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Mount Sinai's Investment Office Perspective During The COVID-19 Pandemic | Scott Pittman, SVP & Chief Investment Officer | Q&A

by trusted insight posted 6months ago 1214 views
Scott Pittman is the senior vice president and chief investment officer at The Mount Sinai Health System, where he has served since 2009. He has management and oversight of Mount Sinai's Investment Office and its $2.3 billion portfolio of endowed funds and long-term capital. The Investment Office also supports the oversight of an additional $12.5 billion of funds.

In this interview, he discussed the perspective of being a NY health system during the covid-19 pandemic; how they redeployed risk into market dislocations; their more concentrated approach with manager selection; and how collaboration between innovation startups and health systems might not be such an easy path.

Pittman was named to Trusted Insight's 2021 Top Health System Chief Investment Officers.

Trusted Insight: Can you start by telling us about Mount Sinai, and your role there as CIO?

Scott Pittman: The Mount Sinai Investment Office has a primary mission to support the long-term endowment pool of about $2.3 billion. There is currently a spending rate on it of 4.5% that supports medical research, various departments of the health system and the Chairs of those departments, and other budget and expense needs. Mount Sinai has a medical school as well with about 1,200 students that receives support from this pool of capital. While the long-term pool is our primary focus, we also help to support other investment areas of the institution including short-term investments, employee benefits, and insurance.
 

"Being a healthcare system serving in New York City in the spring of 2020 was exceptionally challenging. We had employees and friends on the front lines as we worked to better understand the virus in the early days."


The investment needs of a healthcare system can be complex and very different from one institution to the next. I serve as the Investment Committee Chairman for two separate insurance entities that have ties to Sinai. I also sit as a participant on the Benefits Committee and serve on a sub-advisory committee for the DB plans and DC plans. All of these areas require differing amounts of time and attention. Usually you can tranche out your time to manage everything, while last year presented lots of challenges at the same time.

The Investment Office and team focus 24/7 on the long-term pool of capital where we have direct oversight. We work in partnership with a sophisticated Investment Committee as fiduciaries. The long-term pool is a complex portfolio that’s diversified globally and includes private equity, opportunistic credit, real estate, hedge fund strategies, and royalties alongside equities, fixed income, and cash.

Trusted Insight: What has it been like investing on behalf of a health care system in a time of pandemic and uncertainty?

Scott Pittman: Being a healthcare system serving in New York City in the spring of 2020 was exceptionally challenging. We had employees and friends on the front lines as we worked to better understand the virus in the early days. Everyone had to quickly adapt and work together to ensure safety while transforming infrastructure and resources to meet growing needs, serve community health, and research ways to fight the virus. It was a frightening time with case numbers rapidly increasing and everyone and everything stretched. Leadership went to great lengths to make sure supplies were available and personal needs met as best as possible. A NY Times article in March 2020 detailed efforts of the health system to enlist the help of Warren Buffet to fly two jets thousands of miles to obtain much-needed PPE equipment overseas.
 

"As we redeployed risk into market dislocations, we also had to figure out how to increase cash and liquidity. We are thankful for our investment partnerships, while we, unfortunately, had to redeem from some as we made these changes."


The pandemic also presented financial challenges, and the Investment Office had to pivot to make sure the health system’s needs would be met, what liquidity needs might arise and how we could support the various pools of capital across the institution. Thinking back, the months of March, April, and May are a complete blur and seem like one never-ending day. We needed to address how to create excess liquidity for real and present concerns while maintaining our position as a long-term investor and taking advantage of the dislocations in the markets.

In the month of March, we rebalanced into equities once the market was down over -20%. We used a large portion of cash that had been set aside to buy the S&P 500 through ETF purchases. We planned to deploy all of the cash and buy the market between down -20% to -40% and execute purchases with every half of a percent drop. While we never got down to -40%, we were able to put most of the capital to work. We also shifted some of our developed international equity and global emerging market equity exposure to U.S. equities while still maintaining ex-U.S. exposure in specific countries and regions, and we deployed some capital to existing credit relationships.

As we redeployed risk into market dislocations, we also had to figure out how to increase cash and liquidity. We are thankful for our investment partnerships, while we unfortunately had to redeem from some as we made these changes. We had investments in macro strategies and lower net, long short that held up well in the dislocation, and we used these positions to support our liquidity efforts.

It was a heavy period of time from many standpoints. Every day blended into the next. By the time we got to the summer, it was wonderful to get outside, meet together as a team and do things like a team hike.

Trusted Insight: In your 2017 interview with us, you mentioned having an atypical portfolio and having a more opportunistic mindset. Is that approach still similar today or what's changed?

Scott Pittman: Most investors would likely agree that they are opportunistic. That word in of itself probably isn't too much of a standout. However, what it means for us is that we want every dollar of capital competing for the best use within the context of diversification and risk management. Public long-only equity, long-short equity, and private equity all compete for equity risk in the portfolio with the determinants placed on the best way to earn returns and add value.
 

"We currently have 41 manager relationships... In looking at data for institutions over $1 billion, the number of manager relationships for the entire portfolio tends to be closer to 80 to 100."


As well, you can generate returns by taking more directional bets, applying leverage, or through concentration of your best ideas. If you look at how we’ve approached it, we have leaned more heavily to the concentration of our best ideas. We’ve really not used leverage to drive portfolio returns while some of our managers may use leverage in their strategies. If you were to look at our equity beta, the overall volatility, and illiquidity of the portfolio relative to the broader endowment and foundation universe, it's a lot less risky in those respects.

We currently have 41 manager relationships that comprise all of our assets across all marketable and private investments. In looking at data for institutions over $1 billion, the number of manager relationships for the entire portfolio tends to be closer to 80 to 100, with a noticeable number over 100. Our focus on our best ideas has also led us to be more sector, country, and strategy specific. We may focus on areas like life sciences or countries like China (vs global EM) and small cap Japan or less correlated hedge fund strategies. 

Trusted Insight: Would you say that other healthcare systems perhaps aren't as concentrated as Mount Sinai is. That might be one of the clear differentiators for your organization.

Scott Pittman: To be clear, having 80-90 manager relationships isn't necessarily bad or good. It's more about if you have 80-90 managers, how many of those are idiosyncratic to one another? If you aggregate all those exposures up to the portfolio level, are you really just recreating unintended betas and paying active fees or are the managers adding true return and diversification benefits? If the strategies you're in are very specific, if the assets you own are idiosyncratic, you can have a number of assets and you could have 80-90 relationships conceivably. Then you can construct it in a way where you're still not cannibalizing that diversification in a sense.

It's hard from a behavioral aspect. You always want to find something interesting. You want to put it in the portfolio. It's hard to take something out. It’s a challenge to not just add over time, especially as the portfolio grows.

Trusted Insight: Is Mount Sinai excited for the idea of more collaboration between innovation startups and traditional health systems?

Scott Pittman: The healthcare investment opportunity set is really interesting, and I would argue that it’s one to be over-indexed to. Healthcare is a big sector, and there are lots of opportunities in therapeutics, tools and diagnostics, providers and services, and biotech applications across industries.
 

"Different parts of the system interact with different opportunities and clear communication across all is needed to support these internal decisions and external partnerships."


For Mount Sinai, we're seeing internal research drive really interesting opportunities and new company formations. We're also seeing many interested external parties looking to form partnerships, and I know other large health systems would say the same. There are exciting medical breakthroughs and new ways to improve and deliver the quality of care. These health systems face difficult decisions as there are large capital needs, research opportunities, and growing expenses and plenty of potential partnerships looking for time. Population health management is an important part of the process as organizations look to improve patient outcomes through new technology and services being deployed.

Different parts of the system interact with different opportunities and clear communication across all is needed to support these internal decisions and external partnerships. It's not an easy path even if you have a good idea in healthcare.

Trusted Insight: How has your team explored new technology in the investment office? Or is it something that you envision doing more in near future?

Scott Pittman: We have certainly talked about the implications of machine learning, big data, and AI. These areas have varying investment implications, and while we are aware of them as it relates to our managers and opportunities, we are not looking to implement them within the Investment Office at this time. We have the typical access to Bloomberg for that type of data, and we have specialized strategic research from two other sources. We also have a CRM database and risk management cloud-based system that supports the office which has been a big help during the pandemic. We have easy access to all documents, research notes, and portfolio positioning.

One thing we did during the pandemic was to create a virtual whiteboard to support that informal interaction that takes place in the office after a meeting ends or when an idea pops into your head because you read something that's really interesting. That informal interaction can be constrained in a remote environment and the digital whiteboard is one way to provide real-time access to these thoughts and comments for others to see or to discuss when we get together.

Institutionally, Mount Sinai has certainly implemented changes resulting from big data and AI applications, and has firsthand experience in building new companies focused on these areas of opportunity.

View our full catalog of interviews here

The full list of 2021's Top Health System Chief Investment Officers can be found here

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