Elizabeth Hewitt joined the Alfred P. Sloan Foundation in 2015 as chief investment officer and senior vice president. As chief investment officer, Hewitt is responsible for managing the Foundation’s endowment, including asset allocation strategy, fund manager selection, risk analysis, portfolio performance evaluation and liquidity management. Prior to joining the Foundation, Hewitt was managing director of public investments at the Robert Wood Johnson Foundation where she selected and monitored investments with managers, helped set asset allocation policy and contributed to overall portfolio management. Earlier in her career, Hewitt was a senior vice president at Lazard Asset Management (2001-2006), a hedge fund analyst for The Torrey Funds (1999-2001) and a wealth management associate for the U.S. Trust Corporation (1998-1999). She holds a B.A. and an M.A. from the University of St. Andrews, Scotland. She is also a member of the board of directors for The Madeira School, McLean VA where she chairs the investment committee.
Ms. Hewitt was recently named on Trusted Insight’s ranked list of Top 30 Women Chief Investment Officers. She graciously spoke with us on March 30, 2016. The following interview has been condensed and edited for clarity.
Trusted Insight: You have been in the role of chief investment officer at Alfred P. Sloan Foundation for five months and inherited a portfolio that is positioned quite defensively. How are you looking to reposition the portfolio going forward?
Elizabeth Hewitt: The portfolio has been relatively conservative over the last few years. Looking to the future, we're trying to build a portfolio that can weather the market volatility and enable us to rebalance if the opportunity arises. We are diversifying the absolute return portfolio to provide downside protection and to be a true diversifier. We would expect minimal equity and credit correlation. When you look at the absolute return portfolio, in addition to the fixed-income portfolio, you basically end up with the old 70/30. The difference in our case is that the 70 -- which we're calling global equity -- is broken down into public equity, private equity and then a hybrid category, which is opportunistic or hybrid credit. This hybrid category is where we can give up some liquidity in order to generate an equity-like return with credit risk.
Elizabeth Hewitt: I would be cautious about saying that, because I do think the private equity space is crowded. I don't think you're going to get the same returns that we've achieved over the last ten years. I do think you get an illiquidity premium; we are committed to rebuilding a private equity portfolio, but we’re mindful that our expected returns are not 300-over-equity -- they're closer to 200-over-equity.
In the credit space, it's early right now, but I do think there will be an opportunity there. If you can identify the right managers who can take advantage of the illiquidity in credit markets caused by some of the regulatory changes in the environment, then I think you could end up generating a decent return there. I think equities are longer term; right now they've had quite a large run, so we're not increasing our public equity exposure.
Trusted Insight: You mentioned that there's been some changes in the regulatory environment for credit. What kind of opportunity is there?
Elizabeth Hewitt: Between Volcker and Dodd-Frank, which have forced the broker-dealers to really not hold any inventory and take risk, it’s created really illiquid markets. At some point, you're going to start seeing cracks. There were cracks in Q4 2015 and Q1 2016, and I think you could see more cracks in future. The bid-ask will be wider, and people that are forced to be in the public markets will find it very challenging, given the technical environment. You're better off if you can identify the right groups that have longer-duration capital that can be the providers of liquidity and where you'll get paid for that liquidity. I think that that's an interesting place to be for the next few years.
Trusted Insight: Is there anywhere else that you think is interesting right now in terms of investment?
Elizabeth Hewitt: The absolute return environment is pretty interesting if you can find good, diversified managers. I think long-short equity has proven to be really difficult. There's a proliferation of long-short equity managers, and it’s a very crowded space, so you're seeing a lot of volatility there. When you've been a successful manager, your names get picked up in 13F, then other institutions create products that track those names, and the retail money flows into that, and then the momentum quants pick up on it -- all of a sudden you have a very crowded trade. If you don't realize that, I think you're in trouble.
Trusted Insight: You just mentioned the challenge of finding diversified managers. How do you go about doing that?
Elizabeth Hewitt: We look for relative-value funds. We look for lower-risk macro funds that can generate a return outside of equity markets. We look for Commodity Trading Advisors, which provide excellent diversification, particularly in times of market stress. By constructing a portfolio that can generate returns outside of equity markets -- which is the goal of that absolute return portfolio -- we think we can balance the equity risks that we're taking in the total portfolio.
Trusted Insight: How do you work with your governance board to achieve those good investment outcomes?
Elizabeth Hewitt: The investment committee is responsible for setting asset allocation guidelines. We make an investment as an investment team, but we really try hard to keep the investment committee informed about our pipeline throughout the process. We will give them a good two weeks' notice before we make an investment.
Elizabeth Hewitt: Relatively speaking, we run fewer line items, so we're happy to have slightly more concentrated positions. As a result, you can manage it with a team of our size. One area that we're not in directly, although our managers have underlying exposure, is emerging markets. We don't have a dedicated emerging market program internally, because it takes a lot of time, energy, travel and really a dedicated team to do emerging markets well. We look at global equities and end up with emerging market exposure through our managers. If they see a terrific opportunity, they can go there. I think outsourcing to experienced emerging market allocators can be a real advantage and help leverage a team.
Trusted Insight: What is the team culture like at Sloan Foundation?
Elizabeth Hewitt: We have a team of about 31 people in total at the Foundation. It is a community with a really special close-knit team culture, which has come from our president. As we build out the investment team -- we're going to be adding one more member in the near term -- I really do want to instill a team approach where we can all learn from and support each other. In the end, that just means you can come out with better results.
If you can look across capital structures, liquidity and markets, I think you become a better investor. At the end of the day, I think that people who do work across these areas have a great advantage in learning and becoming a well-rounded asset allocator and investor. Alfred P. Sloan Foundation is a special place to work, and I really want to foster a team culture that reflects the one held by the Foundation as a whole.
Trusted Insight: You're listed on Trusted Insight’s list of Top 30 Women CIOs. What's your perception of gender diversity within foundation investing?
Elizabeth Hewitt: I have been fortunate to be part of diversified teams my whole career, so maybe I'm lucky there. I try to have a diversified team, and I think that’s the case for foundations in general. I've seen a number of CIO appointments that are women, which is a great accomplishment. At the Foundation, half our board members are women, and when you're in science, technology and economics that's pretty impressive. It's easy to say, "Oh, I couldn't find diversity," but if you look, you can find it. I do think having diversity within a team and different thoughts is a good thing for investments.
Trusted Insight: How have you found the transition to chief investment officer at Alfred P. Sloan Foundation?
Elizabeth Hewitt: The team at Sloan Foundation have been really friendly and great in welcoming me to the team. I'm thrilled to be working with such a well-respected institution, and I'm honored to be a part of furthering the Foundation's mission to advance research and education in science, technology and economics. I started out studying economics at the University of St. Andrews in Scotland, which has been a really useful foundation for my own investment career.
Overall, the role of chief investment officer is not that different to what I was doing in my previous role at Robert Wood Johnson Foundation. So it wasn’t too much of a step-up in terms of responsibility. I also think our asset allocation is somewhat similar to Robert Wood, which probably helped prepare me for the transition. At Robert Wood, I was primarily focused on alternatives and public investments, but toward the end of my time there I was also looking at less liquid areas across the portfolio, including credit structures.
Before Robert Wood Johnson Foundation, I gained a lot of alternative experience in hedge funds at Lazard and Torrey Fund. In comparison, the role of chief investment officer at Sloan Foundation requires me to be more of a generalist. I have expanded my scope of asset classes, and I’m able to look at private equity and take a deeper dive there. However, I was part of a really great team at Lazard. I think bringing that team mentality over to Sloan Foundation is really important.
Trusted Insight: You've had ten years of experience in foundation investing so far. Have you seen any trends develop during that time within foundations?
Elizabeth Hewitt: Each institution is different and has a different risk-return objective. Foundations are different to endowments, because endowments can issue debt, get inflows and can have businesses that generate income. On the other hand, a foundation is a steady pool of assets that does not change -- we don't get inflows, and we cannot issue debt. I think that is something to be mindful of.
Over time, the endowment model has become more popular, and you have seen a large increase in the number of institutions investing in private equity. People who were in that space early on got paid to be there. Today it's a crowded space, and it's not as easy. I don't think you'll get the returns that you have gotten over the past ten or fifteen years. It's a much more competitive, crowded environment. I think you just have to keep that in mind when you look forward and think about where you might get paid. Going where there are fewer people is usually a good idea.
Learn more about the Top 30 Women Chief Investment Officers here.
Ms. Hewitt was recently named on Trusted Insight’s ranked list of Top 30 Women Chief Investment Officers. She graciously spoke with us on March 30, 2016. The following interview has been condensed and edited for clarity.
Trusted Insight: You have been in the role of chief investment officer at Alfred P. Sloan Foundation for five months and inherited a portfolio that is positioned quite defensively. How are you looking to reposition the portfolio going forward?
Elizabeth Hewitt: The portfolio has been relatively conservative over the last few years. Looking to the future, we're trying to build a portfolio that can weather the market volatility and enable us to rebalance if the opportunity arises. We are diversifying the absolute return portfolio to provide downside protection and to be a true diversifier. We would expect minimal equity and credit correlation. When you look at the absolute return portfolio, in addition to the fixed-income portfolio, you basically end up with the old 70/30. The difference in our case is that the 70 -- which we're calling global equity -- is broken down into public equity, private equity and then a hybrid category, which is opportunistic or hybrid credit. This hybrid category is where we can give up some liquidity in order to generate an equity-like return with credit risk.
If you can identify the right managers who can take advantage of the illiquidity in credit markets caused by some of the regulatory changes in the environment, then I think you could end up generating a decent return there.Trusted Insight: Would you say then that you're moving more toward the private market side of things at the moment and looking for the returns there?
Elizabeth Hewitt: I would be cautious about saying that, because I do think the private equity space is crowded. I don't think you're going to get the same returns that we've achieved over the last ten years. I do think you get an illiquidity premium; we are committed to rebuilding a private equity portfolio, but we’re mindful that our expected returns are not 300-over-equity -- they're closer to 200-over-equity.
In the credit space, it's early right now, but I do think there will be an opportunity there. If you can identify the right managers who can take advantage of the illiquidity in credit markets caused by some of the regulatory changes in the environment, then I think you could end up generating a decent return there. I think equities are longer term; right now they've had quite a large run, so we're not increasing our public equity exposure.
Trusted Insight: You mentioned that there's been some changes in the regulatory environment for credit. What kind of opportunity is there?
Elizabeth Hewitt: Between Volcker and Dodd-Frank, which have forced the broker-dealers to really not hold any inventory and take risk, it’s created really illiquid markets. At some point, you're going to start seeing cracks. There were cracks in Q4 2015 and Q1 2016, and I think you could see more cracks in future. The bid-ask will be wider, and people that are forced to be in the public markets will find it very challenging, given the technical environment. You're better off if you can identify the right groups that have longer-duration capital that can be the providers of liquidity and where you'll get paid for that liquidity. I think that that's an interesting place to be for the next few years.
Trusted Insight: Is there anywhere else that you think is interesting right now in terms of investment?
Elizabeth Hewitt: The absolute return environment is pretty interesting if you can find good, diversified managers. I think long-short equity has proven to be really difficult. There's a proliferation of long-short equity managers, and it’s a very crowded space, so you're seeing a lot of volatility there. When you've been a successful manager, your names get picked up in 13F, then other institutions create products that track those names, and the retail money flows into that, and then the momentum quants pick up on it -- all of a sudden you have a very crowded trade. If you don't realize that, I think you're in trouble.
Trusted Insight: You just mentioned the challenge of finding diversified managers. How do you go about doing that?
Elizabeth Hewitt: We look for relative-value funds. We look for lower-risk macro funds that can generate a return outside of equity markets. We look for Commodity Trading Advisors, which provide excellent diversification, particularly in times of market stress. By constructing a portfolio that can generate returns outside of equity markets -- which is the goal of that absolute return portfolio -- we think we can balance the equity risks that we're taking in the total portfolio.
Trusted Insight: How do you work with your governance board to achieve those good investment outcomes?
Elizabeth Hewitt: The investment committee is responsible for setting asset allocation guidelines. We make an investment as an investment team, but we really try hard to keep the investment committee informed about our pipeline throughout the process. We will give them a good two weeks' notice before we make an investment.
At the Foundation, half our board members are women, and when you're in science, technology and economics that's pretty impressive. It's easy to say, "Oh, I couldn't find diversity," but if you look, you can find it.Trusted Insight: The team at Alfred Sloan is quite small and has a generalist structure. Does that impact on your investing approach and capabilities?
Elizabeth Hewitt: Relatively speaking, we run fewer line items, so we're happy to have slightly more concentrated positions. As a result, you can manage it with a team of our size. One area that we're not in directly, although our managers have underlying exposure, is emerging markets. We don't have a dedicated emerging market program internally, because it takes a lot of time, energy, travel and really a dedicated team to do emerging markets well. We look at global equities and end up with emerging market exposure through our managers. If they see a terrific opportunity, they can go there. I think outsourcing to experienced emerging market allocators can be a real advantage and help leverage a team.
Trusted Insight: What is the team culture like at Sloan Foundation?
Elizabeth Hewitt: We have a team of about 31 people in total at the Foundation. It is a community with a really special close-knit team culture, which has come from our president. As we build out the investment team -- we're going to be adding one more member in the near term -- I really do want to instill a team approach where we can all learn from and support each other. In the end, that just means you can come out with better results.
If you can look across capital structures, liquidity and markets, I think you become a better investor. At the end of the day, I think that people who do work across these areas have a great advantage in learning and becoming a well-rounded asset allocator and investor. Alfred P. Sloan Foundation is a special place to work, and I really want to foster a team culture that reflects the one held by the Foundation as a whole.
Trusted Insight: You're listed on Trusted Insight’s list of Top 30 Women CIOs. What's your perception of gender diversity within foundation investing?
Elizabeth Hewitt: I have been fortunate to be part of diversified teams my whole career, so maybe I'm lucky there. I try to have a diversified team, and I think that’s the case for foundations in general. I've seen a number of CIO appointments that are women, which is a great accomplishment. At the Foundation, half our board members are women, and when you're in science, technology and economics that's pretty impressive. It's easy to say, "Oh, I couldn't find diversity," but if you look, you can find it. I do think having diversity within a team and different thoughts is a good thing for investments.
Trusted Insight: How have you found the transition to chief investment officer at Alfred P. Sloan Foundation?
Elizabeth Hewitt: The team at Sloan Foundation have been really friendly and great in welcoming me to the team. I'm thrilled to be working with such a well-respected institution, and I'm honored to be a part of furthering the Foundation's mission to advance research and education in science, technology and economics. I started out studying economics at the University of St. Andrews in Scotland, which has been a really useful foundation for my own investment career.
Overall, the role of chief investment officer is not that different to what I was doing in my previous role at Robert Wood Johnson Foundation. So it wasn’t too much of a step-up in terms of responsibility. I also think our asset allocation is somewhat similar to Robert Wood, which probably helped prepare me for the transition. At Robert Wood, I was primarily focused on alternatives and public investments, but toward the end of my time there I was also looking at less liquid areas across the portfolio, including credit structures.
Before Robert Wood Johnson Foundation, I gained a lot of alternative experience in hedge funds at Lazard and Torrey Fund. In comparison, the role of chief investment officer at Sloan Foundation requires me to be more of a generalist. I have expanded my scope of asset classes, and I’m able to look at private equity and take a deeper dive there. However, I was part of a really great team at Lazard. I think bringing that team mentality over to Sloan Foundation is really important.
Trusted Insight: You've had ten years of experience in foundation investing so far. Have you seen any trends develop during that time within foundations?
Elizabeth Hewitt: Each institution is different and has a different risk-return objective. Foundations are different to endowments, because endowments can issue debt, get inflows and can have businesses that generate income. On the other hand, a foundation is a steady pool of assets that does not change -- we don't get inflows, and we cannot issue debt. I think that is something to be mindful of.
Over time, the endowment model has become more popular, and you have seen a large increase in the number of institutions investing in private equity. People who were in that space early on got paid to be there. Today it's a crowded space, and it's not as easy. I don't think you'll get the returns that you have gotten over the past ten or fifteen years. It's a much more competitive, crowded environment. I think you just have to keep that in mind when you look forward and think about where you might get paid. Going where there are fewer people is usually a good idea.
Learn more about the Top 30 Women Chief Investment Officers here.