Q: There is a lot going on in the world right now. Tell us about navigating the volatility.

Deshler: At a high level, we try to look past it. The good news is, as an endowment, we’re long-term investors with a highly diversified, well-balanced portfolio—even within each asset class. For example, public equity is diversified by geography, market cap and factor. Overall, the total portfolio’s beta to equity markets is relatively low. When the markets are down 10%, we're typically down less than 4%, and of course we try to do better. We revisit our strategic asset allocation process every year, but it seldom shifts dramatically.

Q: What about tactical moves?

Deshler: Keeping in mind that we emphasize our long-term approach, we have been somewhat tactical in this recent period. Volatility has presented a lot of amazing opportunities in areas that have really broken down, like biotech, emerging markets and even just U.S. large-cap tech. We are also mindful of inflation and rates, so have been focusing at the same time on lower duration and uncorrelated strategies.

Q: Would you talk more specifically about what you’ve added?

Deshler: The team has been incredibly busy and productive this year. Specifically, we have materially rebalanced the equity portfolio, adding more to value-oriented investments, financials, emerging markets, and nibbling on growth/longer-duration equities that had fallen precipitously. Within hedge funds, we’ve added a long-short equity healthcare hedge fund and are looking to increase our positions in macro and market-neutral equity. We have also been very active in private equity and real assets, re-upping and initiating investments across a range of company and asset types (e.g. middle market, venture, real estate, energy/energy transition).

Q: What investment themes and new opportunities do you and your team find most compelling?

Deshler: As mentioned, as growth/long duration stocks that have fallen out of favor, we are doing more work here. Also, midcaps and small caps have become more interesting. And we can't ignore that commodities have been a good place to be, and have been considering increasing exposure to more public and private inflation-protective strategies.

Q: What do you see as the greatest portfolio risks in the coming six to 12 months?

Deshler: The most draconian—and maybe remote—scenario is stagflation, something the U.S. hasn’t seen in 50 years. We've worked on assessing how the inflationary ’70s and early-’80s affected investments and have prepared our committee and our board. The risk is probably greater than it was a year ago. We monitor the environment closely and are mindful of areas that would likely to get hit hardest.

Q: Are there any investing trends where you would call yourself a contrarian?

Deshler: Probably, within endowment and foundations, would be our allocations to uncorrelated hedge fund strategies. When I joined, the hedge fund portfolio was quite biased toward deep value-oriented strategies, such as distressed credit and special situation equities. These are interesting places to invest and we have maintained exposure, but we also added quant equity (investing based on quantitative algorithmic methods) and discretionary macro—two strategies that historically have been more embraced by the pension community. They have done well during this recent, volatile period.