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Institutions To Receive A 'Big Boost From A.I.' | Mercy Health CIO, Anthony Waskiewicz | Exclusive Q&A

by trusted insight posted 3years ago 1098 views
Anthony Waskiewicz is chief investment officer at Mercy Health, where he manages the health system’s short-term, endowment and pension plan assets totaling $2.7 billion. He has over 25 years of investment experience advising and managing assets for institutional investors. In this interview, Waskiewicz discusses the importance of assessing the risk factors in Mercy's portfolio; how institutional investors can reap the benefits of development in machine learning and artificial intelligence; and why Mercy is committing to smaller specialty funds. 

Anthony Waskiewicz was recently named on Trusted Insight's 2018 Top 30 Health Care System Chief Investment Officers. He graciously spoke with us on December 19, 2017. The following interview has been edited and condensed.

Trusted Insight: Mercy Health was in the midst of building out its risk management capabilities since you last spoke with us. How has that development come along?

Anthony Waskiewicz: Yes, we hired a director of risk management last January. His addition gives us the capacity and bandwidth to do more fully develop our risk management capabilities.

"I think it's still early, but as [machine learning/artificial intelligence] develop over time, I believe they will be meaningful to institutional investors."

In addition to improving risk analytics, we created a ‘downside event game plan’ that provides Mercy a framework for managing through market dislocations. Such a plan helps ensure that we make prudent and wise decisions during difficult times. The effort was led by our newly hired risk manager and our committee thought the exercise was important to the governance of the program.

Trusted Insight: In recent months, more investors have been talking about machine learning, artificial intelligence and big data. Do you see those keywords playing a role in the asset allocator side?

Anthony Waskiewicz: Absolutely yes. I think it's still early, but as these applications develop over time, I believe they will be meaningful to institutional investors.

I believe we could specifically receive a big boost from A.I., machine learning and big data on the risk management side of the investor process. A big challenge for institutions is accurately measuring the exposures in the portfolio on a real-time basis. We are all trying to more factor-based risk analysis, but getting timely data required to make the process rigorous and robust is still challenging. I can envision a future in which technology can help us break through some of those challenges, and help us all to do a better job of monitoring and assessing the real risk factors in the portfolio.

Trusted Insight: What niche strategies is Mercy pursuing at the moment?

Anthony Waskiewicz: There are several. Identifying niche opportunities is important given the excess amount of capital in the hands of larger firms, especially buyout shops and other more traditional private equity firms. Deploying large amounts of capital might be challenging in an environment in which deal competition is high. Expecting the same returns in the future as those achieved in the past might be unrealistic.

Pinpointing interesting opportunities where the flow of capital is not as excessive is a way to mitigate the challenges associated with crowding or high deal competition. We have done this by committing to smaller specialty funds, as well as, seeding drawdown vehicles focused on taking advantage of dislocations and/or illiquidity in credit markets. Our asset level gives us the advantage to access niche opportunities. With $2.7 billion in assets, we are large enough to make meaning allocations, but not too large to be sized out of niche opportunities.

Trusted Insight: We’re at an unprecedented time in the markets. Monetary and regulatory policies have created low-interest rates and valuations are rich, across both public and private markets. Do you recognize the markets as they are today? 

Anthony Waskiewicz: If anyone says that the markets look familiar, it would be a surprising response. The conditions that we are seeing have been fueled by unprecedented central bank stimulus. Trying to ascertain how much of the current market conditions have developed because of central bank intervention versus conditions that just would have developed organically is difficult.

A challenge for allocators is trying to determine what will happen as central banks remove stimulus. During the last nine years, we have been operating under conditions in which stimulus has been added. Over the next market cycle, we will likely be operating and allocating in an environment during which stimulus will be removed. This might be a significant challenge for the markets and is a new set of conditions for many allocators. We may have to recognize that what worked over the last decade may not be what during the next decade.

Trusted Insight: What do you consider to be the most notable challenge in the health care industry?

Anthony Waskiewicz: The biggest challenge for health the care industry is the uncertainty stemming from the constantly changing regulatory environment. As allocators, we must consider how those macro forces could impact our institution and how those conditions might alter the investment objectives of the portfolio.

"It is prudent for Mercy to place risk awareness as its primary objective and we believe that we have created a focus, which maximizes the likelihood Mercy will achieve its financial objectives."

From a resourcing perspective, we feel very well-resourced to manage the changing industry conditions. We have the support of a strong and visionary executive leadership team and collaborative interaction with a very experienced and thoughtful investment committee. We also have a very strong internal investment team.

Trusted Insight: In your last interview, you referred to the health care community as “friendly and collaborative.” Who do you consider to be your peers, and how does Mercy differ from them?

Anthony Waskiewicz: We enjoy a collaborative relationship with almost all of the larger not-for-profit health care systems. As professionals working for not-for-profit organizations, we all share a similar bias to help others where and when we can, including each other. We all share ideas, but we are all very different as well. For instance, Mercy’s mission and organizational goals are very different than many other health care systems.

Mercy’s investment objectives have led to a very novel approach. Specifically, Mercy’s investment policy objective is written around a volatility target, not a return target. It is prudent for Mercy to place risk awareness as its primary objective and we believe that we have created a focus, which maximizes the likelihood Mercy will achieve its financial objectives.

Trusted Insight: You were an adjunct professor at Webster University in St. Louis. Can you elaborate on that experience?

Anthony Waskiewicz: Yes, it has been a great experience. The opportunity to engage intelligent students who are eager to learn is rewarding. Sharing real-life examples of how textbook principles are applied is a great way to help students prepare for their future.

Many professionals in the not-for-profit world are wired to find ways to give back. Many of us work for mission-focused organizations that seek ways to make a difference in the lives of others. Teaching is just one way to give back.

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

To learn more about heath care system investing, click here to view the complete list of Top 30 Health Care System Chief Investment Officers.