Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with Ashley Baum, CFA, recognized in the category of Most Influential Women in Investment Management.
Ashley joined the Teacher Retirement System of Texas (TRS), a $202 billion public pension fund, in 2007 as a Senior Investment Associate in the Private Markets group to help start their private equity co-investment program, before being asked in 2010 to serve as Chief of Staff to then-Chief Investment Officer Britt Harris. In 2013, Ashley identified and founded a new investment area for TRS, Special Opportunities, where she has led its development and expansion the last 11 years, deploying over $17 billion in the process.
She is a graduate of The University of Texas at Austin, where she received her Bachelor of Business Administration and Master of Public Accounting. During her Bachelor of Business Administration course in Business Honors & Accounting, she worked as a Policy Intern for the Democratic Caucus Leadership office in the U.S. House of Representatives; while she earned her master’s degree, she was an Audit Intern at Deloitte and Ernst & Young in San Francisco. Following graduation, she was selected as a Postgraduate Technical Assistant at the Financial Accounting Standards Board (FASB) and then spent a year as Senior Associate in Transaction Services at PricewaterhouseCoopers LLP in San Francisco before relocating back to Austin for love (her now husband, Dave).
In her current role at TRS, she oversees the cross-asset class Special Opportunities portfolio, which she built from scratch inside a state agency. Leading a team of eight investors, she evaluates individual co-investment ideas and thematic opportunities and designs and establishes investment platforms to leverage the Trust's competitive advantages.
The following has been edited for length and clarity.
What is the biggest challenge facing the industry today?
The introduction of retail capital to private investments puts a tremendous amount of pressure on the industry. Generally, the more money flows into a market, the lower the resulting returns. The large managers putting together these high-net-worth or retail products tend to be focused on management fees and less on performance fees.
The lack of alignment is a very big challenge. When you have thousands of investors who don’t have a way to negotiate the terms, there are double layers of fees (an advisor fee often on top of the product fee), and the liquidity is onerous, that should invite concern from the SEC and other regulatory agencies.
What part of your portfolio are you most excited about?
Today, the most exciting strategy is definitely capital solutions: It’s the rescue/restructuring opportunity. There is a massive need in the next few years to solve problems for companies or real estate properties that are over-levered or need capital. This presents tremendous opportunity if you’re in the right managers or you have capital to solve problems, and we’re spending a lot of time looking at these situations.
Watch out for Liability Management Exercises: They are breaking the traditional assumptions about capital structures due to either loose or a lack of covenants in the legal agreements. The games being played are understandable but also concerning. As an opportunistic investor who does not have to invest in loans, we are trying to understand how to really assess the risk in investing there because three years ago, no one thought that what was happening today would occur. I’d like to see these gaps in loan documents closed but with so much money chasing loans, it hasn’t happened yet.
Who were your mentors, and what made you get into this space?
There are too many mentors to mention really! Britt Harris, the CIO of Texas Teachers for 10 years, was clearly a strong mentor (and tough boss!), and there have been so many others who have helped and guided me on my way, including then-Deputy CIO Lee Partridge who encouraged me to embrace the uniqueness of a generalist career path by expanding to real estate and infrastructure, and a brilliant Physics PhD, Mohan Balachandran, who now heads up Texas Teachers’ Multi-Asset Strategies team, who advocated and supported me building Special Opportunities and still challenges me today. Most recently, Dale West, Head of Public Markets at TRS, has given me a lot of mentorship on growing and scaling the team even further. Several investors at manager firms have also been impactful to me, far beyond the returns they deliver, but I won’t name them individually for obvious reasons.
I have always been opportunistic, so not having a set career in mind allowed me to be open-minded to learning new things. There’s always something to learn and analyze and think about, so investments has worked really well for my personality long-term. I’m never bored, that is for sure!
If you weren’t in this space, what would you be doing?
I would be renovating historic homes. I would love to do that. I wanted to be an architect when I was growing up: Designing spaces, imagining possibility, and shaping options is what I find really interesting.
My parents were liberal arts majors, and they refused to pay for school unless I started in the business school. They said, “If you absolutely hate it, we’ll let you transfer.” when I went to transfer, practicality kicked in (I think my dad knew this would happen), and I realized how long it would take to redo all my math and science classes, but I’d still love to study architecture. Maybe I’ll do that someday. On my geekier days, I joke that what I do now isn’t that far from architecture – designing and creating investment programs to build an investment outcome. Although with my opportunistic bent, it is more like a modular building with wings and structures that keep changing.
What is the one thing you’d like to change about this industry?
I would say the entitlement and hubris of some people who work for the managers and the lack of recognition of whom the underlying beneficiaries are. On average, when teachers retire, they will be receiving under $2,100 a month. Some of the people in our industry spend more than that on eating out in a month. I don’t think there is enough focus on who they’re serving; if they were focused, there’d be less ridiculous expense pass-throughs (internal legal and accounting, for one).
The industry no longer operates on the old adage that “a management fee is to break even,” and an incentive fee is set so the managers “make money when the investor makes money.” Management fees are completely a profit center for many firms, and they are losing the concept that they are there to deliver great returns, not services. The underlying capital the managers are allowed access to are the savings of normal people who will never make the kind of salaries or have the kind of perks that managers feel entitled to when I’m negotiating legal agreements. I don’t want to come across as too negative. Managers are an essential part of our system, and we are happy for them to be well paid, but only when they outperform. They shouldn’t amass amazing wealth without delivering for the underlying clients. I wish I heard more managers say, “I work for teachers and firefighters, and people who make under $70,000 a year,” instead of their name brand firm.
I also wish there were universal pension access. It would be a massive thing. I think it’s unfortunate that most pensions moved away from a defined benefit to a defined contribution system. Everyone should have access to a DB plan because that’s what lets you take illiquidity and pool longevity risk and think longer term. Asking people to invest on their own or from a menu is an unfair proposition.
At the end of the day, investing is about people: It’s about taking care of people.
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