Baylor University Identifying 'Prudent Ways' To Add Alpha | Renee Hanna, Director of Investments, Private Investments | Q&A
Renee Hanna joined the Baylor University Office of Investments in May of 2008. She currently serves as director of investments and is responsible for the investment and management of the private equity and real asset allocations. In this interview, she discussed how Baylor's investment office identifies ways to add incremental alpha; the multi-year effort in building out their venture program; and why she believes investor peers should stick together and exchange market insights.
Renee Hanna was named on Trusted Insight's Top 30 Investors At Next-Generation Leading Endowments.
Trusted Insight: It’s been about three years since you interviewed with Trusted Insight. What are some notable changes at Baylor in the last 1-3 years?
Renee Hanna: As an office, we consistently look for ways to maximize value and improve portfolio construction. The buildout of our portfolio has been intentional and transpired over time as we identified prudent ways to add incremental alpha. I think about the portfolio in stages: version 1.0) establish a foundation of balanced exposure, version 2.0) identify and lean into sectors with specialized GPs focused on the lower middle market, and version 3.0) increase concentration to our best ideas through larger commitments and co-investments.
"When we last spoke, we were in the early stages of increasing exposure to venture capital... The program is in its infancy, but early results are promising."
Given the illiquidity of private investments and the multi-year investment period, we tend to address tactical opportunities in our marketable portfolio. However, when dislocations present asymmetric upside in the private sector, we have been able to quickly assess and underwrite co-investment deals with high conviction GPs. A good example of this occurred a couple years ago. On the heels of the oil and gas decline, we were able to evaluate and invest in roughly $30 million of direct investments, both upstream and midstream, alongside top tier GPs to increase our exposure on an attractive basis.
Trusted Insight: In your previous interview, you mentioned that an important piece of our private equity book is venture capital. Can you share more on the development of your VC program?
Renee Hanna: When we last spoke, we were in the early stages of increasing exposure to venture capital. Prior to 2014, we had accessed venture thru fund of funds and for a variety of reasons were seeking to increase exposure to the asset class through GPs directly. It’s been a multi-year effort that consisted of dozens of roads trips, close to a hundred meetings, calls with industry veterans, among others to assess the market, select the firms we believe to have the relationships to generate the types of returns necessary to justify the risk of early-stage investing and create a portfolio diversified by stage, sector, and geography. The program is in its infancy, but early results are promising.
"We are big believers in the idea that “there is nothing new under the sun." An example would be private credit, which has grown as an endowment asset category."
Trusted Insight: What’s your outlook on machine learning and AI in the investment office? Is it an area that the organization is focused on?
Renne Hanna: Access to data and the analysis of such is changing the way companies do business. AI & Machine Learning are critical components of this shift. We select GPs with deep domain expertise across industry verticals with attractive market opportunities and rely on them to select the right companies that will ultimately go on to be market leaders in their respective categories. These two categories are no different and are generally being accessed through our VC managers.
Trusted Insight: What investment trends or verticals within the university endowment space do you think are important to keep an eye on?
Renne Hanna: We are big believers in the idea that “there is nothing new under the sun." An example would be private credit, which has grown as an endowment asset category. While the package or structure is different, the actual product is not any different than underwriting a bank loan or high yield offering. We will look at any new category of investment, but our underwriting process remains the same. Higher return and/or lower risk wins the day for us, regardless of the package or structure.
"I’ve been able to leverage my peers and apply the collective knowledge to make better investment decisions. This network is critical to our investment underwriting process and a tool I will continue to leverage and hope to expand."
Trusted Insight: There are talks of a low-return environment in the next 5-10 years. How has Baylor positioned itself to weather a market downturn?
Renee Hanna: Timing the markets is not something we try to do. We do assess the risk/return profile of each investment within the portfolio and will not participate when we do not feel we are adequately compensated. For marketable investments, this means we have trimmed equity exposure in favor of less correlated hedge fund exposure, such as long vol, or owning positions with idiosyncratic return drivers that present multiple ways to win in an uncertain environment. For private investments, this means raising the threshold to lock up capital, consolidating our roster of managers, and reducing the total amount of capital deployed in a given year.
Trusted Insight: What differentiates Baylor from its peers and other institutional investors?
Renee Hanna: The team. Much like the GPs we choose to partner with, it starts with the people. We have a team of 7 professionals in the office and everyone has a voice. Our internal investment committee meetings include administration professionals to interns. There’s no room for egos and all questions are vetted before we move forward with a recommendation. We all bring something different to the table, are passionate about the mission and purpose of the endowment and are focused on generating returns that rival top endowments across the country.
Trusted Insight: What questions or topics would you like your endowment peers or investors to answer?
Renee Hanna: We see continued pressure to lower investment management fees on the marketable front but have not seen the same on the private side, despite the record number of funds in the private market. Perhaps that is because hedge funds, in particular, operate more in the public view where returns are more readily comparable. But, like all investors, we would like to see fees decline across the board so that more money is available for deserving students to attend college.
Trusted Insight: Are there any investors that you look up to and have learned a great deal from?
Renee Hanna: I’ve been at Baylor for more than 10 years. Over this time period, I have had the opportunity to interact with hundreds of GPs and LPs. In my experience, the investment community is willing to open up, compare notes, and share market intel. I’ve been able to leverage my peers and apply the collective knowledge to make better investment decisions. This network is critical to our investment underwriting process and a tool I will continue to leverage and hope to expand.
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