Colin Ambrose is the chief investment officer at the UJA-Federation of New York, which has $1.4 billion in assets under management. Previously, Ambrose was the chief investment officer at The Juilliard School where he started the investment office. Ambrose holds a B.A. from Wesleyan University and an MBA from Rensselaer Polytechnic Institute.
Mr. Ambrose was recently named to Trusted Insight’s ranked list of the Top 30 Endowment Chief Investment Officers. He graciously spoke with Trusted Insight on March 1, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: What is the key to success for endowment chief investment officer?
Colin Ambrose: The key to being a successful endowment CIO is to know your institution's risk tolerance and be able to weather the invariable storm. Oftentimes, the best returns are built during periods of market dislocations when it's difficult to stay the course. Your institution needs to be comfortable with your asset allocation and capable of staying the course during periods of market volatility, because weak hands will result in getting whipsawed.
TI: How has UJA managed to stay the course despite current volatility and uncertainty?
CA: We have a long-term orientation and buy-in from our Committee on our strategic policy portfolio and the risk-return objectives for the pool of capital. We have targets and ranges for how we want to allocate capital and we don’t concern ourselves with short-term volatility. We keep the Committee engaged so we are all on board from the entry point of investments.
Typically, we review what we think could go wrong ahead of time and discuss our potential concerns upfront. Conversely, we discuss circumstances where we would add to a strategy, so when we see a pullback and the opportunity is still attractive, we are able to put additional money to work.
TI: What trends have you identified that are shaping endowment investing?
CA: In a low-return environment, beta is not providing enough returns, and investors are focused on extracting alpha from their hedge funds and allocating more to private equity. It's not a change for us as we have half of our portfolio invested in alpha-seeking hedge funds and private equity strategies. We continue to invest in private capital strategies so we can take advantage of the liquidity premium as long-term investors.
TI: Tell me about the UJA Federation portfolio and how you have adapted it to achieve your desired risk-return profile in the near term, while still maintaining your long-term perspective.
CA: We have an equity-biased portfolio that's diversified by asset class, strategy and manager. We designed our portfolio to achieve attractive returns throughout market cycles, while minimizing the risk of permanent impairment of capital. As investors with a permanent capital base, we focus on the long term and are able to tolerate short-term mark-to-market volatility. Our long-term mindset matches our capital, which is intended to last for generations. As patient investors, we don’t worry about short-term market gyrations or focus on short-term performance.
TI: You managed alternative assets at Wesleyan, and the entire portfolio at Juilliard. What insights into private markets, as opposed to public markets, did you gain during those previous experiences that you're now applying with the Federation?
CA: My experience has taught me that while private markets are cyclical, you cannot time private market investing. It is impossible to know in advance which vintage years will be better than others. Therefore, it makes sense to back the best managers throughout market cycles. Consistent exposure to the best managers over time provides natural vintage year diversification and is the best way to build a successful private equity program.
TI: What are the key characteristics you look for in a manager investing in private markets as opposed to public markets?
CA: Smart, ethical people are key in both private and public investing. In private investing you are committing for ten-plus years and don’t have the flexibility to change your mind. It is critical to partner with high-integrity people who respect their LPs and whose terms reflect a true alignment of interest with their investors. We look for private investors with deep specialized expertise who are experienced in executing their strategy. We back investors who pursue value-added strategies and provide operational expertise in addition to financial expertise.
TI: There are a lot of savvy managers out there. How do you parse the great from the good?
CA: We spend a lot of time with the team, trying to understand their investment philosophy, culture of risk taking and whether their process is repeatable. We partner with managers who are intellectually honest, humble and continuously looking to learn and improve. We avoid managers with excess hubris who have rigid mindsets.
TI: What keeps you up at night?
CA: I'm a worrier by nature, so I'm always thinking about what could go wrong. We have a well-diversified portfolio so that no individual manager will hurt us too much. I'm more worried about the macro systemic risks. I worry that zero and negative interest rate will not end well.
TI: Long periods of zero or negative interest rates is unprecedented. It's hard to plan if you don't know what the interest rate environment is going to be like in the future. To what degree is that affecting your overall strategy?
CA: We have plenty of diversification in our portfolio. We have several flexible mandate allocations with managers who invest across the capital stack who can change their asset allocation when opportunities shift. They invest on our behalf a lot quicker than we can make a discreet call to add to an allocation. Although we are able to make tactical allocations, we typically rely on our managers to proactively take advantage of market dislocations because dislocations happen quickly.
TI: Let's talk about your career history. You began your career with UBS Paine Webber's Asset Management. Eventually, you ran alternative investments at your alma mater Wesleyan, and then became the first CIO at the Juilliard School. What attracted you to the world of endowment investing? What has kept you around?
CA: I was an institutional consultant covering many clients with different portfolios and different objectives. While this was a great experience, I found myself wanting to dig more deeply into the investments. The opportunity to concentrate on one portfolio and focus more closely on the underlying strategies really appealed to me. Also, the ability to give back to Wesleyan made it a great fit for me personally.
Working at an endowment is an enormously gratifying experience. You get to satisfy your intellectual curiosity for evaluating interesting investment opportunities while investing and meeting with the best investors in the world. It is personally rewarding to know that the institution you work for is using the endowment to help people in need and make the world a better place.
TI: Tell me about the dynamic of the UJA Federation investment team.
CA: We are a collaborative team of generalists who meet daily and work closely together. We have dedicated weekly meetings to discuss the macro environment, our pipeline of opportunities, portfolio monitoring and our ongoing projects. While we have a point person on each manager, we share calendars and meetings are open to the entire team. After each manager meeting, we all write our insights and then discuss our viewpoints together later. This allows everyone's voice to be heard and enables us to work through our pipeline of opportunities in a disciplined manner.
TI: When you were thinking about building the investment team, why shift more toward a generalist approach as opposed to more specialized?
CA: We're a small team managing a focused portfolio. We don't have a large number of manager relationships. Utilizing a generalist approach enables everybody to be intricately involved in the whole portfolio.
TI: Who do you look up to within the world of investment that has influenced your investment philosophy?
CA: When I first joined Wesleyan's endowment office, my first assignment was to read David Swensen's book, Pioneering Portfolio Management. The lessons learned from reading that book provided a roadmap on how to build a diversified portfolio. Ever since, I have focused on building a diversified equity-biased portfolio, partnering with managers who share an alignment of interest and focusing on our competitive advantages and not worrying about what everybody else is doing.
TI: What aspects of your portfolio do you model after that style, and how have you diverged from it?
CA: We keep it simple and follow the same investment philosophy. We have a diversified equity-biased portfolio invested with trustworthy partners. We focus on our strengths and competitive advantages and don’t worry about others.
TI: What sets the Federation investment office apart from other institutions?
CA: We have a long-term orientation with a good governance structure and a strong Investment Committee. Our Investment Committee’s relationships and the reputation of UJA and its mission open doors to terrific investment opportunities for us.
TI: What makes a good governance structure, at least in terms of the UJA Federation?
CA: A good governance structure starts with a clear articulation of roles and responsibilities. It is critically important that the Investment Committee and the Investment Office work closely together and have the same risk-return objectives and tolerance for drawdowns in the portfolio.
TI: What’s the number one lesson you’ve learned in your career as an institutional investor?
CA: I'm still learning every day, which is what makes this job great. It's hard to boil it down to one lesson, but if forced to, I think CIOs should worry about the consequences of a low-probability event occurring. It's not the probability of the disastrous event occurring, but the consequences of it occurring. You need to ask yourself, "If this low-probability event happens, can our institution live with the negative outcome?" If the answer is no, then don't invest. You owe it to your institution to always live to fight another day.
To learn more about the the Top 30 Endowment Chief Investment Officers, click here.
Mr. Ambrose was recently named to Trusted Insight’s ranked list of the Top 30 Endowment Chief Investment Officers. He graciously spoke with Trusted Insight on March 1, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: What is the key to success for endowment chief investment officer?
Colin Ambrose: The key to being a successful endowment CIO is to know your institution's risk tolerance and be able to weather the invariable storm. Oftentimes, the best returns are built during periods of market dislocations when it's difficult to stay the course. Your institution needs to be comfortable with your asset allocation and capable of staying the course during periods of market volatility, because weak hands will result in getting whipsawed.
TI: How has UJA managed to stay the course despite current volatility and uncertainty?
CA: We have a long-term orientation and buy-in from our Committee on our strategic policy portfolio and the risk-return objectives for the pool of capital. We have targets and ranges for how we want to allocate capital and we don’t concern ourselves with short-term volatility. We keep the Committee engaged so we are all on board from the entry point of investments.
Typically, we review what we think could go wrong ahead of time and discuss our potential concerns upfront. Conversely, we discuss circumstances where we would add to a strategy, so when we see a pullback and the opportunity is still attractive, we are able to put additional money to work.
TI: What trends have you identified that are shaping endowment investing?
CA: In a low-return environment, beta is not providing enough returns, and investors are focused on extracting alpha from their hedge funds and allocating more to private equity. It's not a change for us as we have half of our portfolio invested in alpha-seeking hedge funds and private equity strategies. We continue to invest in private capital strategies so we can take advantage of the liquidity premium as long-term investors.
TI: Tell me about the UJA Federation portfolio and how you have adapted it to achieve your desired risk-return profile in the near term, while still maintaining your long-term perspective.
CA: We have an equity-biased portfolio that's diversified by asset class, strategy and manager. We designed our portfolio to achieve attractive returns throughout market cycles, while minimizing the risk of permanent impairment of capital. As investors with a permanent capital base, we focus on the long term and are able to tolerate short-term mark-to-market volatility. Our long-term mindset matches our capital, which is intended to last for generations. As patient investors, we don’t worry about short-term market gyrations or focus on short-term performance.
TI: You managed alternative assets at Wesleyan, and the entire portfolio at Juilliard. What insights into private markets, as opposed to public markets, did you gain during those previous experiences that you're now applying with the Federation?
CA: My experience has taught me that while private markets are cyclical, you cannot time private market investing. It is impossible to know in advance which vintage years will be better than others. Therefore, it makes sense to back the best managers throughout market cycles. Consistent exposure to the best managers over time provides natural vintage year diversification and is the best way to build a successful private equity program.
TI: What are the key characteristics you look for in a manager investing in private markets as opposed to public markets?
CA: Smart, ethical people are key in both private and public investing. In private investing you are committing for ten-plus years and don’t have the flexibility to change your mind. It is critical to partner with high-integrity people who respect their LPs and whose terms reflect a true alignment of interest with their investors. We look for private investors with deep specialized expertise who are experienced in executing their strategy. We back investors who pursue value-added strategies and provide operational expertise in addition to financial expertise.
TI: There are a lot of savvy managers out there. How do you parse the great from the good?
CA: We spend a lot of time with the team, trying to understand their investment philosophy, culture of risk taking and whether their process is repeatable. We partner with managers who are intellectually honest, humble and continuously looking to learn and improve. We avoid managers with excess hubris who have rigid mindsets.
TI: What keeps you up at night?
CA: I'm a worrier by nature, so I'm always thinking about what could go wrong. We have a well-diversified portfolio so that no individual manager will hurt us too much. I'm more worried about the macro systemic risks. I worry that zero and negative interest rate will not end well.
TI: Long periods of zero or negative interest rates is unprecedented. It's hard to plan if you don't know what the interest rate environment is going to be like in the future. To what degree is that affecting your overall strategy?
CA: We have plenty of diversification in our portfolio. We have several flexible mandate allocations with managers who invest across the capital stack who can change their asset allocation when opportunities shift. They invest on our behalf a lot quicker than we can make a discreet call to add to an allocation. Although we are able to make tactical allocations, we typically rely on our managers to proactively take advantage of market dislocations because dislocations happen quickly.
TI: Let's talk about your career history. You began your career with UBS Paine Webber's Asset Management. Eventually, you ran alternative investments at your alma mater Wesleyan, and then became the first CIO at the Juilliard School. What attracted you to the world of endowment investing? What has kept you around?
CA: I was an institutional consultant covering many clients with different portfolios and different objectives. While this was a great experience, I found myself wanting to dig more deeply into the investments. The opportunity to concentrate on one portfolio and focus more closely on the underlying strategies really appealed to me. Also, the ability to give back to Wesleyan made it a great fit for me personally.
Working at an endowment is an enormously gratifying experience. You get to satisfy your intellectual curiosity for evaluating interesting investment opportunities while investing and meeting with the best investors in the world. It is personally rewarding to know that the institution you work for is using the endowment to help people in need and make the world a better place.
TI: Tell me about the dynamic of the UJA Federation investment team.
CA: We are a collaborative team of generalists who meet daily and work closely together. We have dedicated weekly meetings to discuss the macro environment, our pipeline of opportunities, portfolio monitoring and our ongoing projects. While we have a point person on each manager, we share calendars and meetings are open to the entire team. After each manager meeting, we all write our insights and then discuss our viewpoints together later. This allows everyone's voice to be heard and enables us to work through our pipeline of opportunities in a disciplined manner.
TI: When you were thinking about building the investment team, why shift more toward a generalist approach as opposed to more specialized?
CA: We're a small team managing a focused portfolio. We don't have a large number of manager relationships. Utilizing a generalist approach enables everybody to be intricately involved in the whole portfolio.
TI: Who do you look up to within the world of investment that has influenced your investment philosophy?
CA: When I first joined Wesleyan's endowment office, my first assignment was to read David Swensen's book, Pioneering Portfolio Management. The lessons learned from reading that book provided a roadmap on how to build a diversified portfolio. Ever since, I have focused on building a diversified equity-biased portfolio, partnering with managers who share an alignment of interest and focusing on our competitive advantages and not worrying about what everybody else is doing.
TI: What aspects of your portfolio do you model after that style, and how have you diverged from it?
CA: We keep it simple and follow the same investment philosophy. We have a diversified equity-biased portfolio invested with trustworthy partners. We focus on our strengths and competitive advantages and don’t worry about others.
TI: What sets the Federation investment office apart from other institutions?
CA: We have a long-term orientation with a good governance structure and a strong Investment Committee. Our Investment Committee’s relationships and the reputation of UJA and its mission open doors to terrific investment opportunities for us.
TI: What makes a good governance structure, at least in terms of the UJA Federation?
CA: A good governance structure starts with a clear articulation of roles and responsibilities. It is critically important that the Investment Committee and the Investment Office work closely together and have the same risk-return objectives and tolerance for drawdowns in the portfolio.
TI: What’s the number one lesson you’ve learned in your career as an institutional investor?
CA: I'm still learning every day, which is what makes this job great. It's hard to boil it down to one lesson, but if forced to, I think CIOs should worry about the consequences of a low-probability event occurring. It's not the probability of the disastrous event occurring, but the consequences of it occurring. You need to ask yourself, "If this low-probability event happens, can our institution live with the negative outcome?" If the answer is no, then don't invest. You owe it to your institution to always live to fight another day.
To learn more about the the Top 30 Endowment Chief Investment Officers, click here.