Mary McLean is chief investment officer for the Ewing Marion Kauffman Foundation. She leads the team that oversees the Kauffman Foundation's globally diversified $2 billion portfolio. McLean's affiliation with the Kauffman Foundation dates back to 1996. She was introduced to endowment investing in the mid-1990s as a senior associate with the Yale University Investments Office. McLean earned a bachelor's degree in mathematics at Brown University, a master's of business administration from Yale School of Management and a doctorate in financial economics from Yale University Graduate School. She is a CFA charter holder.
Ms. McLean was recently named to Trusted Insight’s ranked list of the Top 30 Chief Investment Officers At Foundations. She graciously spoke with Trusted Insight on Nov. 3, 2015. The following interview has been edited and condensed for clarity.
Trusted Insight: Tell me about your time at the Yale endowment and how that experience has helped in your role at the Kauffman foundation.
Mary McLean: The most impactful lesson that I took from my time at the Yale endowment was the value of a consistent philosophy. The value of having a set of rational beliefs regarding investing and sticking with a consistent set of principles over time.
Trusted Insight: What brought you to the Kauffman foundation?
Mary McLean: The CIO of the Kauffman foundation at the time recruited me. I was attracted to the prospect of being able to get into a decision making role.
Trusted Insight: Tell me about your investment philosophy​ at the Kauffman Foundation and what sets you apart from your peers.
Mary McLean: We are invested fairly similarly to our peers except we have a larger allocation to publicly traded stocks than our larger endowment and foundation peers.
Trusted Insight: There has been a slowdown in venture capital. Where are you looking for continued growth (geographically) and what sectors might drive that growth?
Mary McLean: We work with venture capital firms that have a generalist approach. They are focused on a range of high-growth opportunities, which they tend to find in technology and biotech-related industries, primarily in the U.S. We agree with the idea that the VC environment is overheated and we’re being very conservative with new commitments.
Trusted Insight: What do you look for when selecting a manager?
Mary McLean: Our focus is on our existing manager relationships. We make very few changes over time to our manager roster. We typically work with managers who have a bottom-up, fundamentalist approach to stock selection and typically with firms with a narrow product offering and typically firms that are employee owned.
Trusted Insight: It’s a tough market right now, both in the public and private markets. What’s your outlook for for 2016 and beyond?
Mary McLean: As many people are, we are expected lower capital market returns going forward than we’ve been experiencing historically. The median outcome we are expecting is to provide the 5% IRS-required spending, while maintaining the purchasing power of the endowment. That is our median expectation going forward. Growing the inflation-adjusted value of the endowment would exceed that expectation.
Trusted Insight: What trends have you identified foundation investing over the years?
Mary McLean: Recently investors are becoming more aware of the impact of fees and expenses in private equity and venture capital. Also, these partnerships are not terminating in the expected time frame.
Trusted Insight: How has that affected the foundation space?
Mary McLean: People are becoming more aware of the trade off between private equity investments and public market equivalents. That means investors are becoming more demanding in terms of terms and conditions for private equity investments.
Trusted Insight: What challenges does your foundation face that are unique to the foundation industry?
Mary McLean: Lower return expectations going forward raises the risk that foundations will not be able to maintain purchasing power while meeting a 5% spending requirement.
Trusted Insight: Some of the other foundations I’ve talked to have named the lack of inbound cash flow as a major challenge. Is that a universal concern for foundations? How does that affect your investment strategy?
Mary McLean: We have a pretty liquid portfolio in comparison to our large foundation and endowment peers. Because of our large allocation to public equities and other liquid instruments, cash flow and liquidity tend not to be problematic. The broader problem of relying solely on investment returns to fund programs and operations, while maintaining purchasing power, is a big concern. Like other investors, we face pressure to increase our allocation to risky assets in a low interest rate environment.
Trusted Insight: What is the #1 lesson you’ve learned during your career as an institutional investor?
Mary McLean: Don’t overlook the advantages of publicly traded stocks.
Trusted Insight: How has that helped at the foundation?
Mary McLean: It’s allowed us to be more flexible with our capital allocations and keep the aggregate fee level down.
Trusted Insight: What have I failed to ask that I should know about you, Kauffman Foundation. or foundations in general?
Foundation investors, like all investors, are prone to crowd behavior. It’s important to be wary of marketing messages and current trends.
To learn more about the investors powering the world's top foundations, check out Trusted Insight's list of The Top 30 Chief Investment Officers At Foundations.
Ms. McLean was recently named to Trusted Insight’s ranked list of the Top 30 Chief Investment Officers At Foundations. She graciously spoke with Trusted Insight on Nov. 3, 2015. The following interview has been edited and condensed for clarity.
Trusted Insight: Tell me about your time at the Yale endowment and how that experience has helped in your role at the Kauffman foundation.
Mary McLean: The most impactful lesson that I took from my time at the Yale endowment was the value of a consistent philosophy. The value of having a set of rational beliefs regarding investing and sticking with a consistent set of principles over time.
Trusted Insight: What brought you to the Kauffman foundation?
Mary McLean: The CIO of the Kauffman foundation at the time recruited me. I was attracted to the prospect of being able to get into a decision making role.
Trusted Insight: Tell me about your investment philosophy​ at the Kauffman Foundation and what sets you apart from your peers.
Mary McLean: We are invested fairly similarly to our peers except we have a larger allocation to publicly traded stocks than our larger endowment and foundation peers.
Trusted Insight: There has been a slowdown in venture capital. Where are you looking for continued growth (geographically) and what sectors might drive that growth?
Mary McLean: We work with venture capital firms that have a generalist approach. They are focused on a range of high-growth opportunities, which they tend to find in technology and biotech-related industries, primarily in the U.S. We agree with the idea that the VC environment is overheated and we’re being very conservative with new commitments.
Trusted Insight: What do you look for when selecting a manager?
Mary McLean: Our focus is on our existing manager relationships. We make very few changes over time to our manager roster. We typically work with managers who have a bottom-up, fundamentalist approach to stock selection and typically with firms with a narrow product offering and typically firms that are employee owned.
Trusted Insight: It’s a tough market right now, both in the public and private markets. What’s your outlook for for 2016 and beyond?
Mary McLean: As many people are, we are expected lower capital market returns going forward than we’ve been experiencing historically. The median outcome we are expecting is to provide the 5% IRS-required spending, while maintaining the purchasing power of the endowment. That is our median expectation going forward. Growing the inflation-adjusted value of the endowment would exceed that expectation.
Trusted Insight: What trends have you identified foundation investing over the years?
Mary McLean: Recently investors are becoming more aware of the impact of fees and expenses in private equity and venture capital. Also, these partnerships are not terminating in the expected time frame.
Trusted Insight: How has that affected the foundation space?
Mary McLean: People are becoming more aware of the trade off between private equity investments and public market equivalents. That means investors are becoming more demanding in terms of terms and conditions for private equity investments.
Trusted Insight: What challenges does your foundation face that are unique to the foundation industry?
Mary McLean: Lower return expectations going forward raises the risk that foundations will not be able to maintain purchasing power while meeting a 5% spending requirement.
Trusted Insight: Some of the other foundations I’ve talked to have named the lack of inbound cash flow as a major challenge. Is that a universal concern for foundations? How does that affect your investment strategy?
Mary McLean: We have a pretty liquid portfolio in comparison to our large foundation and endowment peers. Because of our large allocation to public equities and other liquid instruments, cash flow and liquidity tend not to be problematic. The broader problem of relying solely on investment returns to fund programs and operations, while maintaining purchasing power, is a big concern. Like other investors, we face pressure to increase our allocation to risky assets in a low interest rate environment.
Trusted Insight: What is the #1 lesson you’ve learned during your career as an institutional investor?
Mary McLean: Don’t overlook the advantages of publicly traded stocks.
Trusted Insight: How has that helped at the foundation?
Mary McLean: It’s allowed us to be more flexible with our capital allocations and keep the aggregate fee level down.
Trusted Insight: What have I failed to ask that I should know about you, Kauffman Foundation. or foundations in general?
Foundation investors, like all investors, are prone to crowd behavior. It’s important to be wary of marketing messages and current trends.
To learn more about the investors powering the world's top foundations, check out Trusted Insight's list of The Top 30 Chief Investment Officers At Foundations.