuation to our team. He is a terrific investor, and his colleagues look to him as a valuable addition to our team!”
—Donald Pierce, CIO, San Bernardino County Employees’ Retirement Association
The CIO Editorial Team shared a dozen questions with all our NextGen nominees and asked them each to pick six to answer. Their answers informed our decision to include them as a NextGen. Below are the answers from Thomas Kim.
CIO: How can allocators address the growing global tailwinds of aging populations, geopolitical tensions and changing global trade?
Kim: One aspect I deeply value about our investment team at SBCERA is our willingness to challenge each other regarding these issues in an intellectually honest manner—especially given that these subjects can present both tailwinds and headwinds for our portfolio on a global basis.
At the individual investment level, we address questions like these by striving to incorporate data into our decisionmaking process whenever feasible; moreover, we rely on the expertise of our manager and consultant partners to support our research process. While we may not always arrive at the same conclusions, we believe that tackling these questions together fosters richer and deeper relationships over time.
At the portfolio level, our team endeavors to make reasoned and deliberate allocations that represent the best risk-reward for exposure to these factors and others like it. We also remain mindful of achieving the right level of concentration, as excessive diversification can lead to diminishing returns. By striking the right balance, we aim to optimize our portfolio’s performance and capture the potential benefits associated with these trends.
CIO: What roles do AI and large language models have in the future of institutional investing?
Kim: Historically, most technologies have followed one of two prevailing philosophies—the first focuses on enhancing our ability to work more efficiently and swiftly (“help me do this”), while the second aims to completely disrupt and eliminate certain tasks altogether (“do it for me”). The advent of artificial intelligence has the capacity to accomplish both objectives in different arenas, which will be incredibly exciting to follow as we witness its development.
From an investment standpoint, there are a multitude of potential applications where AI and machine learning can hypothetically play a role, including economic forecasting, data analysis, risk management and portfolio optimization. One particular area of interest will be pairing these use cases with data specific to our portfolio. However, it will be crucial to take a measured approach in layering in these applications—as fiduciaries and stewards of long-term capital, allocators will have to understand the rationale of any AI system’s decisionmaking framework in order to incorporate its output in a potential investment-related decision.
CIO: Which component of ESG-driven investing do you think will have the most influence on institutional investing going forward, and why?
Kim: From the combined perspective of both 1) a large total addressable market and 2) the long tail of innovation and investment required to achieve global scale, decarbonization and climate technology will have a significant impact on the institutional investment landscape for years and decades to come. Furthermore, given the likely absence of international coordination, we can anticipate varying rates of change for the implementation of standards across various jurisdictions—this complexity will generate a significant number of investment opportunities across multiple asset classes.
Additionally, as allocators, we will have to overlay the considerations of numerous stakeholders who will actively participate in this long-term trend—investors, companies, employees, end users and regulatory bodies will all intertwine, making this one of the more influential areas across any institutional ESG framework.
CIO: What asset class or investment troubles you most right now, and why?
Kim: One area of prospective concern centers on the long-term geopolitical and macroeconomic outlook for Europe. Approximately 20% of world economic output is confronted with mounting and sustained headwinds across multiple vectors, including industrial export-led economic weakness, energy dependency, heightened geopolitical tensions, aging demographics, immigration/refugee crises and increasing domestic political strife to name a few. These factors, coupled with underlying structural concerns, increase the likelihood of a persistently volatile and uncertain outlook in the region for the foreseeable future. The multi-variable complexity on the continent creates opportunity; however, it is essential that we ensure that any investment decision is fully compensated with appropriate risk premia in return.
CIO: What should be an investment trend, but isn’t (yet)?
Kim: Our team would like to see more significant coordination by limited partners across a variety of GP-related matters. While there are certain structural barriers to achieving this (e.g., variations in investment philosophies, divergent sensitivities to key terms, conflicting investment horizons and occasional failures in timing and focal points), we believe that fostering greater cooperation and communication can yield more favorable outcomes for the LP community at large. We have seen some advancement in recent years through advisory committee participation and ad hoc discussions with fellow investors, but we are optimistic about the continued growth of this emerging trend.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Kim: Two specific skills come to mind that I think will be of great importance over the next decade. The first is gaining greater data proficiency, which encompasses two discrete sub-categories: 1) the collection, scrubbing and standardization of datasets from multiple organizations, which often span various time frames and are presented in disparate formats, and 2) the analysis of that data to isolate high signal-to-noise ratio information relevant to the risks associated with our portfolio. There’s a frequently cited baseline statistic that 90% of the world’s data was generated in the last two years—while we’re not quite in that situation as an LP, we are consistently receiving increasing amounts of information from our GP partners over time, and it is imperative that we capitalize on that for the benefit of our portfolio.
The second skill is a long-standing area of focus: the ability to maintain an open mind and embrace a willingness to actively listen and honestly evaluate variant views. This attribute takes on heightened importance as we navigate a different economic cycle and rate environment that potentially could be longer-lasting than what current consensus suggests.
