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Exclusive Q&A: Elaine Orr, Director Of Investments, Silicon Valley Community Foundation

by trusted insight posted 2years ago 14376 views

Elaine Orr is the director of investments at Silicon Valley Community Foundation. She supports the investment committee and Board in the stewardship of SVCF’s charitable capital. She partners with donors, nonprofits and their investment advisors in framing investment policies and implementing asset allocation to manage risk, return, as well as social impact. She leads the management and oversight of the individually managed fund program. Previously, she spent 15 years in portfolio strategy and client relationship roles at BlackRock. She is a Chartered Financial Analyst, and has a B.Comm in Finance from The University of British Columbia. She is a board member of Pangea Legal Services, which supports immigrants particularly in the area of deportation defense.

Elaine Orr was recently named on Trusted Insight’s list of Top 30 Foundation Rising Stars. She graciously spoke with us on Tuesday April 13, 2016. The following interview has been condensed and edited for clarity.

Trusted Insight: You've previously worked for Morningstar's Investment Management Division and developed their new global business. You also spent 15 years consulting with institutional clients on their portfolio strategies while at BlackRock. How does working for a nonprofit differ to your previous investment roles?

Elaine Orr: First of all, thank you for including me on your list of top 30 foundation rising stars!

In the for-profit world – across banking, asset management and also when I worked on the sell side with Morgan Stanley – the ratio of effort expended to resources available is pretty manageable. You've got the luxury of redefining, pivoting and changing the value proposition of the organization to a degree.

By comparison, in the nonprofit world, obviously there isn’t that ample set of resources. You can't reallocate from another subsidiary or pivot your overall strategy when you are mission-driven. At Silicon Valley Community Foundation, our key strategic initiatives are crisply defined and externally communicated. We have had those key initiatives since 2007. As a side note, we are currently going out to the community, convening stakeholders to survey what enhancements to the grantmaking and the strategic initiatives might be necessary for the next decade and beyond.

Trusted Insight: Your experience from for-profit side has also given you transferable insights. Are there any skills or lessons that you've learnt that you've brought with you into your new role in the foundation?

Elaine Orr: Actually, a lot of my colleagues and friends often ask, "Is it that dramatic going from one side to the other?" It is, and it is not.

At Silicon Valley Community Foundation, I steward the charitable investment pools within the donor advised fund program, and I lead the individually managed fund program. The latter are bespoke accounts approaching $3 billion in assets. We have five charitable pools, which every donor can access. In addition, we have a sixth pool, our endowment, which funds our strategic initiatives. All told, the six charitable pools total $7.3 billion in assets.

What was striking for me in transitioning from being the provider of the investment solution to being the asset owner is the total return challenge. And it's a really big challenge, right? You have to preserve capital and grow it enough to get through the hard times. As a solutions provider, I believed I was empathetic and understood what institutional investors needed. But it’s not until one is on the other side, as an investor, that the true fiduciary burden and challenge crystallize.

Trusted Insight: Can you tell me more about your portfolio and asset allocation?

Elaine Orr: Broadly speaking, the charitable pools have allocations that range from 10 to 35 percent to alternatives. We cover real assets, private equity, energy, timber and so forth. These are typically uncorrelated diversified strategies that tend to be illiquid, with a different horizon, risk profile and payoff to publicly listed or liquid assets. There’s an illiquidity premium that is being earned. In private equity, we also have exposures to venture capital, buyout and growth equity. It’s a really broad spectrum.

Endowments and foundations are generally experienced in the alternatives space. The field is known for patient investors with a nearly infinite time horizon. For me, part of the appeal of coming from a for-profit to nonprofit was this exposure to the broad alternatives landscape. I'm speaking within my own context, previously serving at a publicly listed company creating ETFs across multiple asset classes.

Trusted Insight: Are there any particular areas that you're looking to reposition at the moment?

Elaine Orr: In 2007, the Peninsula Community Foundation and Community Foundation Silicon Valley merged to form the Silicon Valley Community Foundation. So, as you can imagine, it started as mélange of different portfolios merging together.

Today, each of the pools has a different objective, style, look and feel. Throughout 2015, and every two years, we do an asset allocation review with our consultant, Colonial Consulting, and the investment committee. At a high level, in 2015 we reallocated somewhat from U.S. equities into international equities. We took a little out of U.S. fixed income and moved it to global fixed income. These were tweaks, not full-scale shifts.

We've been actively examining our hedge fund portfolio. The hedge fund portfolio was about 60 percent directly allocated to hedge funds and 40 percent allocated to the fund of funds. As a recent outcome of the asset allocation review and from committee discussions, we have modified the hedge fund portfolio to 75 percent direct invested and 25 percent invested in fund of funds.

We also continue to refine our private equity allocations. Like our peers, we always seek access to the very best top-tier managers. We've been looking in the mid-market buyout space for quite some time, but not with any sense of urgency. We’re re-evaluating the opportunities, as it would seem that every asset class is overpriced. The risk premium and potential return proposition has become lower and also uneven. We’ve also reasserted that we would not take any active currency hedging position; instead we leave such decisions with our managers.

Trusted Insight: Is portfolio strategy influenced in any way by the foundation's broader mission to invest in social, economic and environmental issues? Do you take that into consideration and look to invest in certain funds that are perhaps more ethical?

I agree with CalSTRs, which has stated that divestment basically takes the investor away from the table and limits one’s capacity to initiate change. Without a voice, you can't bang on the table, you can't influence.

Elaine Orr: With the support of our consultant, investment committee and staff, we continue to examine ways to enhance SVCF’s impact while delivering total investment performance. Notably, we have a dedicated social impact pool, which invests in certain environmental and social strategies. We wrestle with the pool's investment objective, much like I think any other asset owner in this space. First of all, no one has the monopoly on what is “good” and “best.” If I were to say I care about water, you might care about forests and someone else would be passionate about clean energy. It’s challenging to wrap all that up in a coherent way into a comprehensive strategy.

Our current pool has both active and passive managers. I agree with CalSTRs, which has stated that divestment basically takes the investor away from the table and limits one’s capacity to initiate change. Without a voice, you can't bang on the table, you can't influence.

In the social impact pool, we continue to work with our consultants to enhance its ESG metrics, and to include public and private equity exposures. On the whole, we believe defining the impact goals and measuring the impact outcome may be more precise with illiquid exposures, rather than with a passive index approach.

We're actively engaging with different external associations, such as the Financial Accounting Standards Board, and external consultants and peers to incorporate elements of the United Nations Sustainable Development Goals. Those goals resonate, as they tie into the broader SVCF mission to drive community impact in our grantmaking. We are truly looking for that double-line effect.

Trusted Insight: To follow on from that, you've also been making more of a commitment to engage and partner with people of color and women managers across the portfolio, as well.

Elaine Orr: Correct. Since the organization merged in 2007, the first priority was to integrate the predecessor entities. Then about five years ago, our CEO, Emmett Carson, raised the issue of diversity in investment management. Clearly, our staff, board, committee and stakeholders were diverse, and he’s conveyed that minorities and women should be fairly represented and every person has value, which really resonates for me.

I'm a minority woman who has worked in investment management for the past 20 years. When I enter a meeting, it's almost always the same audience or participants, Caucasian men. One actually gets used to it, and I forget that I’m the only woman in the room.

Following the publication of a paper titled "Investment Manager Diversity: The Hardest Taboo to Break,” authored by our CEO, Emmett Carson, and Michael Miller of Colonial Consulting, we began to work with our consultant, Colonial, on addressing lack of diversity in our investment manager roster. Colonial agreed to track three things: their research of minority or women-owned managers, their recommendations and the number of hires and terminations. We have eight minority- or women-owned firms in our portfolio, at around $150 million. It's not a substantial size across all of our pools; however, it’s still early days.

We are vocal. We have signed the Association of Black Foundation Executives pledge, which echoes the three action items above and more. We're actively encouraging other peers in the foundation space to do the same. There's no requirement for peers to overturn the portfolio or look for different types of returns. What we're saying is: Don't overlook the fact that 50 percent of the world’s talent is not currently being accessed.

It's proven that nimble and diverse ideas can find alpha. I think we have a broader mandate to meet our minimum payouts, beat inflation and above all, serve our communities. We feel it's the right thing to do, and we're encouraging others to come along with us. Through this engagement, we've been introduced to many, many more managers. We are pushing the door open – or kicking the door open – and finding ways to have conversations with these experienced money managers.

Trusted Insight: More broadly, is there anything else you think that institutional investors should be doing to promote these opportunities for women and people of color?

I always ask existing and prospective managers, "What are you doing to extend your talent pipeline?" I really don't want to hear any manager say, "Oh, I just can't find any talent." I think that means they're not trying very hard or don’t care about diversity, which is telling.

Elaine Orr: If it's truly about culture, does your senior leadership back this? That’s critical for change to happen.

On the nonprofit side, a challenge is never having quite enough time or enough resources. Your plate is full, and you’re tackling the top 30 things, and so finding minority- and women-owned firms falls down to the bottom of the priority list. The trick is to frame the effort as additive to the foundation, its stakeholders and community, as well as to total returns.

We’re also very appreciative of managers out there breaking ground on new things like the SHE gender diversity ETF. CalSTRS and State Street came up with an index-based approach that screens for firms that are gender diverse, led by women or have predominantly women in their management. While we had nothing to do with it, I’d be intrigued to know if and how we might put it in our portfolio. It's opening up a new way of thinking for institutional investors and even mom and pop retail investors.

As Warren Buffett said, and I paraphrase, “We’ve seen what can be accomplished when we use 50 percent of human capacity; if you visualize what we can do by using 100 percent, you’d join me as an optimist on the U.S. future.” I think there is a lot of power to that statement. I proactively keep the dialogue going. I always ask existing and prospective managers, "What are you doing to extend your talent pipeline?" I really don't want to hear any manager say, "Oh, I just can't find any talent." I think that means they're not trying very hard or don’t care about diversity, which is telling.

Trusted Insight: You mentioned culture within your team being really important for fostering this. Can you tell me a little bit more about how you've developed that culture within your team?

Elaine Orr: I have to acknowledge the incredible foresight and thinking of folks who were here before me, who started it all. Our Senior Vice President, Bert Feuss, has been with Silicon Valley Community Foundation since inception, and he built the whole investment office infrastructure from scratch. We work with a committee and a consultant, we do middle-office processing, and we partner with over 100 managers. Like our CEO, Emmett Carson, his style has also been very authentic and very welcoming of diverse ideas and people.

If you were to look across the 130 staff members here in Mountain View and San Mateo, it is again obvious – a very authentic, very diverse and engaged talent set. We have multiple languages spoken on the floor, and we just did a multi-cultural potluck this week. The work naturally forces you to be open to different ideas. It reinforces the fact that while we're all different and we all have different jobs, we're still working toward the same set of mission goals around bettering the community.

Trusted Insight: How do you work with nonprofits and investment advisors in terms of building investment policies?

Elaine Orr: Nonprofits use our pool, but on agency basis. We're cost-effective, as we're their peers, and we're not profit-seeking. We work with the nonprofits in annual reviews, finding board members, governance, fiduciary responsibility -- you name it, soup to nuts!

Our community impact team, which is led by Erica Wood, is engaged with the grantees that are applying and receiving grants to further SVCF’s mission. Erica’s team covers strategic initiatives such as immigration, education, economic security and building strong communities, which includes regional housing and transportation issues.

Finally, I've just joined a nonprofit board, Pangea Legal Services, and I'm supporting their work in immigrant rights, particularly for deportation defense. You are no doubt aware of this issue, with current the political landscape and talk about building walls between us and other countries. Mobility is a right. It’s a privilege to direct my energy to such a personal interest area, being an immigrant myself.

Trusted Insight: What career advice would you share with someone that's looking to get into the world of foundation investing?

Elaine Orr: I suggest doing something similar to what I did, which was a lot of research and informational conversations. Talk to people who are either in a nonprofit, running a nonprofit or who have link to foundations, such as some of the managers and nonprofits. Triangulate around some of the external investment managers and even the consultants, because they know their clients fairly well, to get a sense of the kind of roles out there. For an investment person, you don't necessarily have to be in investments if moving to the nonprofit arena.

Secondly – and this is probably obvious – compensation in the nonprofit world is very different from the for-profit world. You should ask yourself, "What are my motivators?" And also, "What are the strengths I'm bringing to the table?" I find it very disappointing when candidates haven't done a true self-assessment and are not self-aware.

Finally, be persistent. There’s not an excess of foundation and endowment careers, but moving into this sector can be done.

Trusted Insight: You mentioned needing to self-analyze why you want to go into foundations. For yourself, what was the main motivation?

Elaine Orr: It really came out of the conversations that I had with folks that work here and work with SVCF. It became more intriguing with each interaction. I wanted to be part of something that was a little, actually a lot, bigger than myself, but where I could still apply my unique skill set. For me, it was a convergence of values and opportunity – where I wanted to put my time, where I was in my career and, frankly, a smidgen of luck.

To learn more about foundation investing, view the full list of top 30 foundation rising stars.