“Dan is a thoughtful and disciplined investor who has invested through market cycles and always maintains a calm demeanor and a long-term perspective. His work ethic and diligence in selecting high-quality private partnerships and direct private investments has resulted in strong investment returns for the benefit of Missouri’s educators.”
—Craig Husting, CIO, Public School & Education Employee Retirement Systems of Missouri
Dan Case, CPA, CTP, is a former accountant-turned-asset allocator at the Public School and Education Employee Retirement Systems of Missouri, which he joined after serving for almost 12 years at the Missouri State Treasurer’s Office. He earned recognition and made his way onto this year’s NextGen list through a cohesive and successful build-out of the fund’s private equity portfolio, growing the asset class up to $5.8 billion in value, or approximately 13% of the fund’s asset allocation.
Since working to develop the fund’s private equity co-investment program in 2014, Case has worked on the execution of more than 70 transactions with their existing roster of general partnerships. Case and his team worked diligently to maintain the private equity program’s returns to supersede its public benchmark and have done so while at a relatively healthy margin.
Since then, Case and his team continued to innovate within the fund and recently launched its private credit co-investment program, where they will work with their existing private credit and private equity general partners to build a diversified portfolio of credit investments.
CIO: What did you think you understood before the COVID-19 crisis… and if, during the crisis you were proven wrong, what did you learn from it?
Case: The first mistake I made was believing that it would not impact the world the way it has. SARS, Ebola, H1N1, etc. were all potential threats but thankfully they never materialized in a similar manner. Not many knew our next downturn would be triggered by a global pandemic.
The biggest lesson has to be related to liquidity. We may not be able to determine where the next crisis will come from, but liquidity provides the flexibility to take advantage of opportunities and can buy time to weather the storm. Cash will be a drag in robust markets but it’s a great investment when times are tough.
CIO: What took you by surprise? What worked?
Case: One of the biggest surprises to this point has been the rapid rebound in the public markets. As of early May, the S&P 500 was up nearly 30% from its low in late March. At the same time, the unemployment rate is in the mid-teens and likely to go higher. Within our private equity portfolio, we had a handful of high-quality companies that were severely impacted due to their exposure to the travel and consumer sectors. A global pandemic that shuts down the travel industry and the consumer sector for an extended period of time was not on the list of potential concerns at the time of investment. These businesses should recover, but no one knows the specific timetable.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
Case: This is a tough question and the answer could possibly change as we continue to watch the situation unfold. I would say one of the biggest priorities is having sufficient liquidity and the discipline to rebalance when there are large drawdowns in the public markets.
From a private markets perspective, it doesn’t change our approach of targeting experienced, high-quality general partners that have been through many cycles. The vintage years immediately following a crisis have often been some of the best performers in private equity and we plan to maintain a disciplined approach and continue allocating to the asset class. Our due diligence will have a heavy focus on how managers are handling their existing portfolio and how they plan to invest going forward.
CIO: ESG has been a tidal wave force behind recent innovative investment framework in our industry. How do you see the ESG framework and effort be influenced by the recent event?
Case: Without a doubt, you will see a continued focus on ESG going forward. For us, it’s a delicate area as you must balance those concerns with being able to deliver the returns that our beneficiaries are counting on.
CIO: What’s your view on the “perfect storm” that is currently impacting the oil markets, and how will that change how you invest in upstream energy?
Case: A perfect storm is probably the best description of the massive imbalance of demand/supply that has occurred in the oil markets. With continued supply growth in the US and nations fighting for market share, the market was in prime form for a correction when demand dropped due to the virus. Although alternatives and electric vehicles will be a headwind for oil, I do believe there will be a long-term recovery as capital leaves the sector and production slows.
Upstream energy has been a great performer over the last decade, but we will look very closely at the space going forward as we evaluate investment opportunities.
CIO: What’s your view on the fate of the Euro and the EU?
Case: The EU is in for a rough road, especially if the member countries do not come together and make a coordinated response to the crisis.
CIO: What do you think will be the impact of COVID-19 on developing economies?
Case: Although we are still in the early phase of this crisis, I think most developing economies will be face significant setbacks. Some countries could ultimately benefit in the long run as we see global supply chains evolve.
CIO: What are the new creative/innovative strategies that you are researching right now?
Case: Our most recent endeavor is the development of a private credit co-investment program where we invest alongside our existing roster of private credit and private equity managers. This program should allow us to deploy additional capital in credit opportunities and generate attractive risk-adjusted returns while also significantly reducing fees.
CIO: Professionally, where do you see the most exciting areas to specialize further over the coming years?
Case: My answer is obviously biased, but I think private markets will continue to be a great area going forward. An asset class like private equity gives an allocator the opportunity to learn about a number of strategies and sectors (buyout, venture, energy, growth, etc.) and interact with some of the best investors in the world. I think what you are seeing in venture capital is particularly interesting as the level of innovation is quite impressive. It’s hard to come away from a meeting with a venture capital manager and not be excited.
CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?
Case: It’s been an adjustment, but overall, I would say our team has done a nice job with the remote work environment. Technology is always the wild card and dealing with connectivity issues or distractions at home contributes to the challenge. We have made it a priority to have regularly scheduled video conferences in addition to the frequent interactions we have with each other. One of the nice benefits is that we spend time talking about how everyone is doing and catching up on family life and other updates. It’s important to maintain personal connections in this difficult time.
As far as manager meetings go, we have always been a big believer in face-to-face meetings on-site. Since that is not currently possibly, we have relied on video and tele-conferences. There will always be challenges when you have numerous people on the line, but it does give us an opportunity to allow additional staff members to participate, which would have not been possible in an on-site meeting.
CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?
Case: I’m cheating on this one, but a joint meeting with Robert Smith (Vista Equity Partners) and Orlando Bravo (Thoma Bravo) would be fantastic. Let’s talk software!
CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place?
Case: At one of Kansas City’s finest BBQ establishments.
CIO: Describe the weirdest interaction you’ve had with an asset manager.
Case: During a due diligence meeting, the manager abruptly excused himself mid-sentence for a restroom break and when he walked back in the door, immediately started talking again, and picked up exactly where he left off. It was impressive and weird at the same time.
CIO: What should be an investment trend, but isn’t (yet)?
Case: I’m surprised there hasn’t been a broad pullback from the mega private equity funds. There are great managers investing [in] these vehicles, but I believe it’s going to be very difficult to generate attractive returns with that amount of capital.
