“From my perspective, what makes Lin valuable to SWIB and has him on a clear upward trajectory, both here and in his career more generally, is that: He builds solid relationships internally and externally to stay abreast of market opportunities; his investment opinions are well thought out and insightful; and he embodies the leadership potential we need at SWIB as I think about our next generation of leaders.”
—Edwin Denson, Executive Director/Chief Investment Officer, State of Wisconsin Investment Board
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 Lin Maung.
CIO: How are you dealing with rising interest rates and economic uncertainty?
Maung: As with any large, diversified program, we at SWIB have areas of our portfolio that are working well in this environment, while others are challenged. I view this as an indicator of good diversification and risk management. If everything is working, then a program is not properly diversified. The important thing is to maintain discipline and avoid either cutting or piling into allocations with short-term benefits but longer-term ramifications.
Along those lines, commitment and consistency are the themes within private equity that hold true in all market cycles, and this one is no different. Despite uncertainty, it is crucial that a private equity program stay committed to its pacing plan, even if it means potentially being temporarily overallocated. We learned the importance of dollar-cost averaging across vintage years during the Global Financial Crisis and its aftermath.
SWIB is fortunate to have a supportive board and investment committee that permits us to stay committed and consistently invest in good years and in challenging years without accelerating or slamming the brakes in any particular vintage. We maintained disciplined pacing during the heady 2021 period. Now when others are pulling back, we are as active as ever, which is allowing us to increase our co-investment program and to make attractive purchases of secondary fund interests.
CIO: What is the best way to bring more diversity to the financial industry?
Maung: Our industry has come a long way in terms of recognizing the need for more diversity and effecting change. Most organizations not only recognize the importance of people diversity, they also have concrete E&I initiatives, including committees, education, training, seminars and social events. SWIB is among these groups, and I’m glad to play my part in bringing a different perspective to our team.
Within the private equity community, LPs are demanding more from managers regarding their own efforts on diversity, and, accordingly, the response has been quite impressive. Many managers have made credible efforts and invested real dollars to establish their own programs, as well as establish or improve programs at portfolio companies. They report statistics to the LP Advisory Boards periodically on how they are trending in terms of hiring, promotion, retention, etc. These tangible changes show we are making real progress. When attending manager meetings, reviewing decks and attending conferences, I observe anecdotal evidence that private equity is less homogenous than it was a decade ago. That said, there is still a lot to be done.
CIO: What traditional and/or alternative asset classes do you think are most important for institutional investors, and why?
Maung: I am, of course, biased. I won’t say private equity is the most important, but I do believe it has an important place in an institutional portfolio. Over the last few decades, the returns stand out against other asset classes. A well-defined, long-term program can help accomplish many objectives, including narrowing funding gaps, dampening volatility, adding diversification and trading liquidity for additional compensation. I firmly believe that alpha in private equity comes from fundamental advantages in how a company is governed and the skills and hard work of the managers we back. The combination of governance and manager skill are not easily replicable in the public market and constitutes a repeatable framework that can contribute strong returns to any program that chooses to commit to private equity.
CIO: What asset class or investment troubles you most right now, and why?
Maung: Where we are today, I don’t see cryptocurrencies being ready for a meaningful place in a large institutional investment portfolio. We do need to get educated, and SWIB has a few toehold positions. Valuable use cases may emerge, the underlying technology may contribute to society in the future, or it may become an investable asset with reasonable risks/rewards. However, the past few years have taught us that there are still too many unknowns as it relates to risks and regulation. If you can’t handicap the risks of an investment, I believe it is analogous to gambling.
CIO: What investing decision have you made for your organization that you're most proud of?
Maung: When I joined SWIB, one of the first initiatives I led was to position our Current Return portfolio, a.k.a. Private Credit, further up the capital structure. I started with a new direct lending mandate with one of SWIB’s long-term relationships. At the time, direct lending generated single-digit yields, and the potential of the market was not clear. We felt that the user-friendly characteristics of direct lending relative to public leveraged finance meant that the addressable market was going to widen to large-scale borrowers who historically would have tapped the public market. In addition, we viewed the strategy as “all weather,” given the seniority, floating nature and prevalence of lender protections.
Over the following years, we continued to scale the strategy, and our thesis has generally played out. Direct lending has remained open for business through a volatile environment, large borrowers are increasingly choosing to finance privately in lieu of the syndicated market, and yields are in the low teens for senior credit, with lower leverage and continued prevalence of lender protections. I am proud of driving the positioning for SWIB to enjoy these risk-adjusted returns before direct lending became the latest buzzword in today’s market.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Maung: Many allocators today, including myself, have largely grown up professionally in an up-and-to-the-right environment. It is easy to forget that markets of the past 15 years may not be applicable over the next decade; in particular, I’m referring to near-zero interest rates.
It will be important for allocators to be able to evaluate historical track records under a different framework. We need to differentiate between strategies and managers that produced strong outcomes due to relatively easy markets and those that produced strong outcomes through skill and hard work. It is easy to look at a manager’s track record in a vacuum or even against vintage peers and be impressed at what they have done over the last 15 years. However, allocators’ real expertise is to isolate the drivers of those returns between the manager’s specific initiatives and the assistance received from the market to figure out who can generate returns in any environment.
