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'AI Is Most Applicable' In Non-Institutional Setting: Debby Kuenstner | Wellesley College CIO | Exclusive Q&A

by trusted insight posted 3years ago 1532 views

Debby Kuenstner has been chief investment officer at Wellesley College since February 2009. In this interview, she discusses why machine learning and artificial intelligence is most applicable in a world of constant decision-making; how long-standing relationships with managers impact the portfolio; and why she speaks Wellesley fluently and believes in their mission of empowering women.

Debby Kuenstner was recently named on Trusted Insight's 2018 Top 30 Endowment Chief Investment Officers. She graciously spoke with us on Feb. 5th, 2018. The following interview has been edited and condensed.

Trusted Insight: How will machine learning and artificial intelligence impact the institutional investing world?

Debby Kuenstner: I think that there’s a lot more transparency and information now than there used to be. I think that machine learning and AI is most applicable to a world where there are lots of choices and lots of decisions made. For instance, how many people will buy the super-duper paper towels versus the value-priced paper towels? I'm really far less certain about what happens in a setting where a few people make a few decisions. In the course of a year, we probably make 20 decisions that really matter. In that sense, we have the leisure to make those decisions with a lot of information. I would say that a general partner, with a partnership of say 40 LPs, doesn’t even make that many decisions about relationships. They make decisions about the investments obviously, but they don't make many decisions about the composition of their LP base.

"There's tons of investment management and wealth management decision-making that could be helped by AI. I'm just not sure that this is the cutting edge of that part of the world."

So much of our work is about relationships and understanding organizations over time and GPs understanding Wellesley's goals and qualities as a counterpart over time. It's not 100 percent clear to me where you get a big boost from AI on that. Endowment and foundation investing with the top managers is only a small part of the investment management world. There's tons of investment management and wealth management decision-making that could be helped by AI. I'm just not sure that this is the cutting edge of that part of the world.

Trusted Insight: You’ve led the investment office at Wellesley since 2009. Under your leadership, Wellesley beat its 3-,5- and 7-year return benchmarks. To what do you attribute this consistent success?

Debby Kuenstner: I had brilliant timing in joining. When I started on February 1st, we were just a few weeks away from the market bottom. So, really timing is everything. Pretty much every year has been either flat or up since then and in some periods, up strongly.

The portfolio today benefits from a number of long-standing relationships with top managers. That has really been good for the college. It's great that uniquely talented managers who have limited capacity have a willingness to allocate to mission-driven investors. The other factor is a strong, collegial team that I’ve had the privilege of leading.

Trusted Insight: We’re at an unprecedented time in the markets where monetary and regulatory policies have created low-interest rates; high valuations; and crowded public and private markets. Do you recognize the markets as they are today?

Debby Kuenstner: I'm a mother of two. They're grown children now, but I often that my children were born to confound me. Now, it looks like the markets have joined the club. So, do I recognize them? In this particular configuration, not so much. To me, markets are always intellectually challenging and there's always something new and often not an obvious playbook, so in that sense they are recognizable.

Trusted Insight: Given the increasing number and sophistication of investment offices, is it challenging for Wellesley to differentiate from the herd?

Debby Kuenstner: I think this space is an evolving one. There are not that many investment offices that have had multiple changes in leadership. In some sense, it's still a relatively recent niche within institutional investing.

"Wellesley has an amazing mission, and not that many places in the world are really all about empowering women."

In terms of differentiating yourself, there are a lot of hedge fund managers. There's a lot of private equity guys. If you know what you're looking for, you can differentiate among them. And I would say that, on their side, our best managers tend to be really extremely thoughtful about the characteristics they're looking for in LPs.

Trusted Insight: Before joining the endowment world, you were chief investment officer at Putnam Investments for seven years. What was the transition from an asset manager to a university endowment like?

Debby Kuenstner: I worked as a portfolio manager at a number of firms before going to Brandeis and eventually to Wellesley. It looks like I'm more of an abrupt change than it might. Before I was at Putnam, I worked at DuPont Pensions and I was also a member of the board of pensions for the Presbyterian Church, which is the group that manages the church's then $6 billion pension plan.

In both of those organizations, I had the opportunity to step back from my specialty, which was international equities and to think about the overall portfolio in terms of across asset classes, across different types of strategies and managers.

Trusted Insight: You graduated with a B.A. in economics from Wellesley College. What does it mean to you to give back to your alma mater?

Debby Kuenstner: It's a great thing to work for your alma mater. Wellesley has an amazing mission, and not that many places in the world are really all about empowering women. So, it's great to have a single client that I invest for, and that client is pursuing an amazing mission that benefited me.

I sometimes say that I speak Wellesley fluently. I've worked at other institutions, where it takes time to understand the culture and to become part of it. Coming back to Wellesley, I noticed today's students share many characteristics with the students of the late '70's when I was here. It's great. The culture of the administration that supports the college and runs the college is, again, very similar. I have a deep understanding of the institution.

Trusted Insight: What’s the number one lesson learned throughout the course of your career?

Debby Kuenstner: It's hard to pick one, but I believe that governance really matters. For instance, some of the following questions are important to think about: How does an investment committee make decisions? What decisions does the committee make versus what decisions does the staff make? How does the staff make decisions? Is it just the CIO or is it a team process?

For decisions that the team makes, how are they informed? How do they happen? Do one or two people decide and then there's a group meeting? Does it actually happen in a group meeting? How do you make decisions and being intentional about that makes a difference to the quality of the outcome? How are outcomes assessed and by who?

You can view our full catalog of interviews with institutional investors here.

Click here to view the complete list of Top 30 Endowment Chief Investment Officers.