Renee Hanna is the director of investments at Baylor University. She is responsible for private equity and real asset investments at the University’s Endowment, which manages more than $1 billion. Prior to returning to her alma mater, Renee was an associate investment analyst at Lee Financial Corporation, a multi-family investment office. Hanna received her BBA from Baylor University, graduating cum laude, and holds the chartered financial analyst designation.
Ms. Hanna was recently named to Trusted Insight’s ranked list of the Top 30 Female Limited Partners In Private Equity. She graciously spoke with Trusted Insight on Feb. 16, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: You began your career at Lee Financial, a multi-family office before moving to Baylor. Tell me what attracted you to the endowment space, particularly Baylor?
Renee Hanna: At Lee Financial I was exposed to portfolio management across all asset classes and was attracted to alternative investments, particularly private investments. After a few years in this role, an opportunity arose within the Baylor University Office of Investments to utilize the portfolio management skills I had attained to focus on private investments within the endowment. I jumped at the opportunity to move back to my hometown and work for my alma mater. It is fulfilling to be contributing to the mission of Baylor University.
Trusted Insight: What is your investment philosophy and how has your education and your experience between Lee Financial and Baylor helped shape that philosophy?
Renee Hanna: We spend a lot of time focused on portfolio construction and building a diversified portfolio that can withstand downturns while taking advantage of market opportunities. Our mission is to provide consistent, risk-adjusted returns that meet the return requirement of the endowment over the long term. Within the private portfolio, this framework provides us with a roadmap to sourcing investments in sub-categories that present the greatest potential to deliver strong investment returns, which in turn grow the endowment and directly benefits the students of Baylor University.
As it relates to experience, my time at Lee Financial was spent during a bull market. I joined the endowment in May 2008 and saw first-hand the impact the global financial crisis had on the portfolio. Like many with nascent private investment books, we did not have the liquidity to make meaningful tactical allocations. Fast forward to today, and we have a portfolio that is much better positioned to play offense when opportunities arise during market dislocations.
Trusted Insight: What takeaways did you get from the financial crisis and how is that benefiting you today in this current market climate?
Renee Hanna: As I mentioned before, cash matters as does having the ability to invest when opportunities present themselves. Within the private investment book, one of the lessons from that time relates to commitment pacing. Large allocations in given years may necessarily restrict allocations in subsequent years when the opportunity may be greater. Cash flow modeling and determining the appropriate commitment pace for the endowment is critical in building out a strong, well-functioning private investment portfolio. We do not seek to time the market with our private investments, but do invest tactically within a commitment range each year.
Additionally, we have reduced the number of our manager relationships in an effort to run a more focused portfolio. We do not want or need to be over-diversified. We are seeking to drive outperformance with each manager selection providing a unique return stream that complements the others in our book.
Trusted Insight: Women seem to be better represented in the investment teams of foundations and endowments as opposed to other firm types. Is that a fair assessment and why might that be?
Renee Hanna: I can't really comment on the practice of other firms, but I know that I feel very fortunate to work with a great group of male and female investment professionals. There are six people in our office, half men and half women. We have a great team with equal voice, and I attribute that to the leadership of our CIO, Brian Webb.
Trusted Insight: Do you have a top piece of advice for other women that are looking to break into the investment industry?
Renee Hanna: Because there are generally fewer women represented in private equity or corporate finance, that provides an opportunity to distinguish oneself, but you have to do the work. Whether you are male or female, if you do the work and put in the time, then your performance will speak for itself. Surround yourself with colleagues and professionals who are smarter than you. It will challenge you and make you better.
Trusted Insight: Tell me a little bit about the private equity portfolio and how your approach to it has changed over time.
Renee Hanna: I mentioned before that we are looking to run a more focused portfolio within private investments. We have spent the last three years repositioning our private portfolio and feel good about both its composition and exposure. Coming into 2016, we had quite a bit of dry powder in distressed, and we feel good about the exposure we have there. We have been legging into growth opportunities with managers committed to lower middle market and / or an expertise within a particular sector.
We've chosen to structure our private equity portfolio with more of a barbell approach and with the commitments made over the past three years now have a more balanced private equity book. The other piece of our private equity book is venture capital. We have had some success in building our VC exposure and continue to look to add exposure to leading VC firms that have demonstrated their ability to access the best and brightest entrepreneurs.
Trusted Insight: How has the private equity market changed since you began?
Renee Hanna: When I joined the Office of Investments in 2008, markets were on a steady decline, and it was an attractive time to be putting money to work. In that environment, picking your spots was less challenging because your margin for error was greater given the lower valuations. Public markets are off to a rocky start in 2016. To me, a valuation correction would be welcomed as purchase price multiples have been historically high in recent years, which makes it a more challenging environment in which to invest. We are looking to partner with quality managers that adjust to changing market conditions and are disciplined on both the buy-side and sell-side.
Trusted Insight: What are the key characteristics you look for in a manager?
Renee Hanna: Institutional quality, which we define as integrity, transparency, high level of fiduciary responsibility, and institutional quality valuation policies. Once a manager is determined to have met this hurdle, we focus heavily on vetting the team. We like to see teams that have a history and continuity together and have a well-defined strategy with a fund that is sized appropriately for the opportunity. More quantitative analysis regarding realizations, hold periods, return attribution, etc. is also reviewed. At Baylor, we equally weight the quantitative aspects with the qualitative characteristics of the firm. Private investments are a long-term commitment, and we want to align ourselves with teams that represent the mission of Baylor University.
Another important piece to consider is that we only have a certain amount of allocable dollars each year and need to use them wisely. It forces our office to be selective in how we use our capital and sets a high bar as we have finite resources in any given year. It makes us better and drives us toward proven, high-integrity managers with expertise in their segment of the market, strong investment acumen and discipline.
Trusted Insight: What makes the Baylor investment team unique?
Renee Hanna: I cannot comment on other institutions because I’m not there on a day-to-day basis. I know for us, we operate as a team with well-defined roles and are constantly in communication with each other. We meet every Monday morning and have internal investment meetings to vet each investment before we present it to our board. But, we sit right across the hall from each other. We are not waiting for the internal committee meeting to discuss an investment. We're discussing things real time, day to day. There's a lot of discussion on marketable vs private so we're not operating in a silo. I think communication and teamwork is key. We all have different backgrounds, viewpoints and experiences and leverage each other to make sound investment decisions.
Trusted Insight: What major trends have you identified?
Renee Hanna: I mentioned that we now run a more focused portfolio of managers. That's definitely a trend we're seeing in the endowment community as well. Getting a bit more into investment trends, it's hard to ignore what's happening across the energy landscape right now. Going into the commodities downturn, we were light on energy across both publics and privates. For privates, we now have significant dry powder to take advantage in this lower cost environment.
Trusted Insight: What geography's and/or industry's are you looking to for sustained growth in 2016 and beyond?
Renee Hanna: I mentioned venture capital previously, and we’re definitely looking to pick up some growth exposure from our venture capital managers, which tends to be somewhat less correlated. It's more about backing the right entrepreneur. It's less correlated with public equities than our private equity book overall.
We continue to have dry powder with some of our distressed relationships. To the extent that there’s a deeper correction across the markets and in the high-yield market in particular, we have capital ready to invest there.
And I touched on the energy sector. We are not expecting a lot of growth from this sector in 2016, but I do feel like we have reached a point where it is more attractive to be putting money to work in energy.
Trusted Insight: What's the biggest challenge you face in your position at the Baylor Endowment?
Renee Hanna: The biggest challenge I face in my position is choosing the right private equity teams to partner with because you are signing up for a long-term commitment. The secondary market has evolved and is an option for liquidity, but there is a cost to achieve it. As a generalist, the entire investment universe is available for consideration and there are a lot of good firms to choose from. This is in part why we lean heavily on portfolio construction and are disciplined as to commitment pace. It sets a high bar each year because the decision to invest with a manager today impacts the capital you have available for subsequent opportunities.
Trusted Insight: What one of Trusted Insight's main objectives is to help foster the next generation of managing directors, investment officers, etc. If you could share the number one lesson you've learned in your career as an institutional investor with this next generation, what might that be?
Renee Hanna: Do the work, do the reference calls, look at the data, trust but verify. It's very easy to get caught up in trends or flashy investments. People often say portfolio construction is more art than science, but know what each investment in your portfolio is bringing to the table and understand how the different pieces work together.
Trusted Insight: What have I failed to ask that I should know about you, about Baylor, about private equity investing or about institutional investing in general?
Renee Hanna: Going into Business School, I was certain I wanted to have a career in accounting, then I took my first finance class. I switched gears and haven’t look back. I love what I do and being able to do it at Baylor is icing on the cake.
To learn more about the the Top 30 Female Limited Partners In Private Equity, click here.
Ms. Hanna was recently named to Trusted Insight’s ranked list of the Top 30 Female Limited Partners In Private Equity. She graciously spoke with Trusted Insight on Feb. 16, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: You began your career at Lee Financial, a multi-family office before moving to Baylor. Tell me what attracted you to the endowment space, particularly Baylor?
Renee Hanna: At Lee Financial I was exposed to portfolio management across all asset classes and was attracted to alternative investments, particularly private investments. After a few years in this role, an opportunity arose within the Baylor University Office of Investments to utilize the portfolio management skills I had attained to focus on private investments within the endowment. I jumped at the opportunity to move back to my hometown and work for my alma mater. It is fulfilling to be contributing to the mission of Baylor University.
Trusted Insight: What is your investment philosophy and how has your education and your experience between Lee Financial and Baylor helped shape that philosophy?
Renee Hanna: We spend a lot of time focused on portfolio construction and building a diversified portfolio that can withstand downturns while taking advantage of market opportunities. Our mission is to provide consistent, risk-adjusted returns that meet the return requirement of the endowment over the long term. Within the private portfolio, this framework provides us with a roadmap to sourcing investments in sub-categories that present the greatest potential to deliver strong investment returns, which in turn grow the endowment and directly benefits the students of Baylor University.
As it relates to experience, my time at Lee Financial was spent during a bull market. I joined the endowment in May 2008 and saw first-hand the impact the global financial crisis had on the portfolio. Like many with nascent private investment books, we did not have the liquidity to make meaningful tactical allocations. Fast forward to today, and we have a portfolio that is much better positioned to play offense when opportunities arise during market dislocations.
Trusted Insight: What takeaways did you get from the financial crisis and how is that benefiting you today in this current market climate?
Renee Hanna: As I mentioned before, cash matters as does having the ability to invest when opportunities present themselves. Within the private investment book, one of the lessons from that time relates to commitment pacing. Large allocations in given years may necessarily restrict allocations in subsequent years when the opportunity may be greater. Cash flow modeling and determining the appropriate commitment pace for the endowment is critical in building out a strong, well-functioning private investment portfolio. We do not seek to time the market with our private investments, but do invest tactically within a commitment range each year.
Additionally, we have reduced the number of our manager relationships in an effort to run a more focused portfolio. We do not want or need to be over-diversified. We are seeking to drive outperformance with each manager selection providing a unique return stream that complements the others in our book.
Trusted Insight: Women seem to be better represented in the investment teams of foundations and endowments as opposed to other firm types. Is that a fair assessment and why might that be?
Renee Hanna: I can't really comment on the practice of other firms, but I know that I feel very fortunate to work with a great group of male and female investment professionals. There are six people in our office, half men and half women. We have a great team with equal voice, and I attribute that to the leadership of our CIO, Brian Webb.
Trusted Insight: Do you have a top piece of advice for other women that are looking to break into the investment industry?
Renee Hanna: Because there are generally fewer women represented in private equity or corporate finance, that provides an opportunity to distinguish oneself, but you have to do the work. Whether you are male or female, if you do the work and put in the time, then your performance will speak for itself. Surround yourself with colleagues and professionals who are smarter than you. It will challenge you and make you better.
Trusted Insight: Tell me a little bit about the private equity portfolio and how your approach to it has changed over time.
Renee Hanna: I mentioned before that we are looking to run a more focused portfolio within private investments. We have spent the last three years repositioning our private portfolio and feel good about both its composition and exposure. Coming into 2016, we had quite a bit of dry powder in distressed, and we feel good about the exposure we have there. We have been legging into growth opportunities with managers committed to lower middle market and / or an expertise within a particular sector.
We've chosen to structure our private equity portfolio with more of a barbell approach and with the commitments made over the past three years now have a more balanced private equity book. The other piece of our private equity book is venture capital. We have had some success in building our VC exposure and continue to look to add exposure to leading VC firms that have demonstrated their ability to access the best and brightest entrepreneurs.
Trusted Insight: How has the private equity market changed since you began?
Renee Hanna: When I joined the Office of Investments in 2008, markets were on a steady decline, and it was an attractive time to be putting money to work. In that environment, picking your spots was less challenging because your margin for error was greater given the lower valuations. Public markets are off to a rocky start in 2016. To me, a valuation correction would be welcomed as purchase price multiples have been historically high in recent years, which makes it a more challenging environment in which to invest. We are looking to partner with quality managers that adjust to changing market conditions and are disciplined on both the buy-side and sell-side.
Trusted Insight: What are the key characteristics you look for in a manager?
Renee Hanna: Institutional quality, which we define as integrity, transparency, high level of fiduciary responsibility, and institutional quality valuation policies. Once a manager is determined to have met this hurdle, we focus heavily on vetting the team. We like to see teams that have a history and continuity together and have a well-defined strategy with a fund that is sized appropriately for the opportunity. More quantitative analysis regarding realizations, hold periods, return attribution, etc. is also reviewed. At Baylor, we equally weight the quantitative aspects with the qualitative characteristics of the firm. Private investments are a long-term commitment, and we want to align ourselves with teams that represent the mission of Baylor University.
Another important piece to consider is that we only have a certain amount of allocable dollars each year and need to use them wisely. It forces our office to be selective in how we use our capital and sets a high bar as we have finite resources in any given year. It makes us better and drives us toward proven, high-integrity managers with expertise in their segment of the market, strong investment acumen and discipline.
Trusted Insight: What makes the Baylor investment team unique?
Renee Hanna: I cannot comment on other institutions because I’m not there on a day-to-day basis. I know for us, we operate as a team with well-defined roles and are constantly in communication with each other. We meet every Monday morning and have internal investment meetings to vet each investment before we present it to our board. But, we sit right across the hall from each other. We are not waiting for the internal committee meeting to discuss an investment. We're discussing things real time, day to day. There's a lot of discussion on marketable vs private so we're not operating in a silo. I think communication and teamwork is key. We all have different backgrounds, viewpoints and experiences and leverage each other to make sound investment decisions.
Trusted Insight: What major trends have you identified?
Renee Hanna: I mentioned that we now run a more focused portfolio of managers. That's definitely a trend we're seeing in the endowment community as well. Getting a bit more into investment trends, it's hard to ignore what's happening across the energy landscape right now. Going into the commodities downturn, we were light on energy across both publics and privates. For privates, we now have significant dry powder to take advantage in this lower cost environment.
Trusted Insight: What geography's and/or industry's are you looking to for sustained growth in 2016 and beyond?
Renee Hanna: I mentioned venture capital previously, and we’re definitely looking to pick up some growth exposure from our venture capital managers, which tends to be somewhat less correlated. It's more about backing the right entrepreneur. It's less correlated with public equities than our private equity book overall.
We continue to have dry powder with some of our distressed relationships. To the extent that there’s a deeper correction across the markets and in the high-yield market in particular, we have capital ready to invest there.
And I touched on the energy sector. We are not expecting a lot of growth from this sector in 2016, but I do feel like we have reached a point where it is more attractive to be putting money to work in energy.
Trusted Insight: What's the biggest challenge you face in your position at the Baylor Endowment?
Renee Hanna: The biggest challenge I face in my position is choosing the right private equity teams to partner with because you are signing up for a long-term commitment. The secondary market has evolved and is an option for liquidity, but there is a cost to achieve it. As a generalist, the entire investment universe is available for consideration and there are a lot of good firms to choose from. This is in part why we lean heavily on portfolio construction and are disciplined as to commitment pace. It sets a high bar each year because the decision to invest with a manager today impacts the capital you have available for subsequent opportunities.
Trusted Insight: What one of Trusted Insight's main objectives is to help foster the next generation of managing directors, investment officers, etc. If you could share the number one lesson you've learned in your career as an institutional investor with this next generation, what might that be?
Renee Hanna: Do the work, do the reference calls, look at the data, trust but verify. It's very easy to get caught up in trends or flashy investments. People often say portfolio construction is more art than science, but know what each investment in your portfolio is bringing to the table and understand how the different pieces work together.
Trusted Insight: What have I failed to ask that I should know about you, about Baylor, about private equity investing or about institutional investing in general?
Renee Hanna: Going into Business School, I was certain I wanted to have a career in accounting, then I took my first finance class. I switched gears and haven’t look back. I love what I do and being able to do it at Baylor is icing on the cake.
To learn more about the the Top 30 Female Limited Partners In Private Equity, click here.