“Cecelia has a passion for institutional investing and thirst for knowledge that is truly motivating. She brings this energy and considerable talent to her leadership of Seattle City ERS’s real assets portfolio, where she has undertaken high-value efforts including our initial investments in international real estate. Beyond her asset class responsibilities, Cecelia challenges conventional thinking in continuous search of improved performance and enhanced processes. She also excels at building relationships with peer investors and investment managers to glean insights and uncover opportunities. Her contributions have helped us continue our mission of delivering the promised retirement benefits that our members have earned.”
—Jason Malinowski, CIO, Seattle City Employees’ Retirement System
Cecelia Chen, CAIA, is a senior investment officer at the Seattle City Employees’ Retirement System, where she provides primary coverage for the pension’s real estate and real assets portfolios, and secondary coverage for its private equity and venture capital portfolio. Keeping her engineering training from Yale University sharp, she also sources tech solutions for the team.
Chen started her finance career nearly 10 years ago as a physical commodities trader, learning the entirety of the supply chain from farming to processing, across oceans and rail lines, until either the end user or the futures exchanges. She then moved to a proprietary trading firm (where she was the only female out of 100 traders) that leveraged her fundamental research skills and quantitative models to stay the course.
Today, Chen applies her direct investing training to a broader allocator role, where she is grateful for the opportunities to invest and debate with top-notch investors and industry experts. Since Chen had previously worked in global cities including Beijing, Kunming, Athens, Geneva, Monterrey, and Bogota, among others, she also utilizes her experiences to lead investments abroad. Chen earns a ranking on this year’s NextGen list through trailblazing with success, as demonstrated through amplified career growth across both specialized and generalist roles, all with an international and diversified narrative.
CIO: What did you think you understood before the COVID-19 crisis … and if, during the crisis you were proven wrong, what did you learn from it?
Chen: Although over the last few years and with increasing frequency we talked about expensive valuations and being late cycle, I was still proven wrong by the black swan. I did not expect a simultaneous demand and supply shock, nor manufacturing and services being impacted at the same time, and almost all investable markets to be hit together. Sectors that I thought provided uncorrelated sources of returns such as European senior housing and American midstream assets moved together, down. The crisis really reinforces for me the need for conservative leverage and to always stay humble and prepared.
CIO: What took you by surprise? What worked?
Chen: I am most surprised by how quickly the market rebounded, even though fundamentals have not.
I started allocating our real estate portfolio abroad after joining SCERS in 2015, and look to pick up pace this year. We got to experience the benefits of geographic diversification since several major Asian cities never shut down. In fact, our Pan-Asian real estate manager was actually able to collect 100% of the rents during the worst-hit months in Asia of February and March.
Additionally, our systematic rebalancing around the end of March, which was mostly an injection of capital into the public equity markets, turned out to be a great move. We will take the luck when we can get it.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
Chen: Repricing happened quickly, as did the rebound, and most of our private market managers were not able to transact. Those who did mostly did so through the public markets, or via PIPEs. Therefore, I believe having managers with flexible mandates allow them to better grasp the opportunities, and this is a good time to widen the bench in anticipation of what could come next. Additionally, the original sell-off saw rapid, indiscriminate declines in defensive and vulnerable companies alike, which opens up opportunities for skilled active management. Finally, as we are now looking at a looming recession, we are considering tactically overweighing private market deployments versus our pacing plans.
CIO: What’s your view on the “perfect storm” that is currently impacting the oil markets, and how will that change how you invest in upstream energy?
Chen: As a former physical commodity trader, my blood still races when I see technical squeezes. I miss my days of studying the delivery specifications so we don’t get stuck in a trade!
At SCERS, we have very little of our private market investments in upstream energy and so largely avoided the worst of this rout. Currently many producers are operating wells at a loss because they have fixed costs, thus adding to an already burgeoning oversupply. We are in an uncertain period where demand will be down for an indeterminate amount of time. Pair that with the growth of technologies and renewables, which could call for the plateauing in global oil consumption by 2030, and I think it is hard to make a call today on investments that will take 10+ years to realize. That said, as this will definitely be an area most starved of capital, and oil is a market where the supply situation could change at the whims of a few individuals, there could be a junction where the demand outlook becomes clearer and opportunities are at the right entry points.
CIO: What do you think will be the impact of COVID-19 on developing economies?
Chen: I’ve had the pleasure of working in a number of emerging countries including Greece, Mexico, China, and Colombia, and unfortunately COVID-19 will negatively impact them and their peers, especially if risk-off causes broad stroke departure of capital from all emerging markets. However, differences in GDP drivers, political systems, health care and monitoring infrastructure, reliance on remittances, ability to tap international capital, even a country’s historical implementation of the BCG vaccine, could influence the severity of impact to each economy.
Some countries such as Philippines suffers from multiple factors, including declining remittances, blows to its tourism, mining, and oil industries, and insufficient social distancing coordination. On the other hand, fiscally credible governments such as Chile were able to announce generous stimulus packages to blunt the impacts of social distancing. Certain Asian countries could even emerge stronger since they promptly utilized screening protocols from SARS, and they’re now comparably more stable forward outlooks make them attractive places to invest.
CIO: What are the new creative/innovative strategies that you are researching right now?
Chen: Since hearing about crypto from Googler friends, I’ve attended numerous industry events over the years. Originally, I doubted crypto tokens’ premise as a store of value, perhaps because of their volatility and the speakers’ cherry-picked return horizons. However, store of value comes from people’s perceptions. With a combination of record M2 growth, the increasing digitalization of our transactions, and the potential geopolitical issues prompted by oil’s “perfect storm,” I am restarting my research of crypto. Even if there is no room in an asset allocation for a more portable version of gold, at a minimum the increased adoption will lead to infrastructure and custodial needs that has effectively created a new VC sector. There is also the upside that crypto protocols developed today will create the new primitive of trust that facilitates online transactions. My colleagues say they are looking forward to our future debates on this topic.
CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities over the coming years?
Chen: I strongly believe technology should not be segregated mostly to VC but rather incorporated into every asset class. Reading through businesses’ and jurisdictions’ reopening plans, I see recurring calls for increased sanitation measures and physical distancing. Real estate teams that can best navigate the stringent protocols will be groups where everyone, not just the asset managers, understand how to source and utilize advances in remote training and monitoring to quickly retrain staff and enforce the social distancing. Similarly, successful owners of retailers, gyms, hotels, and entertainment venues will be those that best adapt to customers’ heightened sanitation concerns. Perhaps the cross-border funds will be able to rapidly deploy advanced digital payment solutions already used in Asia to the Americas and Europe so credit cards won’t have to exchange hands. Or tech savvy managers will be able to introduce augmented reality solutions to traditional cosmetic and clothing retailers so customers feel safe trying products. As schools and corporate training centers risk closing every time a new cluster of cases appear, the administrators need more than educators who can teach over Zoom; they need engaging modern curriculums made for the digital era, and maybe virtual reality trainings. As physical distancing becomes ubiquitous, so must the applications of technology.
CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?
Chen: Not needing to fly six hours to New York has allowed me to attend more conferences and schedule more meaningful conversations. It is so much easier reading managers’ expressions when they sit a mere foot away from the camera!
CIO: What exercises have you found useful?
Chen: I am a voracious reader and the quarantine has only increased the time I spend hunched, so convincing my husband to waltz with me around the house has been a great way for us to straighten our postures. Additionally, our two large dogs insist on multiple walks daily and constantly train our reflexes as they try to dive after bunnies.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Chen: Anthony Ward, nicknamed Chocfinger for successfully cornering the cocoa markets, multiple times! Ward is the ultimate analyst, one who believes in such thorough research that he spent decades immersing himself in a single business: cocoa. Then when The-Trade-of-the-Decade emerges, he invests with sufficient sizing. Ward also opportunistically closed his fund and returned the investors’ money after the rising influence of algorithmic trading reached the tipping point and changed the risk/reward scenario for fundamental traders. I want to learn from Ward how he pairs position sizing with conviction, and how he gathered the courage and humility to admit he lost the edge in a field he knew fundamentally better than anyone.
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
Chen: West Africa. In addition to building networks with all major suppliers and users of cocoa, Ward had deployed teams to count cocoa pods in Ivory Coast and set up a network of weather stations.
CIO: Name your four-member investment dream team for your own family office.
Chen: Deborah Farrington, trailblazing SaaS venture capitalist who is also an expert at spotting talent and mentoring younger teams.
Michael Dorrell, a current SCERS private market manager with a seemingly photographic memory, amazing deal sourcing network, and a knack for clever structuring.
Robert Joo-Hyung Lee, an investor at Select Equity Group and a friend of mine who is absolutely focused on becoming the best investor of our generation. He is so curious and is the reason why I’ve been swamped with reading countless papers on economics, politics, and business over the past 11 years.
Stanley Druckenmiller, disciplined top-down investor who can combine bottom up valuations with liquidity, technical, and sentiment analyses and sizing decisions.
CIO: Describe the weirdest interaction you’ve had with an asset manager.
Chen: We expect managers to come baring their souls, revealing all their secrets and dreams on investing. Many of the best investors I know are not the best salesmen, nor would I expect them to be. I am happy hearing about their processes and stories, in whatever manner they wish to tell them. I promise not to call anyone weird.
CIO: What should be an investment trend, but isn’t (yet)?
Chen: The wellness trend is gaining traction in Europe but not yet in Asia or the Americas. With more time spent indoors and following public fears that viruses could be transmitted via a building’s HVAC systems, I think awareness for how a space affects one’s health and well-being will increase.
