Ascension Investment Management Looking To Increase Venture Exposure, Focus On Disruption | David Erickson, Chief Investment Officer | Q&A
David Erickson is the chief investment officer at Ascension Investment Management, where he is responsible for the administration, management, and coordination of investments and operations. In this interview, he discusses why the organization is leaning more towards a generalist structure; why they want to increase venture exposure and focus on disruption; and encouraging diversity by onboarding international students and women as leadership staff.
David Erickson was named on Trusted Insight's 2019 Top 30 Health Care Chief Investment Officers.
Trusted Insight: It’s been a year since your last interview with us. What are some notable changes in your organization?
David Erickson: One of the things we've been thinking about is the mix between our staff, and whether a generalist or a specialist approach is best. In years past, I wanted my folks to be able to go a mile deep in an asset class and focus on building relationships. Getting the first call and knowing your asset class is really important.
On the other hand, having a generalist who can look across asset classes and say, "where are the best opportunities?" is also important. If you're a specialist, you see your area as always being attractive. Having a generalist as a check and balance is important, and a lot of times that is the role of the CIO to decide how you want to allocate. While that is certainly my role, I wanted to have more team support on the generalist side.
"This new structure has generated some really interesting ideas and challenges such as: why do we do it this way, and are there more efficient ways to allocate capital?"
So in the past year, we have created a strategy team that includes our existing managing director of Risk and Asset Allocation, and one of our asset class specialists who was promoted to managing director of Strategy & Manager Research. Our investment team is me, the strategy team, and the team members who are asset class specialists below that. This new structure has generated some really interesting ideas and challenges such as: why do we do it this way, and are there more efficient ways to allocate capital?
That has been the number one change for us in the last year – developing that balance between a specialist and a generalist approach. I still want to be able to go a mile deep in asset classes, but this might be the best area to invest our energy. That balance has been important for us and it's made an impact on our performance and our asset allocation decisions.
Trusted Insight: How closely are you focusing on the private equity class?
David Erickson: It's one of the strategies that we think is successful and we like a lot. Since I joined in 2009 our program has matured. We're getting healthy distributions from prior vintage years as we're making new contributions. Recently, we're seeing positive returns during periods of time when public markets have been negative. We're very comfortable with the private program we've built, the relationships we have, and our process of developing new relationships going forward.
We haven't been increasing allocations, even though it has been a well-performing asset class because we are mindful of liquidity for our client’s portfolios. For example, one of our clients issues debt and we need to make sure that the client is comfortable with the way their investments affect their self-liquidity debt ratios. There's always the tension. I'd love to do more private equity, but we invest for clients that need liquidity, and that's very important.
Trusted Insight: Tell us more about your venture program.
David Erickson: We do invest in venture funds. I'm glad you brought that up, because one thing that we've worked on this year is to focus on disruption. The team that heads our hedge fund area is in a really good spot to think about disruption and I’ve asked them to really focus on this theme.
"The people that are in the old technology, they're going to tell you disruption is 25 years down the road. The people that are futurists, they're telling you it's next year."
That is leading us to consider whether we want to increase our venture exposure and how do we look at public equities and other areas that we want to invest in or want to avoid. How do we deal with things like private real assets and private energy? Do we want to tie up capital in a fossil fuel investment if energy is going to be disrupted in 5-10 years? The answer to that question is especially important in our private real assets strategy.
We make a conscious effort to understand how it affects our asset classes. The people that are in the old technology, they're going to tell you disruption is 25 years down the road. The people that are futurists, they're telling you it's next year. They each have unique perspectives. It's our job to try to filter through that and say, "where is it that this disruption is coming from? How can we be investing in things today that are going to capitalize on that? And what are things that we can avoid?" which is sometimes an easier question.
Trusted Insight: Would you say that managing multiple pools of capital adds an extra layer of complexity? Does it work against you in a sense?
David Erickson: It definitely adds more complexity. The advantage that we have is the team we’ve built to address that complexity. We have a risk management and asset allocation group that now has three people. When we were hiring for the most recent position on this team, we asked candidates as many questions about their coding and programming skills as their investment experience. The person we ended up hiring has a quantitative finance degree.
"I challenge our group to relook at our processes, look at the managers we work with, and always improve. It’s never just being satisfied with the status quo."
Those abilities have really helped us, because there is a big difference between managing a long-term pool and a pension fund. The spending rates and the payouts for a pension fund will be very different from a long-term asset pool. We need to have a very definitive plan of how we're allocating the assets for those portfolios based on their objectives. For example, as interest rates fall, for a long-term asset pool we think about what we are doing with our fixed income strategy relative to a long-term return objective. For a pension portfolio, we need to consider fixed income’s role in the portfolio and as a liability hedge. Every factor affects the portfolio types differently, and we have to be on top of all of it.
I've been very fortunate that we have been able to dedicate resources to building a team that has a lot of experience and is very talented. At the end of the day, it makes us better investors. Because there are lots of issues that we have to wrestle with, our communication here has to be very open. This is just the world we live in and I think we're doing a good job of it.
Trusted Insight: Many of your health system peers are really striving for excellence. How does Ascension plan to keep that momentum and ongoing success?
David Erickson: One of the key things for me is to have identified great people to be on the staff. I make sure that they can do their job well. I have roughly 29 people on staff, and I care for each and every one of them. They're all great at their jobs. If we can stay together, our success will continue.
There are lots of implications to making sure they're challenged, making sure they're compensated fairly, and that they buy into the mission. There are value components to our work that is incredibly important. The mission is part of the deal. This is what we do, and it's our goal not just to make money at all costs, but to try to get the best return while respecting and expressing Catholic values in a way that our clients would want.
"Over the last year, our team has become more diverse. Several of our hires for entry-level positions have been international students, and a number of our key leadership staff are women."
We have to keep challenging ourselves. One of the toughest things in our industry is to change directions. As an example, if Apple changed its iPhone to incorporate new technology, people aren’t upset. However, if we change asset allocations or managers, sometimes investors view that as correcting something you’re doing wrong. I challenge our group to relook at our processes, look at the managers we work with, and always improve. It’s never just being satisfied with the status quo.
Trusted Insight: A popular topic these days is encouraging diversity in the workplace. How can institutional investors help lift the barriers to women and minorities? Is Ascension doing anything in regards to that?
David Erickson: At the University of Wisconsin, I wanted to hire people that I knew because you are already familiar with their work and personality. In terms of hiring, a lot of times that was a very successful way to go. Wisconsin’s Diversity Committee challenged me to grow beyond this mindset to get a variety of opinions and perspectives. However, even attempting to improve diversity was difficult. Many times, if I had an opening, the resumes that came in were not representative of a very diverse pool of candidates.
In response, we developed an internship program that was through a minority-based program on campus. We tried to create a more diverse candidate pool by training and using our internship program. We had several candidates that did excellent work, and they've gone on to have really interesting careers. I would like to continue those values here at Ascension. I want a balance between making sure that I get the best candidate possible and making sure that not everyone looks and acts like me so that there is a difference of opinion and different perspectives.
When we recruit, we try to recruit from different universities. During the hiring process, we talk about whether the candidate is someone who just thinks a lot like us, or is this someone who has a different perspective? Over the last year, our team has become more diverse. Several of our hires for entry-level positions have been international students, and a number of our key leadership staff are women. Whenever we hire, we talk about it as something that's a high priority for us.
It is easy sometimes just to hire someone that I know, and a lot of times that person thinks like me. The fact that we talk about it and recognize it is a step in the right direction. We just need to continue to do that work to be more diverse. I don't want a lot of yes men or yes women around me. It's something that we're striving for and we've done a fairly good job of trying to seek out lots of different candidates for positions, rather than just looking in our own backyard.
View our full catalog of interviews here.
The list of 2019 Top 30 Health Care Chief Investment Officers can be found here.