Hartford HealthCare’s $3 billion endowment and pension fund increased allocations to private strategies, including private equity and infrastructure, as the fund seeks bespoke opportunities particularly within emerging markets. The fund’s PE and natural resources and infrastructure allocations went from 9% to 12% and 7% to 9%, respectively, while public equities were lowered.

“[There are] many opportunities we are extremely excited about, in Andean development, European restructuring, US lower market buyout, Asian consumer growth equity, etc.,” David Holmgren, CIO of Hartford HealthCare, told CIO.  “Being active and dynamic has allowed us to form partnerships globally, which has helped source niche opportunities.”

Holmgren is focused on managing certain risk factors, such as rate risk, populism, and high market valuations, and is seeking opportunities in areas that are not susceptible to those three areas. For example, late-stage technology, or consumer, venture growth opportunities in Asia.

“The thesis we’re playing is that there is a general, safer, less-correlated environment abroad, specifically in emerging markets. And we can be in certain areas that are governmental-revenue backed,” he said.  Holmgren is considering social infrastructure plays within certain Andean markets, such as school buildings that have guaranteed government contracts. He believes these niche opportunities will immunize his portfolio in economic downturns within more developed markets.

“We are certainly off the normal path,” Holmgren said of his private asset strategies. “It’s a lot of work, but if you’re not picking within the top two deciles, then you’ve underperformed the public market and you had no reason to do it.”

Hartford’s recent 2017 fiscal year performance is an indication of the plan’s strategy regarding niche opportunities. The fund returned 15.9% for its fiscal year ending June 30, outperforming its overall benchmark by 5.7%. The FY 2017 performance brings the plan’s five-year returns to 9.4%, outperforming its policy benchmark by nearly 200 basis points.

Key drivers of the fund’s relative strong performance included natural resources and infrastructure, which earned 15.4% compared to a policy return of -2.6%; fixed income (8.1% vs. -0.3%), and emerging market equities (35.8% vs. 23.7%), according to Holmgren.

The fund also focused on smaller, opportunistic private opportunities, including investments within ship financing through JP Morgan, aircraft leasing (Apollo Aviation), infrastructure (Actis), securities litigation financing (Halcyon), and value-add real estate (Stockbridge).

A firm believer in active management, Holmgren said his returns were the result of “deep homework, partnerships, active management, and maintaining a globally diversified approach.”

Tags: David Holmgren, Endowments, Hartford HealthCare, Pension