“I’m happy to support Renee in such recognition. To be honest, I don’t think she’s a ‘future’ or ‘next gen’ talent, but one of the best in the business currently. I often introduce her as ‘world-class’ or ‘one of the best in the country’ to others.
She is thoughtful, something that is in short supply, and willing to take the path few trod if the math makes sense to do so. She has a keen intuitive sense for character that has supported a high-quality book. And she is able to see the forest for the trees and move on from managers that are quite good if their allocations or updated terms are at odds with what she is trying to accomplish for the portfolio.”
—Dave Morehead, CIO, Baylor University
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 Renee Hanna.
CIO: How are you dealing with rising inflation and interest rates?
Hanna: The Baylor portfolio is constructed to defend zero in times of volatility. Historically, the portfolio has kept up in growth markets and tends to outperform on a relative basis to the downside. We were sensitive to valuations within public equities and begin the year with substantial reserves through short-duration fixed income, i.e., more cash-like, and hedges. These positions created liquidity that allowed our team to add to our public equity positions at different stages as the market weakened.
Further, we have a more balanced portfolio across growth and value. As growth has sold off with an increase in the discount rate, the value sectors have created a direct offset to inflationary pressures. This has led to a strong finish for Baylor’s fiscal year end. The one-year performance for May 31, 2022, is estimated to be up 10.5%.
CIO: What is the best way to bring more diversity to the financial industry?
Hanna: Baylor’s CIO has created a workplace that highly values diversity and stewardship, with four of our six-person team members being female. The effort doesn’t stop there. We are advocates in the classroom with several in our office teaching upper-level finance classes at the Hankamer School of Business. It starts in the classroom, and we are seeking to serve as a resource to students, connecting them to other professionals and assisting with engagement to others in the industry.
CIO: What are the most important alternative asset classes for institutional investors, and why?
Hanna: Private equity is seeing tremendous growth and continues to be a growing segment of institutional portfolios. Baylor strategically targets a 40% allocation to private investments. The composition of such is diversified across IT, healthcare, consumer discretionary and real assets. Within private equity we have an overweight to strategies focused on providing expansion capital versus early-stage venture capital. The upside-downside capture relative to venture capital resonates with our investment philosophy as they tend to have less zeros in the portfolio that lead to a lower overall loss ratio. This leads to a more consistent return profile and strong compounded growth over the long term.
CIO: What asset class or investment troubles you most right now—and why?
Hanna: Public growth stocks have seen a tremendous decline in value as interest rates have risen. Private equity generally is slower to catch up, and we are seeing a significant disconnect in similar private growth companies in terms of valuation. Moreover, there is added pressure in private markets given the abundance of capital in the industry ($1.7 trillion in dry powder, according to the Burgiss 1Q22 Global Private Capital Performance Report). We are wary of the disconnect in valuations and seek to concentrate Baylor’s commitments with seasoned PE firms that raise modest amounts of capital and have multiple ways in which they can harvest their businesses.
CIO: What investing decision have you made for your organization that you’re most proud of?
Hanna: In thinking about this question, it is difficult to nail down one moment because investment ideas are born in collaboration with each of us on the team. My mentor and CIO, Dave Morehead, recently charged me with leading an effort to define core values for our office. Not just words on paper but really getting buy-in from the entire team as to our purpose and mission. Over a series of weeks, we each participated in the process and identified a common thread in which we all have bought in. They are as follows: (1) honorable—working with integrity; (2) excellent—not just excelling in our field but to be excellent at being good; (3) grateful—gratitude for our roles and for each other; (4) humble—having courage to take risks, fail, own it and move on; (5) accountable—to the stakeholders of Baylor and to each other; and, last but not least, (6) fun—a reminder to take time to share experiences, celebrate wins and celebrate each other.
Culture is the backbone of any successful organization, and an endowment office is no different. I believe the process will take us from good to great and set us up to drive strong long-term investment performance over time. This serves to build a bigger endowment and meets the needs of why our office truly exists, to help more students financially so they can achieve their goals! This is what I am most proud of over my 14-year tenure with the Baylor Office of Investments.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Hanna: The line continues to blur across the public and private sector. The investment team at Baylor is segmented by category. Specialization is key to managing relationships, but we have increased the level of collaboration across the two asset classes. This ensures we are making the best relative value trade with every allocation decision, whether public or private, across the portfolio. I think an understanding of such will be critical going forward, as it is increasingly more of a continuum between public and private asset classes. Operating in a silo can prove to be problematic to portfolio construction.
