Alpha Edge Recognition - Real Assets
This year, Allocator Intel is recognizing leaders in the allocator community, acknowledged by their peers, for exceptional leadership in the key areas of portfolio construction in the Alpha Edge Recognition Awards.
Caixia Ziegler, nominated for Real Assets, is Managing Director of Real Assets and Sustainable Investments at the John D. and Catherine T. MacArthur Foundation in Chicago. Caixia started her investment career at United Technologies Corporation’s pension investment department as an equity analyst, followed by almost 10 years at the National Railroad Retirement Investment Trust where she built a global real asset portfolio from the ground up. She assumed her current role at the MacArthur Foundation after three years as Head of Real Estate at the Ford Foundation.
At MacArthur, Caixia has restructured its real estate portfolio through a secondary sale and has successfully rebuilt the portfolio. To further align the investment portfolio with MacArthur’s core values of diversity, equity and inclusion, she has increased investments with diverse managers and started to build a newly-created sustainable portfolio – alongside strong performance.
The following is edited for length and clarity.
Let’s start with you sharing an overview of your role
I’m responsible for three portfolios: real estate, natural resources, and sustainable investments. Our real estate portfolio is diversified across markets and property sectors, including multifamily, industrial, digital infrastructure, and hospitality.
We’re no longer investing in fossil fuels, so our natural resources portfolio will be liquidated over time.
In its place, I have started building a sustainable portfolio focusing on energy transition and decarbonization opportunities, to increase our alignment of our portfolio with our mission, which is to make the world more just, verdant and peaceful.
What have been some of the more significant challenges over the last year?
I would say there are two things: First, the turnaround of our real estate portfolio. When I joined the foundation in May 2017, I inherited a portfolio that underperformed for various reasons. After several months of intense work and internal debate, I sold half of our real estate portfolio in June 2018. We took a very small discount, and the market valuation at the time was pretty strong, so I counted that as a win. The portfolio I inherited had over 50% of international investments, including emerging markets, and we also had a lot of diversified managers; I changed our strategy to invest mostly with U.S. sector specialist managers: We are fortunate to have been able to identify and invest with some of the best real estate managers, which allowed us to generate strong absolute and relative performance.
The second is increased alignment of our investment portfolio with our Foundation’s mission and core values, and that includes increasing investments with diverse managers, as well as allocating capital to investments that enable climate solutions while generating strong risk adjusted returns. We are quite energized about the tremendous opportunities we see in the energy transition and decarbonization space and are working very hard to build our new sustainable portfolio across the risk and return spectrum.
What factors influence you most when evaluating opportunities in your investment space?
It’s a combination of manager selection and market opportunity evaluation. We tend to invest with a manger when they are hungrier and more motivated to generate a strong performance. We start with someone with a successful track record in executing their target investment strategy. It doesn’t have to be a long track record, but there needs to be enough data points for us to do our due diligence. We study their deal memo and analyze their operating performance to understand how they create value and generate strong results. We also focus on managers who exhibit strong investment discipline and have strong alignment of interests with investors.
On the market side, we do research on the opportunity set and try to validate what the managers are saying. We benefited from having allocated most of our capital to the multifamily, industrial, and digital infrastructure space, as we believed that favorable supply and demand dynamics existed in those sectors. During Covid, we committed to a couple of funds focusing on the hospitality space. as there were attractive opportunities to acquire assets at deep discounts.
Let’s talk about how you go about sourcing managers
We source managers from various channels, mostly off market through our network of relationships and our own research, but sometimes, attractive managers also come from placement agents. One of my best managers came from a placement agent who worked very hard to get us an allocation. I found some of my best managers by reading industry news and cold calling them.
Having strong relationships with like-minded investors has been very helpful, too. It requires a lot of proactive efforts.
What are some of the investment opportunities you’re forecasting in the next 12 to 18 months?
The combination of a slowing economy, high interest rates, and lack of debt capital – and significant amount of debt maturities – could translate to increased distressed opportunities in real estate in the next 12 to 18 months. I continue to like digital infrastructure because I believe there are secular tailwinds in the space. Retail has been out of favor for a long time, and the space may have bottomed, so there could be attractive opportunities there. I think hospitality is interesting, too, you can still buy hotels at deep discount and there is a lot of pent-up demand for travel and leisure.
Another area where I’m spending a ton of my time is building our sustainability portfolio. We believe there are secular tailwinds in global energy transition and decarbonization, and there are a lot of opportunities for skilled managers to invest and generate strong risk adjusted returns for investors.
What are some of the challenges that you anticipate?
I think the challenges are relating to what I said about the market: The market could become more challenging if high interest rates persist and the economy weakens significantly from here.
What would you say is your office’s greatest accomplishment since you joined?
The greatest is the turnaround of our real estate portfolio. When you have a portfolio with a lot of private commitments, it is like turning around a big ship, but we have done it and our performance is very strong.
The other thing is we have been able to make significant progress in improving diversity, equity, and inclusion across the board. We have a highly diverse investment team and we have increased investments with diverse managers while generating strong performance.
What do you spend your spare time doing?
I have two teenage kids, so I spend lots of time chauffeuring them to their activities, but what little time I have, I enjoy reading and running: I have done 16 marathons to date, and I plan to do more. It takes a lot of time, but I use that time to think, and I enjoy doing that.
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