Juan Prieto is the Head of Alternative Investments at Mutual of Omaha, where he is responsible for leading and managing the portfolio construction, outsourcing, and monitoring of alternative investment mandates. In this interview, he discussed the qualities and attributes he looks at during manager selection; how Mutual of Omaha is investing in disruptors of the insurance ecosystem; and why return on inclusion (ROI) should be a priority for investors alike.
Trusted Insight: For starters, it would be great if you could tell us about the Mutual of Omaha and your role in its investment division.
Juan Prieto: Mutual of Omaha is a 111-year-old life insurance company based in Omaha, Nebraska. Mutual was founded on the belief that people from all walks of life need help to protect their families and to build their dreams. We're a full-service multi-line provider of insurance and financial services products for individuals and businesses. Some of the products that Mutual offers are long-term care, whole & term life insurance, and annuities. We are also active in disability insurance, Medicare supplement, employer products like 401k plans, vision, and dental insurance. The investment division is responsible for the company's $26B in assets under management. The goal is to provide a competitive net investment return for our clients through investment strategies. Both the internal investment staff and external third party investment partnerships support the mission of protecting Mutual of Omaha’s customers and what they care about and want to achieve financially.
My role is to oversee all investments made with third party managers, including private equity, real estate, and private credit asset classes. I’m also involved in the day-to-day management of Mutual of Omaha's pension plan.
Trusted Insight: Does the organization plan to increase allocations to alternatives investments moving forward? Tell us about that program and some of the expectations there.
Juan Prieto: Mutual of Omaha has developed a revolutionary portfolio management process whereas the liabilities from all of our business lines are split into cash flows with less than 30 years duration and past 30 years duration. There's a lack of fixed income instruments with maturity greater than 30 years, therefore the role of the alternatives program is to capitalize on the illiquidity premium by trying to maximize returns to increase the probability of meeting those 30 year plus cash flow demands. The program is expected to grow significantly over the next 5-7 years. As such, we have put a plan in place to allocate capital across all private asset classes to private equity, real estate equity and debt, private credit and infrastructure.
Since there are only so many hours in the day, we started the program by engaging a GP fund of fund provider, and essentially created a customized fund program focused on buyouts and co-investments. Throughout our research, we have gravitated towards smaller managers across the private equity landscape. We have made allocations to middle market buyouts, secondaries with a preferred equity focus, and opportunistic real estate credit. We have also made several allocations in the credit space by investing in non-sponsored direct lending, opportunistic credit and mezzanine.
We're very opportunistic in our approach. I'm a big believer in identifying talented and experienced managers that have a clearly articulated investment philosophy, a repeatable process and have the experience having gone through several cycles. I think that the question that every investor should ask to managers is the why, why do they do what they do and what keeps them up at night?
Trusted Insight: Some of your peers talk about how exciting it is to dip into the venture capital asset class. Does that asset class move the needle for Mutual of Omaha?
Juan Prieto: The venture capital asset class is a very small percentage of our portfolio. Mutual historically, going back to the 80's and 90's, allocated significantly to venture capital, but that has changed over time. Within an insurance portfolio, venture capital presents the highest return opportunities, but also the highest risk. It's the asset class with the highest degree of dispersion in returns. If you don't have the right partnerships with the elite managers in the space, you are setting your program for average or mediocre returns.
We have taken a slightly different approach to venture capital, and we decided to focus more on the insurtech space. We're in the process of investing in a few insurance technology-focused funds that should help us capitalize on the benefits of getting access to companies that are disrupting the insurance ecosystem early on.
Trusted Insight: It seems Mutual are investors of disruption and innovation. What are some areas that you’re most excited about?
Juan Prieto: Yes, absolutely. I think innovation is an area where Mutual has developed a thoughtful strategy that combines the ability to utilize venture capital funds focused on insuretech with the ability to also do some direct investments. Mutual hired a Chief Innovation Officer last year to spearhead these efforts. That speaks to the commitment that the organization has for this initiative.
I’m personally excited about the innovation initiatives taking place in the insurance business. Fintech has been an area that has turned conventional industries upside down from mortgage origination to payment processing to consumer credit. I think it was only natural that insurance was next. Maybe it has taken a longer time because of how highly regulated insurance companies are, but the change is here, and all insurance companies need to take a hard stance on innovation, or we'll be left behind.
Another area where we have been creative or innovative is in the area of manager analysis. Since I joined Mutual, I have been able to add to the platform new software and tools that are utilized to better analyze managers. Private markets by their nature have less information available, but there are tools out there that can help an investor make better decisions than in the past.
Trusted Insight: Investors at pension systems are also talking about using robotic process automation and machine learning in their investment process. Although you should not replace the human thought process, it’s interesting to learn how LPs are incorporating technology.
Juan Prieto: Yes, in the operation side of the house, we're exploring ways in which we can automate some of the processes that are taking place. Things as simple as entering valuations into our system. Now there are tools out there that can do that automatically where the software can scrape the data and populate information. I'm a big fan of anything that can make the process more efficient. We have made a significant investment in our technology and have added several tools to help our research process.
Trusted Insight: You mentioned the organization focuses on investments in the U.S., but does the South American market look attractive to you as well? Some LPs have expressed their interest in countries like Brazil. Is that at all in your radar?
Juan Prieto: Unfortunately we haven't been able to explore South America as much as I would like to, since I'm originally from Ecuador. Mutual of Omaha’s liabilities are primarily U.S.-based. As such, we decided to start building our program with a focus in the U.S., however, we are exploring emerging market debt as an asset class. There are several opportunities in this asset class, not just in South America. You mentioned Brazil which is the largest economy in South America and has a very developed capital markets, but there are currency issues to consider and as a U.S. investor, hedging is very expensive and will impact your final return.
Trusted Insight: You mentioned being from Ecuador. How much do you and your team value diversity in the workplace? It’s certainly a theme that has become more vital across all industries.
Juan Prieto: As an immigrant who came to the U.S. with two suitcases and a dream, I think I’m a testament that if you work hard, you can make a difference. Mutual of Omaha is an organization that has long celebrated and valued diversity and it's part of the corporate culture. Our CEO has stated several times that together we achieve greatness. As a company, we value different points of view as it makes our end products and decisions better. As a group, we are having several discussions with organizations and foundations that are focused on developing minority and women investment professionals at all levels. We're trying to emphasize even more our return on inclusion (ROI). I’m a big believer that diversity of inputs leads to better decisions.
Trusted Insight: What are some of your biggest lessons learned as a senior-level institutional investor? What advice would you give to the next generations of investors?
Juan Prieto: I think in investing you want to be right more times than you are wrong; the point is that an investor is going to be wrong very often – accept it and learn from it. The important lesson is to have an investment philosophy, a clear objective, and develop a process that can be adaptable. It is important to understand that when you invest in third party managers, you are placing your bets on people. You need to understand their motivation, what drives them, and what keeps them up at night. You also need to allow yourself to be challenged whether it's by your CIO, your investment committee, peers, or managers. Always analyze what went wrong and what went right with your decisions. You'll never have the right answer all the time, but you need to be able to ask the right and tough questions.
A lesson for the next generation would be to learn, adapt, and don't be afraid to make mistakes. Do whatever you can to try to avoid biases, which is something that all of us have. As a new investor, you should try to diversify the points of view that you are learning from. I think that the beauty of investing is that you're constantly learning and given different points of view. Embrace the fact that experience in investments is not correlated with years of doing the job, but how much work and learning you put into it. Read as much as you can from as many different points of view as possible and be open-minded. Don't be afraid to ask the tough questions when evaluating a strategy. To quote one of my favorite investors Howard Marks: “Investment success doesn't come from buying good things, but rather from buying things well.”
View our full catalog of interviews here.
Trusted Insight: For starters, it would be great if you could tell us about the Mutual of Omaha and your role in its investment division.
Juan Prieto: Mutual of Omaha is a 111-year-old life insurance company based in Omaha, Nebraska. Mutual was founded on the belief that people from all walks of life need help to protect their families and to build their dreams. We're a full-service multi-line provider of insurance and financial services products for individuals and businesses. Some of the products that Mutual offers are long-term care, whole & term life insurance, and annuities. We are also active in disability insurance, Medicare supplement, employer products like 401k plans, vision, and dental insurance. The investment division is responsible for the company's $26B in assets under management. The goal is to provide a competitive net investment return for our clients through investment strategies. Both the internal investment staff and external third party investment partnerships support the mission of protecting Mutual of Omaha’s customers and what they care about and want to achieve financially.
"I'm a big believer in identifying talented and experienced managers that have a clearly articulated investment philosophy, a repeatable process, and have the experience having gone through several cycles."
My role is to oversee all investments made with third party managers, including private equity, real estate, and private credit asset classes. I’m also involved in the day-to-day management of Mutual of Omaha's pension plan.
Trusted Insight: Does the organization plan to increase allocations to alternatives investments moving forward? Tell us about that program and some of the expectations there.
Juan Prieto: Mutual of Omaha has developed a revolutionary portfolio management process whereas the liabilities from all of our business lines are split into cash flows with less than 30 years duration and past 30 years duration. There's a lack of fixed income instruments with maturity greater than 30 years, therefore the role of the alternatives program is to capitalize on the illiquidity premium by trying to maximize returns to increase the probability of meeting those 30 year plus cash flow demands. The program is expected to grow significantly over the next 5-7 years. As such, we have put a plan in place to allocate capital across all private asset classes to private equity, real estate equity and debt, private credit and infrastructure.
"We're in the process of investing in a few insurance technology-focused funds that should help us capitalize on the benefits of getting access to companies that are disrupting the insurance ecosystem early on."
Since there are only so many hours in the day, we started the program by engaging a GP fund of fund provider, and essentially created a customized fund program focused on buyouts and co-investments. Throughout our research, we have gravitated towards smaller managers across the private equity landscape. We have made allocations to middle market buyouts, secondaries with a preferred equity focus, and opportunistic real estate credit. We have also made several allocations in the credit space by investing in non-sponsored direct lending, opportunistic credit and mezzanine.
We're very opportunistic in our approach. I'm a big believer in identifying talented and experienced managers that have a clearly articulated investment philosophy, a repeatable process and have the experience having gone through several cycles. I think that the question that every investor should ask to managers is the why, why do they do what they do and what keeps them up at night?
Trusted Insight: Some of your peers talk about how exciting it is to dip into the venture capital asset class. Does that asset class move the needle for Mutual of Omaha?
Juan Prieto: The venture capital asset class is a very small percentage of our portfolio. Mutual historically, going back to the 80's and 90's, allocated significantly to venture capital, but that has changed over time. Within an insurance portfolio, venture capital presents the highest return opportunities, but also the highest risk. It's the asset class with the highest degree of dispersion in returns. If you don't have the right partnerships with the elite managers in the space, you are setting your program for average or mediocre returns.
"Private markets by their nature have less information available, but there are tools out there that can help an investor make better decisions than in the past."
We have taken a slightly different approach to venture capital, and we decided to focus more on the insurtech space. We're in the process of investing in a few insurance technology-focused funds that should help us capitalize on the benefits of getting access to companies that are disrupting the insurance ecosystem early on.
Trusted Insight: It seems Mutual are investors of disruption and innovation. What are some areas that you’re most excited about?
Juan Prieto: Yes, absolutely. I think innovation is an area where Mutual has developed a thoughtful strategy that combines the ability to utilize venture capital funds focused on insuretech with the ability to also do some direct investments. Mutual hired a Chief Innovation Officer last year to spearhead these efforts. That speaks to the commitment that the organization has for this initiative.
I’m personally excited about the innovation initiatives taking place in the insurance business. Fintech has been an area that has turned conventional industries upside down from mortgage origination to payment processing to consumer credit. I think it was only natural that insurance was next. Maybe it has taken a longer time because of how highly regulated insurance companies are, but the change is here, and all insurance companies need to take a hard stance on innovation, or we'll be left behind.
"As an immigrant who came to the U.S. with two suitcases and a dream, I think I’m a testament that if you work hard, you can make a difference."
Another area where we have been creative or innovative is in the area of manager analysis. Since I joined Mutual, I have been able to add to the platform new software and tools that are utilized to better analyze managers. Private markets by their nature have less information available, but there are tools out there that can help an investor make better decisions than in the past.
Trusted Insight: Investors at pension systems are also talking about using robotic process automation and machine learning in their investment process. Although you should not replace the human thought process, it’s interesting to learn how LPs are incorporating technology.
Juan Prieto: Yes, in the operation side of the house, we're exploring ways in which we can automate some of the processes that are taking place. Things as simple as entering valuations into our system. Now there are tools out there that can do that automatically where the software can scrape the data and populate information. I'm a big fan of anything that can make the process more efficient. We have made a significant investment in our technology and have added several tools to help our research process.
Trusted Insight: You mentioned the organization focuses on investments in the U.S., but does the South American market look attractive to you as well? Some LPs have expressed their interest in countries like Brazil. Is that at all in your radar?
Juan Prieto: Unfortunately we haven't been able to explore South America as much as I would like to, since I'm originally from Ecuador. Mutual of Omaha’s liabilities are primarily U.S.-based. As such, we decided to start building our program with a focus in the U.S., however, we are exploring emerging market debt as an asset class. There are several opportunities in this asset class, not just in South America. You mentioned Brazil which is the largest economy in South America and has a very developed capital markets, but there are currency issues to consider and as a U.S. investor, hedging is very expensive and will impact your final return.
Trusted Insight: You mentioned being from Ecuador. How much do you and your team value diversity in the workplace? It’s certainly a theme that has become more vital across all industries.
Juan Prieto: As an immigrant who came to the U.S. with two suitcases and a dream, I think I’m a testament that if you work hard, you can make a difference. Mutual of Omaha is an organization that has long celebrated and valued diversity and it's part of the corporate culture. Our CEO has stated several times that together we achieve greatness. As a company, we value different points of view as it makes our end products and decisions better. As a group, we are having several discussions with organizations and foundations that are focused on developing minority and women investment professionals at all levels. We're trying to emphasize even more our return on inclusion (ROI). I’m a big believer that diversity of inputs leads to better decisions.
Trusted Insight: What are some of your biggest lessons learned as a senior-level institutional investor? What advice would you give to the next generations of investors?
Juan Prieto: I think in investing you want to be right more times than you are wrong; the point is that an investor is going to be wrong very often – accept it and learn from it. The important lesson is to have an investment philosophy, a clear objective, and develop a process that can be adaptable. It is important to understand that when you invest in third party managers, you are placing your bets on people. You need to understand their motivation, what drives them, and what keeps them up at night. You also need to allow yourself to be challenged whether it's by your CIO, your investment committee, peers, or managers. Always analyze what went wrong and what went right with your decisions. You'll never have the right answer all the time, but you need to be able to ask the right and tough questions.
A lesson for the next generation would be to learn, adapt, and don't be afraid to make mistakes. Do whatever you can to try to avoid biases, which is something that all of us have. As a new investor, you should try to diversify the points of view that you are learning from. I think that the beauty of investing is that you're constantly learning and given different points of view. Embrace the fact that experience in investments is not correlated with years of doing the job, but how much work and learning you put into it. Read as much as you can from as many different points of view as possible and be open-minded. Don't be afraid to ask the tough questions when evaluating a strategy. To quote one of my favorite investors Howard Marks: “Investment success doesn't come from buying good things, but rather from buying things well.”
View our full catalog of interviews here.