Amy Chen is the first chief investment officer at the Smithsonian Institution, the world’s largest museum, educational and research complex, since 2006. She oversees the overall investment strategy and management of the institution's endowment which totals $1.8 billion.
In this interview, she discussed how the investment office was like a startup inside of a 160-year-old organization, how they addressed their liquidity concern going into the recent market drawdown, and why European venture is an area they're excited about.
Amy Chen was named on Trusted Insight's 2020 Top 30 Foundation Chief Investment Officers.
Trusted Insight: Can you tell us about the Smithsonian Institution, its investment office, and your role as its first CIO?
Amy Chen: The Smithsonian is the world's largest museum, research, and educational complex; it’s currently 174 years old. It's really one of the most trusted brands in the United States—and the COVID-19 pandemic has actually shown us how important that trusted brand has been in terms of providing information and education across all of our platforms. I'm really honored to be its first chief investment officer.
When I started in 2006, our investment office was a startup inside of a 160-year-old organization—a quasi-government organization—so there were a lot of challenges from the beginning. I feel really proud of the fact that I've been here for almost 14 years, and I am proud to support an amazing American institution that supports scientific research, education, museums and the National Zoo. We've been able to attract really great investment committee members and staff and have had support from the Board of Regents.
The investment office has been able to thrive because we’ve created a culture of innovation, inclusion, and collaboration. I think that culture has gone a long way in terms of retaining a diverse staff. Our senior team has been with us, on average, for almost 13 years. That's pretty exceptional in the world of endowment investing. As a result, we've been able to grow together. It's a home-grown leadership team, and we've been able to implement a disciplined investment framework for the Institution.
Trusted Insight: That's really interesting. We hear about the importance of having a tenured team—and how those are the better performing teams. You've been with the Institution since 2006. Has there been any discussion between you and the team in terms of rethinking or rebalancing your strategic asset allocation strategy?
Amy Chen: Our last investment committee meeting was actually on March 25th, and we were reviewing our asset allocation. We do an annual review, even though we consider it a long-term policy, and we decided not to make any changes. So yes, we considered asset allocation, but we've been pretty satisfied with the existing policy.
Trusted Insight: Do you recall liquidity being an issue during the Global Financial Crisis? Many similar-sized peers agreed that they were not in a great position in the 2008 crisis.
Amy Chen: We were different. We've been really fortunate in terms of our timing. We started our program in 2006 and by 2008, we really had virtually nothing that was private. At that time, we probably had a couple of percent in private assets, so we didn't have the same kind of liquidity issues that others did. However, we did something that was pretty unusual. We decided to adopt a tactical policy. We repositioned our portfolio so that it was one-third equity, one-third marketable alternatives, and one-third credit/distressed. It was a pretty huge shift at that time, and pretty radical. We were able to be fairly nimble because we had so much liquidity. On the other hand, it was a difficult shift for such a new team. We didn't have all the bells and whistles that you would have wanted to get through a crisis like that. As a result, the GFC really gave us an opportunity to develop different muscles going forward.
What we’ve spent over the last 10 years has changed our governance in ways that make us more nimble and flexible—we can make decisions rapidly, as opposed to having to set up a meeting and go through a lot of different steps to make any changes. We developed scenario planning with our committee, starting back in 2011. We started looking at market volatility because of the Euro debt crisis. From there we looked at all these different scenarios—what we call “break the glass scenarios”—to, again, test our muscles.
We found that we needed to add tools to be able to react to some of these scenarios. We hired an execution manager so that we could easily implement derivatives when needed. We had different plans established in the event of different market drawdowns. We then allocated to a number of drawdown and dislocation funds that would be triggered based on certain market signals.
Going into this recent crisis, liquidity obviously was a bigger issue because by this point, we had a much larger private portfolio. We’d discussed it so much with our committee that when the pandemic hit the markets, all of our planned actions went smoothly. We scheduled additional calls with our committee during this timeframe, just to make sure that everybody was on board and felt that the plan was appropriate. We were able to execute pretty seamlessly.
It's really been a relief that we’d done so much pre-planning beforehand, because that put us in a good place at this point. Of course, there's still so much uncertainty—who knows what's going to happen going forward. We feel good that our committee and staff have been unified in terms of wanting to take actions instead of sitting on the sidelines.
Trusted Insight: An overarching theme that E&F investors are focusing on is the disruption in venture capital. Is that an area that your team is focusing on as well?
Amy Chen: As I said before, heading into the GFC, we only had a small percentage allocated to private equity. Today we're actually at 33%, so we've probably shifted to a higher rate relative to our peers. In part, I think that we've been able to take a more illiquid exposure because our payout to the institution—it’s similar to others, at 5%—is a very small percentage of the overall operating budget. While our portfolio is currently around $1.8 billion, the institution's overall budget per year is a little less than $1.7 billion. Our 5% really is just a small piece of that. Essential—but small. We’ve been able to take more illiquidity than many other institutions, where operating budgets depend more on their portfolios. As a result, we are actually overweight our private equity allocation and we have a disproportionate amount in venture versus private equity.
We were early to invest in emerging markets venture. Our portfolio is skewed to a high emerging market public and private exposure. For venture, we’ve allocated to seed, sector seed funds, and for marketable equities, we have allocated to sectors, so we have been very opportunistic. Because of our size, we're small enough that a small allocation to some of the best firms still provides us with a good risk-adjusted return. We’ll be able to continue to invest in venture going forward. Obviously some areas, such as retail and travel are definitely hurting. Some feel that damage inflicted by the pandemic is going to be short-term, but others might experience a longer-term impact. It remains to be seen.
In terms of our liquidity issues with venture, it's been fine. In the short-term, I think the opportunities are still in flux, but fintech is obviously a big winner. Biotech is another big winner, and those are areas where we've been investing and will continue to invest.
Trusted Insight: What is your outlook on international markets (China, India, Israel, etc)? Perhaps there are markets you are excited about in the next 5-10 years?
Amy Chen: Well, it's funny, in the last year we've allocated to Europe more than other International markets. European venture has been much more attractive from a value-orientation than the U.S. It’s much more focused on revenue-generating companies. Since they haven't had the big IPOs that the U.S. has had, they have had to rely more on M&A for exits. They have been much more price-disciplined than the United States. For example, biotech has been a really rich area there, in part because there aren't as many firms chasing different opportunities, they have world-class research institutions and pharmaceutical companies, and the venture firms have had a different strategy than the U.S. I know it's counter to what most people would say. Most people might say Southeast Asia or India, but Europe is an area where we've favored investing.
Not necessarily Israel, per se. We haven't thought that Israel was big enough to invest in Israel specific funds, but there’s certainly unbelievable talent there. Some great companies have been coming out of Israel.
Trusted Insight: We spoke with Jeffrey Heil from Doris Duke about a week back, and he said great things about you and the team that he started there with. That led to our thinking, what lessons learned from your time at Doris Duke were you able to bring to the Smithsonian?
Amy Chen: Just to give a shoutout to Jeff, Randy and the team – the Doris Duke Charitable Foundation was fortunate to have Dr. Fauci as one of our trustees. He was on our investment committee. He'd always say, "Well, I don't know anything about investments. I'm just a scientist."
He was a really, really wonderful person. Doris Duke is so different from the Smithsonian since it was truly a start-up foundation. I learned a lot in terms of governance at Doris Duke. That was something that was stressed a great deal, and I think that it was really something that was drilled into me. We had a very, very small team. I think we were disciplined. Our committee was not as up to speed on a lot of investments, so we focused on education and developing our strategies in white papers. We really made sure that our committee understood what we were thinking about and had the opportunity to ask a lot of questions before we started to implement manager decisions.
We went through 9/11 there, the dot-com bubble, and all sorts of things. That gave me a very good path in terms of how to build a portfolio at the Smithsonian, where we were developing a portfolio from scratch. We had a very disciplined investment framework at Doris Duke that I was able to carry over to the Smithsonian.
View our full catalog of interviews here.
The full list of 2020 Top 30 Foundation Chief Investment Officers can be found here.
In this interview, she discussed how the investment office was like a startup inside of a 160-year-old organization, how they addressed their liquidity concern going into the recent market drawdown, and why European venture is an area they're excited about.
Amy Chen was named on Trusted Insight's 2020 Top 30 Foundation Chief Investment Officers.
Trusted Insight: Can you tell us about the Smithsonian Institution, its investment office, and your role as its first CIO?
Amy Chen: The Smithsonian is the world's largest museum, research, and educational complex; it’s currently 174 years old. It's really one of the most trusted brands in the United States—and the COVID-19 pandemic has actually shown us how important that trusted brand has been in terms of providing information and education across all of our platforms. I'm really honored to be its first chief investment officer.
When I started in 2006, our investment office was a startup inside of a 160-year-old organization—a quasi-government organization—so there were a lot of challenges from the beginning. I feel really proud of the fact that I've been here for almost 14 years, and I am proud to support an amazing American institution that supports scientific research, education, museums and the National Zoo. We've been able to attract really great investment committee members and staff and have had support from the Board of Regents.
"When I started in 2006, our investment office was a startup inside of a 160-year-old organization—a quasi-government organization—so there were a lot of challenges from the beginning."
The investment office has been able to thrive because we’ve created a culture of innovation, inclusion, and collaboration. I think that culture has gone a long way in terms of retaining a diverse staff. Our senior team has been with us, on average, for almost 13 years. That's pretty exceptional in the world of endowment investing. As a result, we've been able to grow together. It's a home-grown leadership team, and we've been able to implement a disciplined investment framework for the Institution.
Trusted Insight: That's really interesting. We hear about the importance of having a tenured team—and how those are the better performing teams. You've been with the Institution since 2006. Has there been any discussion between you and the team in terms of rethinking or rebalancing your strategic asset allocation strategy?
Amy Chen: Our last investment committee meeting was actually on March 25th, and we were reviewing our asset allocation. We do an annual review, even though we consider it a long-term policy, and we decided not to make any changes. So yes, we considered asset allocation, but we've been pretty satisfied with the existing policy.
Trusted Insight: Do you recall liquidity being an issue during the Global Financial Crisis? Many similar-sized peers agreed that they were not in a great position in the 2008 crisis.
Amy Chen: We were different. We've been really fortunate in terms of our timing. We started our program in 2006 and by 2008, we really had virtually nothing that was private. At that time, we probably had a couple of percent in private assets, so we didn't have the same kind of liquidity issues that others did. However, we did something that was pretty unusual. We decided to adopt a tactical policy. We repositioned our portfolio so that it was one-third equity, one-third marketable alternatives, and one-third credit/distressed. It was a pretty huge shift at that time, and pretty radical. We were able to be fairly nimble because we had so much liquidity. On the other hand, it was a difficult shift for such a new team. We didn't have all the bells and whistles that you would have wanted to get through a crisis like that. As a result, the GFC really gave us an opportunity to develop different muscles going forward.
"Going into this recent crisis, liquidity obviously was a bigger issue because by this point, we had a much larger private portfolio. We’d discussed it so much with our committee that when the pandemic hit the markets, all of our planned actions went smoothly."
What we’ve spent over the last 10 years has changed our governance in ways that make us more nimble and flexible—we can make decisions rapidly, as opposed to having to set up a meeting and go through a lot of different steps to make any changes. We developed scenario planning with our committee, starting back in 2011. We started looking at market volatility because of the Euro debt crisis. From there we looked at all these different scenarios—what we call “break the glass scenarios”—to, again, test our muscles.
We found that we needed to add tools to be able to react to some of these scenarios. We hired an execution manager so that we could easily implement derivatives when needed. We had different plans established in the event of different market drawdowns. We then allocated to a number of drawdown and dislocation funds that would be triggered based on certain market signals.
Going into this recent crisis, liquidity obviously was a bigger issue because by this point, we had a much larger private portfolio. We’d discussed it so much with our committee that when the pandemic hit the markets, all of our planned actions went smoothly. We scheduled additional calls with our committee during this timeframe, just to make sure that everybody was on board and felt that the plan was appropriate. We were able to execute pretty seamlessly.
It's really been a relief that we’d done so much pre-planning beforehand, because that put us in a good place at this point. Of course, there's still so much uncertainty—who knows what's going to happen going forward. We feel good that our committee and staff have been unified in terms of wanting to take actions instead of sitting on the sidelines.
Trusted Insight: An overarching theme that E&F investors are focusing on is the disruption in venture capital. Is that an area that your team is focusing on as well?
Amy Chen: As I said before, heading into the GFC, we only had a small percentage allocated to private equity. Today we're actually at 33%, so we've probably shifted to a higher rate relative to our peers. In part, I think that we've been able to take a more illiquid exposure because our payout to the institution—it’s similar to others, at 5%—is a very small percentage of the overall operating budget. While our portfolio is currently around $1.8 billion, the institution's overall budget per year is a little less than $1.7 billion. Our 5% really is just a small piece of that. Essential—but small. We’ve been able to take more illiquidity than many other institutions, where operating budgets depend more on their portfolios. As a result, we are actually overweight our private equity allocation and we have a disproportionate amount in venture versus private equity.
"European venture has been much more attractive from a value-orientation than the U.S... Biotech has been a really rich area there, they have world-class research institutions and pharmaceutical companies, and the venture firms have had a different strategy than the U.S."
We were early to invest in emerging markets venture. Our portfolio is skewed to a high emerging market public and private exposure. For venture, we’ve allocated to seed, sector seed funds, and for marketable equities, we have allocated to sectors, so we have been very opportunistic. Because of our size, we're small enough that a small allocation to some of the best firms still provides us with a good risk-adjusted return. We’ll be able to continue to invest in venture going forward. Obviously some areas, such as retail and travel are definitely hurting. Some feel that damage inflicted by the pandemic is going to be short-term, but others might experience a longer-term impact. It remains to be seen.
In terms of our liquidity issues with venture, it's been fine. In the short-term, I think the opportunities are still in flux, but fintech is obviously a big winner. Biotech is another big winner, and those are areas where we've been investing and will continue to invest.
Trusted Insight: What is your outlook on international markets (China, India, Israel, etc)? Perhaps there are markets you are excited about in the next 5-10 years?
Amy Chen: Well, it's funny, in the last year we've allocated to Europe more than other International markets. European venture has been much more attractive from a value-orientation than the U.S. It’s much more focused on revenue-generating companies. Since they haven't had the big IPOs that the U.S. has had, they have had to rely more on M&A for exits. They have been much more price-disciplined than the United States. For example, biotech has been a really rich area there, in part because there aren't as many firms chasing different opportunities, they have world-class research institutions and pharmaceutical companies, and the venture firms have had a different strategy than the U.S. I know it's counter to what most people would say. Most people might say Southeast Asia or India, but Europe is an area where we've favored investing.
"We went through 9/11 there, the dot-com bubble, and all sorts of things. We had a very disciplined investment framework at Doris Duke that I was able to carry over to the Smithsonian."
Not necessarily Israel, per se. We haven't thought that Israel was big enough to invest in Israel specific funds, but there’s certainly unbelievable talent there. Some great companies have been coming out of Israel.
Trusted Insight: We spoke with Jeffrey Heil from Doris Duke about a week back, and he said great things about you and the team that he started there with. That led to our thinking, what lessons learned from your time at Doris Duke were you able to bring to the Smithsonian?
Amy Chen: Just to give a shoutout to Jeff, Randy and the team – the Doris Duke Charitable Foundation was fortunate to have Dr. Fauci as one of our trustees. He was on our investment committee. He'd always say, "Well, I don't know anything about investments. I'm just a scientist."
He was a really, really wonderful person. Doris Duke is so different from the Smithsonian since it was truly a start-up foundation. I learned a lot in terms of governance at Doris Duke. That was something that was stressed a great deal, and I think that it was really something that was drilled into me. We had a very, very small team. I think we were disciplined. Our committee was not as up to speed on a lot of investments, so we focused on education and developing our strategies in white papers. We really made sure that our committee understood what we were thinking about and had the opportunity to ask a lot of questions before we started to implement manager decisions.
We went through 9/11 there, the dot-com bubble, and all sorts of things. That gave me a very good path in terms of how to build a portfolio at the Smithsonian, where we were developing a portfolio from scratch. We had a very disciplined investment framework at Doris Duke that I was able to carry over to the Smithsonian.
View our full catalog of interviews here.
The full list of 2020 Top 30 Foundation Chief Investment Officers can be found here.