“Excellence is an everyday thing with Ryan and the best part is he achieves it the right way—with tenacity, curiosity, grit, integrity. He’s a producer, puts numbers on the board, manages risk, loves capital markets and goes about applying his craft in a way that screams humility, brings people along, and elevates everyone’s game around him.”
— Joshua D. Rabuck, executive director and CIO, Indiana University Health
Ryan McNally’s approach to alternative investments drew praise and awards from a variety of different organizations and publications across the country, making it no surprise that he’s attained a spot on CIO’s NextGen series this year. He’s led a slew of initiatives on the investments team at Indiana University Health, including measures to grow the portfolio’s exposure to Asian markets and a strong evolution of the diversifiers portfolio in the institution’s portfolio.
His career arc spans more than 21 years with a focus on portfolio management of equity derivatives and includes experience managing foreign exchange risk.
McNally holds a Certified Public Accountant certification and a bachelor’s degree in accounting from Truman State University with distinction. In our latest interview, he discusses his pursuits with asset allocation.
CIO: What makes 2019 an interesting investing climate? How are you handling it?
McNally: Our staff meets each December and determines structural and tactical positioning for the year ahead (i.e., a target range for each asset class and the resulting risk budget for the overall portfolio). Our macro themes for 2019 are similar to 2018 and include “two-way” risk, a bias toward risk assets, and an acknowledgement that markets going forward are likely “low quality.” Our staff was able to move into risk assets and exercise its playbook in late 2018 and took some profits in 2019.
CIO: After this year, what are the largest opportunities and the largest threats you see on the horizon?
McNally: Our staff is most excited about its upcoming asset allocation review, which will likely dictate 90% of returns for the next five to seven years. The review is a multi-stage process of establishing risk capacity and objectives, and then optimizing within that framework. As part of the review process, staff intends to answer difficult questions it has identified that speak to the purpose of each asset class within the portfolio. The review will further align the investments with the needs of the organization, increase purchasing power over the long term, and provide resources to fund growth initiatives or be a bridge to a new cost structure if needed over the short to medium term. While we prefer models over predictions, the biggest threat could be that economic models are not as relevant to today’s market especially regarding the politicization of the government’s economic response mechanism.
CIO: How did you arrive at your current position? And why did you choose this part of the financial services industry?
McNally: As a kid growing up in Chicago in the ’80s, every once in a while I would go to work with my stepfather and eat popcorn while sitting on the steps of the trading pit at the CBOE where he was a market maker. As a kid, I did not learn anything in particular while on the floor except the financial world existed and that throwing paper order tickets on the trading floor was fun. Out of college, I passed the CPA exam as an insurance policy and gave market making a shot while I was young, scrappy, and hungry. I put all my ambition into it and was a proprietary trader of equity derivatives for 13 years mainly in Chicago but also London. At some point, I reached the next stage in life and then discovered the treasury function most interested me as it was an intersection of my CPA and markets. As I was pursuing the “next phase” in a treasury department, as is typical in life, investments and allocating came about through meeting the right people. I truly feel that lightning has struck twice in my career and am thankful for this opportunity. Markets keep me learning, and I still love the challenge, but during the second act of my career, it is about so much more here at IUH; the impact we as an organization can have on the community is profound.
CIO: What was the most important strategic allocation of your career?
McNally: Our staff developed frameworks for each asset class we are invested in and identified core and non-core activities (e.g., within private debt, special situations, and lending were determined core strategies). Classification of core and non-core strategies as well as manager recommendations require team buy-in from our staff, which makes being part of the team valuable. Thinking strategically and “feeding the core” means the bar is consistently high for inclusion in the book and it also means that staff is committing to an investment because of its purpose in the portfolio. Return streams alone can change, but purpose cannot, so we target purpose, which leads to conviction. We align with the best managers and let them know they have a purpose. We then hold them accountable.
CIO: Tips for money managers who want to work with you, especially what not to do.
McNally: Most investment managers look to build an empire, but bigger is not always better. Investment managers should consider LPs when building their empire. Times are good and money is plentiful now, but those investment managers that take advantage now will likely have a difficult time explaining their actions during leaner times.
CIO: Biggest goof a money manager has made with you?
McNally: Just when you think you have seen it all, you realize you have not. We have seen the sausage made in regards to the season and sell process and NAV calculations and found errors. We have been gated and “not side-pocketed” but practically side pocketed, all of which led to difficult conversations.
CIO: Who in the financial world would you like to have lunch with and why?
McNally: I would probably choose Jim Rogers to pick his brain on commodities and emerging markets but mainly because he is a character and I enjoy characters. I read his book Investment Biker years ago, and he has been to more places than most so he must have some wisdom to impart.
CIO: What are changes you’d like to see the institutional investing community make in 10 years?
McNally: The institutional community in general needs to have a longer-term approach. In particular, it puts up with way too much flexibility in the legal documents just to get deals done in the short-term. Managers can thus do whatever they want when push comes to shove. We have walked away during the legal negotiation process because we were not getting sufficient protections and will continue to walk away if necessary. If not enough LPs argue for what is best, the documents will not get better and during the next crisis, investment managers will abuse those very same LPs.
CIO: What are your hobbies not correlated to work?
McNally: I enjoy spending time with my family and watching my kids’ sporting events. When I am not reading up on financial markets, which is a hobby and correlated to work, I enjoy doing mindless manual labor in the yard.
