Hartford HealthCare (& Its Peers) 'Striving For Excellence:' David Holmgren, Chief Investment Officer | Exclusive Q&A
David Holmgren is chief investment officer at Hartford HealthCare, where he's managed the not-for-profit investment portfolio since 2010. He has more than 27 years of investment experience in the U.S., Europe and the Middle East covering traditional and alternative asset management. In this interview, he discusses why he's an advocate of an active global approach; his thoughts on the ever-evolving health care and endowment space; and why Hartford HealthCare and its peers are striving to be the best-in-class.
David Holmgren was recently named on Trusted Insight's 2018 Top 30 Health Care System Chief Investment Officers. He graciously spoke with us on Feb. 16th, 2018. The following interview has been edited and condensed.
Trusted Insight: Do you recognize the markets as they are today?
David Holmgren: One of the biggest changes here was the build-out of the real asset portfolio in the last two years. We've diversified into other classes and assets, which are less sensitive to those characteristics mentioned. So, real assets being items such as power distribution and social infrastructure. Those types of programs are less valuation sensitive, they're less rate sensitive and they're less correlated to U.S. economic growth.
We do recognize and appreciate those type of risks, but we've been trying to control for them for a few years now. We are looking at ways to globally diversify away from those risks, while still maintaining our needed return profile.
"The performance track record really comes down to our active global approach, and our diligence in doing the homework. We don't shy away from making a trip to South America or China. We really do cross all the T's."
For instance, let’s say someone asks, "Are equities are expensive?" That question means more to somebody that actually deploys in the passive markets. For us, I would highly argue that you look at the individual subclasses and I wouldn't make those type of blanket assessments. There are items such as small-cap valued Japanese equities, which I'd say are highly undervalued. For an active manager, it's very different when you make a general market assessment.
The real question is, “How do you adjust for certain pockets of lower rates and higher values?” Those would only be in some areas, not globally. There's plenty of investment opportunity globally, and we’re finding opportunity everywhere.
Trusted Insight: Under your leadership, Hartford HealthCare beat its 1- and 5-year return benchmarks. To what do you attribute this success?
David Holmgren: The performance excess comes from being highly active. We don't utilize anything passive. The performance track record really comes down to our active global approach, and our diligence in doing the homework. We don't shy away from making a trip to South America or China. We really do cross all the T's. Our commitment to being thoughtful and doing the homework, I think, has been what’s really paid off.
Trusted Insight: In your last interview with us, you mentioned that Hartford is “comfortable holding more emerging market equity than its peers.” What geographies are you optimistic about in 2018 and beyond?
David Holmgren: Emerging markets did exceptionally well last year. Oddly enough, the weight of emerging markets for our peers has risen while ours has declined. I don’t know if we are still overweight to our peers” I wouldn't necessarily think that we are. We have trimmed a little bit, whereas most endowments have actually dramatically increased. We tend to be a little bit contrarian on the asset allocation front.
"Sophisticated investment offices, real endowment peers and others that I consider to be my peers, have been raising their game across the board. That has actually widened the spectrum."
Some excess return to our endowment peers did come from our asset allocation decision process. But I wouldn't guess that we're overweight in emerging markets to our peers as present as I don’t believe that EM weight will drive our relative performance.
Trusted Insight: To what extent do you think machine learning will have an impact on institutional investing?
David Holmgren: Machine learning should be able to lower costs for management. We're expecting a fee compression on the asset manager's side. As far as an investment opportunity, we're seeing a little bit more in the private arena, rather than in the public side.
There’s certainly expansion within the venture and late-stage growth equity. I’d say specifically within Fintech in our Chinese and American venture book. There’s opportunity on the venture portfolio and, internally, on the asset management component. Those would probably be the two biggest areas where we're expecting an impact on our portfolio.
Trusted Insight: There’s been an increasing number and sophistication in investment offices. Does that present a challenge in standing out among the rest?
David Holmgren: It actually makes it rewarding since it raises the game for everybody. Sophisticated investment offices, real endowment peers and others that I consider to be my peers, have been raising their game across the board. That has actually widened the spectrum. And that's in everything like risk tolerances, asset allocation and seeding newer investment strategies. I think the spectrum is actually increasing, because now we have a lot more thought leaders in the health care and endowment space.
Trusted Insight: Health care systems, as a sophisticated entity, are a relatively new entrant to the institutional investing universe. What role do you see them playing over the next decade?
David Holmgren: Hospital investment offices are all roughly 8-10 years old. And there's a second wave of hospitals that will be soon be establishing their investment offices. Within the next decade, I would say, there's probably going to be a doubling in the number of dedicated investment offices within the health care organizations.
Trusted Insight: Any final thoughts?
David Holmgren: Like Hartford HealthCare, all hospital systems really strive for efficiency. They're all establishing these centers of excellence, and I would think that the investment offices are really representative of their organization's commitment to excellence.
I don't think that's special to Hartford HealthCare. I'm equally impressed with what I see out of Mercy Health in St Louis, Dignity Health in San Francisco and/or Advocate in Chicago just to name a few. I think it's more of a national characteristic that health care organizations are really striving for excellence.
You saw it 20-30 years in the university space, and then the investment offices followed suit. It seems to be the national phenomena that the health care organizations are equally best in class, efficient and high quality. I’m flattered that you’re recognizing our work here at Hartford HealthCare, but in truth, I see much of the same phenomena at the other respective peer organizations.
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