Rob Rahbari is a senior investment officer and assistant treasurer at the University of Rochester, which he joined in 2013. In this interview, he discussed the tenure and culture of the investment team at the University of Rochester; the robust opportunity set that venture capital presents; and their gradual approach to new areas such as biotechnology.
Rahbari was named to Trusted Insight's 2020 Top Institutional Investing Rising Stars.
Trusted Insight: Tell us about the University of Rochester and its investment office?
Rob Rahbari: The University of Rochester was fortunate to get a relatively early start in the endowment business due to George Eastman's success with Kodak and his very generous donations to the University. This made us one of the top five endowments in the country in the mid-1900s.
We are a relatively small school, without the donor base of some of the Ivy League and other institutions, so we have not remained among the largest, but we're still in the top 50. We have $3 billion in assets under management. We have a team of nine, and I'm one of four generalist investment officers. We each have responsibility for monitoring and sourcing managers across different asset classes. This helps us have robust team discussions in the decision-making process. We are also fortunate to have significant tenure on our investment committee, along with engaged and insightful newcomers. They are great supporters of the University and have helped shape our strategy over the years.
Trusted Insight: What are some of the more prominent changes that you've seen in the last eight years since joining in 2013?
Rob Rahbari: We make continual improvements, but a key theme is consistency in our approach. The first thing that strikes you about our team is its longevity. Our CIO Doug Phillips recently completed his 20th year here. You noted that I started in 2013, which makes me one of the newer members of the team. We had a colleague retire after 40 years with the University a couple of years ago. Another investment officer has been here 20 years, and the other two are in their 14th and 8th years now. The cohesiveness within our team has been evident during the pandemic, during which we haven’t missed a beat in terms of monitoring our managers, sourcing new investment opportunities, and communicating with our investment committee and other stakeholders. We do miss seeing each other in person and traveling to see our managers and peers.
In terms of strategy, our CIO notes that we are in the middle of the fairway. Portfolio changes are gradual, depending on the opportunity set we see in the markets from a top-down view, as well as with specific managers, from a bottom-up view. When I joined in 2013, we were in the low-50s% range in alternative assets. That has increased to the low-60s% range now, partly from appreciation as well as a number of additional manager allocations. Included in that number is a hedge fund allocation at about 27%, half in long/short equity hedge funds and half in diversifying funds. Most of the remainder of our capital is in long-only equities globally.
While seeking to remain concentrated in terms of number of managers, we have added managers in several areas of focus since I joined (such as Asia, technology, and health care). Among my favorite aspects of our role is “market mapping,” or seeking to identify as many opportunities as possible within a specific country, or within a subsector such as biotech, which we do on a continuous basis but occasionally more in-depth, depending on global market trends.
Trusted Insight: Endowments and foundations are known for being bullish in alternative assets like private equity and venture capital? Tell us about your efforts there specifically.
Rob Rahbari: There is a robust opportunity set in private equity globally, especially within venture capital, where experienced operators seek to identify innovative entrepreneurs and help them develop enduring companies. We have a concentrated program within private equity, with a few long-term relationships. We try to capture as much of the opportunity set as we can, while staying relatively concentrated and within our liquidity constraints. We do have an overweight in Asia, based on our confidence in the long-term growth in that region and the high quality of managers there. One area we will likely add to in the medium term is biotechnology, which has hit an inflection point in recent years, even before its historic response to the pandemic.
We have to be mindful of the fact that we're the largest pool of capital supporting the university. We work in close concert with the university’s finance team, the medical center, and the other schools that make up the University of Rochester. We are sensitive that we have to maintain a reasonable amount of liquidity to support their operations.
Trusted Insight: Is the team taking a more defensive or offensive approach to the current market opportunities?
Rob Rahbari: We try to be consistent with our middle of the fairway strategy. We have some relatively concentrated managers, in both public and private strategies that can be volatile in periods like Q1 2020. Our portfolio limited its losses overall (although some strategies were hit pretty hard) and recovered well by year-end. We added capital to some of our more liquid managers after they had a very difficult Q1. We also hired a few new managers in the past 12 months that we think are well positioned in the current environment.
We don't know what the markets are going to do next, but I'm sure that in the next five years, there is an exciting opportunity set for the group of managers that we have in our portfolio. I wouldn't characterize us as defensive, though we take a gradual approach to new areas such as biotechnology, which we had reviewed for years before making our first targeted investment (since before the global financial crisis) in 2019.
Trusted Insight: Do you plan to add to markets like China in the next 12 months? Are you bullish on that particular market, or where are your heads at in terms of investing outside of the U.S.?
Rob Rahbari: At a high level, we have had a barbell strategy for quite some time, with the majority of our portfolio in the U.S., and much of the rest in Asia. We also have some dedicated exposure to Europe. Within Asia, we have focused mainly on China. We have traveled there more often in recent years, both to monitor our existing managers as well as to uncover new opportunities. In my personal view, there is a generational opportunity to participate in the rise of China right now. China deserves much more space in a portfolio than its weight in the MSCI index, and it’s only a matter of time until global allocators focus more heavily there. Some of the best investment opportunities globally are in China, across a variety of asset classes and strategies. Many of the themes are well-known, but have a long runway ahead, from innovative e-commerce, advanced technology such as artificial intelligence, biotechnology, and the rise of the middle-class driving consumption and new spending patterns. We have more exposure to China than the index and many of our peers, so we are somewhat constrained in the near term from adding more.
We also have some strategies focused on India and some pan-Asia strategies as well. We have some very high-quality managers in Indian public equities, but for private equity, India is a bit harder; relatively few managers there have a consistent, long-term track record. Ten years ago, return of capital was a worry with China: we see a lot of growth there, but are people really getting their money out after investments succeed? In recent years, returns have been flowing back from China managers. The same is not true of India yet, with only a few exceptions. A similar potential exists, with a large population and growing middle-class, talented engineers and executives, and a growing mobile internet ecosystem. In the public market, some managers have done quite well, but you have to be able to live with the volatility. There will be periods like Q1 2020 where India-focused strategies were some of the worst in our entire portfolio. Over the long term, I'm a big believer in India.
Trusted Insight: Tell us about the University’s efforts in diversity and inclusion. What can LPs do to shine more light on the topic and help improve overall efforts?
Rob Rahbari: We have spent a lot of time on this area in the past few quarters, after a call to action across our University last Summer from our President Sarah Mangelsdorf and Chief Diversity Officer Mercedes Ramirez Fernandez. Our school’s motto is “Meliora,” meaning “ever better.” That's really taken to heart across all areas of the university. We're trying to take that very seriously in the investment office as well. After significant preliminary work, we sought and received the support of our investment committee for our proposals in three different areas.
First, we're going to enhance our review and monitoring of our existing portfolio. We have several existing funds in our portfolio that are run by women and/or people of color, but not enough. We will analyze at a more granular level how diverse their teams are today and their plans for improvement. We will measure their improvement over time, and develop our investment process to take these factors into account before and during our partnerships with these firms. For future investments, we will also review this area in detail with the investment committee.
Second, we intend to include more diverse firms into our portfolio over time. One initiative we've taken is the development of a broad database, containing as many minority- and women-led funds across asset classes as we can find. We have open-sourced this information to as many other allocators as we can reach. Other endowments and foundations have contributed significantly to this effort with us. Over 500 manager names are on our list, and it is continually growing. We have also begun a series of “pitch sessions” where diverse managers have presented to our group of endowment and foundation investors, which has been quite well received so far. Our group is also organizing content sessions, to bring in experts to review best practices in promoting diversity and related topics. We will continually seek new partners in this effort.
We're trying to help uncover promising investment opportunities with diverse firms, and we feel it's our fiduciary responsibility to do so. There are plenty of studies that show that minority and women-run firms perform at least as well as other firms, not to mention common sense that this would be the case. You're missing out on investment opportunities if you're not proactively trying to build a portfolio that is more representative of the population. That's a project we're spending a lot of time on and happy to discuss more and include anyone who is interested.
Last but not least, we're also seeking to support industry organizations that strive to improve diversity in investment management. As a University, we're not going to be funding programs like a foundation would, but we can try to find mentorship opportunities and other ways to contribute to the earlier stages of students’ careers. For example, the University works closely with East High School in Rochester; hopefully we can mentor students there, teach them about asset management and finance more broadly, and maybe provide internship opportunities. Those are the main categories that we're working on right now. We’re looking forward to making an impact anywhere we can.
View our full catalog of interviews here.
Rahbari was named to Trusted Insight's 2020 Top Institutional Investing Rising Stars.
Trusted Insight: Tell us about the University of Rochester and its investment office?
Rob Rahbari: The University of Rochester was fortunate to get a relatively early start in the endowment business due to George Eastman's success with Kodak and his very generous donations to the University. This made us one of the top five endowments in the country in the mid-1900s.
"The first thing that strikes you about our team is its longevity. Our CIO Doug Phillips recently completed his 20th year here. You noted that I started in 2013, which makes me one of the newer members of the team."
We are a relatively small school, without the donor base of some of the Ivy League and other institutions, so we have not remained among the largest, but we're still in the top 50. We have $3 billion in assets under management. We have a team of nine, and I'm one of four generalist investment officers. We each have responsibility for monitoring and sourcing managers across different asset classes. This helps us have robust team discussions in the decision-making process. We are also fortunate to have significant tenure on our investment committee, along with engaged and insightful newcomers. They are great supporters of the University and have helped shape our strategy over the years.
Trusted Insight: What are some of the more prominent changes that you've seen in the last eight years since joining in 2013?
Rob Rahbari: We make continual improvements, but a key theme is consistency in our approach. The first thing that strikes you about our team is its longevity. Our CIO Doug Phillips recently completed his 20th year here. You noted that I started in 2013, which makes me one of the newer members of the team. We had a colleague retire after 40 years with the University a couple of years ago. Another investment officer has been here 20 years, and the other two are in their 14th and 8th years now. The cohesiveness within our team has been evident during the pandemic, during which we haven’t missed a beat in terms of monitoring our managers, sourcing new investment opportunities, and communicating with our investment committee and other stakeholders. We do miss seeing each other in person and traveling to see our managers and peers.
"There is a robust opportunity set in private equity globally, especially within venture capital, where experienced operators seek to identify innovative entrepreneurs and help them develop enduring companies."
In terms of strategy, our CIO notes that we are in the middle of the fairway. Portfolio changes are gradual, depending on the opportunity set we see in the markets from a top-down view, as well as with specific managers, from a bottom-up view. When I joined in 2013, we were in the low-50s% range in alternative assets. That has increased to the low-60s% range now, partly from appreciation as well as a number of additional manager allocations. Included in that number is a hedge fund allocation at about 27%, half in long/short equity hedge funds and half in diversifying funds. Most of the remainder of our capital is in long-only equities globally.
While seeking to remain concentrated in terms of number of managers, we have added managers in several areas of focus since I joined (such as Asia, technology, and health care). Among my favorite aspects of our role is “market mapping,” or seeking to identify as many opportunities as possible within a specific country, or within a subsector such as biotech, which we do on a continuous basis but occasionally more in-depth, depending on global market trends.
Trusted Insight: Endowments and foundations are known for being bullish in alternative assets like private equity and venture capital? Tell us about your efforts there specifically.
Rob Rahbari: There is a robust opportunity set in private equity globally, especially within venture capital, where experienced operators seek to identify innovative entrepreneurs and help them develop enduring companies. We have a concentrated program within private equity, with a few long-term relationships. We try to capture as much of the opportunity set as we can, while staying relatively concentrated and within our liquidity constraints. We do have an overweight in Asia, based on our confidence in the long-term growth in that region and the high quality of managers there. One area we will likely add to in the medium term is biotechnology, which has hit an inflection point in recent years, even before its historic response to the pandemic.
"I wouldn't characterize us as defensive, though we take a gradual approach to new areas such as biotechnology, which we had reviewed for years before making our first targeted investment."
We have to be mindful of the fact that we're the largest pool of capital supporting the university. We work in close concert with the university’s finance team, the medical center, and the other schools that make up the University of Rochester. We are sensitive that we have to maintain a reasonable amount of liquidity to support their operations.
Trusted Insight: Is the team taking a more defensive or offensive approach to the current market opportunities?
Rob Rahbari: We try to be consistent with our middle of the fairway strategy. We have some relatively concentrated managers, in both public and private strategies that can be volatile in periods like Q1 2020. Our portfolio limited its losses overall (although some strategies were hit pretty hard) and recovered well by year-end. We added capital to some of our more liquid managers after they had a very difficult Q1. We also hired a few new managers in the past 12 months that we think are well positioned in the current environment.
We don't know what the markets are going to do next, but I'm sure that in the next five years, there is an exciting opportunity set for the group of managers that we have in our portfolio. I wouldn't characterize us as defensive, though we take a gradual approach to new areas such as biotechnology, which we had reviewed for years before making our first targeted investment (since before the global financial crisis) in 2019.
Trusted Insight: Do you plan to add to markets like China in the next 12 months? Are you bullish on that particular market, or where are your heads at in terms of investing outside of the U.S.?
Rob Rahbari: At a high level, we have had a barbell strategy for quite some time, with the majority of our portfolio in the U.S., and much of the rest in Asia. We also have some dedicated exposure to Europe. Within Asia, we have focused mainly on China. We have traveled there more often in recent years, both to monitor our existing managers as well as to uncover new opportunities. In my personal view, there is a generational opportunity to participate in the rise of China right now. China deserves much more space in a portfolio than its weight in the MSCI index, and it’s only a matter of time until global allocators focus more heavily there. Some of the best investment opportunities globally are in China, across a variety of asset classes and strategies. Many of the themes are well-known, but have a long runway ahead, from innovative e-commerce, advanced technology such as artificial intelligence, biotechnology, and the rise of the middle-class driving consumption and new spending patterns. We have more exposure to China than the index and many of our peers, so we are somewhat constrained in the near term from adding more.
We also have some strategies focused on India and some pan-Asia strategies as well. We have some very high-quality managers in Indian public equities, but for private equity, India is a bit harder; relatively few managers there have a consistent, long-term track record. Ten years ago, return of capital was a worry with China: we see a lot of growth there, but are people really getting their money out after investments succeed? In recent years, returns have been flowing back from China managers. The same is not true of India yet, with only a few exceptions. A similar potential exists, with a large population and growing middle-class, talented engineers and executives, and a growing mobile internet ecosystem. In the public market, some managers have done quite well, but you have to be able to live with the volatility. There will be periods like Q1 2020 where India-focused strategies were some of the worst in our entire portfolio. Over the long term, I'm a big believer in India.
Trusted Insight: Tell us about the University’s efforts in diversity and inclusion. What can LPs do to shine more light on the topic and help improve overall efforts?
Rob Rahbari: We have spent a lot of time on this area in the past few quarters, after a call to action across our University last Summer from our President Sarah Mangelsdorf and Chief Diversity Officer Mercedes Ramirez Fernandez. Our school’s motto is “Meliora,” meaning “ever better.” That's really taken to heart across all areas of the university. We're trying to take that very seriously in the investment office as well. After significant preliminary work, we sought and received the support of our investment committee for our proposals in three different areas.
First, we're going to enhance our review and monitoring of our existing portfolio. We have several existing funds in our portfolio that are run by women and/or people of color, but not enough. We will analyze at a more granular level how diverse their teams are today and their plans for improvement. We will measure their improvement over time, and develop our investment process to take these factors into account before and during our partnerships with these firms. For future investments, we will also review this area in detail with the investment committee.
Second, we intend to include more diverse firms into our portfolio over time. One initiative we've taken is the development of a broad database, containing as many minority- and women-led funds across asset classes as we can find. We have open-sourced this information to as many other allocators as we can reach. Other endowments and foundations have contributed significantly to this effort with us. Over 500 manager names are on our list, and it is continually growing. We have also begun a series of “pitch sessions” where diverse managers have presented to our group of endowment and foundation investors, which has been quite well received so far. Our group is also organizing content sessions, to bring in experts to review best practices in promoting diversity and related topics. We will continually seek new partners in this effort.
We're trying to help uncover promising investment opportunities with diverse firms, and we feel it's our fiduciary responsibility to do so. There are plenty of studies that show that minority and women-run firms perform at least as well as other firms, not to mention common sense that this would be the case. You're missing out on investment opportunities if you're not proactively trying to build a portfolio that is more representative of the population. That's a project we're spending a lot of time on and happy to discuss more and include anyone who is interested.
Last but not least, we're also seeking to support industry organizations that strive to improve diversity in investment management. As a University, we're not going to be funding programs like a foundation would, but we can try to find mentorship opportunities and other ways to contribute to the earlier stages of students’ careers. For example, the University works closely with East High School in Rochester; hopefully we can mentor students there, teach them about asset management and finance more broadly, and maybe provide internship opportunities. Those are the main categories that we're working on right now. We’re looking forward to making an impact anywhere we can.
View our full catalog of interviews here.