An institutional manager deploys many dollars but wears many hats

April 30, 2014

About $1.5 trillion of assets were represented on “The View from Institutional Investors: Where Will Returns Come From?” panel, moderator Christopher Ailman said at the outset.

Now that we’ve got your attention, the outstanding investors present spoke as much about governance issues, recruitment, partnerships and stakeholders as about the fundamental question of where returns will come from.

Jerry Albright said the stakeholders of the Teacher Retirement System of Texas include not only current and retired educators, but also state legislators, employers and taxpayers. Jane Mendillo, CEO of Harvard Management, discussed the responsibility of serving a four-century-old institution, which includes contributing 35 percent of the university’s operating budget.

Mendillo was among the panelists who delved into direct investment strategies, that is, earmarking part of the portfolio to concrete assets rather than securities. Consistent with the august school’s reputation, Mendillo shared a brainy strategy that promises both financial and public-interest gains. The endowment has planted and owns 100 million trees around the world, part of its focus on natural resources, which enabled Harvard to avoid the packs of larger players chasing more ballyhooed investments. The private equity contingent, for instance, hasn’t gone there.

Developing domain expertise and avoiding crowded trades are principles to whichMichael Sabiaalso subscribes. The head of la Caisse de dépôt et placement du Québec called being a disciplined long-term investor, along with accepting 12 percent to 15 percent returns, a competitive advantage. There just aren’t many funds in the same boat. Sabia discussed building “knowledge networks” of stock pickers and consultants with experience in the industries where they invest. “We have mining engineers… people with experience in pipelines, airports,” he said. “People who understand how value is created” over time.

To close the session, Ailman, CIO of the California State Teachers’ Retirement System, asked the veteran managers where the best bets are in the current investment landscape. Li Keping, the vice chairman, president and CIO of China’s sovereign wealth fund, favors a “contrarian” approach, saying he’s interested in Europe, agriculture and real estate. For the Texan on the panel, Albright, the top theme is how cheaper energy is spurring U.S. growth.

Québec’s Sabia is likewise a fan of American energy and energy infrastructure, along with emerging markets that are in transition from export-led growth to expanding their consumer and employment bases. For Seema Hingorani, CIO of the New York City Bureau of Asset Management, there are bargains in distressed European assets and beaten-up developing country stocks. Mendillo is also a bargain hunter in emerging markets, focusing of late also on the pullback in biotech and the future value that sector will create.