“Craig is rising in this profession in large part because he’s not afraid of making decisions. In fact, he relishes the chance to be in the mix, making tough calls and being a part of the solution for our firm. What makes him truly exceptional is that he seems wise beyond his years—he’s demonstrated time and again that we can be confident in him to handle the responsibilities he’s been given. It’s also clear to me that he got this far this fast by being a good listener and taking constructive criticism to heart. We shouldn’t be surprised when people who dedicate themselves to learning something new every day become quite learned, quite quickly.”
—Scott Stone, CIO, Pentegra
Craig de Guzman, CAIA, is the director of alternative investments at Pentegra Retirement Services, an organization responsible for the management of a multiple employer defined benefit plan, where he is responsible for sourcing and managing private equity, private credit, real estate, and other asset class’ investments for the Pentegra Defined Benefit Plan for Financial Institutions.
de Guzman began his career 13 years ago as a general investment consultant at Aon, and has since ramped up his career through extended education including both an MBA and CAIA designation to switch to the private markets manager research side. de Guzman believes that his continued learning has made him into more well-rounded professional and with experience in both general consulting and manager research, a more complete set of knowledge for the allocator side of the industry.
His experience in his current role at Pentegra has enabled him to become an asset to the team and an expert in strategic allocation and portfolio maintenance across the private markets spectrum, earning him a ranking in this year’s NextGen series as a stand-out member of the relatively niche alternatives community.
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?
de Guzman: The biggest lesson learned during the pandemic is that even though you consider every prior crisis and the newly discovered risk factors, it is nearly impossible to underwrite and understand every single risk. On the other side of this, almost every crisis is different so it’s also not prudent to manage investments with the GFC or COVID-19 in mind every time. For instance, I don’t think I will ask managers if they have underwritten portfolio companies for zero revenue for six months. At the end of the day, I still believe that for closed-ended structures, you have to go with GPs that are true fiduciaries and have the LPs best interests at heart.
CIO: What took you by surprise? What worked?
de Guzman: So far, the “cycle-tested” managers who have a conservative approach and are very risk aware have done well. The most surprising part of the portfolio at this time has to be the real estate portion, although the timing of the crisis didn’t have a large impact on March valuations. What’s most surprising for real estate is the rent collection numbers. According to our managers, most of the rent collection for April and May has been in the low- to mid-90%. Initially I would have thought that number to be much lower. Obviously, it’s still early but that is a good start.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
de Guzman: I don’t think our investment approach will change post-COVID. We will continue to seek high-quality GPs that are true fiduciaries with investment strategies that make sense. I think long-term there could be shifts in supply chain and manufacturing, as well as changes to the frequency of international travel, but it’s difficult to see any real changes to risk or viability of certain businesses.
CIO: ESG has been a tidal wave force behind recent innovative investment framework in our industry. How do you see the ESG framework and effort be influenced by the recent event?
de Guzman: We are currently reviewing ESG policies and are looking to include them within our investment process. Besides that, we don’t have any strong opinions on ESG at this time.
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?
de Guzman: Our program has limited exposure to oil and gas and as of the end of 2019, we decided to pause oil and gas investments. With the long-term performance of the sector in mind, we have decided to focus more on midstream and infrastructure compared to anything that has a higher connection to commodities.
CIO: What are the new creative/innovative strategies that you are researching right now?
de Guzman: We aren’t reviewing anything “creative/innovative” at this time but are paying closer attention to sector specific funds in health care and software.
CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities over the coming years?
de Guzman: As I said previously, we are reviewing health care and software (mission critical, enterprise) in private equity, which both seem to have strong tailwinds as well as downside protection. For other asset classes such as real estate, we will continue to review multifamily and industrial. Overall, the focus is on “necessity” driven investing or asset classes that provide goods/services that are essential for society.
CIO: And professionally, where do you see the most exciting areas to specialize further over the coming years?
de Guzman: I previously specialized in real estate manager due diligence and today, I am more of a generalist for private markets. I find that being a generalist for private markets has a number of advantages, one being having the relative value approach and not being “stuck” within one asset class. Another advantage I find is not getting caught up in the weeds with specifics and taking a more “does this make sense?” approach. Over the coming years, I look forward continuing to learn, especially new opportunities and strategies.
CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?
de Guzman: For me, I was working from home a large amount of the time, so there hasn’t been any large changes. Obviously, the increased popularity of video conferencing is interesting but for me personally, I don’t find it any more helpful compared to conference calls. I still believe that for due diligence and manager research, on-site meetings need to occur and with these partnerships lasting so long, it is crucial to meet in person.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
de Guzman: Although he is now president of Blackstone, I think it would be very enjoyable to spend an hour with Jon Gray. Heading one of the largest alternatives managers in the world will definitely give you some perspective on what is going on and where opportunities lie. I also think it would be interesting to hear his perspective going from real estate to becoming more of a generalist leading the entire firm.
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
de Guzman: I am guessing New York City, since that is where he is based.
CIO: What asset class or investment troubles you most right now—and why?
de Guzman: Although we have limited exposure to energy, I think that is the asset class that has the most challenges right now. There seems to be issues on both the supply and demand side and no noticeable tailwinds (except for maybe renewables).
