2021 Knowledge Brokers

Don C. Stracke

Don Stracke began his investment career in 1985, and he joined NEPC in 2009. His consulting responsibilities are servicing large and midsize public pension funds and endowments exclusively. He is a member of the Large Cap Equity Advisory Group and the Alternative Asset Committee.

Prior to joining NEPC, Stracke was the director of marketing/client service at Shenkman Capital Management and Attalus Capital. At both firms, he was responsible for the overall management and execution of sales, marketing, and client service and was a member of the executive committee. Before Attalus, he spent seven years as the director of corporate client services for Dresdner RCM Global Investors. His previous work experience includes eight years at Bankers Trust, where he was an investment consultant working with some of the most sophisticated plan sponsors in the country in the areas of risk measurement and analysis, asset allocation, and manager search. 

Stracke received his bachelor’s degree from Fairleigh Dickinson University in Teaneck, New Jersey, and his Master of Business Administration from Rutgers University. In addition, he holds the Chartered Financial Analyst (CFA) designation and the Chartered Alternative Investment Analyst (CAIA) designation.

CIO: What new qualities do you look for in a manager/service provider given the pandemic’s financial and economic impacts?

Stracke: I think, going forward, there will be an enhanced focus on innovation and thinking differently, but each asset class has been affected in different ways. Clearly, the pandemic has been a major factor in life and capital markets, but I argue that the key factors in evaluating managers haven’t changed. The short story would be that I am looking for flexibility from managers who can adjust to changing conditions. I remember talking to clients in in 1996 who thought value stocks were dead, and talking to the same clients in 2000 that said growths were dead. I also strongly believe that there is reversion to mean by manager style and by manager alpha. I am usually arguing to keep a manager with my clients if the core thesis remains in place. The cost of firing a manager and hiring another is often more than the added value from a new manager. I also strongly believe that strategy adds much more to a plan sponsor’s return than manager selection.

As an example, we have been a leader in private credit. While it has always been important, we are increasingly focused on underwriting skills. So while we were early in private credit, we did our research to look back, in many cases to prior to the global financial crisis. Does the manager have the ability to return your capital? This has always been more important than the ability to earn a return on capital, but it is even more important in a low-return environment. The key question to me is whether a new idea is innovative or a mistake.

Additionally, we have focused on team stability. It is hard to overestimate the value of a consistent team working together for a long period. In a shameless plug, that is what we have enjoyed at NEPC. I only have 12 years in at the firm, which is dwarfed by some of my colleagues.

CIO: What changes are you making to your asset allocation advice?

Stracke: I think it is important to immediately state that no asset class is inexpensive. We have been through an outstanding period of capital market returns. It really is marginal changes, as we have long-term clients that have established asset allocations and no specific asset class is particularly compelling. It is also very customized to each client. This, however, remains a topic of focus. We continue to favor private market investments, and we were very early in a number of alternative asset classes, as we believe that the illiquidity premium still exists. We are very aware that a tremendous amount of money has moved into private equity and debt, but we also believe in long-term asset allocation decisions.

It is also important to note that no two clients are alike. Each client is different, with a different risk tolerance and different funded ratio. We need to take that all into account, which I believe is a hallmark of NEPC. We have clients with 20% to 25% equity exposure and clients with 50% exposure, so we can support all sorts of risk tolerance.

CIO: What do you think will be the biggest innovation in your industry in the next 10 years?

Stracke: I think the number one change will be a focus on greater diversity among investment managers. I am a huge believer that a diversified investment committee at an asset manager is likely to make better decisions. We feel the same way at NEPC, and I am proud that our partner base is increasingly diversified by race and gender.

Otherwise, I think it’s a new generation taking leadership. I, and a lot of my peers, came to age in the ’90s and are starting to approach retirement age. Many of the great consulting firms were founded when Merrill Lynch wanted to get out of the business; that is certainly how NEPC got our start with Dick Charlton. I was blessed to work with a lot of the firms that spun out of Merrill Lynch when I was at Bankers Trust, which was an experience I will always treasure. I think it’s time for a new generation to take leadership roles.

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