Emilia Wiener - Chief Investment Officer at TIAA

Colbert Cannon: Welcome to Season 9 of the HPSCast. I’m your host, Colbert Cannon. If you’re new to the pod, HPS is a global investment firm. We manage over 100 billion in assets for a broad range of institutional and individual investors.

That capital is invested across private credit and public credit strategies. Each week, I sit down with key relationships to, partners of, and friends of the firm to learn from their experience. Ask how that experience shapes their current roles and give insights into HPS and how we operate. So with that, let’s bring in our guest.

Our guest this week is the Chief Investment Officer of a leading financial services organization, serving over 5 million active and retired employees at over 15,000 institutions with over $1 trillion in assets under management. She was educated at Wheaton College and NYU Stern School of Business before starting her career in finance at the MONY Group, a mutual insurance company.

After 15 years there, focused on managing credit portfolios, she spent time at AllianceBernstein, Genworth, and AXA, again focused on fixed income portfolio management, before moving to TIAA almost seven years ago.

At TIAA, she was recently named their Chief Investment Officer of their $300 billion general account, a pool of capital invested across public and private fixed income, private equity, real estate, and real asset alternatives. She and her firm have been important partners of HPS’s for several years now, and we value the relationship greatly.

So without any further ado, I’m excited to welcome in this week’s HPSCast guest, Emily Wiener, CIO at TIAA. Emily, welcome to the pod.

Emilia Wiener: Well, thank you for having me.

Colbert Cannon: Emily, I’d like to start from the beginning. Where’d you grow up? Where are you from originally?

Emilia Wiener: Well, I actually grew up in New York City, in the Bronx, and after a while, my dad got a job in New Jersey, so he moved the whole family to Long Branch, New Jersey. So, I finished going to high school there.

Colbert Cannon: So, let’s start with your education. You end up at Wheaton College. Why was that the right choice for you?

Emilia Wiener: Coming from a Cuban family, they did not want me to go away to school, and the only way that my Guidance Counselor in high school – God bless him – got me to go away to school was to convince them that if I went to a women’s college, it would be okay.

Colbert Cannon: Amazing.

Emilia Wiener: And so, he had a few colleges in mind. Several Long Branch High School graduates had gone to Wheaton College. He recommended it, and I was able to get in.

Colbert Cannon: What’d you study undergrad, Emily?

Emilia Wiener: So, I studied economics. I was an economics major. I didn’t start out that way. I thought I was going to go into the Diplomatic Corps, so I wanted to do my languages, work on my languages, because I spoke Spanish, French, English, and then I thought, well, I’ll just learn Russian. Why not? That turned out to be not a great match for me in terms of how my brain was wired. So, I started taking economics courses and got really, really excited about doing that and loved economics.

Colbert Cannon: And with that love, what’d you think you wanted to do? So, you’re graduating college, what was the right next step then?

Emilia Wiener: I was one of those really odd people. I really knew I wanted to be in investments from the exposure I got at school to economics and learning about what makes the world tick. And I really thought, gee, I really find this so interesting. So, I was recruited off campus, when I was getting ready to graduate, to go work for a money life insurance company. They had a management training class, and that’s where I got started in investments.

Colbert Cannon: So, tell me about that first job. You get recruited, it’s a life insurance business. What was that opportunity? What were you actually doing?

Emilia Wiener: As part of this training class, they would expose you to different parts of the company. So, I didn’t actually start in the investment world, but they gave me exposure to it. And I met a woman who has become my mentor even to this day. She and I connected during one of her introductory sessions to the management training class. I called her afterwards and said: “I really am interested in doing investments and would love very much not to be in this training group. And I really would want to be in the investment team.”

And she was taken aback by the fact that I had been so forward with her and thought that was great, actually. So, through her support, I was able to get sprung from the management training sessions to actually work in the investment group. My timing was really good. One of their analysts was moving on to the Harvard Business School, and so, he took me under his wing to train me while he was getting ready to go on to Harvard Business School.

Colbert Cannon: What were you investing in? What was that first job?

Emilia Wiener: We were doing private placements. We were doing private credit – what we now call direct lending, private credit, you know, doing your own term sheets, negotiating transactions, doing credit underwriting.

So I started there.

Colbert Cannon: And you may not have realized this at the time, but you were well ahead of the curve.

Emilia Wiener: Well ahead of the curve.

Colbert Cannon: I mean this is before it became the asset class it is today. Fascinating. And, tell me about what kind of deals you were working on? What were those early days of private placements?

Emilia Wiener: The early days, I was with the Financial Institutions group, and so, my underwriting was on banks, insurance companies, leasing companies, and really doing a lot of the analysis of their asset quality, their earnings capacity, their position in the market, and what they were able to generate in terms of repeatable, sustainable income in order to repay the private loan that we were negotiating with them.

That’s what it was. Mostly financial institutions. That’s how I got my start.

Colbert Cannon: So, you spent 15 years there. Can you talk us through your progression? Take us through the evolution of your career there.

Emilia Wiener: I stayed there for a while. I actually moved from being a financial institutions person to a broader remit with industrial companies, electric utilities and paper companies. You name it, I probably did it. And what happened was I was recruited away actually, at one point, from MONY Life Insurance Company.

I went to work for Solomon Brothers. They wanted me for my financial institutions background. And so, I was in corporate bond research there for a while, but I realized that I didn’t really enjoy the sell side as much as I enjoyed being on the buy side. I liked being the one making the investment decision.

And so I was lucky to be able to get back to MONY Life Insurance Company. And that’s when I really started to broaden my remit in terms of the industries and the teams that I led and doing workouts as needed. Because it was a small company, I got to do everything. So, I was portfolio manager, research person, risk person, all rolled into one.

Colbert Cannon: And you talk about risk and restructuring. I always say that, you learn much more when things go wrong than when things go right. Talk me through some of those early lessons and education you get when you have to work through something that’s gone wrong.

Emilia Wiener: Yeah, so you realize that it’s really about intercreditor dynamics and intramurals with other creditors that are there. And that’s where I learned the value of covenants and how important it is to have those covenants in your document to protect you and to give you a voice when there is a problem and the credit goes sideways.

Colbert Cannon: In benign economic environments, nobody really cares what’s written in the credit agreement, but it’s when things go wrong that it’s really crucial. And we’ve been in a bull market in credit for 15 years. And I think people lost the thread in terms of why this stuff matters.

Ok, so after your time there – I think we’re up to 2004 – you make the decision to move over to AllianceBernstein. Why was it time to move on then? What were you looking to do over at Alliance?

Emilia Wiener: Equitable acquired MONY Life Insurance Company. And during the due diligence process, the people who were at Equitable really valued what we were doing in private placements at MONY Life Insurance Company. And so, they had me join AllianceBernstein after the acquisition and merger to run the combined private portfolio of MONY and Equitable.

And so, I was now an asset manager. I went from thinking I didn’t have a job to actually having a job – a nice job!

Colbert Cannon: That’s a point in your career where you’re making the transition. As you say, you start as an analyst. You’re grinding out individual deals, understanding individual businesses, and you’re moving to the more portfolio management side of this. Those are different skills, and some people are better or worse at one or the other. How did you make that transition successfully, for you personally?

Emilia Wiener: I started out at such a small company where we really had to be all those things. It wasn’t so hard for me to actually build out portfolios and to understand the interrelationships of the different exposures we were building in the portfolio and the risk because, you made an investment, and it was up to you to get the money back and really focusing on that.

So, the transition to go to an asset manager to continue doing that kind of work in that space and growing it – now I had more assets under management. I had the capacity to do larger transactions.

We started migrating from private credit, in terms of private placement deals, to actually doing leveraged loans and bank loans and understanding building out a broader asset base. And it was just underwriting, just relying on your underwriting skills, on your structuring skills, on your capacity to price risk.

Colbert Cannon: So 2006, you move over to the Head of Private Placements and Alternative Assets at Genworth. For those less familiar, let’s start with what Genworth was back then. Talk us through the organization.

Emilia Wiener: Yeah, so Genworth had just basically spun out of GE, and they had an investment management agreement at that time with GE Credit. And they wanted to become more independent, and so, they created an in-house investment management opportunity for people to come and build out their  investment structure.

And so, I helped them do that. And I guess because I had been at the asset manager and had been at an insurance company as well, they thought, “Well, she’s seen all sides of this, and she can really help us,” which I think I did. Unfortunately, my runway there was very short because, shortly after I joined, the financial crisis hit.

Colbert Cannon: That was where I was going next. When you were there, you’re barely in your seat, and the world falls apart in 2008. Talk us through what it was like sitting in that investing seat during that uncertain time.

Emilia Wiener: It was really difficult. I mean, the good news was that, again, the discipline on how we underwrote credit stood up. What didn’t stand up was liquidity, and so, we weren’t able to find liquidity in the portfolio. And because of all of the issues that were otherwise going on, there wasn’t an interest in continuing to invest in that space – that illiquid space, the private credit space, the alternative space.

And so, I learned that it is important to have the capital to support you through these difficult times. And unfortunately, they were not positioned that way. And so, we really ended up managing through that relatively well. What it really showed was the value of private credit, the value of properly documented transactions.

When people saw that, in that downturn, yes, there were losses, but not compared to the losses that were being seen in other asset classes. So, I think more institutional investors started opening up to do more allocations into private credit. That’s really where I think it showed its worth. It’s really valuable.

Colbert Cannon: And it’s interesting, Emily. If you look at anybody who tracks this, Prequin does the math and says it’s a $100 billion asset class, private credit, in 2008-2009. Today, it’s over $1.4 trillion. That growth is driven by regulatory change – certainly the banks pullback on lending.

But as you said, the experience and seeing how it performs through crisis, that was the demand side for it, right?

Emilia Wiener: That was the demand side, yeah.

Colbert Cannon: Let’s dig in on that a little bit. Why? For our listeners who are less familiar, why does, when something goes wrong, the caliber of your document – the covenants that you have or don’t have, the protections of asset collateral – why does that matter?

Emilia Wiener: Yeah, so I think of it as the ability to get to the table to negotiate with your partners, because if the other lenders to the company are at the table, they’re looking to protect their downside risk as well. And they’re looking to recover as much as they can from the situation. And because it’s obviously not working out well, there’s a fixed pie that everyone’s going to have to share. And so, if you’re not at the table, you get a lesser recovery. And because covenants allow you to bring yourself to the table, give you a voice at those times, that’s when you’re able to negotiate better outcomes for yourself in a private credit deal.

It is so different from public investing, which is more thematic. It’s more macro, if you will. Yes, you’re doing underwriting, but you’re really understanding industries more than you are individual credits. What makes a credit work, and what doesn’t? Is it salvageable? Is it not salvageable? Should it be liquidated? Should it be restructured? Lots of questions that come up and lessons to learn from that.

Colbert Cannon: So, you weather the storm of the financial crisis. You moved on. You did six years at AXA, and then you joined TIAA in 2016. First, let’s level set. What is TIAA? Explain TIAA for our listeners.

Emilia Wiener: TIAA is basically a pension-oriented company. All of our liabilities are pension liabilities, mostly of the not-for-profit space – the 403b market – which we dominate. And we invest very consistently with those liabilities and trying to generate ongoing, steady returns for them in order to support their lifetime retirement income.

Colbert Cannon: So, if you’re a retired teacher, who is a public employee of where I’m from – the great state of North Carolina – your pension may be managed by TIAA. And you do that for a broad range of institutions all around the world.

Emilia Wiener: That’s correct. Yeah.

Colbert Cannon: All right. So, you’re become the Head of Fixed Income. When you join, what exactly does that business encompass? What does that mean to be the Head of Fixed Income at TIAA?

Emilia Wiener: So, at TIAA, we have the benefit and great fortune of having Nuveen, our asset manager, as one of our largest investments in the portfolio. Through Nuveen, we are able to access, globally, fixed income opportunities – investment grade, high yield, structured, muni – it is a broad, deep skillset within Nuveen.

And so, sitting in this seat as the CIO, our job is to do asset allocation, to work with the actuarial team to make sure we’re minding the asset liability management requirements of a portfolio like this, because it’s very much a liability driven portfolio in terms of how we invest. And we work with Nuveen to make sure we are clear with them what our target requirements are in terms of returns, in terms of our capital levels that we want to maintain and be able to give them sufficient guidelines that they can go out there and get us the best transactions that they can find in all of those markets.

That’s the key – how diverse and global this portfolio is. So, that’s unique in terms of anything I’ve ever managed before.

Colbert Cannon: Okay, let’s talk about private credit. We talked about its growth. It is now a well-established and large asset class. What’s your perspective at this point in the market cycle on private credit and its role as a portion of your portfolio’s allocation?

Emilia Wiener: Yeah, it’s good because it fits well with my background as well, but we’ve always favored private credit. We’ve been in the market as a private placement lender in the investment grade space. We have migrated to high yield as well through direct lending through Churchill. And so, we have a tremendous presence in the market and are at the point now where we’re able to actually even originate some of our own transactions at Nuveen in terms of building for the general account and also managing for third parties. Nuveen has built out very unique capabilities where it manages for third parties as well.

And so, our allocation to private credit can run anywhere between 25 and 30% of the total fixed income portfolio. We’re very comfortable with that, and we’re likely to continue allocating to it. There are times when you have to pull back a little bit. As you were pointing out, sometimes the covenants are a little bit more watered down than you’re comfortable with, but then you have to make sure you’re doing it with more sustainable credits, with higher quality credits, so that you have something to hold on to. But I think that, certainly in the leveraged space, you want to make sure that you are always providing yourself with some cover.

Colbert Cannon: So Emily, what’s important to you when you invest in a private credit manager and back somebody? What matters? What are the metrics you think about?

Emilia Wiener: Yeah, so I think about their ability to manage risk, to identify risk, to be early to the table, so I don’t need to risk when everyone can see the risk. I want the manager to have a track record of saying, “I saw that coming a mile away, and so I repositioned the portfolio.” So, proactively repositioning the portfolio to avoid your worst downturns, because, especially in fixed income, you’re just getting fixed income.

There’s no upside. You’re just getting your negotiated return, and where you give it up is in those write-downs and write-offs.

As a statutory reporting company, we don’t have a lot mark to market in our portfolio, and our fixed income portfolio is held at amortized cost in accordance with the accounting principles that we adhere to. And as a consequence, higher rates for me are great. I get to reinvest all of the re-investment flows that come through the portfolio and the maturities that are coming through in higher yielding.

Right now, our program is investing in higher yields. Our new money rate is higher than the portfolio yield, which is no shock. We’ve come over 10-15 years, even longer of very low rates. So, we’re happy to see this reprieve a little bit and start layering in some higher yielding assets in the portfolio to help us.

Colbert Cannon: So, that’s the good news, right? Rates are up. We’re getting higher yields. What worries you? What are your concerns from a macro perspective given the current environment?

Emilia Wiener: Higher yields are always a double-edged sword, right? It goes back to your underwriting. So, if you look at the impact that high yields can have on highly levered companies, the maturity walls that are coming ahead of us still that have to be handled somehow, I think I worry about that. You don’t know that you’re going to get through it until after you get through it and how much pain you’re going to have as you get through it.

But I think our portfolio is granular enough and diversified enough we will take our bullets, but we have a very strong capital base. And so, we’re very comfortable that we’re going to get to the other side.

Colbert Cannon: The maturity wall is interesting. It’s been 15 years of zero interest rates, as you said. And that meant that refinancing risk wasn’t really a problem over the last 15 years. If you performed generally near expectations, somebody would refinance you out. And people have sat in conference rooms like this over the last 15 years and warned about the maturity wall, and it’s never been an issue.

Part of that is because you had a whole bunch of capital that was raised in 2008-2009 – the last time this was an issue – at 5% rates and suddenly rates went to zero, so the math worked. Now, we have a whole bunch of capital that was raised at 0% rates, and everything’s at 5-5.5% percent and the math doesn’t. And it’s a much more interesting, dynamic over the next couple years for what you and I both do.

Let me ask you to keep your macro hat on then. How do you see this resolving itself? Where are you in terms of the rates picture and how long we’re going to be where we are today?

Emilia Wiener: I think we are going to see pain coming out of the commercial mortgage loan space. I think real estate is going to continue to be under stress. My big question is, is this just a cycle, or is it a transformative change in how real estate is used, and whether it’s used and useful and what kinds of buildings are used and useful?

Colbert Cannon: Do you have a strong opinion on which one of those yet? Or are we still doing our work?

Emilia Wiener: We certainly have been under-emphasizing investments in office and retail for a long time, so we’ve tried to bring that exposure down. It’s still higher than we’d like. We are very selective, geographically, where we are and what types of buildings we are supporting and investing in. So, I think that, while there is going to be pain, generally speaking, in this space, real estate is not a monolithic sector. And so, I think we’ve picked our right spots there.

To me, I think when you look at the higher rate for longer, again, I’m okay with it. It’s going to give us some fixed income losses. It’s a cycle. As long as people’s hair doesn’t ignite, we should be fine. And we have the capital to absorb it, which is the critical thing. Not only liquidity, which you’ve mentioned a couple of times, but also the value of having a capital base that can absorb these cycles and can absorb the hits that you’re likely to take going through any kind of a credit cycle. But for the most part, our best, strong benefit is being able to invest in higher rates because we’re able to continue to lift our portfolio yield, which for a $300 billion dollar portfolio, takes a lot of lifting.

Colbert Cannon: Tell me about your near-term for TIAA. What are you excited about? What are the new initiatives on the docket that you’re looking forward to? Give us a little bit of a glimpse into what’s to come for TIAA.

Emilia Wiener: We have a relatively new management team that’s come in, senior management team, and I think they’re working very hard to find new opportunities for how we can solve the retirement problem – the income in retirement problem that is in this country. Social Security is not going to last forever. There’s going to be some pain points there. And I think this company is uniquely positioned, with its capital and its asset composition, its liability composition, and our product know-how. to develop products to address this retirement problem.

Americans have not saved enough to retire comfortably, generally speaking. And so, we want to address that problem and find ways to expand out of the 403b market and into the broader retirement market to address and bring income solutions for people in retirement. The move to defined contributions from defined benefit plans just shifted the risk onto individuals of their retirement future. And I just think it was an experiment that maybe has had spotty outcomes.

Colbert Cannon: Well, you are doing important work for an awful lot of people, and I love hearing your perspectives, Emily, on all of this. It’s truly a pleasure catching up. So, thank you.

With that, Emily, I want to move to the last segment of the podcast, something we call “Best Ideas.” It’s where we offer up something that’s added value in our lives recently. “Best Ideas” because it’s our goal as investors to maximize exposure to those.

Emily, you’re our guest. I’m going to ask you to go first. What is your best idea?

Emilia Wiener: I think my best idea is a personal one and a professional development one is getting comfortable with being uncomfortable, because that is how you grow professionally. And if you’re dominated by the fear of the unknown or have concerns about being uncomfortable, then I think if you always stay in your comfort zone, you just don’t grow. And so, for me, that’s my best idea that I can share with all people of all points in their career. Get comfortable with being uncomfortable, because that’s how you grow and add value.

Colbert Cannon: One of my kid’s coaches for their basketball team sent a video with this woman, Kara Lawson, who’s the Head Coach of the women’s basketball team at Duke. And she has a whole speech about people thinking about things getting easier, and it’s the wrong framework. You just get better at doing hard things. And part of that is exactly your point, Emily – get exposed to making yourself uncomfortable. It’s not that it actually gets easier. You just get more used to being in that environment and it’s critical, love that idea.

Emilia Wiener: And it brings out some wonderful capabilities that you didn’t even know you had.

Colbert Cannon: Yeah, totally.

Okay. So, let me offer up my best idea this week. I might go a little lower brow than you, Emily, but as people know, I like to be inspired by the guests of the week. As discussed earlier, Emily attended NYU Stern School of Business. She’s from New York. Stern School of Business is located in Lower Manhattan, not far from where I live off of Union Square.

I started to think about our neighborhood, and I immediately came to a TV show I recently watched and loved, which featured the Washington Square area quite prominently. My best idea this week is Steven Soderbergh’s recent TV miniseries, “Full Circle.”

“Full Circle” tells a complicated story about a botched kidnapping. It weaves together characters and storylines from Manhattan to Queens to all the way to Guyana. The cast is unbelievable. Claire Danes, Timothy Oliphant, Dennis Quaid, Zazie Beetz. The story is complicated. It’s full of these twists that will keep you guessing. If you like Soderbergh – and you should, he’s amazing – you’ll love how he takes this wildly convoluted story and ties it all together neatly at the end.

There are important plot points that take place in Emily’s old stomping grounds of Washington Square Park, and Claire Dane’s and Timothy Oliphant’s apartment on the show is literally right on Washington Square. So, in honor of a one-time resident of that area, let me recommend the recent TV show, “Full Circle”, streaming on HBO Now.

Emily, any chance you’ve checked that one out?

Emilia Wiener: Absolutely. It’s at the top of my list now.

Colbert Cannon: There you go. With that, it’s time to wrap it up for the week. Emily, thank you so much for taking the time. Always a pleasure to chat and greatly appreciate your support of HPS.

Emilia Wiener: Thank you for having me.