Stuart Mason currently serves as Associate Vice President, Chief Investment Officer of the Office of Investments & Banking at the University of Minnesota. His responsibilities include managing the investments in the University’s $2.3 billion broadly diversified, consolidated endowment, investing $200 million of other University reserves, and directing the cash management and treasury operations which include direct investment of approximately $1.5 billion of the University’s working capital accounts. He also serves as the treasurer and chief investment officer of the University’s captive insurance company, RUMINCO, Ltd.
In this interview, he discussed why the investment office is excited about investing in early phases of technology innovation, why he believes we are on the cusp of an explosion for new climate-related technologies, and the importance of integrating diversity, equity, and inclusion-related priorities into every new investment they make.
Stuart Mason was named to Trusted Insight's Top Transformational Leaders Of Last Five Years: 2022.
Trusted Insight: Tell us about the investment office at the University of Minnesota, its team size, assets under management, and your role.
Stuart Mason: I've been at the University of Minnesota just short of 20 years. I was hired in 2002 to put together the first formal investment office. Today, that office of 10 professionals manages the investing of all of the University's assets, which include a $2.3 billion endowment, $1.5 billion working capital account, and an additional $200 million in other reserve pools. We also manages the treasury operations, cash management, debt management, and the natural gas hedging program for the University.
Trusted Insight: The University of Minnesota had a very successful 2021, having achieved a 49.2% return. How has the investment office continued to outperform peers for many years?
Stuart Mason: We've been fortunate to produce some very strong returns over the last decade, often being in the upper quartile when compared to some of our peers. It is largely because we have leaned in very heavily to venture capital and private equity as the primary source of outsized returns. Over that period, we've reduced our public equity exposure from a high of over 30% to approximately 16% today and our private equity and venture portfolio has risen from 25% of the portfolio to almost 50% of our overall portfolio. Of that, 36% of it is venture capital exposure. Our core thesis has been that it’s a great time to invest in early phases of technology innovation and we have had the good fortune of riding that wave of adoption of new technologies and new business models. Virtually every industry on the planet is being transformed by fairly radical innovation that is emerging from our venture portfolios.
Trusted Insight: Tell us about the venture program at the University of Minnesota and why you are over allocated to venture?
Stuart Mason: Following the Global Financial Crisis (GFC), we did a complete re-underwriting of our asset allocation. We approached it by saying, "What is the absolute minimum amount that we need in cash, or near cash to meet a year's worth of obligations to the university?" Given that we distribute 4.5% annually, we selected an asset allocation of 5% for low returning cash and near cash. Then we estimated how much liquidity would we need in other portfolios or in public securities to meet the following year's obligations, both to the University and for anticipated capital calls from our private fund managers. Under various scenarios of market contraction, we determined that 25% was an appropriate long-term target for additional liquid assets largely in the form of public stocks and bonds.
That left us with a target of 70% of the remaining portfolio that could be in less-liquid or illiquid investments. We have between 5-10% in hedge funds or other assets that are liquid within a year. This construct gave us the opportunity to maximize what we can be done in the private markets. We have emphasized private equity and venture as the growth engine in the overall portfolio. Our venture portfolio has historically focused on smaller funds with a focus on enterprise software technology. This provided us not only the opportunity for access to innovative fund structures, but when the investments succeeded, there was a chance to achieve higher multiples of invested capital.
Trusted Insight: The tech buzzwords we heard mostly in the last decade are AI and machine learning. Are there any other areas that you and your team are excited about moving forward?
Stuart Mason: More than a decade ago, the SaaS business model emerged as an innovative new way to access enterprise software quickly and cost effectively. At the time it became one of our primary investment themes. More recently AI and ML have emerged as tools that address the explosion of new data and potential to gain insights about virtually every aspect of customer behavior or the enterprise operations. The almost boundless applications have made it a central theme to our current investment strategies. I think the more recent developments in this area are the emerging applications for AI in the life sciences, and developing such things as better optical scanning tools, or certainly in more efficient drug development tools. I also think those are currently areas within the life sciences that are being radically transformed. We have a number of investments that we never would've thought about a handful of years ago that have bio-tech in the name of the fund.
A second area that's really interesting to us at the moment is really deep technology applications to climate solutions. I think everybody is waking up to the fact that energy efficiency needs to be improved, clean water needs to be preserved, and carbon emissions need to be reduced. There are emerging technologies, not just AI, but other really innovative forms of technology that are being developed to address those issues. I think we're right on the cusp of an explosion, if you will, of new climate-related technologies that come from very deep tech applications.
Trusted Insight: What is the investment office’s set vision for a program like that?
Stuart Mason: In prior decades, there are many examples where investors had very poor experiences investing in clean tech. At the time, clean tech was very capital-intensive infrastructure-related investments, many of which produced a newer cleaner energy source or reclamation of clean water, however they didn't produce anything like venture returns. Many of those investments produced more like fixed income returns with much higher risk. Today, there are very different solutions where advanced technologies can play a role in transforming many environmental improvement processes.
You asked if we have a vision or a goal. I think all of us in the business have begun to appreciate the critical role being played by sensitivity to our environment, social concerns, and better governance. As an institution, the University has a net carbon goal of 2050. However, from an investment point of view, we are very aggressively integrating ESG, diversity, equity, and inclusion-related priorities into every new investment that we make. Our objective is to improve the investment process and returns by integrating more of a broader global perspective on all of these important social issues.
Trusted Insight: How would you describe your experience leading an institutional office during such a period of uncertainty during the pandemic?
Stuart Mason: When we realized that COVID-19 was upon us and the world had changed, all of us held our breath to figure out how big the public market decline was going to be? We started looking to see what belt and suspenders we had available for the catastrophe that we were expecting to happen. And low and behold, it happened and then in a heartbeat, the markets recovered. It felt like there was still more to come however, in terms of difficult market conditions, so we slowed our pace of new private investing, enhanced our liquidity somewhat, and really played a watch-and-see game.
As the year of 2020 unfolded, we realized that the world had changed, but that it wasn't a catastrophe. We needed to figure out proactively how to take advantage of some of the dislocations that were taking place. I have said to our team regularly, "We need to go places in the globe where there's growth, innovation, and opportunity, and then find the best way to take advantage of that. One of those solutions is very often venture capital, because it's on the leading edge of the transformation. This led us to reevaluate the global opportunity set and identify areas with the most dislocation. That combination of factors led us focus on more investments in the life sciences and biotech, climate solutions, security, and for the first time to make allocations to opportunities in India.
Trusted Insight: Lastly, what is your thinking on crypto currencies?
Stuart Mason: I think the question is really broader than crypto currencies – it is “what is the investment opportunity in digital assets more broadly, or DeFi - decentralized finance, more specifically. Finance and banking is one of the industry sectors that is undergoing a huge transformation globally, especially in emerging and developing markets, so it represents a significant opportunity to participate in building the new order. Accordingly, we’ve recently made a couple of significant new investments in the fintech space. We’ve also begun to build a position in crypto currency, and plan to expand that allocation as some of the emerging regulation and use-case trends become easier to decipher. We think this is an area of future opportunity, but its early days and we are proceeding deliberately, certainly not in a rush to make unfounded bets.
View our full catalog of interviews here.
The full list of Top Transformational Leaders Of Last Five Years: 2022 can be found here.
In this interview, he discussed why the investment office is excited about investing in early phases of technology innovation, why he believes we are on the cusp of an explosion for new climate-related technologies, and the importance of integrating diversity, equity, and inclusion-related priorities into every new investment they make.
Stuart Mason was named to Trusted Insight's Top Transformational Leaders Of Last Five Years: 2022.
Trusted Insight: Tell us about the investment office at the University of Minnesota, its team size, assets under management, and your role.
Stuart Mason: I've been at the University of Minnesota just short of 20 years. I was hired in 2002 to put together the first formal investment office. Today, that office of 10 professionals manages the investing of all of the University's assets, which include a $2.3 billion endowment, $1.5 billion working capital account, and an additional $200 million in other reserve pools. We also manages the treasury operations, cash management, debt management, and the natural gas hedging program for the University.
"Our core thesis has been that it’s a great time to invest in early phases of technology innovation and we have had the good fortune of riding that wave of adoption of new technologies and new business models."
Trusted Insight: The University of Minnesota had a very successful 2021, having achieved a 49.2% return. How has the investment office continued to outperform peers for many years?
Stuart Mason: We've been fortunate to produce some very strong returns over the last decade, often being in the upper quartile when compared to some of our peers. It is largely because we have leaned in very heavily to venture capital and private equity as the primary source of outsized returns. Over that period, we've reduced our public equity exposure from a high of over 30% to approximately 16% today and our private equity and venture portfolio has risen from 25% of the portfolio to almost 50% of our overall portfolio. Of that, 36% of it is venture capital exposure. Our core thesis has been that it’s a great time to invest in early phases of technology innovation and we have had the good fortune of riding that wave of adoption of new technologies and new business models. Virtually every industry on the planet is being transformed by fairly radical innovation that is emerging from our venture portfolios.
Trusted Insight: Tell us about the venture program at the University of Minnesota and why you are over allocated to venture?
Stuart Mason: Following the Global Financial Crisis (GFC), we did a complete re-underwriting of our asset allocation. We approached it by saying, "What is the absolute minimum amount that we need in cash, or near cash to meet a year's worth of obligations to the university?" Given that we distribute 4.5% annually, we selected an asset allocation of 5% for low returning cash and near cash. Then we estimated how much liquidity would we need in other portfolios or in public securities to meet the following year's obligations, both to the University and for anticipated capital calls from our private fund managers. Under various scenarios of market contraction, we determined that 25% was an appropriate long-term target for additional liquid assets largely in the form of public stocks and bonds.
That left us with a target of 70% of the remaining portfolio that could be in less-liquid or illiquid investments. We have between 5-10% in hedge funds or other assets that are liquid within a year. This construct gave us the opportunity to maximize what we can be done in the private markets. We have emphasized private equity and venture as the growth engine in the overall portfolio. Our venture portfolio has historically focused on smaller funds with a focus on enterprise software technology. This provided us not only the opportunity for access to innovative fund structures, but when the investments succeeded, there was a chance to achieve higher multiples of invested capital.
"I think everybody is waking up to the fact that energy efficiency needs to be improved, clean water needs to be preserved, and carbon emissions need to be reduced."
Trusted Insight: The tech buzzwords we heard mostly in the last decade are AI and machine learning. Are there any other areas that you and your team are excited about moving forward?
Stuart Mason: More than a decade ago, the SaaS business model emerged as an innovative new way to access enterprise software quickly and cost effectively. At the time it became one of our primary investment themes. More recently AI and ML have emerged as tools that address the explosion of new data and potential to gain insights about virtually every aspect of customer behavior or the enterprise operations. The almost boundless applications have made it a central theme to our current investment strategies. I think the more recent developments in this area are the emerging applications for AI in the life sciences, and developing such things as better optical scanning tools, or certainly in more efficient drug development tools. I also think those are currently areas within the life sciences that are being radically transformed. We have a number of investments that we never would've thought about a handful of years ago that have bio-tech in the name of the fund.
A second area that's really interesting to us at the moment is really deep technology applications to climate solutions. I think everybody is waking up to the fact that energy efficiency needs to be improved, clean water needs to be preserved, and carbon emissions need to be reduced. There are emerging technologies, not just AI, but other really innovative forms of technology that are being developed to address those issues. I think we're right on the cusp of an explosion, if you will, of new climate-related technologies that come from very deep tech applications.
"We are very aggressively integrating ESG, diversity, equity, and inclusion-related priorities into every new investment that we make. Our objective is to improve the investment process and returns by integrating more of a broader global perspective on all of these important social issues."
Trusted Insight: What is the investment office’s set vision for a program like that?
Stuart Mason: In prior decades, there are many examples where investors had very poor experiences investing in clean tech. At the time, clean tech was very capital-intensive infrastructure-related investments, many of which produced a newer cleaner energy source or reclamation of clean water, however they didn't produce anything like venture returns. Many of those investments produced more like fixed income returns with much higher risk. Today, there are very different solutions where advanced technologies can play a role in transforming many environmental improvement processes.
You asked if we have a vision or a goal. I think all of us in the business have begun to appreciate the critical role being played by sensitivity to our environment, social concerns, and better governance. As an institution, the University has a net carbon goal of 2050. However, from an investment point of view, we are very aggressively integrating ESG, diversity, equity, and inclusion-related priorities into every new investment that we make. Our objective is to improve the investment process and returns by integrating more of a broader global perspective on all of these important social issues.
Trusted Insight: How would you describe your experience leading an institutional office during such a period of uncertainty during the pandemic?
Stuart Mason: When we realized that COVID-19 was upon us and the world had changed, all of us held our breath to figure out how big the public market decline was going to be? We started looking to see what belt and suspenders we had available for the catastrophe that we were expecting to happen. And low and behold, it happened and then in a heartbeat, the markets recovered. It felt like there was still more to come however, in terms of difficult market conditions, so we slowed our pace of new private investing, enhanced our liquidity somewhat, and really played a watch-and-see game.
As the year of 2020 unfolded, we realized that the world had changed, but that it wasn't a catastrophe. We needed to figure out proactively how to take advantage of some of the dislocations that were taking place. I have said to our team regularly, "We need to go places in the globe where there's growth, innovation, and opportunity, and then find the best way to take advantage of that. One of those solutions is very often venture capital, because it's on the leading edge of the transformation. This led us to reevaluate the global opportunity set and identify areas with the most dislocation. That combination of factors led us focus on more investments in the life sciences and biotech, climate solutions, security, and for the first time to make allocations to opportunities in India.
Trusted Insight: Lastly, what is your thinking on crypto currencies?
Stuart Mason: I think the question is really broader than crypto currencies – it is “what is the investment opportunity in digital assets more broadly, or DeFi - decentralized finance, more specifically. Finance and banking is one of the industry sectors that is undergoing a huge transformation globally, especially in emerging and developing markets, so it represents a significant opportunity to participate in building the new order. Accordingly, we’ve recently made a couple of significant new investments in the fintech space. We’ve also begun to build a position in crypto currency, and plan to expand that allocation as some of the emerging regulation and use-case trends become easier to decipher. We think this is an area of future opportunity, but its early days and we are proceeding deliberately, certainly not in a rush to make unfounded bets.
View our full catalog of interviews here.
The full list of Top Transformational Leaders Of Last Five Years: 2022 can be found here.