Emerging markets, concentration and co-investments fueled the University of Washington record year


Amid a plethora of institutions posting top-notch returns for FY2021, one stands out among the rest, especially making headlines: Washington University in St. Louis.

But a rare look under the hood of Wash U’s returns illustrates what has happened in the markets over the past year and the challenges facing CIOs, including where to place bets.

The University of Washington investment management firm has been on the rise for a few years now, but CIO Scott Wilson led the organization as it climbed 65% to $ 15.3 billion for the fiscal year ending June 30.

The numbers are even more impressive when broken down by asset class. The private equity portfolio, which accounts for 40% of endowment assets, grew 82%, while the public equity portfolio grew 72% for the year, Wilson said.

The returns, reported on September 20, were seeded by decisions made years before, according to Wilson, who spoke with Institutional investor.

“First of all, a huge chunk is just a beta,” Wilson said, referring to returns coming exclusively from rising markets as a whole.

But the organization’s decision to focus on emerging markets and co-invest alongside some of its executives has paid off.

WUIMC Executive Chairman and Former Interim CIO Eric Upin likes to call this model Endowment 2.0. This means that the endowment has focused more on its best ideas or high conviction investments, has co-invested alongside managers in the public and private markets, and has pushed for deeper involvement of all its members. team. The board members aren’t easy on Wilson: they gave the investment team a benchmark of 70% stocks, 30% fixed income to beat.

“We are comfortable with an CIO who has a focused and co-invested portfolio,” said Upin. II.

When Wilson joined the organization in December 2017, the portfolio had no co-investments. Today, they represent 20 percent of WUIMC’s investments, which are made alongside public and private investment managers. According to Wilson, his team spends around 90% of their time on these deals.

Wilson’s team also focuses on investing in emerging markets. Before the pandemic, the top five members of the WUIMC team spent much of their time flying to remote locations in the hopes of finding solid investment themes outside of the United States (the top five have spent 400,000 miles each in 2018 and 2019 to procure investments.)

“In general, we like to go where our peers aren’t,” Wilson said. “We have a lot of exposure in frontier and emerging markets, most of which are bottom-up. “

When the COVID-19 pandemic began in March 2020, WUIMC had already taken the necessary steps to deploy the capital, despite its inability to travel.

The endowment also allocated capital to the cryptocurrency. WUIMC made a “great little investment” in 2014 and has since completed it. Wilson focuses on crypto companies such as lenders or blockchain-related gaming companies, rather than those that focus on a specific currency.

Moving forward, Wilson said his team is worried about valuations in public and private stocks, especially in tech and late-growth companies. “We are trying to take profits where we can in this space,” he said.

“Our other goal has been to rebalance the portfolio,” Wilson added. “With the huge rise in both public and private equities, we have exceeded our risk profile. Amid the market downturn in March and April, Wilson said WUIMC rebalanced about five percent of its portfolio and would have moved more capital, but markets quickly pulled back.

For now, WUIMC is selling futures on its portfolio to hedge the portfolio pending certain liquidity events that will allow it to rebalance, Wilson said.

Although assets under management have increased significantly, Wilson has no plans to add outside specialists to his team. He said he preferred to promote staff internally when he could, moving them from interns and associates to senior professionals. This will be the case for the replacement of general manager Michael Stohler. Stohler left the organization at the end of July for the Wisconsin Foundation and Alumni Association, where he was appointed CIO.

“We’re just going to keep doing what we’re doing,” Wilson said. “A lot of the time it’s just hard work and basic blocks and tackles … We always find interesting things to do, but we also miss out on so many opportunities.”

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