Chief Investment Officer - 2013 Power 100

Chief Investment Officer - For the world's largest asset owners

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For the world's largest asset owners

2013 Power 100


79
Susan Manske
CIO, MacArthur Foundation
Chicago, Illinois
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“I think that there are very few jobs where you can be passionate about what you do in the investment field and know that the money you’re making for the organization is being used to improve the world in all sorts of different ways,” says Susan Manske, CIO of the MacArthur Foundation.

Manske has every reason to be proud of what she does: Her investments have supported top physicists, human rights lawyers, and, last year, a mandolinist. The Chicago-based foundation is best known for the $625,000 “Genius Grants” it awards every year to a few dozen standouts via a top-secret selection process. Between these prizes and its other charitable endeavors, an average of $235.6 million per year has exited the MacArthur Foundation over the last decade.

Manske heads its $5.9 billion endowment. With the help of 11 investment professionals and two administrators, MacArthur’s endowment has a broad reach. “We divide the world globally among geographies and asset classes,” she says. “I have five directors—each with responsibilities including private equity, real estate, global public equities, and debt exposure—and they focus on recommending changes in the underlying portfolio based on market opportunities.”

So far, this strategy is paying off for the foundation—and, by extension, for deserving geniuses. Manske and her team have exceeded their investment target of 5% of real return almost every year in the last ten years, with an average of 10.2%. In 2012, the foundation rode strong equities markets to a 9.9% return, securing a net investment income of $529.5 million.

Manske credits her and her team’s “high-touch” asset management style for some of this long-term success. “All of our activities are focused on selecting asset classes, [the] managers underlying them, and understanding exactly how we put them together to create a portfolio that would generate optimal return,” she says.

And it is precisely her proactive and methodical investment habits that put her on this list.

 

These habits have been honed over decades spent at a spectrum of institutional funds. After receiving her MBA from Marquette University, Manske began her investment career as a portfolio manager for the Ford Motor Company. Later, she joined Ameritech Corporation in Chicago. The company was known for its high turnover rate in the early 1990s, but Manske stayed put for 13 years and moved through various positions in fixed income, capital markets, and risk management. Her steadfast climb at Ameritech took her all the way to CIO, a position she held from 1998 to 2000, before exiting with a wide range of experience under her belt.

In 2001, Manske joined Boeing. This time, though, she started right at the top, heading the firm’s $50 billion defined benefit and defined contribution retirement plans. Manske’s appointment was a clear choice. Boeing’s benefit schemes have long held a sterling reputation for innovation and exceptional CIOs. Mark Schmid, the University of Chicago’s CIO, took over Boeing’s massive fund from Manske; Andrew Ward is currently in charge, making waves with customized target-date funds for its defined contribution plans.

Two years into her job at Boeing, Manske made the drastic move to MacArthur. “I love investing,” she told the New York Times in 2008. “This married my interest with working in a culture of philanthropy.”

The change was refreshing, Manske recalls. “Boeing is obviously a very large plan, and it was a wonderful job,” she says. “But when you manage $50 billion, or something close to that, you can’t hire a very small manager and expect those returns to have an impact at the portfolio level. I think we’re more flexible, more nimble, because we operate a smaller endowment—and so we can be.”

In fact, Manske emphasizes the proactive manager selection process as one of the most important and enjoyable facets of her job.

“We evaluate a ton of managers here. I can’t even tell you how many,” she says. “We have a pretty disciplined process that we developed, which allows us to look at those managers and break down their beta and their alpha. So we’re able to take any manager with any underlying market exposure and restructure them using derivatives. I think this gives us more managers we can select from.”

She explains that the process doesn’t discriminate against very small emerging managers. Any manager meeting the criteria would be engaged in the foundation’s portfolio—something that Manske says is only feasible with a smaller fund such as MacArthur’s.

But even for someone as passionate as Manske, institutional investing has its ups and downs.

“Oh, 2008 wasn’t a whole lot of fun,” she admits.

The foundation took a substantial hit, along with all of its peers, during the financial crisis. Overall foundation assets dropped by 21.9%, according to a 2009 survey by the Foundation Center. MacArthur saw a loss of 26.97% of assets, or $2 billion, while still paying out $253 million in grants.

Despite such drawdowns, MacArthur rebounded more strongly than might have been expected. In 2009, Manske and her team managed to achieve gains of 12.3%, and even kept the fund afloat during the shaky financial environment of 2011. Its peers, including the Bill & Melinda Gates Foundation and the Robert Wood Johnson Foundation, were not so lucky, and experienced negative returns for the 2011 fiscal year.

“Most foundations are a closed system,” she explains. “Most of us don’t take contributions. So when the market is down, we’re down. Then we’re giving away money, and so now we’re down a lot. The lesson we learned was that it takes a while to grow back organically, particularly while giving away 5% in grants per year.”

Despite difficulties, Manske and her team have managed to put the foundation back to where it was pre-2008.

“We re-evaluated a lot of what we did in terms of risk and how we thought about it,” she says. “We’ve set up a whole different risk approach and we now have tremendous communication with our investment committee. I think we operate much more efficiently than we did before 2008.”

 

So what is ahead for the foundation? Manske says getting better at what the investment team already does is crucial. The key is to maximize returns within the risk constraints put forth by the investment committee and to select the best managers. Growth, she says, will come from making the right choices with the opportunities created in the market.

In today’s environment, Manske finds the most interesting opportunities with emerging markets. While the cyclical decline in interest rates with central banks and the recent emerging market meltdowns have caused some trouble, she says there will be more interesting options arising from these issues over the next year.

“We’ve worked on some European credit strategies and looked at private managers in real estate and private equity. But I really do think the best opportunities are going to be in select emerging markets for the intermediate term,” she says.

Manske does her due diligence when it comes to future investment prospects for the foundation. She recently traveled to China, Russia, Brazil, and India to scope out potential opportunities.

Her salary reflects the work she puts in—a portion of her pay is linked to the performance of the foundation’s investment portfolio. According to Charles Skorina & Company’s ranking of the top 50 US CIO compensation packages, Manske’s total pay in 2011 was $1.4 million, putting her 12th on the list.

However, regardless of her stature in the investment world, Manske says she still has a plenty to understand. “There’s continual learning,” she says. “Everyday is different. Whether it is Lehman crashing or Larry Summers declining to be considered for chairman of the Federal Reserve, there’s always something that’s different in my job.”

And part of that learning contributes to how the MacArthur Foundation distinguishes itself from its peers. “We’ve set up a good, visible process that we use for our manager evaluation and our oversight,” she says. “There are many ways to win in this business, many ways to make money. We just think that this gives us a more efficient portfolio that makes us a little bit different.” —SU

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