04 Jun 2014

Investing for Real and Permanent Good


Carnegie Corporation co-Chief Investment Officers Kim Lew, MBA 1992, and Meredith Jenkins, MBA 1999, talk about investment with a mission, what it’s like to share a leadership role, and offer advice for women in the HBS class of 2014.

Music: Happytime by Podington Bear

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Brian Kenny: Our guests today are Kim Lew and Meredith Jenkins, the co-chief investment officers of the Carnegie Foundation where they mange roughly $3 billion in assets. And they're making waves on Wall Street beating major investment benchmarks by finishing in the top 10% of nonprofits and foundations last year with a 15% rate of return through September 2013. Kim and Meredith, thank you for joining us on The Business today.

Kim Lew: Thank you.

Meredith Jenkins: Thanks for having us.

BK: I'd love to just start by asking you a little bit about your backgrounds and how you ended up where you are today. So Kim, can you start us off?

KL: Sure. So I'm a native New Yorker. I went from the Bronx to the University of Pennsylvania and I attended the Wharton School and loved it. Went into banking, corporate banking, not investment banking for three years. And then headed off to HBS for business school. And that was a great experience for me. I say all the time that while Penn was the place where I really found out myself, HBS is the place where I learned how big the world was and how many opportunities there were out there. One of my HBS classmates introduced me to his mom who was the Director of Investments at the Ford Foundation. And that's how I got introduced to the world of philanthropy and being on the investment side of philanthropy. And so I was at Ford for 13 years and I left to join Carnegie about 7 years ago.

MJ: I grew up in New Jersey and went to the University of Virginia. I was an English major. And when I was ready to graduate, wasn't really sure yet want I wanted to do. And so I had applied to a lot of the investment banking programs because I knew I wanted to be in New York City and felt like in some ways those were a little bit of an extension of school in that there was a lot that I would learn being an English major coming into the world of finance. And so I worked for a couple of years at Goldman Sachs and then I worked for a money manager. And all that time I was doing a lot of fundraising outside of work and volunteering with my undergraduate university and I really loved all that work. And so was interested in learning more about the nonprofit sector. Cambridge Associates is a big gatekeeper for the foundation and endowment community so I did an internship there and that was really when everything kind of clicked for me.

BK: Let's talk about Carnegie for a minute because it's one of these American institutions that has been around seemingly forever. So it was founded in 1911 and the mission is to promote the advancement and diffusion of knowledge and understanding. That's a pretty big—that's a pretty wide area to cover. Tell us a little bit about the work that you do and how you go about the work and what you see the value that Carnegie is bringing to the world.

KL: It's one of the few foundations that I've seen that actually really keeps close to the original mission of its founder and really appreciates the work that he original do—did. So, originally he worked on libraries, as you know, most of the libraries in the United States and many in other parts of the commonwealth are Carnegie-funded libraries. He was a self-made man and he believed that education was the way to get ahead. And so we continue to believe at Carnegie that education is important to make sure that we have a fully engaged society and that everyone has the opportunity to be successful. Andrew Carnegie was an immigrant so we continue to work on civic engagement and strengthening our democracy. And he also believed that if people spoke to each other more and understood each other more then we could end wars. And so that's our international peace and security grant-making efforts. We also continue to do libraries but in Africa, and more recently higher education in Africa.

MJ: Everything we do today you can kind of trace a thread back to various projects we've worked on over our 100-year-plus history. So we're investing the endowment and trying to do the best job we can to make attractive long-term returns for the portfolio because we have these experts in international peace and security and education and they're doing such a great job on the program side. And so to the extent that we can support their work, you know, we come in every day excited about how we're going to organize the portfolio.

BK:, If you look at the way that he defined it, he wanted his—the philanthropic work to carry on in perpetuity.

MJ: Yes.

BK: That's a really long time. It's a little bit of pressure on you, right— to make that work.

KL: Yeah, it's an especially challenging effort given that we are legally required to give away 5% of the endowment every year. So ensuring that we continue to grow in perpetuity, or exist in perpetuity, means being able to produce that 5% plus inflation, which has been challenging in a low interest rate environment. I think that we try to approach investments much in the same way that the corporation tries to approach philanthropy. It really is an effort to think about how what you want to accomplish in the long term and what the goals are in the long term and then working your way back to what efforts and what strategies you have to implement to get there. We have a long-term goal, not a short-term goal, of producing 5% plus inflation. So we have an 8% hurdle over a long period of time. And so we don't think about how we do that in any one year. We think about how we do that over the course of 10 years. And so it means going into new markets. It means looking for inefficiencies. It means building a team that we know will change and alternate over time but building the processes that make sure that anybody who comes into the team can operate and feel really good about the contributions to the team.

BK: I know at Harvard we frequently run into issues where students are unhappy with some of the investment choices that the Harvard Management Corporation makes. Do you deal with that as well on your end and thinking about the mission of the corporation and Carnegie and does that affect the investments that you make and where you think about putting the money?

MJ: We definitely give thoughts—thought to what we support. Our focus is to find the best risk-adjusted returns so that we can exist in perpetuity but we do want to be thoughtful about what are the issues and staying on top of, okay, what should we or shouldn't we be doing.

KL: One of the things, the luxuries that Meredith and I have is working for a foundation and we're—we feel that we can be completely objective about how we invest. When we think about investments, we think about what can produce the best return over a market cycle. We only think about it as could this cause, could this new issue, impact the long-term ability of us to make money and how should we think about that. Because oftentimes, social issues do impact long term and so it's important for us to think about them but we can think about them that way.

BK: Let's talk about your co-CIO role. I suspect this is unique and I suspect it wouldn't always work. I think it probably depends a lot on the chemistry between the two of you. Can you talk a little bit about your dynamic as a team?

MJ: Sure, just to lay the context a little bit. It wasn't an arranged marriage. Obviously we had been working together at Carnegie from 2007. And actually then Kim and I knew each other from the industry because Kim was doing private equity at Ford and I was doing private equity at Carnegie. So we knew each other very well once she came to Carnegie. So that was a great foundation on which to base it. We both have different strengths and weaknesses that actually work really well for the portfolio both in terms of investing and in managing our team.

BK: What happens when you disagree?

KL: The investment committee suggested the co-CIO structure and we embraced it. But they did not tell us how we should organize. And so we came up with an organization that—an organizational design that we think really enables us to have some fulsome conversation and minimize the amount of places where there could be huge areas of disagreements, which doesn't mean that we don't debate things heavily but we come to logical conclusions. So for half of the portfolio, Meredith is the primary and I'm the secondary. And for the other half of the portfolio, I’m the primary—and she's the secondary. And if you're the primary, your role is to help the directors who manage that asset class really vet that—that industry, vet that asset class, vet that sector, to make sure that we're finding the best available managers. So you're looking—you're sourcing, you're helping with due diligence. You're helping with strategy for that asset class. If you're the secondary, you're the devil's advocate. And you look at the investment much more from the perspective of how it fits within the context of the portfolio.

MJ: You know, we are compensated economically and kind of emotionally and sort of personally in terms of the pride we can take on the portfolio at the portfolio level. So it's not a: I put this in the portfolio and I put that in the portfolio and this is my part of the portfolio, for anyone on the team, you know, it's really we're all focused on what is better—what is best for the whole portfolio.

BK: That makes a lot of sense. Kim, you've spoken about the importance of diversity in private equity teams. How important is that mix of gender, race, diversity in all forms, in the team?

KL: Despite the fact that we only have seven people we have one of the most diverse staffs in the foundation and endowment community—in all terms, in terms of race, in terms of sex, in terms of orientation, everything. The fact that we really encourage people to share their history and different experiences they had has really made a big impact. So we're huge supporters in that idea of diversity of thought is important. And that's the other thing. It's not—we're not just looking for people to look different or be different sexes or different races. We're looking for people to think differently but constructively. And that is the biggest value of our team.

BK: What advice would you give to the graduating—the women of the graduating class of 2014?

MJ: I've been a mother now for 13 years and it's a great field in that you are—you're not subject to clients needing something at this time. The workload is heavy but it can be done on your own time if necessary and so if you need to be home to have dinner with your family, then you can go back after they're—you know after dinner and go back and do work at night and there's a lot of reading that can be done and a lot of emails and modeling and all that stuff doesn't necessarily need to be tied to an office. I think it's a great industry for families. For anyone who's—wants to sort of have a very full life. In terms of advice for the graduating women, I would encourage them to find something that motivates them in their job and to stick with their job. There will be life decisions they make that make it really hard at some times and it might be—it might seem easier to take time off. But ask the question. I want something more flexible, can I have—could I try this. So that you stick with your career because I see so many women either who were in my class or just in the industry that I've run into over the years that the time taken off from work can take a real toll on your longer-term career.

KL: Just to add to that. Meredith and I are both moms. And I think that, you know, a lot of people worry about the impact that having a career has on your children. And it can be more painful for us as mothers than it is for them as children because now both of us have middle schoolers or soon to be high schoolers and they really appreciate the fact that we work. And they have a lot of respect for that. And they get to have engaging conversations with us about what we do and how we do it. It's challenging and I don't think that anybody can underestimate how challenging it is to be a working mom regardless of how supportive an infrastructure you have. It's emotionally taxing. It's—you know, physically taxing. It's—it's difficult. But it's amazing in the end if you can figure out how to strike a balance, right? Thankfully Meredith and I both found something that we really enjoy doing every day because it's really hard to leave your kids if you don't love your job. So, you know, I really encourage the women of the class of 2014 to think about what brings them joy and what they're passionate about. It's not so much thinking about the next job you want to have so much as the next skill you want to develop. And if you keep doing that you'll find that perfect job for you.

BK: That is great advice from two women who are both having great success in their chosen field. Kim Lew and Meredith Jenkins. Thank you for your joining us today.

KL: Thank you.

MJ: Thank you.

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