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Exclusive Q&A: Amy Jensen, Investment Director, Northwest Area Foundation

by trusted insight posted 2years ago 14143 views
Amy Jensen is the investment director for the Northwest Area Foundation. Having joined the Foundation in 2013, Jensen leads the investment of the Foundation’s $420 million portfolio with responsibility for all asset classes and strategies, including the Foundation’s mission-related investments. The mission of the Foundation is to support the efforts by the people, organizations and communities of our eight-state region to reduce poverty and achieve sustainable prosperity. 
 
Immediately prior to joining the Northwest Area Foundation, Jensen worked for the Margaret A. Cargill Philanthropies as a portfolio manager. In this role she managed the assets of the Margaret Cargill Foundation, Akaloa Resource Foundation and the Anne Ray Charitable Trust. Jensen previously worked in the Investments Office at Bowdoin College in Brunswick, Maine. The Investments Office is responsible for the management of the College’s internally managed endowment. 
 
Amy has a bachelor’s degree in economics and communication studies from Macalester College in St. Paul, Minn., and a master’s from the University of Minnesota. She holds the Chartered Financial Analyst and Chartered Alternative Investment Analyst designations. She is a member of the National Finance Committee for the Jeremiah Program and a former member of the Financial Leadership Committee of the Women’s Foundation of Minnesota.

Ms. Jensen was recently named to Trusted Insight’s ranked list of the Top 30 Foundation Rising Stars. She graciously spoke with Trusted Insight on March 17, 2016. The following interview has been edited and condensed for clarity.  

Trusted Insight: The foundation investment office is unique in that you are the only investment professional. Tell me about that.

Amy Jensen: The Northwest Area Foundation has an investment staff of one. I have assistance, from our controller with cash flows, and I work for the CFO, but I am really the entire investment team. Any investment that gets sent to the Foundation, I am the person who looks at it. For an organization of our size, I don’t think that is unusual, but I think we try and do a lot with that one FTE, direct hedge funds and mission-related investments for example.

I am fortunate that I don't have to find a lot of funds or opportunities to satisfy our allocation. If I find one or two great private equity investments a year, that's sufficient in a portfolio of our size.
One thing that is unique about the Northwest Area Foundation is a commitment that was made in early 2014 to really expand our mission-related investments. Those investments are in the regular portfolio, not part of carve-out. In addition to trying to meet our return requirements, which for a private foundation with no capital inflows and a perpetual time horizon is obviously difficult, we're also trying to have a positive social impact. The mission-related investments have given me an opportunity to work really closely with our program staff and be more involved and connected to the Foundation’s mission. It is incredibly challenging and rewarding. 

Trusted Insight: What are some of the challenges of being an investment team of one?

Amy Jensen: I'm always very, very busy. I probably receive at least ten incoming investment ideas/pitches every day. The challenge is prioritizing what opportunities are really worth spending time on and which can be discarded. I am fortunate to be part of a great investment community in the Twin Cities and have fantastic colleagues that are very willing to share ideas and thoughts on managers. Last year I had a manager offer me access to a fund, but I had to complete the due diligence and documentation in a few weeks. It was at the end of the year, which is a very busy time, and I wasn’t sure it was worth dropping everything else to get it done. I talked with the team from Carleton College, an investor in the fund, and they knew the team well and convinced me that it was worth the effort it would take to get it done in a tight time frame. We are all resource constrained, and one way to deal with that is to cultivate strong relationships with your peers and share everything that you can. 

Trusted Insight: It takes quite a bit of leg work to conduct due diligence for private market deals. To what degree do you venture into private markets considering you operate alone?  

Amy Jensen: It takes time to build high quality private investment allocations. When I started at the Foundation we were invested in private equity and hedge funds through fund-to-funds. The committee made it clear that that was not the direction that they wanted to take in the future, but also realized that it was going to take time to make that transition. And we've started on all fronts. We're almost completely out of hedge fund-to-funds, some of the redemptions take a very long time. We have made direct private equity, direct real estate and direct private debt investments.

Obviously, there is a tremendous amount of due diligence and a tremendous amount of work that goes in to making those investments. Going to back to our size, I am fortunate that I don't have to find a lot of funds or opportunities to satisfy our allocation. If I find one or two great private equity investments a year, that's sufficient in a portfolio of our size. We tend to make fewer, larger bets to make it manageable for a staff of one. That has worked for us. 

The Foundation also has a differentiated governance structure. We have a really great investment committee that operates the portfolio at a very high level and pushes authority for implementation down to staff as much as possible. This allows me to do things that may surprise people. I can really prioritize something and complete investments on tight timelines. I do co-investments. I've done one, and I'm working on another one that's likely to close the end of March. Some people would say, with a staff of one you would never have the ability to do that. We have a great governance structure that allows me to work really quickly in a way that some very large organizations with much larger staffs couldn't do because they need committee approval. That is an advantage. 

Trusted Insight: What makes a good governance structure, in terms of the Northwest Area Foundation?

Amy Jensen: Years ago, the committee decided that what they were good at and what they could add value in was asset allocation and what I call strategy decisions. They decided that they weren't adding value by meeting with managers and doing manager selection. They decided on a high-level the asset allocation (60% to equity beta) and then one step down from that, what I call strategy decision. On fixed income they have said, "we'd like you to bring down interest rate risk, increase credit risk and we would accept more illiquidity in this part of the portfolio if you think we are compensated for it."

Then in terms of the actual implementation, they have given me that authority. As I hire managers or add strategies, I report to them on how that fits with their strategic objectives. This is meant to increase the credit exposure, for example. That's the level at which they operate, and as a result they are happier with how the time is spent during the meetings and our performance has improved since they made that shift.

Trusted Insight: There's a great degree of market uncertainty in terms of interest rates, geopolitical risk, volatility, frothy valuations, the oil market and so on. How do you position your portfolio to maintain the long-term perspective, but still account for the near-term return requirements in a market like this?

Amy Jensen: I don't think either myself or the committee thinks that we are going to have better insights into the direction of interest rates or global growth than any other market participant. So what are those things that we can do or can control that will help the portfolio? We obviously have a very high hurdle because we're a private foundation. We're required to spend five percent, we have operating expenses above that and we're trying to last into perpetuity. We're trying to make at least an 8.5 percent return.

How can we do that? As I mentioned, we don’t have to find a lot of opportunities. There are parts of the credit market where as a result of the regulatory changes since the financial crisis, I can earn a pretty reliable return without taking a lot of additional risk. There are direct-lending strategies where there is a quarterly distribution of six-to-eight percent, which is helpful in our operating spending, where we're not taking a lot of risk. As large investors seek yield, there are opportunities for strategies that create products to fill that demand through securitization.  

We also understand that we're not always going to make our target rate of return. Sometimes the market is not going to give you that 8.5, and so we try and think about how can we just be positioned in a way where we have liquidity to take advantage of opportunities when they do present themselves. The committee has always been very good at focusing on the long term and not getting hung up on the short-term volatility in emerging markets in 2015, for example.

Trusted Insight: Let's talk about your background. From an educational standpoint, I love it when I see people that don't necessarily have the typical Finance undergraduate degree and then MBA. You have a Bachelor's in Economics and Communication Studies and an MPA in Policy Analysis and Foreign Policy. How did you find yourself in institutional investing?

Amy Jensen: I was always interested in and focused on economics. I found the cause and effect or action and reaction nature of economic theory very intuitive. In graduate school I focused on economic and trade policy, so it may be more economics oriented than it appears at first glance. After I finished graduate school I held a variety of jobs in finance. I was an analyst, I worked for an asset management company, I did different things, but all around markets. 

I was living in Maine, and I was working for an asset management and trust company when there was an opening at Bowdoin College. I was incredibly fortunate to get the job and have the opportunity to work for Paula Volent, who is a brilliant and amazing investor. I had a unique opportunity at Bowdoin to work on a portfolio that was then, and is still, invested across all types of asset classes and investment strategies. 

In a very short period I got incredibly broad exposure to all types of alternative investments and the management of an institutional portfolio. Many, probably most, organizations are siloed and would not have provided such broad exposure. It was a small office, I truly got to be a generalist and see the entire portfolio. That was a really valuable experience. Not only did I get exposure to diverse strategies, but working for a great investor like Paula taught me so much about how to conduct due diligence and think about the whole portfolio.

I make investments in funds that are less than $150 million, and I can do that, and it can be meaningful for our portfolio. For other people that opportunity is just too small for them to ever take advantage of.
Trusted Insight: How did your previous positions at Bowdoin and Cargill help form the decision-making process you currently implement now at Northwest Area?

Amy Jensen: I think when you are a generalist, as I was at Bowdoin and I am at the Northwest Area Foundation, it's much more about finding the opportunities that exist at that point in time rather than filling a static allocation. When someone is responsible for the 10 percent credit allocation, you're always going to find 10 percent things to do in credit.

The Northwest Area Foundation is smaller than Bowdoin and much smaller than Cargill. We can be a little more nimble and flexible. Size creates constraints around having to deploy large amounts of capital into each investment. At NWAF, I can invest in funds that are $100 to $200 million in total, for many larger institutions that wouldn’t even be an option. We also have a broad asset allocation that allows us to invest in strategies that others might find it difficult to classify.  

At the moment I'm looking at a hedge fund that has been closed, but they are taking a small amount of capital and said I could have $5 million. For most people, it's too small, they wouldn't take it. But for us that matters. That gives us a way to get into some good managers and strategies. For a larger organization, for a multi-billion-dollar portfolio, that isn’t feasible. I make investments in funds that are less than $150 million, and I can do that, and it can be meaningful for our portfolio. For other people that opportunity is just too small for them to ever take advantage of.

Trusted Insight: You were at Bowdoin during the '08 financial crisis. What lessons did you learn from seeing how they reacted to the markets that have shaped how you approach the current market climate?

Amy Jensen: There is a much larger difference between an endowment and a foundation than most people appreciate. Throughout the crisis, Bowdoin College had inflows because they have donors who give generously to the school. The endowment is just one piece of the operating budget of the college. There are other sources of income -- tuition and grants.

At a private foundation, we can't accept the illiquidity or the volatility that an endowment can. The Foundation’s portfolio funds 100% of the operating expenses. I fundamentally don't think a foundation can construct a portfolio the same way an endowment can. We work to reduce poverty. At the times when the market is down and the larger economy is weak, our grantees don't need less money, they probably need more. So a large draw down in the portfolio and a reduction in grants is an outcome we try to avoid. The result is that we have some different constraints. Volatility has its place in our portfolio, but we can't accept as much volatility as a college endowment can. We have to be more conscious of liquidity. Over the last six months the markets have been terrible, but money continues to go out the door at the Foundation. I always have to make sure that I have capital that I can get at quickly, easily, hopefully that I won't have to take a huge haircut on when I sell, to fund the Foundation’s operations. 

Trusted Insight: What are the key characteristics that you look for in a manager in private markets? How do those criteria differ for a public market manager?

Amy Jensen: I always really emphasize the strategy. Why does this opportunity exist? What would make it disappear? What is the best way to take advantage of the opportunity? A lot of people focus on the manager and the people, which is important, but I think understanding the underlying market, inefficiency or dislocation that's being taken advantage of is the most important thing in committing to a long-term strategy.

In private markets, obviously,  manager selection matters more than in public markets. Paula Volent once said to me, “You can't just date this manager, you're going to have to marry them.” When you invest in a private fund, that's a long-term relationship. You're going to have to be with them through the good and bad. Manager selection is important in all things, but even more so in private markets where you have made a really long-term commitment to managers. The team is important, having a clearly articulated strategy and a history of implementing that strategy and working as a team are all important. I prefer to work with managers that are really thoughtful about how markets are changing and how that will impact their strategies. I work with a manager that I respect deeply because of their honesty about how the ways they made money in the past are no longer available, they are always thinking about how opportunities are shifting and where they will need to be in two years, five years and ten years. I think that will be more important going forward than it has been in the past as more and more institutional money has flowed into the strategies that performed well over the last 10 years. 

Trusted Insight: What is the most challenging aspect of your job is?

Amy Jensen: Just prioritizing. There are so many funds and so many opportunities, I have to narrow it down to those opportunities that are really worth spending the necessary time on. The amount of work that I do before each investment is really significant. I know there are investment managers who have been frustrated by all the meetings and questions and discussion that have occurred before I decided not to invest. That is all part of the process and my responsibility is to construct the best possible portfolio for the Foundation. 

Lots of people have asked me what I learned from Paula, and there is no question that it was to do really thorough due diligence. I need to understand the market, the strategy, the process and the variables that impact the outcome before I really consider making an investment.
Trusted Insight: What sets Northwest Area Foundation apart from your peers?

Amy Jensen: I've already talked a little bit about the governance structure. I think that that's pretty unique -- to have a small staff with this level of delegated authority. 

We also have a broader asset allocation than most organizations. We have four large beta buckets: equity; fixed income and credit; real assets; and then diversifying strategies, which are strategies that have low beta to those other parts of the portfolio. There are not sub-allocations where we are trying to fill six percent to emerging markets or four percent to private credit. That flexibility has allowed us to be a lot more opportunistic than most organizations. By the nature of how they're designed, they have much tighter controls on their allocation. It's given the committee flexibility to be more opportunistic and more strategic. It's given me an opportunity think about the portfolio differently and add differentiated strategies.

Trusted Insight: What trends are occurring right now that are shaping the way that the Foundation is investing? Or more broadly, what trends are shaping the way that foundations, in general, are investing?

Amy Jensen: Mission-related investing is growing and expanding so fast. I would say even two years ago it seemed like it was in the early stages. Now, the number of people that are talking about it, the number of managers that are rolling out strategies, it's pretty amazing how rapidly that part of the market has developed. It is really hard for a mission-driven organization like a foundation to not have their mission reflected in their investment strategy.

At the foundation, I get to work incredibly closely with a great team, my program director Karla Miller and the other program officers who do amazing work. The opportunity to try and align our investments with their work, with our grantees and with our program objectives, that's really remarkable. That aspect of my job is incredibly exciting for me. Historically, there has been a significant divide between investments and programs at foundations, and I hope that the expansion of mission-related investing will change that at other organizations as well.

Trusted Insight: What is the one number one lesson that you've learned in your career as an institutional investor?

Amy Jensen: Do your homework. Lots of people have asked me what I learned from Paula, and there is no question that it was to do really thorough due diligence. I need to understand the market, the strategy, the process and the variables that impact the outcome before I really consider making an investment. I know that I will still make mistakes, but I am always learning and trying to do better.

Trusted Insight: We've had a number of lists for that focus on women in institutional investing, because this is an industry that is historically male dominated. Do you have any insight on why that might be?

Amy Jensen: I think endowments and foundations are actually places where, as compared to the broader investment universe, you find more women. I'm not entirely certain why that is, maybe the women who are in senior positions at those institutions do a better job of hiring and encouraging other women. Maybe it is the presence of successful female CIO’s as role models. 

I always wanted to work in investments, and I have always wanted to do investment analysis. There have been times in my career where people, especially men, have tried to steer me into other things, operations or client-facing roles. I knew what I wanted to do, and I continued to work toward that goal. I didn't let an opportunity change what I knew in my heart was what I really wanted to do and that was investing. If you know what you want to do, don't be derailed by advice, however well-meaning, that you should change your course. I was fortunate to work for a female CIO at Bowdoin, and it was really important to see that as a possibility.

It is really important not only to encourage women to go into investments, but also to support them throughout their career, especially at the point when they want to have children or volunteer. That is not always the case today. If we're really going to do something about not having enough women in investments, we have to acknowledge the issues and address them in a more serious and more direct way.

Learn more about Top 30 Rising Stars At Foundations on Trusted Insight.