2018 NextGen

“Chaya is a smart and tenacious analyst.  I consider her a multi-dimensional thinker, willing to develop and defend independent, and sometimes unconventional, views.  While skilled in the technical aspects of investing, she excels in understanding the soft stuff – which is crucial.   In addition, her willingness to express an opinion allows her to stimulate conversation and counter group-think among the team.”

— Jonathan McCloskey, CIO, Parkwood LLC

Chaya Slain, director of hedge funds at Parkwood LLC, is an independent thinker who has been creating a portfolio to invest directly in ideas at low or no fees by using strategies, focused funds, or co-investing with managers who have maxed out their funds but have capacity for increased investments.  Sometimes she finds her best investments when the market is on a downward trajectory, and other investors are frustrated, such as in early 2016, when credit spreads widened and collateralized loan applications sold off due to technical selling pressure and some concerns surrounding oil and gas credits. Seeing a brief dislocation in the market, Parkwood determined the market had unfairly penalized the securities and started accumulating them to eventually make a “very attractive” return.

“Sometimes making a decision to buy an asset for a long-term investment means you’re going to look different from the market for an extended period of time,” says Slain. “An investor should always look for value, regardless of whether the market respects that value.”

To Slain, there were few asset classes that worked over the last several years. Short-term investors sometimes don’t seem to appreciate that equities can also go down, though they have headed upward for nine years. While hedge funds, as a group, have disappointed, there is still money to be made in hedge funds, including those investing in “nichier” asset classes of “off-the-run” strategies.

Before heading to Parkwood in 2007 to find work-life balance while raising her six children, Slain started her career at Goldman Sachs as an analyst in 1998, where she learned the importance of attention to detail, efficient methods of workflow, and how crucial a positive culture can be. “Everyone suffers periods of underperformance and a positive culture can help a manager through a downturn by allowing the team to keep their chins up,” she said. The Columbia mathematics grad is now studying how artificial intelligence can benefit her hedge funds. In 2014, she won CIO’s 40 under 40 award.

CIO:  What are the accomplishments you are most happy to have achieved recently, and why?
Slain: I believe we have done a good job transcending the typical LP/GP relationship. This means we find mutually beneficial ways to partner beyond Parkwood just investing capital in the firm’s funds. For example, we can invest in the distressed credit of a company alongside one of our smaller funds to provide the manager the scale necessary to participate actively in the restructuring. We benefit by scaling up an attractive investment opportunity within our portfolio at no fees while enabling the manager to improve outcome for all investors.

CIO: What would you be most excited to accomplish in the year ahead, and why?
Slain: My goals every year are to simply be a better investor than I was last year and learn from my mistakes. In terms of discrete accomplishments, I am currently working on a project to try to understand the impact of artificial intelligence on hedge funds and how hedge fund managers are using or could use artificial intelligence in their processes. The rapid advances in artificial intelligence are likely to transform every aspect of our lives in the coming decades and I think it is crucial that we understand how it could affect this industry and stay on top of developments.

CIO: What’s the most rewarding aspect of being an asset owner?
Slain: My job never gets boring. I am always learning something new and the market never ceases to remind me that I don’t have everything figured out.

CIO: What’s the most challenging?
Slain: I find that hedge funds have a real PR problem. When I tell someone that my investment focus is on hedge funds, I either get a blank look or a look of pity. After hedge funds lost their famous bet with Warren Buffett, many called for the demise of the industry. I truly think this is short-sighted. Everything is cyclical. When equity markets finally experience a major pullback, I suspect hedge funds will become more popular once again. Several years ago, many wondered if venture capital was dead.  

Even now, I think it is especially short-sighted to give up on hedge funds, as a group, given the dispersion of returns across hedge fund managers and hedge fund strategies. Though the returns of hedge funds, as a group, have gone down, there are individual managers and certain strategies which have continued to perform well. I think it has simply become more challenging to invest in hedge funds today than it used to be, but proper allocation to hedge funds can greatly improve the risk-adjusted returns of a portfolio. The secret to our success has been our willingness to invest in emerging, less institutional managers and niche strategies while remaining invested in those highly experienced, institutional hedge fund managers who have maintained their focus on returns instead of asset gathering. 

CIO: What are you most hopeful about in the future of the industry?
Slain: My hope is that the industry becomes more focused on longer-term results and less trading-oriented. This is true both with respect to investments in the market and investments in managers. Investors can be too impatient to their own detriment. 

CIO: What are you most cautious about?
Slain: Valuations are high in almost every class. Even alternative asset classes feel crowded.  Areas that are not crowded are those which have not rewarded investors for some time. Crafting a portfolio which can benefit from prices continuing to rise while protecting from a very large correction is exceptionally challenging. I believe this is the most important responsibility of an institutional investor.

CIO: As a leader, what are the most important aspects of the industry you hope to change over your career?
Slain: I believe that the use of benchmarks, especially over the short term, can be misleading and sometimes damaging. Over the short run, using benchmarks can discourage managers from making a contrarian decision or from making a bold, high-conviction decision. Many people will point to great value managers who dug in their heels and focused on good value companies in 1997, 1998, and 1999. While these managers were ultimately proven right, many of them nearly lost their businesses as their investors became frustrated with their underperformance relative to benchmarks

CIO: If you had one piece of advice for your peers, what would it be?
Slain: Stay humble.

CIO: What are the biggest current trends you are seeing that have surprised you?​
Slain: As much as investors hate hedge funds, it seems that is how much they love private equity and private credit (which is funding private equity). The valuations seem very high and the space is crowded. The worst part is that allocation decisions to private vehicles cannot be undone and will impact the portfolio for many years.