Novisi Nirschl is a director of private investments at the investment office of Memorial Sloan-Kettering Cancer Center. Nirschl oversees private equity and real asset investments for the endowment. Previously, Nirschl was a vice president at Fortress Investment Group where she primarily made investments in private equity and real asset funds and co-investments for the Fortress Partners Fund in New York. Nirschl holds an MBA from Stanford University's Graduate School of Business and a BA from Harvard College.
Ms. Nirschl was recently named to Trusted Insight’s ranked list of the Top 30 Healthcare Institutional Investors. She graciously spoke with Trusted Insight on January 11, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: Let's begin by talking about your background and how it's led to where you are today. You went to Harvard for your undergraduate and Stanford for your MBA. How did those university experiences shape your investment decision making process and ultimately lead to your current success?
Novisi Nirschl: In terms of post-college, my main focus was in investing, so I it wasn't yet in endowments. My interest in this particular field came through my experience when I worked for a private equity buyout firm, and later at business school, which gave me a clearer path to endowments.
I felt during my time at Stanford that I wanted to pursue a different path, which would allow for a more macro-oriented viewpoint on investing. The endowments and foundation world was a natural out-growth of that. In fact, a large part of my class from business school are investors on the buy-side. During the summer after business school, I explored public markets, but I decided to return to a role which would probably blend my experiences historically in investing and would also allow for a more macro-viewpoint. I've been able to specialize on the private side, which is a great use of a skillset from before, but this has allowed me to continue to look at many types of private managers, including venture capital.
Prior to Stanford, my time working in direct and leveraged buyouts has also provided a lot of backdrop when I do manager due diligence, in terms the things I look for. I maybe have a greater sense of cynicism when I look at things on that side. I would also say my time at Stanford provided me with a good network to check from in terms of the venture community. Some of my peers or classmates are actually the founders of companies. Sometimes that helps for checking references, and some of the people actually work at venture firms, so that's also very helpful for any network. My first job was also in energy investment banking, and part of my coverage now includes real assets. That's been very helpful in helping with assessments there and also provides another network.
TI: You've spent much of your career in the private side, namely private equity and non-marketables. Is there anything that drew you to that or was it just you just found yourself there and developed a certain niche then you stuck with it?
NN: My background before business school was working at a direct private equity firm. I do like the macro thinking that's an inherent and necessary part of the endowment model. My natural additive right away for a team was on the private side, because of my previous background, although within my team we try to think very broadly. I've had some experiences that are broader from investment banking and looked at the market in different ways outside of private equity, which are helpful. As a team we are collaborative, and we talk as a team regularly about the whole portfolio. My private perspective helps in terms of the information I can bring to the whole team about what is going on in that world and is relevant to other parts of the portfolio.
TI: Tell me about the Memorial Sloan Kettering investment team.
NN: Our model is different in that we have a combination of specialization and generalists. Most other institutions tend to go one way or the other, either fully generalist or fully specialist. Our CIO Jason Klein has been very thoughtful about our team construction. He has set the team up so that senior people are more specialized, but simply along the lines of public and private. The junior and mid levels are generalists and do a mix of public and private. That helps to make it less siloed within the team and more collaborative, which was intentional.
TI: What is your strategy for managing the venture capital allocation?
NN: We think there's a greater persistence in venture capital. Historically, the ones who have really outperformed have done so at a higher rate in subsequent funds than other parts of the private market world. That's something that weighs on us a bit when we think about managers. The ones who have done really well will probably continue to do so, and that's just because founders tend to still gravitate to them. We have managers like that who are core portfolio.
However, we are also cognizant of emerging firms, and that's important because of some generational differences. When we look at earlier stage managers, we have to see someone who we think still has a lot of weight with founders. That may be for generational reasons, or an edge in a particular area maybe.
We do that in light of a view that the persistence is there, but we like to complement the long-time managers with a sprinkle of newer managers. For the latter, the bar is much higher, but we believe some of these will become such managers that they will be very hard to get into later. So we're keeping an eye out there.
TI: Memorial Sloan Kettering is one of the premier cancer research treatment centers in the world, and I presume that you have a mandate to have at least a slight healthcare bent to your venture capital, private equity and even real estate allocations of the portfolio. To what degree is that true?
NN: My colleagues and I are looking for good managers. Good managers can come from any walks of industry. People who are in healthcare tend to contact us at a higher rate than other people, however, I don't necessarily know that we do more in that area than other institutions. There's a chance we do a little bit more because we're actually seeing more. At this point though, I think we've got a decent exposure there, and I would say we're not necessarily adding at a very high rate.
That being said, due to the sequencing of the human genome that led to a plethora of opportunities in life sciences. People are capitalizing on that who were not in that market before, and so there are some unique opportunities in biotech life sciences. We do want to capture that in our portfolio. However, our first requirement here is to generate returns for the institution, so we will apply similar mindset to understand those firms. We're not a corporate venture arm, where they would usually do things that have sometimes synergies to an organization.
TI: What do you look for in a good manager?
NN: Firstly, it's important to us that the firms we’re assessing now can repeat, and that is feasible through the people, the organization and the strategy, as opposed to a one-off circumstance. We want to see that whoever created the returns will still be there, and if there are going to be any changes that we are comfortable with that. The human element is part of the repeatability, and intellectual capital is really key for these firms.
Also related to this is matching the team and the firm’s infrastructure with the opportunity. So if they are a distressed manager or they're doing operational turnarounds, then we want to see those people as part of the team.
In terms of strategy, we do tend to look for firms that can improve operations. There are different ways to approach it, but that's something we like to see from a value-add perspective. Obviously there's a continuum there, depending on what stage the company is at.
TI: Technology has successfully disrupted many industries almost to the point of saturation, but healthcare seems to be lagging behind. On a spectrum of infancy to saturation, where would you say it is in its lifecycle, and how do you see that developing over the next 5 years or so?
NN: In the past few years, the biotech sector in the public and private markets has been taking off. As I mentioned, the sequencing of the human genome has led to more opportunities, for example, in personalized medicine and other new applications. Digital health is another emerging area, and one that we can expect to grow. Biotech companies, especially the newer ones, have had a better performance in terms of the number of successful IPOs in comparison to technology companies. There are a lot more unicorns in the tech sector. So I actually think there has been quite a bit of innovation within biotech in recent years, and we're going to see that continue.
There has been recent success for companies focused on areas such as orphan diseases and oncology. The public markets have been more favorable, and so there is more funding in new areas now, which has worked out well economically either through acquisitions or IPOs. Furthermore, research and development for late-stage pharmaceuticals has declined, so they often use acquisitions to improve their R&D. This has created a favorable environment for acquisitions and, as a result, IPOs.
TI: What's your outlook for venture capital in 2016?
NN: Public markets started off rocky this year, and people tend to be less optimistic in such environments. Venture capital is pretty much about optimism, because you're starting with young companies. In an environment where people are less optimistic, there would tend to be less activity. Venture capitalists might not be saying it explicitly, but I think everyone is wondering about unicorns. If the market is volatile, then it's probably not going to be a record year for funding.
TI: What sectors of venture capital excite you right now, in terms of investment?
NN: I don’t think it will be apps – we probably don’t need another on-demand taxi service. There are some innovations that will potentially tackle some of the bigger problems we face in this world, such as water usage and battery power. However, to find funding for something like battery power will be hard, as we haven’t yet solved long-life battery technology. It’s a good idea, but it may be too capital intensive to create an attractive return for investors.
Alternatively, other areas that will probably become more attractive include artificial intelligence, virtual reality and drones. Also Bitcoin, if they start using it in the financial services industry and it takes off. These areas are a combination of applying software, which has fewer capital requirements than the issues I mentioned above, and are at a different point in the production cycle.
TI: Where geographically are you looking for sustained growth? What sectors might drive this, not just within venture capital but within private equity, real estate and real assets?
NN: The U.S. is still very important, and that's not going to end. When the world is volatile, historically people tend to come back to the United States. The U.S. is a prominent part of our portfolio, and that will continue.
Emerging markets are tricky these days, but in my opinion, China is still going to become the dominant economy in the midterm. So China is still a very active spot for us as well.
Specifically within venture capital, we’re beginning to revisit Europe. The valuation argument is stronger if you look at the public markets, however, public markets do play into other valuations. The valuations in the developed markets outside of U.S., such as Europe, are more favorable. We are refreshing our portfolio in Europe, although that doesn’t necessarily mean that is the straightforward answer for every portfolio. It might just be our personal portfolio.
TI: What trends have you identified in your time investing in non-marketable assets, venture capital, private equity, real estate, real assets?
NN: The trends are cyclical. It's better to buy when prices are low. When there are high valuations, then sell, sell, sell. It’s unfortunately not that easy. I’ve learned that it’s going to continue in cycles. Where are we now? Well you can take a guess, as far as the cycle goes. When you believe in a manager, in general, you really need to stick with them. You can’t cherry pick the vintage year, or abandon the top managers. If you do, you'll be hard pressed to get back in. You have to stick with them and be consistent. You need to have faith in the manager to hopefully invest correctly because of the environment.
There are certain asset classes that are hyper-cyclical. You want to pick some horses for those asset classes that you think can really deliver value, because when that hyper-cyclical strategy comes into favor, you want to be there. To be getting those kind of returns that you want to have, you need to find those kind of managers before it happens. Ideally we like to get to know managers before they raise, so we can spend a little time getting to know them. It's very similar to fundraising. You can have a very put-together pitch, so we like to find people out of the cycle of fundraising.
TI: What challenges does Memorial Sloan Kettering or the broader industry in general face that are unique to investing in your particular allocation of the portfolio?
NN: An important part is managing the portfolio with understanding your cash flows as an institution. For instance, we have a cash flow model that we use to understand our allocation and potential needs. We stress test it as well. That's important, because you ideally want to have an idea about how much you could own in a potential downturn. In that situation, you are unfunded, and you have liabilities that are not paid in, and your NAV can also spike. The challenge is to have a forward model that enables you to forecast how much above or below target you could get, and also to have some type of management of your cash flow. You want to understand how much unfunded you have, because those type of things could be problematic in a downturn if you don't manage them well.
TI: What have I failed to ask that I should even know about you, about Memorial Sloan Kettering, about institutional investing in general?
NN: We want to make sure that we're able to help with Memorial Sloan Kettering’s mission. MSK has a singular focus on treating and curing cancer through its programs in patient care, education, and research. We need to be able to adjust and meet the needs of our institution.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Healthcare Institutional Investors.
Ms. Nirschl was recently named to Trusted Insight’s ranked list of the Top 30 Healthcare Institutional Investors. She graciously spoke with Trusted Insight on January 11, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: Let's begin by talking about your background and how it's led to where you are today. You went to Harvard for your undergraduate and Stanford for your MBA. How did those university experiences shape your investment decision making process and ultimately lead to your current success?
Novisi Nirschl: In terms of post-college, my main focus was in investing, so I it wasn't yet in endowments. My interest in this particular field came through my experience when I worked for a private equity buyout firm, and later at business school, which gave me a clearer path to endowments.
I felt during my time at Stanford that I wanted to pursue a different path, which would allow for a more macro-oriented viewpoint on investing. The endowments and foundation world was a natural out-growth of that. In fact, a large part of my class from business school are investors on the buy-side. During the summer after business school, I explored public markets, but I decided to return to a role which would probably blend my experiences historically in investing and would also allow for a more macro-viewpoint. I've been able to specialize on the private side, which is a great use of a skillset from before, but this has allowed me to continue to look at many types of private managers, including venture capital.
Prior to Stanford, my time working in direct and leveraged buyouts has also provided a lot of backdrop when I do manager due diligence, in terms the things I look for. I maybe have a greater sense of cynicism when I look at things on that side. I would also say my time at Stanford provided me with a good network to check from in terms of the venture community. Some of my peers or classmates are actually the founders of companies. Sometimes that helps for checking references, and some of the people actually work at venture firms, so that's also very helpful for any network. My first job was also in energy investment banking, and part of my coverage now includes real assets. That's been very helpful in helping with assessments there and also provides another network.
TI: You've spent much of your career in the private side, namely private equity and non-marketables. Is there anything that drew you to that or was it just you just found yourself there and developed a certain niche then you stuck with it?
NN: My background before business school was working at a direct private equity firm. I do like the macro thinking that's an inherent and necessary part of the endowment model. My natural additive right away for a team was on the private side, because of my previous background, although within my team we try to think very broadly. I've had some experiences that are broader from investment banking and looked at the market in different ways outside of private equity, which are helpful. As a team we are collaborative, and we talk as a team regularly about the whole portfolio. My private perspective helps in terms of the information I can bring to the whole team about what is going on in that world and is relevant to other parts of the portfolio.
TI: Tell me about the Memorial Sloan Kettering investment team.
NN: Our model is different in that we have a combination of specialization and generalists. Most other institutions tend to go one way or the other, either fully generalist or fully specialist. Our CIO Jason Klein has been very thoughtful about our team construction. He has set the team up so that senior people are more specialized, but simply along the lines of public and private. The junior and mid levels are generalists and do a mix of public and private. That helps to make it less siloed within the team and more collaborative, which was intentional.
TI: What is your strategy for managing the venture capital allocation?
NN: We think there's a greater persistence in venture capital. Historically, the ones who have really outperformed have done so at a higher rate in subsequent funds than other parts of the private market world. That's something that weighs on us a bit when we think about managers. The ones who have done really well will probably continue to do so, and that's just because founders tend to still gravitate to them. We have managers like that who are core portfolio.
However, we are also cognizant of emerging firms, and that's important because of some generational differences. When we look at earlier stage managers, we have to see someone who we think still has a lot of weight with founders. That may be for generational reasons, or an edge in a particular area maybe.
We do that in light of a view that the persistence is there, but we like to complement the long-time managers with a sprinkle of newer managers. For the latter, the bar is much higher, but we believe some of these will become such managers that they will be very hard to get into later. So we're keeping an eye out there.
TI: Memorial Sloan Kettering is one of the premier cancer research treatment centers in the world, and I presume that you have a mandate to have at least a slight healthcare bent to your venture capital, private equity and even real estate allocations of the portfolio. To what degree is that true?
NN: My colleagues and I are looking for good managers. Good managers can come from any walks of industry. People who are in healthcare tend to contact us at a higher rate than other people, however, I don't necessarily know that we do more in that area than other institutions. There's a chance we do a little bit more because we're actually seeing more. At this point though, I think we've got a decent exposure there, and I would say we're not necessarily adding at a very high rate.
That being said, due to the sequencing of the human genome that led to a plethora of opportunities in life sciences. People are capitalizing on that who were not in that market before, and so there are some unique opportunities in biotech life sciences. We do want to capture that in our portfolio. However, our first requirement here is to generate returns for the institution, so we will apply similar mindset to understand those firms. We're not a corporate venture arm, where they would usually do things that have sometimes synergies to an organization.
TI: What do you look for in a good manager?
NN: Firstly, it's important to us that the firms we’re assessing now can repeat, and that is feasible through the people, the organization and the strategy, as opposed to a one-off circumstance. We want to see that whoever created the returns will still be there, and if there are going to be any changes that we are comfortable with that. The human element is part of the repeatability, and intellectual capital is really key for these firms.
Also related to this is matching the team and the firm’s infrastructure with the opportunity. So if they are a distressed manager or they're doing operational turnarounds, then we want to see those people as part of the team.
In terms of strategy, we do tend to look for firms that can improve operations. There are different ways to approach it, but that's something we like to see from a value-add perspective. Obviously there's a continuum there, depending on what stage the company is at.
TI: Technology has successfully disrupted many industries almost to the point of saturation, but healthcare seems to be lagging behind. On a spectrum of infancy to saturation, where would you say it is in its lifecycle, and how do you see that developing over the next 5 years or so?
NN: In the past few years, the biotech sector in the public and private markets has been taking off. As I mentioned, the sequencing of the human genome has led to more opportunities, for example, in personalized medicine and other new applications. Digital health is another emerging area, and one that we can expect to grow. Biotech companies, especially the newer ones, have had a better performance in terms of the number of successful IPOs in comparison to technology companies. There are a lot more unicorns in the tech sector. So I actually think there has been quite a bit of innovation within biotech in recent years, and we're going to see that continue.
There has been recent success for companies focused on areas such as orphan diseases and oncology. The public markets have been more favorable, and so there is more funding in new areas now, which has worked out well economically either through acquisitions or IPOs. Furthermore, research and development for late-stage pharmaceuticals has declined, so they often use acquisitions to improve their R&D. This has created a favorable environment for acquisitions and, as a result, IPOs.
TI: What's your outlook for venture capital in 2016?
NN: Public markets started off rocky this year, and people tend to be less optimistic in such environments. Venture capital is pretty much about optimism, because you're starting with young companies. In an environment where people are less optimistic, there would tend to be less activity. Venture capitalists might not be saying it explicitly, but I think everyone is wondering about unicorns. If the market is volatile, then it's probably not going to be a record year for funding.
TI: What sectors of venture capital excite you right now, in terms of investment?
NN: I don’t think it will be apps – we probably don’t need another on-demand taxi service. There are some innovations that will potentially tackle some of the bigger problems we face in this world, such as water usage and battery power. However, to find funding for something like battery power will be hard, as we haven’t yet solved long-life battery technology. It’s a good idea, but it may be too capital intensive to create an attractive return for investors.
Alternatively, other areas that will probably become more attractive include artificial intelligence, virtual reality and drones. Also Bitcoin, if they start using it in the financial services industry and it takes off. These areas are a combination of applying software, which has fewer capital requirements than the issues I mentioned above, and are at a different point in the production cycle.
TI: Where geographically are you looking for sustained growth? What sectors might drive this, not just within venture capital but within private equity, real estate and real assets?
NN: The U.S. is still very important, and that's not going to end. When the world is volatile, historically people tend to come back to the United States. The U.S. is a prominent part of our portfolio, and that will continue.
Emerging markets are tricky these days, but in my opinion, China is still going to become the dominant economy in the midterm. So China is still a very active spot for us as well.
Specifically within venture capital, we’re beginning to revisit Europe. The valuation argument is stronger if you look at the public markets, however, public markets do play into other valuations. The valuations in the developed markets outside of U.S., such as Europe, are more favorable. We are refreshing our portfolio in Europe, although that doesn’t necessarily mean that is the straightforward answer for every portfolio. It might just be our personal portfolio.
TI: What trends have you identified in your time investing in non-marketable assets, venture capital, private equity, real estate, real assets?
NN: The trends are cyclical. It's better to buy when prices are low. When there are high valuations, then sell, sell, sell. It’s unfortunately not that easy. I’ve learned that it’s going to continue in cycles. Where are we now? Well you can take a guess, as far as the cycle goes. When you believe in a manager, in general, you really need to stick with them. You can’t cherry pick the vintage year, or abandon the top managers. If you do, you'll be hard pressed to get back in. You have to stick with them and be consistent. You need to have faith in the manager to hopefully invest correctly because of the environment.
There are certain asset classes that are hyper-cyclical. You want to pick some horses for those asset classes that you think can really deliver value, because when that hyper-cyclical strategy comes into favor, you want to be there. To be getting those kind of returns that you want to have, you need to find those kind of managers before it happens. Ideally we like to get to know managers before they raise, so we can spend a little time getting to know them. It's very similar to fundraising. You can have a very put-together pitch, so we like to find people out of the cycle of fundraising.
TI: What challenges does Memorial Sloan Kettering or the broader industry in general face that are unique to investing in your particular allocation of the portfolio?
NN: An important part is managing the portfolio with understanding your cash flows as an institution. For instance, we have a cash flow model that we use to understand our allocation and potential needs. We stress test it as well. That's important, because you ideally want to have an idea about how much you could own in a potential downturn. In that situation, you are unfunded, and you have liabilities that are not paid in, and your NAV can also spike. The challenge is to have a forward model that enables you to forecast how much above or below target you could get, and also to have some type of management of your cash flow. You want to understand how much unfunded you have, because those type of things could be problematic in a downturn if you don't manage them well.
TI: What have I failed to ask that I should even know about you, about Memorial Sloan Kettering, about institutional investing in general?
NN: We want to make sure that we're able to help with Memorial Sloan Kettering’s mission. MSK has a singular focus on treating and curing cancer through its programs in patient care, education, and research. We need to be able to adjust and meet the needs of our institution.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Healthcare Institutional Investors.