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CIO David Erickson Explains Strategic Allocation Increase To Public, Private Equity | Ascension Investment Management | Q&A

by trusted insight posted 3weeks ago 1239 views
David Erickson is the chief investment officer at Ascension Investment Management, where he oversees the administration, management, and coordination of all investments, totaling approximately $50 billion in assets. Prior to joining Ascension Investment Management, he served as chief investment officer at the University of Wisconsin Foundation in Madison, Wisconsin, where he supervised an investment team that managed more than $2.2 billion in assets.

In this interview, he discussed how Ascension broadly increased its strategic allocation to equities; why the investment office will operate with a more hybrid approach going forward; and credits Ascension’s governance structure for being supportive and fast-moving.

David Erickson was named to Trusted Insight's 2021 Top Health System Chief Investment Officers.

Trusted Insight: Can give us a summary of Ascension Investment Management and your role there?

David Erickson: I'm the chief investment officer for AIM, but my role is a little bit different from that of a traditional CIO. I manage the company as well as the investment strategy. Our company is registered as an investment adviser with the SEC, so we have the ability to work with outside clients. Traditionally, we worked with Ascension and healthcare-related assets. Now we have the ability to invest for and collaborate with other Catholic-related groups that are investing the same way that we do: investing using diversified strategies while also adhering to Catholic values. We have a very specific socially responsible investment guideline process.
 

"One of the big changes that happened in 2020 was that many technologies accelerated as we were going through the shock of the pandemic."


We have 30 people on staff at AIM. Roughly half of those are investment-related staff, while the other half is made up of operations, legal/compliance, and support staff. We also have a client service group that helps us manage our clients.

Trusted Insight: During an interview with Trusted Insight in 2019, you mentioned that you wanted to increase your allocations to venture capital, as well as reevaluate the way your team considered public equities. Have you made some shifts in the past two years?

David Erickson: Yes. One of the big changes that happened in 2020 was that many technologies accelerated as we were going through the shock of the pandemic. As an example, we started seeing that within Ascension’s health system, there were developments in technologies like telemedicine that were significant game changers.

We believed the acceleration we saw with Zoom and telemedicine would impact all kinds of industries. And on the flip side, we knew there were going to be disrupted industries, as well—a negative side to the acceleration. This allowed us not only to make the shifts we've been talking about making, but also to hit a reset button and say to ourselves, "We probably need to make some changes a little bit faster than we might have done in the past, because the environment has undergone such tremendous change.”
 

"The asset classes where we could find the most benefit from all this change were most likely going to be in public equities and private equity, so we broadly increased our strategic allocation to equities overall."


As new technologies come forward much more quickly, we realized that we want to be gaining ownership in those companies. That is, we want to be involved and invested in those accelerating areas and stay out of areas that are being disrupted. We concluded that the asset classes where we could find the most benefit from all this change were most likely going to be in public equities and private equity, so we broadly increased our strategic allocation to equities overall, particularly in public equities.

Next, we wanted to be very specific with our managers, and make sure they understood that we're not just evaluating companies based on fundamental analysis or some other bottom-up method, but that we’re really trying to take more of a top-down perspective and think ahead to the disruptive changes we're going to see over the next three to five years. That helped us adjust some of our public equity managers.
 

"We'll still have office space where we can meet once we've been vaccinated and all that. But to go completely back to the way things were a year ago would be going backwards. I don’t think that will ever happen."


We also shifted things in the private space, and within our team. We're all working from home and traveling less, so we were able to take some of our team members who were specialists and have them overlap with teammates in other areas. We talked to our specialists and said, "Hey, let's share on calls. We're all at home more. Rather than traveling to go see someone in their office, we can have six people on a Zoom call, and then we can all discuss it afterward." So I think that has created some change for us, as well as offering more perspective and different insights than we would have had in the past.

Trusted Insight: What’s your outlook on collaboration between these new and disruptive technology companies and the larger, traditional players such as your health system or other large insurance companies? Is that something you now expect to see more of sooner rather than later?

David Erickson: Yes. On every level, I think everything's moving faster. I keep hearing some people say, "Things will go back normal once the pandemic is over," and then as an example, they point out that people will miss being in the office and being together—because as good as they are, Zoom calls are still impersonal. But this is just Phase One of Zoom. We don't know how it will evolve. I think I saw someone online post a question asking, "Do we think by 2023, we'll still be doing these Zoom calls, or will it be a hybrid model, or will we be back to normal?" I think it's really hard to anticipate what things are going to be like in 2023 because Zoom or other online capabilities will most likely look different. I don't know if virtual reality will be an element of it, or if our screens will be different, but it's hard to anticipate how those changes will occur.

At AIM, we're now working from home on a more permanent basis, with a hybrid approach going forward. We'll still have office space where we can meet once we've been vaccinated and all that. But to go completely back to the way things were a year ago would be going backwards. I don’t think that will ever happen.
 

"I've been blessed at AIM, in that my governance has been very supportive; it’s one of the only times in my career that my governance will sometimes move faster than I do."


Will we travel the same? Will we shop the same? No, all of that is going to change. But what's harder to see is how these changes will happen in the technologies we don't even really know about yet. We know that they're coming, and we know that they'll improve. There are things being developed now that will be mainstream two years from now, and the idea of going back to what was normal a year ago will just never make sense anymore.

Trusted Insight: You mentioned reorganizing your managers. Do you have a preference for a smaller, concentrated group of managers, or does your size require a larger set?

David Erickson: I think all of us who are managing larger portfolios talk about the problem of having too many managers and say we’d like to concentrate. But when you try to execute it, it's hard. We've been raised on diversification, so concentration is always something you try to avoid. But we're certainly trying. And now, with the pandemic and working from home, we're probably focused a lot more on groups that we've known in the past. So we might have more multiple assignments with some groups that we know well, just so that we don't have to start from scratch on due diligence.

But what always ends up happening is that there'll be a really unique situation where you might want a toehold investment: something that you might want to grow over time. So it's this constant struggle of, "Let's simplify. Let's try to really concentrate so that we can really perform deep dives with fewer managers”—and then life happens and opportunities come up, and you always have these two or three niche opportunities that you just can't afford to pass up. That's always going to be an ongoing struggle. We don't have so many managers that we can't do good due diligence and monitoring with existing staff.

Trusted Insight: When you joined Ascension, you helped build out the team and its program. Is there any advice that you can share with some of the folks who are stepping up to build a robust program?

David Erickson: That's a great question. I think it starts with trying to understand your governance as best as possible. I've been blessed at AIM, in that my governance has been very supportive; it’s one of the only times in my career that my governance will sometimes move faster than I do. Spending as much one-on-one time with your committee and the people who are involved with your governance process—I think that goes a long, long way.

In terms of building a staff, I've always tried to hire people who are smarter than me, and then give them the ability to do their jobs and stay out of their way. I also found that if you have five people on staff, you think you really need 10. And when you have 10 people, you feel like you need 15. The need was always going to grow. The trick is not having more people but having the right people. So my advice is: focus on what you want to do really well. Don’t try to replicate what some other group or team is doing. Pick your specialties and be as excellent at those as you can be.

Finally, I think every organization’s culture is a bit different. Finding people who fit that culture—that sounds obvious. But if you want to be able to go to work each day with people you look forward to seeing, then you have to spend a ton of time trying to get to know them. Culture and collaboration are what give you support when things are tough. People are more open and work harder when they feel included in the culture, and I think that ultimately leads to better results.

Trusted Insight: What else can you tell us about initiatives at Ascension?

David Erickson: We’re still focused on trying to be leaders in socially responsible and impact investing. It's hard to do. We don't want to sacrifice returns, yet we want to have measurable impact—either from an environmental perspective or from a social perspective—by helping those who are poor and vulnerable. We've been doing impact investing for some time and I couldn’t be prouder of the group we've put together and the investments we have. It may not be 10% of our clients’ portfolios—that would be a very large amount to allocate, and we'd probably have to stretch the definition of “impact” if we did that. But we're doing it at a level we think is appropriate. Right now, we’re looking back at our investments, and the impacts that we're seeing are inspiring. We're helping to create market solutions that are sustainable for the long run such housing, food, clean energy and healthcare.

For example, one of our impact investments is a pharmacy company in Africa. The original thesis of this investment was to provide safe pharmaceuticals to people in the region. But there was also a side business in telemedicine that was going to operate in their pharmacies. Today, telemedicine is becoming one of their leading services because people can't travel and because they want to be able to get medicines to people who either have COVID or need testing. This back-and-forth through telemedicine is now going to be a huge part of their business. It's going to transform healthcare in this part of Africa, and it's been a good investment for our clients, as well. So I just keep encouraging people to take a portion of their portfolios and really pursue investments that align with your values. There are some very good deals out there.

I think a lot of investors are getting more interested in doing ESG and impact investing. Our experience has been very positive. So the message I'd like to put out is that if there are other institutional investors out there who are thinking about this seriously, they should certainly come talk to me about it. That's the one big thing I'd like to promote, and what I want my legacy to be: the conviction that impact investing can be done.

View our full catalog of interviews here

The full list of 2021's Top Health System Chief Investment Officers can be found here

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