“Ashley is a special combination of high IQ and high EQ. She adeptly tackles complex projects with deep research and sharp analytical skills. Her ability to build strong relationships and leverage her network consistently brings valuable insights to the table. Ashley is a fantastic communicator and a team player who is always willing to jump in and help whenever needed.”
—K.C. Krieger, Chief Investment Officer, J. Paul Getty Trust
The CHIEF INVESTMENT OFFICER 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 Ashley Dennig Blodgett.
CIO: How are you dealing with interest-rate risk and economic uncertainty?
Dennig Blodgett: With the era of zero interest rates and largely benign financial conditions in the rearview mirror, it’s more important than ever that portfolios are set up to perform well in a variety of market environments and macro scenarios. As the prevailing market paradigm shifts, so does the calculus underlying various asset classes and strategies, particularly those that utilize or involve debt. Our thought process around expected returns and the relative risk/return between different asset classes needs to evolve as well. At each point in the economic cycle, there is an opportunity to be thoughtful about underlying risks in our portfolio and refine our allocations accordingly to reflect a changing opportunity set. While we can try our best to anticipate and position for a variety of possible scenarios, predicting the future and timing the market is impossible. One mitigant to this is partnering with skilled managers with a deep understanding of their chosen opportunity sets and the expertise to navigate uncertainty and complexity. At the portfolio level, we strive to take a long-term view and resist the temptation to be overly tactical during periods of market volatility, but instead stay nimble and maintain enough liquidity to move quickly when opportunities arise.
CIO: What is the best way to bring more diversity to the financial industry?
Dennig Blodgett: There is real data showing that diversity of thought and experience leads to better investment outcomes. An internal commitment to diversity at the organizational and team level is critical. Being intentional about counteracting biases and embedding DEI throughout the process when hiring new team members, investment partners and service providers is important. Creating an inclusive culture that attracts and supports diverse talent at all levels is equally vital. Doing our part to broaden the reach of organizations that champion untraditional, underrepresented perspectives and leaning on communities like ILPA and IADEI to learn and share best practices is also helpful. As a biracial woman in the financial industry, it was incredibly beneficial for me to see examples, however few, of women from a similar background to mine who had blazed the trail before me. It’s important that we continue to create visible examples and build sustainable pathways for people of all backgrounds not only to access the industry, but also to grow into leadership positions with meaningful impact and hold ourselves and each other accountable to see lasting progress and change.
CIO: What asset classes offer the best options for avoiding or mitigating drawdown risk in an institutional portfolio?
Dennig Blodgett: Very few assets, even those we traditionally think of as “safe,” are immune to drawdowns, as we saw in 2022, when bonds and equities were both down double digits. An allocation to privates can be helpful in mitigating drawdown risk and volatility, but recent years have challenged the notion that certain private assets are as diversifying as we had once thought. In addition, absolute-return strategies with low-to-no correlation can generate positive returns in adverse market environments, but their long-term returns often don’t justify the opportunity cost of holding them through the good times. As allocators, we are in the business of taking calculated risks to generate sustainable long-term returns to support our organizations’ missions. Reducing equity beta and adding cash and fixed income is perhaps the most obvious way to reduce overall “risk.” However, having a portfolio that is underinvested or overly conservative risks eroding your portfolio’s long-term spending power. Drawdowns are a healthy and natural event, but ideally not everything in a portfolio will draw down at the same time for the same reasons. It’s important to understand the drivers behind every investment in a portfolio and not over-concentrate in any single source of return and risk.
CIO: What roles do AI and large language models play in institutional investing?
Dennig Blodgett: Investment teams can benefit from LLMs and AI in streamlining aspects of the investment process that have traditionally been more time-intensive or repetitive. Generalist LLMs like ChatGPT are already helpful in quickly summarizing notes, drafting emails, creating presentation outlines and responding to general queries. While we’re not quite there yet, I’m excited to see what develops in terms of more specialized models or Retrieval-Augmented Generation systems that are trained on domain-specific data, which can allow for more relevant context and more accurate responses to investment-related questions. Ultimately, it will be fascinating to see how agentic models and systems can be applied to larger, more complex tasks within institutional investing, including making decisions and executing actions autonomously. I believe we’re just at the beginning of what is to come. From an investment perspective, quants have been harnessing AI to enhance their investment processes for decades. There are many ways for allocators to invest behind AI, including via AI-enhanced investment strategies, startups developing new AI solutions or established incumbents like Amazon that are powering the AI revolution. However, as with all new waves of innovation, it’s important to be wary of “AI-washing” and the potential for bubbles or mania to ensue.
CIO: What asset class or investment troubles you most right now, and why?
Dennig Blodgett: As capital continues to flow into private credit and other debt-based strategies, I worry about magical thinking with respect to loan repayment. While today’s high yields seem attractive, there is a real possibility that we are underestimating borrowers’ abilities to service their debt at elevated rates for extended periods of time, even if we do see some relief from interest rate cuts in the near to medium term. In addition, many loans lack the covenants to prevent widespread creditor-on-creditor violence if things go sideways. I do think some capital providers will experience larger losses than we expect or get wiped out entirely. Unfortunately, not every manager possesses the discipline to maintain underwriting standards while deploying ever-larger sums of capital or the skillset and experience to successfully work through troubled situations. Where there is distress, there is also opportunity, but I believe there will be fewer winners in the space than most expect.
CIO: What new skills do you think allocators need to be leaders in the field in the coming decade?
Dennig Blodgett: The reality is: The markets are becoming ever more institutionalized, efficient and, in some instances, crowded. Generating excess returns is still certainly possible, but it’s becoming more and more difficult. At the same time, the rate of technological change is rapid. Investors who can understand and harness new technology, including AI, to streamline and improve existing processes and invest on the right side of these changes will be well positioned to thrive in the coming decade. We will need to work closely with AI and take an active role in shaping the technology and how it’s used to ensure AI becomes a useful extension of our collective “brain” as investors. At the same time, I believe in the eternal importance of investing in people and culture. As technology hopefully frees up capacity for investment teams to focus on tasks that require higher-level judgment, the human side of the equation will be more important than ever.
