Download Grabel Slides 9-8-14 - The University of New Mexico

Business Strategy Analysis
Jonathan Grabel
CIO, Public Employees Retirement
Association of New Mexico
September 8, 2013
Introduction
• Agenda
– Investment experience
– Business strategy
– Investment Philosophy (time permitting)
• Ask questions throughout
2
Investment Experience
Baker Capital
• GP, investment committee member
• NY-based, late stage venture and growth
equity
• $1.5B in commitments from institutional LPs
• TMT focus
• Control and non-control investments
• 1/3 of portfolio in non-US companies
4
Baker Capital (cont.)
• 45 portfolio companies
– AKAM, INXN, SQSW, QSC.DE (public exits)
– Many strategic sales
• Served on 15+ portfolio company boards
– Corporate governance
– Market insight
– Business strategy
– Corporate actions
– Team building
5
Montgomery County (MD) Public
Schools
• MCPS
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–
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Top national public K-12 school system
160,000 students
25,000 employees
$2.5B annual operating budget
• CIO
– $1.2B defined benefit plan
– $1.2B defined contribution plan
• Investment organization
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–
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–
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Trustees
Investment staff
Consultants
Custodians
Investment managers
6
MCPS (cont.)
• Plan at 8/1/11
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60% – large cap value, developed, active, long-only
35% – investment-grade fixed income
3% – core real estate
2% – private equity fund of funds
- private equity a PE FoF
• Plan at 12/31/13
– 50% – global equities
– 25% – intermediate term investment grade FI
– 25% – diversified alternatives program
• Reallocated 80+% of assets
• New roster of investment managers
7
MCPS (cont.)
• Other changes
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–
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New investment policy statement
New trustees
Beta overlay
Risk view of total plan
Lower fees
• Results
– Improved funded ratio
– Returns and sharpe ratio > benchmark
– Lower downside capture, higher upside capture
8
PERA
• CIO since January 2014
– $14.6B DB plan
– $500M DC plan
• Investment organization
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–
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Member-elected and ex-officio Board Members
Investment staff
Consultants
Custodians
Investment managers
• Mission-driven organization
– 90,000+ members
– FY14 ~$1B member benefits paid
9
PERA (cont.)
• Returns (FYE 6/30)
– 1 year – 17.03% (~$2.1B net gain)
– 3 year – 9.6%
– 5 year – 13.1%
• New Strategic Asset Allocation
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Domestic Equities – 21.1%
International Equities – 24.8%
Core Fixed Income – 26.1%
Fixed Income Plus – 5%
Alternatives – 23%
• Focus on liquidity
• Focus on risk management
10
Business Strategy
Business Strategy
• Work from top down and bottom up
• Understand industry
– Competition
– Pricing
– Market size
– Regulation
– Product pipeline
– Geographic factors
– Potential disruptive events
12
Business Strategy (cont.)
• Assess resources
– Human capital
– Financial
• Evaluate
– Comparative advantages
– Relative weaknesses
• Honest assessment
– Be emotional
– Be dispassionate
• Limit moving parts
• Fail fast
13
Examples
Digital Media Company
• Aggregator of digital media content
– Music
– Video
– Books
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•
•
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White label business model
Name-brand global customers
Low margins
Business strategy – go direct to consumers?
15
Digital Media Company (cont.)
• Decision
• Outcome
• Where is company today?
16
Payment Software Company
• High volume, high available transactions
– Banking/ATMs
– Retail
– Credit card systems
•
•
•
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High price point, long sales cycles
Significant implementation
Global market opportunity
Business strategy – go global; if so, how to
structure international organization?
17
Payment Software Company (cont.)
• Decision
• Outcome
• Where is company today?
18
SaaS Company
• Vendor management software solution
– Temporary labor
– Complex service management
– Compliance management
•
•
•
•
•
Modular sales
Web-based solution
Moderate sales cycle
Fortune 2000 customers
Business strategy – should company move downmarket?
19
SaaS Company (cont.)
• Decision
• Outcome
• Where is company today?
20
Financial Security Software Company
• Network security software solution
– Credit unions
– Small banks
– Thrifts
• New financial regulation would require
significant product upgrade
• Business strategy – invest in the product or
change industry verticals?
21
FinSec Software Company (cont.)
• Decision
• Outcome
• Where is company today?
22
Online Real Estate Brokerage
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•
•
•
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Democratization of information for consumers
Easier customer acquisition for realtors
Ability to expedite real estate transaction cycle
Regional focus (Southeast)
Additional revenue opportunities
– Mortgage
– Title
• Great financial crisis impacts business
• Business strategy – merge, expand geographies,
change business model, shut down?
23
Online RE Brokerage (cont.)
• Decision
• Outcome
• Where is company today?
24
Investment Philosophy
Investment Philosophy
• Efficient Markets
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Take advantage of efficiencies
Low cost, commodity, economies of scale
Index strategies
Examples
• Inefficient markets
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Don’t follow the herd (very difficult to do)
Benefits of active management
Focus on independent/focused managers
Examples
26
Investment Philosophy (cont.)
• Investment management firms
– Public vs. private
– Multi-strategy vs. single strategy
• Investment strategies
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Public vs. private
Liquidity premium
Locking up capital
Should you be a contrarian
• Get beta right, importance of
– Asset allocation
– Rebalancing
– Monitoring expenses (don’t pay alpha fees for beta)
27
Investment Process
• Starts and ends with the board
• Strategies must fulfill objectives of investment
policy statement
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Identify strategies
Identify source of capital
Within attractive strategies, research managers
Visit managers and conduct diligence
Presentations to Board
Role of attorneys and investment consultants
• Monitoring as important as initial investment
28
PERA Strategic Framework
Fund Objectives
Asset Allocation:
Drives 90% of the variation of a portfolio’s
return
Investment Structure:
Drives 5-7% of return
variation
Manager Selection:
Residual return
29
PERA Strategic Framework (cont.)
Step 1:
Asset
Allocation
Step 4:
Monitoring
&
Evaluation
Risk
Management
is Central
Step 2:
Investment
Structure
Step 3:
Manager
Selection
30
Q&A