Captain Hook Sails for Home, Departing Wisdom From a Retiring CIO

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This episode of the FEG Insight Bridge features Jonathan Hook, CIO for the Harry and Jeanette Weinberg Foundation, one of the largest private foundations in the United States. Prior to the Weinberg Foundation, Jonathan had the honor of being the first CIO at not one, but two colleges: the Ohio State University and Baylor University. Over the course of his notable career, Jonathan has built out several investment offices and developed countless asset allocation strategies. In this episode, Jonathan talks about his upcoming retirement, his hiring policies for investment office staff, his approach to portfolio management (particularly in difficult times), and his advice for new CIOs. Jonathan also reflects on the differences between managing endowments for public and private universities. You’ll definitely want to set aside some time for this thoughtful and inspiring episode.

 

Chapters

00:00:00 Intro

00:00:35 Episode overview

00:01:40 Jonathan’s start in banking

00:03:23 Heading to Baylor and shifting careers

00:06:29 The state of Baylor’s investment office in the early 2000s

00:07:39 How Jonathan became known for being an expert on asset allocation

00:10:27 Changing Baylor’s investment framework

00:15:15 Advice for new CIOs

00:17:40 Leaving Baylor for Ohio State

00:21:38 Differences between public and private universities

00:28:22 Building out the investment team at Ohio State

00:31:02 Choosing analysts for an ENF

00:34:30 What is the Weinberg Foundation?

00:38:01 Weinberg Foundation’s diverse manager program

00:43:29 Jonathan’s plan for retirement and advice for his younger self

 

SPEAKERS

Jonathan Hook

Chief Investment Officer

Jonathan Hook was named the first Chief Investment Officer for the Harry and Jeanette Weinberg Foundation of Owings Mills, Maryland in May 2014. He is responsible for managing the foundation’s investment portfolio of $3.4 Billion, and the first internal investment team at the foundation. The foundation, headquartered in Owings Mills, MD, is one of the largest private foundations in the United States. Its’ sole purpose is to assist low-income and vulnerable individuals and families through nonprofit grants to direct-service providers and programs. Prior to joining the Weinberg Foundation, Hook was the first Chief Investment Officer at two separate universities, Ohio State University and Baylor University. In each case, he created and managed the university’s Office of Investments to manage the long-term investment pool which included its endowment funds. He was responsible for asset allocation policies, building an investment team, and charting a new path for the institutional capital of each school. As a result of his efforts, he has been nominated for and honored several times with industry awards. Throughout his career, Mr. Hook has been an active fundraiser for many charitable and civic organizations. He graduated from Willamette University with a B.S. in Economics and Sociology and from Baylor University with his M.B.A. in Finance.

Host

Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Transcript

Greg Dowling (00:05):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG, an institutional investment consultant and OCIO firm serving nonprofits across the U.S. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insights on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:35):

Jonathan Hook is a member of FEG's Investment Advisory Board and somebody that I've known for years. Besides his current role at Weinberg Foundation, Mr. Hook was the CIO of Baylor University and later, Ohio State University. Over the years, Jonathan and the institutions he has served have won countless industry awards and recognition--not bad for somebody who spent his first 20 years in banking. Recently, after a long, storied career serving the investment needs of endowments and foundations, Jonathan Hook announced his retirement. On today's Insight Bridge, Captain Hook sails for home. We will hear a retrospective of his career and the wisdom and knowledge gained during those many, many years.

Greg Dowling (01:19):

Jonathan, welcome to the FEG Insight Bridge.

Jonathan Hook (01:21):

Greg, great to be here, and thanks for having me today.

Greg Dowling (01:25):

I've known you for a long time. I think probably the first time I came across you, you were at Baylor and you seemed like an overnight sensation--this was probably at an II conference at some point--and I realized that you had spent an entire career somewhere else. So what did you do before being an allocator?

Jonathan Hook (01:43):

The first half of my career, which turned out to be about 20 years, was in corporate and investment banking. I got out of grad school and the world was beating a path to Texas and was beating a path to the banking industry. So I went into commercial banking, went through the credit training program on the way to become a loan officer, and worked through that, adding the skills that bankers are supposed to have. Over time, we saw banking really morph into the end of Glass-Stegall and banks trying to become investment banks--sometimes with success, many times with failure. That was really the first 20 years of my career.

Greg Dowling (02:25):

What did you learn from that, that you could take on to apply later in your second career?

Jonathan Hook (02:31):

About half of that banking time was in the energy business. I got into it right out of the training program, and one of the first lessons I learned from the man who ran that group was that the energy business was about to go down very hard and have a very tough time. So I learned how not to do a lot of things. I had a lot of success in loan workouts, which turned into be a very good thing for distressed debt investing a few years later. The other half of my banking career was in more or less the business services area. Most of this was all on the origination side. So selling products to the companies we worked with and having the sell-side discipline I think was very instrumental in how I thought about the buy side once I moved to the endowment world.

Greg Dowling (03:23):

How the heck did you get Baylor to hire a banker? That seems like that's a pretty big leap.

Jonathan Hook (03:29):

[laughs] It was an extremely big leap when I look back at it. What I would say though, is I don't think Baylor really looked at it as hiring a banker, I think the school looked at it as hiring one of its own. I had stayed connected to the school over my career and fortunately was able to be philanthropic to whatever level I could over time. I stayed in touch with people on campus, things like that. So when I went back for my first interview, everyone but one person was someone I had already known, and had known for the better part of 20 years. The only person I didn't know at that point was the university president, who was fairly important in the hiring process, but I think he had support from all the others. One of the young working capital management professors that I had in grad school had now become the dean of the business school.

Jonathan Hook (04:26):

And the dean of the business school had become the head of philanthropy for the school. So people were in different positions, but they were all people I knew, and it very much felt like going back home in many respects. The CFO was actually the hiring person, and he was someone I was very close to during grad school and the time since, so it was a good fit. The only problem was they didn't realize they were hiring someone who knew nothing.

Greg Dowling (04:55):

[laughs]

Jonathan Hook (04:56):

I really had a lot of catching up to do and had about four months between when I was hired, when I got to campus, and then when the family was able to join me. So I had some time to do a crash course in some things that I needed to learn, but it was an exciting time and lots of change. Getting there in 2001, kind of in the middle of the tech wreck... I think that's also something that has staged some of my career, is always going somewhere, just about, where there was a major event that either had happened or was just about to happen.

Greg Dowling (05:31):

You must be great at interviews to convince Baylor to hire you. So let's open that next chapter. You're at Baylor. Before we get too deep, the first question I have to ask is, do you know Chip and Jojo?

Jonathan Hook (05:43):

You know, I did meet Joanne, I saw her quite often at Baylor sporting events, but I've never met Chip. Joanna was the spokesperson on TV commercials for a local tire company, which is, I think, where a lot of local people got to know her. This was long before Fixer Upper came on.

Greg Dowling (06:04):

[laughs]

Jonathan Hook (06:04):

So I pre-staged that event. But they have been a terrific impetus for the City of Waco, and really added a lot to the city and its GDP. Now they're larger than life and you can see Baylor logos on all their kids on the show if you watch it.

Greg Dowling (06:22):

All right. Onto the investment side, you said you joined right as the dust was settling on the tech wreck. What was the investment office like when you got there?

Jonathan Hook (06:33):

The investment office really didn't exist. The simple answer was I was put in a building actually on the other side of the freeway from campus. I was in an office that had been vacated by a professor who was on sabbatical and did not have any admin staff, any team. After about a month, I was moved down the hall so I could share space with the chief information officer. And part of that was so I could share his admin and he didn't have to clear another hiring position. He and I became very good friends. A couple years later, he became the CFO on campus, which was not a bad thing over time. There really was nothing at that point, because the endowment was outsourced. Three weeks after getting to campus, I was able to go up to Dallas with the CFO and unfortunately terminate the organization that had the money. I started the process of bringing the money back to campus and trying to figure out what we were going to do with it from there.

Greg Dowling (07:39):

I always think of you as being very good and known for your thoughts on asset allocation. Did that start at Baylor? You kind of mentioned you knew nothing about investments, so [laughs] how did you go on to being known for being an expert at asset allocation?

Jonathan Hook (07:54):

Well, I hope I knew a little bit. I was being a little facetious earlier. But I think the industry has typically been pretty traditional over time. Maybe not so much the last few years, but if you think back to that time period as we moved into the 2000s, things were still pretty traditional, with people looking at silos of domestic equities, international equities, fixed income, etc., and that new asset class called alternatives was starting to become popular. Those really, though, were left for teams that were advanced--the Yales and Notre Dames--and a few of those were there, but many endowment offices had either not even started an office or were just on the very nascent edge of that. When I got into the business, one of my first questions that kept running through my mind was, "Is this really the best way to do something, or is there a different way to look at it, a different way to think about it?"

Jonathan Hook (08:59):

I don't know that I was really quick to want to change things immediately, because I was humble enough to realize I could change things and really mess them up. So I had the idea in my head, but not necessarily the conviction to change something at that point. We brought the money back to the campus, started going through the process of creating policies and procedures, setting up an investment committee, and hiring a consultant. I still didn't have a team, so it was literally the one-man-band at that point, but I really focused on building framework first. And that was, I think, a very good lesson that I learned in the business. I've talked to people who, when they started an investment office, they had the option of building the framework--in someone else's terms, "messing with the portfolio." And most of the people that I talked to when faced with that, their first inclination was, "Go to the portfolio and make changes." Every single one of them that I talked to, having hindsight, said that was the wrong decision. So I wanted to change some things in the portfolio, but I stayed away from it until we got the framework built. And I think that served us well over time and has since served us well as I've made changes in my career and moved on to other organizations as well.

Greg Dowling (10:27):

Was the idea of changing the framework--what did that mean? Is that basically what you kind of mentioned earlier about having a bucket called "alternatives?" Was that better integrating it? Was it changing how things were put into the portfolio? What did you change from that asset allocation by having that fresh look, and how material was it? Was it just reclassifying things or was it really relocating things?

Jonathan Hook (10:53):

We didn't make any big changes until... Yes, it was about three years. We wanted to let things run for a little bit. But as we pulled the capital back from the old OCIO, we pulled it back in stages. So we were interviewing managers simultaneously to pulling capital back, and we kind of go in steps. The asset allocation itself wasn't dramatically different for the first couple of years, still pretty traditional. But we did change a number of managers after the 04-05 fiscal year. We had had a very good year and we took a look at it and said, "Okay, what should we do better?" thinking that what was good that got us to that point was probably not going to be what was going to keep us good going forward. We took a look and really rebuilt the asset allocation based on risk management, trying to separate risk and return and focus on that versus whether you had 50% in inequities or 30% in fixed income.

Jonathan Hook (12:01):

The labels changed. It took some people around campus, like those on the investment committee, a while to figure out what the heck we were doing. But we spent a year--it was actually two meetings about six months apart. We had an interesting group on campus which was connected to the development arm, they were the folks that were predominantly the large givers to the school. Baylor's board wasn't monopolized by wealthy people. It has a--or at that point had a percentage that were Baptist ministers. It had--it was a different focus to the board of trustees. So the development group had this other group that we used as a good sounding board. We took it to them, spent a couple of hours walking through it, why we were doing this, what it looked like. I think we thoroughly confused people at that point, but you saw a lot of people with kind of that gray cloud over their head, meaning that they're thinking about it.

Jonathan Hook (13:05):

They weren't quite sure whether it was good or bad, but they were thinking. And we said, "Look, we're not asking for a decision today. We want to get your feedback. So email us, call us, tell us whatever you're looking for or whatever you don't understand. And we'll come back in six months, incorporate all those [inaudible] thoughts, then we'll talk about it some more." We came back for that second meeting and finished it with, I think, a vote of 20 to 1 in favor of making the change. And the person who didn't like it, I think became--on that commercial, the kid, Mikey, who hates everything. There was no surprise. It wasn't unanimous, but it was widely approved. And we moved forward from there with that thought process. So it was really a way to try to separate out risk and return and not focus too much on whether it was a 70/30 portfolio or something like that. We moved forward with that and it worked well and people were happy. So that's kind of the [inaudible].

Greg Dowling (14:09):

When you say risk and return, are you talking about having a category that's sort of a growth portfolio and one that's a defensive portfolio? How did you categorize things together by risk?

Jonathan Hook (14:20):

There were parts of it that were really looking for that steady dividend and yield portfolio. Another piece would be the higher return, higher risk segments. We had titles like "return enhancers" and "risk reducers" and things like that, which is why many of the folks on that group that we used as our sounding board really didn't understand what fit into where. But once they got past the labels they were fine, and happy that it worked out the way it did.

Greg Dowling (14:56):

A couple things that I heard is one, if you're the new CIO going in, it sounds like you want to focus on the recipe first, and next the ingredients. There's this tendency to want to "mess with the portfolio," as you called it. And then you took your time to educate the committee to make sure they were on board. So those are two things that I heard. Is there anything, any other advice that you would give a new CIO?

Jonathan Hook (15:18):

There is a natural habit of people wanting to make split-second decisions. If you're a trader, that might be the right thing to do, but by and large, all of us who do this job are not traders--or at least in theory we're not traders. It's something where we should be contemplative. I think getting to know your board members and your IC members is a critical part of the job. Knowing what things are going to drive their decisions, what their hot buttons are--they're all important, especially if they have control over the ultimate decision-making. It may not be quite as important if the investment team has the ability to make all the final decisions. At that stage, it was still held by the investment committee, so I think that was critical. The other thing--which at Baylor took a while to do--was build the team.

Jonathan Hook (16:15):

It was a couple of years where it was literally myself and my admin. But as you build the team, it was really looking for people who are as smart or smarter than you are. And I think engaging in debate with them is critical. Understand how they're thinking. Hopefully they don't think exactly like you. I think that can be an issue. But you want to have people who will have strong opinions and spend time, "What did you think about this?" and, "Why don't we do it this way?" And really, again, challenging the system, challenging each other's decisions to try to ultimately make the best decisions you can.

Greg Dowling (16:56):

That's great.

Jonathan Hook (16:57):

The last thing I would add onto that though is treating the people on the team the same way you want to be treated. This is not a business where I think it really works well to have a completely top-down, dictatorial way to do things. Maybe if you are, and I'll just pick on hedge funds, but the hedge fund with a significant individual who runs the firm and maybe has contributed most of the capital as well. But I think you want to really treat people well on your team. And if you do, I think most of them tend to be very willing to go into the battle with you.

Greg Dowling (17:37):

That's well said. I know you loved your time at Baylor. Why did you leave for Ohio State? What new challenges were you trying to tackle?

Jonathan Hook (17:44):

Good question. I think the success we had at Baylor, which was strong, things were going well, and it was my alma mater in the sense of grad school--there were a lot of things that said, "You should stay here." But I think in the same way, that almost was the mirror image and said, "Now it's time to tackle something else. We got this started. It was going well. Maybe it's time to turn it over to somebody else." Between that change and the next one, I think I realized that I really was very interested in the startup phase and the building phase. When it got to what I'd call more of a steady state situation, it wasn't quite as interesting for me. So if I were in venture capital, I guess I'd be a serial entrepreneur. Since I'm on the endowment side, I guess you can't call it that.

Jonathan Hook (18:36):

But, the downside at Baylor was, I did think we were under-resourced and under-staffed. And part of that was because the school had not had any experience before, nor had I. And so understanding what the right amount of resources should have been, it probably took me a little bit longer to understand that. We dealt with a small team, but I learned over time that others, say of the same size, might have had quite a few more people, other resources. I also was fortunate enough to have several search firms who were keeping in touch with me periodically. Whether I was interested or not, they were very happy to tell me about other things going on in the market. So in that process, I think what finally hit me was the idea of the public [inaudible] and understanding the differences between a public and a private university were more than what I realized. I didn't realize that till later. I had the thought that, "Maybe I'd like to try a public university." I didn't realize that one of the largest in the country was going to come calling.

Jonathan Hook (19:46):

I had met the new president of Ohio State, and I remember, late 2007, early 2008, there was a notice in one of the daily trade publications that Ohio State was going to look for a new CIO. I remember reading that and said, "You know, somehow I think I'm going to get a call." Sure enough, I did. Process was over, I had been asked and then accepted the job at The Ohio State, which you are told very quickly that that's how you should pronounce it.

Greg Dowling (20:23):

[laughs] That was one of my questions, is everything The Ohio State endowment or foundation?

Jonathan Hook (20:28):

It is. I learned very quickly once I got there. I was just walking through campus after grabbing a sandwich and I fell in behind two men who I took to be professors. I'm not 100% sure, but I assumed they were professors. I was close enough where I could overhear their conversation, and it basically went something like this: "You know, I think we're going to have a really good football team this year." And the other one said, "Yeah, I think we're going to have a really good team. In fact, we should win the national championship." It's like, really? "Well, yeah, we should really win it every year."

Greg Dowling (21:02):

[laughs]

Jonathan Hook (21:04):

I thought, "I guess I really am in football country," at this point.

Greg Dowling (21:09):

[laughs]

Jonathan Hook (21:09):

It didn't happen that year. And it actually didn't happen until the year I left, after Urban Meyer came on board. But there's a very high set of expectations for all sports on that campus, certainly for football.

Greg Dowling (21:26):

Absolutely.

Jonathan Hook (21:27):

And referring to the school as "The Ohio State" was important.

Greg Dowling (21:31):

You're there. And you made the comment about not knowing the differences between private and public. So what did you quickly learn about a public institution?

Jonathan Hook (21:42):

Probably the biggest thing was, when I got there I started realizing that there were a few more layers of bureaucracy than the average private school. As time went on, I realized that there were quite a few additional people that I really reported to. I think the state of Ohio has about 11.7 million people in it, and at that time, I think I reported to every single one of them. Because the newspaper front page--at least four or five articles a day were about the university, you couldn't get away from it. it's great in many respects, difficult in others, but you knew you were working for the biggest employer in the state, the biggest university in the state, and everyone was looking at you, regardless of whatever your position was. You were in the news whether you liked it or not. And so the scale of it, I think was much larger than I had realized.

Jonathan Hook (22:41):

There's a very strong link between the state government and the university, and obviously public schools at least still get some funding from their states, not as much as it used to be. But I think those were the prime issues. Everywhere you turned around, there was some connection to the public, to the press. A good example was, at Baylor, the board meetings were held in a closed-door room and investment committee meetings were in a closed-door room. At Ohio State, the meetings were open, there were microphones, there were recorders. Everything that was said was public domain. That was a little surprising when it got to that arena, because anything that was said or done typically was in the public domain.

Greg Dowling (23:31):

Yeah. That's quite a difference. Did you bring your asset allocation to Ohio State, or was there a different asset allocation?

Jonathan Hook (23:38):

It was very traditional when I got there. I think we had every multi-strat manager that existed in those days. Frankly, we had too many managers. That is something that a lot of endowments are guilty of, is having maybe more managers than one should. But the one thing that I've always thought was interesting--and I've not heard of anyone else doing this--is thinking about the relationship between the number of staff you have and the number of managers you have. The magic number that I learned from being on the sell side was 12 to 15. Every sales training guru that came in to talk to us would always say, "You probably need 12 to 15 clients to really have diversity, but spend a lot of time with each one." And so, for those first 20 years, that's drummed into your head. And when I came to this side, I thought, "You know, I wonder if you could just reverse engineer that." So if you had 4 investment people on the team--actually today we've got 5--so 12 to 15, that's about 60 managers.

Greg Dowling (24:55):

Yeah, that's about right.

Jonathan Hook (24:56):

We have 58.

Greg Dowling (24:57):

I guess if you're counting reups and...

Jonathan Hook (24:59):

Yeah, you may be in several funds with one manager, but I think the issue, which to me made so much sense, was you want to know what that manager's doing, what's happening with his or her staff. You know, you want to be on the LPAC if you can, develop that deeper relationship than just one of 500 LPs that are in the $10 billion fund. And that's why we like smaller funds as well.

Greg Dowling (25:26):

Yeah.

Jonathan Hook (25:26):

You can really build that trust and rapport with the partners. I think that's been a really, really good thing. Along the way of... And the number is still somewhat arbitrary. I mean, it could be 10, it could be a different number, but I think that really feels like a sweet spot.

Greg Dowling (25:46):

It's not 100, right? So it's directionally correct.

Jonathan Hook (25:48):

No. You'll appreciate this. When I was at OSU, I decided to call around to several of our peers and just ask them, "How many managers do you have?" And just kind of how you thought about this. And one public university, not too terribly far from Ohio State, when I called them they said, "Oh we have about 225." And I said, "What? How many people do you have on your team?" He goes, "five." I said, how do you know what they're doing? He goes, "We don't." [laughs]

Greg Dowling (26:21):

[laughs]

Jonathan Hook (26:22):

And that was a clear signal to me. It's like, "I don't know if I know the right number, but that's not the right number."

Greg Dowling (26:29):

[laughs] That's not it. That's not it.

Jonathan Hook (26:30):

That is not it. You know, with Weinberg, we really focused more on the size. Again, different structure than the endowment model, but thinking of what a foundation deals with, not letting the head count get out of control, I think was really the question. And then, how do you do it? You have to say no.

Greg Dowling (26:56):

Yeah, no, I think that's good. It kind of gives you some discipline.

Jonathan Hook (27:00):

We also walked into campus and 45 days later was when Lehman Brothers failed. So we quickly got into the global financial crisis. As bad as that was, I don't think I had ever thought that passive index funds would've been locked up, and we added the liquidity crisis on top of the GFC as we got going, because we ostensibly had more than enough liquidity to get by. But when we found a lot of our index funds were not able to be redeemed, that made life a little more challenging than we thought. We did have a traditional asset allocation at the time, which we started changing. We didn't use the same labels, but we did the same thing, basically, in the way we thought about portfolio. And with the public structure that I described earlier, we didn't want to go through that process of trying to fully reeducate with the labels and things like that. So we effectively made the same change, we just didn't use the same terminology.

Greg Dowling (28:07):

You kind of have to understand your audience and--

Jonathan Hook (28:10)

Exactly.

Greg Dowling (28:11):

--the different layers of bureaucracy and what's worth fighting for and what's not. Also, other than asset allocation--you mentioned it earlier--is I think of you as being very good about building out investment teams. So what was that investment team like at Ohio State?

Jonathan Hook (28:25):

What I was charged with when I got there was I went into the treasurer's office and the treasurer's office really controlled everything financial. They had never really separated out cash management from endowment or from anything else. So this was really creating the investment office and taking the assets, taking the people, whatever. The treasurer's office was quite large and I was told that I could hire anybody from there. If I didn't hire a person, they wouldn't be terminated or something like that, which was a bit of a relief. But as I looked at all the folks who were in the treasurer's office, there were really only two that worked on the endowment. First thing was to get to know those two folks. And fortunately, both were very good and were interested in joining me on this odyssey that we were about to start. And the other was the treasurer's administrative assistant.

Jonathan Hook (29:26):

She and I sort of became friends before I even got there because I was sending some things to campus ahead of my arrival and I called several times to ask about certain things, so she and I built up a good rapport. After the first day, before she left, she turned around before walking out of my office and said, "You know, if you would be interested, I would be very interested in joining your team." And I thought, "This is great, because she knows where all the bodies are buried." She was one of those people with a lot of campus knowledge. She was invaluable to helping me work through process as well.

Jonathan Hook (30:09):

Those three, and then the school had three assistant treasurers at the time, all serving different functions. My thought was probably one of them should come over, so I interviewed all three and was having some difficulty trying to decide which one would make the most sense. She pointed me to the right one and it turned out to be a great hire who became effectively our CFO for the endowment office and was terrific. I was able to put together an in-house team relatively quickly through that mechanism. But for our size portfolio, that wasn't enough. So we went outside to hire a couple of other people, and one of them happened to be David Gilmore, who then came with me to Weinberg and is now going to take over the Weinberg portfolio when I retire.

Greg Dowling (31:02):

I'd love to pick your brain on just your preferences or your thoughts on analysts. And that might be different than how an investment boutique might structure their investment team, or a consultant, but at an investment office for an E&F, would you rather have a generalist or a specialist? What's the right structure?

Jonathan Hook (31:22):

To a large degree, I look at it as being somewhat size-specific. I've never had a portfolio of $10 billion--and I'm just picking an arbitrary number. But I think once you get to a certain size, you probably lean more towards specialization because you can have a significant amount of assets in each asset class. Another hypothetical number too, but I think $5 billion and under, it really, to me, still makes sense to have more of a generalist view. We've always done it, and I think it's worked well for us for a couple of reasons. Probably first is, I know if I were in that position of going to a certain structure of more generalist or more specialist, I'd much prefer the generalist, personally. So I've always thought that way.

Jonathan Hook (32:14):

But to take an example at Ohio State, every year we would go back and do a blank slate analysis on the portfolio. If we could start everything all over today, what would we change? What would we keep? That sort of thing. I also asked the team, "Do you like the way we're structured? Is there a different way to think about it?" And everyone seemed to really like the generalist nature. There's the ability to be a little bit specialized, but you still could look at everything and see everything. And I think in the hiring process, one of the qualities I've usually looked at with people is, "Does this person want to become a CIO?" It's not necessary, and there are many stories--I'm thinking of probably at the top, someone like the Dean Takahashi at Yale, who could easily have been a CIO for years, but he wanted to stay where he was working with David, and there's nothing wrong with that.

Jonathan Hook (33:13):

But I think having someone who wanted to learn how to be a CIO was a good attribute to think of. And again, getting into the discussions literally daily about making those relative decisions: more of this asset class, less of this one. Why do you do that? How are you thinking about it? I think putting all that together, those were some of the key things we looked at. When we've looked at younger folks, we liked to get people with--call it two, three, four years' experience where maybe they'd been at a consulting firm, maybe they'd been an asset manager, or maybe another endowment, but they had some level of experience to make some comparative decisions and see how things work. But then take that person, put them into our system, and let them run. I fortunately had very good luck with hiring decisions over the years. My first hire was Scott Pittman, who now runs the Mount Sinai Hospital; David, who is soon to be the CIO at Weinberg; and Renee Hanna, who runs the private equity area at Baylor. All have done really well. I'm happy for them and had a chance to work with them at different points and in my career.

Greg Dowling (34:30):

So your most recent stop is the Weinberg Foundation. For those who aren't as familiar with what they do, can you share all the wonderful things that they support?

Jonathan Hook (34:40):

Yes. In fact, we just had a great event, which we do every two years, which is called the Employee Giving Luncheon. Each employee gets to make his or her own grant of $20,000 each to an organization that they choose and do all the due diligence on. It has to be according to the charter of the foundation, so you can't give it to Joe's Lemonade Stand because you know Joe, it has to pass all the tests that a normal grant may. And this year we gave away at the lunch almost $900,000.

Greg Dowling (35:18):

Wow.

Jonathan Hook (35:20):

42, 43 employees being able to do that, I think really is a special part of the job. The foundation's mission is to meet the basic need of people experiencing poverty. So we will find organizations that provide the direct services and fund them. We really look at several different areas across society. Housing, fighting homelessness has been the area where we've given the most dollars' worth of grants the last several years. Healthcare, job retraining, education, and community services are all in there. But this year, I think we will give away something slightly north of $140 million. And I think the investment team realizes because we have no inflows of capital, there's no gifts to us, no fundraising, that $140 million is coming from the investment team. So it keeps us very engaged and very charged up in terms of, "How do we make money?" And also, this year being a good example, "How do you avoid [inaudible]?" because we don't have that new capital coming in to replenish the coffers.

Greg Dowling (36:32):

I mean, that's the big difference, right? Because you've gone from a private university to a public university, to now a private foundation. There are no gifts.

Jonathan Hook (36:42):

No.

Greg Dowling (36:42):

And also probably less of a liability, right? Yeah. I don't know if there's operating costs or anything that you have to cover, but it's probably very different than what you had to do at Ohio State.

Jonathan Hook (36:53):

The way we think about the outflow of dollars is probably very similar to what a public pension does. We give away 5%, the standard not-for-profit foundation number. With us, that's etched in stone in the charter, so it will be 5%, come hell or high water. We think generally about a 1% cost to run the business, pay for operations, things like that. And then whatever you want to put in for inflation, which this year is more than 2%, as we know.

Greg Dowling (37:24):

[laughs] Yes.

Jonathan Hook (37:24):

In a normal year, if you want to say 2%, that's where a lot of the pensions have been, something like that. But this year, clearly with inflation being as high as it's been, that's a challenging number. We're trying to beat it, but I think you also have definitely a different view on liquidity without having capital coming in. And you also want to be very mindful about if there is a negative print, it takes a lot more work to get that back above zero when you don't have new capital coming in. It does make you a little more aware of some of those things.

Greg Dowling (38:01):

One of the other things that the Weinberg Foundation has kind of grown a reputation around is its diverse manager program. Can you talk a little bit about that?

Jonathan Hook (38:09):

Sure. In late 2018, we brought on a new board member. Our board is very small, it's five people. So again, there are good aspects and bad aspects. The good aspects are the five people--you can literally have each one on a speed dial button if you need it. You can get to know the individuals. And we have a terrific board, very approachable, very interesting and interested in what we're doing. And they've given us a lot of latitude to do what we think we need to do. So we had this new board member come on and very quickly we started getting some questions about how many diverse managers we have. We quickly realized that there's a new sheriff in town and no one had asked those questions prior to her joining the board. The team went to work and we started thinking about, "How do we want to respond?"

Jonathan Hook (39:06):

In the end of 2018 and early 2019, before that first meeting, we went to work putting together a plan about how we should think about DEI. That area, even three and a half years ago, was not as advanced as what it is today. ESG, I think, really took first-mover advantage as endowment [inaudible] about different sorts of programs. And instead of ESG, we really went to focus on DEI first. We talked to a couple of our friendly foundation friends--I will give them shoutouts because they were very helpful as we got started--but the folks at Kresge and Kellogg, they were in different places. One had a program, the other one was working on a program. Between our efforts and the conversations with them, I think we probably were able to save at least six months of time, because they were very willing to share some good ideas with us.

Jonathan Hook (40:07):

Long story short, we got to the first board meeting of 2019 and we presented a plan to set up a diversity and inclusion effort, with the idea that we would take five years and build the portfolio to 25% in diverse managers. We looked at it as women and people of color, but there's still probably room for more delineation of how you define certain managers, etc. We used 50%+ in ownership as our major delineation at that point. But we got going. The board was pleasantly surprised that we came to ask for forgiveness, not permission. And we got unanimous approval to move forward with that. After 3, call it 3.5 years, we're approaching about 33% of our managers. So we have gone past the 5-year goal. We're continuing to try to grow that part of the portfolio.

Jonathan Hook (41:08):

It dovetails well for us, because we generally had a predilection for newer and emerging managers. In some cases, people view those as one and the same. For us, they can be different, but many of the diverse managers do tend to be younger, and they're trying to make their way up--whether it's a first or second fund-- but they're still in a stage where sometimes fundraising is difficult and they may not have the marketing budget to do all the conferences and things like that. So it's a little bit different search process for those managers, but we've been very pleased and look to continue to grow that as we move forward.

Greg Dowling (41:49):

Having gone through that process, any quick tips you would give another organization?

Jonathan Hook (41:54):

You know, I think the first one probably is you have to be intentional. You have to really say, "This is our goal, we really want to do this." And your search efforts are going to be, I'd call them nontraditional. Again, you don't go--and I'm not picking on the conferences, but you don't go to the II conference or the NMS conference and necessarily find the managers. It's not the conference's fault, but the industry is still very white and male. Over time it gets less so, but the speed at which it's happening, I'm sure many would say it's still not nearly fast enough. We can do what we can do.

Jonathan Hook (42:35):

This year I think every manager we have hired has been diverse. We haven't hired as many this year, partly because of what's going on in the industry and partly because the portfolio is more mature, but our percentage of managers we're hiring, especially the last couple of years, has been highly tilted toward the diversity side. Marketing budgets are small, typically, for firms like that, so there's a lot more word of mouth networking. You have to look in other places, you have to call your friends and find different places where people might be. In fact, go to some different conferences than the traditional big investment conference. So, again, I go back to that word, "intentional," realizing it's going to be a little bit different until we see more diversity across all of the investment business.

Greg Dowling (43:25):

I like that, intentional. All right. So final few questions for you. You seem too young to retire. What are you going to do with yourself?

Jonathan Hook (43:33):

Well, I really appreciate you saying that.

Greg Dowling (43:36):

[laughs]

Jonathan Hook (43:36):

I've had on my bucket list for many years the desire to be able to retire before my 65th birthday. I'll just barely make it under the wire, but I will do that. I don't know if my wife would view me as a youthful senior--

Greg Dowling (43:51):

[laughs]

Jonathan Hook (43:51):

--but I also did want to step down before I was just completely out of juice. So I think I would like to spend a little bit of time either serving on boards or investment committees to keep a hand in the business. Having spent nearly nine years at a foundation, I have a great appreciation for the whole nonprofit industry now. I think serving with or for a nonprofit post-retirement would be something else that would be a lot of fun. But I really don't feel like I've missed out on anything in my career, there's no FOMO. It's just been really good and really satisfying over the years. I've enjoyed almost all of it, just happy to do it.

Greg Dowling (44:35):

Any advice you wish you'd give a younger self?

Jonathan Hook (44:38):

If I could talk to myself back several years ago, clearly the first thing would've been, "Get out of the banking industry scene." I went through what I think of as a very turbulent time--pre- and post-Glass-Steagall, lots of mergers, lots of bank failures. Since then, I think the banking industry has probably not been as good a place to work. So I would've said, "Get out of the business, move over to the institutional investing business much sooner." I think now with hindsight, we've seen just the mass quantities of capital that have rolled in and it supports the decision, but I wouldn't have made it for that reason back then. Two other things I would say... One should probably always be careful of that, thinking the grass is greener on the other side. I would say I'm sure I had some of that along the way. It's not always what you might think it is. Sometimes if you're happy where you are, it's not a bad idea to stay there and not take on the new challenge. One thing COVID has shown us, is place is not important, or not as important as it used to be. So I think there's a greater opportunity to incorporate that into your thinking. The other thing: always listen to your spouse.

Greg Dowling (45:57):

[laughs]

Jonathan Hook (45:57):

I think those are probably the things I would've told myself at an earlier age.

Greg Dowling (46:03):

Happy wife, happy life, right?

Jonathan Hook (46:05):

Absolutely.

Greg Dowling (46:06):

So that was the advice you would give your younger self. Any different advice you would give a young CIO just starting out?

Jonathan Hook (46:14):

Some of these we talked about earlier: getting to know your IC and board members quickly, understanding what makes them tick, building the team with smart people. I think the idea of just having people who are going to parrot your thoughts is not a great idea. Now at the same time, I think you want to keep away from prima donnas. You're going to spend--maybe now it's not in the office, maybe it's as much Zoom time as office time, but you're going to be spending mental time with these people for many hours every day, every week, trying to fix or build your portfolio in the best way possible. We want to enjoy working. So that's a critical part, is find the right people, treat them well. We can't always have top compensation plans where we work, but you should know what market is and, to the best of anyone's ability, make sure the working environment is as good as possible. If you lose someone to a great offer, you can't really control that, but all the other factors in the job, I think you really have a great ability to control. Pay isn't everything. It's important, no question about that. But if you have a good working environment, that really makes for a good team and a successful team.

Greg Dowling (47:32):

Well, you shared a lot of great wisdom. So thank you, Captain Hook, and we hope you enjoy your retirement.

Jonathan Hook (47:38):

Greg, it's been a pleasure working with you and all the FEG team over the last several years, and I really appreciate having the chance to talk with you today.

Greg Dowling (47:49):

If you are interested in more information on FEG, check out our website at www.feg.com and don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.

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This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.

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