Enterprising Investor Podcast Summary
Episode: Amanda Voegeli, CFA: Insights from Canadian Pension Plans
Release Date: December 1, 2024

Introduction

In this episode of Enterprising Investor, host Mike Wahlberg engages in an insightful conversation with Amanda Vogli, CFA, the Managing Partner of compensation consultancy Southly Group. With a rich background spanning over 25 years at Willis Towers Watson and co-founding Southly Group, Amanda brings a wealth of knowledge on compensation strategies within Canadian pension plans.

Canadian Pension Model

Amanda delves into the unique aspects of the Canadian pension model, highlighting its sophistication and centralized management. She explains how Canadian pension plans, such as the Canada Pension Plan Investment Board (CPP), manage substantial assets internally, employing strategies like private equity, real assets, active equities, factor investing, and credit.

“Our compensation structures here in Canada are the secret sauce because we've been able to pay very competitively for top-notch investment talent” (02:05).

Amanda contrasts this with the U.S. model, emphasizing that Canadian plans prioritize competitive pay to attract and retain talent, unlike some U.S. counterparts that may not allocate as much towards compensation despite the critical role of asset managers.

Survey Scope and Focus

Amanda introduces the South Asset Management Survey, designed to supplement existing surveys like McLaughlin’s by gathering direct insights from employers rather than employees. This approach minimizes noise and provides accurate data on salaries and incentives across various roles within pension plans.

“We gather information on salaries and incentives from each entity... and we're able to look at differences across asset classes” (05:26).

The survey meticulously matches job roles from analysts to executive managing directors, allowing for a comprehensive analysis of compensation trends across different asset classes such as private markets and public markets.

Findings on Compensation and Incentives

Amanda discusses the survey's findings, noting that Canadian pension plans have successfully maintained competitive pay across different asset classes by standardizing compensation structures. This approach ensures fairness and reduces internal competition for higher pay among various investment teams.

“They're paying all their investors the same. So you can imagine what impact that is... everyone’s sort of being averaged into the middle” (06:50).

This uniform pay structure means that while the compensation is high, it is consistent across roles, potentially making it challenging to attract specialists from higher-paying sectors like private equity.

Wage Deflation Analysis

The conversation shifts to wage deflation observed in the Canadian pension sector, with Amanda attributing it to recent underperformance due to market volatility.

“The reason why the pay levels are down in our analysis here is actually because of performance” (10:14).

She explains that negative returns over the past two years have necessitated pay adjustments. Despite overall high compensation, sustained negative performance could lead to further pay reductions, aligning with the pension plans' objectives to meet required rates of return.

AIMCO Case Study

Mike brings up the recent turmoil at AIMCo, a significant pension plan manager in Alberta, which faced leadership changes amid criticisms of high costs.

Amanda provides clarity on the situation, suggesting that while AIMCo’s absolute costs have risen due to in-house talent investment and global expansion, these costs remain minimal relative to their vast assets under management (AUM).

“The aggregate cost of running these Canadian pension plans... are tiny because of the massive amounts of AUM they have” (19:56).

She emphasizes that although apparent cost increases raise concerns, the efficiency on a basis points level remains competitive compared to external managers like BlackRock.

Advice for Asset Management Firms

Amanda offers strategic advice for asset management firms focused on building motivated and retained teams:

1. Understand Organizational Objectives: Grasp the mission, vision, and culture to design appropriate incentive plans.
2. Align Incentives with Goals: Ensure compensation structures encourage desired behaviors and performance.
3. Diversify Performance Metrics: Utilize multiple performance buckets (corporate, division, individual) to avoid over-reliance on single metrics.

“It is important you take a step back and look at, you know, your own incentive plan. Is this paying for what we want people to do and behave?” (23:27).

Amanda underscores the importance of tailored compensation strategies that reflect the unique goals and structures of each organization.

Personal Insights from Amanda

In a reflective segment, Amanda shares her career journey and the value of continuous learning and credentialing.

“Having the CFA designation... it was actually one of the things that I focused on when I finished my business degree because I felt like I did need to have the credentials to talk to the senior executives” (25:29).

She advises her younger self on the fulfilling nature of compensation advisory and the impact it can have on organizational success.

Conclusion

Mike wraps up the episode by acknowledging Amanda’s expertise and the valuable insights she provided on Canadian pension plans' compensation strategies. Amanda reiterates the significance of aligning compensation with organizational goals to foster motivated and high-performing teams.

“What we're doing is really quite fun and quite meaningful and can be impactful” (25:16).

Thank you for tuning into Enterprising Investor. For more insights, visit cfainstitute.org.

Notable Quotes with Timestamps

• Amanda Vogli: “Our compensation structures here in Canada are the secret sauce because we've been able to pay very competitively for top-notch investment talent.” (02:05)
• Amanda Vogli: “They're paying all their investors the same. So you can imagine what impact that is... everyone’s sort of being averaged into the middle.” (06:50)
• Amanda Vogli: “The reason why the pay levels are down in our analysis here is actually because of performance.” (10:14)
• Amanda Vogli: “It is important you take a step back and look at, you know, your own incentive plan. Is this paying for what we want people to do and behave?” (23:27)
• Amanda Vogli: “Having the CFA designation... it was actually one of the things that I focused on when I finished my business degree because I felt like I did need to have the credentials to talk to the senior executives.” (25:29)
• Amanda Vogli: “What we're doing is really quite fun and quite meaningful and can be impactful.” (25:16)

This summary captures the essence of the conversation between Mike Wahlberg and Amanda Vogli, highlighting the key discussions on the Canadian pension model, compensation strategies, wage deflation, and actionable advice for asset management firms.