Ask yourself whether you would want the role Warren Thomson has held since last autumn.

As the new chief investment officer of Toronto-based Manulife Financial Corp., Thomson presides over substantial assets. There’s the usual heavy emphasis that insurers place on fixed-income and equities portfolios. And Manulife also holds about one-quarter of the globe’s timberland assets, substantial permanent crops, and massive portfolios of commercial real estate and structured assets. All together, as of March 31, that adds up to $285 billion.

The hitch is that the greatest portion of Manulife’s assets under management — about $190 billion in its general accounts — needs to match the growing liabilities for all in-force insurance that’s on Manulife’s books.

These liabilities include the permanent and term life insurance products and the fast-growing segregated fund business, including those with guaranteed minimum withdrawal benefits. By October 2008, Manulife had amassed a portfolio of about $72 billion in these types of funds. In Canada, Manulife’s IncomePlus GIF accounts for about $6 billion of the total, on two years of strong sales.

Thomson officially took the helm for investments at the end of May, but he had been in the role unofficially since October, when his predecessor, Donald Guloien, was named CEO. That was around the time the value of the portfolios started dropping and the liabilities were growing steadily. Those seg funds are invested heavily in hard-hit equities — they account for up to 80% in some client portfolios. To illustrate the potential damage, note that the S&P/TSX composite index dropped to a low of 7,479 on March 6 from its high of more than 15,092 in April 2008 — a 49% loss.

Internal accountants — not to mention regulators at the Office of the Superintendent of Financial Institutions — were raising alarms about Manulife’s general account and the firm’s minimum continuing capital and its surplus ratio, which refers to the amount of excess capital insurers are required to keep in their coffers to pay off all their liabilities in the event that they fail.

And late last month, Manulife revealed that the Ontario Securities Commission was looking at the firm’s disclosures, claiming it failed to inform investors adequately about the effect falling stock markets would have on its balance sheet.

Manulife’s own stock price hit a low of about $9, down from $39 less than six months prior; it appealed to OSFI for relief from some of the forward-looking capital requirements. The firm got what it wanted, but it also has made several efforts to raise equity and debt on the markets since.

“The problem that we have is that reserving and capital rules basically make us strike a value for reserves and capital to be set aside based on closing market values at any quarter end,” Thomson says, “and then assume 10 very adverse years, from an investing point of view, thereafter.”

Analysts and shareholders have criticized the firm for not putting a hedging program in place to cushion the blow that such a wild drop in equities markets would deliver. Thomson says Manulife had plans to create a hedging program, but the market collapsed very rapidly: “We wanted basically to insure that we had in-place programs … that were cost-effective, and that they actually delivered the kind of economic hedge that we needed. We were developing ways to do all the various pieces of the hedging, and the markets took the downturn. Virtually no one had anticipated the magnitude.”

About 10% of Manulife’s general accounts book is hedged now — and there may be more to come.

On the positive side, Thomson says, he has a number of factors working in his favour. First, he says, even through the turmoil, the cash was always flowing at Manulife.

“Through Q1 [2009] and Q4 [2008], if you look at our financials and the amount of cash flow we generated globally, we have a strong franchise, from a liquidity and cash-flow generation perspective,” Thomson says. “So, even though we were posting accounting-basis losses, we were posting significant net inflows of cash.”

In fact, when Manulife posted a $1.06 billion loss for the quarter ended March 31, it reported income of almost $8 billion, according to documents it provided to OSFI.

Second, the job to steer the investment portfolio isn’t Thomson’s alone. He can be compared to a commander of a fleet of ships, each guided by a captain. Manulife’s “captains” assumed their roles in early June. Scott Hartz, executive vice president of the firm’s investment division, oversees the $285-billion global general account day to day. Previously, he had overseen the U.S. portion.

@page_break@About $95 billion of Manulife’s AUM is managed by Boston-based subsidiary MFC Global Investment Management, now directed by CEO Jean-François Courville. Under Courville are teams of fund managers — led by Shauna Sexsmith in Canada, for example — that manage assets for third parties, including retail and institutional inves-tors such as pension funds and foundations. In addition to MFC’s office in Toronto, it has offices in Boston, Hong Kong, Tokyo and London.

Hancock Natural Resources Group, another subsidiary based in Boston, manages about $10.5 billion in agriculture and timber assets. New acquisitions include a Quebec-based cranberry bog, but its primary holdings are those vast timberlands. Hancock is also one of the top two U.S. producers of many permanent crops, including apples and grapes — with especially large operations in California.

Thomson is in a position to take advantage of the opportunities that come from challenging economic times. He says that major investments in all portfolios come to his desk for approval. As a member of the executive committee, he’s also part of the group that makes strategic decisions about corporate acquisitions. (He was in charge of the successful integration of portfolios for Boston-based John Hancock Financial Services Inc., which Manulife bought in 2004.)

“Obviously the decision comes down to Donald [Guloien] and the board,” Thomson says, “but input from the relevant members of the executive team is critical.”

On the portfolio side, Thomson sees “good values” in the alternative-assets portfolio, and especially for the firm’s commercial mortgage book, in which it directly underwrites loans and takes equity positions. Looking ahead to the next two or three years, he says: “We will go in and analyze the collateral, the individual buildings, the appraised values and rent rolls — and we take a very disciplined approach.”

Thomson describes the U.S. as “stuck in an economic mire” as it works through excess inventory and production capacity in its auto and housing sectors. Asia, excluding Japan, he notes, will be somewhat insulated, with growth partly due to the rate at which those economies “are lifting people out of poverty.”

Inflation, Thomson admits, is a concern, but not for the next 12 to 36 months: “To the extent that we’re a little bit shorter than our target duration of our liabilities, that will potentially give us an opportunity in due course to ‘term out’ and invest in higher rates as they start to rise.”

Thomson had worked as an accountant at Clarkson Gordon & Co. (later part of Ernst & Young LLP) before beginning his first stint at Manulife in 1987 as vice president of taxation. Since then, he has left the firm to take a number of positions, such as Canadian life insurance expert with Coopers & Lybrand and a position with Newcourt Capital, which placed private debt for a massive toll-road project in Israel.

Thomson co-founded Norfolk Capital Partners, a structured-financing boutique, with four partners, selling his shares to his partners to rejoin Manulife in 2001.

“There’s lots of things that I do in my day-to-day life in a large firm such as Manulife that appeal to me,” Thomson says.

Thomson sees Manulife as a deep-value player with an approach similar to that of Warren Buffett, whom he admires: “Buffett looks at things he can understand over the long haul, businesses that he can derive good value from and that can deliver good returns for shareholders.”

Thomson adds that Manulife has avoided derivatives, noting Buffett’s famous warning that they are “weapons of mass destruction.”

“We follow a lot of sophisticated portfolio-management techniques,” Thomson says, “but only to the extent that they can help us manage and control the risks in our portfolios.”

Looking back at Manulife’s general account, over which those seg fund guarantees loom, Thomson notes that it will be 10 years before most investors start taking income from those investments: “They do have a right to get their principal back over 20 years, typically. We have the fullness of time to see [the markets] recover.”

Married for 29 years, Thomson and his wife, Lisa, enjoy deep-sea fishing off the coast of Florida, where they own property and a couple of fishing boats. IE