How Ancient Chinese Wisdom Inspires This Investor’s Strategy | Exclusive Q&A With Ying Hosler, Director Of Penn State University Endowment
Ying Hosler has been with the Office of Pennsylvania State University Investment Management since September 2008. She is involved in all aspects of managing and investing the University’s $3.8 billion long-term investment pool, with a primary focus on equity-related strategies in both traditional and alternative spaces, with responsibilities in asset allocation, manager sourcing and ongoing due diligence. Prior to joining the Penn State investment team, Hosler had more than a decade of broad business experience in both the U.S. and China. Hosler received her MBA from Yale School of Management in 2006. She also holds a master's in finance from Beijing University.
In this interview, she discusses how she and the Penn State team brought the endowment’s management in-house from external consultants in recent years and increased exposure to private and international sectors. Hosler also explains why she is dubious about the turning-to-beta trend among institutional investors.
Hosler was recently named on Trusted Insight’s Top 30 University Endowment Rising Stars. She graciously spoke with us on May 5, 2017. The following interview has been edited and condensed.
Trusted Insight: Can you talk about the Penn State University Investment Office team and your role within it?
Ying Hosler: Currently, we have a team of three investment staff plus a chief investment officer and a CEO. We operate using a generalist model. There are many benefits of not getting people too silo-ed. Even though each of us takes a lead on different areas, every investment idea has to be vetted by the team before going to the Penn State Investment Council for approval. We have a terrific team, and we work very well together.
For the past five years, I’ve been the primary leader of the global equity portfolio and the secondary leader for the diversifying portfolio. Recently I’ve been asked to take more ownership in our private equity/venture portfolio, which I’m quite excited about.
Trusted Insight: How is the endowment pool invested across asset classes?
Ying Hosler: We follow the typical endowment model with a slight conservative tilt. We allocate roughly half to global equities, including traditional long-only and a few long-biased hedge funds; 25 percent in private assets, which includes venture, private equity, private real estate and natural resources; 10 percent in diversifying strategies and 15 percent in fixed income.
Trusted Insight: You joined Penn State in September 2008. What was it like back then and how has the investment office and its portfolio changed since?
Ying Hosler: My first day at Penn State was Sep. 15, 2008, the exact date when Lehman Brothers went bankrupt. During that period, some of our peers had to deal with a liquidity squeeze. Fortunately, we weathered the storm pretty well, as our portfolio was more balanced, and we had enough liquidity to support our private commitments and spending.
Before my time with Penn State, there was only one investment staff member in addition to the CIO and the CEO. So the office utilized a “full service” consultant functioning as an extension of staff, who helped us with performance reporting, manager selection, asset allocation, spending, etc. As we grew, we were able to build in-house capabilities and gradually moved away from the “full service” consultant model. Today, we do everything in-house, except for our private equity/venture program, where we continue to maintain a solid relationship with a specialized consultant.
As far as portfolio changes, we reduced the mandatory fixed income policy target and increased the private program policy target by 5 percent. It’s getting harder and harder to meet a long-term nominal return target of 7.5 to 8 percent.
Trusted Insight: What prompted the strategy to seek more non-U.S. managers?
Ying Hosler: I think each organization has a different history. We were behind the curve in terms of international exposure: 10 years ago, we had very little non-U.S. exposure. Today, we have managers in London, Zurich, Dubai, Tokyo, Beijing, etc. We’ve had success with unique, on-the-ground, local managers. The likelihood of international active managers adding value is much higher, as markets are less efficient outside of the U.S.
Trusted Insight: Are there any specific markets outside the United States that interest you?
Ying Hosler: Currently, we are looking at India, China and the broader EM Asia area.
Trusted Insight: What qualities do you look for when you build out new manager relationships?
Ying Hosler: It's hard to generalize. We look at different aspects just like everybody else. Qualities I tend to look for are: focus, passion, ability to see the big picture and integrity. 1) I don’t believe one can do many things all very well. So, focus is important. 2) Passion brings out intellectual curiosity. So, the manager is more likely to do thorough research on investment ideas. 3) We are not lacking well-trained analytical minds. However, a forward-looking approach is rare. The ability to connect numbers with big picture can give the manager a better vision for the future. 4) Integrity: someone who is transparent and whom you can trust.
Trusted Insight: How would you compare today's capital market to that of 2008? Are there any lessons learned from the last financial crisis applicable to today's market?
Ying Hosler: It’s animal spirits versus black swan. Back in late 2008, everyone wanted to run away from the stock market and tail hedge was the “in” word then. But consider that you would have missed nine years of bull market had you stayed away. Today, everyone seems to be steering away from active management and is instead taking the low-cost beta ride. Bloomberg reports that there are now more stock index funds than individual stocks. That’s an opportunity for active management.
I think it’s a bad idea to rush with the tides and shoot for a one-way bet. No one has a crystal ball. The only “free lunch” is diversification. An ancient Chinese philosopher once said, “Act with no action.” We try to avoid daily headline news, but focus on long-term growth trends while maintaining a balanced portfolio. We also commit to a few “outside-the-box” investment strategies, such as intellectual properties of music royalty and entertainment content, which are far less crowded trades.
Trusted Insight: You have a glowing resume in finance, studying at China's Beijing University and Yale. Then you worked for large corporations like GE and United Technologies. What led you to a university endowment?
Ying Hosler: I was a late starter in the university endowment world, even though at Yale, I was intrigued by David Swensen’s endowment management lectures. As an immigrant, it took me a longer time to find the right career path. I tried working for big corporations, but I didn’t enjoy climbing the corporate ladder. Fortunately, Penn State took me in when I didn’t have any direct buy-side experience. It was the turning point of my career.
Trusted Insight: University endowments are perceived as the pioneers of the institutional investing world. What do you like most about investing for an endowment?
Ying Hosler: Our team is one of the most stable ones in our industry. We’ve had zero employee turnover since I joined the investment office nine years ago.
First of all, we have a small team with a generalist model. So, we get to work on every aspect of the portfolio. It’s a great training ground for investment professionals. Secondly, our asset size allows us to be more nimble and opportunistic compared to large/mega asset owners. So we have the freedom to search smaller/newer strategies. And lastly, the fulfillment I get from my job is amazing: there is a direct impact on students’ lives and faculty research programs.
Trusted Insight: What career advice would you give to young people who aspire to work in university endowments or institution investing overall?
Ying Hosler: First of all, I think many young people don’t give enough consideration to the value of a long-term career. In places like Penn State, the starting salary may be not as desirable as in the private sector. But don't let that be the hurdle if you are passionate about the job. Monetary reward will come later. Secondly, generally speaking, the culture of a university endowment office is more about collaboration than competition. Personality fit is key. Lastly, there may be some tedious grunt work along the way, but don’t pick and choose. Soak up as much as you can and find where you can add value. Persist and you will succeed.
To learn more about foundation investing, view the complete list of Top 30 University Endowment Rising Stars.
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