Endowment Style Investing

Today, Wendy will share with us her outlook for endowment-style investing, including the greatest opportunities and challenges, her experience being a woman in the industry, and more. Before we dive into the conversation with Wendy, don't forget to hit that like button and subscribe to EisnerAmper wherever you listen to your podcasts, and you can also find us on YouTube at EisnerAmper. 

Hi, Wendy. Thank you so much for being with me today. 

Wendy Li: 

Thank you for having me, Elana. 

Elana Margulies-Snyderman: 

Absolutely, Wendy. So, to kick off the conversation, tell us a little about your firm and how you got to where you are today. 

Wendy Li: 

Absolutely. Ivy Invest is an endowment-style fund that's available to everyday investors via our technology platform. So, we're a blend of what I would say the fintech, but things that folks might be aware of, Wealthfront, Betterment, Robinhood, alongside traditional endowment-style investing, which brings publics and privates to the everyday individual investor. 

The genesis for our business for Ivy Invest really started with my own background, where I spent over 17 years at various endowments and foundations, some of the largest tier in New York City, starting with the Met Museum Investment Office all the way to most recently the Mother Cabrini Health Foundation. 

When you're a large institutional investor, the portfolios that we build are very different from what individual investors would be otherwise allocating to. When we build multi-billion dollar portfolios, we're building portfolios that certainly include traditional equities and fixed income, but really extend much more into the alternative side where we're talking about, as you are certainly aware, all the private equity, private credit, special situations, all these different alternative asset classes that are very familiar to institutional investors, but oftentimes are less familiar or unfamiliar entirely to individual investors. 

So the premise behind our business was, if institutions have known for decades at this point that having a broadly diversified portfolio, multi-asset class, multi-manager can result in a certain outcome that is more desirable than perhaps a traditional stock bond portfolio, why is that not available to everyday individual investors? 

So, building on that question, my co-founders and I, I have two co-founders in this business, the three of us said, "Well, let's set out to see what are the barriers to building this business." And as we went to go and explore this, we realized that we could do this, the three of us could build this business. 

And that really brought us to where we are today at Ivy Invest, where our product is an interval fund, it is an endowment style interval fund that we then deliver directly to our end user, to our end customers who can be everyday individual investors. 

EisnerAmper: 

At EisnerAmper, we are creative problem solvers that take a 360-degree approach focusing on you. We're an award-winning firm with decades of experience. EisnerAmper, let's get you ready. 

Elana Margulies-Snyderman: 

Great, Wendy, loved hearing your journey. So, given your focus on interval fund, focus on endowment style investing, love to hear your overall high-level outlook for the space. 

Wendy Li: 

So, one of the things that really stands out and I think is again a topic and a data point that folks have heard, is this idea that institutions have, for many decades now, increasingly shifted away from a stock bond portfolio, something that traditionally we think of as a 60/40, 70/30. 

Institutions have anywhere, let's call it... When I say institutions, I'm really, I think, most closely referring to endowments, foundations, which is the space in which I lived for so long. Endowments, foundations, certainly it ranges, but if you're talking about billion-plus endowments, foundations, the early adopters of alternatives, we're talking about portfolios that are anywhere from 40% to 60% or even higher in alternative investments versus some of the data that I've seen come out from the various consultants, it really is something closer to 2% to 5% for individual investors where they're allocating a portion, a very small portion of their portfolio, if at all, to non-stock bond investments. 

This is, I think, a really tremendous opportunity as folks think about on a go-forward basis, there's certainly interest from individual investors in expanding their opportunities set in portfolios beyond traditional stocks and bonds. 

And we know, or at least certainly having been on the side of investing these multi-billion dollar portfolios, I know what incorporating different asset classes which have different correlations to equity and credit markets, what it does for a portfolio, what it does for the ultimate ability to generate returns, generate returns at lower volatility, generate returns, was a very different risk profile versus just a stock bond. 

And I think for a while, for perhaps let's call it 10, 15 years, it seemed as though diversification was really starting increasingly to fall out of vogue when you had a certain small subset of companies in the public markets really dominate returns. 

For better or for worse, I think this period of volatility that we're experiencing is reminding folks of the value of diversification. And I think some of these conversations will change and it's the endowment style portfolio I think is really shining in this type of an environment. 

Elana Margulies-Snyderman: 

Wendy, more specifically, what are some of the greatest opportunities you see in your space and why? 

Wendy Li: 

Some of the really interesting opportunities that are arising really are arising because as I alluded to earlier, there's this interest from individual investors to expand their portfolios, stocks and bonds, but there's equally an interest from the traditional alternative asset managers. 

The FIGS who have, again, for decades been generating strong returns and executing strategies on behalf of their institutional investors. These experienced alternative asset managers are now turning around and saying, well, the strategies that we run are compelling, but the structures in which we run them are not suitable for individual investors. 

Or they're really inaccessible for a host of both regulatory and structural reasons and just logistically, they're more difficult to manage in a portfolio. And so, these alternative asset managers who are strong institutional, high quality asset managers are increasingly turning around and saying, how can we fit our strategy into a structure or a vehicle that makes sense for a broader audience? 

And getting a little bit more specific into what that means, I'm really speaking specifically to not all strategies this will work for, but for a number of the alternative asset strategies, whether it's within private credit or secondary private equity, you're seeing FIGS put those strategies into evergreen semi-liquid vehicles, vehicles that then remove the burden of managing a J-curve and thinking about how to manage capital calls and distributions, motions that are very familiar to institutions who've, again, been doing this for a long time. 

But for an individual investor who is contemplating expanding their portfolio beyond stocks and bonds, those mechanics are just, I think, quite unfamiliar and quite high burden and something that I don't know that individuals would ever truly be able to embrace, if not for the asset managers themselves now thinking about, again, a more user-friendly structure, if you will. 

And so, I think that's a really exciting shift and an opportunity in the market. And we're seeing where I'm seeing certainly among GPs who had, I think if you'd ask them five years ago if they would have considered expanding their investor base into individual and wealth channels would probably have said no. But those conversations are shifting and shifting pretty rapidly. 

Elana Margulies-Snyderman: 

Wendy, on the other hand, what are some of the greatest challenges you face in your space and why? 

Wendy Li: 

I think along with the opportunity set and the opportunity to bring an expanded universe of strategies into these structures that are more suitable for wealth investors, as I referenced, these are semi-liquid evergreen structures, which means that they are expected to provide some degree of liquidity, whether that's quarterly or semi-annually, depending on, again, the terms of the fund. 

They do require a certain degree of liquidity and portfolio management that is different from the manager's perspective versus a ten-year locked up drawdown fund. And so, I think there are certain strategies that will, and I'm already seeing it, there are certain strategies that are not suitable for these evergreen semi-liquid structures that are being put in there anyway. 

And I think we're going to see folks be a little bit more aggressive in terms of what types of assets and certain assets that are going to be less liquid and longer duration. And I think things like venture for instance, that is an asset class that just has a very long investment time horizon, and that is one where I think it would be much more challenging to create anything that would have interim liquidity. 

And so, I think there are certain asset classes that are not as suitable for these structures as flexible and as variable as they might be. And so, I think one of the challenges that we'll see is that I think we'll see folks be aggressive in the use of these structures. 

I think we'll see strategies put into them that probably shouldn't be in them, and I think it will just be a bit of a learning curve for everybody as this universe of both investments and structures and ultimate end investors expands in the years coming ahead. 

Elana Margulies-Snyderman: 

Wendy, to shift gears, being a woman in this industry is clearly an inspiration. I would highly welcome your thoughts to see what you're doing to inspire others to follow in your footsteps. 

Wendy Li: 

I benefited myself in this business from terrific mentorship from the senior women who were in this business before me. When I started in this business, I started at an investment office where my CIO was a woman, my deputy CIO, woman, senior investment officer. It was very just women-dominated investment office, which is, I think, unusual. 

Even then, it was unusual, but I think less so today, all of which is to say I had really great role models when I was starting out on this business. Women who were terrific investors and terrific in terms of sharing their guidance and perspectives and bringing me up just from a professional and skill set standpoint, but who also were very transparent with me about the particular challenges that sometimes can arise as you're thinking about a woman, being a woman in this business where you're often in and a room with predominantly male colleagues. 

And there there are two things I took away from that. One is, I think it's important to just continue to be there and provide mentorship to the other young women that are coming up in this business. I really try to stay in touch with every one of the young female analysts and associates that I've over the years worked with who we've hired across my different investment offices. 

Really try to just let them know I'm here. It doesn't have to be a daily conversation or anything even close to that, but if they're ever reaching a flection point in their career, I'm here. I do my best to show up for different mentorship organizations. 

And the reality is that I'm at a point where I'm really proud to be able to share, again, that skill set and professional guidance, but also be able to share about my own experiences as a woman, a mom of three, and rising in this business where you're trying to balance those things that are not always easy to balance. 

And then finally, I think a large part of it is just pushing forward and just doing the thing I think is oftentimes as much an indication of what's possible as anything else that you could say to people. 

Elana Margulies-Snyderman: 

Wendy, we've covered a lot of ground today and wanted to see if you have any final thoughts you would like to share with us. 

Wendy Li: 

Thank you so much for having me. And I do think that when I look ahead, there's a really just a fascinating dynamic of what's happening in the investment marketplace, what's happening in capital markets. 

It's fascinating to see there's this shift that's coming and it's hard to say what's driving what, but I think it's very intertwined. This move toward expanding the investor base beyond institutions tapping into wealth, understanding that individual investor capital is as large as in total quantum institutional capital, and it's really the next pool of capital. 

And I think alternative investment managers recognize that. At the same time, we're seeing this real shift in capital markets of blending of what's public, what's private, and how do you bring more liquidity into private markets and questioning in certain parts of the public markets. 

When I think of certainly, let's call it certain parts of credit markets, bonds and such, where liquidity is not as prevalent as folks might expect, and that gray area of what's public and what's private and this trend toward having the two be more of a spectrum as opposed to really considered two separate places. 

It's hard for me to say how much of those two trends are sort of very interwoven because it's very clear that in order to tap into that wealth, that retail investor channel, there has to be greater liquidity within the alternatives that are being shared with this investor base. 

And so, I think there's a lot of different possibilities for where we go from here and clearly a very dynamic space. And I think in general, the asset management space is always very innovative. But I'm really excited and looking forward to where we go from here. 

Elana Margulies-Snyderman: 

Wendy, I wanted to thank you so much for sharing your perspective with our listeners. 

Wendy Li: 

Thank you so much for having me, Elana. It was a pleasure to be here. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business. 

 Transcribed by Rev.com