Home > News > Newsmakers > Consultant Corner: A Look at Young Talent in the Consulting World
Newsmakers

Consultant Corner: A Look at Young Talent in the Consulting World

From aiCIO Magazine's April Issue: Keep your eye on this rising star in the independent investment consultant community. 

To see this article in digital magazine format, click here.

Lisa Needle does not vie for attention. A Google Image search of her will yield no pictures. There are no easily accessible bios of her work, nor accessible evidence of a Facebook page. Did she recently get married and change her last name? Is she the equivalent of the ironically shy performer, in love with the stage but ashamed, maybe embarrassed of the public recognition and scrutiny that come with it? In a digital age of social media where privacy is nearly impossible, Needle—one of the brightest, most up-and-coming independent investment consultants in America—has achieved that privacy. Among those who matter within the institutional investing world, however, her profile is not a secret. 

“She’s just one of the great talents out there,” says Jim Kelly, Director of Pension Relations at Citi, who used to work with Needle while she was the acting CIO at the San Diego County Employees Retirement Association (SDCERA). “She’s bright and articulate. She has a way of getting her point across without overpowering.” 

Brian Johnson, Investment Officer at the University of California, who also used to work with Needle while she was at SDCERA, says: “Lisa always tried to look at the world a bit differently—she wasn’t doing the same thing as everyone else. She was always trying to find unique ways to generate value.”

For more stories like this, sign up for the CIO Alert newsletter.

So, with Needle’s promise to allow me to shadow her around for a day, I flew (a very turbulent ride) to San Francisco to learn more about this mysterious and under-the-radar rising star.

In the center of San Francisco, on the 19th floor of 655 Montgomery Avenue, Needle works as a recently-promoted partner at Albourne Partners, an alternatives-focused investment-consulting firm. The office is welcoming and simply decorated, with large windows overlooking Coit Tower on top of Telegraph Hill—a waterfront view filled with the pastel-colored low-rise iconic buildings of the city. 

The effusive accolades of Needle’s performance and her humble public image shed light on her character. On the exterior, Needle is thin in stature, elegant; not the type to wear much jewelry or fuss over clothing. Through our conversations, I get the impression she would rather be in her running shoes and sweatpants than heels and a dress. She has a calm, soft voice, and never interrupts. She gives unwavering attention to whomever she speaks with, yet one senses she expects that same respect of attention to be reciprocated. 

Her career reflects an initially disjointed career path. She pursued pre-med until she realized her aversion to blood, uncontrolled trauma, and disease. After working in a pharmacy—where she met her husband— she entered an MBA program where she was, by chance, pulled by a friend into the public pension space. At the time, without a clear career path in mind, she took the SDCERA job because it was the best available opportunity. “But you also need the passion and commitment of having a goal,” she told me.

Needle’s passion for investing began at SDCERA, where she worked from 2001 to 2011, eventually directing all aspects of the investment function from strategic decision making to policy implementation. She increased the fund’s exposure to hedge funds, drove its expansion into real assets, including commodities and infrastructure, and directed the scheme’s overweight to emerging and frontier market equity. “I’d get into the office at around six in the morning,” she told me. 

Her departure came months after a string of internal emails led to questions and concerns about her role as CIO. The scheme faced issues over conflicts of interest when it hired Lee Partridge to serve as the fund’s portfolio strategist. In March 2011, internal emails showed that having both an internal CIO and a contracted portfolio strategist at the nearly $8 billion public pension scheme raised questions about their independent roles. 

“People often think that second-tier people stay in the public fund space, but that’s not the case. There are amazingly talented people there. But it can be tiring and frustrating, given the lack of resources,” Needle told me, explaining her move to Albourne Partners. The discrepancy over pay and the definition of roles when external staff came into the equation at SDCERA also motivated her move. “I’m perfectly happy being #2 as long as I can have a voice, contribute ideas, and give an opinion—I don’t need or want attention,” she said. “I’m more comfortable being part of a team,” said the sport enthusiast, who played baseball, soccer, tennis, and volleyball growing up, and now participates in half-marathons and triathlons. “SDCERA was a great place to be despite all the recent turmoil,” she added.

Albourne’s culture stresses collaboration and teamwork, reflected by the office’s standard desks and cubicles to eliminate hierarchy. “Senior” and “executive” do not exist in work titles. Family responsibilities are also given weight. “It was in my family’s best interest for me not to work from the San Francisco office daily,” said Needle, who recently gave up her San Francisco crash pad that she used to more easily commute between the office and San Diego, where her husband and children reside. Needle now works at the office twice per week. In between frequent client meetings around the country, she flies to San Diego to be with her husband, a kindergarten teacher, and her six- and eight-year-old children.

Since her decade at SDCERA and now at Albourne, Needle has portrayed a growing interest and skill in the hedge funds and alternatives space, which explains her fit at the world’s largest dedicated alternative investment consulting firm. The firm is unique in other ways, being one of the few truly independent investment consultants left, as most firms have drifted into the discretionary consulting arena. “Albourne will never be discretionary,” Needle stated factually. “We solely provide advice. In our mind, providing both discretionary and non-discretionary advice to clients represents a conflict of interest.”

It is undeniable that discretionary consulting is now where the big money is, yet Albourne’s standard for conflict-free advice is untarnished—in the long run, reputation is more valuable, the firm says. Thus, they are committed to the firm’s fixed-price model to remove a long bias in their advice, free from incentive to put more money into hedge funds. Over a 10-year period, for example, the consulting firm consistently advised clients to avoid Madoff feeder funds and those with significant legacy exposure were encouraged to fully redeem. “With a lot of consulting firms beginning to offer an outsourcing component, you really have a chicken or the egg question. Are firms providing this because clients are asking, or are clients asking because consultants are providing?” Needle questioned. Albourne’s philosophy and ethical standards reflect the principles of the London-based cofounder and CEO Simon Ruddick. “It all starts at the top from a culture perspective and the culture is entirely him,” Needle said. Ruddick is well known throughout the industry for his philanthropic efforts, positions on various industry boards, and stellar reputation. “Money is simply not Simon’s premier motivation,” said John Shearman, a close colleague of Needle’s at Albourne. 

Needle represents the focused career woman, juggling a rewarding and demanding profession alongside the responsibilities of a home life, marred by guilt over a missed phone call to her family before they go to sleep, or saddened from being unable to read with them for 30 minutes due to a delayed flight to her San Diego home. She lives on the same block where she grew up, near her mother. “My mom has helped me rise up the career ladder—I never worry about my kids when she’s looking after them. We’ve never needed a nanny. I couldn’t be at the place I am today without the network I have.”

During my visit with Needle, I took a few pictures of her for our art team.She was clearly uncomfortable with the spotlight. “It will be like ripping off a Band-Aid,” I assured her, snapping quickly. At the end of my visit—her bags in hand as she was heading for the airport—she told me she couldn’t remember the last time she spoke so much, especially about herself. It’s often the people who don’t brag who are most comfortable in their own skin. They don’t need public recognition because they are content and confident in their work. Many, however, would say that Needle should get used to recognition as she’s not going to be #2 for long.

Home > News > Asset Allocation > If You Build It, Will Yields Come?
Asset Allocation

If You Build It, Will Yields Come?

From aiCIO Magazine's April Issue: Infrastructure for ­liability-driven ­investment.

To see this article in digital magazine format, click here. 

Roiled global markets have many institutional investors feeling stuck between a rock and a hard place. For some, the best way out may be to build a tunnel through one and a bridge over the other. Indeed, infrastructure investment has become an understandably appealing option for long-only asset managers. But how should investors operating within a liability-driven investment (LDI) framework approach it? 

On the supply side, an increase in public contracts available for private investment has arisen because of American state-level budget constraints. On the demand side, the appeal of infrastructure assets for liability-driven investors can be interpreted as a reaction to dismal yields and a looming shortage of suitable duration-matching, fixed-income securities. Compounding the difficulties has been the interminable global volatility and stark correlations among the SNAFU stocks that would ideally add oomph to portfolios.  

Fortunately, many investments in economic infrastructure (utilities, energy, transportation, and communications) are congruent with LDI mandates. Michael Underhill, CIO of Capital Innovations, says a number of his pension clients have benefited from a diversified portfolio of marketable and private market real assets and particularly infrastructure. “One of the best ways of understanding LDI is by looking at how asset classes behave at different points in a market cycle,” Underhill says. Infrastructure’s main value is that it seems to be more defensive than most asset classes. And as interest in its investible opportunity set grows, more dedicated infrastructure funds are hitting the road. According to Preqin, 2012 began with 144 infrastructure funds seeking $94 billion in assets worldwide. With 33 of those funds, the North American market is growing steadily.  

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

The most common way to invest in infrastructure is as a LP in an unlisted fund. The funds normally last around 10 years and compensation is based on the residual after the GP receives management and performance fees and carried interest. Michael Cook, Senior Managing Director of Macquarie Infrastructure and Real Assets, which has roughly $32 billion under management, says, “The fund model works because it allows investors to get a seat at a table that might otherwise be unattainable. For instance, a $25 million investment can garner a proportion of a half-billion dollar project.” He adds that “investors who want to collect cash flows directly alongside the fund can request co-investment options”. These funds are a solid addition to the return-generating portion of a diversified portfolio, and co-investment offers steadier cash flows. But the model isn’t designed for liability matching. This is partly a result of the misalignment between the long functional life of the underlying assets (railways, pipelines, plants, and the like) and the nature of private-equity style funds, which close due to an economic event after a decade or less. The two routes by which those strictly focused on liability-duration matching can partake in infrastructure investment are direct investment and investing in debt capital markets. 

Last year, the Canadian Pension Plan and Ontario Teachers reported direct infrastructure yields of over 13% each, with the former allocating $8.6 billion (just over 5% of its total $153 billion under management) to the asset class. That said, both of the above groups spend millions a year maintaining their impressive in-house infrastructure teams, thereby saving on the fees that would be incurred were they to use external managers. But what should smaller funds consider? If a sponsor has a long-term investment horizon and resources to develop in-house expertise, direct investments in infrastructure could be worthwhile. But you have to know what you’re buying. Nearly all infrastructure investment reduces portfolio correlation to some degree, but the nature and development phase of the underlying asset determines many of its other defensive characteristics. These include the dependability and timing of its cash flows, its inflation-linking properties, as well as the potential length of the investment. 

Georg Inderst, an independent adviser who has published whitepapers on infrastructure through the OECD and European Investment Bank, says, “Buying for the purpose of liability matching should tend toward projects in developed markets with less risk. Brownfield projects, in which an asset already exists but needs improvement or expansion, and secondary phase infrastructure, where an asset is fully operational and generating cash flows, are likely more suitable than Greenfield projects that require design and construction, which often come with a J-curve, or negative ROI in early years,” according to Inderst. 

Large economic assets like airports and toll roads often have built-in monopolistic characteristics, and certain infrastructure projects like utilities can offer lower elasticity of demand on the consumption side. In theory, this is well suited to LDI because it translates into stronger income protection during recessions. When possible, investors should seek assets with government concessions or clauses that outline the ability to increase fees to end-users. Andrew Hoffmann, Senior Vice President within Investment Solutions at PIMCO, points out that direct infrastructure investing requires due diligence on a project-to-project basis. “From an asset fundamentals perspective, infrastructure has many attributes that make it an ideal match for institutions with long-term liabilities,” Hoffmann says. “What might be underappreciated by investors is the level of operational, legal, and deal structure complexity that comes with these investments.”  

There is another avenue for infrastructure investment for investors: bonds. Most pensions have always had some exposure to infrastructure through debt securities issued by utility companies, developers, and other related businesses. But as Martin Jaugietis, Head of LDI Solutions with Russell Investments, says, “Infrastructure bonds may become more interesting due to the pending shortage in high-quality corporate bonds in liability hedging portfolios.” Jaugietis sees a similarity in the quality to corporate bond universes used to set discount rates, and potentially low default rates as the main draws for pension interest in infrastructure bonds. 

And the products are definitely on the auction block. In order to meet Basel III’s deleveraging requirements, European banks have been selling project finance loan portfolios at a discount. Mark Weisdorf, CEO of Infrastructure at JP Morgan Asset Management, says, “A number of these [loans] are investment grade and offer 200–300 basis points (bps) above LIBOR (a floating rate), which could be swapped for CPI+400 bps if investors are primarily concerned with inflation.” Furthermore, “their relatively low credit risk makes them a great addition to a blended portfolio with a 7% or 8% liability requirement”. 

High-quality assets offering LIBOR plus 200-300 bps for $0.90 on the dollar is a great deal, but the bonds still need to be considered in the context of an investor’s needs. As Inderst points out, “The chase for yield alone may not be enough justification for accepting infrastructure debt-specific risks. Unlike banks, pensions aren’t so familiar with managing infrastructure loan portfolios.” He says asset managers should consider that a number of infrastructure debt funds contain equity securities and mezzanine capital and have issues related to seniority, transparency, and concentration risk.  

In this space, there are only a few things that can be said for certain. The first is that cash is a defective king. The price-adjusted broad dollar index has lost over a quarter of its value since the mid 1980s. Long-only institutional investors including LDI-focused plans can adapt through more diversification and active investment where appropriate. Infrastructure investment is amply suited to these ends, and many of its forms have excellent liability-matching characteristics. So CIOs take note: a knowledge investment in infrastructure is likely to pay a higher-than-market interest rate. 

—Aran Darling

«