“Jonathan has added significant value to the organization since joining in 2023. He possesses a strong knowledge of private markets and is a savvy investor—demonstrating the ability to evaluate intangible qualities which make certain managers successful. In his relatively short time at SSM Health, he has significantly enhanced the sourcing and diligence capabilities of the team and has developed a strong track record of identifying top-tier investment opportunities. His high emotional IQ make him a valuable contributor to the team’s culture, and he always carries himself in a highly professional manner.”
—Mark Cagwin, CIO, SSM Health
The CHIEF INVESTMENT OFFICER Editorial Team shared a dozen questions with all our NextGen nominees and asked them each to pick six to answer. Their answers informed our decision to include them as a NextGen. Below are Jonathan Haller’s answers.
CIO: How are you dealing with interest-rate risk and market volatility?
Haller: While market volatility is never easy to stomach in moments of uncertainty, I’m of the view that volatility is the price of admission for the pursuit of our return objectives. Setting up a framework with step-by-step instructions on how you will deal with certain market conditions is one of the most important ways to deal with volatility when it arises.
When looking specifically at interest-rate volatility, one of the best mitigating strategies is to reduce duration in the fixed-income portfolio. While SSM does utilize long-duration assets like corporate bonds and Treasury futures in our pension plan to mitigate the risk of falling interest rates, we generally maintain a shorter duration profile relative to the benchmark for the long-term operating pool.
Within public fixed income, we’ve opted to consolidate our manager lineup, which now includes only three primary strategies: core bonds, short-term U.S. Treasurys and multi-sector credit. Our allocation to U.S. Treasurys provides a highly liquid ballast in our portfolio and allows us to be tactical in periods of dislocation. We have paired our U.S. Treasury portfolio with a closed-end commitment to a delayed-draw credit dislocation strategy, creating an automatic rebalancing mechanism which allows us to rotate into corporate credit when there are forced sellers in the market and valuations are most attractive.
CIO: What asset classes offer the best options for avoiding or mitigating drawdown risk in an institutional portfolio?
Haller: Two of the most common strategies available to help mitigate drawdown risk are market-neutral hedge funds and tail-risk hedging strategies, though each has notable drawbacks. Market-neutral hedge funds offer potential stability during market turbulence but charge substantial fees and deliver mixed results. Similarly, tail-risk strategies provide valuable protection during market crashes but typically generate poor returns during normal market conditions, creating a performance drag. This protection-performance trade-off means investors must carefully balance their desire for downside protection against the impact on overall portfolio returns.
Given those drawbacks, I’ll offer a different option—core private infrastructure. It’s an asset class that can provide consistent and accretive returns within a diversified portfolio with relatively low fees and volatility. During market stress, infrastructure’s long-term contracts, regulated pricing and essential nature create natural resilience against volatility. Additionally, infrastructure offers inflation protection through Consumer Price Index-linked revenue adjustments, diversification benefits due to lower correlation with traditional assets, and attractive cash yields. While there is limited historical return data for the asset class, core infrastructure generally produced steady returns through the COVID-19 volatility and the rising interest rate environment of 2022. Allocators likely won’t earn any style points for investing in regulated utilities, but it’s a strategy that is easy to comprehend and shouldn’t keep you up at night.
CIO: Which component of ESG-driven investing do you think will have the most influence on institutional investing going forward, and why?
Haller: In a period of rising global energy demand and increased focus on cleaner power generation, the environmental component of ESG will likely have the most impact on market dynamics over the coming years. While many headlines have framed the “E” as a risk to investment portfolios and operating companies, I think the opportunities it can provide from an investment perspective are what will drive the impact. The global shift to cleaner energy requires staggering financial investment ($4 trillion to $5 trillion per year globally, according to a recent International Energy Agency estimate), yet hydrocarbons will remain a crucial and dependable fuel source for years to come.
Combining electricity production from hydrocarbons, like natural gas-fired power generation, with energy transition assets, like solar and battery storage, creates significant investment opportunities for allocators. We see opportunities from our managers to invest in these hybrid assets with attractive downside protection through long-term contracts, while also offering upside potential by scaling the platform. Strategies that utilize proven technologies to produce ammonia/hydrogen as a cleaner alternative to coal are also gaining traction, particularly for countries that are more reliant on coal for power generation. We’re still in the early stages of adoption for many of these use cases, but it will be interesting to see what new investment strategies emerge over the coming years as the markets evolve.
CIO: What asset class or investment troubles you most right now, and why?
Haller: Our team has been busy re-underwriting our exposure to U.S. small-cap equities, specifically in the context of our public equities benchmark, which has limited exposure to U.S. small caps. As a result of U.S. large-cap outperformance over the last 10 years, U.S. small caps have become a much smaller portion of the global index, meaning our exposure to small caps has increasingly become an out-of-benchmark allocation. The decision we continue to grapple with is whether to remain more diversified than the benchmark by maintaining an overweight to small caps or to reduce our small-cap overweight after a long period of underperformance. While the case can be made for U.S. small caps due to their lower P/E ratios and higher EPS growth estimates, U.S. small caps have traded at lower multiples relative to large caps since 2017, and EPS growth for the group has underperformed estimates by a wide margin since 2022. If anyone has the right answer, I’m all ears.
CIO: What investing decision have you made for your organization that you’re most proud of?
Haller: Over the last 18 months since I joined SSM, I’m most proud of the work I’ve done within our private credit portfolio. When I joined, we had a relatively mature portfolio of high-quality direct lending managers that performed well, but private credit is a very broad space, and I saw an opportunity to add complementary strategies to our existing lineup. Similar to other areas of credit, diversification is paramount when it comes to lending, since investors aren’t compensated for concentrated bets in the form of upside participation.
After analyzing our existing private credit portfolio, I determined asset-based lending could be an attractive space to add complementary exposure and reviewed more than 20 offerings across the ABL spectrum. What we realized is that ABL is much more heterogeneous than direct lending, and it took time to determine the optimal mix of sector exposure, return profile and liquidity terms for our portfolio. We continue to evaluate ABL strategies and expect to make our first allocation in 2025.
CIO: Who in asset management (a person, not a firm) has most influenced your growth as an institutional asset manager?
Haller: If I had to pick one, it would be Howard Marks, the founder of Oaktree Capital Management, since I’ve read more of his memos than I can count. His approachable writing style made his concepts easy to understand when I was new to the industry, and he does an excellent job of summarizing topical issues that help put market dynamics into context. If you haven’t read his memo, “On Bubble Watch,” from January 2025, I highly recommend it.
