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West Virginia University Foundation Eyeing Venture Opportunities Outside Of U.S. | Nan Chen, Senior Investment Analyst | Q&A

by trusted insight posted 5months ago 449 views
Nan Chen is a senior investment analyst at the West Virginia University Foundation. She has been with the organization since 2011 and has held a few investment-related positions.

In this interview, she discussed why WVU Foundation wants to increase allocation to early-stage venture capital; her focus on China-related strategies; and the close-knit community at WVU Foundation that celebrates and understands diverse cultures and experiences. 

Nan Chen was named on Top 30 Investors At Next-Generation Leading Endowments

Trusted Insight: This question might be helpful for some of you know, our new users on the platform. Can you tell us about the West Virginia University Foundation and its investment office?

Nan Chen: The WVU Foundation Investment group manages assets in support of WVU and its affiliates. Currently, we have a team of five investment staff, two operations staff and one support staff. Over the years we have evolved into an operating model that allows each of us to take a lead role in certain asset classes. We work in a very collaborative manner. Everyone is encouraged to speak up when they have an opinion on something. We believe that extensive discussion and healthy debate will lead to better investment decisions.
 

"Given that we are at this late point in the cycle and given the digital disruption that is going on, we do think it makes sense to continue to increase our allocation, especially to early-stage venture capital."


In the past couple of years, I have been focusing on emerging market public equity and emerging market private equity. When I first started my career with the WVU Foundation, I spent a lot of time reading reports and commentary from our existing managers as well as conducting preliminary research on prospective equity managers. It was a valuable experience as it gave me a foundation for understanding how managers are evaluated.

Trusted Insight: Many LPs have been focusing on increasing allocation to private equity? How has the organization’s PE/VC program developed over the years?

Nan Chen: China venture capital has been one of the areas that I have focused on in the past couple of years. In terms of broad private equity allocation, we have been gradually increasing our venture capital exposure since over four years ago.
 

"China-related strategies are something that I am keeping an eye on, especially those China managers with local expertise and network."


Given that we are at this late point in the cycle and given the digital disruption that is going on, we do think it makes sense to continue to increase our allocation, especially to early-stage venture capital. The investment thesis behind Chinese venture capital lies in that it is considered by some investors as one of the two leading venture geographic areas for investment along with the west coast U.S. venture. We intend to gradually and selectively build our relationships with Chinese venture capital managers with the help of an existing relationship with a venture fund of funds manager, who is achieving access to top tier and promising emerging venture managers in China.

Trusted Insight: How do you find yourself cutting through the noise as it pertains to identifying the really great managers out there?

Nan Chen: In terms of evaluating a new manager, it is hard to generalize. At the end of the day, it's really looking at each manager and seeing what makes them a competitive and trustworthy manager to partner with. For public managers, we focus our due diligence on three main areas: organization, investment strategy and performance/risk.
 

"At WVU we have an annual Diversity Week that endeavors to celebrate and understand different cultures and experiences... WVU Foundation shares the same values."


We value managers who have a stable and incentivized team. From an investment strategy perspective, we want to evaluate if they have a thoughtful and consistent investment process and understand their portfolio construction and decision-making processes. From a performance/ risk standpoint, we assess if the manager has a proven ability to generate alpha and provide downside protection. We try to identify if the track record can be replicated going forward.

Trusted Insight: Are there any investment trends in the endowment space that you think is important to keep an eye on?

Nan Chen: China-related strategies are something that I am keeping an eye on, especially those China managers with local expertise and network. Other endowments and foundations have also been gradually building their allocation to China through such managers. Chinese stocks have the potential to represent 50% of the MSCI Emerging Market Index going forward. A decade from now we might be talking about excluding China from the broad Emerging Market index to be a standalone index. With that in mind, it makes sense to start partnering with dedicated local China managers who know the language, the culture, and the market. Such managers have easier access to the senior management teams of companies they are investing with.

The investment thesis behind allocating to the country is China’s continued effort in market liberalization and financial reform, their critical pivot in favor of new economy, and the rise of Chinese middle-class consumers which will yield new investment opportunities going forward.

Trusted Insight: We were honored to have a prominent foundation CIO lead a discussion on diversity. How does West Virginia embody diversity and what are you doing in that particular area?

Nan Chen: At WVU we have an annual Diversity Week that endeavors to celebrate and understand different cultures and experiences. WVU also has a women’s leadership initiative which seeks to empower and engage women on campus. WVU Foundation shares the same values. Our foundation is made up of talented people from various backgrounds. Our investment committee is made up of individuals with diverse investing experiences. They do a great job of striking the balance of being reasonably critical and extremely helpful at the same time. We have also been making constant efforts to partner with talented and trustworthy investment managers, which contribute to a diversified portfolio. I am really grateful for the opportunity to work with a great group of people who appreciate a culture of diversity. It is a very close-knit community here. All of us are on this journey together towards the goal of making life better for people at WVU and those touched by WVU.

Trusted Insight: What observations have you made that investors should keep an eye on?

Nan Chen: An interesting observation from the U.S. large-cap universe is that matching the S&P 500 index in performance placed a U.S. manager in the top decile of the universe on a rolling three-year basis since mid-2016. From that perspective, U.S. large-cap remains an efficient space where indexing has been rewarded. By implementing a passive investment strategy into certain asset classes such as the U.S. large-cap space, it allows the foundation to use its active budget for more alpha-generating managers in areas like alternative investments, emerging market equity, and small-cap equities. That being said, we continue to screen for active U.S. equity managers with a strong track record who are also downside protective.


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