A portfolio manager's insights on investing for endowments and foundations

Can you tell us a little bit about your background and how that informs your role at Fidelity Investments?

My background spans bottom-up valuation analysis, manager research across both traditional and alternative asset classes, asset allocation and portfolio construction, and sustainable investing. I could not have predicted that all my prior roles over the past twenty years would have prepared me so well for my current responsibilities as a portfolio manager for institutional solutions. I feel very fortunate to have had such great training and rich investment experience in my roles prior to Fidelity. 

The entrepreneur gene runs in my family, so Fidelity’s initiative to further grow their institutional solutions business was immediately appealing to me. And when I learned that I would have the opportunity to work more closely with nonprofit organizations, I was especially excited to support their missions.

Before joining Fidelity, I was careful to do my homework on the organization. I determined that Fidelity had all the ingredients to be successful and I was pleased to know that Fidelity was committing resources to grow. Since joining the firm, I have been impressed not only by the firm’s willingness to invest in the institutional solutions business, but also in the quality and breadth of the firm’s broader resources. I feel like I am a kid in a candy shop.

That brings us to what you are doing currently, managing portfolios for endowments and foundations. Can you provide some context about investing for nonprofits? How do these organizations differ from other clients?

Nonprofit portfolios tend to have similar investment objectives—to generate returns to support their ongoing operations and/or grants while also preserving capital over the long term. While their return objectives are often similar, their willingness and ability to take on risk and illiquidity can vary, as can their preferences for investing more traditionally versus sustainably, or more active versus passive.

We tend to see smaller or newer nonprofit organizations invest more conservatively, opting to prioritize capital preservation and liquidity—even if it means sacrificing some return over the long term. As nonprofit organizations mature and have a better ability to forecast their ongoing fundraising and spending needs, we see greater willingness to take on more risk via more equity exposure and less-liquid alternative exposure.

One of my favorite features of Fidelity’s nonprofit outsourced chief investment officer (OCIO) offering is our ability to meet nonprofits’ where they are—we can tailor portfolio designs to accommodate different risk and liquidity preferences, and then we can evolve the portfolio design over time as nonprofit spending and liquidity needs change over time. 

Nonprofits are often unique from other institutional clients in that they are created to have a perpetual life. When a nonprofit’s corpus is meant to support many generations to come, they must be mindful of the impact inflation can have on their wealth. If nonprofits’ portfolios cannot generate returns that offset both their spending needs and inflation, their corpus (and long-term impact) will be eroded over time. For this reason, nonprofits must ensure that their portfolios are structured to navigate a variety of market and inflation cycles.

Can you describe your vision for investing in this space? How does Fidelity bring together its broad set of capabilities, including forward-looking research and active management, to find investment opportunities?

When investing for nonprofit organizations, we aim to develop an investment portfolio that can weather a variety of market conditions to ensure we preserve their real wealth over time. To do so effectively, we believe our investment strategy must be well diversified across asset classes, regions, managers, and investment styles. And when implementing each of these exposures, we often invest with specialized investment teams who have demonstrated an ability to pick securities that outperform broad markets.

The Fidelity investment platform is well suited for these ambitious objectives and broad remit. With expertise on strategic asset allocation, quantitative modeling, both macro and fundamental research, technical research, and manager research, we have a wealth of knowledge to tap into when managing our client portfolios. We incorporate all these research inputs together in our structured investment process to build a portfolio comprised of our highest conviction investment ideas.

Relative to our competitors, our approach may be unique in our flexibility—we are truly able to invest across time horizons, investment disciplines, and alpha sources, allowing us to capitalize on a wide investment opportunity set. We believe this improves our ability to better navigate across market environments over time.

Another differentiator is implementation. Unlike some other firms, Fidelity is an open architecture model, so we can invest across asset managers. We are not limited to investing only in Fidelity's products. Rather, we invest in high-conviction managers regardless of which firm they happen to work for.

To the extent clients are interested, we also have investment expertise and significant research in alternative investing (including liquid alternatives, hedge funds, and privates), as well as sustainable investing. We can provide education around the potential trade-offs associated with these types of investments and can tailor our implementation to include these exposures as well.

How is Fidelity's approach to working with nonprofits differentiated from a client's point of view?

We strive to be the trusted partner to resource-constrained nonprofit organizations. Our services reach farther than just ongoing investment management. We engage regularly with our clients—in the early days to create an investment policy statement (or review an existing IPS) and determine the most appropriate portfolio design to meet each client’s needs. Our investment team meets with clients on a regular basis—often quarterly—to provide updates on the investment portfolio and our market outlook.

We also provide strategic asset allocation and spending policy reviews on an annual basis. Aside from these portfolio-specific services, we also offer our nonprofit clients ongoing thought leadership, custody services, and philanthropic consulting services. Philanthropic consulting is an especially popular offering with our smaller and midsize clients, as they provide strategic advice on non-investment related matters such as board governance, fundraising and grant strategy, and other critical topics to nonprofit organizations.