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Exclusive Q&A: Baron Koch, Director of Investments, CHRISTUS Health

by trusted insight posted 2years ago 2150 views

Baron Koch is the director of investments at CHRISTUS Health. As the director of the investment portfolio, Baron is responsible for the oversight of all of the investment functions of the organization. Baron is a CFA charterholder, received his MBA from The University of Texas at San Antonio and a bachelor’s degree in finance from Trinity University.

Mr. Koch graciously spoke with Trusted Insight on September 28. The following interview has been edited for clarity.

Trusted Insight: Before joining Christus Health, you worked for financial services and insurance companies. What attracted you to the nonprofit sector?

Baron Koch: Compared to my job in the insurance industry, the portfolio here is much more built out. In the insurance world, the majority of the portfolio is invested in fixed income assets, whereas in my current role, I have more exposure to alternatives such as hedge funds, private equity, real estate, etc. Just the opportunity to work on a more well-rounded portfolio was appealing.

Trusted Insight: How did experience at those firms inform your decision making at a hospital investment office?

Baron Koch: One thing I would say about having an insurance background is insurance companies live and breathe risk. I was kind of brought up in an environment where risk was paramount, and having that background has really helped me with our current portfolio, viewing everything through a risk management lens.

Trusted Insight: Tell me a about your investment department. What are your team and investment portfolio like?

Baron Koch: We have three people on our internal investments team. Running with a relatively small team, we kind of have to be generalists by necessity. We do designate certain asset classes to the point person for the relationship but mostly for logistical reasons. For all intents and purposes, we cover all asset classes.

We run several different portfolios. We have an operating portfolio, a pension plan and a self-insurance trust. The operating fund is invested more conservatively because it is meant to support the operations of the health system, which is expanding internationally. As a result of that, we have to be mindful of cash flows so the time horizon is shorter than the pension plan. It’s something that we always have to keep in mind.

Trusted Insight: What's your view on the hedge funds' underperformance in recent years? Does that affect your investment strategy?

Baron Koch: As a result of people taking a closer look at it, there are going to be some structural changes. I'm already seeing the fee structures change and other terms starting to change, which I think is productive and necessary. As far as the long-term outlook for hedge funds, we're still very positive. I think there's value there.

I heard someone describe it recently as people getting upset with hedge funds is akin to someone getting upset with their insurance policy when they don't have an accident. That's kind of how I view it long term, is that the downside protection element is still there and the long-term viability of the asset class, by and large, is still intact.

How we're looking at it is even from the other angle, hoping that the pendulum doesn't swing too far in the other direction and the hedge funds begin to listen too much to the loud voices of their investors and take on too much beta to try and keep up with this central banker-driven market. We're looking to people who stick to their long-term strategy and continue to do what they've done throughout their history.

Trusted Insight: What do you value in fund managers? Is that specialty in one area, track record or their experience with big firms?

Baron Koch: I think it's all of the above. We certainly take different approaches depending on the asset class. For large cap equities, for example, we tend to tilt more toward the passive side where there's not as much value to be delivered. When it comes to things on the other end of the spectrum like hedge funds, I think it becomes much more important to look at all the things you said.

I would say that when we underwrite funds we err on the side of risk reduction from an operational standpoint, probably more so than most. We do really thorough due diligence on the operational aspect of the hedge funds and other alternatives to reduce that risk and make sure we are exposed only to the investment risk in the portfolio and not as much to other elements of the funds that can pose risks to our portfolio.

Trusted Insight: The current low interest environment is worrying a lot of institutional investors. Where do you see the opportunities for hospitals in the near future?

Baron Koch: It's tough, first of all. It's really tough when you look across the board and the general feeling that everything is toward the top end of the range where you'd expect it to be.

I certainly think there is opportunity in funds that have different views from the mainstream, like what I was talking about with the hedge funds. We've really trended toward an environment where everyone is reaching for return and reaching for yield and I think managers who stick to their long-term outlook and aren't afraid to be contrarian are where the opportunity lies. I think we, as allocators, have to stay disciplined in this market in order to really deliver value.

Trusted Insight: How is your investment performance living up to return goals?

Baron Koch: Over long periods of time, absolutely, the portfolio has accomplished what we set it out to accomplish. Like I was saying, the primary goal of the organization right now is expansion internationally and the portfolio has delivered adequate returns to support that strategy.

Trusted Insight: What constraints or challenges do hospital investors face in today’s market?

Baron Koch: Without getting into the political aspect of health care, regulatory changes have certainly had an impact on the revenue of our health system. It's absolutely a challenge. As investors, it's more of an input into the process for us than anything else. We can't control it. Really, all we can do is react to it and set up as efficient of a portfolio as we possibly can.

Trusted Insight: What career advice would you give to young people who aspire to enter institutional investing?

Baron Koch: I think the key to any career, and it certainly applies to investing, is constant and honest self-evaluation. I think to constantly reevaluate what you're doing and where you stand is crucial to adapting to an ever-changing environment like investing is. Having come into this industry right before the financial crisis, there really is not such a thing as a normal investing environment, so the ability to constantly evaluate where you are has proven to be critical. That would be my advice to anybody looking to be in institutional investing. If you're looking for status quo, it's not the right industry.

Trusted Insight: What's one thing that you like about hospital investment office?

Baron Koch: This is an easy one. To work for an organization where you see on a daily basis the good that they do, and to be in a position where if we do well, it literally translates into lives being saved, is something that, in my opinion, is more rewarding than financial gain.



To learn more about hospital investment office, view the full list of Top 30 Hospital Investment Office Rising Stars.

 

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