Ellen Ellison – Playing to Your Strengths

Ted Seides hosts Ellen Ellison, Chief Investment Officer of the University of Illinois Foundation, on Capital Allocators. Ellen discusses her career journey, which includes roles at Fiduciary Trust Company and the University of Miami, and her experience building a $1.7 billion endowment from scratch. She shares insights on governance, portfolio construction, and the strategic focus on agriculture investments, leveraging the university's strengths. Ellen emphasizes the importance of governance, long-term strategic thinking, and building a resilient, diversified portfolio. She also highlights the value of nurturing relationships with alumni and exploring unique investment opportunities.

• Ellen Ellison's career path appears rational on paper but was more complex in reality, involving a diverse upbringing and various career aspirations.
• Her early life was influenced by Japanese culture due to her father's work and her brother's birth in Japan.
• Initially pursued a career in acting and French literature before transitioning to investment banking.
• Worked at Smith Barney in the early 80s, then moved to Merrill Lynch, and eventually pursued further education at Columbia Business School.

"I grew up surrounded by a lot of Japanese culture and art and have over the years developed a really strong interest in Japan."

• This quote highlights Ellen's early exposure to different cultures, which may have contributed to her adaptability and international career aspirations.

"I wanted to be an actress. I was a theater and French literature major at Mount Holyoke."

• Ellen initially pursued a career in the arts, demonstrating her diverse interests before transitioning to finance.

"I joined Smith Barney. They hired kids right out of undergraduate liberal arts institutions."

• This reflects the unconventional path Ellen took into investment banking, highlighting a lack of traditional finance background initially.

• Ellen realized her skills were better suited for asset management rather than investment banking.
• She attended Columbia Business School to enhance her quantitative reasoning and finance skills.
• Mentored by Bruce Greenwald at Columbia, which influenced her development as a value investor.

"I figured out that it would be much better to be on the asset management or the buy side."

• Ellen's decision to switch from investment banking to asset management, recognizing where her strengths lay.

"I really need, needed to round out my brain and get good at quantitative reasoning, finance and statistics."

• Emphasizes the importance of further education in developing her skills for a successful career in finance.

"Bruce Greenwald is one of the best people you could ever meet in academia or in the business profession."

• Acknowledges the significant influence of her mentor in shaping her investment philosophy and career.

• Worked at Fiduciary Trust International, building an investment team and gaining experience in managing high net worth portfolios.
• Mentored by Jeremy Biggs, who helped develop her holistic view of portfolio management.
• The experience laid the foundation for her future role as a Chief Investment Officer (CIO).

"Jeremy Biggs was the chief investment officer and he really mentored a lot of people, mostly women."

• Highlights the supportive mentorship Ellen received, particularly in a male-dominated industry.

"I liked this notion of seeing a portfolio holistically."

• Ellen's appreciation for comprehensive portfolio management, which would be crucial in her later roles.

• Recruited as CIO at a family office, then moved to the University of Miami.
• Expanded her expertise beyond long-only global strategies to include hedge funds, private equity, and other asset classes.
• Emphasizes the importance of continuous learning and research in evolving as an investment professional.

"I added hedge funds and then private equity, then venture capital, then private real estate."

• Ellen's expansion of her investment repertoire, showcasing her adaptability and willingness to learn.

"I learn the most from my actual managers."

• The value Ellen places on learning from experienced managers, reflecting a collaborative approach to investment management.

• Joined the University of Illinois as its first CIO, tasked with building an investment program from scratch.
• Faced challenges including the state's financial situation and the need to establish an in-house investment office.
• Aimed to align the investment office with the university's strategic direction and increase private philanthropy.

"The endowment, when I showed up was around 1.2 billion. And it had been on track to be totally outsourced."

• Describes the initial state of the endowment and the strategic shift required to develop an in-house investment office.

"The board of the foundation realized that if one was going to really emphasize private philanthropy, having our own investment office with our own brand would really go hand in hand."

• The decision to create an internal investment office to support the university's long-term financial goals and enhance fundraising efforts.

• Initial CIO and team were embedded in Urbana, Illinois, which posed recruitment challenges.
• Relocation efforts to Chicago to attract investment professionals.
• Transition from a startup phase to a growth equity investment office.

"We're going to do a national search and we're going to find a CIO to build a brand new team."

• Emphasizes the strategic shift towards building a new team to enhance investment efforts.

"I tried to explain how important it was to recruit investment professionals to a great city like Chicago."

• Highlights the recruitment strategy aimed at leveraging Chicago's appeal to attract top talent.

• Inherited a portfolio managed by larger AUM managers and fund-to-fund relationships.
• Transitioning budget from advisory fees to internal management.
• Lack of seasoned manager relationships in private asset classes.

"The portfolio was well managed, but with maybe larger AUM managers. But there were four fund to fund relationships that I inherited."

• Indicates the initial state of the portfolio, heavily reliant on larger managers and fund-to-fund structures.

"We don't have those long standing relationships with the top managers."

• Acknowledges the absence of established relationships with top-tier managers, which is a critical challenge.

• Focus on smaller groups, first-time funds, and smaller funds as a strategic direction.
• Belief in the difficulty of maintaining entrepreneurial focus in larger firms over time.

"We've decided instead of hiring B, C and D, we're setting off to try to find smaller groups, first-time funds, smaller funds."

• Describes the shift towards smaller and potentially more agile investment opportunities.

"It's just very hard to maintain the same entrepreneurial tendencies and focus after 10, 15 years and especially after you cross over certain thresholds of AUM."

• Suggests a strategic rationale for focusing on smaller, potentially more innovative investment managers.

• Prioritization of governance structure over immediate portfolio adjustments.
• Reduction of investment committee size and establishment of new policies.
• Creation of governance, investment, and conflict of interest policies.

"I spent the first six months on governance and it was very hard not to do anything in the portfolio."

• Highlights the initial focus on establishing a strong governance framework as a foundation.

"We had to figure out a way to shrink the size of the investment committee from I believe it was around 16 or 17 in half."

• Describes the effort to streamline decision-making by reducing the size of the investment committee.

• Simplified asset allocation into global equity, global credit, and a "things that go bump in the night" section.
• Aimed for a growth-oriented portfolio with a minimum return target of 5.45%.

"We have a very simplified asset allocation of global equity, a global credit, and then things that go bump in the night section."

• Explains the straightforward asset allocation strategy focused on growth and risk management.

"Our real minimum break even return is 5.45% because we're funding the university and the foundation."

• Sets the financial target necessary to support institutional funding needs.

• Decision to hold significant cash reserves in anticipation of market changes.
• Criticism faced for not reallocating cash more aggressively into ETFs or other assets.
• Focus on intrinsic hedges to prepare for various economic scenarios.

"I made the conscious decision not to invest. I had a lot of cash inflows from the fund of funds."

• Describes the strategic choice to maintain liquidity for flexibility in uncertain markets.

"I do think a lot about building intrinsic hedges in terms of the types of strategies of managers into the portfolio."

• Reflects the focus on risk management through strategic hedging within the portfolio.

• Abandonment of traditional categories like hedge funds and alternatives.
• Emphasis on viewing investments through the lens of growth, diversification, and risk.

"We eliminated hedge funds from the vocabulary and we eliminated alternatives."

• Indicates a philosophical shift away from conventional investment categories to a more holistic view.

"We talk about equities, credit, inflation, linked things, et cetera."

• Highlights the new approach to categorizing investments based on their functional roles in the portfolio.

• The institution's size provides a unique competitive advantage in identifying and partnering with new talent.
• Focus on long-term partnerships with younger managers.

"Our advantage is the fact that we're large enough to be relevant and also small enough to be relevant."

• Discusses the dual advantage of being a mid-sized institution in the investment landscape.

"We've gotten good at identifying talent earlier and figuring out ways to partnership over the long term with younger managers."

• Emphasizes the institution's strength in nurturing and collaborating with emerging investment talents.

• Agriculture presents a long-term investment opportunity, characterized by lengthy cycles and historical performance as one of the best asset classes.
• The University of Illinois has a significant history and expertise in agriculture, which is leveraged in managing gifted farms and exploring agribusiness opportunities globally.
• Investments are made in various regions including central Illinois, Brazil, and sub-Saharan Africa, focusing on increasing efficiency and reducing waste in food distribution.

"Agriculture is a great asset class for an endowment because it is very long term and the cycles are long."

• Agriculture aligns well with long-term investment strategies due to its extended cycles, providing stability and potential for sustained returns.

"We have about 150 million in gifted farms... So we have this direct portfolio that's managed on the ground."

• The endowment benefits from a substantial portfolio of gifted farms, managed actively to optimize returns and maintain donor relationships.

"The general theme is that we can feed the world if we get more efficient."

• The focus is on enhancing efficiency throughout the agricultural supply chain to maximize value and minimize waste, contributing to global food security.

• Many farm owners are absentee, with farms managed by professional operators; the endowment aims to internalize farm management to enhance control.
• Collaboration with the University of Illinois faculty and leveraging local expertise are key strategies in improving agricultural management.

"We're going to create our own internal farm management unit so that those people will be part of the investment team."

• Establishing an internal management team will integrate farm operations with investment strategies, ensuring alignment and efficiency.

"Ag economics and finance are really strong at University of Illinois... we're really trying to figure out how to get better at this both directly and also as a theme through the portfolio."

• The university's strengths in agricultural economics and finance are leveraged to enhance investment strategies and operational efficiencies.

• Unique and sometimes unconventional investment pitches are received, highlighting the diversity and creativity within the agricultural sector.
• Alumni engagement is a strategic focus, aiming to harness their expertise and networks for investment opportunities.

"I did have one guy come and pitch me the idea of the endowment buying a cow."

• Illustrates the range of investment proposals received, emphasizing the need for discernment and strategic alignment in decision-making.

"We have committed to at least having a conversation with every alum because we feel it's part of our mission."

• Engaging with alumni is seen as both a mission and a strategic opportunity to tap into their diverse talents and insights.

• Technological innovations in farming, such as advanced equipment and seed genetics, have significantly increased productivity and efficiency.
• The finite nature of arable land underscores the importance of sustainable farming practices and technological adoption.

"Technology and farming is just like the oil service industry. It's amazing."

• Highlights the transformative impact of technology on agriculture, enhancing productivity and reducing labor requirements.

"The arable land is finite... you have to take really good care of it."

• Emphasizes the importance of sustainable land management practices to preserve and enhance agricultural productivity.

• The portfolio includes direct farm ownership and investments in agricultural funds focusing on nuts, fresh produce, and protein sources in developing markets.
• Investments aim to capitalize on growing demand for fresh produce and protein in developing countries, with strategic co-investments to enhance market access.

"We have the direct farms and then we also have investments in specific funds."

• The diversified approach to agricultural investments includes both direct and fund-based strategies to capture growth opportunities.

"The whole area of fresh produce and fresh fruit at the margin will probably see a lot of growth."

• Anticipates significant growth in the fresh produce sector, driven by increasing demand in developing markets.

• The goal is to expand agricultural investments to represent a significant portion of the portfolio, potentially developing a REIT for Midwestern university farms.
• Co-investing and direct investments are seen as valuable strategies, despite challenges posed by a small team.

"I would say somewhere between 10 and 20% over time."

• Indicates the strategic intent to significantly increase the agricultural portion of the investment portfolio.

"Why couldn't we build a platform onto which all the other Midwestern universities that didn't know what to do with their farms could give us the farms?"

• Proposes an innovative strategy to consolidate and manage university-owned farms, potentially creating a REIT for broader investment opportunities.

• Small, focused teams can achieve significant results, especially in private investments.
• Direct investments can be explored quickly with the right expertise and team structure.
• Family offices often prefer direct investments over funds due to alignment of interests.
• A mix of funds, co-investments, and direct investments is beneficial for diversified portfolios.

"If you have four of the right people, you can get a lot done. We had never done a direct or co-investment and we got a call from someone whom we respect in Chicago and someone had dropped out of a deal."

• Highlighting the importance of having a capable team to seize investment opportunities quickly.

"I believe that most people in my seat understand that the best way to share more of the economics is to get a little closer to the investment."

• Emphasizes the value of direct engagement in investments for better economic returns.

"I expect that we'll have a nice mix of funds, co-investments, and direct investments."

• Suggests a diversified approach to investment strategies for better portfolio management.

• Japan presents a long-term investment opportunity due to improving earnings and reasonable valuations.
• European markets have been favorable, and maintaining a strong U.S. investment is strategic.
• Latin American markets, particularly Brazil, offer potential due to political and economic shifts.
• Investing in emerging markets requires a deep understanding and readiness for volatility.

"I did put an overweight on Japanese equities in June of 2013. And I have also one act strategy on top of this allocation."

• Indicates a strategic overweight in Japanese equities based on long-term potential.

"We've had a lot in Europe that's worked out really well and a slight overweight in Europe."

• Highlights successful investments in European markets and a deliberate portfolio tilt.

"What if Latin America and other developing market countries, you know, with better balance sheets, what if in fact they became the analog of the developed world?"

• Explores the potential of Latin American markets as they shift from statist governments.

• Investment decisions are situation-specific and require thorough due diligence.
• Concerns about making mediocre choices and finding exceptional talent are prevalent.
• Continuity in leadership and strategy is crucial for long-term success in investment management.

"I'm not particularly formulaic. It's really situation specific. And again, I think that if you're going to all the trouble to do all the on the ground due diligence and work and kicking of the tires and you're taking two years to make a decision, I really think you have to express it in a way that's going to make a difference."

• Emphasizes the importance of tailored investment strategies based on extensive research.

"I worry about making mediocre choices. I worry about finding people who just turn out to be average."

• Reflects the challenge of ensuring high-quality investment decisions and partnerships.

"I think turnover is deadly in our business. And so to the extent that you can keep leadership and strategy intact and going for at least a decade, and in Scott's case, What, three decades? I mean, it's amazing."

• Stresses the value of stable leadership and consistent strategy in achieving investment success.

• Personal achievements and community events provide memorable experiences.
• Supportive relationships are integral to personal and professional success.
• Lifelong learning and curiosity, instilled by family, contribute to career accomplishments.
• Effective communication and decision-making are key leadership goals.

"I ran a half marathon, so that was pretty good. And I'm glad I did it before I had a total hip replacement."

• Shares a personal achievement that holds significance in their life.

"I'm going to go with my husband. Husband, because he may listen to this and he is my favorite person because, you know, I think if you, you have the good fortune to partner or marry or be with someone who really gets you and supports you, you're very, very fortunate indeed."

• Highlights the importance of a supportive personal relationship in one's life.

"Did you ask questions? Did you ask questions? I think he felt that his education, he had made a mistake by being too shy about speaking up and asking questions."

• Emphasizes the value of curiosity and questioning as a foundation for learning and growth.

"I've been reading a lot about how teams can be better at decision making and investment decision making. So I've enjoyed these books called Crucial Conversations and also Radical Candor."

• Indicates a commitment to improving team decision-making and communication skills.

• Relaxation and patience can lead to better decision-making and life satisfaction.
• Gratitude and appreciation for one's privileges and opportunities are important life perspectives.

"Probably a greater sense of relaxation and understanding that oftentimes doing nothing and relaxing more not being so driven. So type A. The answer will in fact come to you instead of you chasing the answer."

• Suggests that relaxation can be more productive than constant striving.

"Be a little more grateful every day for stuff you have. Don't forget that we're all incredibly privileged, lucky, and you know, we have these amazing jobs that help other people but also are incredibly challenging and intellectually wonderful."

• Encourages a mindset of gratitude and appreciation for one's circumstances and opportunities.