Jonathan Hook: We had a very good year last year finishing well above our targets. We typically do not announce our returns, but we finished with strong results. The portfolio has been in a building mode since late 2014 or about five months after I joined the Foundation. Prior to that, the portfolio had been outsourced to a unique multi-party OCIO effort. Beginning in late 2014, David Gilmore (who joined me from Ohio State) and I started into the portfolio transition. Over the following two years, we redeployed virtually all of the capital directly into the managers of our choosing as the OCIO effort was dismantled. Progress has been made and the effort has gone well. We still have a small amount of legacy assets left to finish up, but we are on track and ahead of the timetable that we originally laid out to our Board.

Trusted Insight: Speaking of building an investment office from scratch, when you first joined, what did you do to build the brand recognition for Weinberg Foundation in the foundation community?

Jonathan Hook: Prior to my first contact about the Foundation, I did not know about the organization and the great things it does. Most people in our line of business know about Ford, Hewlett and Packard and other important foundations. The Weinberg Foundation was not well known in the investment business because of the way our capital had been managed. Upon joining, I knew we would have to spend time and effort educating people about our mission and why we would be a great limited partner for a GP to add.

During Harry Weinberg’s life, he managed the capital and went from being a poor, immigrant’s son to a successful businessman/philanthropist. There had never been any institutional money management in the sense of what is seen with other major foundations. The past experience that both David and I had was brought to bear and we took on an active marketing campaign with managers with whom we had worked as well as new managers. This helped us rebuild the portfolio on a faster path than we might otherwise have experienced.

The foundation’s basic mission is to help those who are poor and needy. We do that through several channels from early childhood education, workforce development, helping those with developmental disabilities, veterans support, basic human needs and senior citizen support. It is a great mission with several needed areas and a terrific team leading the organization and making the grants. We have had great feedback from GP’s about the Foundation and that was very helpful to us as we worked through the transition process.

The other key aspect that was extremely helpful to our effort was the support and flexibility afforded us by our Board of Trustees. They allowed us to set up a system that was flexible, efficient, and allowed us to move quickly as we dealt with all the issues one faces when rebuilding a portfolio. Each person on the Board and our President were engaged and available as we proceeded through our process. It is terrific when one has management supporting the effort.

 

Trusted Insight: How is your portfolio split between public assets and private assets currently?

Jonathan Hook: As of December 31, 2016, we had about 37 percent in Global Equities, 24 percent in Global Credit, 36 percent in Real Estate and just 3 percent in Private Capital. The reason Private Capital is so small is because we had very little in legacy illiquid assets like venture, buyouts and energy. Nearly all of our illiquid assets were in real estate, which is also a large part of our Foundation’s legacy. Since we started our transition, we have been selectively adding illiquid commitments but the pace of funding has been slow and the time since we started has been short. Eventually those will fund up and we will build out private book in a methodical way over the next several years.

Trusted Insight: Within the 3 percent private capital allocation, what kind of funds do you commit to? Do you favor large, well-established firms or smaller, innovative ones?

Jonathan Hook: We tend to favor smaller and newer funds, but that is not to the exclusion of older or more established funds. Most of our private capital has been committed to funds that are sub-$1 billion in AUM. Small- and mid-size buyout have been an area where we have added exposure. Likewise, we have added venture and energy exposure with newer and younger firms. We are not opposed to looking at funds that are early in a firm’s lifecycle. We are also looking for firms with whom we can invest over the next several funds.
 

Trusted Insight: How many manager relationships do you have within the private market allocation?

Jonathan Hook: We have six or seven new private manager relationships at this point. Some we knew from our past portfolios and some we have gotten to know since joining the Foundation. We are spending more time on the private portfolio this year than we were able to do in the beginning. It’s a natural evolution of our portfolio effort. The initial focus was predominantly on liquid assets as we got started so we could move the process forward.

Trusted Insight: What’s your target allocation to private markets?

Jonathan Hook: Our policy limit today on Private Capital is 15 percent. That is in addition to our sizeable real estate position. We are a long way from reaching that limit but we have to always keep liquidity in mind. Funding our grants is the number one priority so we have to balance our growth and our asset allocation with “Job One”. There has been a Board directive to reduce our real estate exposure, so as we do that in the future we will build the other private asset classes. As that happens, I am sure that we will revisit our targets, as appropriate.

Trusted Insight: In your 2015 interview, when speaking of your outlook for the year ahead, you mentioned one area that interested you was emerging markets (EM), even though you hadn’t made any commitments in that area at the time. Did you make any emerging market investments in the past year?

Jonathan Hook: Yes, we have added a few managers in Asia and we may add another before the year is over. We are in the middle of a heavy dose of travel with the team in Europe last month and traveling to Asia soon. We are a bit underweight in emerging markets today, and we will likely reduce some U.S. exposure to help us add to EM.
 

Trusted Insight: Are there any countries that interest you the most?

Jonathan Hook: Our main focus in that area would be Asia. We have several good managers focusing on Europe predominantly. Where we're still a little bit short is to take some of our U.S. exposure and change it into Asia, both the larger Asian countries and the ASEAN countries.
 

Trusted Insight: Do you look at specific industries as well?

Jonathan Hook: No, we are not focused on specific industries. We have focused on managers who are regional as opposed to a single country focus. We are still getting some basic exposures into the portfolio so breadth is important. As the portfolio is rounded out, we may then look for more specific exposures or niches but not at this time.
 

Trusted Insight: What do you look for when selecting new managers for emerging markets or new private market assets?

Jonathan Hook: Several things. We look for teams who have great backgrounds with other strong firms. We prefer managers who do not use a great deal of leverage. On the private equity side, we prefer managers who focus on operating and management improvements to help grow the company. We are not interested in pure financial engineering and recapping firms to manufacture strong IRRs. We have set a high bar for our return targets and will be very selective with the managers with whom we want to partner. Given general valuations today, we think it will be a different environment to continue to garner the strong PE returns of the last decade.

While we are still in the building stage, we have to be careful with how we deploy because of our specific liquidity needs. We can't (or shouldn’t) go out and make a dozen commitments a year to build exposure. We need to have a strategic as well as a tactical component to how we build the portfolio to make sure we can meet all of our Foundation’s goals.

We are trying to be patient, but at the same time we have the ability to take advantage of opportunistic situations and move quickly to deploy capital. This is another area where the Board and Investment Committee have been very helpful and supportive. When there has been the need to move quickly to take advantage of an opportunity, we have had strong internal support backing our efforts.
 

Trusted Insight: One of this year's biggest news stories was Ford Foundation plowing $1 billion in impact investing. What’s your view on that? Do you see impact investing as a fad or a trend that people should take seriously?

Jonathan Hook: I think the question is one that each foundation should ask itself at the board level. What are the goals of the foundation? How should the mission goals align with the investment goals? Each organization is going to assess those questions a bit differently. If the Ford Foundation can find good investments that make a significant impact, they will be successful.

For our foundation, the Board has encouraged us to keep the mission and the investments separate. We have been tasked with providing the highest risk-adjusted returns that we can. We are focused on good management and best practices but we have not included any specific socially responsible goals. That is not to say that we don’t agree with or think those are bad practices. It goes back to each entity deciding what is right for their own organization.

We like our managers to operate with the best practices and we spend due diligence time probing on those issues, but we do not use a checklist or mandate a list of specific actions. If we can find good behavior and/or green practices, that would be great. Those do have to come with strong returns that we feel would be repeatable for us to want to invest.

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