Fred Greear is the chief investment officer at Carilion Clinic, where he has served since 2015. Previously, he held the title of director of investments. He has also worked in allocator roles at Huntington Ingalls Industries and The Pension Boards-United Church of Christ following his work on the investment management side at Cohen & Steers and Lord Abbett. Greear holds an MBA from Vanderbilt University and a bachelor's degree from Denison University. He also holds a Chartered Financial Analyst (CFA) designation.
In this interview, he discussed the process of building an internal investment function in an organization that previously did not have one; the importance of having an innovation team within a health system; and why Carilion Clinic has focused more on smaller, emerging managers and niche areas of the market.
Fred Greear was named to Trusted Insight's 2022 Top Health System Chief Investment Officers.
Trusted Insight: Tell us about Carilion Clinic and the mission and focus of the organization. What is the investment office dynamic like?
Fred Greear: Carilion is a non-profit health system based in Roanoke, Virginia. The organization provides care to close to a million people in the region with a mission to improve the health of the communities we serve.
Our investment assets are approximately $3 billion split between a long-term operating investment portfolio and an ERISA-defined benefit pension. The pension is open to all Carilion employees and has a current funded status of around 95% (boosted over the last two years by asset value appreciation and more recently higher interest rates). We are implementing a pension de-risking glide path, shifting the asset allocation to a majority of long bonds to hedge our liability.
Our investment team size is five people, including a chief investment officer, two investment portfolio managers (one focused on public markets and one on private markets), one investment analyst, and one investment operations and risk director.
Trusted Insight: You’ve recently been named Chief Investment Officer, but you have always held leadership responsibility within the investment team? What has this team restructuring been like?
Fred Greear: I joined Carilion in April 2015 as director of investments. It was our first internal dedicated investment role. Previously, we outsourced our investment management to a consulting firm. The Carilion Board of Directors Finance Committee has fiduciary responsibility for our investment portfolios and has delegated discretion over the selection and removal of investments within the portfolios to the investment team, pursuant to our internal investment due diligence process. We hired an operational due diligence (ODD) specialist firm earlier this year to provide operational and compliance oversight of our investment firms. As part of building our team, we engaged an independent third-party firm to help us assess and optimize our structure, which was the basis of our recent restructuring against the backdrop of best practices of institutions adopting an internal investment team approach.
In 2018, we also created an Investment Advisory Subcommittee (of the Finance Committee) comprised of both Finance Committee members and external non-Finance Committee members.
Trusted Insight: How do you see the strategic asset allocation strategy evolving in the next 5-10 years? Many health system peers say they are increasingly allocated to alternative assets, is this the case also with Carilion Clinic?
Fred Greear: As we moved away from an outsourced investment model, we changed our operating portfolio policy benchmark from a five-component custom benchmark to a more transparent, investable benchmark comprised of 60% equity (MSCI ACWI) and 40% fixed income (Barclays Aggregate). Within those two broad allocations, we can invest in alternative investments including up to 25% of the portfolio in private, illiquid investments. We do not consider hedge funds a separate asset class, but instead place them either in equity or fixed income (i.e., we have a long-short equity hedge fund allocation as part of our equity portfolio and a credit hedge fund allocation as part of our fixed income portfolio).
To date, we have decided not to allocate to strategies such as global macro due to the difficultly in predicting results with consistency, and we view our overall portfolio positioning and the exposures and hedges we put in place across different market environments as a form of global macro we control.
Trusted Insight: I’m sure it was overwhelming managing a health system during the pandemic, but how do you position yourselves for possible downturn/recessions?
Fred Greear: The first half of 2020 was a challenging period broadly speaking and specifically within our portfolios, given some exposure we had to the energy sector. We identified an opportunity to add to the sector at trough prices, which helped as the market recovered, and we have started to take some profits now. Another challenge in 2020 was our underweight to duration as interest rates fell sharply in response to the pandemic. Our fixed income portfolio has been tilted toward floating rate credit, which has helped this year, but in recent months as interest rates have risen and Treasury bonds have become more attractive, we have been incrementally adding Treasury exposure in preparation of a potential economic slowdown or recession.
Trusted Insight: Is Carilion Clinic open to the idea of more collaboration between traditional health systems and innovation/tech startups?
Fred Greear: A few years ago, we formed an innovation team that is now comprised of two individuals and is separate from our investment team. Their focus is to facilitate innovation across our organization by way of intellectual property commercialization and ensuring that we have in place the optimal infrastructure and vendor relationships to enhance our clinical delivery and operations. We also have made a few investments in healthcare private equity funds and direct companies. As such, we have visibility to a group of new, promising services companies that have the potential to turn into business relationships. The investment team is responsible for providing an opinion on the merits of new investments we make, while the innovation team is responsible for coordinating evaluation of portfolio companies across our different functional areas to determine if there is a business fit.
We also partner with a university, Virginia Tech, and a venture capital firm on a fund we sponsor that invests in companies in Virginia or with a tie to our organization or Virginia Tech as a way for us to contribute to economic development in our region. We consider this fund, as well as our healthcare investments, as strategic investments. Therefore, we created a separate performance composite distinct from our long-term operating portfolio for these investments since our strategic investments may have different objectives (e.g., operating or clinic benefits, regional economic development, etc.) beyond their return outcomes.
Trusted Insight: Any final thoughts?
Fred Greear: The process of building an internal investment function in an organization that previously did not have one has been gratifying. Our investment office is part of our broader treasury and corporate finance organization, and our senior management and the Board of Directors Finance Committee and Investment Advisory Subcommittee have been extremely helpful and supportive in the steps we have taken. As we began moving toward internal management of the portfolios, we decided that, given our asset size is relatively large but not massive, we would work toward creating an edge by having a meaningful portion of the portfolio in smaller, emerging managers and niche areas of the market we believe are less efficient and represent attractive relative value.
Over seven years, we have observed and generally found it to be more effective to incrementally leg into or out of strategies and positions as they become increasingly cheap or more expensive, or as our conviction in an investment manager increases or decreases, rather than making large directional bets or changes with a strategy at a single point in time since the market often has a way of surprising us. I appreciate the opportunity to work for a non-profit organization like Carilion Clinic where the value we add in managing the portfolios is re-invested to support improving the health of the communities we serve, our stakeholders.
View our full catalog of interviews here.
The full list of 2022 Top Health System Chief Investment Officers can be found here.
In this interview, he discussed the process of building an internal investment function in an organization that previously did not have one; the importance of having an innovation team within a health system; and why Carilion Clinic has focused more on smaller, emerging managers and niche areas of the market.
Fred Greear was named to Trusted Insight's 2022 Top Health System Chief Investment Officers.
Trusted Insight: Tell us about Carilion Clinic and the mission and focus of the organization. What is the investment office dynamic like?
Fred Greear: Carilion is a non-profit health system based in Roanoke, Virginia. The organization provides care to close to a million people in the region with a mission to improve the health of the communities we serve.
Our investment assets are approximately $3 billion split between a long-term operating investment portfolio and an ERISA-defined benefit pension. The pension is open to all Carilion employees and has a current funded status of around 95% (boosted over the last two years by asset value appreciation and more recently higher interest rates). We are implementing a pension de-risking glide path, shifting the asset allocation to a majority of long bonds to hedge our liability.
"I joined Carilion in April 2015 as director of investments. It was our first internal dedicated investment role."
Our investment team size is five people, including a chief investment officer, two investment portfolio managers (one focused on public markets and one on private markets), one investment analyst, and one investment operations and risk director.
Trusted Insight: You’ve recently been named Chief Investment Officer, but you have always held leadership responsibility within the investment team? What has this team restructuring been like?
Fred Greear: I joined Carilion in April 2015 as director of investments. It was our first internal dedicated investment role. Previously, we outsourced our investment management to a consulting firm. The Carilion Board of Directors Finance Committee has fiduciary responsibility for our investment portfolios and has delegated discretion over the selection and removal of investments within the portfolios to the investment team, pursuant to our internal investment due diligence process. We hired an operational due diligence (ODD) specialist firm earlier this year to provide operational and compliance oversight of our investment firms. As part of building our team, we engaged an independent third-party firm to help us assess and optimize our structure, which was the basis of our recent restructuring against the backdrop of best practices of institutions adopting an internal investment team approach.
"A few years ago, we formed an innovation team that is now comprised of two individuals and is separate from our investment team. Their focus is to facilitate innovation across our organization..."
In 2018, we also created an Investment Advisory Subcommittee (of the Finance Committee) comprised of both Finance Committee members and external non-Finance Committee members.
Trusted Insight: How do you see the strategic asset allocation strategy evolving in the next 5-10 years? Many health system peers say they are increasingly allocated to alternative assets, is this the case also with Carilion Clinic?
Fred Greear: As we moved away from an outsourced investment model, we changed our operating portfolio policy benchmark from a five-component custom benchmark to a more transparent, investable benchmark comprised of 60% equity (MSCI ACWI) and 40% fixed income (Barclays Aggregate). Within those two broad allocations, we can invest in alternative investments including up to 25% of the portfolio in private, illiquid investments. We do not consider hedge funds a separate asset class, but instead place them either in equity or fixed income (i.e., we have a long-short equity hedge fund allocation as part of our equity portfolio and a credit hedge fund allocation as part of our fixed income portfolio).
To date, we have decided not to allocate to strategies such as global macro due to the difficultly in predicting results with consistency, and we view our overall portfolio positioning and the exposures and hedges we put in place across different market environments as a form of global macro we control.
Trusted Insight: I’m sure it was overwhelming managing a health system during the pandemic, but how do you position yourselves for possible downturn/recessions?
Fred Greear: The first half of 2020 was a challenging period broadly speaking and specifically within our portfolios, given some exposure we had to the energy sector. We identified an opportunity to add to the sector at trough prices, which helped as the market recovered, and we have started to take some profits now. Another challenge in 2020 was our underweight to duration as interest rates fell sharply in response to the pandemic. Our fixed income portfolio has been tilted toward floating rate credit, which has helped this year, but in recent months as interest rates have risen and Treasury bonds have become more attractive, we have been incrementally adding Treasury exposure in preparation of a potential economic slowdown or recession.
Trusted Insight: Is Carilion Clinic open to the idea of more collaboration between traditional health systems and innovation/tech startups?
Fred Greear: A few years ago, we formed an innovation team that is now comprised of two individuals and is separate from our investment team. Their focus is to facilitate innovation across our organization by way of intellectual property commercialization and ensuring that we have in place the optimal infrastructure and vendor relationships to enhance our clinical delivery and operations. We also have made a few investments in healthcare private equity funds and direct companies. As such, we have visibility to a group of new, promising services companies that have the potential to turn into business relationships. The investment team is responsible for providing an opinion on the merits of new investments we make, while the innovation team is responsible for coordinating evaluation of portfolio companies across our different functional areas to determine if there is a business fit.
"We would work toward creating an edge by having a meaningful portion of the portfolio in smaller, emerging managers and niche areas of the market we believe are less efficient and represent attractive relative value."
We also partner with a university, Virginia Tech, and a venture capital firm on a fund we sponsor that invests in companies in Virginia or with a tie to our organization or Virginia Tech as a way for us to contribute to economic development in our region. We consider this fund, as well as our healthcare investments, as strategic investments. Therefore, we created a separate performance composite distinct from our long-term operating portfolio for these investments since our strategic investments may have different objectives (e.g., operating or clinic benefits, regional economic development, etc.) beyond their return outcomes.
Trusted Insight: Any final thoughts?
Fred Greear: The process of building an internal investment function in an organization that previously did not have one has been gratifying. Our investment office is part of our broader treasury and corporate finance organization, and our senior management and the Board of Directors Finance Committee and Investment Advisory Subcommittee have been extremely helpful and supportive in the steps we have taken. As we began moving toward internal management of the portfolios, we decided that, given our asset size is relatively large but not massive, we would work toward creating an edge by having a meaningful portion of the portfolio in smaller, emerging managers and niche areas of the market we believe are less efficient and represent attractive relative value.
Over seven years, we have observed and generally found it to be more effective to incrementally leg into or out of strategies and positions as they become increasingly cheap or more expensive, or as our conviction in an investment manager increases or decreases, rather than making large directional bets or changes with a strategy at a single point in time since the market often has a way of surprising us. I appreciate the opportunity to work for a non-profit organization like Carilion Clinic where the value we add in managing the portfolios is re-invested to support improving the health of the communities we serve, our stakeholders.
View our full catalog of interviews here.
The full list of 2022 Top Health System Chief Investment Officers can be found here.