“Alex joined us in the early phases of establishing the Investment Office for the Cleveland Clinic and from the very first interview, he established a new threshold for preparation, thoroughness and attention to detail. Over the past four years, Alex has led the visioning and build-out of a multi-dimensional, position-level risk management system that is applied to all three of the distinct portfolios that we manage for the organization. His understanding for the complex systems and data sources that are required for managing our risk has benefited both our investment decisions, as well as the reporting capability that we are able to share internally and externally with stakeholders. He is a true quant and the only member of our team whose nickname is a ratio.”
—Stefan Strein, CIO, Cleveland Clinic Investment Office
Alex Ambroz, CAIA, is a director in the Cleveland Clinic’s investment office. And he is an ace at quantitative analysis that focuses on risk assessment. For instance, he and his team might assess what the institution’s risk exposure is to China.
“We spent two years building a system” to gauge such exposure, he said. Approaching investing without such an analytical ability, he went on, “is like entering the Indy 500 in a Honda Civic.” This enables him to construct stress models for portfolios. Otherwise, “we may not know the true risk,” he observed.
Leadership is part of his DNA. He honed that as an Army infantry squad leader serving in Germany, Kosovo, Bulgaria, and Macedonia—and was involved in drug and weapons smuggling interdiction. He was named Soldier of the Year for the First Infantry Division. With a bachelor’s in finance from the University of Massachusetts at Amherst and an MBA from Duke’s Fuqua School of Business, he went on to work as an analyst for Morgan Creek Capital Management. While there, he dealt with endowments for nonprofits, which would be valuable in his current job.
From there he went to JP Morgan, when the firm was just setting up an endowments group. He was handling $11 billion in assets for JPM’s outsourced chief investment officer (OCIO) effort. That put him in a perfect position to help Cleveland Clinic’s new CIO, Stefan Strein. Ambroz joined the health care organization in 2016.
CIO: What is the best way to bring more diversity to the financial industry?
Ambroz: There are multiple dimensions to this topic, and diversity can only truly be improved with attention and effort. The first is for allocators and asset managers to know themselves: acknowledging the lack of women and minorities in your own office, as well as with those whom you invest, is a critical milestone. Next, make a deliberate effort to find, recruit, train, and support high-quality diverse candidates. Very often in our industry we look for recruits who went to our schools, studied the same thing we did, have the same network—these patterns create recursive loops where the next generation looks exactly like the last one. Moving past these historical patterns is a critical step toward increasing desired representation. Finally, create and encourage opportunities for success and advancement within your own organization and expect the same from those where you are allocating dollars.
CIO: What are your favorite alts, and why?
Ambroz: I’m a fan of direct lending in emerging or developing countries with teams that have deep local experience and knowledge, as well as the ability to use court systems for work-outs, when needed. There’s an opportunity to add real incremental yield to a portfolio here, which is critical in today’s low- to negative-yielding interest rate environment.
CIO: Is cryptocurrency a flash in the pan, or an asset of lasting value?
Ambroz: Can I use Bitcoin/Ethereum/Dogecoin or any cryptocurrency to buy groceries, pay for gas or rent, pay my Netflix bill, or … anything that many of us pay for on a regular basis? No. Is it expected that I may be able to do this sometime soon? Much like my flying car, yes, any day now, I suppose. Is an asset that can rise or fall +/- 30% within days because a celebrity CEO sends out cryptic tweets worth considering as a store of value for any institutional investor? Probably not.
We are still in the very early days of the evolving technology, understanding, and acceptance of cryptocurrencies as both a means of exchange and, potentially, a store of value. When we move past these roller-coaster days of price movement, it will then be worth considering again in a serious manner.
CIO: How will ESG change investing going forward?
Ambroz: ESG [environmental, social, and governance investing] has and is continuing to become a part of the investing landscape for institutional investors. Much like Hemingway, it’s happened ‘gradually, then suddenly.’ Many institutional investors have used SRI (socially responsible investing), ESG, and other related investment frameworks as part of their implementation and review process for decades. In the past few years, though, there’s been an enormous interest in, awareness of, and movement toward consideration, if not outright implementation, of these frameworks in the investment decision-making process.
Much like the acknowledgement and acceptance of the utility of passive investing in portfolios, ESG/SRI investing frameworks look to be part of the conversation and asset flows into the future.
CIO: Where do you see the most exciting areas to specialize further over the coming years?
Ambroz: Volatility risk premia and tail-risk hedging are areas that few institutional allocators are comfortable with, yet could command greater attention. In the last 20 years we’ve had three ‘once-in-a-lifetime’ events, with the S&P 500 dropping roughly 50% twice and falling by a third in just a few weeks. Why as individuals do we acknowledge and accept the utility of myriad insurance programs to protect us (car, home, health, rental, liability, life, etc.) but the same construct for institutional investors remains on the fringe of generally accepted portfolio construction and implementation programs? Related, numerous investment firms and allocators have been burned by selling volatility for steady income until an unexpected spike in volatility destroys the accumulated value. Unlike, say, the importance and utility of a value investing framework, harnessing and respecting volatility is a skill that has yet to enter the mainstream.
CIO: What should be an investment trend, but isn’t (yet)?
Ambroz: There are a number of quantitative metrics that are often used by allocators as a shortcut to assess similar managers on a risk-adjusted basis, e.g., Sharpe, Sortino, information, beta. The usage of these metrics has improved only slightly in the last few decades: moving toward seeing and evaluating rolling three-year outcomes instead of just point-to-point, for example. There are two straightforward improvements, though, that most allocators can relatively easily implement and thus improve their investment decision-making process.
First, apply a decay factor for standard ratios, something already common on risk contribution metrics such as VaR and ETL. This would entail applying a heavier weighting toward more recent outcomes and lesser weight on long-ago outcomes. Second, build robust and scalable factor models (beta, of course, being a single-factor model) that give insight into the actual, consistent, idiosyncratic alpha that investment managers are providing, or not!
Tools for these types of outputs can be built cheaply in-house using Excel, Python, or R. There are also several third-party providers that have excellent (and scalable) off-the-shelf tools that can be used to address these questions, like Two Sigma’s Venn or Alliance Bernstein’s Alphalytics.
CIO: What investing decision have you made that you’re most proud of?
Ambroz: Back in 2012, and before working at the Clinic, I pushed to invest in palladium structured notes on the hypothesis that severely constrained supply issues were going to worsen due to strikes at mines. Palladium is a critical component in the function of catalytic converters, helping to reduce pollution and required on all internal combustion engine cars. Further, rising demand for vehicles worldwide, and especially in the U.S. and China, would create demand pressure that didn’t have an end point. Worked out well at the time, but the dynamics have changed considerably since then with the rise of electric vehicles.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Ambroz: I’ll go sideways on this one and say Roz Hewsenian, the CIO of the Helmsley Charitable Trust. She appeared on Ted Seides’ ‘Capital Allocators’ podcast recently and discussed her team’s focus on maintaining thorough and strong relationships with only 50 external investment managers. She’s an icon in the investment community, and I’d love to speak with her about how she initially—and then continuously—evaluates the manager relationships that she has.
