Jed Johnson is a senior managing director and the private markets portfolio manager at Crow Holdings Capital – Investment Partners (CHC-IP), which manages liquid assets for the Trammell Crow family and approximately 30 partner families as an RIA with approximately $2 billion under management. He leads the firm’s private markets investment strategy and oversees a team performing private equity manager selection, direct investment evaluation, investment execution and asset management.
Previously, Johnson was a managing director at Parallel Investment Partners, a Dallas-based private equity firm. Before that, he was a vice president at Summit Partners and an associate at Robertson Stephens. Johnson received an A.B. from Stanford University.
Mr. Johnson was recently named on Trusted Insight’s ranked list of the Top 30 Family Office Rising Stars. He graciously spoke with Trusted Insight on June 17, 2016. The following interview has been edited for clarity.
Trusted Insight: How did you get involved in family office investing?
Jed Johnson: I started my career in finance with an investment bank in San Francisco called Robertson Stephens. It was one of the leading tech and growth company investment banks in the mid-90s. Then I moved to a private equity firm called Summit Partners in Palo Alto. It was large and successful at that point, but it's even larger and more successful today. That's where I learned how to be an investor. I was working on growth equity investments in high-growth technology companies largely based in Silicon Valley.
After I left Summit, I moved to Dallas, Texas to join another private equity firm called Parallel Investment Partners. I was there for about 10 years. About four years ago, I was introduced to the Crow Holdings organization, and we began a dialogue about how we might work together, what they were trying to build and what they were trying to accomplish with their private equity program. It seemed like my skill set could contribute to those goals, so I joined the firm in January of 2014.
Trusted Insight: You didn’t get an MBA. That seems unusual for executive-level investors.
Jed Johnson: I think an MBA can be very valuable for someone who hasn't spent the entirety of their career in finance and investing. If someone is looking to shift careers into finance and the investment advisory world, I think an MBA could be valuable in that context. The decision I made when I was thinking about going back to business school was - am I going to learn more going back to business school or am I going to learn more by continuing to develop in my career? I determined the latter, and I think it's been great.
Trusted Insight: Can you tell me about the structure of CHC-IP and how it works?
Jed Johnson: Crow Holdings has three general business units: a real estate development firm operating under the names Trammell Crow Residential and Crow Holdings Industrial; a real estate private equity fund business operating as Crow Holdings Capital - Real Estate; and the investment advisory business I'm associated with, Crow Holdings Capital - Investment Partners. About 20 years ago, the Crow family wanted to diversify their wealth from real estate into equities, fixed income and alternative assets. In order to achieve those diversification goals, they started a family office. That was the genesis of our firm, and today we are an RIA serving approximately 30 partner families in addition to the Crow family.
I think family offices have a commonality among them in that they are in general providing investment services and other services to a single family or, like us, are an RIA serving a small group of closely connected families. But the complexion of family offices can be very different from firm to firm. CHC-IP strives to be very institutional in our approach. We have a dedicated investment team of six professionals, including our CIO. Within that, there's a dedicated team that focuses on all of our liquid investment activity including long-only managers, hedge fund managers, fixed income and MLPs. In addition, we have a dedicated team including myself who are responsible for all of our illiquid investment activity, which is mostly private equity fund commitments and some direct co-investments.
We have an investment thesis we seek to express through manager selection. Our goal is to apply a rigorous and disciplined manager selection process that is perhaps more institutional than some who choose to be more opportunistic in their approaches. At the same time, there are plenty of firms serving families who are bigger and yet more institutionalized than us. So I think there's a broad spectrum.
Trusted Insight: How do you make investment decisions?
Jed Johnson: We have an investment committee consisting of several members of the investment team, including our CIO, as well as other senior people within the CHC-IP organization. Within the private equity group, if we are interested in pursuing a particular investment, a commitment to a fund manager, for example, we'll run through a rigorous due diligence process and have iterative conversations with our CIO about the investment opportunity. Once we've received his support, we'll take that investment opportunity to the full investment committee.
Trusted Insight: Are committee members also members of the Crow family?
Jed Johnson: No. And that's something I think is potentially a distinction between our organization and traditional family offices. While the Crow family is the largest family (by AUM) CHC-IP serves, the principals of Crow Holdings are not involved in the operations of CHC-IP.
Trusted Insight: What is the most unique aspect of managing capital for family offices relative to other types of institutional investors?
Jed Johnson: I think family offices generally place significant value on building very long-term relationships, whether those are with managers to whom capital has been committed or other families and investors with whom investments have been made, or really any other people or organizations who touch the family office. At CHC-IP, when we have the opportunity to partner with other people and organizations who are like-minded in that respect, we value those relationships tremendously and seek to nurture, build and sustain them for a long period of time. We're very commercial in our outlook and passionate about the investment decisions we make, but relationships are an important part of our business, more important to us than maybe to a traditional institution.
Trusted Insight: What trends or phenomenon have you observed in family office investing?
Jed Johnson: I think an increasing number of family offices are looking for opportunities to invest directly in underlying operating companies, certainly as co-investors alongside traditional private equity sponsors and increasingly as the lead sponsor of an investment themselves. Some family offices are very well equipped to do that successfully. I think there are others that perhaps underestimate how competitive the marketplace is and how challenging it can be to source high-quality investments and manage those companies post-closing through good and bad times. It's definitely a trend, but I do think there’s a minority of family offices that have really invested in the resources to be able to execute that model successfully.
Trusted Insight: What factors do you think are most important for family offices to make successful direct investing?
Jed Johnson: Family offices that want to lead direct investments need to behave like their competitors. There are about 2,000 growth equity and buyout firms in the U.S. alone. In general, those firms are staffed with highly-trained professionals who command significant compensation. Family offices that are prepared to invest in those types of resources and teams can be competitive because they can layer those capabilities on top of their unique perspective into a particular industry as a family office who has perhaps created their wealth in an operating business. They can layer those capabilities onto a network that's differentiated in the marketplace. But I think it takes making those real and significant investments in people and process and systems in order to be competitive.
Trusted Insight: Is CHC-IP currently involved in any direct investing activities?
Jed Johnson: CHC-IP has made the decision that for the time being our private equity activity will be focused on commitments to the very best managers within the strategies we're pursuing and making direct co-investments alongside them where we don't play the role of being the lead sponsor ourselves. I can see a situation over time where we determine that we want to make the investments to build out full-scale capabilities to be a private equity sponsor, but that's not the strategy we've adopted for the time being.
Trusted Insight: What qualities do you look for when you hire asset managers?
Jed Johnson: We have a “barbell” strategy. Half of our commitments are to large, well-established franchises, executing buyout strategies across multiple industry sectors, typically with $1 billion to $5 billion in fund size. We view those managers as the ones who can consistently outperform public markets with very low volatility. The other end of the “barbell” is focused on smaller funds, typically sub-$500 million in fund size and, in particular, managers focusing on one of four sectors -- healthcare, tech, consumer and turnaround. We view those managers as having the best opportunity to generate outsized returns. If there is a bigger return opportunity with higher volatility in that segment of the market and consistent performance and lower volatility on the other end of the barbell, we expect to generate attractive risk-adjusted combined returns over time.
Trusted Insight: Currently there is a high level of volatility in private markets. What's your strategy in mitigating risks during times like this?
Jed Johnson: When we make a commitment to a private equity fund, we're making a commitment that will likely last more than 10 years. We need to be thinking about a much longer time horizon than this year or next year. We're focused on maintaining a rigorous process for identifying, evaluating and selecting managers. To the extent we are reacting to the market environment, that's going to show up more in our appetite or lack thereof for direct co-investments and in the types of co-investments to which we're attracted.
Trusted Insight: What career advice would you give to aspiring investment professionals, especially those who are looking for a career in family offices?
Jed Johnson: One of the things I've tried to be consistent about in my own career is always looking for ways to do what we do better. We all are required to come to work every day and do our jobs to the very best of our ability – that is “working in our business." At the same time, we should also always think about how we can improve what we're doing – that is “working on our business." They are two different things, and I think keeping in mind that working on your business is as important as working in your business is probably the best recommendation I would give to anyone about trying to build success in any career.
To learn more about family office investing, view the full list of Top 30 Family Office Rising Stars.
Previously, Johnson was a managing director at Parallel Investment Partners, a Dallas-based private equity firm. Before that, he was a vice president at Summit Partners and an associate at Robertson Stephens. Johnson received an A.B. from Stanford University.
Mr. Johnson was recently named on Trusted Insight’s ranked list of the Top 30 Family Office Rising Stars. He graciously spoke with Trusted Insight on June 17, 2016. The following interview has been edited for clarity.
Trusted Insight: How did you get involved in family office investing?
Jed Johnson: I started my career in finance with an investment bank in San Francisco called Robertson Stephens. It was one of the leading tech and growth company investment banks in the mid-90s. Then I moved to a private equity firm called Summit Partners in Palo Alto. It was large and successful at that point, but it's even larger and more successful today. That's where I learned how to be an investor. I was working on growth equity investments in high-growth technology companies largely based in Silicon Valley.
After I left Summit, I moved to Dallas, Texas to join another private equity firm called Parallel Investment Partners. I was there for about 10 years. About four years ago, I was introduced to the Crow Holdings organization, and we began a dialogue about how we might work together, what they were trying to build and what they were trying to accomplish with their private equity program. It seemed like my skill set could contribute to those goals, so I joined the firm in January of 2014.
Trusted Insight: You didn’t get an MBA. That seems unusual for executive-level investors.
Jed Johnson: I think an MBA can be very valuable for someone who hasn't spent the entirety of their career in finance and investing. If someone is looking to shift careers into finance and the investment advisory world, I think an MBA could be valuable in that context. The decision I made when I was thinking about going back to business school was - am I going to learn more going back to business school or am I going to learn more by continuing to develop in my career? I determined the latter, and I think it's been great.
Trusted Insight: Can you tell me about the structure of CHC-IP and how it works?
Jed Johnson: Crow Holdings has three general business units: a real estate development firm operating under the names Trammell Crow Residential and Crow Holdings Industrial; a real estate private equity fund business operating as Crow Holdings Capital - Real Estate; and the investment advisory business I'm associated with, Crow Holdings Capital - Investment Partners. About 20 years ago, the Crow family wanted to diversify their wealth from real estate into equities, fixed income and alternative assets. In order to achieve those diversification goals, they started a family office. That was the genesis of our firm, and today we are an RIA serving approximately 30 partner families in addition to the Crow family.
I think family offices have a commonality among them in that they are in general providing investment services and other services to a single family or, like us, are an RIA serving a small group of closely connected families. But the complexion of family offices can be very different from firm to firm. CHC-IP strives to be very institutional in our approach. We have a dedicated investment team of six professionals, including our CIO. Within that, there's a dedicated team that focuses on all of our liquid investment activity including long-only managers, hedge fund managers, fixed income and MLPs. In addition, we have a dedicated team including myself who are responsible for all of our illiquid investment activity, which is mostly private equity fund commitments and some direct co-investments.
We have an investment thesis we seek to express through manager selection. Our goal is to apply a rigorous and disciplined manager selection process that is perhaps more institutional than some who choose to be more opportunistic in their approaches. At the same time, there are plenty of firms serving families who are bigger and yet more institutionalized than us. So I think there's a broad spectrum.
Trusted Insight: How do you make investment decisions?
Jed Johnson: We have an investment committee consisting of several members of the investment team, including our CIO, as well as other senior people within the CHC-IP organization. Within the private equity group, if we are interested in pursuing a particular investment, a commitment to a fund manager, for example, we'll run through a rigorous due diligence process and have iterative conversations with our CIO about the investment opportunity. Once we've received his support, we'll take that investment opportunity to the full investment committee.
Trusted Insight: Are committee members also members of the Crow family?
Jed Johnson: No. And that's something I think is potentially a distinction between our organization and traditional family offices. While the Crow family is the largest family (by AUM) CHC-IP serves, the principals of Crow Holdings are not involved in the operations of CHC-IP.
Trusted Insight: What is the most unique aspect of managing capital for family offices relative to other types of institutional investors?
Jed Johnson: I think family offices generally place significant value on building very long-term relationships, whether those are with managers to whom capital has been committed or other families and investors with whom investments have been made, or really any other people or organizations who touch the family office. At CHC-IP, when we have the opportunity to partner with other people and organizations who are like-minded in that respect, we value those relationships tremendously and seek to nurture, build and sustain them for a long period of time. We're very commercial in our outlook and passionate about the investment decisions we make, but relationships are an important part of our business, more important to us than maybe to a traditional institution.
Trusted Insight: What trends or phenomenon have you observed in family office investing?
Jed Johnson: I think an increasing number of family offices are looking for opportunities to invest directly in underlying operating companies, certainly as co-investors alongside traditional private equity sponsors and increasingly as the lead sponsor of an investment themselves. Some family offices are very well equipped to do that successfully. I think there are others that perhaps underestimate how competitive the marketplace is and how challenging it can be to source high-quality investments and manage those companies post-closing through good and bad times. It's definitely a trend, but I do think there’s a minority of family offices that have really invested in the resources to be able to execute that model successfully.
Trusted Insight: What factors do you think are most important for family offices to make successful direct investing?
Jed Johnson: Family offices that want to lead direct investments need to behave like their competitors. There are about 2,000 growth equity and buyout firms in the U.S. alone. In general, those firms are staffed with highly-trained professionals who command significant compensation. Family offices that are prepared to invest in those types of resources and teams can be competitive because they can layer those capabilities on top of their unique perspective into a particular industry as a family office who has perhaps created their wealth in an operating business. They can layer those capabilities onto a network that's differentiated in the marketplace. But I think it takes making those real and significant investments in people and process and systems in order to be competitive.
Trusted Insight: Is CHC-IP currently involved in any direct investing activities?
Jed Johnson: CHC-IP has made the decision that for the time being our private equity activity will be focused on commitments to the very best managers within the strategies we're pursuing and making direct co-investments alongside them where we don't play the role of being the lead sponsor ourselves. I can see a situation over time where we determine that we want to make the investments to build out full-scale capabilities to be a private equity sponsor, but that's not the strategy we've adopted for the time being.
Trusted Insight: What qualities do you look for when you hire asset managers?
Jed Johnson: We have a “barbell” strategy. Half of our commitments are to large, well-established franchises, executing buyout strategies across multiple industry sectors, typically with $1 billion to $5 billion in fund size. We view those managers as the ones who can consistently outperform public markets with very low volatility. The other end of the “barbell” is focused on smaller funds, typically sub-$500 million in fund size and, in particular, managers focusing on one of four sectors -- healthcare, tech, consumer and turnaround. We view those managers as having the best opportunity to generate outsized returns. If there is a bigger return opportunity with higher volatility in that segment of the market and consistent performance and lower volatility on the other end of the barbell, we expect to generate attractive risk-adjusted combined returns over time.
Trusted Insight: Currently there is a high level of volatility in private markets. What's your strategy in mitigating risks during times like this?
Jed Johnson: When we make a commitment to a private equity fund, we're making a commitment that will likely last more than 10 years. We need to be thinking about a much longer time horizon than this year or next year. We're focused on maintaining a rigorous process for identifying, evaluating and selecting managers. To the extent we are reacting to the market environment, that's going to show up more in our appetite or lack thereof for direct co-investments and in the types of co-investments to which we're attracted.
Trusted Insight: What career advice would you give to aspiring investment professionals, especially those who are looking for a career in family offices?
Jed Johnson: One of the things I've tried to be consistent about in my own career is always looking for ways to do what we do better. We all are required to come to work every day and do our jobs to the very best of our ability – that is “working in our business." At the same time, we should also always think about how we can improve what we're doing – that is “working on our business." They are two different things, and I think keeping in mind that working on your business is as important as working in your business is probably the best recommendation I would give to anyone about trying to build success in any career.
To learn more about family office investing, view the full list of Top 30 Family Office Rising Stars.