Aaron Houlihan is an investment manager at Catholic Health Initiatives in Denver, Colorado, where he is involved in strategy development, asset allocation, and risk management. He also manages a portfolio of public market and private equity investments. Prior to CHI, he was a manager of public markets at CenturyLink Investment Management Company in Denver and a senior investment analyst in real assets at the University of California.
Aaron holds an MBA in finance and entrepreneurship from the University of San Francisco and a B.A. in English from the University of Michigan. He is also a Chartered Financial Analyst (CFA) charterholder and Chartered Alternative Investment Analyst.
Mr. Houlihan was recently named on Trusted Insight’s Top 30 Hospital Investment Office Rising Stars. He graciously spoke with us on September 29, 2016.
Trusted Insight: You've got a B.A. in English from University of Michigan, which is unusual. A lot of institutional investors come for the accounting or finance background. How has a liberal arts education helped or hindered your investment career?
Aaron Houlihan: An English major seems to carry with it the expectation that its holder might follow a different analytical path than the finance-first folks. A liberal arts education encourages critical thinking and emphasizes communication skills, especially writing, which serve someone in my role well.
Trusted Insight: Given that you've studied English, presumably you didn't envisage yourself an investment career when you left school. So, what initially attracted you to working within institutional investing?
Aaron Houlihan: The ability to operate strategically at a large scale and to have access to a rich menu of investment options and managers is compelling, especially when compared to enduring writer’s block at a lonely desk.
Trusted Insight: You started out your investment career within real estate and real assets across various different companies. Are there any particular trends right now within real estate or real assets that you find interesting?
Aaron Houlihan: I've always been interested in timberland investments. The challenge for organizations like ours that haven't yet invested in timberland is the very high hurdle for an investment committee or a board to overcome due to lack of familiarity with the asset class.
Trusted Insight: I think you're the first person who mentioned timberland to me as an asset class that they're really actively interested in. What areas within timberland, geographically, are you looking at?
Aaron Houlihan: I wouldn't say that we're active or far enough along to be looking at different geographies yet. The biological growth component to timberland returns is a unique diversifier.
Trusted Insight: More broadly within real estate, there's been some mention in the media about overvalued assets. Do you think that real estate assets are getting towards that level that we saw before the 2007 crash where they're getting overvalued?
Aaron Houlihan: One of the bigger differences is the path to where valuations are today versus 2007. There was a lot more “bubbliness” in the market back then and it seemed like investors were fearless in terms of chasing returns, believing that the sky was the limit. Credit conditions are different today. Creditors are more demanding and discriminating. Investors don’t seem to be wearing the same blinders.
Trusted Insight: You also manage the private equity investments within Catholic Hearts Initiatives. There's been a lot of mention of private equity firms looking at willing gas assets as an area of potential investment now that things are kind of reaching a point within the cycle. Do you think that's an area of interest within private equity?
Aaron Houlihan: We’re steering clear of it right now. It's not that we don't see some long-term attractiveness but the heightened correlations between the performance of those strategies and oil prices gives us pause.
Trusted Insight: More generally across the portfolio, how are you looking to re-position?
Aaron Houlihan: Our organization just completed an asset allocation study, so we are in the process of evaluating some of our alternatives exposures on the margins. Real assets may end up playing a greater role than they do today.
Trusted Insight: You have the operating investment program, but you also have the defined benefit trust and captive insurance portfolio as well. So how do you go about balancing those multiple pools of capital within the system?
Aaron Houlihan: Each program has different objectives and time horizons so we look at the portfolios as stand-alone entities. Although asset allocations are different, the core lineup of active managers is fairly consistent across portfolios.
Trusted Insight: What do you look for when you select those managers?
Aaron Houlihan: We start with the investment philosophy and process for a manager and then evaluate the quality and interaction of the management team. Beyond process and team, we try not to look at performance numbers until as late in the process as possible. We look for managers who can provide alpha less correlated with our other investments. We also look for consistency and persistence of alpha vs. a manager’s peer group.
Trusted Insight: In terms of making investment decisions and manager selections, to what extent are they informed by your approach to SRI?
My director at CenturyLink taught me that it's important to always have an opinion--but also to have done the work and research proactively to support that opinion.
Aaron Houlihan: We have had more success looking for the best managers in a particular strategy who can work within the confines of our policy rather than a manager who employs their own SRI approach.
Trusted Insight: Healthcare systems are quite a new phenomenon, compared to other institution types. How does working for a healthcare system compared to the previous experience that you had at a university endowment?
Aaron Houlihan: The current environment for healthcare has been challenging for some of the larger systems. Organizations may look to returns from a long-term investment program to support what might be shorter-term operational needs. We have a saying on our team that “you can't build hospitals with relative returns.” There is sometimes more of a focus on absolute returns because they are needed to support real operations and patients.
Trusted Insight: You mentioned before you launched the real assets program at the University of California. Can you give me a little bit of detail about that, and then how that's helped you with managing the portfolio at Catholic Health Initiatives?
Aaron Houlihan: I should clarify that I was part of the team that helped launch the program and not the prime mover. What was helpful about that experience was starting with a clean slate and building a new set of assumptions and expectations. This full “re-underwriting” approach is a good discipline to employ with existing strategies and investments as well.
Trusted Insight: Can you tell me a little bit about the team structure and culture at Catholic Health Initiatives?
Aaron Houlihan: We have a small team and are therefore relatively “un-siloed” in terms of how we manage the portfolio. We approach our decision-making, strategy development, and risk management collaboratively – everyone gets a seat at the table.
Trusted Insight: Within that process, is there anyone that you look up to within institutional investing who has helped you in accomplishing that?
Aaron Houlihan: My director at CenturyLink taught me that it's important to always have an opinion--but also to have done the work and research proactively to support that opinion.
Trusted Insight: Outside of investment, what are you really passionate about? You mentioned writing earlier. What really gets you out of bed in the morning?
Aaron Houlihan: I have three children under the age of ten so if I don't get up early they'll get me up themselves! Living in Denver, with mountains and endless recreation less than an hour away, provides daily motivation and reward for hard work.
Click here to view the complete list of Top 30 Hospital Investment Office Rising Stars.