Kim Walker is the chief investment officer at Washington University Investment Management Company, overseeing the management of the university’s endowment fund and other assets totaling over $7 billion. As of 2015, Washington University’s endowment is one of the top 20 largest university endowments in the nation.
Joining the endowment in 2006, Walker grew a three-person investment staff to a 20-person team. In this interview, Walker talks in depth about the driving philosophy behind managing Washington University’s investment portfolio, the essential role of effective governance and strategies in investing in a down market.
Walker was recently named to Trusted Insight's ranked list of the Top 30 Endowment Chief Investment Officers. Walker graciously spoke with Trusted Insight on March 18, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: Previously you managed corporate pension plans at GM and Qwest Asset Management for many years. What attracted you to the world of University endowment?
Kim Walker: I actually am an alumna of Washington University as I attended graduate school here, so I had a connection to the university. But the real attraction was the opportunity to build an investment office and take it to a more professional level.
Before I joined Washington University, the investment office was a small, three-person office reporting through the CFO and the decision was made to invest into that office. Another large consideration was working with an institution whose mission I identified with and having the endowment be such a strategic part of supporting that mission.
Trusted Insight: What do you think is the most challenging aspect of managing a university endowment?
Kim Walker: I think the biggest challenge is being able to navigate challenging investment markets, which is not unique to endowment investors. However, endowments do have some key advantages over other investors that make that challenge a little more negotiable.
Trusted Insight: What is your day-to-day work like as a CIO at the university endowment?
Kim Walker: It's being a liaison with the university, understanding the operations of the university and managing the endowment as part of that total enterprise. It is also being the liaison to our investment board, who directly oversees the endowment, and making sure that we have good two-way communication and understand their objectives and concerns. It's about managing the operations of the office -- most importantly staffing -- and setting clear objectives.
Trusted Insight: You mentioned the staff only had three people when you started. How have the investment team and the portfolio evolved since you joined in 2006?
Kim Walker: Because the investment office was so small, it was almost by necessity that we employed outside consultants to help invest the program, particularly in alternative assets. Very soon after I arrived and as we grew our staff, we changed that consultant-driven model to an internal-investment-driven model. As a result, the program has changed substantially.
In terms of asset allocation over that period, we have increased our exposure to non-traditional assets, including hedge funds and private market investments. We have done a lot of work in terms of investment manager selection. The underlying portfolio looks very different than it did in 2006.
Now we have a total team of 20 people, including 13 investment staff, 5 operations staff and a couple of administrative staff.
Trusted Insight: When you hire portfolio managers, what kind of key characteristics do you look for in candidates? Do you have a preference between generalists and specialists?
Kim Walker: We use both generalists and specialists. All managers need to be experts in pursuing their mandates and in being differentiated in terms of having an edge. As an illustration, our emerging markets program has one generalist as well as a number of regional and geographic specialists. Certainly within our hedge fund portfolio, we have specialists by sub-strategy and likewise in our private markets portfolio. We do use a combination and we think when an area is not too narrowly focused, we will lean toward using a specialist.
Trusted Insight: On the Washington University’s annual report, I saw a chart that shows the distribution of your asset allocation in 2015. It seems that you're very heavily invested in developed market equity and hedge funds. What was your best performing asset class in 2015?
Kim Walker: Our private markets program performed the best in fiscal year 2015, followed by developed market equities. Equities generally did well. At the other end of the return spectrum, natural resource related investments did the poorest for obvious reasons. We have been gradually increasing our allocation over time to private market investments, which will be funded from our public equity portfolio, and probably from our hedge strategy portfolio as well to a lesser extent.
Trusted Insight: Endowments are long-term investors, but outside this basic idea of keeping a long term perspective, how would you describe your overall investment philosophy?
Kim Walker: Time horizon and longevity of our capital are clearly an important part of what we do. That allows us to be a provider of capital and to take on illiquidity and to assume more risk. It allows us to be patient. In addition, the key to our strategy is manager selection and access to top-tier managers. We are also broadly value investors, which we think produces the highest long-term compounded returns. We think that concentration of exposures produces differentiated returns. Information and intellectual network are also very important to us in terms of developing insight into strategies and managers.
Another competitive advantage that we have is a clear sense of mission in support of a world-class university. We think that gives us a strong branding tool, which facilitates our engagement with world-class managers.
Trusted Insight: How does your approach change when investing in a down market versus an up market?
Kim Walker: I think it's important in both types of markets to have the discipline to adhere to your long-range plan. In a down market, it is important to have the dry powder to be able to opportunistically invest into that market.
An issue of key importance in all markets, but especially in down markets, is to have the right governance and a good board or investment committee that can stay the course, that understands that down markets will happen and that stay with the strategic plan.
Trusted Insight: How is your relationship with the board of trustees? Are they actively involved in the investing decision making process?
Kim Walker: While we are ultimately responsible to the university board of trustees, they are not directly involved in the oversight of the endowment. A separate group functions as the board of the Washington University Investment Management Company, and is currently composed of seven individuals, most of whom have stayed constant over the last 10 years. They are both supportive and astute. One part of good governance is to have clear decision-making authority, which we do between the board and staff. Another part of good governance is an appropriate level of resources for the investments office.
Trusted Insight: What trends have you identified that could shape or influence the endowment industry in 2016 and beyond?
Kim Walker: One trend is a surplus of investment capital generally. Capital is a commodity, and it can distort fundamental valuations for some period of time and can also crowd out allocations to managers. You need to be able to distinguish your institution and your institution's capital from others.
There's kind of a life cycle we think about with respect to investment management firms. Generally, the smaller the amount of assets under management, the more value the manager is likely to add, so we pay attention to that as well.
Trusted Insight: On average, how much assets is a manager in charge of on your team?
Kim Walker: It varies tremendously by manager and by strategy. We will fund first-time managers, and we also have assets with some large managers. Some strategies like venture capital are not very scalable. Some other strategies like U.S. large-cap equities are more scalable. So it really depends on the market and the strategy.
Trusted Insight: One of Trusted Insight’s goals is to help foster the next generation of CIOs. What is the number one career advice you would give to the more junior professionals in institutional investment?
Kim Walker: I think it's really important in your career to choose an institution that has great governance. It is also important to select a culture in which you will thrive, one that offers you opportunities for learning and for growth.
Trusted Insight: How about the mentorship? Are there any individuals in the investing world who you look up to or had an influence on your investment philosophy and career planning?
Kim Walker: I think my mentors are my colleagues on staff here at Washington University. I learn from them a lot. I like to be surrounded by really smart people, and I think we've got that kind of a team here.
To learn more about the the Top 30 Endowment Chief Investment Officers, click here.
Joining the endowment in 2006, Walker grew a three-person investment staff to a 20-person team. In this interview, Walker talks in depth about the driving philosophy behind managing Washington University’s investment portfolio, the essential role of effective governance and strategies in investing in a down market.
Walker was recently named to Trusted Insight's ranked list of the Top 30 Endowment Chief Investment Officers. Walker graciously spoke with Trusted Insight on March 18, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: Previously you managed corporate pension plans at GM and Qwest Asset Management for many years. What attracted you to the world of University endowment?
Kim Walker: I actually am an alumna of Washington University as I attended graduate school here, so I had a connection to the university. But the real attraction was the opportunity to build an investment office and take it to a more professional level.
Before I joined Washington University, the investment office was a small, three-person office reporting through the CFO and the decision was made to invest into that office. Another large consideration was working with an institution whose mission I identified with and having the endowment be such a strategic part of supporting that mission.
Trusted Insight: What do you think is the most challenging aspect of managing a university endowment?
Kim Walker: I think the biggest challenge is being able to navigate challenging investment markets, which is not unique to endowment investors. However, endowments do have some key advantages over other investors that make that challenge a little more negotiable.
Trusted Insight: What is your day-to-day work like as a CIO at the university endowment?
Kim Walker: It's being a liaison with the university, understanding the operations of the university and managing the endowment as part of that total enterprise. It is also being the liaison to our investment board, who directly oversees the endowment, and making sure that we have good two-way communication and understand their objectives and concerns. It's about managing the operations of the office -- most importantly staffing -- and setting clear objectives.
Trusted Insight: You mentioned the staff only had three people when you started. How have the investment team and the portfolio evolved since you joined in 2006?
Kim Walker: Because the investment office was so small, it was almost by necessity that we employed outside consultants to help invest the program, particularly in alternative assets. Very soon after I arrived and as we grew our staff, we changed that consultant-driven model to an internal-investment-driven model. As a result, the program has changed substantially.
In terms of asset allocation over that period, we have increased our exposure to non-traditional assets, including hedge funds and private market investments. We have done a lot of work in terms of investment manager selection. The underlying portfolio looks very different than it did in 2006.
Now we have a total team of 20 people, including 13 investment staff, 5 operations staff and a couple of administrative staff.
Trusted Insight: When you hire portfolio managers, what kind of key characteristics do you look for in candidates? Do you have a preference between generalists and specialists?
Kim Walker: We use both generalists and specialists. All managers need to be experts in pursuing their mandates and in being differentiated in terms of having an edge. As an illustration, our emerging markets program has one generalist as well as a number of regional and geographic specialists. Certainly within our hedge fund portfolio, we have specialists by sub-strategy and likewise in our private markets portfolio. We do use a combination and we think when an area is not too narrowly focused, we will lean toward using a specialist.
Trusted Insight: On the Washington University’s annual report, I saw a chart that shows the distribution of your asset allocation in 2015. It seems that you're very heavily invested in developed market equity and hedge funds. What was your best performing asset class in 2015?
Kim Walker: Our private markets program performed the best in fiscal year 2015, followed by developed market equities. Equities generally did well. At the other end of the return spectrum, natural resource related investments did the poorest for obvious reasons. We have been gradually increasing our allocation over time to private market investments, which will be funded from our public equity portfolio, and probably from our hedge strategy portfolio as well to a lesser extent.
Trusted Insight: Endowments are long-term investors, but outside this basic idea of keeping a long term perspective, how would you describe your overall investment philosophy?
Kim Walker: Time horizon and longevity of our capital are clearly an important part of what we do. That allows us to be a provider of capital and to take on illiquidity and to assume more risk. It allows us to be patient. In addition, the key to our strategy is manager selection and access to top-tier managers. We are also broadly value investors, which we think produces the highest long-term compounded returns. We think that concentration of exposures produces differentiated returns. Information and intellectual network are also very important to us in terms of developing insight into strategies and managers.
Another competitive advantage that we have is a clear sense of mission in support of a world-class university. We think that gives us a strong branding tool, which facilitates our engagement with world-class managers.
Trusted Insight: How does your approach change when investing in a down market versus an up market?
Kim Walker: I think it's important in both types of markets to have the discipline to adhere to your long-range plan. In a down market, it is important to have the dry powder to be able to opportunistically invest into that market.
An issue of key importance in all markets, but especially in down markets, is to have the right governance and a good board or investment committee that can stay the course, that understands that down markets will happen and that stay with the strategic plan.
Trusted Insight: How is your relationship with the board of trustees? Are they actively involved in the investing decision making process?
Kim Walker: While we are ultimately responsible to the university board of trustees, they are not directly involved in the oversight of the endowment. A separate group functions as the board of the Washington University Investment Management Company, and is currently composed of seven individuals, most of whom have stayed constant over the last 10 years. They are both supportive and astute. One part of good governance is to have clear decision-making authority, which we do between the board and staff. Another part of good governance is an appropriate level of resources for the investments office.
Trusted Insight: What trends have you identified that could shape or influence the endowment industry in 2016 and beyond?
Kim Walker: One trend is a surplus of investment capital generally. Capital is a commodity, and it can distort fundamental valuations for some period of time and can also crowd out allocations to managers. You need to be able to distinguish your institution and your institution's capital from others.
There's kind of a life cycle we think about with respect to investment management firms. Generally, the smaller the amount of assets under management, the more value the manager is likely to add, so we pay attention to that as well.
Trusted Insight: On average, how much assets is a manager in charge of on your team?
Kim Walker: It varies tremendously by manager and by strategy. We will fund first-time managers, and we also have assets with some large managers. Some strategies like venture capital are not very scalable. Some other strategies like U.S. large-cap equities are more scalable. So it really depends on the market and the strategy.
Trusted Insight: One of Trusted Insight’s goals is to help foster the next generation of CIOs. What is the number one career advice you would give to the more junior professionals in institutional investment?
Kim Walker: I think it's really important in your career to choose an institution that has great governance. It is also important to select a culture in which you will thrive, one that offers you opportunities for learning and for growth.
Trusted Insight: How about the mentorship? Are there any individuals in the investing world who you look up to or had an influence on your investment philosophy and career planning?
Kim Walker: I think my mentors are my colleagues on staff here at Washington University. I learn from them a lot. I like to be surrounded by really smart people, and I think we've got that kind of a team here.
To learn more about the the Top 30 Endowment Chief Investment Officers, click here.