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Helmsley Trust's Liquidity-Focused Investment Strategy | Exclusive Q&A With Al Kim, Director Of Investments

by trusted insight posted 4years ago 2313 views

Al Y. Kim is a director of investments at The Helmsley Charitable Trust. He manages the Trust’s $5.5 billion of assets across various strategies. Prior to joining Helmsley Trust in August 2015, Kim was a director at BlackRock for seven years. Before that, he was a senior associate at Wilshire Associates. Kim has an MBA from the University of Chicago and a B.S. in business administration from the University of Southern California.

Unlike many foundations or institutional investors at large, Helmsley Trust allocates its assets by a liquidity-based framework and works with a concentrated network of asset managers. In this interview, Kim explains the making of this investment strategy and the flexibility in asset exposure a liquidity-based framework affords.

Kim was recently named on Trusted Insight’s Top 30 Foundation Rising Stars. He graciously spoke with us on July 6, 2017.

Trusted Insight: How are Helmsley’s assets allocated across different asset classes?

Al Kim: Several years ago, our team went through a strategic plan that categorized our assets based on liquidity, which we, at Helmsley, view as the biggest risk we need to manage in order to maximize our grant-making ability and survive into perpetuity. We broke out our portfolio into safe assets, which are comprised of cash and very liquid investment grade bonds, and return-generating assets, which are risk assets tiered using a liquidity-based framework depending on how quickly we can contractually and realistically get our money back.

Our portfolio today is sitting at roughly 20 percent in safe assets and 80 percent in return-generating assets. As part of our strategic plan, we also put in place a framework that shifts our asset allocation based on where we are in the business/market cycle, and the current positioning in part reflects our view that we are in the mid-to-late part of the current cycle. The beauty of this liquidity-based framework is that we are not beholden to any asset class, strategy type or sub-segment exposures, which allows our team to deploy our assets in the strategies that make the most sense at any given time and pivot our exposures as appropriate.

Trusted Insight: How is your investment team structured?

Al Kim: We are currently a 12-person team led by our CIO Roz Hewsenian. We are comprised of four investment directors, four investment officers and associates, an operations manager and two assistants. The directors collectively are responsible for portfolio and market oversight: one of the directors is focused on macro research, another on risk and operations, while I am one of two directors of investments responsible for the day-to-day implementation and execution of the trust’s strategy. By implementation, I mean everything from the management of cash flows in and out of the portfolio, portfolio execution across our safe assets and liquidity segments, and of course manager monitoring, sourcing and research.

I think Roz is a great CIO because she has created a team structure and fostered a culture that encourages vigorous give and take on all investment decisions. This provides the team with lots of opportunities to grow. At our weekly team meetings and monthly strategy meetings, I can argue how the macro environment creates opportunities or increases certain risks in our portfolio, and, on a regular basis, I am presenting to our investment committee and engaging them in discussion. My first project upon joining the team two years ago was to lead the restructuring of our safe assets portfolio. I have since worked with my colleagues to enhance our hedge fund line-up last year and most recently have been focused on the real estate and seed/emerging venture capital categories. I really enjoy being at Helmsley, working for Roz and being able to have an impact on the team.

Trusted Insight: How do you source managers and what's your selection criteria?

Al Kim: We are looking for managers that offer exposures we don’t have elsewhere in the portfolio and that have a differentiated strategy that is poised to do well in the market environment at the time of investment. For example, over the last few years, we have been restructuring our hedge fund exposures and, given where we are in the current credit cycle, we were getting concerned about the potential mark-to-market volatility of our credit managers with significant exposure to distressed debt. Helmsley, as a long-term investor, can take illiquidity risk, but the game theory of investing in hedge funds with illiquid exposures worried us, as we did not want to be faced with the position of being left holding these funds if other investors were to redeem in the event of a crisis.

In the meantime, we identified a long/short credit manager that had a strong macro orientation coupled with a very highly-active trading approach to the high-yield space. This unique combination of characteristics, in addition to the manager’s clear awareness and willingness to control its asset growth, led our team to get conviction around the manager’s ability to be invested in high yield at the right times but to be able to pivot the portfolio ahead of major downturns in credit. Over the last 12 months, we ended up redeeming out of our legacy credit managers and funding this new one, which so far has worked out well for us.

At the end of the day, we don’t have hard and fast rules on where managers are sourced or who on the team sources them but, once prospective managers are identified, it is my job to assign the team responsible for due diligence and to make sure that the manager and the landscape is properly and thoroughly diligenced so we can make a compelling case when presenting the manager to our Investment Committee. Our team has also made a conscious decision to be concentrated in our manager relationships. We currently have less than 50 managers, whereas some of my peers have nearly double this amount and some of even more. I will say this conscious decision really helps test our conviction on managers.

The beauty of this liquidity-based framework is that we are not beholden to any asset class, strategy type or sub-segment exposures.

Trusted Insight: Is ESG or social impact a factor in your manager selection process?

Al Kim: The overarching objective of the investment team is to find investments that help the overall portfolio meet our strategic return objective over the long term. We currently don’t have a specific segment of the portfolio carved out for ESG or social impact-related investments. However, I’m sure our portfolio won’t be immune to benefitting from the best practices in ESG employed by the underlying companies and businesses that we are exposed to.

Trusted Insight: Do you tend to work with major asset management firms or smaller managers?

Al Kim: It depends on the types of exposures, but, for the most part, I would say we generally tend to favor specialized managers that are very aware of their core competencies, understand the dynamics between their ability to execute and asset growth, and actively manage and control their capacity. However, we do have relationships with some of the larger firms in the asset management space, including my former employer BlackRock, because they can and do provide the most efficient means of delivering exposures to certain segments of our portfolio.

Trusted Insight: You worked in the OCIO program at BlackRock. How different is that job than managing a portfolio from within an institution?

Al Kim: The two worlds are very different. The OCIO business collectively is comprised of a wide spectrum of managers that provide varying levels of customization. On one end, you have some OCIO firms that offer a single commingled vehicle that has a set amount in public markets, alternatives, cash, etc., and clients will buy varying units of that fund. On the other end, some OCIO providers manage customized mandates, where each client has an account tailored to its specific needs, constraints, and objectives. BlackRock falls in this latter camp and is a significant player in the OCIO space with assets under management I want to say north of $100 billion now.

The key difference in managing assets for a single foundation versus a customized OCIO business comes down to the complexity of implementation and speed of execution. At the end of the day, the team at Helmsley is managing one pool of assets, in one jurisdiction, and our team is located in one office. When we find a manager with a strategy we like, we only need to worry about Helmsley and the best vehicle for us, and we can act very quickly, whereas it can get more complicated in a customized business with multiple clients across different countries which may require a range of different vehicles and result in varying outcomes.

Trusted Insight: What’s your observations on institutions choosing between OCIO and internal investment staff?

Al Kim: With respect to outsourcing, I think that it depends upon a lot of factors. For instance, I believe private foundations that are mandated to last into perpetuity should be managing their own assets. However, if the endowment is not large enough to support an investment team, then hiring an OCIO is a sensible solution. Also, many large corporations have decided that managing pension plans is not part of their core business and have decided to go the OCIO route, and this makes sense as well. So, it is really case dependent.

To learn more about foundation investing, view the complete list of Top 30 Foundation Rising Stars.

You can view our full catalogue of interviews with institutional investors here.