Art by Chris Buzelli

Partnering with the world’s most selective investors is key to David Holmgren’s innovativeness as an asset owner. It requires flexibility and nimbleness. It’s also key to his long-term performance record.

Holmgren’s long-term track record at Hartford HealthCare speaks for itself. The endowment and foundation returned 11.1% over the past six years, placing it in the top-fifth percentile of its peer group.

Over the past year, it returned 15.1%, and over the past two years, that figure was 13.3%—in both cases placing it in the top-fifth percentile.

“I’d be lying if I didn’t answer that I’m real proud of our continued performance record, which definitely went a long way in helping us meet our nonprofit mission during 2017,” Holmgren told CIO. “And I firmly believe that success comes from investing in the right people, not products.”

Building relationships is a key focus for Holmgren. “I’m super proud that we’ve been recognized as a desirable partner by the world’s best [general partners (GPs)], which allowed us to newly partner with awesome venture capitalists, hedge fund managers, and infrastructure operators.”

Earlier this year, for example, Holmgren partnered with GGV Capital and Trustbridge Partners to invest in the Chinese market. Developing relationships with top GPs—whose funds are generally massively oversubscribed—is a key priority.

Over the course of the year, Holmgren is most proud of “hands down, the growth of my team. I’m so lucky that I have rock stars like senior investment director Kevin Edwards onboard.” And outside the investment office, it’s “the collaboration with my investment board. Having that mutual respect has allowed us the governance to truly succeed.”

Allocating on behalf of a healthcare organization presents unique challenges. “It’s well known that these are challenging times for healthcare providers in America,” Holmgren said. “The new financial pressures on hospitals, especially in Connecticut, are my biggest unique challenge.”

Keeping a close eye on costs helps meet those challenges.  “I’m pretty cheap to begin with, and actually [that’s] probably a good thing because I think our whole industry could benefit from a little more cost awareness,” he said.    

Having an individualistic and contrarian approach is key to his investment performance. “Hopefully all of our market positions are unique, as crowding alongside everyone is a recipe for a pretty nasty-tasting dish,” said Holmgren, adding that his view is outside of consensus in a number of areas. 

“One case would be that we don’t do any passive investing,” he said. “I get the arguments, but honestly, anyone chasing low-cost beta could strengthen their investment returns for no real cost increase using simple quant.”

While Holmgren acknowledges there has been a dramatic rise in the price of risk assets. “Not all equities are equally priced,” he said. “In fact, I might even argue that small-cap Asian value stocks are even cheap.”

As for the biggest risk currently facing markets? “Complacency risks! I love that joke about the best trade of 2017 was to short smart-beta and go long stupid-beta,” Holmgren quipped. “That tells me complacency is creeping in, which means there’s a spike in volatility coming, which is great for active managers, especially value-minded investors.”