Rodney Overcash is investment director of credit strategies for each of the three grant making entities that make up the Margaret A. Cargill Philanthropies: Margaret A. Cargill Foundation, Anne Ray Charitable Trust and Akaloa Resource Foundation. The stated mission of these organizations is to provide meaningful assistance and support to society, the arts and the environment.
Previously, Overcash served as investment director of credit alternatives and inflation strategies for North Carolina Retirement System and director of research at Marquette Associates. Overcash holds a B.A. in Economics and International Studies from University of North Carolina at Chapel Hill and an MBA from the University of Chicago.
Mr. Overcash was recently named to Trusted Insight’s ranked list of the Top 30 Foundation Rising Stars. He graciously spoke with Trusted Insight on March 23, 2016.
Trusted Insight: What is the key to success, as it pertains to your career?
Rodney Overcash: Every day is something different. Even though we may not be reacting to different current market environments or short-term market environments, it's just something new or different going on every day that could present tremendous opportunity.
Of course the biggest example was in 2008 when bank loans were trading down to cents on the dollar. At that point you say, "Well, these bank loans should not be trading at these levels." The enterprise value of these companies, even in an extremely distressed environment, is just far and above worth more than what these are trading at. We piled into distressed bank loans and same thing on mortgage-backed securities.
I had the very, very fortunate spot of being able to come into an organization and build portfolios literally from scratch. Putting the puzzle together on building a portfolio from a blank sheet of canvas has been extremely rewarding. Things are great here, we're still building out the portfolio and trying to do it in a prudent manner. It's been a blast.
Trusted Insight: What's the most challenging aspect of your job?
Rodney Overcash: Something that we're having conversations on now is understanding the role of hedge funds in portfolios and what value they bring. We're launching into more research on understanding the factors that go into these type of funds. Are there ways to build a portfolio where we're not paying two-and-twenty and to mitigate the structural alpha-give-up from fees, as well as the idiosyncratic risk that one group can bring to the portfolio, which can be rough sometimes.
Trusted Insight: What key characteristics make a manager stand out from the crowd?
Rodney Overcash: We were talking about this the other day, trying to understand the distinguishing factors between the groups. Of course, the main thing is the people and process and philosophy, right? The three major things.
Preservation of capital and margin of safety, particularly as we see it from the credit standpoint, are all key things to look for. We go through and distinguish which managers are more knowledgeable about their portfolio. Of course they can talk the names, the deals and all the great trades that they've done, which is fun to hear about and interesting. But when trying to find a manager that stands out, it might come down to trying to find some sort of chip on their shoulder. What's the key motivational factor that's going to keep them up at night and drive them to try to be better than everybody else? We could go with a ton of groups that are going to be in similar solid trades, perform well and they'll be just fine. But what is going to drive them to be better than the others? Perhaps it’s some sort of personal, emotional, motivational factor that's interesting to draw out of a portfolio manager or a team. I think that's one specific unique aspect that we try to look for.
From a qualitative perspective, it seems like a lot of the great value investors, or investors in general, don’t need to be the most knowledgeable about everything. They don't need to have the best trading background or value investing background, but they have a great sense of prioritization. It seems like the success of the great, stand-out managers can be attributable to how they might size a position or how much time they might spend on it or where they might put it on their priority list. If a manager can quickly and efficiently see an opportunity, move it up and down on the priority list for potential inclusion into the portfolio, then it seems to drive the performance of their portfolio.
Trusted Insight: You've seen the industry through a number of different lenses. The consulting, money management side at Marquette Associates; the government pension side at North Carolina; and now the foundation side. Tell me about those experiences and how they informed your investment philosophy.
Rodney Overcash: I guess I haven't really taken a step back and reflected on all the different angles. It's been an interesting evolution looking back on it. Starting off on the consulting side helped get exposure to all different asset classes, all different types of plans or portfolios.
In reference to how it shaped my strategy or philosophy, it helped me choose which path to go down. During my time in consulting, it led me more toward asset allocation and bigger picture portfolio construction, as opposed to a lot of digging in on investment manager due diligence. Even though I was looking at alternative investments while doing consulting, my real focus was on asset allocation and research, looking at different, new and emerging asset classes. It provided an underlying research background as well as an understanding of how pieces of the portfolio puzzle fit together. I think that's what I enjoy most of what I started out doing, and it was what led to helping develop two new asset classes at the North Carolina Pension Fund.
When I got there, the credit alternatives and inflation strategies asset classes didn't exist. We did research on the background of how those might fit into the overall pension fund’s portfolio, and we had to go and approach the State legislature to actually get it written into law so we could put it into the portfolio. The research background helped develop the strategic case for creating those two new asset classes. Then I was fortunate to have the opportunity to start building those two new portfolios.
Structuring portfolios from an asset allocation point of view is really what drives my philosophy. There's a lot of great investment managers, a lot of great funds out there. But the fun part is how they fit together. Everybody can't be the quarterback and the running back and the wide receiver. You need some anchors on the offensive line and to protect the quarterback, effectively building a team of how you want to construct a portfolio. Those types of different perspectives and experiences have influenced me to focus on how things fit together as opposed to trying to find the manager that's always trying to do the best in all different markets, which usually doesn’t work out too well.
Trusted Insight: You specialize in credit, but as a team is there a mixture of specialists and generalists or is it more a team of specialists?
Rodney Overcash: Our organization is somewhat unique in that the chief investment officer had the benefit of structuring things differently because it was so new. Shawn Wischmeier had recognized and seen how other groups were structured: typically, there might a public team and private team. The way he structured was similar to a portfolio risk profile, like credit. My team runs anything from long-only, fixed-income rates, investment grade credit, high-yield credit to long-short credit hedge funds to private debt opportunities, distressed and mezzanine-type debt. And that's really how the teams are structured here. There's an equity team, a credit team, a real assets team and a risk management and asset allocation team.
We built the team with a group that had experience in all different types of investment structures so that we could be structure agnostic. If the equity team sees an opportunity in a particular space -- like health care -- would we rather play that through the public markets or is it a better opportunity for the private side or would they want to introduce a group that can go for a long-short hedge fund style. This recognizes the fact that opportunities could be missed based on public team versus private team structures. We are set up to let the teams be able to look across structures.
A more siloed model has worked and has been great for a lot of organizations. We had the opportunity, because we're so new, to build a team from scratch with a completely new pool of capital and try something different. And it's working out pretty well.
Trusted Insight: There's a great degree of uncertainty in the global markets in terms of volatility, frothy valuations and government intervention -- quantitative easing, ultra-low and negative interest rates. How do you plan and position a portfolio with uncertainty like this in the market?
Rodney Overcash: A lot of our focus hasn't been too much on trying to navigate the current volatility. I say that because we're so new that we're still trying to get to our strategic asset allocation weightings and prepare ourselves to one day be able to be more nimble on positioning the portfolio around changing market environments.
That said, there are ways on the edges that we've been trying to manage it. We certainly won't try to time anything by holding more cash, but we have slowed down our commitments to private equity and opportunistic credit because we haven't seen big opportunities in the space. Maybe that's driven by current volatility or other types of regulatory changes, but we just haven't really gotten excited about some of the private opportunities.
It is making us think about how we might see some things in the debt space, for example, where banks aren't lending as much, particularly some of the larger middle-market private equity-sponsored deals where the OCC and some of the other regulatory groups are pushing the mandate of caps on leverage for some of these big LBO deals. But other than on the fringes where some opportunities might pop up, we really haven't targeted a coordinated, strategic approach to dealing with the current market environment, given that we're so new and trying to reach our long-term strategic weights.
Trusted Insight: What sets the foundation apart from your peers?
Rodney Overcash: Since the investment team arrived here relatively at the same time, and we all have the opportunity of building the portfolio, we recognize that this is a rare and tremendous opportunity and none of us take it for granted. There's an overall excitement here of wanting to do the right thing and the best thing.
That's not just the investment team. It's organization-wide at the Margaret Cargill Philanthropies. Our program areas are very driven by the fact that we're new and want to do it the best from beginning.
The aspects of how the teams are set up helps us be able to take advantage of particular opportunities. Being structurally agnostic perhaps helps us be more flexible and nimble on opportunities.
We have a great governance structure, we have a very experienced and knowledgeable investment committee that again is brand new and coming together, and they're driven to guide us on making good decisions as well.
I could probably go on forever about the team and the organization. I think it’s due to the strong leadership from our CIO, Shawn Wischmeier, who allows the teams to be fairly autonomous. But then because he's so experienced and extremely intelligent, the teams can go out and do all the work and bring it back to him. He can understand an investment opportunity with a snap of a finger and be able to prioritize and understand where we should focus our time and move the portfolio.
He's also very open minded to bringing tactical opportunities if we see them. For example, we just closed out a barbell approach in the fixed-income portfolio. It was a cyclical tilt in the portfolio where we expected the short end of the yield curve to come up faster than the longer end, and we put a curve flattener trade on. It's the very fluid, flexible and fast-moving flat organization that really helps us be able to see some opportunities and jump on them around the fringes.
To learn more about foundation investing, view the full list of Top 30 Foundation Rising Stars.
Previously, Overcash served as investment director of credit alternatives and inflation strategies for North Carolina Retirement System and director of research at Marquette Associates. Overcash holds a B.A. in Economics and International Studies from University of North Carolina at Chapel Hill and an MBA from the University of Chicago.
Mr. Overcash was recently named to Trusted Insight’s ranked list of the Top 30 Foundation Rising Stars. He graciously spoke with Trusted Insight on March 23, 2016.
Trusted Insight: What is the key to success, as it pertains to your career?
Rodney Overcash: Every day is something different. Even though we may not be reacting to different current market environments or short-term market environments, it's just something new or different going on every day that could present tremendous opportunity.
Of course the biggest example was in 2008 when bank loans were trading down to cents on the dollar. At that point you say, "Well, these bank loans should not be trading at these levels." The enterprise value of these companies, even in an extremely distressed environment, is just far and above worth more than what these are trading at. We piled into distressed bank loans and same thing on mortgage-backed securities.
I had the very, very fortunate spot of being able to come into an organization and build portfolios literally from scratch. Putting the puzzle together on building a portfolio from a blank sheet of canvas has been extremely rewarding. Things are great here, we're still building out the portfolio and trying to do it in a prudent manner. It's been a blast.
Trusted Insight: What's the most challenging aspect of your job?
Rodney Overcash: Something that we're having conversations on now is understanding the role of hedge funds in portfolios and what value they bring. We're launching into more research on understanding the factors that go into these type of funds. Are there ways to build a portfolio where we're not paying two-and-twenty and to mitigate the structural alpha-give-up from fees, as well as the idiosyncratic risk that one group can bring to the portfolio, which can be rough sometimes.
But when trying to find a manager that stands out, it might come down to trying to find some sort of chip on their shoulder.Another challenge is while building out the portfolio we see so many great groups. They're doing a lot of really cool stuff, and I wish we could fit them all in the portfolio. The greatest challenge is telling a lot of these groups, “No.” Coming back to previous comments, that’s how we want to put the puzzle together; it can't be filled with all superstars.
Trusted Insight: What key characteristics make a manager stand out from the crowd?
Rodney Overcash: We were talking about this the other day, trying to understand the distinguishing factors between the groups. Of course, the main thing is the people and process and philosophy, right? The three major things.
Preservation of capital and margin of safety, particularly as we see it from the credit standpoint, are all key things to look for. We go through and distinguish which managers are more knowledgeable about their portfolio. Of course they can talk the names, the deals and all the great trades that they've done, which is fun to hear about and interesting. But when trying to find a manager that stands out, it might come down to trying to find some sort of chip on their shoulder. What's the key motivational factor that's going to keep them up at night and drive them to try to be better than everybody else? We could go with a ton of groups that are going to be in similar solid trades, perform well and they'll be just fine. But what is going to drive them to be better than the others? Perhaps it’s some sort of personal, emotional, motivational factor that's interesting to draw out of a portfolio manager or a team. I think that's one specific unique aspect that we try to look for.
From a qualitative perspective, it seems like a lot of the great value investors, or investors in general, don’t need to be the most knowledgeable about everything. They don't need to have the best trading background or value investing background, but they have a great sense of prioritization. It seems like the success of the great, stand-out managers can be attributable to how they might size a position or how much time they might spend on it or where they might put it on their priority list. If a manager can quickly and efficiently see an opportunity, move it up and down on the priority list for potential inclusion into the portfolio, then it seems to drive the performance of their portfolio.
Trusted Insight: You've seen the industry through a number of different lenses. The consulting, money management side at Marquette Associates; the government pension side at North Carolina; and now the foundation side. Tell me about those experiences and how they informed your investment philosophy.
Rodney Overcash: I guess I haven't really taken a step back and reflected on all the different angles. It's been an interesting evolution looking back on it. Starting off on the consulting side helped get exposure to all different asset classes, all different types of plans or portfolios.
In reference to how it shaped my strategy or philosophy, it helped me choose which path to go down. During my time in consulting, it led me more toward asset allocation and bigger picture portfolio construction, as opposed to a lot of digging in on investment manager due diligence. Even though I was looking at alternative investments while doing consulting, my real focus was on asset allocation and research, looking at different, new and emerging asset classes. It provided an underlying research background as well as an understanding of how pieces of the portfolio puzzle fit together. I think that's what I enjoy most of what I started out doing, and it was what led to helping develop two new asset classes at the North Carolina Pension Fund.
When I got there, the credit alternatives and inflation strategies asset classes didn't exist. We did research on the background of how those might fit into the overall pension fund’s portfolio, and we had to go and approach the State legislature to actually get it written into law so we could put it into the portfolio. The research background helped develop the strategic case for creating those two new asset classes. Then I was fortunate to have the opportunity to start building those two new portfolios.
We had the opportunity, because we're so new, to build a team from scratch with a completely new pool of capital and try something different.
Structuring portfolios from an asset allocation point of view is really what drives my philosophy. There's a lot of great investment managers, a lot of great funds out there. But the fun part is how they fit together. Everybody can't be the quarterback and the running back and the wide receiver. You need some anchors on the offensive line and to protect the quarterback, effectively building a team of how you want to construct a portfolio. Those types of different perspectives and experiences have influenced me to focus on how things fit together as opposed to trying to find the manager that's always trying to do the best in all different markets, which usually doesn’t work out too well.
Trusted Insight: You specialize in credit, but as a team is there a mixture of specialists and generalists or is it more a team of specialists?
Rodney Overcash: Our organization is somewhat unique in that the chief investment officer had the benefit of structuring things differently because it was so new. Shawn Wischmeier had recognized and seen how other groups were structured: typically, there might a public team and private team. The way he structured was similar to a portfolio risk profile, like credit. My team runs anything from long-only, fixed-income rates, investment grade credit, high-yield credit to long-short credit hedge funds to private debt opportunities, distressed and mezzanine-type debt. And that's really how the teams are structured here. There's an equity team, a credit team, a real assets team and a risk management and asset allocation team.
We built the team with a group that had experience in all different types of investment structures so that we could be structure agnostic. If the equity team sees an opportunity in a particular space -- like health care -- would we rather play that through the public markets or is it a better opportunity for the private side or would they want to introduce a group that can go for a long-short hedge fund style. This recognizes the fact that opportunities could be missed based on public team versus private team structures. We are set up to let the teams be able to look across structures.
A more siloed model has worked and has been great for a lot of organizations. We had the opportunity, because we're so new, to build a team from scratch with a completely new pool of capital and try something different. And it's working out pretty well.
Trusted Insight: There's a great degree of uncertainty in the global markets in terms of volatility, frothy valuations and government intervention -- quantitative easing, ultra-low and negative interest rates. How do you plan and position a portfolio with uncertainty like this in the market?
Rodney Overcash: A lot of our focus hasn't been too much on trying to navigate the current volatility. I say that because we're so new that we're still trying to get to our strategic asset allocation weightings and prepare ourselves to one day be able to be more nimble on positioning the portfolio around changing market environments.
That said, there are ways on the edges that we've been trying to manage it. We certainly won't try to time anything by holding more cash, but we have slowed down our commitments to private equity and opportunistic credit because we haven't seen big opportunities in the space. Maybe that's driven by current volatility or other types of regulatory changes, but we just haven't really gotten excited about some of the private opportunities.
It is making us think about how we might see some things in the debt space, for example, where banks aren't lending as much, particularly some of the larger middle-market private equity-sponsored deals where the OCC and some of the other regulatory groups are pushing the mandate of caps on leverage for some of these big LBO deals. But other than on the fringes where some opportunities might pop up, we really haven't targeted a coordinated, strategic approach to dealing with the current market environment, given that we're so new and trying to reach our long-term strategic weights.
Trusted Insight: What sets the foundation apart from your peers?
Rodney Overcash: Since the investment team arrived here relatively at the same time, and we all have the opportunity of building the portfolio, we recognize that this is a rare and tremendous opportunity and none of us take it for granted. There's an overall excitement here of wanting to do the right thing and the best thing.
That's not just the investment team. It's organization-wide at the Margaret Cargill Philanthropies. Our program areas are very driven by the fact that we're new and want to do it the best from beginning.
The aspects of how the teams are set up helps us be able to take advantage of particular opportunities. Being structurally agnostic perhaps helps us be more flexible and nimble on opportunities.
We have a great governance structure, we have a very experienced and knowledgeable investment committee that again is brand new and coming together, and they're driven to guide us on making good decisions as well.
I could probably go on forever about the team and the organization. I think it’s due to the strong leadership from our CIO, Shawn Wischmeier, who allows the teams to be fairly autonomous. But then because he's so experienced and extremely intelligent, the teams can go out and do all the work and bring it back to him. He can understand an investment opportunity with a snap of a finger and be able to prioritize and understand where we should focus our time and move the portfolio.
He's also very open minded to bringing tactical opportunities if we see them. For example, we just closed out a barbell approach in the fixed-income portfolio. It was a cyclical tilt in the portfolio where we expected the short end of the yield curve to come up faster than the longer end, and we put a curve flattener trade on. It's the very fluid, flexible and fast-moving flat organization that really helps us be able to see some opportunities and jump on them around the fringes.
To learn more about foundation investing, view the full list of Top 30 Foundation Rising Stars.