Alone at the top

With over $25 billion in assets, Walter Posiewko manages more money than anyone else in the country. Here's how he does it.

By Dawn Calleja
Globe Investor Magazine online, February 19, 2009

Until the fateful summer of 2007, money market funds were pretty well the dental floss of investing: necessary, but so boring. Then came those four letters that busted the myth wide open: ABCP. "It was an asset class that everyone took for granted as perfectly safe," says Walter Posiewko, RBC Asset Management's senior portfolio manager for global fixed income, a role that puts him in charge of 7% of the Canadian money market. "But people who've been around know that's where the real booby traps lie."

Posiewko runs five funds with $24 billion in assets. Throw in a couple of bond funds, and he's responsible for $25 billion, more than any manager in Canada. Keeping that cash safe-and growing- has never been harder. "It's not for the weak of heart," he says, especially as the Fed flirts with 0% interest rates and central banks worldwide continue to cut. Returns are in the basement, and some U.S. funds have broken the buck-failing to hold on to at least $1 in assets for every one invested.

That's the scenario that keeps Posiewko up at night. "Behind that $25 billion is a story," he says. "It's people's cash. I don't want to be the guy who has to tell them that the $10 they put in is now worth nine."

From Sesame to Bay

It must be tough for the 47-year-old Posiewko to switch gears each morning, after hanging out with his two kids, aged 7 and 3, who insist he forgo the newspaper for kids' books. But once he takes his seat at RBC's trading desk, he's all business. After executing his own trades, he ensconces himself behind a bank of Bloomberg screens flashing graphs, charts and headlines. A speaker on his desk is hooked up to a TV in the trading room. More often than not, he has one ear glued to the phone, talking to insiders on the Street or at the Bank of Canada, where he started in 1985, fresh out of Concordia's MBA program. "It's a bit of information overload," he says, "but it's become second-nature. If I had jumped into this environment in 1985, though, I think I would have burned out."

When it's bad in the Baltic

The thousands of inputs Posiewko tracks are like pieces in a giant puzzle that help him make a call on where interest rates are headed-the only metric that matters to money market guys like him. "Everything is intertwined now," says Posiewko. "In the '80s, you could basically ignore everything outside our borders and still do a fairly good job. Today, you have to be an expert on virtually everything happening in the world." That means tracking obscure inputs like the Baltic freight index, a measure of international shipping traffic. "Lately, that indicator has collapsed," he says, "showing me that trade between countries has essentially come to a halt."

Posiewko also keeps his eye on volatility and liquidity indicators. "As recently as summer, '07, there was too much money sloshing around," says Posiewko. "Then all of a sudden it stopped being true. And it was a shocking revelation to anybody in the market."

Better safe than sorry

Posiewko has a very conservative mandate. "My job is not to go out and score goals. My job is to stay in the crease and stop the pucks from being put into our net." Translation: It's not so much about making money as not losing it. His funds-which focus on uber-safe instruments like bankers' assurances and Treasury bills-have average annual returns of just a few per cent. All the same, how did he avoid being seduced by asset-backed commercial paper?

Simple: "I said, if I can't understand it, I'm not touching it," he says. Posiewko had been lobbying for increased transparency for third-party ABCP-products that held complex financial derivatives and weren't guaranteed by banks or subject to regulation-since it debuted in the late 1990s. Other managers weren't so choosy. "I have to be able to explain to management what is in those funds," he says, "and I wasn't getting that." Bank-sponsored paper, though, was a score. "Everyone smeared ABCP with the same brush," he says. But the bankbacked stuff was transparent, secure, and had relatively fat yields. "We bought a ton of it, for longer terms, and rode

those for the rest of the year," he says. The result: RBC's 2008 yields were way higher than those of its competitors. Posiewko, along with everyone else, still suffered massive redemptions in October, when there was a mania to hoard cash. But investors have started putting their dough back into the Canadian money market. "People have calmed down and realized that these funds are safe-here."

The long-term plan

Posiewko's been thinking a lot about Japan these days. When rates there hit 0% in the 1990s, its money market evaporated. It's only now starting to come back. Could that happen here? "It's possible, if we see rates drop more than expected and stay down," he says. That would leave money market funds unable to cover their costs and cause a rush back to bank investments like GICs and term deposits. That's fine, says Posiewko- except investors lose out on liquidity and diversification. "There are some very serious long-term implications here."

All you can do is laugh

Twenty years ago, no one could have conceived of a meltdown this extensive. "I remember these kinds of crises happening once every couple of years," he says. "We've had the equivalent of six or 12 years packed into one." To get an idea of how it's affecting life on the Street, imagine you're in the desert and the watering hole starts to shrink. "The animals get more vicious-that's what we're seeing here," says Posiewko. A sense of humour is crucial. "It's easy to get depressed in this market. The fun got sucked out completely."

Back to the future

It's not just business culture that has been dramatically altered. "There's going to be a shift in people's attitudes toward spending, investing, consuming," he says. "They're going to wonder if they need three cars in the driveway, five credit cards." Theoretically, that means people will be saving more. But with interest rates so low, he's worried. "We're all going to be challenged to squeeze performance out of this market."