The Evolution of Long-Term Asset Allocation with Al Kim, Director of Investments, Helmsley Charitable Trust. Geeta Kapadia, Associate Treasurer of Investments, Yale New Haven Health System. Angelique Sellers, Managing Director of Investments, Pennsylvania State University Office of Investment Management.
Moderated by Bill Kelly, Chief Executive Officer, CAIA Association
SPEAKERS
Al Kim
Director of Investments
Helmsley Charitable Trust
Geeta Kapadia
Associate Treasurer
Yale New Haven Health System
Angelique Sellers
Senior Director, Portfolio Management
Penn State University
MODERATOR
William J. Kelly
Chief Executive Officer
CAIA Association
TIMESTAMPS
EPISODE TRANSCRIPT
Bill Kelly: (00:08)
Good afternoon, and thanks for joining. This panel is going to be talking about the evolution of long term asset allocation and maybe some of the views would be a little bit less sanguine than some of the things I've heard over the last couple of days, and we're in the middle of a very bullish market. The risk on trade is alive and well, and we're going to maybe try to get the allocator view.
Bill Kelly: (00:28)
Not necessarily lost on me, it may be the folks in the audience, and I'm not sure if Nick or anybody else in [Case IQ 00:00:34] is here, but up in the Salt Stage, probably literally above us, is the evolution of the private markets investing, the GP side. So, maybe we could do a point-counterpoint or split screen on Case IQ I think would be very interesting. Or, we can maybe crash that party afterwards.
Bill Kelly: (00:49)
Perhaps I'll have my panel introduce themselves first. I think the bios are in the program, but maybe just to hit the high points, and your plan, and Al I'll start with you.
Al Kim: (01:01)
Thanks Bill. So Al Kim. I'm with the Helmsley Charitable Trust, which is a private foundation based in New York. Helmsley's mission, overall, is to help improve lives in the US and globally by supporting and funding various healthcare research initiatives. So Type 1 diabetes and Crohn's disease being two of our bigger programs. On the investment side, we manage an eight-and-a-half-billion dollar endowment. We invest across asset classes, we are very opportunistic, and we implement using a concentrated approach in our manager relationships.
Bill Kelly: (01:38)
Thanks, Al. Geeta?
Geeta Kapadia: (01:40)
I'm Geeta Kapadia and I head up the investment team at Yale New Haven Health System. We are the academic medical center associated with Yale University based in New Haven, Connecticut. My team and I manage about $5.6 billion worth of investible assets covering defined benefit, defined contribution, and endowment-like assets. We manage across the spectrum, from very plain vanilla fixed income, all the way to private equity, venture capital and real estate.
Bill Kelly: (02:06)
Thanks.
Angelique Sellers: (02:07)
I'm Angelique Sellers, Managing Director of Investments at Penn State University. I don't think I need to tell you what Penn State does, but we manage a pool of assets of about 6.1 billion and, much like my fellow panelists, allocated from anything from fixed income to private equity venture, natural resources, commodities. You name it, we probably have it.
Bill Kelly: (02:33)
Thanks Angelique.
Bill Kelly: (02:34)
So since you have the mic, maybe I'll start with you and work our way around. So I saw recently Abu Dhabi Investment Authority, who by all accounts is a very sophisticated allocator sovereign wealth fund, and they just put their annual report out and for a pretty secretive organization there was a lot of public information in there. The name of the report is called Prudent Global Growth, and their 30-year return annualized is 7.2%. Probably a little bit below what many public funds are shooting for as a bogey. So I want to start the conversation by saying that being an allocator is not an easy job and this space has gotten very, very complex. The endowment model is now over 50 years old, so maybe starting with private equity, which has gotten a lot of play at this conference in the marketplace, is that an asset class, in your view, or more of a very complex industry?
Angelique Sellers: (03:28)
In our view, it is more of a complex industry and we've been very bottom up about it. We don't have any particular buckets to fill generally in our portfolio, so when we look for managers we can create a bucket rather than have a bucket and put the manager in there. And so, on the private equity side, it is a very difficult job right now, given where things stand in terms of evaluations, which has already been discussed at this conference. But we're still finding opportunities. We're looking more kind of a sector focus, a little bit more differentiation, and we're looking at smaller deal sizes, and managers kind of focused on that right now.
Bill Kelly: (04:08)
So, Geeta, may be the same theme, and I'm going to leave ADIA after this, but they describe private equity as intense and accelerating in terms of the competition. What do you think about the current vintage year and accessing, perhaps, different vintage years either through secondaries, or do you think about co-investing or direct investing? And maybe your plan is such a size that some of those are not viable.
Geeta Kapadia: (04:31)
I think there's a lot of opportunity for investors such as us, but it's often quite difficult to differentiate between true opportunity and what may be a temporary area of interest for us. So we're very fortunate in that we tend to be, similar to Alan and Angelique, we tend to be very long term investors. So when we consider opportunities in the private space, we're really able to think of them over a 10 to 20 year time frame. We've been very fortunate in that we don't really look at cyclical parts of whether or not parts of the market are attractive, or less attractive, or overvalued, or undervalued. We're really just trying to make consistent commitments over time. We may be able to participate through a co-invest or secondaries opportunity, but really similar to the way Angelique described it, we're really looking at very bottom up fundamental opportunities that seem to partner well with what we're trying to achieve over the long term. They can manifest themselves through a variety of different structures or deals.
Bill Kelly: (05:35)
And the importance on manager selection on the process?
Geeta Kapadia: (05:38)
We feel very strongly about very fundamental manager due diligence, particularly on the private side. Again, we feel like there's a lot of uncertainty and so, to be able to really understand the managers with which we're partnering, is probably the highest priority. It's been difficult during COVID, obviously more difficult than it was in the past, but in some ways it has presented us with new opportunities to meet fellow allocators, to do reference checks with other investment managers, talk to leaders in the industry and really just feel like we have even more pieces to the puzzle to be able to make a good investment decision.
Bill Kelly: (06:13)
Al, maybe just closing out, the discussion of private equity, maybe the view from Helmsley in terms of how you think about this market in terms of sector geography, the SME space versus the buyout space, how do you think about allocating to private equity?
Al Kim: (06:29)
I guess, compared to other foundations based in New York that have been around for decades, the Helmsley Trust is actually fairly new. The team really got started in 2010, upon the 2007 passing of Leona Helmsley. The Helmsley team was in a place where it essentially started the investment office from scratch. It convinced our investment committee and trustees to build out a private capital program from nothing. Ten years later, it definitely has been a journey. In the beginning we started investing in private debt strategies in order to mitigate the J-curve, and to the extent possible to not report a negative return, while at the same time trying to knock on some of the best VC managers out there to see if we can get access to their funds.
Al Kim: (07:28)
I think the last 5-10 years have shown, and have proved to our trustees and our committee, that private capital definitely has a place in Helmsley's portfolio long term. Our target when we first launched the program was 25% of Helmsley's overall portfolio. We have since increased that target to 35, and through very good appreciation we're currently sitting at 40. And so, we are very strong believers. If you look at our performance in that segment, the last five years, we've been up 25% annualized returns. That's probably more than 10% above what we've gotten from our public equity, or liquid market, segment. We invest with conviction. I think some segments within private capital, like venture, if you can't access very good managers, I don't think you should be invested at all. And for Helmsley, fortunately, some of the big VC managers have blessed us with allocations, and have let us in, and so we're leveraging those relationships that we have to continue to build out our private capital program.
Bill Kelly: (08:45)
I want to ask you a follow-up question on private debt with maybe another lead. I'm not a big Twitter guy, but when it comes to [Salt 00:08:54], you've got to get your Twitter game together. I posted something on Twitter last night that I saw, that the European hedge fund index is now yielding 2.34%, where inflation is at three. So in a real basis you don't have to be a math major to understand that that is upside down and negative. So, when you think about private debt, or maybe you could take this as a general question too Al, that if I think about the Sharpe ratio related to [alt 00:09:20], it doesn't necessarily play all the time but being compensated for a unit of risk being taken is something every investor should be thinking about. So, either generally or more specifically in the private debt market, is it hard to find opportunity at this stage of the market where rates are so low, and particularly if you can't even get up a positive real spread on high yield.
Al Kim: (09:42)
At Helmsley, how we structure our portfolio is at the highest level we have what we call "safe assets" which are investment-grade bonds and assets that we could essentially liquid within a couple of days. Then we have our return-generating segment which has three separate components. The liquid segment, the semi-liquid segment and the illiquid segment. We don't categorize those assets by asset classes, it's by liquidity because we think, as a grant making organization, having enough liquidity to fund our grants year over year is our main objective.
Al Kim: (10:18)
Within each of the categories we have different return hurdles. Now these aren't set in stone, but for anyone on our team to try to pitch something that gets into our liquid segment, it really needs to deliver at least a 15% net return and something in the 1.5-1.6x at least. Essentially, because we're fully invested in our liquid segment, those commitment dollars are competing with some of the big VC managers and those managers are returning well into the 20s if not 30s. For our liquid segment, I would say mid 15s at least. Our semi-liquid segment, which is where we include hedge funds, I would say it's really hard to convince the team to buy something within that segment that's below 10%.
Al Kim: (11:12)
It is hard to try to squeeze private debt into our portfolio. I have tried and gotten vetoed down, but with the current spreads on private debt, it's very challenging.
Bill Kelly: (11:28)
So Geeta, I was going to try to work through some verticals. I have a hedge fund question if you want to follow up on private debt you can too, but hedge funds have been, I think to some degree unfairly, become a bit of a punching bag over the last 12 years. If you look at it as an asset class, maybe deserved. If you look at it as a complex industry with many different strategies tucked inside, maybe a bit unfair. But there's an interesting debate about hedge funds. Are they diversifiers or return enhancers? Do you have a view, one way or the other, and how do hedge funds work their way into your plan?
Geeta Kapadia: (12:02)
We think of hedge funds as a little bit of both. From a diversification standpoint, there's the clear argument to be made relative to the long only side of the portfolio, and potentially if there's a fixed income allocation as well. We try and be very deliberate about our hedge fund portfolio and think about those assets, not only in their own absolute return type frame, but also in a bigger picture holistic sense as it relates to the total portfolio. We may have exposure to a number of different industries, securities, geographies, but separating the hedge funds out from the rest of the portfolio may make it look very different than the actual exposure. So we think of it definitely as a diversifier, but we also expect them to be able to add value over the long term.
Geeta Kapadia: (12:51)
Each of those names in that portfolio are very specifically selected and evaluated to be able to add a certain part, or to play a certain role I should say, within the overall total endowment.
Bill Kelly: (13:04)
At this stage of the market, tail risk hedging, does that work its way into the asset allocation mix?
Geeta Kapadia: (13:11)
We've thought a lot about it and we've met with a lot of providers in this space because we think there is a lot of potential opportunity there as it relates to payments that need to be made. As a health system, as you can imagine, over the last year and a half we've learned quite a bit about what liquidity means, and particularly to a finance leadership of the health system. It's thought of on a daily basis. Very closely we think about it. We have talked about tail risk hedging. We haven't implemented yet, but I think there are a lot of good players in that asset class that we may be talking to over the next year or so.
Bill Kelly: (13:48)
Angelique from Penn State, hedging, hedge funds?
Angelique Sellers: (13:52)
Hedge funds. We have about 11-12% in hedge strategies, but they are diversifiers for us. We established a long time ago that we're not going to do strategies that have too much beta in them. For these reasons we don't do long short equity typically, because with 60 percent, 70% net long it's something that we have never done. Collectively, they have a beta of pretty much zero to anything, but we also benchmark them to Barclay's Agg, so all they have to do is to do better than bonds. That's how we position that, is a bond substitute without the duration risk and that makes a little bit more money.
Bill Kelly: (14:34)
Al, anything from Helmsley on...?
Al Kim: (14:38)
So our semi-liquid segment that I mentioned, which includes investments that Helmsley invests in vehicles with up to two years of liquidity, where essentially we can put our money into a fund, and if we were to redeem, if we can get our money back within two years, those types of vehicles, which includes hedge funds, fall in our semi-liquid segment. The framework I talked about before, we definitely see it as a return-generating asset. If you look at the five hedge funds that we have in our current portfolio, the lowest returning one is a long short credit, a special situations fund, that since inception has done a 10% net return with a 5% volatility. The other ones are pretty much equity-based strategies, whether it's healthcare or technology, really based on some of the themes that we have and some of the sectors that our team has where we think those sectors will benefit long term. And so, the hedge funds that we have tend to be long biased, and they definitely are exposed to having draw downs.
Al Kim: (15:49)
In terms of hedging, we have had experience investing in a macro manager that has gone net short and we've ended up having a bad experience with that and we ended up terminating that manager. But, if you look at our overall asset allocation framework, we really toggle between safe assets and return-generating assets and manage that allocation. We really view that as our hedge against downturns in the market. So if you look at our asset allocation today, we're currently sitting 24% in safe assets. So the Barclays Agg and cash. While we are believers in the endowment model and in privates, the question you asked earlier, we are very different from other traditional endowments because we have such a big buffer of safe assets. We really viewed that as a hedge, and going into the pandemic we also had about 25% in safe assets. We think having that dry powder to invest and redeploy when the markets get shaky really helped us navigate the pandemic and the market downturn going into the pandemic.
Bill Kelly: (17:07)
Geeta, just to maybe complete the circuit here, maybe just real estate, infrastructure. Real estate has been topical because of the commercial real estate and return to work, whatever that might mean, around commercial office buildings. And then infrastructure, obviously we've got a big bill that is in the works of being passed. Are either one of those areas that interest your plan.
Geeta Kapadia: (17:28)
Yes, we've been investing in both of those spaces over the past two-plus years. We have looked quite a bit more closely at real estate, particularly as many of the managers that we partner with are really looking at those Class A spaces. New York City, Washington DC, all of the cities where you would expect there would be quite a bit of disruption based on COVID. We've been very fortunate in that they have held up quite well, and in some cases have actually used this opportunity to partner and become very, very hands on with the managers on site, with the tenants. And so, in that space we've been, I would say, pleasantly surprised or maybe a bit optimistic, more optimistic than we thought we'd be. We continue to make investments. We don't see the last year and a half as changing what our plan was before the pandemic. We continue to engage with those managers and those GPs, and continue to talk about new fundraising and are pleased that people are still in the market and still getting plenty of LPs on board. It's been better than we expected it would be.
Bill Kelly: (18:42)
Angelique, I want to touch on maybe cryptos. You've got a student population who is very activist, to some degree, around fossil fuels but is your plan... are you in cryptos, or any kind of NFT's, or any of these emerging platforms?
Angelique Sellers: (18:59)
We've done some research and we have ended up allocated capital to a venture firm that is dedicated crypto specialists, but they don't do coins or anything like that. They invest in- [crosstalk 00:19:14].
Bill Kelly: (19:13)
So it's like the infrastructure.
Angelique Sellers: (19:15)
...the whole infrastructure, the digital infrastructure. In terms of crypto itself, we kind of disagree internally. We have a couple of people who are pushing and saying that this is something we need to be jumping into, and some people who are saying, "No, not yet." So we continue doing research but, anecdotally, I'm part of this email group which has about 60 other institutions. I emailed out asking about who's involved in crypto. I probably got five responses. Two of them were involved, and the others said we're doing research, and the rest of the people said they're not doing anything. So I think there's a lot more talk going on on the institutional investing side. Some bigger institutions have pulled the trigger and did some things, but my peer group nobody is really doing much. More on the venture side. We have some other exposure on the venture, but not in actual... I'm not saying... I just don't know enough about it, so I'm on the side that says, "Let's just wait, hang on a minute." We haven't really pulled the trigger on the liquid side.
Bill Kelly: (20:25)
I'm going to come back to that at the end around some of these disruptive technologies. Angelique, maybe just staying with you for a moment as a university endowment. Harvard, I think it was Harvard, that is divesting from fossil fuels and it seems like there's an activist movement in this direction. I want to pivot more toward ESG. Does Penn State have a view on ESG? Or maybe more specifically, climate? I think ESG has become a very confusing set of risks, and it's hard to manage ESG. But maybe you can focus on climate and how you think about that around natural resources, moving toward renewables and investments there.
Angelique Sellers: (21:02)
In terms of endowment, we didn't have the mandate, and we still don't, so the board resolution doesn't mention anything about it. Having said that, the university itself is obviously doing all kinds of things. There's sustainability office. Generally, university overall, since it's such a big school, probably can make more impact from that perspective and you have to look at all kinds of different areas of research and things like that than the endowment itself. We haven't really had too much of a push, but we're looking at it ourselves because I don't think it's a trend you can ignore.
Angelique Sellers: (21:37)
We're also looking at how we can make money on the trend. So, instead of arguing with the student body, we actually asked a couple of students to intern during the summer and they did a lot of work in terms of sustainability, and surveyed other institutions as to what they're doing. We're trying to formulate some kind of a policy, but it just hasn't happened yet. But, we found some investments. We've made a commitment to a renewables manager on the private equity side, and also working on the public side, interestingly enough, with our oil trader who's starting a fund that's going to be focused on trading carbon allowances.
Angelique Sellers: (22:21)
Metals, because even if you have windmills, you still need to build them of something, right? And also some equities that are focused on batteries, and hydrogen and stuff like that. We're trying to do well by doing good, if you will. That's kind of where we are.
Bill Kelly: (22:41)
I think this double bottom line is still very, very difficult and I think that last point you made about the wind blows the hardest and the sun shines the brightest where people are not, and we need that midstream infrastructure if we're going to get it to the masses. I think that some of these oil and gas companies have built great midstream capabilities.
Bill Kelly: (23:00)
Maybe working our way back this way, Geeta, your views on maybe climate more specifically than ESG for the moment.
Geeta Kapadia: (23:10)
We've thought about the topic quite a bit, as you have to if you're in this space. I think, similar to Penn State, we have not come up with a formal policy yet. I think it will be driven by our team, as opposed to from the top down. I think our board is quite happy to think that we're doing what we should be doing, and to let us have at it. We expect to bring a formal recommendation to our board in the next probably six months as it relates to how we want to intentionally invest. That's the phrase I've been using within my team. There are just so many aspects to it. Climate, obviously, extremely important but you know ESG covers such a wide range of topics that in some sense it's almost overwhelming to try and think about how you would even put things down within a policy. Particularly as we're not a faith-based medical center, we are an academic in some sense, medical center and so we are working very closely with the people at the university, because they have had to confront this quite regularly due to student activity, and just trying to make sure that the types of investments we're making are aligned with the mission, and vision, and values of the organization. Which we think we're doing, but I think we could be a little bit more deliberate about it going forward.
Bill Kelly: (24:26)
Is greenwashing a big problem?
Geeta Kapadia: (24:30)
It's something we're spending time on, for sure because I think it could very easily be something that creeps up on us and we don't realize it, and then we now have to have a more formal evaluation of it to the extent that it's been part of our portfolio, or it could be part of our portfolio.
Bill Kelly: (24:49)
Al, your views? I don't know, in the endowment space it might be different. You don't have a constituency maybe pushing this as an agenda item, but what are your views at Helmsley?
Al Kim: (25:01)
Like Geeta said, Helmsley doesn't have a dedicated allocation to ESG, or to energy, or climate. Having said that, we have over the last 7-8 years, committed and invested in some fossil fuel investments and we've had very mixed results. What we found in terms of investing in energy is that you not only have to pick the right manager, but you also have to get the vintage year right because the commodity cycle is so long and it could either really hurt you or really help you. For us, we said any commitment we make in the private capital segment, it really just needs to stand on its own. If we invest in energy or ESG or anything like that, we're going to be very opportunistic. Our team has been doing a lot of work in the climate space because we think that this transition to a low carbon emission world is a theme that's going to last for decades. We've probably met with 20 or so managers in this space, but we focus more on the VC and growth equity type managers that focus on investing in the technology to solve some of these environmental and climate tech issues. So far, we haven't met anyone that's made it to the finish line, but we are doing a lot of work in that space.
Bill Kelly: (26:33)
Maybe a couple things, maybe off climate, but on the topic of ESG, transparency and the culture in relation between the GP and LP. Maybe Angelique, I'll start with you. What's the current state of play in terms of transparency around GP and LP, and you hear things about the use of credit lines to fund LP commitments that have an impact on returns. Is transparency where it needs to be, because now we're talking about democratization or less sophisticated investor accessing these GPS and we've got to be thinking about a client-first mentality? If we can't get it right in the institutional world, I fear that we're not going to get it right when we go more retail based with democratization.
Angelique Sellers: (27:15)
I feel like we have decent enough transparency without GP. This is one of the things that we require, and if we can't get the information that we need out of them, life is too short kind of a situation. That said, I mean obviously some of the venture firms are fairly sensitive to the right to know and all of that, and so we are not subject to that, but every time we talk to some venture managers we have to write them a letter and explain and how it all works, and some of them are really difficult to get in if you have that kind of situation with the right to know act.
Bill Kelly: (27:53)
Geeta, maybe a slightly a different theme. Certainly, the CAIA Association, and myself personally, have been very committed to DEI, which has been very topical and that can manifest itself in many ways. I've made a point that I will not get involved in panels that don't have some level of gender or race diversity. It doesn't very often play out this well, with the three of you, but I do want to point out that this is an important undertaking and actions matter more than words. Maybe talk about it from your vantage point, both as a woman, as a professional and what your expectations are as you hire managers and their commitment to DEI.
Geeta Kapadia: (28:34)
It's a topic that's very near and dear to my heart, and one that I spend a lot of time on just thinking about, talking about with peers. With my colleagues, with leadership and with managers. It's kind of disappointing that it's 2021 and it feels like we're still in the same space that we were when I started in the business. We recently did an evaluation from a DEI perspective of our current portfolio and it's really bad. Very, very bad, and it's very disappointing because internally I felt like I've been having this conversation. I know I've been having it, but clearly I haven't been having it in a way that it has affected any change.
Geeta Kapadia: (29:16)
We're all in very fortunate positions and obviously, Bill you as well, in that we do have a fair amount of leverage as it relates to making an impact at some of these organizations. I think we have to be very deliberate about, similar to the way you phrased it, "We're not going to do business with you if you're not addressing this issue in some way." It's not about doing the right thing. I mean, it is about doing the right thing, but it's about making money, right? It's about returns. Diversity adds to returns, so to have everyone in the same room and look the same, and speak the same, and went to the same colleges, that's not really going to add value over the long term. So, we're very committed to it. I have a lot of difficult conversations ahead of me, I can already feel that, but I think it's important. And, to your point, there's no reason to have a panel with all men anymore. There's just so many good female investment professionals, and professionals of color that it's very easy to have a diverse group of people.
Geeta Kapadia: (30:25)
You talked a little bit about Twitter. There's quite a lot of, for people who are in financial Twitter, there's a lot of chatter about it. It's very interesting, some of the people who I follow that have done some great work in this space, and they're fighting the good fight. I hope I can help in some way.
Bill Kelly: (30:44)
Maybe an observation, not an excuse. I think one of the challenges we face on many fronts is that this is a great industry. It's really not a profession. I think the law profession, the accounting profession, the medical profession has done a very good job of moving this direction. My wife graduated med school almost 35 years ago and her class was 50% women, 35 years ago. It's harder for us to get that channel going and there's a lot of great organizations, I think 100 Women in Finance is a sponsor here, we've just got to figure out better partnership there as well.
Bill Kelly: (31:19)
So we just have about eight minutes left and I want the final discussion about digital disruption because it has been a big topic at this conference. Every session I'm in somehow, someway it comes up. It may not reflect itself in an asset allocation decision by any of you, but it's certainly on the forefront around algos, or maybe hedge funds that are using algo-based decision making models. Al, maybe starting with you, how does this affect Helmsley? Are you thinking about it? Are you seeing managers that have more algo-based, data-driven investment processes?
Al Kim: (32:04)
In the hedge fund space, the hedge fund managers that we invest with are all based on just bottom up fundamental research, so not necessarily quantitative based. Having said that, in several pockets within our portfolio, whether it's some of our long only quant managers that are introducing some machine learning analytics factors into their models, or whether it's some of our VC managers building out data systems to figure out what's going on in the startup world, we are starting to see some of that technology being used across our managers, but it's not like we're necessarily committing or allocated to a fund specifically focused on that. Having said that, in terms of broader disruption, whether it's technological disruption or whether it's disruption in the healthcare space, we really try to find managers that can, especially in the VC space, identify the trends and then invest behind those trends. That's why, within our private capital portfolio, we have such a big allocation to venture and growth equity. I think that represents about 25% of our overall portfolio, so about 2/3 of our overall privates.
Bill Kelly: (33:35)
So Angelique, maybe a slightly different angle on this, and being from Boston a couple observations. One is I worked for a Trust Company, a custodian early on in my career and I always thought that was a horrible business. Less than one basis point, you need to make it up in securities lending and short-term investment funds. Brown Brothers was acquired by State Street, two local Boston operations at least headquartered there. I look at that acquisition, I say "Wow, this space has changed a lot and data is the new oil, and the amount of data that these custodian banks have, and the impact of that data, could be enormous." I don't know if you deal with your custodian or not, but are you expecting more and different things from your custodian and data from them, and analytics that help you make any kind of decisions, either around operational, alpha, or investment decisions?
Angelique Sellers: (34:27)
We do. We actually changed custodians a few years ago for that very reason, because we've had the same one for so long that we were wondering what else is out there. And so obviously technology, it was a big aspect of it in terms of reporting and everything, the custodian. I don't personally deal with custodian all that much, but I remember we were going through that process. We're kind of doing the same thing with consultants right now. Looking around. We don't have too many right now, we have one, but we want to know what's out there and obviously technology is a big part of that RFP process. I think you just have to, and the managers also, even fundamental analysts, you have to have data, you have to have technology. Computer can process things a lot faster, and I think those who don't pay attention to that stuff are going to miss out in the end.
Bill Kelly: (35:19)
I saw recently that DTCC is talking about going to T+1, and I was thinking when I started in this industry it was T+5. I just looked up, just today, to see how long it took us to get from T+3 to T+2. It took us 24 years, and to now be talking about T+1 measured in days, it's beyond silly. It should be measured in nanoseconds. It's crazy. So Geeta, from your standpoint, any disruptive technologies or opportunities around either managers or operational alpha?
Geeta Kapadia: (35:53)
Similar to Angelique, we also changed custodians a couple years ago, and are also thinking about our use of consultants. I think that that old model of the traditional field consultant is very different now, and a big part of that is due to the advances that we've been able to take advantage of in technology. There seem to be so many ways that we can use tech in our day-to-day investment process that I think we're a little behind the curve relative to other allocators in this space. There's a lot that we should be doing that we're not doing yet, so I think that the providers who can harness that, and can sell it as a real advantage relative to their competitors, are going to be the ones that are the most interesting to us.
Geeta Kapadia: (36:44)
From a manager perspective, we're very similar to Al. We're very bottom up, fundamentally focused. I get plenty of emails where I just have to say we don't really do quant. That being said, I think there are a lot of ways that fundamental managers can take the these technological advances that we've seen and enhance their process, enhance the way they do business. Whether it's trading, or whether it's analysis, whether it's [expo 00:37:10] review attribution, there's just a lot out there that are more pieces of that puzzle that we should be thinking about as we make investment decisions.
Bill Kelly: (37:22)
We're just down to a handful of minutes, so I think we're moving toward closing time. I think it's always good to put a ribbon or a capstone around this. Either a closing observation, something we missed. Al I'll maybe give you first crack.
Al Kim: (37:36)
So I guess a general comment. I think the last 5-10 years from the allocator's perspective, it's been fairly easy to generate strong returns. Essentially, if you had more risk, more higher allocations to equities, higher allocations to venture and tack, then you did really well. I think, given how quickly the markets have recovered following the pandemic, and given how extreme the valuations are today, the next several years are going to be much more difficult to generate returns on beta alone. I think for every allocator and organization, you really just have to figure out what skill sets and advantages do you have. Helmsley, as well. What advantages does Helmsley have compared to other allocating peer organizations? And really try to build and identify investments that leverage that edge, and that skill set of the team members that we have on our team. I think that's the only way we can invest with conviction with evaluations today.
Bill Kelly: (38:48)
Thanks Al. Geeta?
Geeta Kapadia: (38:50)
I would just take that idea a little bit further and say it's probably time for us to spend some good, solid block of our research and thinking about what is it we're missing? What are the gaps in our process? What are the gaps in our team? Where are skills that we're lacking. I could think off the top of my head at least three or four that, "We could really use some work," or, "We could really use some expertise in this area." I think making those hard decisions, and thinking about where's the best use of our dollar. Every dollar that we spend on the investment team is one less dollar that goes to providing health care to our community, so we need to be very thoughtful and very deliberate about how we spend our money. Some of that is probably going to be thinking through what tools are out there that we should be using.
Bill Kelly: (39:40)
Thanks Geeta. Angelique, final word?
Angelique Sellers: (39:43)
Well, one thing I'll say that's unrelated. I'm reading this book, it's called Subtract, and everything I'm hearing we always talk about adding things, and we're kind of predisposed to add things, and we're incentivized to do. Sometimes, like Al for example, they have a very concentrated portfolio and sometimes it's worth it to take a look and say well, "What can I subtract, instead of just keep adding things?" I'll wrap it up on this.
Bill Kelly: (40:08)
I think it's an excellent point. Weed the garden. Critically important. Please join me in thanking the panel.
Geeta Kapadia: (40:14)
Thank you.