Rick Kraich is the vice president of investments and chief investment officer at the West Virginia University Foundation, Inc. He has served the organization since 2010 and is responsible for investment strategy and recommendations for the WVU endowment and other WVU entities. Before joining the Foundation, he was the CIO at Homrich Berg, a national independent wealth management firm.
In this interview, he discussed the investment office's role in managing five separate pools of capital, why they are advocates of using tail risk hedging strategies while most investor peers do not, and the many opportunities he's excited about within venture capital.
Rick Kraich was named on Trusted Insight's 2020 Top 30 Endowment Chief Investment Officers.
Trusted Insight: Can you share an overview of the West Virginia University Foundation and its investment office?
Rick Kraich: We manage about $1.8 billion at the West Virginia University Foundation. We are a bit different from our peers in that we manage multiple pools. We manage five separate pools and we report to three separate investment committees. Believe it or not, the biggest pool we manage is for a hospital. It is a bit larger than our endowment pool. Those are the two pools that involve most of the investment strategies that we deploy, particularly the private markets portion. We work with three investment committees: the Foundation’s Investment Committee, the Hospital’s Investment Committee, and the investment committee for the University.
Currently, we have eight people on our investment team. As the CIO, I also have portfolio management responsibilities for venture capital. We have two senior analysts, one of whom leads up our public equity efforts. She also has picked up some responsibilities for core fixed income and real estate. Our other senior analyst has been focused on real assets, opportunistic fixed income, and diversifying strategies. The most consuming part of his work right now is managing our risk. He is our risk manager, and very much involved in the tail risk hedging strategies that we use, which is obviously very time-consuming.
We also have two junior analysts. One of them helps on the public equity side, particularly emerging markets, as well as emerging markets on the venture side. Then we have another analyst who has picked up the non-venture private equity responsibilities from me. Previously, I was doing everything on the private equity side. He is now focused on the buyouts and growth equity portions of the portfolio.
We have three other team members on the operations/administrative side. One of them has a background at BNY Mellon in the trust department, which is extremely helpful to us.
Trusted Insight: You have been at the helm of some of these investment offices. What has it been like to attract and retain talent over your career?
Rick Kraich: It is incredibly important. If you make the right hire, it helps you in the long term. Trying to find the person who wants to be in Morgantown, West Virginia is a little bit different from finding the right person who wants to be in New York City. You want someone who wants to be in a smaller community. If we can find someone who has ties to the University, that is a huge plus too. I have tried to institutionalize the team here. When I first started, there was one CFA on the team. Now we have four. We have tried to upgrade the team, and it has helped in being able to handle all asset classes, especially as we choose to get involved in more complex strategies.
Trusted Insight: You have been through the ups and downs of the market cycles. Does today’s environment look familiar to you as an investor or totally different?
Rick Kraich: It is a little of both. This is my third go-around with a major downturn in the economy. I was doing investments during the tech bust, the great financial crisis, and now the COVID-19 crisis.
I was talking to my 91-year-old mom about this, and she said, "This has never happened in my lifetime." In that aspect, it is completely new and different. You learn from what you have done in past crises and you try to prepare for it the best you can.
We are a little bit different from our peers in the sense that we use tail risk hedging strategies. Many of our peers do not do that because there is a cost associated with the strategy. We started this strategy years ago with the expectation that if there was another crisis or when the cycle goes down again, we would be protected. When a crisis occurs, the university and hospital will be hurting. We wanted to have that downside protection in place when they need us, and it has been working well recently.
Trusted Insight: A lot of folks are also seeing this as an opportunity to invest during a “sale.” Are you taking a more defensive approach or trying to buy into the hidden opportunities in the market?
Rick Kraich: This is very different from when I was going through the great financial crisis, because we felt like we had to be more defensive that time. This time, because we have tail risk hedging strategies in place and we are largely protected on the downside, it gives us a lot more time and energy to focus on new opportunities. We are about to close our second distressed debt investment this year. We have the capacity to look at new venture investments.
When you have the denominator effect going on in your portfolio, that can call for some restrictions. When that happens, you do not have the allocation to do some of these private market investments. We don’t have that problem right now, so thankfully we are able to look at the new opportunities in the market.
Trusted Insight: Do you believe investors can do a better job of stress testing and/or planning for downturns?
Rick Kraich: There are a lot of things you cannot really plan for. I have heard some people refer to this as a “black swan” event. One of our investment committee members, who has been here for a long time, has a favorite line that goes like, "You never got hit by the bus you saw." I think this was a bus that people did not see coming. So how do you prepare for it? It’s very hard. Very few people will ever be able to time it. This is another reason for having the tail risk hedging strategies. They are there for that “black swan” event. We don’t have to try to time it and say, "Okay, I think it's coming now." Most of the time, you can’t time something like that. Our strategy has given us the freedom to be more proactive.
Trusted Insight: Have there been talks of shifting or rethinking your strategic asset allocation strategy?
Rick Kraich: When I got here a little over nine years ago, I institutionalized the asset allocation process. We review that on an annual basis. We make our own projections on asset class returns, look at themes and trends, and then try to couple that with what it means for our portfolio. Then we make recommendations for our investment committee to review. The committee may tweak it from what we recommend.
Trusted Insight: Is there one area that you and your team are most excited about investing in? Something that you guys want to focus on moving forward?
Rick Kraich: Well, you happen to be talking to the venture guy in the group, so I’m a little biased on that subject. When I got here, there was only one venture relationship that I thought we would keep going forward. We had to restart the program. We did that about five years ago. We didn’t think we could get access to the best venture managers out there, so we thought that maybe we ought to focus on the managers who are going to be some of the better ones in the future. At that point, we turned our focus to early-stage venture. We are here for the long term doing this. I have told my group many times, "This is a marathon, not a sprint." So we will get good managers over time and be consistent about the money we are putting out each year. We don’t want to run into a tremendous amount of vintage year risk, and just plan to add these relationships over time.
We think that the world is dramatically changing right now and has been for a few years. There are a lot of companies out there right now that are not using a lot of software to run their business, and they are not making decisions based on software. We think that is going to have to change for a lot of companies. We would rather be on the proactive side of that with all these new changes coming up. We have a big focus on SaaS (Software as a Service).
It is sticky revenue. We are seeing it is even more sticky right now during the virus problems because these companies are continuing to see revenue coming in. They may not be able to grow as fast in the near term and add new customers as much, but the revenue is turning out to be very sticky. We think there are a lot of opportunities on the venture side. To me, it’s very exciting. If I were a little younger, I would probably try to get over on the venture side myself because the world is changing dramatically right now with the digital transformation.
Trusted Insight: As we conclude this interview, is there anything additional you would like to share with our readers as an important factor for your success?
Rick Kraich: A key differentiator for us is that we are blessed with an exceptionally good investment committee. I have been to other places before coming here, and I can see the immense value of having such a good investment committee that is able to generate access to new investments and understand our strategy fully. Our committee members have an ability to both support and challenge us at the same. We value their opinion highly. That might be a little unusual, but it has really helped us.
View our full catalog of interviews here.
The full list of 2020 Top 30 Endowment Chief Investment Officers can be found here.
In this interview, he discussed the investment office's role in managing five separate pools of capital, why they are advocates of using tail risk hedging strategies while most investor peers do not, and the many opportunities he's excited about within venture capital.
Rick Kraich was named on Trusted Insight's 2020 Top 30 Endowment Chief Investment Officers.
Trusted Insight: Can you share an overview of the West Virginia University Foundation and its investment office?
Rick Kraich: We manage about $1.8 billion at the West Virginia University Foundation. We are a bit different from our peers in that we manage multiple pools. We manage five separate pools and we report to three separate investment committees. Believe it or not, the biggest pool we manage is for a hospital. It is a bit larger than our endowment pool. Those are the two pools that involve most of the investment strategies that we deploy, particularly the private markets portion. We work with three investment committees: the Foundation’s Investment Committee, the Hospital’s Investment Committee, and the investment committee for the University.
Currently, we have eight people on our investment team. As the CIO, I also have portfolio management responsibilities for venture capital. We have two senior analysts, one of whom leads up our public equity efforts. She also has picked up some responsibilities for core fixed income and real estate. Our other senior analyst has been focused on real assets, opportunistic fixed income, and diversifying strategies. The most consuming part of his work right now is managing our risk. He is our risk manager, and very much involved in the tail risk hedging strategies that we use, which is obviously very time-consuming.
"I have tried to institutionalize the team here. When I first started, there was one CFA on the team. Now we have four."
We also have two junior analysts. One of them helps on the public equity side, particularly emerging markets, as well as emerging markets on the venture side. Then we have another analyst who has picked up the non-venture private equity responsibilities from me. Previously, I was doing everything on the private equity side. He is now focused on the buyouts and growth equity portions of the portfolio.
We have three other team members on the operations/administrative side. One of them has a background at BNY Mellon in the trust department, which is extremely helpful to us.
Trusted Insight: You have been at the helm of some of these investment offices. What has it been like to attract and retain talent over your career?
Rick Kraich: It is incredibly important. If you make the right hire, it helps you in the long term. Trying to find the person who wants to be in Morgantown, West Virginia is a little bit different from finding the right person who wants to be in New York City. You want someone who wants to be in a smaller community. If we can find someone who has ties to the University, that is a huge plus too. I have tried to institutionalize the team here. When I first started, there was one CFA on the team. Now we have four. We have tried to upgrade the team, and it has helped in being able to handle all asset classes, especially as we choose to get involved in more complex strategies.
Trusted Insight: You have been through the ups and downs of the market cycles. Does today’s environment look familiar to you as an investor or totally different?
Rick Kraich: It is a little of both. This is my third go-around with a major downturn in the economy. I was doing investments during the tech bust, the great financial crisis, and now the COVID-19 crisis.
"We are a little bit different from our peers in the sense that we use tail risk hedging strategies. We started this strategy years ago with the expectation that if there was another crisis or when the cycle goes down again, we would be protected."
I was talking to my 91-year-old mom about this, and she said, "This has never happened in my lifetime." In that aspect, it is completely new and different. You learn from what you have done in past crises and you try to prepare for it the best you can.
We are a little bit different from our peers in the sense that we use tail risk hedging strategies. Many of our peers do not do that because there is a cost associated with the strategy. We started this strategy years ago with the expectation that if there was another crisis or when the cycle goes down again, we would be protected. When a crisis occurs, the university and hospital will be hurting. We wanted to have that downside protection in place when they need us, and it has been working well recently.
Trusted Insight: A lot of folks are also seeing this as an opportunity to invest during a “sale.” Are you taking a more defensive approach or trying to buy into the hidden opportunities in the market?
Rick Kraich: This is very different from when I was going through the great financial crisis, because we felt like we had to be more defensive that time. This time, because we have tail risk hedging strategies in place and we are largely protected on the downside, it gives us a lot more time and energy to focus on new opportunities. We are about to close our second distressed debt investment this year. We have the capacity to look at new venture investments.
"Very few people will ever be able to time [the market]. This is another reason for having the tail risk hedging strategies. Our strategy has given us the freedom to be more proactive."
When you have the denominator effect going on in your portfolio, that can call for some restrictions. When that happens, you do not have the allocation to do some of these private market investments. We don’t have that problem right now, so thankfully we are able to look at the new opportunities in the market.
Trusted Insight: Do you believe investors can do a better job of stress testing and/or planning for downturns?
Rick Kraich: There are a lot of things you cannot really plan for. I have heard some people refer to this as a “black swan” event. One of our investment committee members, who has been here for a long time, has a favorite line that goes like, "You never got hit by the bus you saw." I think this was a bus that people did not see coming. So how do you prepare for it? It’s very hard. Very few people will ever be able to time it. This is another reason for having the tail risk hedging strategies. They are there for that “black swan” event. We don’t have to try to time it and say, "Okay, I think it's coming now." Most of the time, you can’t time something like that. Our strategy has given us the freedom to be more proactive.
Trusted Insight: Have there been talks of shifting or rethinking your strategic asset allocation strategy?
Rick Kraich: When I got here a little over nine years ago, I institutionalized the asset allocation process. We review that on an annual basis. We make our own projections on asset class returns, look at themes and trends, and then try to couple that with what it means for our portfolio. Then we make recommendations for our investment committee to review. The committee may tweak it from what we recommend.
"If I were a little younger, I would probably try to get over on the venture side myself because the world is changing dramatically right now with the digital transformation."
Last November, we recommended taking some money off the table. It was not a lot, but it was a reduction in our equity allocation so we could diversify our tail risk hedging strategies. We went from one manager to four managers, and we implemented that at the beginning of this year. We were trying to diversify from just the public equity piece of our protection. We still probably have more in public equity than a lot of our peers, but we decided to reduce that allocation.
Trusted Insight: Is there one area that you and your team are most excited about investing in? Something that you guys want to focus on moving forward?
Rick Kraich: Well, you happen to be talking to the venture guy in the group, so I’m a little biased on that subject. When I got here, there was only one venture relationship that I thought we would keep going forward. We had to restart the program. We did that about five years ago. We didn’t think we could get access to the best venture managers out there, so we thought that maybe we ought to focus on the managers who are going to be some of the better ones in the future. At that point, we turned our focus to early-stage venture. We are here for the long term doing this. I have told my group many times, "This is a marathon, not a sprint." So we will get good managers over time and be consistent about the money we are putting out each year. We don’t want to run into a tremendous amount of vintage year risk, and just plan to add these relationships over time.
We think that the world is dramatically changing right now and has been for a few years. There are a lot of companies out there right now that are not using a lot of software to run their business, and they are not making decisions based on software. We think that is going to have to change for a lot of companies. We would rather be on the proactive side of that with all these new changes coming up. We have a big focus on SaaS (Software as a Service).
It is sticky revenue. We are seeing it is even more sticky right now during the virus problems because these companies are continuing to see revenue coming in. They may not be able to grow as fast in the near term and add new customers as much, but the revenue is turning out to be very sticky. We think there are a lot of opportunities on the venture side. To me, it’s very exciting. If I were a little younger, I would probably try to get over on the venture side myself because the world is changing dramatically right now with the digital transformation.
Trusted Insight: As we conclude this interview, is there anything additional you would like to share with our readers as an important factor for your success?
Rick Kraich: A key differentiator for us is that we are blessed with an exceptionally good investment committee. I have been to other places before coming here, and I can see the immense value of having such a good investment committee that is able to generate access to new investments and understand our strategy fully. Our committee members have an ability to both support and challenge us at the same. We value their opinion highly. That might be a little unusual, but it has really helped us.
View our full catalog of interviews here.
The full list of 2020 Top 30 Endowment Chief Investment Officers can be found here.