How MassMutual Plays the Long-Term Investing Game | Phillip Titolo, Head of Direct Private Investments | Q&A
Phillip Titolo is the head of direct private investments at MassMutual. Prior to joining MassMutual, he was assistant vice president for hedge fund investments at Hartford Investment Management (HIMCO). Titolo holds a JD from the University of Connecticut, an MBA from the University of Connecticut School of Business, and a BS in Finance from Boston College. In late September, Titolo spoke with Trusted Insight about MassMutual's long view on investing, the crucial role of asset-liability management for insurance investors, and how his legal training prepared him for a career in financial and investment analysis.
Phillip Titolo was named to Trusted Insight's 2020 Top Institutional Investors At Insurance Companies.
Trusted Insight: Tell us about your role and your team at MassMutual.
Phillip Titolo: Here at MassMutual my official title is Head of Direct Private Investments. Our team is flat, lean, and opportunistic, to a degree. We manage the $190 billion general account of MassMutual Life. MassMutual owns an affiliated asset management firm called Barings Asset Management, which used to be called Babson Capital. Our team serves as their internal client, but we also invest with outside managers when appropriate, or when there's an opportunity to do something that doesn't fit with Barings. The team is focused on driving the best value for our policy owners long-term. Our culture at MassMutual, especially on the investment management side, doesn’t have a "star” mentality: we have a growing, diverse team of talented folks from various backgrounds. We try to create a culture that lets everyone contribute investment ideas as well as grow individually. That actually helps in attracting more top investment talent.
MassMutual is a private, mutual life insurer owned by its policyowners. I'm a policyowner, so technically I'm a part owner of the company where I work. It is meaningful to have that alignment of interest in your day-to-day role. As a private mutual company, we are fortunate to be able to look long-term in the investment decisions we make. We are constantly focused on longer-term value creation for our policy owners, whereas a public insurer might have focus divided between duel stakeholders: public stockowners and policyholders.
Trusted Insight: Tell us a little more about your career trajectory.
Philip Titolo: I came to Mass Mutual a little over five years ago, and I have been in an investment management role since the start of my investment career in 2008. Before MassMutual, I was with The Hartford’s investment management arm (HIMCO), and prior to that, I was with United Technologies, which is now Raytheon Technologies. I also spent some time with Credit Suisse Asset Management in alternatives before moving over to the insurance asset management side.
Trusted Insight: How did your experience at The Hartford translate to your current role?
Philip Titolo: The transition from a public insurer, where you have those dueling stakeholders, to a private insurer is definitely different from an investment standpoint. At MassMutual, it has been a relief not having to worry about optimizing returns on a quarter-to-quarter basis. We invest over decades, which is what you’d expect when underwriting an investment for the general account, especially in alternatives that are on the books for ten or fifteen years. Think real estate, private equity, and other types of alternative debt—those are very important parts of what we do here.
My team consists of six people who cover the opportunistic side of investing from the general account, whether that's alternative debt or alternative equity. We try to find the investment opportunities that might not fit the mandates or the "buckets" that we've allocated to different managers, including Barings. We're trying to make sure we don't miss value that we can capture for our policyowners along the way—value that normally would get missed by the traditional bucket mentality of institutional portfolio management.
Asset liability management is always key for us. We focus on asset-liability matching (ALM), because the worst thing that can happen to a private pension, a public pension plan, or an insurance company, is losing a handle on what the company is trying to deliver to our beneficiaries, whether it's pensioners or policyowners. We're investing money for 10 or 15 plus years. Therefore, we want to make sure we do it in a way that is prudent but also get the best risk-adjusted return we can deliver in a broader context. That's what our team does: we overturn every rock we find to try to make sure we don't miss anything.
Trusted Insight: You mentioned having worked for Raytheon, known as United Technologies when you were there. You joined just before the global financial crisis. What did you learn from that experience that has helped you through your trajectory to a public insurer, and now to a private insurer?
Phillip Titolo: I was hired by Robin Diamonte, the CIO at UTC, and Charles Van Vleet, head of fixed income and alternatives, the Friday before Lehman filed for bankruptcy. We've all started new jobs, right? It's hard to think about going to a new company and trying to learn the assets, processes, and systems while the financial world is melting down around you.
"What I learned during the crisis is that a strong framework of asset liability matching doesn’t mean looking at assets the way a hedge fund or an endowment does, where you're trying to maximize your return in a vacuum with an asset-only mindset."
As an insurer, we're charged with matching assets to policies and beneficiaries, such as our policyowners. I learned this firsthand at UTC, where we were very keen on managing the portfolio to preserve capital in an ALM framework, but with a smaller team and a much more volatile market.
The key takeaway is one I kept coming back to in March and April this year because of the COVID-19 crisis: in '08 and '09, managers got over their skis in terms of having a mismatch between their assets and their liabilities, whether it was their leverage or their repo asset financing. Fast forward to 12 years later, when we saw signs of that cropping up again, whether it was private portfolios or different types of listed vehicles like BDCs and REITs. Some managers got upside-down on their repo-leveraged facilities, where their liabilities, mark-to-market in a falling market, didn't match their longer-term assets.
That ALM mismatch never plays out well. As one of my former bosses told me (Charles Van Vleet, now CIO at Textron’s pension plan), it always ends in tears: at a certain point, either leverage is going to unwind or the asset value is going to decrease and you're going to have a margin call problem. What’s nice about being at an insurer, especially a private insurer, is that the ALM matching concept is embedded in our DNA. An insurance company doesn't exist for almost 175 years without having a keen grasp on that ALM framework. That was my biggest takeaway from the crisis.
Trusted Insight: COVID-19 has totally altered the economic landscape far beyond healthcare and insurance. How are you positioning yourself at MassMutual as you look ahead to this uncertain future?
Phillip Titolo: The best answer I can give you is everything that has happened with COVID-19 over the last six months has forced our investment team to rethink underlying assumptions for the economic outlook, including simple things like understanding how real estate will, or should, be valued. Think about urban office space versus suburban office space. Think multifamily, big towers in cities versus single-family homes and rentals in a suburban setting. The COVID-19 crisis challenged us to think about our go-forward asset allocation, which has led to macro-level discussions that have us asking, “Have the market and the environment changed to a point where we need to change those assumptions?”
In March and April, we saw quality investment-grade credit spreads blow out several hundred basis points. That's meaningful when you're trying to match your liability and provide an incremental return down the road. That's one example of how we've been opportunistic, but also conservative, meaning we did the work and wanted to make sure we understood the risks we were taking, even in the crisis. We were staffed to do the deep dive, and that will deliver some meaningful value we probably won't fully realize in our portfolio for the next 10 or 15 years.
Trusted Insight: Telehealth is a booming sector of the healthcare industry right now. There are big exits and IPOs in the making, and telehealth startups are pulling down some significant funding rounds. What kind of conversations are going on about telehealth investment opportunities at MassMutual?
Phillip Titolo: We're a life insurance company. So, while we obviously hope for good health for all our policyowners, we're not a healthcare company or healthcare insurer looking at telehealth innovations. We have a group within our team, called MassMutual Ventures, that's trying to find areas in the market with interesting startups or innovative insurance-related businesses that we can engage to complement our life insurance business.
"Insurance has been around for at least 200 years. Just like other industries, companies need to innovate, or they're not going to stay competitive in the market. What I love about this firm is that they encourage innovation and entrepreneurship for all employees."
I've been a part of several innovations aimed at developing products or investment areas that may help our overall business. But we also have a dedicated team that’s competing in the venture space. We've acquired some of the portfolio companies to bolt onto our business. I think that’s a really important part of innovation.
What’s key is making sure your investment team communicates with the business side, because all too often I hear from my colleagues at other insurers that things are really segregated, with the investment team in a building by itself, trying to make good investments, without thinking about the business side of insurance and how they can help.
Trusted Insight: You’re a lawyer by education. How does your legal training affect the way you manage investments?
Phillip Titolo: I went to law school thinking I was going to be a corporate lawyer doing mergers and acquisitions. After a summer associateship at a business law firm, I discovered it wasn’t for me. I pivoted to working at UTC’s pension, focusing on alternative investments, and was absolutely hooked. I loved digging into the financial world through the lens of a Bloomberg terminal, watching the intimate workings of markets changing by the minute. Granted, this was '08, '09—so there were plenty of intriguing things to look at and learn from.
I never actually practiced law; I didn’t take the bar and went straight from law and business school to investment management. But for every alternative investment I make at MassMutual, there's a lot of legal understanding that goes into the process. Think of the LPA, the PPM, the sub doc, etc. That’s hundreds of pages of documents that I can read and comprehend. My legal background allows me to pull out the key issues: that’s what I got out of my law degree. However, what really stuck with me from law school was something they teach you called “IRAC.” You locate the “Issue,” find a “Rule,” do the “Analysis,” and then come to a “Conclusion.” The IRAC thought process is very important in the legal context. It’s also applicable to investing. You're constantly finding “issues” in the market: namely, inefficiencies. Then you try to find a fundamental, historical precedent to understand the economic drivers of those issues. That's the “rule.” Then you “analyze” it, and develop a thesis to understand the sensitivities around the issue. Finally, you make a recommendation, which is the “conclusion.” The reality is you're never going to be 100% right. But even when you're not right, you at least did the work and can stand on that.
Trusted Insight: How can a collaborative approach to insurance investment management enhance the industry’s outcomes?
Phillip Titolo: I'm big on building a community of institutional investors on the insurance side. We should communicate with each other around the market issues we're all facing. Over the last few years, I've worked hard to try to build that sense of community with other insurers. We connect fairly regularly, because while the business side of insurance competes day-to-day on pricing and issuing new policies, there's a lot of challenges on the investment side that we can discuss as a group, whether it's upcoming regulatory changes or certain market dislocations.
"We can be a more cohesive voice to change the markets for the better if we work together within investment realms while still preserving confidentiality."
It's productive to hear how other folks approach the same issues we're dealing with and hear their thoughts on how to solve those problems. Another thing I’d like to see more of is outside-the-box thinking on what historically is considered an allocator seat, and doing more investments that are direct private club deals, which help us capture more value for our policyowners. I think that's a trend that’s just now starting in the industry. We've originated a few co-investment and private debt deals ourselves, and it’s helpful to be able to call a few insurance colleagues and say, “Hey, we’d love to have you come into this deal with us.” There's no economic value other than clubbing up together to do the deal and getting a better outcome collectively.
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