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Exclusive Q&A: Rob Roy, Chief Investment Officer, Adventist Health System

by trusted insight posted 2years ago 6390 views

Rob Roy is vice president and chief investment officer for Adventist Health System (AHS), a faith-based hospital system that carries out the healthcare ministry of the Seventh-day Adventist Church headquartered in Altamonte Springs, Florida. Roy oversees the organization’s investment assets exceeding $5 billion. Under his leadership since 2013, the investment office has grown both in staff size and portfolio value.

Prior to Adventist Health System, Roy held positions including the chief investment officer for Cain Brothers Asset Management, bond trader for Putnam Investments, fixed income specialist on the floors of the Chicago Board of Trade and the Chicago Mercantile Exchange and portfolio risk manager for Ferrell Capital. Roy holds a Bachelor of Science in Business Administration-Finance from Suffolk University, and a M.S. in financial markets and trading from the Illinois Institute of Technology.

Mr. Roy was recently named on Trusted Insight’s ranked list of Top 30 Hospital Chief Investment Officers. He graciously spoke with us through email communications on May 23, 2016. The following interview has been condensed and edited for clarity.
 

Trusted Insight: What is the function and goal of a hospital’s investment office?

Rob Roy: Functionally, we manage the investable assets for the health system – operating capital, medical malpractice trust, worker’s compensation trust, defined benefit retirement plans and defined contribution plans.

More importantly is the goal. Our team vision statement says “Adventist Health System Investments exists to support our healing ministry through persistent Christian stewardship.”  

Trusted Insight: How did you get involved in healthcare industry?

Rob Roy: I started my career in investments in 1989, trading municipal high yield. Then, I moved to Chicago and did trading in the pits for a couple of years during graduate school, and finally I worked as a risk manager for a global hedge fund.

But I wanted the skills that I was building to be used for the benefit of others. Seeking this opportunity led me directly to the health mission of my church and the opportunity to join AHS in 1998.

Trusted Insight: How has Adventist Health System’s investment team and its portfolio changed over time under your leadership?

Rob Roy: The growth of our healthcare mission has led directly to a portfolio that increased from approximately $500 million in 1998 to more than $5 billion now. As the portfolio has changed in size, we have adapted by growing our investment management team from two people to eight people. In addition, we are managing a larger amount of assets internally (approximately 35%), and have increased the requirements for and sophistication of our external money manager partners. A larger size allows us to create a more efficient cost structure for managing the assets.

The most important change, however, began in 2000 when our senior leadership asked us to work out a process to target the right level of risk for the portfolio relative to the financial strength of the organization. This early work has continued to evolve and improve with the growth of the organization and clearly served us well during the dot-com bubble bursting from 2000 to 2002 as well as the financial crisis in 2008 and 2009. Having a proper amount of risk for the portfolio preserved the focus of our Christian healthcare mission during chaotic markets.

Now we are focused on building on this foundational work and making sure that we are proper stewards for the assets with which we are entrusted. Stewardship of an investment portfolio requires understanding the proper levels of risk and employing the risk faithfully and responsibly. This work will act to continuously support our healing ministry.

Trusted Insight: What distinguishes your investment office from peer institutions?

Rob Roy: I will outline four main items that distinguish our investment office.

First, we have a clear vision statement. It aligns our team within the priorities of the larger AHS Vision 2020 statement and helps us to maintain focus on improvements to our process.

The second is integration. The risk of the portfolio is dynamically linked to the financial strength of AHS. Many other peers do not make as direct a link between operations and investments.

Third, we are constantly working to improve our process. These improvements are rooted in basic investment fundamentals, but then are translated into a process that can be repeated.

Lastly, we have a unique team design. We are building functional skills within our team, rather than asset class specialization. These are skills such as data architecture, portfolio construction, quantitative research, best execution, etc.

Trusted Insight: How does your governance structure work?

Rob Roy: As the chief investment officer, I have responsibility for the investment team and am accountable to our chief financial executive, Paul Rathbun.

We have assembled an Investment Advisory Committee (IAC), which is comprised of AHS senior management, members of the AHS Board Finance Committee and external investment experts. The purpose of the advisory committee is to assist AHS in developing the best possible process and holding us accountable for good execution of the plan.

The IAC focuses on larger issues pertaining to how we are trying to improve, but does not take on issues such as manager hiring or firing. A larger issue for annual focus is helping to approve and set the risk levels for the funds in the context of the financial strength of AHS.

Formal recommendations from the IAC are sent to the AHS Board Finance Committee for final approval.

We are building functional skills within our team, rather than asset class specialization. These are skills such as data architecture, portfolio construction, quantitative research, best execution, etc.

Trusted Insight: As a long-term investor, how do you respond to market downturns? What is the investment strategy in a down market?

Rob Roy: The primary strategy for dealing with down markets is to understand that they do occur and to factor these events into the risk profile for the fund. Having anticipated a tolerable amount of downside risk allows negative market events to occur without causing unnecessary concern for our core mission.

The secondary strategy is to have a process that is simple and well communicated. If the stakeholders understand the investment process and how it interacts with negative market events, then we can all stay on our systematic plan of maintaining the right amount of risk through time.

Finally, we are working to improve our process around how we manage the portfolio when market events exceed our expectations, which will happen on occasion. Anticipating the potential for rare events and having a plan in place to mitigate excess risk will help to avoid ad-hoc decision making in the midst of market chaos.  

Trusted Insight: What factors do you think will affect hospital investing in both the near term and long term?

Rob Roy: In the near term, the pressure on operational profitability during a period of low expected investment returns may prompt investors to take more risk than is possibly prudent for some peers.

In the longer term, I hope we can be a positive influence to help focus our peers on the more important topics of understanding the investment psychology of your organization, developing a repeatable process, setting risk parameters within the context of the organization and portfolio construction. These should dominate our time rather than chasing alpha; manager search and selection; and the allure of hedge funds and private equity.  

Trusted Insight: What are the biggest career lessons you’ve learned?

Rob Roy: Focus on the biggest items first. Everyone loves chasing the next new thing, the hot new manager and the next asset class to get in before everyone else. But without a proper framework and understanding of your purpose, you’ll be chasing your tail.

Learn from everyone. Ask people: “What are you doing really well, and what is getting your focus for improvement?” Almost everyone is thinking about the issues differently than you, and most are probably doing some aspect of it better than you. Learn from them. Your institution will benefit from your transparency and desire to improve.

Nobody can anticipate the market well. Let’s stop trying to find a way to beat the market and start focusing on ways to build the most robust portfolio that fits the needs of our institutions. None of us need alpha, but we all need a robust portfolio process that is simple enough to explain and stick with.

Trusted Insight: What career advice would you give to aspiring institutional investors?

Rob Roy: Probably the same thing I tell my kids, “whatever you decide to do, please seek excellence.”

We have so much to learn in this industry, from math to psychology to history to company politics to storytelling. Just never stop learning and growing. Everyone around you will benefit from your humble pursuit of knowledge, especially those whom your institution is designed to serve.

To learn more about the the Top 30 Hospital Chief Investment Officers, click here.