Jon Hirtle – The Pioneer of OCIO (Capital Allocators, EP.98)
May 6, 2019
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Jon Hirtle, Executive Chairman at Hirtle, Callaghan & Co., is the pioneer behind the OCIO model in institutional investing. He shares leadership lessons from his Marine Corps days and Goldman Sachs, emphasizing integrity and teamwork. The conversation dives into dynamic asset allocation and risk management strategies, with insights on navigating venture capital complexities. Hirtle also discusses today's public debt landscape, advocating for equities and private credit while underscoring governance in investment decisions and the importance of customized client strategies.
The importance of customization, flexibility, and providing custom solutions for each client in the independent investment office model.
The significance of specialization, managing risk, and dynamic asset allocation.
The potential advantages of overweighting emerging markets and being cautious in the private equity market.
Deep dives
Key Point 1: Establishing an Independent Investment Office
The podcast episode discusses the creation and benefits of an independent investment office. The guest, John Hurdle, talks about the structure, culture, philosophy, and execution of their investing process. He highlights the importance of customization, flexibility, and providing custom solutions for each client. Hurdle emphasizes the significance of specialization, managing risk, and the role of dynamic asset allocation in optimizing decision-making. He also emphasizes the importance of maximizing breadth and the potential advantages of overweighting emerging markets.
Key Point 2: Philosophy of Investing
Hurdle shares the philosophy that skill multiplied by the breadth of the opportunity set is the key to success in active management. He stresses the importance of having equities in portfolios to offset spending requirements and inflation. Hurdle focuses on a structured approach, categorizing investments into growth, income, and diversifier segments. He discusses the use of factor weighting and systematic active management. The philosophy also involves maximizing customization, minimizing costs, and striving for long-term success.
Key Point 3: Due Diligence and Investment Decisions
The podcast delves into the due diligence process and the challenges in identifying durable investment opportunities. Hurdle mentions the scarcity of alpha and the need for a strong structure, culture, philosophy, and execution. He discusses the importance of focusing on customization and flexibility for client portfolios. Hurdle also highlights the overweighting of emerging markets due to their growth potential and attractive valuations. Additionally, he touches on the potential bubble in the private equity market and the need to be cautious in such situations.
Investing Strategies: Active vs. Passive Management
The podcast episode discusses the differences between active and passive management in investing. The speaker highlights the concept of tracking error and questions the logic of trying to get differentiated returns while not being allowed to behave differently than the index. They emphasize the importance of being different and concentrated when investing in active strategies with higher fees. The podcast also explores the use of 13F strategies as a lower-fee alternative to hedge funds, focusing on leveraging the expertise of long-only managers. The discussion delves into the challenges and benefits of managing external relationships and using overlays to mitigate risk in crowded trades. The speaker stresses the importance of finding idiosyncratic risk and uses a combination of quantitative and qualitative tools in their manager selection process.
Private Equity and Leverage as Investment Strategies
The podcast delves into the approach towards private equity investments and the role of leverage as an investment technique. The speaker highlights the value-added benefits of a diversified program in private equity and the importance of having a clear program, not merely focusing on individual deals. They discuss the layering approach, where each layer has a different level of alpha, emphasizing the liquidity and skill required for top layers. The conversation also covers how sprinkles, such as co-investments and client-supported deals, can enhance the overall portfolio. Additionally, the podcast touches on venture capital investments and the importance of due diligence and access to achieve successful investments in this asset class. Finally, the speaker shares insights on governance alpha and the revolutionary impact of the outsourced CIO model on fiduciary governance, as well as the potential future use of leverage as a tool to optimize portfolio returns.
Jon Hirtle is the Executive Chairman at Hirtle, Callaghan & Co., a $20 billion Outsourced CIO business he founded in 1988. Hirtle Callaghan retains the distinction of initiating the OCIO model that is flourishing in the market today.
Our conversation covers leadership lessons from Jon’s experience in the Marines and at Goldman Sachs, the genesis of the idea to create Hirtle Callaghan, the structure, culture, philosophy and execution of their investing, Jon’s outlook on emerging markets, the economy, private equity, and credit, and the concept of governance alpha. Jon has a gift for distilling the investment process into understandable frameworks and analogies that we all can use to communicate with our many constituents.
