Ana Marshall is the chief investment officer and vice president of the William and Flora Hewlett Foundation, which leverages it’s $9.04 billion in assets under management to fight climate change and improve global development. Previously, Marshall served as a senior portfolio manager at RCM Capital Management and as a emerging market debt and equity portfolio manager at Bank of America.
Ms. Marshall was recently named to Trusted Insight’s ranked list of the Top 30 Chief Investment Officers At Foundations. She graciously spoke with Trusted Insight on Oct. 29. This interview has been edited and condensed for clarity.
Trusted Insight: How did you transition into the realm of foundation investing?
Ana Marshall: I was a global equity fund manager, and prior to that, I had been an emerging market and high-yield credit manager. I decided in 2003 that I wanted to do something different and go work for the non-profit sector. It was as the sector was becoming far more professional. Basically I wanted to do what I love doing, which is investing, but I wanted to do it for a good cause. The Hewlett Foundation was right at the point of selling down and diversifying out of the donor stock into a fully diversified portfolio. That's when I joined.
TI: What is your investment philosophy?
AM: My investment philosophy is basically to have a long-term view, find the highest quality managers you can, have a concentrated portfolio so that you fully understand what your managers are doing, and what assets are in your portfolio underlying your manifest.
TI: What would you look for in a good manager?
AM: Most of the foundations managers have been in our portfolio for a really long time. We look for consistency in their ability to generate excess return. We look for a strong team, a team that can combine knowledge about asset classes, insight on specific investments and can communicate those clearly.
TI: One of the unique characteristics of foundations is that you have no incoming cash flow.
AM: Right. That's a big challenge.
TI: With $9 billion in assets under management, is that still a concern for the Hewlett Foundation?
AM: Oh, it's a concern. It's a concern regardless of the size of the institution.
Everybody puts endowments and foundations in the same boat. They start saying, "Endowments, foundations, family offices, you're all the same thing." The only thing that's the same is that we all have a long-term investment horizon.
Once you get past that part, foundations cannot borrow to invest without tax implications, and we also don't have any additional funds coming in. Unlike foundations where there is a live donor -- like Skoll, Omidyar or Bloomberg, where the donor can still write a check into the fund -- Foundations, like Hewlett, don't have that option, and we still have to pay out 5.25% on a rolling three year, regardless. It does constrain your liquidity more than if you're an endowment, and certainly more than if you're in a family office.
TI: Tell me about how your portfolio differs from your peer institutions?
AM: I would say the biggest difference is, we probably run liquidity as close to what the endowments run without taking excessive liquidity risk. We have a mature private equity portfolio and venture portfolio, natural resources and real estate. That portfolio is roughly 35% of the book. That’s not as high as where Yale carries it, but it's good enough for us. It's a high enough level for us. We feel that we're earning enough of the liquidity premium in the top managers.
TI: It’s a tough market right now. What's your outlook for public and private markets heading into 2016?
AM: We've talked to the investment committee and the board, and we're expecting that it'll be really hard for the benchmarks to get much more than a 6% annual return for the foreseeable future. Once U.S. rates start to normalize, in however many years it takes us to get to 1% on cash, then you'll see that go up, but you just can't keep expanding risk premiums just because you need it to make your number. It just doesn't happen magically.
TI: What trends have you identified in foundation investing?
AM: Post crisis, I would say starting in 2010, we tilted the portfolio more significantly to the U.S. on the thought that the U.S. authorities basically had made the right decision, and therefore there was a higher probability of recovery. We tilted it strongly into the U.S., especially in the public equity portfolio, starting in 2010. Starting in 2011, we took down emerging markets on the theory that if there were enough compelling opportunities in the United States for U.S. investors, then we could just have our money here and not take any currency risk or macro risk.
TI: On the private side, venture capital and real estate in particular, are very hot, some say at or near peak levels. Where are you looking for sustained growth geographically and what sectors might drive that growth?
AM: I would say that it's less about looking for sustained growth right now. At this point, I'm just looking for the U.S. to have some sustained growth. I would say it's more of an issue of looking at places where there's been change created in board rooms, how technology's being adopted? It’s a lot of soft factors like that that create growth in different ways. Basically, it would be innovation, operational improvement, changes in the board room, those kinds of things. It's people who can gain market share. I don't think the top line is really going to be able to grow.
TI: Do you see that potential in any particular sector?
AM: No, it is literally company by company, manager by manager, asset class by asset class. This is why we run a concentrated portfolio. It's so we can have an active dialog with our partners about what opportunities they're seeing, and we can use that to understand how their portfolio is going to create long-term value.
TI: What's the biggest challenge that foundations face?
AM: The fact that we are in markets that are fully priced, and we have to generate 5.25% payout in a market that is fully priced. There's no expansion in multiples. There's no cash rate to earn it on. It's a really tough situation.
TI: What’s the number one lesson you’ve learned in your career as an institutional investor?
AM: The quality of your partnerships. From my perspective when I managed equities, it was the quality of management. Now it's the quality of the investor, the GP, the partner, the investment manager. How do they perceive quality? During good times and bad, how do they show that they actually have a portfolio of assets of high quality?
TI: Foundations are built around charitable giving. On one side of the coin, you must remain focused on protecting and growing the foundation’s capital. On the flip side, the Hewlett Foundation is charged with global development and fighting climate change. To what degree does foundations mission impact you personally?
AM: That's the reason I'm here. I'm here because I love money management, and I decided that instead of making institutional clients richer, I would do this so that the foundation could grow their endowment over time.
I believe in the causes. People that go work for foundations have to believe in the cause of the foundation that they're working for. I happen to be a strong advocate of our two major programs, which is our climate initiative and global development and population. To know that all of the work we do goes to fund those programs is really satisfying.
I use it a lot for recruiting. It's a big recruiting tool, because people who come have to believe that this is the way that they contribute to society. They may not be the type that can take a year off to go to Habitat for Humanity, but if they make the switch from the money management side to here, then they get the satisfaction of knowing that they're helping the world.
TI: What have I failed to ask you that I should know about either you, the foundation or foundation investing in general?
AM: Foundations, in general, are going through a stage where they're doing so much good in the world -- especially in the United States, where government seems to not be able to do anything. You have these foundations that can really step up, help and provide great services. You leave a lot of money on the table, but I wish more people who worked in money management would make the choice to help make these portfolios to be better run so that the institutions can do great work.
To learn more about the investors powering the world's top foundations, check out Trusted Insight's list of The Top 30 Chief Investment Officers At Foundations.
Ms. Marshall was recently named to Trusted Insight’s ranked list of the Top 30 Chief Investment Officers At Foundations. She graciously spoke with Trusted Insight on Oct. 29. This interview has been edited and condensed for clarity.
Trusted Insight: How did you transition into the realm of foundation investing?
Ana Marshall: I was a global equity fund manager, and prior to that, I had been an emerging market and high-yield credit manager. I decided in 2003 that I wanted to do something different and go work for the non-profit sector. It was as the sector was becoming far more professional. Basically I wanted to do what I love doing, which is investing, but I wanted to do it for a good cause. The Hewlett Foundation was right at the point of selling down and diversifying out of the donor stock into a fully diversified portfolio. That's when I joined.
TI: What is your investment philosophy?
AM: My investment philosophy is basically to have a long-term view, find the highest quality managers you can, have a concentrated portfolio so that you fully understand what your managers are doing, and what assets are in your portfolio underlying your manifest.
TI: What would you look for in a good manager?
AM: Most of the foundations managers have been in our portfolio for a really long time. We look for consistency in their ability to generate excess return. We look for a strong team, a team that can combine knowledge about asset classes, insight on specific investments and can communicate those clearly.
TI: One of the unique characteristics of foundations is that you have no incoming cash flow.
AM: Right. That's a big challenge.
TI: With $9 billion in assets under management, is that still a concern for the Hewlett Foundation?
AM: Oh, it's a concern. It's a concern regardless of the size of the institution.
Everybody puts endowments and foundations in the same boat. They start saying, "Endowments, foundations, family offices, you're all the same thing." The only thing that's the same is that we all have a long-term investment horizon.
Once you get past that part, foundations cannot borrow to invest without tax implications, and we also don't have any additional funds coming in. Unlike foundations where there is a live donor -- like Skoll, Omidyar or Bloomberg, where the donor can still write a check into the fund -- Foundations, like Hewlett, don't have that option, and we still have to pay out 5.25% on a rolling three year, regardless. It does constrain your liquidity more than if you're an endowment, and certainly more than if you're in a family office.
TI: Tell me about how your portfolio differs from your peer institutions?
AM: I would say the biggest difference is, we probably run liquidity as close to what the endowments run without taking excessive liquidity risk. We have a mature private equity portfolio and venture portfolio, natural resources and real estate. That portfolio is roughly 35% of the book. That’s not as high as where Yale carries it, but it's good enough for us. It's a high enough level for us. We feel that we're earning enough of the liquidity premium in the top managers.
TI: It’s a tough market right now. What's your outlook for public and private markets heading into 2016?
AM: We've talked to the investment committee and the board, and we're expecting that it'll be really hard for the benchmarks to get much more than a 6% annual return for the foreseeable future. Once U.S. rates start to normalize, in however many years it takes us to get to 1% on cash, then you'll see that go up, but you just can't keep expanding risk premiums just because you need it to make your number. It just doesn't happen magically.
TI: What trends have you identified in foundation investing?
AM: Post crisis, I would say starting in 2010, we tilted the portfolio more significantly to the U.S. on the thought that the U.S. authorities basically had made the right decision, and therefore there was a higher probability of recovery. We tilted it strongly into the U.S., especially in the public equity portfolio, starting in 2010. Starting in 2011, we took down emerging markets on the theory that if there were enough compelling opportunities in the United States for U.S. investors, then we could just have our money here and not take any currency risk or macro risk.
TI: On the private side, venture capital and real estate in particular, are very hot, some say at or near peak levels. Where are you looking for sustained growth geographically and what sectors might drive that growth?
AM: I would say that it's less about looking for sustained growth right now. At this point, I'm just looking for the U.S. to have some sustained growth. I would say it's more of an issue of looking at places where there's been change created in board rooms, how technology's being adopted? It’s a lot of soft factors like that that create growth in different ways. Basically, it would be innovation, operational improvement, changes in the board room, those kinds of things. It's people who can gain market share. I don't think the top line is really going to be able to grow.
TI: Do you see that potential in any particular sector?
AM: No, it is literally company by company, manager by manager, asset class by asset class. This is why we run a concentrated portfolio. It's so we can have an active dialog with our partners about what opportunities they're seeing, and we can use that to understand how their portfolio is going to create long-term value.
TI: What's the biggest challenge that foundations face?
AM: The fact that we are in markets that are fully priced, and we have to generate 5.25% payout in a market that is fully priced. There's no expansion in multiples. There's no cash rate to earn it on. It's a really tough situation.
TI: What’s the number one lesson you’ve learned in your career as an institutional investor?
AM: The quality of your partnerships. From my perspective when I managed equities, it was the quality of management. Now it's the quality of the investor, the GP, the partner, the investment manager. How do they perceive quality? During good times and bad, how do they show that they actually have a portfolio of assets of high quality?
TI: Foundations are built around charitable giving. On one side of the coin, you must remain focused on protecting and growing the foundation’s capital. On the flip side, the Hewlett Foundation is charged with global development and fighting climate change. To what degree does foundations mission impact you personally?
AM: That's the reason I'm here. I'm here because I love money management, and I decided that instead of making institutional clients richer, I would do this so that the foundation could grow their endowment over time.
I believe in the causes. People that go work for foundations have to believe in the cause of the foundation that they're working for. I happen to be a strong advocate of our two major programs, which is our climate initiative and global development and population. To know that all of the work we do goes to fund those programs is really satisfying.
I use it a lot for recruiting. It's a big recruiting tool, because people who come have to believe that this is the way that they contribute to society. They may not be the type that can take a year off to go to Habitat for Humanity, but if they make the switch from the money management side to here, then they get the satisfaction of knowing that they're helping the world.
TI: What have I failed to ask you that I should know about either you, the foundation or foundation investing in general?
AM: Foundations, in general, are going through a stage where they're doing so much good in the world -- especially in the United States, where government seems to not be able to do anything. You have these foundations that can really step up, help and provide great services. You leave a lot of money on the table, but I wish more people who worked in money management would make the choice to help make these portfolios to be better run so that the institutions can do great work.
To learn more about the investors powering the world's top foundations, check out Trusted Insight's list of The Top 30 Chief Investment Officers At Foundations.