Institutional Investors: Staying the Course or Catching the Wave | Global Conference 2024

Panel Overview & Mandates

• The panel consists of five female Chief Investment Officers (CIOs) managing distinct institutional portfolios:
  • Boeing Company ($116B total): 46% defined benefit (frozen), 70%+ defined contribution.
  • Advance Family Office (NYC): Private portfolio across media, entertainment, technology, and communications.
  • Orange County Retirement System ($23B): Multi-employer plan administrator for ~24 plans; transitioning to cash flow negative status.
  • QIC (Queensland, Australia): Sovereign wealth fund managing AUD 70B for state entities.
  • USC Endowment ($8B): Long-term endowment focused on innovation and secular trends.

Investment Philosophy: "Staying the Course" vs. "Catching the Wave"

• Amy Diamond (USC): Believes in "planting seeds" in venture capital and active management to bet on innovation, noting that market leadership rarely lasts more than a decade.
• Alison Hill (QIC): Argues the investment environment has shifted from low rates/stability to high volatility/sticky inflation, necessitating a rotation toward greater portfolio optionality and less reliance on liquid leverage.
• Molly Murphy (OCRS): Focuses on "white space" where institutional capital has receded, such as asset-backed lending and venture capital, to secure better terms and capacity.
• Liz Tulock (Boeing): Describes a dual approach: hedging liability duration with 50% fixed income to protect against interest rate swings, while using the remaining 50% to "catch waves" in private equity, real estate, and AI.
• Bei Savail (Advance): Emphasizes long-term patience in secular trends like AI, ensuring decisions align with both financial returns and societal impact.

Geopolitical Risk Management

• Alison Hill (QIC): Exercise caution regarding illiquid investments in China due to 5–15 year lock-ups; prioritizing rule of law and the ability to exit.
• Molly Murphy (OCRS): Differentiates between political rhetoric and economic reality; maintains an underweight position in China based on underperformance rather than noise.
• Amy Diamond (USC): Views China as a dominant Emerging Market (EM) component; notes half of their China exposure is in less flexible private investments but explores unloved EMs like Argentina.
• Liz Tulock (Boeing): Uses country-specific conversations within a bottom-up portfolio construction framework to manage risk while seeking opportunities arising from geopolitical tensions.
• Bei Savail (Advance): Observes supply chain redesigns and "unshoring" as opportunities in critical materials and technology, focusing on value creation rather than simple diversification.

Private Markets Strategy & Liquidity

• Molly Murphy (OCRS): Unique position allows continued building of private exposures despite negative cash flow; notes "non-core" real estate (office, senior housing) remains frozen for 5+ years, though private equity is showing signs of thawing.
• Liz Tulock (Boeing): Maintains ~25% private allocation but faces pain points with core real estate funds failing to distribute capital; advocates for secondary markets and continuation vehicles to shorten J-curves.
• Bei Savail (Advance): Views current market "freezing" as historical norm; anticipates 1.5 trillion in dry powder will eventually unlock opportunities as valuations adjust.
• Amy Diamond (USC): Prioritizes intellectual honesty regarding liquidity stress scenarios; plans to commit to new vintages despite current pricing to avoid missing long-term compound growth.
• Alison Hill (QIC): Employs a "cost of capital" framework for private markets; notes real estate needs significant repricing, while infrastructure is moving first, and private equity awaits an IPO rebound.

Private Credit Outlook

• Molly Murphy (OCRS): Views private credit evolution through "versions": 1.0 (post-GFC direct lending) to 3.0 (trimming to 4% AUM); now seeking "moats" in asset-backed and specialty lending.
• Liz Tulock (Boeing): Evolved "Return Seeking Fixed Income" (RSFI) from 2% to a larger portfolio to capture opportunities outside traditional structures; using private credit features for liability matching.
• Bei Savail (Advance): Differentiates based on tax efficiency; prefers capital gains over income for taxable portfolios; views private credit as a "hedge fund" vehicle for innovation.
• Amy Diamond (USC): Avoids "plain vanilla" private credit due to price competition; interested only in structured credit or pockets where risk is adequately compensated.
• General Consensus: Private credit is expanding into structured products, but managers must differentiate from unsecured corporate lending to avoid commoditization.

Secondary Markets & Co-Investments

• Liz Tulock (Boeing): Finds secondary markets attractive for accessing distressed private equity but lacks internal resources for direct co-investments.
• Molly Murphy (OCRS): Planning to ramp up secondary activity and co-investments by year-end; cites resource constraints as a primary challenge for specialized skills.
• Bei Savail (Advance): Willing to buy secondaries only when underwriting existing managers at a discount; difficult to underwrite new managers in this context.
• Alison Hill (QIC): Australian pension peers strongly desire co-investments for fee reduction and scale, but QIC relies on non-discretionary manager-facilitated access due to team size.

Role of Consultants & Data

• Molly Murphy (OCRS): Utilizes three consultants (one generalist, two specialists); values them as "human shields" and staff extensions but warns of dysfunctional relationships.
• Liz Tulock (Boeing): Engages consultants only for specific thought leadership challenges; explicitly excludes them from Investment Committee meetings to maintain team-driven decision-making.
• Amy Diamond (USC): Uses a "smack of consultants" for broad screening and specialist assignments; complements with data platforms like BlackRock's Aladdin (or similar) to reduce noise.
• General Trend: Shift from passive "validation" consultants to active "challengers" who debate investment theses.

Diversity & Inclusion Strategy

• Collective View: Diversity is viewed as a source of "cognitive diversity" leading to better risk-adjusted returns rather than a compliance checkbox.
• Hiring Practices:
  • Bevi Savail (Advance): Team is >60% women; leverages diverse networks to source talent.
  • Liz Tulock (Boeing): Team >50% women; prioritizes a level playing field for ERISA compliance but notes difficulty finding diverse teams with track records; has invested $5B in diversity assets via bottom-up analysis.
  • Amy Diamond (USC): Actively pursues "first-time funds" led by diverse managers to access talent not yet in the mainstream; avoids the term "cognitive diversity" with managers as it is often misinterpreted.
• Manager Pressure: All panelists report increased pressure from stakeholders (including Senator Menendez correspondence) to improve diversity, though the primary driver remains investment performance.

Emerging Markets Outlook (Rapid Fire)

• India: Mixed views; Alison Hill is bullish, while Molly Murphy is "hesitantly bullish" due to past "round trip" disappointments; Amy Diamond maintains a negative but holding stance.
• China: Liz Tulock sees interesting valuation opportunities despite the need to "hold breath."
• Argentina: Allison Hill and Molly Murphy express intrigue following recent economic insights, despite historical instability.
• Southeast Asia & Africa:
  • Bei Savail and Amy Diamond highlight Vietnam, Indonesia, and Malaysia as beneficiaries of "friendshoring" and supply chain shifts.
  • Amy Diamond notes a new, concentrated investment in a private-equity style Africa manager.