The Long-Term Investor at Penn State
Sonali Dalal is the Deputy CIO of Penn State University, which ranks amongst the 30 largest Colleges and Universities in the United States. Over the past 18 years, she has been an integral part of how the Long-Term Investment Pool grew from $900 million to $6.2 billion. “The portfolio has done very well over the last 20 years; there is a great Penn State community that has contributed to its success – it is a team effort: investment group, operations group, fundraising officers, very loyal alumni, among others.” As the head of a six-person investment team reporting to the CIO, Sonali plays a key role in the pool’s performance. The pool has generated annualized returns of 10.1% and 8.3% over last 10 and 20 years respectively (Fiscal Year ended 2021).
In thinking about investing, Sonali calls herself “an unapologetic equity investor. Both public and private equity, I believe, have created long-term value for institutions. Long-term is important: I don’t think there is any other asset class that generates high returns over a 20- to-25-year period, so that’s my go-to piece.” Within that context, there isn’t any one way to invest. She believes in “diversifying the portfolio as a whole, not just based on asset classes, but also on underlying managers’ thought process, how different strategies come together, and how they work in different environments.”
If equity is one tent pole of the portfolio, liquidity is another. Sonali says “focusing on cash flow is probably one of the most important things I have done.” She makes sure that there is enough cash available. “One of the things that I am most proud of is the way we handled a large and mature private portfolio before and after the Global Financial Crisis. We were not over-committed, and that allowed us to continue with our commitments. Some of the best results are generated from those vintage years.”
Sonali doesn’t shy away from admitting mistakes. Her worst decision was to continue committing to real estate in the 2004-2006 period. “We knew everything that was going on, on the residential side, but research indicated that there was no oversupply on the commercial side. However, the demand just evaporated, which crashed the commercial real estate market. Thankfully, none of the funds blew up (We got all the money back), but returns generated were below my expectation.” Since then, “if there is overleverage and/or overvaluation in one asset class, I am sensitive towards adjacent asset classes that may get involved in any kind of unwind.”
Since joining the endowment 18 years ago, Sonali has seen a number of changes in the portfolio – and in the social setting. Early in her tenure, she recalls, “In most meetings, I was the only woman in the room, and the only woman of color; I am really, really happy to see that is not the case today. But what was always there, and still is to a large extent, is that there are more women leaders in non-profit organizations than in for-profit. I believe that women bring a lot of value to an organization. If you add a few women to a team of men, I assure you, you will get a better decision-making process. I believe that diversity produces better outcomes.”
In reflecting on her own career, she says, in her earlier years, “I should have networked more, and I think the hesitation came from growing up as a woman in India. I came from a culture where women are brought up to be submissive. That was back in the ‘80s. Obviously, things have changed, all for good, but it is that deep-rooted thinking that I’ve always had to overcome.”
She adds, “it really helps to have role models and mentors like Linda Strumpf – who stand up and speak their mind everywhere, especially in investment committee meetings – it allows one to be their authentic self.” Strumpf, the former CIO of both the Ford Foundation and The Leona M. and Harry B. Helmsley Charitable Trust, is a Penn State graduate and a former member of its Board of Trustees.
Sonali grew up in India. She earned her undergraduate degree in commerce and economics from University of Mumbai (known earlier as University of Bombay), followed by the Chartered Accountancy certification (CPA equivalent). Prior to Penn State, she spent time working in India with an accounting firm, a local investment banking firm, and the Export Import Bank of India.
These three jobs served as a finishing school: “The accounting really set up a good foundation to read financial statements; investment banking gave me really good insight into valuation; and then the middle-market corporate lending work basically set my risk management parameters. Nonetheless, I knew I wanted an MBA from USA.” She got her MBA in 2003 from Penn State, joined the investment office after graduating, earned the CFA certification, “and the rest is history.”
Today, Sonali lives in Newtown Square, a suburb of Philadelphia, PA. Despite a busy schedule, she has several outside interests. “I love golf. When I feel very good about myself, I go and play a round of golf. It is always a very humbling experience.” She also enjoys traveling: “The last couple of years have been crazy due to Covid, but I can’t wait to get back on the road.”
She’s an avid reader of nonfiction: “Malcolm Gladwell is one of my favorite authors; I’ve read all his books. She is also particularly devoted to writings of Howard Marks, co-founder and co-chair of Oaktree Capital Management. As Sonali sees it, the Marks mantra is, “‘Think about long-term; think in cycles.’ That’s how I think about investing: It’s not about the latest fad; it’s about what’s sustainable over a long period of time.” She also shares Marks’s concern about sustainable cash flows, adding that Marks is “tremendous: I’ve met him several times, and I think the world of him.”
Sonali adds that spirituality is another force that guides her thinking: “I think it’s important to practice spiritual mindfulness – especially when stressed – mindfulness can take you to that next level.”