“Mallika’s curiosity, open-mindedness and candor make her a clear next-generation leader in the asset allocation and management field, and I fully support her nomination. Importantly, she is an exceptional and experienced leader with a passion for ESG, DEI and impact investing. Beyond pure asset investment skills, Mallika is a collaborative team player who is driven to achieve our institution’s mission.”
—Scott Lupkas, Vice President, Investments, Yale New Haven Health
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 Mallika Nair.
CIO: How are you dealing with rising inflation and interest rates?
Nair: We seek to build a well-diversified portfolio that will hopefully perform throughout different economic cycles. As in any other environment, we are monitoring our portfolio to see that it is reacting in line with our expectations for an inflationary and rising rate regime. However, we have not changed our long-term strategic asset allocation or objectives as these concerns have always been part of our consideration. We recognize that the current market conditions have led to a significant shift in valuations, particularly for real versus financial assets. Should our portfolio require adjusting, we will use the tools at our disposal like rebalancing, our investment bands and manager/strategy selection to help us navigate these and other challenges. At the end of the day, we will not pivot our long-term strategy unless there are changes that are either long-term and structural in nature or at our organization that require amending our investment objectives.
CIO: What is the best way to bring more diversity to the financial industry?
Nair: The financial industry has to be proactive and do things differently than we have done before. First, allocators need to look internally and be honest about the diversity on our teams and if we reflect what we look for from our partners. Whether it is for asset owners or managers, all aspects of the hiring process as well as the culture of the organization need to be reassessed to ensure they are appropriate and inclusive. But the process does not stop at bringing diversity in the door, we have to make sure that our values, policies and organizations are supportive and inclusive to retain that talent. This cannot be a check-the-box exercise and it is not enough to just hire a recruiter or consultant. For real and meaningful change to occur, there has to be accountability with metrics being established and measured. The talent is available, we just need to make those changes and ensure that they are reflected in our everyday practices.
CIO: Is cryptocurrency an institutional asset of lasting value?
Nair: I don’t think there is anything more polarizing among allocators than cryptocurrency and digital assets. I believe that the value proposition of the blockchain is clear, with use-cases like DeFi having true game-changing potential, particularly when it comes to providing broad financial access and inclusion. And while there is still uncertainty, especially surrounding the use as a currency and the regulatory environment, given the importance of the blockchain, cryptocurrency is an institutional asset that has long-term value. However, the need for education cannot be minimized, as it is a necessity to make cryptocurrency a more institutionally acceptable asset. As an investor, we are in the early stages of our education and investment in the space, meaning we have not and are not currently considering investing into a cryptocurrency only fund. However, cryptocurrency and crypto-adjacent technologies are part of the investible universe for some of our venture capital managers and an area that I believe has the potential to add significant alpha.
CIO: Which component of ESG investing do you think will have the most influence on institutional investing going forward, and why?
Nair: ESG is such a broad term that means different things to different people, it has become almost meaningless. However, we are starting to see mounting pressure for all components of ESG to be clarified and considered. This is only going to gain more traction as institutional investors continue to demand more from this framework. While all these factors are going to continue to grow in significance, I believe that the “social” factor is going to see the most momentum. Today, the “G” has been pretty well-defined and established in investment processes. To some degree the “E” has been outlined and adopted. Going forward, the “E” may require a more nuanced approach given current geopolitical events, the need for energy independence and the demand for traditional energy as we transition to lower carbon alternatives. However, the “S” has been much more difficult for institutional investors to include. It is subjective and has been the hardest to define, unless an organization has a clear social mission that helps shape its investment objective. At the same time, there is growing interest, particularly from younger stakeholders, to invest with a level of social mindedness. As societal unrest continues and the next generations enter the workforce and take on more influential roles in their organizations, pressures will only increase to better define this factor and have it play a greater role in investment processes.
CIO: What investing decision have you made for your organization that you’re most proud of?
Nair: The investment effort I am most proud of is leading our organization’s commitment to considering diversity as part of our due diligence process. While we are in the initial stages of designing and implementing these policies, our early efforts have already started to yield results. By highlighting the importance of diversity and representation both to our team and investment managers and making a concerted effort to open our pipeline, we have seen results, including an increase in meaningful dialogue with existing and prospective managers, a substantial improvement in the number of diverse managers we are meeting and growth of diverse managers within our current lineup. As we continue to formalize and implement this initiative, I am excited about the prospective impact to our portfolio, as we believe that it not only promotes our values but will help generate the best risk-adjusted returns, which is our ultimate goal.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Nair: I think the most important skill we need to learn is to build, encourage and manage cognitively diverse and inclusive teams to ensure we are hearing a wide range of ideas. Because what has worked before will not necessarily produce the results we desire going forward, and we cannot be afraid to find creative solutions and reconsider past decisions. And while these are not necessarily new skills, eliciting and implementing the best ideas from diverse teams will require leaders to be flexible, open-minded and willing to look different from peers.
