“When Hunter joined Columbia, he was charged with building a venture program in an environment that was hostile to venture investing. He spent his time building networks and developing a framework and now that we are actively investing, he has gained access to some of the most selective managers. He has a great sense of humor and he is a great team member.”
—Kim Lew, President and CEO, Columbia Investment Management Company
The CIO Editorial Team shared a dozen questions with all of our NextGen nominees and asked them each to pick six to answer. Their answers informed our decision to include them as a NextGen. Below are the answers from Hunter McCrossin.
CIO: What is the best way to bring more diversity to the financial industry?
McCrossin: I wish there was a silver bullet, but a committed team that recognizes the long-term importance and the opportunity and benefits of a level playing field can make inroads. Within our own firm, we capitalize on being part of Columbia University by teaching classes on campus, connecting with relevant student groups to introduce asset management, and have a new internship program associated with broader diversity goals. As an institutional investor, we challenge existing and prospective managers as partners to assess their own practices, survey our portfolio and share data and best practices related to diversity objectives. We think firms with diversity (across several dimensions) will outperform, so we incorporate that belief into our investment frameworks.
CIO: How will the pandemic ultimately change the economic/financial world?
McCrossin: The long-term ramifications are still playing out. With a black-swan-type event like a pandemic, some of our longstanding assumptions and norms have been challenged. The notion of having to commute to come to an office five days per week has been challenged. This is a job that entails significant travel—we can replace some of that travel with Zoom. While there is no substitution for human interaction and genuine relationship development, we are now more intentional and efficient with how we use our time.
There are other themes which may still be in process but will be interesting to monitor. How have consumer preferences changed what we buy and how we buy it? Are supply chains flexible enough to navigate those changes? Are consumers more price inelastic with experiences because we know we could be sequestered in our homes for months on end, which was unfathomable a few years ago? How will technology including software, AI and ML, and robotics impact the future of work? We certainly push on these themes with our managers to ensure they have a point of view on where the world may be heading.
CIO: What are the most important alternative asset classes for institutional investors, and why?
McCrossin: I view illiquid alternative assets as being driven by the “four main food groups”: private equity, venture capital, real estate and resources. There certainly have been success stories within more esoteric, illiquid strategies but there are not extra points for degree of difficulty and each illiquid dollar deployed is precious. The opportunity costs in illiquid investing are especially high so while there is room for creativity in manager selection and co-investing, we are wary of straying too far afield. I am not sure that there is one asset class among those traditional strategies that is more important—strategies and various exposures come in and out of favor over cycles, and these are long-term commitments and it is our responsibility to build a diversified portfolio to withstand different cycles. With respect to more liquid alternative asset classes, we remain active and believers in hedge funds. One upshot of this downturn is we can really gauge just how hedged certain managers were and how thoughtful and prudent their risk frameworks were. We continue to believe truly diversifying hedge funds are an important tool in our toolkit that allows us to continue to meet our goals as well as play offense in difficult markets.
CIO: What asset class or investment troubles you most right now—and why?
McCrossin: We believe in the importance of vintage year diversification when it comes to investing in private markets. I would have told you in the moment that 2014 felt like a frothy deal market that was poised to be a mediocre vintage. Fast forward eight years, and most deals executed around that time have generated attractive absolute returns. It is a good reminder to be a steady investor across vintages and strategies. It does feel like deals closed in 2021—particularly for mid- and late-stage venture—might be tougher on balance. Capital has been cheap, and time has been expensive—that is a dangerous combination. Time will tell, and despite this feeling, we need to keep our steady approach.
This is a challenging environment. While early COVID was extremely stressful, the reality is that the markets rallied so quickly, it was more of a blip for markets. Today feels different. It has been close to 15 years since we had a protracted downturn and there is a generation of investors and managers who have never had to persevere in a recession or crises. It has been over 40 years since there was notable inflation in the U.S., so few managers have the requisite experience for that type of environment. Those facts give me pause overall. However, we must trust our process that we have a well-diversified portfolio with appropriate risk levels and have relied on a rigorous due diligence process in partnering with our managers.
CIO: What investing decision have you made for your organization that you’re most proud of?
McCrossin: Our team is talented, and we make decisions by consensus. We are also completely aligned internally about the overall portfolio results, so there is nothing that I would specifically point to as “mine.” I am proud of pushing for and instilling importance of building certain processes and tools to make sure we are on track. I believe in the adage that you cannot change what you do not measure, so help build the right tools like dashboards and cash flow models and make them culturally resonant. I also believe in outbound sourcing and that the best opportunities do not necessarily need our capital, so we have to proactively identify them and build the relationship to secure allocations. Our team has embraced these concepts and we are in execution mode.
The tough thing about investing in illiquids is that there is no immediate gratification or even knowledge that the decisions made have been good ones. That pushes us to emphasize process and ensure we run a consistent, thorough process but also iterate in the spirit of continuous improvement. I am proud of being a senior leader at the firm helping shape our decision-making, diligence and portfolio construction processes.
CIO: Which asset manager (exclusive of their firm) has most influenced your growth as an institutional asset manager?
McCrossin: I have been doing this long enough to have participated in or led several mistakes. The key is to avoid making similar mistakes by applying lessons learned. When I came back into the LP world after a decade as a private equity investor, I made a specific mistake with a small venture firm that I had a lot of conviction in after doing thorough diligence. I succumbed to the opinions of a few other investors I respected even though I was much further along in diligence, and I trusted the masses. We missed an 8x returning fund because of that—I won’t make that mistake again!
Conversely, it is also instructive to think about investments that have gone well and recall those lessons, too. I was fortunate enough to have partnered with a small venture firm that was far from obvious at the time we invested. It was a firm that itself had made several missteps and one had to believe that the legacy track record was not indicative of what they could generate once they pulled it all together. They had a special, genuine partnership, unique sourcing advantages, and their back was up against the wall considering prior mistakes. It was the most controversial investment we recommended but we were rewarded, and it is now one of the top performers in venture and a group I have partnered with for over 15 years. It is a good reminder that track record is a backward-looking indicator. I believe in data and partnering with money-makers, but we make investments because of what we believe will happen, not just because of what happened yesterday.
