“JM is a true culture carrier for Carnegie, having been with the foundation for over a decade now. He joined Carnegie from business school in 2009 and rose through the ranks, taking on more and more responsibility on the investment team, most recently as a managing director overseeing the Corporation’s private markets partnerships in 2020. His thoughtful, composed and reserved personality veils a terrific sense of humor which endears him to the broader team and to program staff at the Corporation.”
Mark Baumgartner, Ph.D., CFA, | CIO, Carnegie Corporation of New York
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 Jon-Michael Consalvo.
CIO: How are you dealing with rising inflation and interest rates?
Consalvo: There are some investments that have become marginally more interesting, like energy-related assets, but I wouldn’t advocate for too many massive shifts just yet. Ideally your asset allocation should allow you to weather many different scenarios. The speed at which rates and inflation have increased this year has been a shock, but it’s unclear for how long rates and inflation will persist at these levels. We don’t know what the feedback loop will be between the markets and government fiscal/monetary policy. And there seems to be some disconnect between these economic variables and valuations in parts of the market. We are making modest changes but also trying to see past the short-term noise.
CIO: What is the best way to bring more diversity to the financial industry?
Consalvo: It’s best to approach this issue from many different angles. First, we have to improve diversity at the top of the funnel. This could mean making room for more opportunities to broaden the number of people gaining exposure to the industry or actively lowering the reliance of certain prestige signals that have historically contributed to a lack of diversity. In addition, we need to support meritocratic processes that diminish the impact of biases in who gets promoted. This is something to develop internally and also encourage among our partners in the industry. Finally, we need to reward existing organizations who are putting resources toward these goals and be open to investing with emerging managers who are helping to solve this problem.
CIO: Is cryptocurrency an institutional asset of lasting value?
Consalvo: There is potential, but for me it is still within the realm of venture-capital-like risk. The applications built with cryptocurrency still have to prove their utility to a wider audience. So far it feels like too many buyers of cryptocurrency have been return-seeking speculators rather than customers availing themselves of a valuable service. But there is so much development happening in the space that I am hopeful we will see interesting assets emerge. I don’t think crypto will rise to the level of having a separate, permanent allocation in institutional portfolios; rather, it will converge closer toward the existing class of securities.
CIO: How will the pandemic ultimately change the economic/financial world?
Consalvo: I think we have already seen some of the major impacts—notably the pulling forward of remote work and digitization. But I also think the pain points from these changes are starting to come home to roost and it will take a few years to sort out the right combination of face-to-face versus digital interaction. While I don’t think it’s the sole cause of the tensions we’re seeing globally, the pandemic certainly highlighted some of the vulnerabilities of an interconnected global economy. The re-allocation of supply chains along new, less economically motivated lines could be painful for global GDP. Ultimately a little more slack in the global economy might lead to more stable international relations, but at the expense of growth. On the health care front, I hope we will learn some lessons from this experience, but I worry that memories will be short and we will continue underinvesting in resources supporting public health.
CIO: What are the most important alternative asset classes for institutional investors, and why?
Consalvo: There’s no one definition of alternative asset classes, but my mind goes to those investments beyond traditional stocks, bonds and cash that best leverage the advantages of an institutional investor. Usually you are trading liquidity for some promised benefit—whether it be access to a market with limited participants or a structure that incentivizes all of the stakeholders to maximize the stated objective of a strategy. There are various structures that get lumped into the hedge fund category that meet these criteria. I also think there is room for institutions to embrace “alternative betas,” which are more liquid but also more diversifying than many hedge fund strategies.
Private equity is probably the most important alternative asset class today. Private equity has had an amazing decade of performance and most institutions are increasing their exposure. I think investors need to be cautious as they rely more heavily on this asset class. For one thing, the feedback loop between investment and realization of performance is very long in private equity—often longer than the person who made the initial investment will remain in their seat. The alignment that carried interest offers gets diluted as more demand for the asset class incentivizes larger and faster fundraises with high fixed fees. As different classes of investors enter the space, and the secondary market continues to grow, the asset class will become more liquid, but I expect that will also dilute expected returns. Altogether I think investors need to approach the space with a discerning eye.
CIO: Which asset manager (exclusive of their firm) has most influenced your growth as an institutional asset manager?
Consalvo: I’m thinking of a manager who had a compelling pitch that I fully bought into, that turned out to have a disappointing outcome. There’s no better way to grow than by feeling the pain of a decision gone wrong. It doesn’t mean the decision was a mistake, but I think it’s important to viscerally understand as an investor that many things will not work out as you expect.
