TRANSFORMING THROUGH DATA

Browse more episodes here

READ THE FULL TRANSCRIPT

[TARA KODALI]

Candy, let me start by saying I am so excited to be having this conversation with you, and thank you very much for your time today. Your organization has evolved tremendously in the past few years, from insurance to global asset management. What were the key drivers that prompted this initiative?

[CANDACE SHAW]

Well, first of all, Tara, thank you very much. I'm excited to be here too. I think really too, first and foremost, I think it became very obvious to us that we had some investment skills and expertise that some of our other fellow institutions didn't have. For example, investment grade private credit. We have a team of 50 people who have literally been doing investment grade private credit for four decades, and quite frankly that asset class has allowed us to price our products on the insurance side often better than many of our competitors.

And a lot of other smaller entities who didn't have this capability were sort of saying, hey, is there any way you could help us? We have the same problem. We want to increase our risk-adjusted returns. And we did have the ability to offer that to clients.

So we started what is now SLC management with a single private fixed income fund that we sold to Canadian institutional clients here in Canada. And quite frankly, it was a great success. So we started two other private fixed income funds and a commercial mortgage fund. And then we layered on some publicly traded mandates, and then we made a couple of acquisitions in the US, and it just all went from there. But the premise was also we thought alternatives were going to be the next trend in capital markets, and I think we've sort of been proven correct in that space.

And I'd also say, insurance is a very capital intensive business, just like banking is very capital intensive, very regulated. And for us to have a different income stream related to fee income from managing assets was a lot less capital intensive. So it allowed us to increase our income, our revenue, but in a very capital effective way.

[TARA KODALI]

Over this time, you've worn many hats, including those of risk and portfolio management. As your purview has expanded to include the world of operations, what has surprised you the most about this part of the investment life cycle?

[CANDACE SHAW]

Actually, what I've found surprising is going to sound very mundane. I was really surprised at how much effort and how much happens after a trader does a transaction. As I said, I've been in the front office for almost my entire career, and there's the assumption that the hard part is figuring out what you want to do, doing the transaction, doing the trade. But the amount of work and effort to make sure that trade is processed correctly, it's monitored, and it's given back to the trader with some insight about what their next trade might be, I think is highly underestimated by people in the front office.

I'd say there are a couple other surprises. The complexity of legacy systems-- you always hear that, right? But not being an IT professional or an operations professional, I have really underestimated how many workarounds had to be put in place in order to make everything work. Because systems that were built 10 years ago, 15 years ago, combined with a changing marketplace, changing asset classes, a changing business model. And finally, the other thing that kind of surprised me was that it's really quite easy to identify the problems. It's not easy, but those problems can certainly be addressed.

I think the biggest thing I've found is the resistance to change. The change management that's required to bring people who are used to doing things one way to doing them differently for the future.

[TARA KODALI]

Is SLC where you think it should be with regards to the adoption of technology and digitization when we're thinking about it from an ops perspective?

[CANDACE SHAW]

I think it's fair to say that we're probably where most companies are. And the answer to that is, no, we're not where we should be nor where we want to be. I mean, our ambition is to be a digital leader and to achieve 100% automated straight through processing to deliver exceptional client experience. We're focused on leveraging our foundational investment systems like eFront, like Aladdin, but also capitalizing on data as a key strategic asset at the center of the digital journey. We're working on setting up robust data management practices to feed our book of records and building the ability to flow the data using automated straight through processing across the value chain and using real-time integration.

And finally, as you know, accurate, timely, and complete data is at the heart of everything. And we have data scattered across multiple vendor platforms which makes it difficult without the ability to extract, cleanse, manage, and flow the data using modern design. So I think it's fair to say that we've got work to do, not only ourselves but in conjunction with our vendors.

[TARA KODALI]

When you're thinking about solving some of these problems and the utilization of technology there, how is SLC determining what do we build in-house versus what do we outsource?

[CANDACE SHAW]

Historically, we've always outsourced the actual technology. What we're finding, though, is some of the ways of doing things in the past no longer suit our business model. So we use technology in particular to solve the flow of the operations for one client which was the insurance company. Worked well then.

Fast forward 10 years, we now have multiple clients. We're in multiple jurisdictions. We're doing different types of asset classes than we did in the past. And what we're finding is those systems are not as agile as we need them to be. And so, more and more we are starting to look at where we could and should employ some internal people to work on facilitating extraction of data, facilitating the automation of some of these processes.

So I think we're leaning a little bit more to less outsourcing of certain things. But things like our investment book of record, our accounting book of record, we'll never build those. Those will always be outsourced. But I think on the margin, and things we're doing to provide information and insight to our clients in their reporting and the like, I think we're going to have to build some of our own to make it a competitive advantage quite frankly.

[TARA KODALI]

Absolutely. In conjunction with some of these efforts that SLC is making to determine what areas should be prioritized, either from a technological lens or otherwise, are there specific themes that are emerging, either a specific asset class or a particular part of the investment life cycle that needs a little more TLC versus another?

[CANDACE SHAW]

I don't think so. What I'd say is I'll focus on the fixed income space because our affiliates obviously have their own operations. What I'd say is we're firm believers that every dog has its day. And so, right now, I would argue fixed income actually is having a bit of a windfall. I mean, we haven't had yields this high for a very long time. I mean, not everyone's as old as me who remembers 9% yields back in the 1980s.

[TARA KODALI]

We might get there. Who knows.

[CANDACE SHAW]

But really, as a result of that, and the result of how well some of the other alternative asset classes have done, you're obviously seeing a little bit of softness in things like real estate or private equity. So we're firm believers that you should have all of these tools in your toolbox. And we're firm believers that it's good to have a very balanced business model.

What I think is what I'd say is on the margin, new cash flows, it's great to be able to pick and choose which of those alternatives you think is going to be the most successful over the medium term so new money can go into those. And I think, because of that, what we're really seeing is a lot of people looking to credit markets, looking to private credit in particular, as a place that they think might do as well as private equity or some of the other asset classes. I think the biggest problem has been, though, when you're, say, overweight an asset class because it's done so well, and now the asset class is a little out of favor, you're not getting your cash flows back.

[CANDACE SHAW]:

It's hard to reallocate. So I don't think anything needs more TLC than the other. I just think that every dog has its day and you want to have all of those options and be able to pull the trigger on whichever one makes sense at the time.

[TARA KODALI]

How is technology helping you stay agile?

[CANDACE SHAW]

It saves time and saves people. I think, technology-- what I'd say is the legacy systems are a problem. I think it would have been easier for me to have taken on this role and had a blank slate.

[CANDACE SHAW]

Everything's changed so much in the span of a decade, and I'm a firm believer that it will continue to change, and it will change at even faster pace, and that literally every job every industry will be impacted by technology and probably in 10 years there won't be a CEO out there who doesn't have some sort of technology background. Because it's just the way to move forward.

[TARA KODALI]

It touches every aspect really.

[CANDACE SHAW]

Touches everything. And so, I mean, technology, because of how quick it is, is fantastic. It can help you change the way you do things. It can help you save money. It can help you analyze data and quantums of data that you could never analyze before to give you better insights and to make better decisions. But again, the rapidity of change, and the fact that it doesn't stand still, that kind of can get in the way because you're always going from this is the best thing today to the best thing tomorrow.

So you have to find a real balance between what do I invest in that's going to be something that has some lasting quality to it, versus, you know, literally you could probably change technology every two years. There's always something better that's coming out. So--it's a tough one, I have to admit.

[TARA KODALI]

Looking over the last few years, what do you think went well during the process, ultimately positioning SLC to expand further, and what do you think could have been done differently?

[CANDACE SHAW] So I think what went well is the fact that our people are so intentional about making sure they get things done. It really was a huge effort of people in the middle and back office. We had none of the infrastructure to be a third-party asset manager. And so, people were building as they were learning. And that's everyone from the front office, who'd never actually sat in front of a client before, all the way down to the back office, where, as I said, we had legacy systems which were investment management systems, but they were set up to serve a purpose. The purpose was managing the assets of one of only a handful of Canadian insurance companies.

And I say that because everyone thinks, well, there are a lot of insurance companies out there. Obviously, the technology, you could just use what every other insurance company is using. The problem is, being home base of Canada, a lot of our assets were Canadian dollar. Most technology and vendors are based on US markets. So there's gaps in some of the data that we need, gaps in some of the-- simple things like calculating interest expense. Depending on whether you have a US bond or a Canadian bond, the calculation of interest is over 365 days or over 360 days.

I mean, it's very simple things like that don't sound like a big issue, but they cause little tweaks that have to be made to almost every piece of technology, of software, that we have in order to fulfill what we were doing till 2014. Now, we're in the asset management space, and we have to build client reporting from scratch. Because the reporting to an insurance company, your own insurance company, is very, very different than reporting to a person who has a mandate and wants to see something against a total return benchmark.

[TARA KODALI]

And I think it gets more complicated because it's not just one report. You have several clients.

[CANDACE SHAW]

Exactly. The insurance company deals with a couple of custodians. Now, you have clients who are dealing with multiple custodians and you have to form relationships. So the sheer-- I'm going to say, the sheer strength of will of people in the back office to find a solution to all these new things that were cropping up all the time, in retrospect I find it amazing.

What I don't think we did so well is I think we all recognized back in the early days, and even myself when I was managing the private fixed income funds, I actually said, I don't think we have the infrastructure we need to report, to manage, to support our vision. And quite frankly, to be fair, everyone said, you're right. But, you know, this isn't Field of Dreams. We're not going to build it and hope they come. We're going to wait for them to come, (LAUGHS) and then we'll build it.

I'd say the only thing that we did is we waited a little too long to start building. So we could have started a few years earlier. And it doesn't mean we just started with me. We did start building, and improving the technology, and improving our processes several years ago. But we probably could have done it two to three years earlier, and therefore we now have to, in order to scale and grow, make a concerted effort to make that investment now for the future.

[TARA KODALI]

And given that concerted effort and vision into the future, what excites you the most about the path ahead and the role that technology specifically will play in it?

[CANDACE SHAW]

Well, going back to what I said earlier, I think what excites me is I really think that it's not that hard to improve. And not only will that allow us to continue to grow, which is always very exciting-- everyone likes to win and everyone likes to get more assets under management-- but I think also grow our bottom line. So I think we've been very focused on growing our top line. I think we've done a really good job at that.

I think what excites me is what we're working on now, this transformation with technology, and looking at our processes, and trying to get as automated as we can and straight through processing, will actually hit the bottom line. And we'll see that grow by magnitude. But that's exciting too because revenue growth is great, but the bottom line, seeing that improve by something you've been able to do to transform things, that's pretty exciting to me.

[TARA KODALI]

that a step further, ops has traditionally been a cost center. Do you see that model evolving in the future with potential for either revenue generation or different modes of value creation?

[CANDACE SHAW]

Let's be perfectly blunt, I don't see us ever commercializing our operations function. But I do think, if you have a better operational platform, you can do things quicker, you can do things with fewer errors, and you can provide more insight and data to your clients that you can develop a competitive advantage that maybe clients are willing to pay for.

[TARA KODALI]

What impact has the acquisition of the asset management businesses had on the operation of the legacy insurance business?

[CANDACE SHAW]

The best part about it is it has really allowed us to invest in different asset classes that we didn't have the expertise in ourselves before. So things like infrastructure-- we've always been a player on the debt side or financing infrastructure, but with InfraRed, now we can invest in some of their funds to get us exposure to the equity side of infrastructure. I'd say, the acquisition of BentallGreenOak, although we always had some real estate expertise, we now have a global real estate manager that literally has more feet on the ground and has more access to different properties. And so, that's really been able to enhance the diversity of our portfolio.

With Crescent Capital, I really think we're primarily an investment grade balance sheet, so there's not a huge opportunity. But it's a great compliment for our asset management business to be able to provide not only investment grade debt opportunities but direct lending type opportunities through Crescent as well. So I think what it really has done is allowed us to, on the margin, change the asset allocation of the insurance company to get better risk-adjusted returns and to see opportunities that we may not have looked at before.

[TARA KODALI]

These acquisitions have clearly expanded the scope of what can be offered as a whole. Looking forward, at the enterprise level, where do you see the biggest growth opportunities?

[CANDACE SHAW]

Well, quite frankly, I think the biggest growth opportunity is in all of them, i.e. The alternative space. For years and years, the alternative space was relatively small compared to the public markets. And it still is smaller, but there's more and more institutions getting into it. I mean, Sun Life has always been in some parts of the alternative space, but we're getting more ingrained in that space. I think there's huge opportunities, for example, in high net worth and small family offices who are just now looking at the potential of going into some of these markets. And so, with that growth in those areas, along with the continuous reinvestment of funds from the bigger institutions who have been in the alternative space, I think that there's going to be growth for the next couple of decades. Whether you're talking real estate, which maybe right now people are a little shy to get involved with but that's had a great run-- you can't condemn them. I think there's going to be huge opportunities in infrastructure.

It does look like, in the developed economies, there's going to be a reinvigoration of our infrastructure. But also the green revolution, that's going to inspire other infrastructure projects. So I think there's a lot of opportunity for growth there certainly from the demand side.

So I think that almost everything we are in, including the direct lending business, we do see the disintermediation of the banking system with the continuous regulation in the US-- for example, Basel III, I think it makes it even harder for them to do some of the lending that they've done in the past. And so, there's a space, right? There's space for other asset managers to get into the business that was at one point in time only done in the banking space. So I think literally having all of those alternative opportunities in front of us provides us with growth and growth in any season.

[TARA KODALI]

Candy, before we wrap up, on a more personal note, while we were preparing for this podcast, you said something very interesting that resonated with me. You commented that your perspective on diversity inclusion and what it means to be a woman in this industry has evolved over time, especially as you've risen up the ranks. Could you elaborate on that a little bit further?

[CANDACE SHAW]

Sure. Actually, I'm very glad you asked because it is something very near and dear to my heart. So let me just set the scene. I came out of university, I got a job at Sun Life in the investment division. I was often the only woman in the room at all the dog and pony shows, and the lunches, and the conferences. I think, on our investment team, less than 10% of the people were female.

And I say "I think," because that wasn't even measured 36 years ago. No one measured how many female people were on the team. It was just known that it was very, very small. And I would say that I was very lucky because I have stayed at a company that truly does reward people who do a good job and truly does live by the standard of meritocracy.

And it's interesting, I've never had a female boss in 36 years. I've never had a female mentor. Having said that, I don't think it's held me back at all. I've had mentors who are extraordinarily supportive, who were in many cases older gentlemen over the course of my career. And as I said, they were very, very supportive of me. So I don't think I've been held back.

Because of that, when I was younger, I had what in retrospect was a very naive view of how to succeed. I didn't find it that difficult being a female in the industry. I truly believed that if you worked hard and you did a good job, then you would get rewarded, and you would get promoted, and you would get those opportunities. And I'm pretty sure I did. I feel very, very fortunate.

But what I've found, as I've gotten older, is not everyone's had the same experience as I have. And now, I'm much more focused on making sure I am a mentor to young women who I work with, that I get involved in industry events where we're promoting more diversity in the workplace. I also am on the advisory board of my business school that I graduated from trying to get young women more interested in the investment space. Because I think they have a perception that it's maybe not negative but it certainly doesn't appeal to them as much as consulting, or accounting, or marketing.

So I really feel that I've had a great career. I've had so many opportunities. I've been on boards in China and Chile, and managed people in Asia and the US, and I worked in the UK for three years. I mean, I've had a great, great career, and I just feel that I want other young women to open their minds to being in this industry, and that you can succeed, and that I think we really need to help them because it would be a shame if they missed out because they just didn't know about it.

[TARA KODALI]

That's wonderful. I've really enjoyed my time speaking with you. Thank you so much for sharing your insight and candid feedback. And hope you had some fun too, because I did. But thank you very much.

[CANDACE SHAW]

Well, thank you. I had a good time too. It was not as not as threatening as I thought.