AlphaEdge Recognition - Diversifying Strategies Portfolio Construction
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.
Nominated for Diversifying Strategies Portfolio Construction Recognition, Mark Baumgartner is Chief Investment Officer at the $4 billion Carnegie Corporation of New York. Based in New York City, he has reinforced a robust culture around the fund’s mission of peace, democracy, and education, built a new investment team, and repositioned the portfolio to incorporate more alternatives in a remote work environment.
Mark studied aerospace engineering at the University of Florida, where he received a Bachelor of Science and Arts degree, and Princeton University, where he completed his Ph.D. in mechanical and aerospace engineering. Prior to his role as CIO at Carnegie, he spent four and a half years as Director of Asset Allocation and Risk at the Ford Foundation in New York and seven years as CIO at the Institute for Advanced Study in Princeton, New Jersey.
The following is edited for length and clarity.
Can you share an overview of what your portfolio looks like today?
We’ve taken a simplified approach to designing our portfolio across the two major risk dimensions of equity beta and illiquidity. Meaning we’ve got exposure to public and private equity and what we call very generally public and private diversifiers.
In the past, “public diversifiers” meant fixed income, but we don’t have a lot of fixed income in the portfolio because we think we can find much higher returns from uncorrelated hedge funds that still offer adequate liquidity for our needs. “Private diversifiers” is everything that is non-equity and less liquid. It runs the gamut from real estate and private credit to more esoteric investments like special-situation hedge funds and reinsurance funds.
What have been the most significant changes over the last few years?
It has been a period of incredible change. If I had to pick one thing, I’d highlight what has happened to the investment team over the past couple of years. Over the past two years, nearly the entire team is different: Most of the prior team left the corporation in the 2020-21 timeframe to move on to bigger roles, and most of the current team arrived in the 2021-22 timeframe, so even the team members who have stayed have been irrevocably changed!
We have a total of 14 people now, 12 of whom joined in the last two years. It’s been an incredible period of change. One mitigating factor is that I’ve been fortunate to have worked with many of the current team in the past, so there has been a good base of alignment on investment philosophy!
What factors influence you most when evaluating opportunities in your investment space?
Risk literacy and strong risk management practices are really at the heart of what we seek in all of our managers. We are much less concerned with historical performance and much more concerned with how future returns will be achieved.
We believe managers with a great risk discipline will be much more apt to sustain themselves and their performance in the long term.
When looking to form a strategic partnership with an asset manager, what are the key areas on which you focus?
Flexibility and the ability to customize the portfolios for our particular objectives are two key aspects we focus on with managers we seek to form strategic partnerships with. If we can improve both diversification and capital efficiency through a custom implementation, we’ll have a better chance of achieving our goals.
What investment opportunities are you focusing on over the next 12 to 18 months?
We don’t really invest thematically, but that said, it’s hard to ignore how attractive the outlook is for investments in high-growth economies outside the U.S.
In terms of asset classes, we are looking at private credit and other private diversifiers to help us find great returns that offer better liquidity profiles than PE or venture and/or don’t depend heavily on macro factors.
What challenges do you anticipate for your team over the next few years?
We’ve just finished the rebuild of our investment team: Our last remaining position was filled in June. The challenge now is getting this new and talented team aligned with our culture and objectives, and training and transferring knowledge to our newest team members.
What would you say is your office’s greatest accomplishment since you joined?
I’d have to say (a bit tongue-in-cheek) that keeping our sanity and good attitude has been our greatest accomplishment. Weathering all of the massive changes that have occurred in the last two and a half years — from needing to rebuild a team in a remote work environment, dealing with the loss of our former President, Vartan Gregorian, and working rapidly to actively reposition the portfolio for the coming environment (all the while very thinly staffed!) — have all been huge challenges to overcome.
I am proud of how this team has risen to those challenges and has remained supportive of each other and in (generally) good spirits! It’s a group that understands and values “flow” — that feeling of being “in the zone” even in a tough environment — and the Corporation’s trifold mission of peace, democracy, and education motivates and inspires us to work hard.
What do you like to spend your time doing?
I have been blessed with three sons who I enjoy spending time with. I have also been playing more golf since the technology to play indoors and improve my game has gotten so much better in recent years. Sadly, there is not (yet) an intersection on the Venn diagram of “golf” and “what my sons enjoy,” but hope springs eternal.
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