Andrew McCulloch
Nominated by a leading CIO for his ability to be “incredibly deep on hedge funds,” Andrew McCulloch provides portfolio construction, manager selection, and risk management advice to a wide range of funds, including family offices, foundations, endowments, insurance companies, and public/private pension plans. Weighing in on key strategies across liquid and illiquid alternatives at Albourne Partners Limited, he has played a key role in a number of the firm’s initiatives, including the development of the group’s total portfolio-wide risk aggregation services, its macro outlook, and its strategy forecasts.
He joined Albourne in 2007 and is a senior portfolio analyst, partner, and head of the US region, leading the Connecticut office. Prior to moving to Connecticut, McCulloch spent two years in Albourne’s San Francisco office as part of the Client Services Group managing client relationships. McCulloch earned a bachelor’s in economics from the University of Wisconsin–Madison and is a Chartered Alternative Investment Analyst (CAIA) charterholder.
CIO: What new qualities do you look for in a manager/service provider given the pandemic’s financial and economic impacts?
McCulloch: The volatility catalyzed by the onset of the pandemic served as a stark reminder for allocators and managers alike that they must embed a high degree of intellectual rigor, humility, transparency, and forethought within their investment processes. Governance structures, risk management constructs, liquidity budgets, and regional diversification were all briefly tested in March 2020 before the rebound that followed. Managers with expertise and exposure in Asia fared substantially better as their markets decoupled from the rest of the globe, and we saw stronger governance structures empower investors to play offense in strategies which drew down more severely, anticipating a recovery. Still, others found themselves “fixing their roof during a rainstorm,” triaging potential liquidity concerns and stakeholder inquiries. Despite financial conditions not deteriorating further in this crisis, reactions to pandemic-driven volatility reiterated the value of these critical qualities in portfolio success when a future storm evolves into something more severe and unforgiving.
From a broader economic perspective, while not a direct result of the pandemic itself, I would be remiss if I didn’t raise ongoing socioeconomic disparity, sustainability, systemic racial/ethnic inequality, and other interrelated issues which have continued to metastasize. Tangible progress has been slow, with no shortage of pledges being made, but serious introspective action must continue across the industry to achieve measurable change. Symptoms worsen and must be addressed. Those organizations that demonstrate their dedication to developing diverse talent and invest in addressing sustainable development goals stand to gain.
CIO: What changes are you making to your asset allocation advice?
McCulloch: The ongoing decline in expected return and diversification potential for many traditional asset classes—along with a more volatile market environment caused by both the pandemic and inflation fears—highlights actively managed alternative strategies as an appealing relative area of opportunity.
More niche arbitrage and positively skewed macro-style strategies have been at the forefront on the liquid side, particularly where a long volatility profile or the direction of policy forms parts of the opportunity set; these are often viewed in the context of fixed income alternatives.
On the private side, we continue to see substantial interest across the board as investors reach for higher anticipated returns within private equity, inflation participation from real asset strategies, and/or the more varied opportunity sets within Asia in both equity and credit (lending in particular). Always looking to further the quantum of diversification, particularly “true” diversification during tail events, we recommend allocators explore the unique potential of certain illiquid esoteric strategies such as mine financing, digital infrastructure, royalties, and litigation financing.
CIO: What do you think will be the biggest innovation in your industry in the next 10 years?
McCulloch: While optimism isn’t my strong suit, my hope is that we see investors embrace the power of non-concessionary impact investing, thereby driving innovation and new opportunities within diversity and sustainability. Great strides have been made in monitoring, measuring, and the impact of evolving policies, but the scope for innovation remains vast. Be it the wealth gap, systemic racial and gender inequality, climate change, or any of the other myriad existential crises affecting society today, the powerful forces of capital markets have the potential to drive a sea change that benefits investors and our communities at large.
New risk premia offering unexplored dimensions of diversification are being forged, waiting to be harnessed, providing ample opportunity to realign the interests of stakeholders no matter their bias. It also has the potential to rekindle interest in finance for younger generations—a sustainability concern that is somewhat selfish. While there is much work to be done, aligning impact with the goals of limited partners (LPs) is a critical and necessary step in the evolution of the investment industry.