The Climb to Investment Excellence

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

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.

Providing a guide to adapting the endowment model by taking into account the particular needs and objectives of an organization, The Climb to Investment Excellence: A Practitioner’s Guide to Building Exceptional Portfolios and Teams, is a one-stop, authoritative roadmap destined to become a classic in the field of institutional investing. It’s a perfect guide for investors at every stage of their career, as well as a resource for fiduciaries overseeing large pools of capital.

You’ll explore the importance of ensuring your team is aligned with your goals, that they possess the tools they need to get the job done, and the capabilities they’ll need to succeed. Along the way, you’ll also examine hands-on strategies and tips you can use to make sure your investment colleagues and your organization meet these criteria, from advice on selecting the right managers to navigating past common obstacles encountered by institutional investors and asset allocators.

Ana Marshall identifies critical attributes that define the careers of extraordinarily successful investors and allocators, including planning and strategy, risk management, and the cultivation of organization-wide trust. She provides helpful lists of issues that every investor should consider and discuss before making decisions.

Finally, she emphasizes the importance of resilience in the face of changing market conditions and unanticipated events, as well as how to develop the adaptivity displayed by so many accomplished investors.

In The Climb to Investment Excellence, distinguished asset allocator and investor Ana Marshall delivers a thorough and insightful practitioner’s guide to constructing a resilient and profitable institutional portfolio and managing its stakeholders. The book is an essential guide to asset allocation for early-career investors and experienced institutional asset allocators seeking on-the-ground advice and best practices.

Praise for The Climb to Investment Excellence

“In The Climb to Investment Excellence, Ana Marshall provides a comprehensive behind-the-scenes look at modern day endowment management. She offers a unique perspective derived from decades of investment experience combined with the judgment that comes from a skilled practitioner and introspective and wise leader. This is a must-read for every financial market participant.”
—Seth A. Klarman, CEO and Portfolio Manager, The Baupost Group

“Ana Marshall is one of the world’s leading CIO’s. She deeply understands that successful investing is both an art and a science that requires excellence in both intellect and intuition. In this book she expertly passes on the wisdom gained during an exemplary career as the CIO of the Hewlett Foundation.”
—Sir Christopher Hohn, CEO and Founder, TCI

“Ana Marshall has written a thought-provoking handbook for investment managers. Required reading for all CIOs.”
—Paul Singer, Founder and Co-CEO, Elliott Management

“This book provides a well-constructed recipe for managing large sums of capital, from setting a cohesive strategy, to implementing a well-defined investment program, managing risk, and motivating teams to endure market downturns and excel over the long term.”
—Doug Leone, Sequoia Capital

“Investing is all about spending quality time with quality people, and Ana Marshall personifies this principle. Any fiduciary would benefit from the experience and wisdom Ana shares in her book.”
—Lei Zhang, Founder and CEO, Hillhouse Capital

“A clear and practical roadmap for the next generation of fiduciaries and investors.”
—Marc Andreessen, Co-Founder and General Partner, Andreessen Horowitz

“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