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Access here alternative investment news about Exclusive Q&A: Michael Buchman, Investment Director, Conrad N. Hilton Foundation
Private Equity

Exclusive Q&A: Michael Buchman, Investment Director, Conrad N. Hilton Foundation

by trusted insight posted 2years ago 6524 views
Michael E. Buchman supports the strategic development and ongoing management of the Conrad N. Hilton Foundation’s investment portfolio. In this role, he monitors existing managers and evaluates prospective managers in all asset classes, with primary responsibility for private equity and real estate investments. He also conducts portfolio and strategy analytics. Prior to joining the Hilton Foundation, Buchman worked in the areas of finance, real estate and law at Broadway Partners, Citigroup Global Investment Bank and the law firms of Fried Frank Harris Shriver & Jacobson, and Skadden Arps Slate Meagher & Flom. Buchman received a juris doctorate degree from the University of Pennsylvania Law School and a Master of Business Administration degree, and a bachelor’s degree in economics, both from The Wharton School at the University of Pennsylvania.

Michael Buchman was recently named on Trusted Insight’s ranked list of Top 30 Foundation Rising Stars. He graciously spoke with us on March 31, 2016. The following interview has been condensed and edited for clarity.

Trusted Insight: You have a number of academic degrees. Can you explain your educational experiences and how they are related?

Michael Buchman: I have a diverse academic background with three degrees from the University of Pennsylvania, including a B.S. in Economics from Wharton undergrad with a focus on real estate, a Wharton MBA and a law degree from University of Pennsylvania Law School. The University of Pennsylvania is a great institution that not only prepared me with a great interdisciplinary academic background that has proven valuable, as so much of investing is a combination of a variety of disciplines.

Trusted Insight: In addition to your Doctor of Law degree from the University of Pennsylvania, you also worked for the law firms Fried, Frank, Harris, Shriver & Jacobson and Skadden, Arps, Slate, Meagher & Flom. How has your law background helped in your career?

Michael Buchman: While I never formally practiced law and don't work as internal counsel here at the Conrad N. Hilton Foundation, having a legal background is valuable in terms of some of the basic skills -- critical thinking, writing and research -- which have helped in my investment career. Also, it helps being knowledgeable and conversant in the legal aspects that come up when we are making investments.

Trusted Insight: Did studying real estate and then subsequently working in real estate investments help with transferable skills for institutional investing?

Michael Buchman: I think the different experiences I've had on the direct investment side, having worked for a real estate private equity fund, at law firms documenting real estate transactions and in real estate investment banking, have provided me the background and understanding of the full spectrum of investment strategies and transactions. A lot of those principles carry over and are applicable to investing in other asset classes. 

Trusted Insight: What first attracted you to the world of institutional investing?

Michael Buchman: After graduating from the JD/MBA program, I was introduced to Randy Kim, the Hilton Foundation’s chief investment officer, who was building out an investment team. I was presented with the chance to invest across all asset classes, using the broad set of academic skills I had obtained. The greatest asset one can develop as an investor is sound judgement, and this role was focused precisely on that – playing a part in evaluating investments and constructing a portfolio. I’ve honed that ability over the last seven years, having evaluated thousands of investments and hundreds of meetings with top fund managers. It was an exciting opportunity to join the Foundation’s investment team and has proven to be a great decision.  

Trusted Insight: Do you specialize within real estate or do you look at a broader view?

Michael Buchman: I look at a broader view. My primary responsibilities include real estate, natural resources and private equity, although I work across the entire portfolio. It is important to be able to weigh the merits of an investment against other asset classes and the entire spectrum of risk-reward.

Trusted Insight: How does that experience working at a foundation differ to working for real estate investment firm?

Michael Buchman: My position here at the Foundation is a lot more global and high-level. I analyze and evaluate investment opportunities in every asset class on a global basis. I look at things from the 10,000-foot perspective, as opposed to being on the ground and only focused on an individual asset or deal. The goal is to craft an entire portfolio in which each individual line item is attractive and all the pieces come together as a compelling whole. It’s very different in nature, but it’s challenging and rewarding at the same time.

Trusted Insight: What are the challenging aspects of what you do?  

Michael Buchman: As a foundation designed to exist in perpetuity, we take a very long-term approach to our portfolio. This is fundamentally different from most of the investment industry that is focused on short-term market movements, the newest trends and short-term performance. The challenge is to tune out the noise, maintain a long-term focus and look for investment managers that share that view. Our goal is to sustain the mission of the Foundation, which is to alleviate human suffering, by increasing available funds. The investment team is distinctly aware that our performance -- or lack thereof -- has a direct impact on the lives of millions of people that need the support of our grants. It's a real honor to serve that noble cause, but at the same time, a great responsibility that we take very seriously.

Trusted Insight: How do you tune out the noise?

Michael Buchman: By having a clear investment philosophy and guidelines that each individual, the team, investment committee and our board collectively adopt and support. By really sticking to it, as opposed to trying to change and quickly adapt in response to short-term market movements or new trends. Complete institutional alignment allows me and the investment team to focus on the long-term and best interests of the Foundation.

Trusted Insight: In terms of developing that kind of approach, is there anyone in the investment world that you look up to or who has guided you across that?

Michael Buchman: I joined the Hilton Foundation’s investment team at its inception. Randy Kim, our CIO, who spent 10 years at the Yale Investment Office prior to joining the Foundation, trained me and most of our team here. Most of us had no direct prior foundation investment management experience before joining. He's done a great job of mentoring me, as well as the rest of the team.

Trusted Insight: That must've been quite an interesting experience to be there at the very start of the Foundation’s investment team and seeing it grow. What was that like?

Michael Buchman: It's been quite rewarding, because the team here had an opportunity to craft a portfolio nearly from scratch, and while there are challenges in having to do so, there is a real sense of ownership and pride in our portfolio, and the investment program that we've built out. We’re proud of our investment process, as well as the underlying investments that we have in our portfolio. 

Trusted Insight: Tell me a little bit more about the team at the Foundation, how it's structured and what the dynamic is like between you?

Michael Buchman: The core of our investment approach is based upon our team. We currently have a seven-person team that works in a very collaborative fashion. Although we have asset class designations for our senior team members, the other director and I spent our first four years as generalists. We have a very flat organization with no silos. Everyone has a voice at the table and is encouraged to speak up. There is very healthy discussion and debate that transpires without regard for seniority. We firmly believe that it's our collective judgment that will result in superior investment decisions.

Our entire team has also benefited from being part of the broader organization, which has an incredible staff and culture dedicated to furthering its charitable mission, and an external reputation on a global basis built upon the legacy of the Hilton family. 

Trusted Insight: You work in real estate, natural resources and private equity. Is there anything within those areas that you think is particularly interesting right now in terms of the way that investments are developing?

Michael Buchman: As I've mentioned, we really strive to take a long-term perspective. Of course, that doesn't mean we're blind to short-term market movements and opportunities, but we don't take drastic action on those items. We might tilt on the margin, but we believe our philosophy, asset allocation and manager roster is the key to long-term attractive risk-adjusted returns. We have shifted our portfolio toward smaller and younger firms. We think that those managers are "hungrier,” more performance-driven and provide a long runway for us to partner with them.

We don't really take top-down views to find investments. Our portfolio is built from the bottom up, and we look to partner with focused, niche managers that we think have an edge in their area of expertise. In today's investment world, it's extremely difficult to find inefficiencies or mis-pricings, and you need that laser focus to have an edge. The bet we make is that over a full-market cycle, those managers will produce the best returns. Given our long-term perspective, we have the staying power to remain invested through volatile time periods and even double down with our managers to maximize long-term returns.

Trusted Insight: How do you build relationships with some of those younger managers who presumably aren't as well known in the industry?

Michael Buchman: For us, alignment of interest is really what's most critical. Recently, we adopted this aforementioned increased focus on identifying managers early on in their fund life. Our team doesn’t have any strict rules in terms of minimum years of track record or other metrics. We will look at any opportunity and are actively working to source new relationships. We’ve invested in first-time private funds, day-one hedge fund launches and acted as a significant investor for existing, but much smaller funds. This approach aligns itself to partner with managers that are young and hungry. With smaller assets under management, they aren't going to get rich off management fees and are motivated by carried interest and incentive fees. By investing earlier on, it allows us to establish a relationship with that manager and to develop a true working relationship with them that only grows and strengthens over time. We seek to form true partnerships with our managers and engage them in discussions about, not only their investments, but also how they manage their business and its growth.  

Trusted Insight: Presumably when you're investing in these younger managers, they don't have so much of a track record for you to go on. What variables do you assess?

Michael Buchman: Our assessments are really a combination of a myriad of factors. A manager’s past track record is obviously a component, but also the individual, their academic training, their prior work experience, where they've worked, how long they've worked, who they've trained under, the successes or failures that they might have had at those prior firms, the particular strategy that they're pursuing and their ability to execute on it, the team they've put together, the research projects, their portfolio management skill or philosophy, among other variables. All of those elements come together in an assessment of whether or not we think they're a manager that we want to partner with.

Trusted Insight: What makes Conrad N. Hilton Foundation stand out compared to its peers?

Michael Buchman: In general, we take a slightly more concentrated approach to our manager roster and portfolio. We prefer to have fewer, more meaningful relationships, than many smaller ones. We have about 50 managers in our portfolio and the goal is to stay around that number. Our inclination to invest with newer managers is a point of differentiation as well.

Trusted Insight: How are the assets within your portfolio allocated, and how does this compare to your peers?

Michael Buchman: Broadly, we manage in total $5.4 million in assets, as of the year end. About $2.6 billion in the Foundation proper, and then about $2.8 billion in charitable remainder trusts that are pledged to the Foundation. 

In general, I think we're in line with most of our peers in terms of our broad allocations to alternative assets. The breakdown in terms of allocation is: U.S. equities, 10%; global equities, 8%; foreign developed equities, 9%; foreign emerging equities, 12%; hedge funds, 17%; real estate, 9%; natural resources, 8%; private equity, 13%; treasuries, 13%; and cash, 1%.

Trusted Insight: Where do you see the portfolio developing in the future? Is that anywhere you're looking to move into, or that you're thinking of developing?

Michael Buchman: In developing the portfolio, we have a bottom-up focus across all asset classes and geographies to identify both newer managers earlier on in their fund lives and niche strategies. We have deployed increasing efforts to look at different geographies outside the U.S. or in smaller niches here in the U.S. where we think there might be an opportunity for inefficiencies or for developing a true edge, as opposed to more efficient, well-funded and capitalized areas of the market.

For example, on the marketable side, we have spent a fair amount of time looking for marketable exposure in emerging markets and have made investments in India, China, Frontier Africa and the Middle East. We think that, on the margin, there’s less competition in those markets.

On the private side, an example of this approach is our investing in smaller, niche-targeted estate funds, both in North America and Europe. We invested in a first-time $200 million institutional real estate fund that has a very narrow geographic focus, essentially focusing on two cities, in the multi-family space. We've made an investment in a first-time, very small $125 million lower-bid market buyout fund based in Canada.

Trusted Insight: What career advice would you share with someone who is looking to get into the world of foundation investing?

Michael Buchman: I think a basic level of financial understanding is critical. Outside of that, critical thinking, writing skills and a broad education is important. In addition, developing a very strong work ethic. We invest on a global basis in every asset class, so you cannot be narrow-minded. I think a natural curiosity lends itself well to this job, in terms of wanting to learn more about different areas of the world, different areas of investment opportunity, different sectors and different investment strategies. It's really that natural curiosity and intellectual ability that allows one to succeed in this industry.

Trusted Insight: Where would you like to see yourself in five years’ time?

Michael Buchman: I've developed a real passion for investing. I truly enjoy seeing the wide menu of investment opportunities and see myself continuing down this path, leveraging the network and skills I’ve developed. I could see myself continuing to be a part of the great team here at the Hilton Foundation, or perhaps investing on behalf of another organization or individual.

Trusted Insight: Outside of investments, what really gets you out of bed in the mornings?

Michael Buchman: My family, literally and figuratively! My incredible wife and amazing three young children are of utmost importance to me. I spend as much time as possible with them. I love and appreciate them and my entire extended family. Additionally, I'm involved in and serve of the boards of a number of charitable organizations, such as Chai Lifeline, an incredible organization that helps children and their families affected by cancer.

Learn more about Top 30 Rising Stars At Foundations on Trusted Insight.