“Our organization resembles a lean startup environment, and Charlotte is an important member of a small but mighty team that has built out a $2 billion-plus portfolio from scratch. She is versatile in evaluating opportunities across asset classes and has honed capabilities in assessing emerging managers. Charlotte’s independent thinking and unwavering work ethic encourage us to engage in challenging discussions. Charlotte has a passion for continuous learning, which is evident in her thoughtful mentorship and guidance to junior team members. Her superpower lies in proactively building connections with people and effortlessly linking various elements within her professional network.”
—Peng Wang, CFA, Chief Investment Officer, Inatai Investment Management
The CIO Editorial Team shared a dozen questions with all 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 Charlotte Zhang.
CIO: What is the best way to bring more diversity to the financial industry?
Zhang: There is no silver bullet, but expanding our perspective and processes in sourcing and screening for talent on our own teams and in backing investment managers can drive progress. Historic reliance of searching for pre-defined backgrounds of certain types of degrees, accolades, roles and experiences has contributed to a lack of diversity. However, in my observation, some of the best investors we have come across are polymaths, prolific learners who can shift from mastery of one subject matter or skillset to another. Widening our sourcing and screening talent apertures to account for and capture non-traditional background polymaths would be accretive to candidate diversity across a spectrum of metrics. This requires an investment of time to meet different pools of people and perhaps, sometimes, to assist them in envisioning how their experiences and interests could translate to finance. It also demands a mindset to balance willingness to back compelling potential over directly relevant experience, assigning true weight to evaluating fundamental characteristics such as independent thinking, intellectual curiosity, persistent work ethic, high integrity, an ability to synthesize large amounts of complex information into succinct takeaways and effectiveness in persuasive communication and building strong relationships.
CIO: How can allocators address the growing global tailwinds of aging populations, geopolitical tensions and changing global trade?
Zhang: Global challenges can be reframed as potential investment opportunities to fund solutions and alternatives to the arising implications. An aging global population gives rise to increased demand for drug development to treat diseases and extend the quality of life for this growing demographic segment, as well as for enterprise SaaS to close the productivity gap of a declining labor pool. Geopolitical tensions and changing global trade give rise to increased demand for onshoring strategic manufacturing capabilities and redesigning supply chains with resiliency, oftentimes leveraging robotics and automation, given labor constraints from the aforementioned aging populations, as countries seek to protect their respective self-interests. Each of these described implications has matriculated into our portfolio at Inatai as investment themes with sustainable tailwinds. From a risk management standpoint, maintaining a global perspective in tracking relevant demographic statistics, geopolitical news and market indicators enables active management of the risk exposures in a portfolio and making such intentional tilts.
CIO: What traditional and/or alternative asset classes do you think are most important for institutional investors, and why?
Zhang: I think the most important alternative asset class is private equity, as it has driven outperformance in many institutional investors’ portfolios over the last decade and represents increasingly larger exposures. Having grown up in the private markets, I am partial to the ability to capitalize on asymmetric information that informs sourcing, due diligence and value creation initiatives and, having the benefit of long investment time horizons that enable strategic decisionmaking and strong corporate governance to implement operational changes that grow the value of a business. However, as more capital has flooded into this asset class, gaps of market inefficiency are closed more quickly, which erodes the go-forward expected returns. Investors should be mindful of selecting for strategies that adequately compensate them for taking on illiquidity risk, especially as entry valuations in private markets have remained relatively sticky compared to drawdowns in public markets. Managers will have to work much harder to generate returns from fundamental value creation, as historic availability of cheap financial leverage, as well as sustaining trends of multiple expansion, are no longer the case in today’s environment.
CIO: What should be an investment trend, but isn’t (yet)?
Zhang: Venture is ripe for implementation of aspects of systematic investment approaches that have been adopted in public markets, yet remain less common in private markets. As an asset class, it exhibits the largest top of the funnel in terms of sheer number of opportunities, as well as the most performance dispersion, so getting investment selection right is higher stakes. When evaluating a deal, human cognition exhibits limitations in processing, continuously tracking and assigning weights to the volume of information across comparables in developing complete context. Therefore, it would seem logical to leverage algorithms to automate collecting, analyzing and presenting data in a standardized, digestible way. This frees up VCs to utilize more of their bandwidth on building relationships and strategically pitching the best founders and asking deeper secondary and tertiary diligence questions that enable higher-conviction decisionmaking in today's competitive environment. We have seen select firms integrate automation into various pieces of their investment process, but this should become table stakes in the coming years as companies put out more and more data into the world that can serve as signals for venture firms that invest the time and infrastructure to capture them.
CIO: What investing decision have you made for your organization that you’re most proud of?
Zhang: The decision that comes to mind was one that entailed passing on an investment after expending extensive time and effort on researching the nuances of the opportunity set, comprehensively landscaping the comparables, diving deeply into the specifics of the strategy and cultivating a relationship to gain access to a high-caliber manager. I believe a culture that emphasizes the quality and discipline of an investment process, rather than the end result of deploying capital, positions an organization for long-term success. Research and due diligence tend to yield more balanced, objective conclusions when one can suspend judgement while pursuing data and information with intellectual curiosity and a lack of attachment as to where it might lead. Setting an example in the early days of establishing our investment program that overrode potential considerations of sunk cost, personal reputation, group think or fear of missing out hopefully extended beyond the impact of a singular investment to encourage high-quality investment decisionmaking as a team over the long run.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Zhang: As allocators, we have had opportunities to learn about and invest in a variety of technological applications that streamline different industries. But I believe we have barely scratched the full potential of implementing technology in our own industry to maximize the efficiency and productivity of our investment processes and operations. I think having a clear vision and strategy of execution for embedding software and AI to amplify, integrate and streamline sourcing, due diligence, monitoring and reporting capabilities will be a distinguishing skillset of leaders in the institutional asset management field in the coming decade. Such modular tools and purpose-built platforms should empower teams to reallocate time and focus previously spent on basic data collection, input and analyses to increasing the velocity and depth of research across potential investment areas and risks, developing more specific and insightful follow-up questions, making more proactive real-time portfolio adjustments and creating iterative learning and feedback loops to improve upon processes. I like to draw the analogy that if human judgement is Tony Stark, then a thoughtfully architected, tech-enabled, end-to-end investment process could serve as an Iron Man suit that supercharges an investment organization’s capabilities.
