The Pittsburgh Foundation's Strategy To Achieving 'Idiosyncratic Returns' | Jonathan Brelsford, SVP Of Finance And Investments | Q&A
Jonathan Brelsford is the senior vice president of finance and investments at The Pittsburgh Foundation, where he is responsible for the financial stewardship of donated assets, as well as the Foundation’s accounting and investments. He has held several leadership roles since joining the foundation in 2007.
In this interview, he shares more about his role at one of the oldest community foundations in the country; his strategy to achieving more idiosyncratic returns; and the qualities and characteristics that he seeks in a manager.
Jonathan Brelsford was recently named on Trusted Insight’s 2018 Top 30 Foundation Chiefs Investment Officers. This interview has been edited and condensed.
Trusted Insight: Can you tell us more about the Pittsburgh Foundation and your role within it?
Jonathan Brelsford: The Pittsburgh Foundation is a community foundation. We were formed in 1945 making us 73 years old. We are one of the oldest community foundations in the country. As a result, we have over 2,200 charitable funds that have been established by our donors since our founding.
Those funds represent almost $1.2 billion in assets. Those 2,200 charitable funds are invested in 60 different portfolios that the investment team and I manage. The largest of those portfolios is called the Legacy Fund, which currently represents ~$330 million.
Prior to 2009, all of our assets were delegated outside of the organization. In that year, I oversaw the formation of the Legacy Fund and since then I have been working with our investment committee to manage it.
Trusted Insight: How is the investment committee structured? How do you make decisions as a team when you decide what to invest in?
Jonathan Brelsford: The investment committee works with myself and our consultant, Pavilion Advisory Group. We take a diversified approach to the investment process. We invest in different asset classes such as private assets, hedge funds, commodities, and traditional fixed income and equity portfolios.
Trusted Insight: What strategy do you use behind deciding allocation within those classes?
Jonathan Brelsford: The way that we are structured is similar to other foundations. We look to capture the equity premium in the marketplace, which serves as the predominant driver of return, modulated by fixed income, which has been less important in terms of strategy. Since we formed the Legacy Fund, we have deprecated the importance of fixed income as rates have come down well below our nominal rate of return.
"We also pursue what we call 'diversifying opportunities.' These are more market-neutral or event-driven strategies within the hedge portfolio. They provide us with more idiosyncratic returns."
With respect to our hedge fund program, our approach is from a hedge equity position. The goal is to lower the volatility on the equity portfolio. On the hedge credit side, we want to improve the return that we get on fixed income.
We also pursue what we call “diversifying opportunities.” These are more market-neutral or event-driven strategies within the hedge portfolio. They provide us with more idiosyncratic returns. From the private capital mandate, we are looking to capture the liquidity premium on private equity and on private credit. We look for improved returns that can accrue to patient investors.
Trusted Insight: Does your Legacy Fund manage these different classes?
Jonathan Brelsford: About half of our assets are contributed to the Legacy Fund and the other half goes into our third-party investment manager program. This is where donors can recommend their own investment advisors.
The Legacy Fund has grown from $127 million in 2009 to $330 million currently. That has been from organic investment growth as well as donations. We have been fortunate to be in an environment where our donors have contributed steadily over the years. There was a period of years in which we were having record contributions. While that has tailed off, we still see elevated contributions from when we first started the Fund.
Trusted Insight: How is it working with the third-party managers?
Jonathan Brelsford: It is a big component of our work. There are two separate lines of work within our investment team. Essentially, my partner, Jay. I oversee the investment of the Legacy Fund. There are also two other portfolios associated with it but are not endowed permanently those are called the Intermediate Fund and the Grantmaking Fund.
"There is so much money right now pursuing private equity managers, but it is difficult to find the right managers."
The third-party investment manager program is overseen by another colleague, Bradley Jones. He works with the third-party investment managers to certify them to work with the Foundation. He also evaluates them and does a report each quarter.
Trusted Insight: Do you see any current investment trends or focus areas that the foundation is interested in at the moment?
Jonathan Brelsford: We are currently focused on private equity. I think the hard part for us is determining where the value is. Actually, I wouldn’t say “value” because we believe in the long term, specifically the liquidity premium that can be obtained within PE. There is so much money right now pursuing private equity managers, but it is difficult to find the right managers.
Although historically, we have predominantly used fund-of-funds, we have recently developed the capacity to focus more on direct fund investments on the private equity asset side. We are focused on small- to mid-market buyout which we believe provides the best value for the long run. We are also looking towards Asia, which is a geography we have been investing in since 2010.
"We really care about how a firm’s leaders have built the team that is working with us and how they are planning to support that team into the future."
Over the past 6 months, we have also been looking for private equity opportunities in Europe. I would say that it is difficult for us to gain the type of exposure we are looking for in Europe on the private side. We have some exposure through our secondary program, however, we have not been able to find great opportunities over there so that is something we have been looking at. As the credit situation begins to develop, we hope that more opportunities will present themselves.
Trusted Insight: What do you look for when evaluating portfolio managers?
Jonathan Brelsford: We look for consistency of fund size, the experience of the team and consistency regarding how they approach their investment process. Additionally, there is a significant demographic change in the industry. There are some managers who have handled leadership transitions in their organizations very poorly. We always review how they have managed that process.
Obviously, we cannot commit to a private equity fund whose managers do not manage leadership changes well. If we commit to a PE fund, it is with the intention of partnering with them for the next 10 to 15 years, and perhaps even longer. We want to commit to a small number of fund managers, so the dynamics of their internal teams are important. It is also important for us to understand where the organization is in its lifecycle and how it is managing transitions that are likely in a particular cycle.
For example, It is not reasonable to expect a 70-year-old managing partner to be around another 30 years. We really care about how a firm’s leaders have built the team that is working with us and how they are planning to support that team into the future. We always ask, “Are you seeing a steady progression of responsibility within the team?” What we’re trying to understand is: are they building an institution or a one-person shop?
Trusted Insight: Being a Pittsburgh-based foundation, does it impact where and what type of investments you make?
Jonathan Brelsford: It does, but only to a point. We are certainly investing within the community through our grant-making program – discretionary grants and through grants made by our donors. While we always carry the mandate of our donors, it would be imprudent of us to invest 100 percent of our assets in the Pittsburgh region. The geographic filtration of risk would be inappropriate.
We do have an investment in a venture fund called Riverfront Ventures which is based here locally. The managers are affiliated with Innovation Works, an organization that grants to entrepreneurs in the region we serve.
Trusted Insight: What advice would you give someone who wants to have a career in institutional investing?
Jonathan Brelsford: The best advice I could give is that you want to make institutional investing your main work area because you really enjoy it. It is a great career. You are challenged on a daily basis. It is a position that requires continuous learning, and so it is important to be someone who enjoys that experience. It is also important to be confident and courageous in your work. I love the work.
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The full list of 2018 Top 30 Foundation Chief Investments Officers can be found here.