“After eight years at the Rockefeller Foundation managing its hedge fund portfolio, Lauren joined Columbia Investment Management Company as a generalist, helping to pick managers across asset classes for one of the oldest and largest university endowments. I had the pleasure of first meeting Lauren while she was at Rockefeller and was immediately struck by how thoughtfully she approached markets. When I joined Columbia, I was thrilled to know that I would be working with her. In the short period since I took over managing the endowment and team, I have been impressed with her depth of knowledge, incredible work ethic, and her willingness to take on any challenge. She quickly embraced the role as co-head of the marketable assets portfolio; she has championed our efforts to build a more diverse portfolio; she is a patient mentor and coach for many of our younger team members, generously giving praise for their work and constructive feedback; moreover, she is creative and strategic. I am grateful for her partnership and commitment and look forward to working with her and seeing all she will do in the years to come.”
—Kim Lew, CEO, Columbia Investment Management Company
Lauren Jacobson was always interested in a decisionmaking investment role. At the start of her career, as an analyst on the convertible bond trading desk at Goldman Sachs, she found herself curious about the people she was speaking with on the other side of the phone. How did they go about structuring their portfolios? What was it about a short- or long-term investment horizon that caused such different investment behaviors?
She moved into endowment management with her next career step at the Rockefeller Foundation, where she managed the hedge fund portfolio for about seven years, after initially rotating through the different asset classes. In 2017, she took a job at Columbia Investment Management Company, initially as a managing director and asset class generalist and currently as the co-head of the marketable assets portfolio, which she says has had strong absolute and relative performance. Her considered approach to investments, and her expertise in hedge funds and portfolio management, has garnered her a reputation as a thought leader among her peers.
Diversity and mentorship are also important to the endowment manager. She’s been credited with creating a culture of mentorship at the endowment for young allocators who are starting out and learning about manager selection and portfolio management. Jacobson is especially proud that the endowment team is now half made up of women, six out of 12 allocators, from just one female investor when she started. She has also volunteered with her alma mater, the College of William and Mary, to encourage young women to pursue careers in finance.
“It’s been really important to me to advance women in the investment management world,” Jacobson said. “I’ve also actively built relationships, mentored and have been mentored by a great community of men and women in the endowment and foundation world. That has been an amazing habitat for me to grow as a professional, and also for me to bring others up with me.”
CIO: How would you deal with rising inflation and interest rates?
Jacobson: We live in a very different world today than in the ’70s and ’80s when we last had inflation. We have accommodative monetary and fiscal policy, the powerful deflationary effects of technological innovation and globalization, evolved company business models, and an army of financial people who have been habituated to not plan on problematic inflation.
Since it is hard to predict the probability and severity of an inflationary environment, sticking to a balanced, diversified portfolio is prudent. Endowment portfolios are heavy on equities, which fortunately offer reasonable protection in moderate inflationary environments. Maintaining enough exposure to assets with more direct inflation-hedging qualities (TIPS [Treasury inflation-protected securities], real assets, gold, maybe crypto) is also important. If you can guess the probability of high inflation, it can point to how to size this exposure. Running underweight to nominal fixed income by moving partially to cash directly reduces duration risk without a high opportunity cost since rates are still low by historical standards. I would also constrain exposure to terminal value-sensitive growth stocks whose valuations can be hurt (at least in the short term) by higher discount rates or slower growth caused by rising inflation.
CIO: What is the best way to bring more diversity to the financial industry?
Jacobson: The lack of diversity in the financial industry is a real issue. Attacking it at the start of the funnel by attracting more diverse talent to the space earlier on in college or even high school is powerful. Another part of the solution is to change the makeup of leadership teams. The best talent has the luxury of choice and is attracted to teams that resemble their values. Likewise, diverse leadership teams have an edge in attracting and retaining talent because they show proof of a path for advancement. Additionally, identifying how our own unconscious biases can limit how we evaluate and advance diverse teammates is a practical place from which we can all start making a difference.
CIO: What are your favorite alts, and why?
Jacobson: The intense competition in the alts space has compressed returns such that, in many cases, LPs [limited partners] aren’t getting paid enough for the risk and illiquidity. Without skilled manager selection, many alternative investments can be a tough proposition. Top tier venture is always the exception (however difficult to access!). Focusing on the more actionable, now is probably a good time to lean into short sellers. The retail-driven frenzy earlier this year shocked the psyches of most market participants, maybe permanently. Many good short sellers said they are going to do less of it going forward. Deteriorated competition should mean better alpha prospects. Additionally, with signs of froth and endowments full on equity risk, it seems smart to preserve the risk offset offered by shorts. An added kicker is if rates rise, better rebates will make it more profitable to carry a short.
I am also a fan of segments of long-short equity hedge funds such as biotech and tech, and China long-short managers. In each case, generalist managers can lack the requisite knowledge base, giving experts or local investors a sustained advantage. Additionally, the innovation and growth potential of companies in biotech and tech are an attractive backdrop for managers in the space. Tech/biotech could be more vulnerable to higher rates and inflation, and China brings a lot of macro risk. It’s critical to balance the alpha opportunity with constraining total exposure to these areas at the endowment level.
CIO: Is cryptocurrency a flash in the pan, or an asset of lasting value?
Jacobson: We are still in the early innings, and cryptocurrencies are likely to continue to be extremely volatile. It is tough to say which cryptocurrencies, blockchain applications, and business models will stand the test of time. Certainly, the asset class has moved well beyond Bitcoin, which has been accepted as a store of value. While still highly speculative, cryptocurrencies and blockchain serve a real need in a rapidly expanding digital world by providing security and creating scarcity. The far-reaching use cases, degree of innovation, and raw potential are enough to bet that the asset class is here to stay. This, combined with crypto’s liquid yet venture-like profile and differentiated characteristics, makes it worthy of a small allocation in a diversified endowment portfolio.
CIO: How will the pandemic have changed the economic/financial world?
Jacobson: The pandemic changed so many things, including how we use time. Efficiencies gained from cutting back on commutes and excessive travel have yielded greater productivity, more time for family, and climate benefits. As with other periods of major change, there are those who adapt and those who fall behind. Front-footed employers willing to offer greater flexibility to their workforce (their biggest asset) will enjoy advantages and reduced barriers for talent acquisition that should bring long-term performance benefits for those that have stacked their teams with great people. It also helps improve diversity. Flexible arrangements are particularly attractive to women, for whom the needed flexibility can help them be even better in the workplace while feeling more fulfilled at home.
CIO: What asset class or investment troubles you most right now—and why?
Jacobson: I worry that endowment portfolios have started to lose their former flexibility to toggle between growth and value opportunities. The long-term outperformance of growth to value has altered behavior in the investment community. Talent has fled to the growth side; managers have shifted strategies; and LPs have repatriated capital from underperforming value managers to higher returning growth managers. This has been and might still be the right long-term bet. However, value is a very large segment of global markets. A well-diversified portfolio should always have enough levers to capitalize on value opportunities even when they are not in favor. Unfortunately, the set of managers is shrinking.
CIO: What investing decision have you made that you’re most proud of?
Jacobson: A manager once lied to me about a departure on their team, and I immediately redeemed. The manager had generated real profits up to that point, and I am proud that this did not cause me to hesitate on the decision. It turns out this was an early crack on the surface and the fund eventually shut down. Moments like these are rare. You can’t control investment outcomes, but I try to be disciplined and aware of biases and to always seek excellence in the inputs to decisions. This should lead to more hits than misses over time.
Speaking of misses, I find it very freeing to admit and discuss mistakes. It is a way for me to clear my head for the next decision that might otherwise be shadowed by regret, disappointment, overcorrecting, bias, etc. Sharing the inner process helps me improve my acumen and mental game, and it can help others develop theirs, too.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Jacobson: Most managers like to talk about their successes. I am more interested in those that are tormented by their mistakes. Time after time, I have heard Doug Leone agonize over misses, even though Sequoia [Capital] has had more hits than any. I also admire his flexibility. He has spent his career on the forefront of constant change, betting on young people with vastly less experience. To embrace all this change and remain so open to (sometimes outlandish) ideas while honing his incredible judgment in picking out the winners is a rare combination I hope to emulate in my own career.
