2021 Knowledge Brokers

Kristine M. Pelletier

Nominated by a respected CIO for her sharp acumen with environmental, social, and governance (ESG) opportunities, Kristine Pelletier is a partner at NEPC, a senior member of its Endowment and Foundation practice, and a co-head of NEPC’s Impact Investing Committee.

Pelletier has been with NEPC since 2008 and has spent most of her 20-year career focused on impact investing, portfolio construction, and the evaluation and selection of investment managers. She currently works with NEPC’s philanthropic clients on the alignment of mission and money. In 2019, she published an op-ed in Wealth Management, “New Decade, New Fundamentals for Investing,” defining three pillars that will be the largest drivers of investment success: sustainability, diversity and inclusion, and innovation.

Before joining NEPC, Pelletier worked at Wellington Management Company as a research associate and served as a researcher and grant writer for Think:Kids, of Massachusetts General Hospital. She earned her Master of Business Administration from the Darden Graduate School of Business at the University of Virginia and a bachelor’s in finance and economics from Simmons University (formerly Simmons College).

A member of NEPC’s Women’s Leadership Forum, Pelletier is also on the Board of Trustees at Cushing Academy, is a mentor for Girls Who Invest, and is an active volunteer with Simmons University.

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

Pelletier: NEPC is fortunate to have an incredibly talented group of investors focused on research, and they conduct thorough evaluations. Reflecting on what we’ve seen and learned over the past 18 months, I think there are a few areas where we have built on our existing frameworks and gone deeper. The areas that come to mind are alignment of incentives, ESG, and DE&I [diversity, equity, and inclusion].

When it comes to alignment of incentives, we’ve all seen the natural tension that exists between assets under management and alpha over time—we want to ensure that the managers we work with are setting themselves up for success from a business perspective so our client programs will benefit from strong performance. Based on our analysis, NEPC will work with managers on a variety of areas to improve governance, fees, business strategy, and succession approaches.

NEPC launched its ESG rating system several years ago, where we evaluate firms and strategies on their integration efforts, and it is something that we have continued to improve over time. At this stage, it is built into our investment process—it isn’t a bolt-on to the process, and I think that’s reflective of where the industry is heading for both ESG and DE&I. NEPC is building on the success and lessons from our ESG rating to apply that to a DE&I framework. These are areas that should be considered as part of a holistic investment process, so I’m pleased that we are staying in front of that in our research process.

We don’t expect that managers will have top ratings across all these areas today. However, our team and our clients want to understand the commitment to each of these areas and are looking for transparency about plans and progress.

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

Pelletier: For the most part, the philanthropic institutions that NEPC works with have weathered the past 18 months well. They had communities and external stakeholders relying on their grant-making, so when it came to the investment portfolio, they were disciplined. We knew where we would access liquidity, and we had ongoing discussions about the ability to be opportunistic—whether that was through high conviction managers that opened capacity or with private market funds in a quick fundraise. Of course, staying disciplined meant that we were in communication frequently to discuss any organizational needs.

That’s a long way of saying that we haven’t had to make significant adjustments to asset allocation. Rather, we’ve been focused on the implementation within those allocations—making sure our balance among global equity markets is where we want it, keeping pace with our private markets strategic plan, and evaluating our active/passive split.

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

Pelletier: I think the experience of the past 18 months has really shaken people, generating a lot of reflection and discussion about the purpose of the assets they are investing. When it comes to institutional investors, more and more of them are considering if and how to align their investment portfolios with the overall mission and values of the organization. I believe that ESG integration and impact investing will undergo significant innovation in the next 10 years.

From an ESG standpoint, I think we will see more consistency in the data (likely through some level of mandated disclosures) for investors to evaluate and to allow for wider adoption of ESG into investment processes. From an impact standpoint, I think we will see the industry coalesce around best practices for the assessment and reporting of impact outcomes. These innovations will be central to broadening the capital flow into investment solutions and alleviating concerns and criticism of “greenwashing.”

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