The Climb to Investment Excellence
A Practitioner's Guide to Building Exceptional Portfolios and Teams
1. Edition November 2023
224 Pages, Hardcover
Wiley & Sons Ltd
ISBN:
978-1-394-20669-8
John Wiley & Sons
A go-to resource for institutional investors and asset allocators seeking practical advice from a proven leader in the field
InThe Climb to Investment Excellence: A Practitioner's Guide to Building Exceptional Portfolios and Teams, celebrated institutional investor and asset allocator Ana Marshall draws on her 36 years' experience in finance and investment to deliver a comprehensive and practical blueprint for a resilient and high-performing institutional portfolio, as well as a reliable roadmap for the management of its stakeholders.
You'll discover ready-to-deploy strategies and advice that's informed by evidence and tried and tested in the real world, helping you to build and manage your team, construct a portfolio, set your goals, select the right managers, and more.
You'll also find:
* Explorations of three themes that consistently define the careers of successful investors and asset allocators: strategy and planning, trust, and risk management
* The critical factors every investor and allocator should consider before making any sort of impactful decision
* Examinations of the importance of resilience in the face of bad fortune or mistakes
A can't-miss resource for institutional investors and asset allocators, The Climb to Investment Excellence will also benefit board members tasked with overseeing their organizations' investment objectives and performance in a volatile and ever-changing market.
(There is no workbook that goes alongside this book.)
Prologue xiii
Part I: Base Camp - The Adventure Begins 1
Preparing for Base Camp: The must-read chapters to maximize the probability of success
1 Identifying the Summit 5
Setting the Investment Objective 6
Understanding Constraints and Payout 8
Various Approaches to Policy Portfolios 11
Risk Tolerance 13
Time Horizon 16
2 Defining Governance Responsibilities 19
Delegation of Authority 20
Extent of Delegation 21
Governance 25
Assembling the Team 26
Transparency into the Investment Process 30
Settling in at Base Camp: Expanding the toolbox to refine the skill set and broaden the options in the face of changing conditions
3 The Subtlety of Public Markets 35
The Role of Public Assets 36
Capturing Growth in Public Equities 37
Nuances of Fixed Income 41
Hedge Funds Are an Essential Tool 43
4 Perspectives on Private Markets 47
The Role of Private Investments 48
The Illiquidity Premium 51
Duration of Investment Holding Period 52
Leverage 53
Traditional Fund Structures 54
Alternative Fund Structures 54
Reconciling Performance 57
Part II: The Excitement of the Climb 61
From Base Camp to First Camp: Asset Allocation; Developing the road map for the expedition
5 Developing a Policy Portfolio 65
Capital Market Assumptions 66
Optimizer Constraints 70
The Cloud of Efficiency 73
Creating the Policy Portfolio 74
Range of Possible Outcomes 76
Stress Testing 76
From First Camp to Second Camp: Portfolio Management; The art of adapting to the constantly changing landscape
6 Portfolio Construction 85
Selecting Market Beta Exposure 86
Diversification of Alpha Sources 86
Designing Asset Class Strategy 87
Philosophy of Concentration versus Diversified Managers 87
Sizing of Managers 88
Reassessing Sizing 89
Rebalancing Ranges 90
Internal Process 91
Exogenous Risks 93
7 Active Risk 95
Measuring Active Risk 95
Size Limitations to Active Risk 97
Setting Expectations of Annualized Alpha 98
8 Portfolio Hedging 99
Active Hedging Strategy 101
Volatility Management Strategy 104
Alternatives to Hedging 106
9 Liquidity Management 109
Illiquidity Tolerance 110
Unfunded Commitments 112
Modeling Portfolio Cash Flows 113
10 Secondaries 115
Tool in Active Portfolio Management 115
Selection of a Secondary Agent 117
Constructing a Portfolio for Sale 118
Risk Management Benefits versus Cost 120
11 Benchmarks 123
Benchmark Design Options 124
Benchmark Selection 127
Testing the Benchmarks 127
Making Changes to Benchmarks 128
From Second Camp to Third Camp: Manager Selection; Selecting your partners for the climb, trusting your instincts, and learning when to quit with grace
12 Manager Selection 131
Evolution of Manager Selection 132
Setting the Bar 133
Refining the Skills Needed on the Team 134
Due Diligence Process Design 134
Manager Diligence and Selection Process 135
Sizing the Investment 139
Monitoring the Portfolio 140
Identifying Biases in Mature Portfolios 141
Knowing When to Quit 143
Part III: the Summit in View 147
Reaching for the Summit: Managing Stakeholders; The most dangerous part of the climb
13 Managing the Team 153
Team Culture 154
Team Structure 155
Decision-Making Process 156
Size and Skills of Team 157
Leadership 158
Designing an Incentive Plan That Works 160
14 Managing Up 165
Developing Trust with the Board 166
Transparency in Reporting 167
15 Managing Relationships with Fellow Investors 171
Developing True Partnership with GPs 172
Approaches to Diversity, Equity, and Inclusion 174
16 Managing the Self 179
The Value of Integrity, Emotional Intelligence, and Values 179
Honing the Competitive Edge 181
Glossary 187
Index 189
Part I: Base Camp - The Adventure Begins 1
Preparing for Base Camp: The must-read chapters to maximize the probability of success
1 Identifying the Summit 5
Setting the Investment Objective 6
Understanding Constraints and Payout 8
Various Approaches to Policy Portfolios 11
Risk Tolerance 13
Time Horizon 16
2 Defining Governance Responsibilities 19
Delegation of Authority 20
Extent of Delegation 21
Governance 25
Assembling the Team 26
Transparency into the Investment Process 30
Settling in at Base Camp: Expanding the toolbox to refine the skill set and broaden the options in the face of changing conditions
3 The Subtlety of Public Markets 35
The Role of Public Assets 36
Capturing Growth in Public Equities 37
Nuances of Fixed Income 41
Hedge Funds Are an Essential Tool 43
4 Perspectives on Private Markets 47
The Role of Private Investments 48
The Illiquidity Premium 51
Duration of Investment Holding Period 52
Leverage 53
Traditional Fund Structures 54
Alternative Fund Structures 54
Reconciling Performance 57
Part II: The Excitement of the Climb 61
From Base Camp to First Camp: Asset Allocation; Developing the road map for the expedition
5 Developing a Policy Portfolio 65
Capital Market Assumptions 66
Optimizer Constraints 70
The Cloud of Efficiency 73
Creating the Policy Portfolio 74
Range of Possible Outcomes 76
Stress Testing 76
From First Camp to Second Camp: Portfolio Management; The art of adapting to the constantly changing landscape
6 Portfolio Construction 85
Selecting Market Beta Exposure 86
Diversification of Alpha Sources 86
Designing Asset Class Strategy 87
Philosophy of Concentration versus Diversified Managers 87
Sizing of Managers 88
Reassessing Sizing 89
Rebalancing Ranges 90
Internal Process 91
Exogenous Risks 93
7 Active Risk 95
Measuring Active Risk 95
Size Limitations to Active Risk 97
Setting Expectations of Annualized Alpha 98
8 Portfolio Hedging 99
Active Hedging Strategy 101
Volatility Management Strategy 104
Alternatives to Hedging 106
9 Liquidity Management 109
Illiquidity Tolerance 110
Unfunded Commitments 112
Modeling Portfolio Cash Flows 113
10 Secondaries 115
Tool in Active Portfolio Management 115
Selection of a Secondary Agent 117
Constructing a Portfolio for Sale 118
Risk Management Benefits versus Cost 120
11 Benchmarks 123
Benchmark Design Options 124
Benchmark Selection 127
Testing the Benchmarks 127
Making Changes to Benchmarks 128
From Second Camp to Third Camp: Manager Selection; Selecting your partners for the climb, trusting your instincts, and learning when to quit with grace
12 Manager Selection 131
Evolution of Manager Selection 132
Setting the Bar 133
Refining the Skills Needed on the Team 134
Due Diligence Process Design 134
Manager Diligence and Selection Process 135
Sizing the Investment 139
Monitoring the Portfolio 140
Identifying Biases in Mature Portfolios 141
Knowing When to Quit 143
Part III: the Summit in View 147
Reaching for the Summit: Managing Stakeholders; The most dangerous part of the climb
13 Managing the Team 153
Team Culture 154
Team Structure 155
Decision-Making Process 156
Size and Skills of Team 157
Leadership 158
Designing an Incentive Plan That Works 160
14 Managing Up 165
Developing Trust with the Board 166
Transparency in Reporting 167
15 Managing Relationships with Fellow Investors 171
Developing True Partnership with GPs 172
Approaches to Diversity, Equity, and Inclusion 174
16 Managing the Self 179
The Value of Integrity, Emotional Intelligence, and Values 179
Honing the Competitive Edge 181
Glossary 187
Index 189
"Institutional pools of capital are among the least understood and most important investment pools in the world. After nearly four decades in the trenches, half as a direct investor and half on the buy side of the buy side, Ana deeply understands the investment process employed by institutional Chief Investment Officers. In The Climb to Investment Excellence, she shares both the building blocks of how it all works and her unique insights into each aspect of the process. Her work is a must read for those seeking to understand how this opaque corner of the investment world operates."
-Ted Seides, Capital Allocators
"Ana Marshall's book is required reading for anyone managing money or anyone looking to learn how to become an excellent investor--or simply looking to be inspired by the idea of investing well and doing good with it. Ana does a great job in distilling complex subjects into actionable decisions, as well as provide valuable insights on themes not normally covered well in books on investing--the importance of relationships with boards, committees, investment managers, and her team cannot be understated."
-James Manyika, SVP Google-Alphabet, Chair and director emeritus, McKinsey Global Institute
"Ana demystifies long-term investing by sharing both her direct experience and the intelligence she has gathered over the last 20 years as a successful practitioner. This book is essential reading for anyone involved in a voluntary or professional basis managing long term pools of capital. There is a chapter for everyone: trustees, board/committee members, fellow CIOs and their team members. Also highly recommended reading for General Partners and investment managers who manage non-profit money, it provides deep insight into the governance and investment practices of their investors enabling both to build stronger partnerships."
-Sandra Robertson, CEO and CIO Oxford University Endowment Management
"This is a 'must read' book for investment committee and board members responsible for overseeing large sums of capital and setting the standards to achieve excellence. Very few investment professionals have been as thoughtful about the investment process as Ana. Add to that her innate ability to join the dots from disparate pieces of information and data, and you have the winning performance she has demonstrated."
-Boon Hwee Koh, Board Member GIC and Singapore Stock Exchange
"A clear and practical roadmap for the next generation of fiduciaries and investors."
-Marc Andreessen, Co-Founder and General Partner Andreessen Horowitz
-Ted Seides, Capital Allocators
"Ana Marshall's book is required reading for anyone managing money or anyone looking to learn how to become an excellent investor--or simply looking to be inspired by the idea of investing well and doing good with it. Ana does a great job in distilling complex subjects into actionable decisions, as well as provide valuable insights on themes not normally covered well in books on investing--the importance of relationships with boards, committees, investment managers, and her team cannot be understated."
-James Manyika, SVP Google-Alphabet, Chair and director emeritus, McKinsey Global Institute
"Ana demystifies long-term investing by sharing both her direct experience and the intelligence she has gathered over the last 20 years as a successful practitioner. This book is essential reading for anyone involved in a voluntary or professional basis managing long term pools of capital. There is a chapter for everyone: trustees, board/committee members, fellow CIOs and their team members. Also highly recommended reading for General Partners and investment managers who manage non-profit money, it provides deep insight into the governance and investment practices of their investors enabling both to build stronger partnerships."
-Sandra Robertson, CEO and CIO Oxford University Endowment Management
"This is a 'must read' book for investment committee and board members responsible for overseeing large sums of capital and setting the standards to achieve excellence. Very few investment professionals have been as thoughtful about the investment process as Ana. Add to that her innate ability to join the dots from disparate pieces of information and data, and you have the winning performance she has demonstrated."
-Boon Hwee Koh, Board Member GIC and Singapore Stock Exchange
"A clear and practical roadmap for the next generation of fiduciaries and investors."
-Marc Andreessen, Co-Founder and General Partner Andreessen Horowitz
ANA MARSHALL is Chief Investment Officer for the William and Flora Hewlett Foundation. She manages a $13 billion investment portfolio and has over 36 years of experience as an institutional investor and allocator. Ana co-teaches a course on asset allocation and portfolio management at Stanford Graduate School of Business. She is a frequent speaker at Milken Institute, a member of the Council on Foreign Relations, and serves on several nonprofit boards.