“Jessica is a strategic thinker. She can see the big picture but spends the time to dive into the details. She has a curious learning mind and is interested in exploring a variety of types of investments. She has a can-do attitude and easygoing personality to work with. Jessica has strong leadership potential and will continue to succeed in all she takes on.”
—Jagdeep Bachher, CIO, University of California Office of the Regents
Jessica Hans is an investment officer at the University of California’s investment office, a position she landed after diverse experiences spanning several asset classes. She began her career as a consultant at Bain, then moved into structured credit banking and trading at Credit Suisse, where she weathered the financial crisis and learned valuable lessons about managing market turmoil that serve her well in today’s trying times. Taking a break after Credit Suisse to get her MBA from Yale and become a CFA Charterholder, Hans then worked in M&A at Blackstone before moving to the Bay Area and joining the University of California’s investment office.
Hans is currently the co-head of the $120 billion platform’s $5 billion real estate portfolio, which includes fund investments, co-investments, and direct investments in properties, and was previously responsible for managing the UC’s real assets and private equity portfolios. She joined in a time of transition for the office that includes a new focus on sustainability.
Hans discusses her career with CIO, an illustration of a genuine work ethic and well-rounded skill set that earns her a ranking in this year’s NextGen series.
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?
Hans: Prior to COVID, valuations were at or near record highs across sectors and asset classes. The cause of the next downturn was up for debate, but fortunately, our office spent much of 2019 planning for a correction. We slowed our investment pace and built up sizable cash balances across our endowment, pension, and working capital portfolios. And yet, we never expected the next downturn would have such a significant impact on the University of California’s operations.
This crisis is different: universities are in the eye of the storm, and the UC is particularly vulnerable given the scale and diversity of our educational, health care, and research enterprises and our reliance on state funds. We’ve always had a stakeholder-first mindset when managing UC’s assets, but we never thought UC’s needs could change so rapidly. In a matter of days, we shifted our priorities to liquidity generation while managing risk. Fortunately, our office is agile and highly collaborative—and we amped up our communication and interaction within our office and with stakeholders, all while working remotely. After just a few weeks of relentlessly focusing on liquidity, the UC is much better positioned to weather a prolonged operational disruption.
Focusing on risks, planning ahead, and running scenario analysis can help you prepare for a downturn. Maybe you’ll predict some things accurately, but it’s close to impossible to get every detail right. This experience taught me that adaptability is key to managing unforeseen shocks.
CIO: What took you by surprise? What worked?
Hans: The nature, speed, scale, and scope of this crisis took me by surprise. Time will tell what’s worked—it’s only mid-May and we’re likely in inning two or three. What I think will serve us well is our laser focus on the liquidity needs of the University of California system. We’ve gone back to basics: we need to manage our portfolios to meet the needs of our clients and stakeholders.
The UC is a massive, complex system of 10 campuses, five medical centers, and three national labs. Many of the UC’s usual revenue streams are non-existent or unreliable in a post-COVID world. These days, we need to make sure our portfolios can meet the UC’s operating needs across a variety of uncertain budget scenarios.
As such, our entire investment team has spent weeks forecasting our capital contributions and distributions under various stress scenarios. We’ve worked hand in hand with our risk and operations teams to communicate any issues or changes with these forecasts. We’ve acted quickly and decisively on opportunities to reduce liquidity risks when possible. For example, within our direct real estate portfolio, we modified and extended a number of loans and put a pause on nonessential capital projects. Now that we have a good handle on our liquidity under various scenarios, we can invest confidently in new opportunities. And, we have ample liquidity to take advantage of these opportunities.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
Hans: Fortunately, prior to COVID, our real estate and real assets portfolios had limited exposure to retail and oil and gas investments because of our negative house view on both sectors. However, those underweights are a bitter consolation prize. The recovery across sectors will likely be long and rocky, and more COVID outbreaks (and lockdowns) are almost certain.
Complexity is not our friend right now—it’s a barrier to understanding risk, making good decisions, and accessing liquidity.
Our office lives by what we call the UC Investments Way, “10 pillars” we use to guide our investment strategy and portfolio construction. Three of them—Concentrate, Risk Rules, and Perfect Alignment—are proving to be critical in this environment. We strive to build concentrated portfolios of investments with high-conviction partners in highly-aligned structures.
The COVID crisis hit while we were in the midst of transitioning our real estate and real assets portfolios to this more concentrated model. As a result, managing risk is more cumbersome as it requires frequent interaction with dozens of partners. If we had been able to get to our ideal level of concentration in advance of this crisis, I think we’d be better positioned to understand and manage risk.
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?
Hans: Many institutional investors view ESG merits as “bonus” features of an investment. In this type of environment, it can be tempting to dismiss ESG considerations, but that would be a mistake. Our ESG policy mandates we consider these issues in making all investment decisions, and this risk framework has helped us make prudent, thoughtful choices over the years.
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?
Hans: We haven’t made a new upstream investment in our real assets portfolio since 2014. We never could get comfortable with taking such pronounced commodity price risk in closed-end fund structures with little to no liquidity. Prior to this most recent downturn, we also sold all fossil fuel assets in our public market portfolios.
The traditional role of oil and gas investments in an endowment portfolio—to provide inflation protection and growth—has recently been called into question. There are many reasons the energy private equity sector has performed poorly over the past five years, but I think one of the biggest drivers has been technological advancement. Fracking innovations significantly reduced costs and created the US shale oil boom. Massive amounts of capital flowed into the sector and drove up supply, putting downward pressure on prices.
One of the biggest underappreciated (or under-discussed) risks in real assets investing is technology’s ability to drive down costs or create obsolescence. Look at what’s happening in real estate right now—the need for physical retail space has seriously declined with the advent of e-commerce and advancements in logistics. And now, in this strange post-COVID environment, technology has enabled many employees to work from home without sacrificing productivity. We’re now grappling with the question of whether office real estate will go the way of retail. This risk wasn’t discussed much before COVID. But now, real estate investors are starting to connect the dots between telework technology, employee preferences, productivity impacts of working from home, and other factors that weren’t given much thought just a few months ago.
CIO: What’s your view on the fate of the Euro and the EU?
Hans: Right now, the European Union is still squabbling over the details of its next coronavirus stimulus package. The stakes are higher than they were during the 2011/12 debt crisis. No matter the resolution on stimulus, the politics will certainly get more challenging. Europe has a strong safety net to help its citizens weather the wave of unemployment that has overtaken the continent (and the world). But the unfavorable demographics of the continent—low birth rates, aging populations—pose challenges for long-term investors.
CIO: What do you think will be the impact of COVID-19 on developing economies?
Hans: Relatively weak health care infrastructure, limited or nonexistent social safety nets, and limited fiscal and monetary firepower could make developing economies particularly vulnerable during this crisis.
CIO: What are the new creative/innovative strategies that you are researching right now?
Hans: We’ve built an innovation portfolio within the real assets program to help us understand how technology could change real estate, natural resources, and infrastructure. We’re particularly interested in how technology could drive down costs and create obsolescence for incumbent industries. Prior to COVID, I was researching opportunities in PropTech for this program.
CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities over the coming years?
Hans: In the near to medium term, I think the life sciences sector will benefit from this shakeout for a couple of reasons. First, we’re likely to see more capital flows into solving this public health crisis and preventing the next global pandemic. Second, the sector may see some temporary relief from regulatory risks. The world is all relying on the pharmaceutical industry to get us out of this unprecedented crisis, so I don’t think US politicians will pound the table for drug price regulation for at least the next year. On a more contrarian note, I’m a believer in the long-term resilience of the travel and hospitality sector. Consumer tastes will certainly be impacted by COVID, but the desire to travel will eventually come back. That said, the road to recovery will be very long, so conservative underwriting assumptions and a long-term investment horizon are key.
It’s been interesting to see how countries are managing the spread and impact of COVID-19. Nations that have minimized the spread of the virus and provided their economies with sufficient, rapid fiscal and monetary support will recover faster. It’s still early, but Asia is showing relative strength in comparison to the US, Latin America, and Southern Europe.
CIO: And professionally, where do you see the most exciting areas to specialize further over the coming years?
Hans: China, India, and Southeast Asia. The demographic tailwinds are hard to ignore, but the markets are opaque and difficult to navigate. Institutional investors should spend an outsized amount of time and resources to find best-of-breed, long-term partners in those regions.
CIO: What exercises have you found useful?
Hans: I take daily walks with my family around our very hilly neighborhood in San Francisco. On the weekends, we go hiking in the Bay Area—there are dozens of great trails within the Golden Gate Recreation area that have breathtaking views of the ocean and bay. I also have a $50 exercise bike I ordered on Amazon that is not as fancy as a Peloton but does the trick.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Hans: Michael Larson (not a manager but has a unique portfolio structure I’d like to learn about).
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
Hans: Anywhere but my house.
CIO: What asset class or investment troubles you most right now—and why?
Hans: Anything in the consumer discretionary bucket, particularly things that are experiential. Many sectors and industries will need to rapidly evolve to meet public health guidelines and consumer preferences. Restaurants, gyms, concert venues, and hotels will need to adapt to social distancing guidelines. Many will not survive, but those that do will benefit from reduced competition and supply. What troubles me is that picking the winners isn’t as easy as finding the companies with the most resilient balance sheets and adaptable business models. Consumer behavior—and how preferences will change as a result of COVID—are still huge unknowns.
I’m also wary of certain emerging markets at this point. Relatively weak health care infrastructure, limited or nonexistent social safety nets, and limited fiscal and monetary firepower could make developing economies particularly vulnerable during this crisis.
CIO: Name your four-member investment dream team for your own family office.
Hans: Jim Simons, Lei Zhang, Jonathan Gray, Bill Gurley.
CIO: Describe the weirdest interaction you’ve had with an asset manager.
Hans: An IR professional from one of our European managers repeatedly sent me and a couple of my colleagues a calendar invite (in German) for his haircuts. Given we’re on the West Coast, they were scheduled for something like 2 a.m. Pacific time. The invitations continued to come, even after we spoke to him. Sometimes I accepted them, sometimes I declined. I don’t know why, but I found it hilarious. I bet he’s not getting as many haircuts these days.
CIO: What should be an investment trend, but isn’t (yet)?
Hans: Not crypto.
