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The Intersection Of Family Wealth Management And Philanthropy | Exclusive Q&A With Susan Lee, Eli Broad Foundations

by trusted insight posted 4years ago 3968 views

Susan Yun Lee is the managing director of investments at the Los Angeles-based Broad Foundations and Eli Broad's family office. She manages the foundations' $2 billion investment portfolio, as well as the Broad family assets.

Previously, she was a director and partner at Angeles Investment Advisors, advising endowments and foundations on asset allocation and implementation strategies across asset classes and leading private capital research. Before that, Lee was an investment professional at private equity firms Black Canyon Capital and Vintage Capital Partners, where she made investments in companies and worked with portfolio companies on business growth and financial structuring.

She began her career in strategy consulting at Bain & Company and strategy and mergers and acquisitions at The Walt Disney Company. Lee has an MBA from Harvard Business School and a B.A. in economics from Stanford University, where she graduated Phi Beta Kappa.

In this interview, the seasoned private equity investor discusses her outlook for private markets investing and how that translates into the Eli Broad Foundation portfolios and family assets.

Lee was recently named to Trusted Insight’s 2017 Top 30 Family Office Rising Stars. She graciously spoke with us on Aug. 22, 2017. 

Trusted Insight: What’s the relationship between the investment office and the multiple entities affiliated with the Eli Broad family?

Susan Yun Lee: Our internal investment team manages three separate portfolios: The Eli and Edythe Broad Foundation, The Broad Art Foundation and the Broad family assets.  The Broad Foundations were established by entrepreneur and philanthropist Eli Broad to advance entrepreneurship for the public good in education, science and the arts.

Each of these portfolios has a distinctive asset allocation. We invest across asset classes. We invest in funds as well as companies, both public and private. We have also invested in derivatives on occasion.     

We currently are an investment team of two people – myself and our Chief Investment Officer K.C. Krieger. The founder, Mr. Eli Broad, is actively involved. We also have a great investment committee. It’s inspiring to be part of an organization that is working hard to benefit the public and to work with the entrepreneur who founded it all.   

Trusted Insight: Do you have an annual payout requirement?

Susan Yun Lee: We don’t have a fixed target annual payout rate. Payouts are driven more by mission-oriented initiatives rather than by a set spend rule. We have historically spent more than the 5 percent as required for 501(c)(3) organizations, but we don't have a target per se.

Trusted Insight: How does the investment strategy differ between the foundation portfolios and family assets portfolio?

Susan Yun Lee: They are very distinctive, as they have different objectives.

The Broad Foundation portfolio is the most diversified and perhaps most reflective of a “typical” foundation and endowment portfolio. The two foundation portfolios have high exposure to alternative and illiquid investments. By contrast, the family assets portfolio has a slightly greater bias toward liquidity.

Trusted Insight: Prior to The Broad Foundations, you worked in foundation and endowment advisory. What investment trends or shifts have you observed among this group of institutional investors?

Susan Yun Lee: I’ve seen an increasing adoption of alternative assets. It’s becoming more difficult to achieve the long-term real return required by foundation and endowments’ spending rules without alternative investments given today’s environment and expectations of lower yields across asset classes going forward. While private investment returns will be lower than they have been in the past, I believe private investments continue to be an accretive strategy for investors who can be patient.  

Trusted Insight: Why do you expect private markets return to be lower moving forward?

Susan Yun Lee: There's just much more competition than before. Today, the industry is well covered, and capital is abundant. There is both a large number of buyers as well as increased awareness among prospective sellers about private equity. Readily accessible credit and strong capital flows from investors looking for yields have also bolstered valuations. As a result, multiple arbitrage or multiple expansion is now rarely a contributor to value creation. Even more so than in the past, managers need to play to their specific strengths to win in an increasingly crowded landscape.  

Having worked at two middle market private equity firms, I think direct private equity investing can be attractive for a number of reasons – lower fees being one of the main reasons more and more LPs are attracted to making direct private investments. However, it's a very competitive industry. LPs can compete in that environment by having exceptional partners, the right infrastructure in place to focus on private direct investments, and/or differentiated deal flow.

Trusted Insight: Do you use any algorithm-powered tools in your portfolios?

Susan Yun Lee: We partner with a number of outside vendors for support in reporting and benchmarking and other type of market insights, which certainly leverages our time. But in terms of using artificial intelligence to select managers, we have not encountered that.

Trusted Insight: How do you think artificial intelligence will alter the landscape of institutional investing in general?

Susan Yun Lee: We are seeing improvements in portfolio reporting software, and we are always looking for the best-in-class systems and resources.

More broadly speaking, I think we will continue to see a divide between companies that effectively harness new technologies and those that don’t. Artificial intelligence and advances in data science will bring greater efficiencies to companies, improve margins, and provide richer and more targeted user experiences. The race toward A.I. will also drive M&A activity as venture, private equity and strategic companies invest to stay ahead of the technology. These dynamics create investment opportunities. As investors, we have to pay attention to the way technology and other trends affect the companies underlying our investments across sectors. It’s part of our work synthesizing high-level themes with a detailed understanding of specific company fundamentals.   

Click here to view the complete list of Top 30 Family Office Rising Stars.