Leslie Lenzo is the chief investment officer of Advocate Health Care, overseeing a total asset portfolio of more than $6.5 billion. She joined Advocate Health Care in 2013, and since has overhauled its investment portfolio to cut back on fixed income allocation and move into alternative assets.
Prior to joining Advocate Health Care, Lenzo spent seven years as an investments manager at Northwestern Memorial Healthcare. Lenzo has an MBA in finance from Boston University and a bachelor's degree from Georgetown University.
Ms. Lenzo was recently named on Trusted Insight’s ranked list of Top 30 Hospital Chief Investment Officers. She graciously spoke with us on May 4, 2016. The following interview has been condensed and edited for clarity.
Trusted Insight: How does a hospital’s investment office work and what is its goal?
Leslie Lenzo: We have an investment committee that makes decisions on manager selection and other service providers. The committee also recommends any asset allocation changes to the finance committee of our board of directors. The finance committee recommends the changes to the board of directors, which is the governing body that approves these decisions.
To develop our asset allocation, we look at our five-year strategic plan for the organization. We get a good understanding of what the organization's capital needs are, and then build those needs into our asset allocation, so that we can understand how much return we need the investment program to generate to sustain the specific plans of the organization. We also look at, and stress test, the organization’s key financial metrics to ensure that we do not take undue risk in attempting to meet our return goals.
We calibrate between various levels of return and risk to determine an appropriate asset allocation and the expected rate of return associated with that asset allocation over a 10-year time horizon. We are also cognizant of our budgeted investment returns and need to ensure that we can fairly consistently meet that budgeted return over time.
Trusted Insight: How did you get involved in the healthcare industry?
Leslie Lenzo: I would say I somewhat fell into it. My first job out of college was at Partners Healthcare in their investment program. I was looking to do something related to investments. I did not know much at that time about the different avenues you could take within investments. Once I started at Partners Healthcare, I realized it was a good fit. So from there, my career continued along that same route, always at the intersection of healthcare and investing.
I have worked at four different employers during my career. After Partners Healthcare, I worked at Cowen and Company, a small boutique investment banking firm. I was an equity analyst there, covering publicly traded healthcare companies like for-profit hospitals and pharmacy benefit managers. After that, I joined Northwestern Memorial Healthcare in Chicago in their investment program, and then now at Advocate.
Trusted Insight: The majority of your career was in healthcare sector. What trends on the investment aspect of healthcare have you identified?
Leslie Lenzo: In general, healthcare has been getting increasingly more sophisticated in its investing. If you go back 10 to 15 years, a lot of healthcare organizations did not have in-house investment staff. They were largely reliant on their investment consultants for their investment programs. Over the past decade, as hospitals have come to own a lot more assets within their investment programs, a lot of them have built internal capabilities. That's been a huge trend within healthcare. I suspect that as hospitals have started to realize the strategic benefits of having large investment portfolios, they have realized the need for in-house stewardship over those assets.
Trusted Insight: How has Advocate’s investment portfolio changed since you came aboard?
Leslie Lenzo: When I joined about three years ago, we had a very sizable allocation to cash and fixed income. There was a realization that at current low yields, if interest rates stayed where they were, we were not going to earn very much as a yield. And there was the potential for interest rates to rise, where you would lose money on that allocation.
We wanted to find better exposure for those assets, so we moved a sizable portion of those fixed income assets into both real assets and hedge funds. The thinking was that the hedge fund portfolio is built to preserve capital in down markets and to dampen down the volatility of the portfolio as a whole. It essentially serves as a substitute for fixed income, where you get a lot of the capital preservation qualities of fixed income, but with a modestly higher expected return than you would get from fixed income.
Moving into real assets was to get some diversification. First, you get some inflation protection. Then, based on the types of real assets you select, you can also have very nice yield components to that real assets program, which will offset some of the yield you are forgoing when you reduce the amount of fixed income you have.
Trusted Insight: What distinguishes your investment strategy from peer institutions?
Leslie Lenzo: Three years ago, we were much heavier into fixed income than most our peer institutions were. Back then that would have been a defining factor of our investment program that we were much more conservative than our peers. The changes we have made over the last several years have brought us more in line with what our peers are doing; however, we still are a conservative organization. This manifests itself in that our portfolio is more diversified and less equity-centric than most.
Trusted Insight: Hedge funds in general have not performed very well in the past few years. A lot of large investors are looking to reduce their hedge fund allocations. What are your thoughts on this?
Leslie Lenzo: You have to look at the goal of your hedge fund program. If you are looking at your hedge fund program compared to equities, then yes, you would have been very disappointed over the last several years. But if you are looking at hedge funds as a fixed income substitute, then I think by and large they have performed that role very nicely.
Trusted Insight: 2015 was a troubling year for many hospital investors, Advocate Health Care included. What do you think resulted in the investments loss in 2015?
Leslie Lenzo: Markets across the board in the second half of 2015 sold off quite significantly, particularly those markets outside of U.S. large-cap equities. If you had a diversified portfolio where you were exposed to a lot of these markets other than large-cap U.S. equities, you experienced the losses that those markets experienced.
Trusted Insight: How do you mitigate risks in a down market?
Leslie Lenzo: We don't think we are astute enough to time the market, so we tend to set our long-term strategic allocation. We don't feel we can tactically move in and out of markets to try and avoid those drawdowns. But what you can do is with your portfolio design, within each of those asset classes, try to select investment managers who have a focus on the preservation of capital. Look for managers who have an asymmetric return profile, where you have nice downside protection, but then you still have significant upside participation. If we can find investments like that, that will make us much more comfortable when markets decline.
Trusted Insight: Looking forward, what factors do you think will affect hospital investing?
Leslie Lenzo: At this point, yields are low, valuations are high and your expected return going forward for the next 5-10 years is probably pretty low. Given that, you need to lower expectations and try to be creative about where you can try to earn a little extra return without taking on a lot of extra risk.
Trusted Insight: What career advice would you give to the younger generation of investors in healthcare?
Leslie Lenzo: Find what you are passionate about, find the mission that really speaks to you and find the culture of an organization that you feel comfortable in. If you can find some place where all of those things align, I think you have found the ideal place to pursue your career.
Trusted Insight: Is there anything I failed to ask about you or Advocate Health Care that you would like to share with our readers?
Leslie Lenzo: I think not-for-profit healthcare is an absolutely fabulous industry to work in, because it combines a mission-driven culture with challenges where you can satisfy your intellectual curiosity. I would absolutely encourage anyone who has an interest that aligns with not-for-profit healthcare to explore and pursue careers in this area. I think it's a great industry to be in.
To learn more about the the Top 30 Hospital Chief Investment Officers, click here.
Prior to joining Advocate Health Care, Lenzo spent seven years as an investments manager at Northwestern Memorial Healthcare. Lenzo has an MBA in finance from Boston University and a bachelor's degree from Georgetown University.
Ms. Lenzo was recently named on Trusted Insight’s ranked list of Top 30 Hospital Chief Investment Officers. She graciously spoke with us on May 4, 2016. The following interview has been condensed and edited for clarity.
Trusted Insight: How does a hospital’s investment office work and what is its goal?
Leslie Lenzo: We have an investment committee that makes decisions on manager selection and other service providers. The committee also recommends any asset allocation changes to the finance committee of our board of directors. The finance committee recommends the changes to the board of directors, which is the governing body that approves these decisions.
To develop our asset allocation, we look at our five-year strategic plan for the organization. We get a good understanding of what the organization's capital needs are, and then build those needs into our asset allocation, so that we can understand how much return we need the investment program to generate to sustain the specific plans of the organization. We also look at, and stress test, the organization’s key financial metrics to ensure that we do not take undue risk in attempting to meet our return goals.
We calibrate between various levels of return and risk to determine an appropriate asset allocation and the expected rate of return associated with that asset allocation over a 10-year time horizon. We are also cognizant of our budgeted investment returns and need to ensure that we can fairly consistently meet that budgeted return over time.
Trusted Insight: How did you get involved in the healthcare industry?
Leslie Lenzo: I would say I somewhat fell into it. My first job out of college was at Partners Healthcare in their investment program. I was looking to do something related to investments. I did not know much at that time about the different avenues you could take within investments. Once I started at Partners Healthcare, I realized it was a good fit. So from there, my career continued along that same route, always at the intersection of healthcare and investing.
I have worked at four different employers during my career. After Partners Healthcare, I worked at Cowen and Company, a small boutique investment banking firm. I was an equity analyst there, covering publicly traded healthcare companies like for-profit hospitals and pharmacy benefit managers. After that, I joined Northwestern Memorial Healthcare in Chicago in their investment program, and then now at Advocate.
Trusted Insight: The majority of your career was in healthcare sector. What trends on the investment aspect of healthcare have you identified?
Leslie Lenzo: In general, healthcare has been getting increasingly more sophisticated in its investing. If you go back 10 to 15 years, a lot of healthcare organizations did not have in-house investment staff. They were largely reliant on their investment consultants for their investment programs. Over the past decade, as hospitals have come to own a lot more assets within their investment programs, a lot of them have built internal capabilities. That's been a huge trend within healthcare. I suspect that as hospitals have started to realize the strategic benefits of having large investment portfolios, they have realized the need for in-house stewardship over those assets.
Trusted Insight: How has Advocate’s investment portfolio changed since you came aboard?
Leslie Lenzo: When I joined about three years ago, we had a very sizable allocation to cash and fixed income. There was a realization that at current low yields, if interest rates stayed where they were, we were not going to earn very much as a yield. And there was the potential for interest rates to rise, where you would lose money on that allocation.
We wanted to find better exposure for those assets, so we moved a sizable portion of those fixed income assets into both real assets and hedge funds. The thinking was that the hedge fund portfolio is built to preserve capital in down markets and to dampen down the volatility of the portfolio as a whole. It essentially serves as a substitute for fixed income, where you get a lot of the capital preservation qualities of fixed income, but with a modestly higher expected return than you would get from fixed income.
Moving into real assets was to get some diversification. First, you get some inflation protection. Then, based on the types of real assets you select, you can also have very nice yield components to that real assets program, which will offset some of the yield you are forgoing when you reduce the amount of fixed income you have.
Trusted Insight: What distinguishes your investment strategy from peer institutions?
Leslie Lenzo: Three years ago, we were much heavier into fixed income than most our peer institutions were. Back then that would have been a defining factor of our investment program that we were much more conservative than our peers. The changes we have made over the last several years have brought us more in line with what our peers are doing; however, we still are a conservative organization. This manifests itself in that our portfolio is more diversified and less equity-centric than most.
Trusted Insight: Hedge funds in general have not performed very well in the past few years. A lot of large investors are looking to reduce their hedge fund allocations. What are your thoughts on this?
Leslie Lenzo: You have to look at the goal of your hedge fund program. If you are looking at your hedge fund program compared to equities, then yes, you would have been very disappointed over the last several years. But if you are looking at hedge funds as a fixed income substitute, then I think by and large they have performed that role very nicely.
Trusted Insight: 2015 was a troubling year for many hospital investors, Advocate Health Care included. What do you think resulted in the investments loss in 2015?
Leslie Lenzo: Markets across the board in the second half of 2015 sold off quite significantly, particularly those markets outside of U.S. large-cap equities. If you had a diversified portfolio where you were exposed to a lot of these markets other than large-cap U.S. equities, you experienced the losses that those markets experienced.
Trusted Insight: How do you mitigate risks in a down market?
Leslie Lenzo: We don't think we are astute enough to time the market, so we tend to set our long-term strategic allocation. We don't feel we can tactically move in and out of markets to try and avoid those drawdowns. But what you can do is with your portfolio design, within each of those asset classes, try to select investment managers who have a focus on the preservation of capital. Look for managers who have an asymmetric return profile, where you have nice downside protection, but then you still have significant upside participation. If we can find investments like that, that will make us much more comfortable when markets decline.
Trusted Insight: Looking forward, what factors do you think will affect hospital investing?
Leslie Lenzo: At this point, yields are low, valuations are high and your expected return going forward for the next 5-10 years is probably pretty low. Given that, you need to lower expectations and try to be creative about where you can try to earn a little extra return without taking on a lot of extra risk.
Trusted Insight: What career advice would you give to the younger generation of investors in healthcare?
Leslie Lenzo: Find what you are passionate about, find the mission that really speaks to you and find the culture of an organization that you feel comfortable in. If you can find some place where all of those things align, I think you have found the ideal place to pursue your career.
Trusted Insight: Is there anything I failed to ask about you or Advocate Health Care that you would like to share with our readers?
Leslie Lenzo: I think not-for-profit healthcare is an absolutely fabulous industry to work in, because it combines a mission-driven culture with challenges where you can satisfy your intellectual curiosity. I would absolutely encourage anyone who has an interest that aligns with not-for-profit healthcare to explore and pursue careers in this area. I think it's a great industry to be in.
To learn more about the the Top 30 Hospital Chief Investment Officers, click here.