The landmark moment in this veteran investor's 40 year career

This interview was taped on Wednesday 19 June 2024.

In today's world, spending four years in one industry is enough to be considered longevity. But spending 40 years in one industry is both rare and remarkable. 

That's exactly what Michael Korber, Director of Credit and Fixed Income at Perpetual has done. Korber has only ever had three employers - an introductory three-year stint as a credit analyst at Westpac, and then two long tenures at Macquarie Group (16 years) and Perpetual (19 years, going on 20 this August.)

He has many fond memories of his time in markets - like that fateful morning in 2007 when one of the largest and most highly-regarded collateralised debt obligations (CDOs) of the time collapsed overnight. It proved that the traditional rating agencies couldn't handle so much debt in one product - and neither could financial markets or the American economy.

But what has he learned since then? And what would he say to a first-time investor trying to navigate today's markets? You'll find out in this episode of The Pitch.

Edited Transcript

In your 40 years in markets, what are the most important lessons you’ve learned and what is the biggest change you’ve had to adapt to?

Korber: I think one of the things that you come to realise is that things are always evolving. Things are always changing. There are always new opportunities emerging, there are new risks that are emerging. And so I think that's probably the big thing to be aware of. And then within that, there are some constants. 

There are always cycles. There are always economic cycles and financial cycles. There are cycles of risk and there are cycles of opportunity. And I think the thing I've learned is that you need to be open-minded as to what's going on. You need to look for opportunities and be willing to take risks, but at the same time, really keep a weather eye on the background and the threats that are emerging. And that balance of risk-taking and managing risk and behaving conservatively ultimately is what drives long-term returns.

Is there one moment in your career that stands out to you as an investor?

Korber: I think the one that probably most people have been in the markets for a while would reflect upon is through the global financial crisis. Before that moment, things were going along very swimmingly, and almost overnight, the world changed. 

I think it just highlighted what can seem to be a stable and comfortable environment at one point in time can suddenly be turned on its head. And I think the position that we had going into that was we were sensible in terms of our risk. We were managing it well, and as a consequence when things got ugly, we saw, I guess, more opportunity than we saw a threat. 

I think if you focus on investing in good assets, you invest sensibly, even ugly market cycles can have a silver lining to them.

What was it like that morning when you walked into the office and you realised the world would never be the same again?

Korber: I think the one thing that I always remember is in one of the big 'flavour of the month' investments during that period were things like CDOs [collateralised debt obligations] and American subprime [mortgages] and those kinds of assets. I was reading on the overnight news that one security, to which the major rating agencies had given a AAA rating, defaulted overnight. And I thought that's probably as extreme a change as you ever want to see. So that was certainly one that highlighted that nothing is fixed forever.

If you could go back to when you started investing 40 years ago, what would be the one thing you would have told yourself?

Korber: I think the one thing, in hindsight, it's interesting because I think in the world of fixed income, everyone focuses on risk correctly. It's an area where the upside is limited. It's a fixed coupon world. But I think the one thing I've observed over time is that taking a bit more risk in a well-regulated way, works. [Being] a little bit more risky, I think, than purely conservative investors are inclined to do, provided it's well managed, it's well researched, it's well diversified, adds up over the years to a fairly significant improvement in your total outcome. 

Sometimes people tend to either be too risky or too conservative. I think there's a middle ground that we need to embrace a little bit more sometimes.

Korber: Set your expectations that are appropriate to the asset class. This [fixed income] is not an asset class where you're going to shoot the lights out. It's an asset class where you get generous, cumulative, predictable returns. And I think for investors, it's a part of the portfolio that gives you that balance of being able to sleep at night, but over the long term generates quite a good return.

Learn more

The Perpetual Credit Income Trust (ASX: PCI) aims to generate sustainable, regular income by investing in a diversified portfolio of credit and fixed income assets. For further information, please visit their website, or the fund profile below.

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Perpetual Credit Income Trust (PCI)

Australian Fixed Income

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