Endowments and Foundations CIO Corner: In Conversation with Jane Dietze
Jane Dietze, Chief Investment Officer at Brown University, oversees an endowment portfolio that topped the Ivy League in fiscal year 2020 for the second year in a row. She discusses how protecting capital through a challenging market enabled a clear long-term vision, what the pandemic required of her team and why she doesn’t think in terms of traditional asset classes.
Q: Congratulations on your strong endowment performance. To what would you attribute Brown’s impressive 12%-plus1 return?
Dietze: Our performance was driven by numerous factors, but to highlight just one, our managers really protected capital during the March 2020 downdraft, giving us a much better starting point to capture the rebound. We saw this same pattern in 2019 as well, when protecting capital during the market decline had an outsized impact. This pattern allows you to see more clearly and be aggressive when prices are attractive.
Q: Anything else you believe was a differentiator?
Dietze: Many people on our team have direct investing experience, as a hedge fund portfolio manager, venture investor or distressed-asset investor. We feel that experience in both making money and losing money gives a person a visceral understanding of risk and opportunity—and humility.
Q: Let’s turn to you. What’s your investing philosophy? And what new investment opportunities are you excited about?
Dietze: I am incredibly optimistic about the future—that’s not a philosophy, just a reaction to where I think we are in human development. I feel we’re in the beginning stages of major technological changes in education, work and health care that will dramatically affect how people spend their days and lives, and the speed of transformation continues to accelerate. Advancements in computing power will impact people’s lives in ways we haven’t yet experienced, in biology, transportation, eventually AI. There will be winners and losers, and our test as a society will be whether we can bring everyone along.
Q: Looking to the year ahead, what investment themes do you and your team find most compelling?
Dietze: One year is too tactical for us and not really our skill set; we’re trying to look five, 10 and 20 years ahead. A long time horizon is one of our advantages. Huge disruptions and dislocations will come in the next decade. Some of the big themes we’re researching are decentralized finance, inflation and deflation, biotech and health care, China’s path forward, the impacts of climate change, the dollar’s weakness and status, global demographics, the digitization of everything and the explosion in the demand for data.
Q: What do you see as the greatest portfolio risks in 2021?
Dietze: The risk that’s really going to hurt is the one we can’t anticipate. We’ve already taken steps to address the risks we’re thinking about. It’s the ones we can’t conceptualize that will actually test us.
Q: Would you share your current target allocation and how this may have changed recently?
Dietze: We don’t have target allocations. Instead, we maintain very broad ranges for each asset class, to act as guardrails. I’m happy to share our current asset allocation: 14% public equity, 33% absolute return, 37% private equity, 4% real assets, 7% fixed income and 5% cash. However, I don’t think it necessarily reveals very much about how we are positioned; traditional asset class definitions mask our actual exposures. We work to understand each investment and to define its role, and we group investments that way. For example: robust or conservative compounding, equity beta, ballast, uncorrelated and so forth. We also consider liquidity, sector, correlation behavior within the portfolio, geography and anything else that we find ourselves returning to when we talk about risk. We recently added disruption risk.
Q: ESG (environmental, social and governance) investing has grown in importance for investors. How have you been thinking about it?
Dietze: Brown has always been focused on investing ethically and with high integrity partners. As such, ESG has always been a part of the Brown culture. We make an intentional effort to listen to our stakeholders, with a goal of fostering dialogue. For instance, we had lots of campus activity from students demanding the endowment divest from coal. We invited these students in to discuss not just how we invest but also the complexities and potential shortcomings of divestment. We also wanted to understand their point of view and what we might be able to do better. Those discussions really activated our focus on how our legacy fossil fuel investments could become stranded assets. After further research, in 2017 we decided to sell our entire portfolio of private funds invested in oil and gas, and we completed sales in 2018. That was an investment decision about risk, but it was catalyzed and influenced by a dialogue with stakeholders about environmental impact.
Q: Please tell us about your experience as an investor during the COVID-19 crisis.
Dietze: I’ve been incredibly impressed by how every part of the university has navigated the crisis in unison, making every effort to allow for all students to have equal access to learning. The finance department and investment office have worked closely to ensure that Brown could weather the storm financially. I’m extremely proud of how our team worked remotely. We had to quickly create new models with worst-case scenarios to make sure we had the funds to meet the payout to the university and our unfunded commitments to our investment partners—while having additional funds in case the university needed to cover deficits created by not having room and board and summer session revenues, or to ensure the campus could open safely.
Q: Now, if we may get a little more personal, what skills would you say someone needs to be an effective CIO?
Dietze: I imagine they’re no different than for any effective leadership role. You need a willingness to hire people smarter than yourself and listen to them. An ability to put people into situations where they can succeed and contribute. Real concern for the welfare of each person on the team, their career and their family.
Q: What advice would you give aspiring CIOs?
Dietze: Get direct investing experience—in equities, in real estate, in private businesses. It doesn’t really matter. But the pattern recognition of making money and losing money is critical. In addition, it should give you humility in dealing with other investment managers because you will respect how hard it is to make money consistently.
Q: What about your job motivates you every day?
Dietze: Learning. This is a wonderful environment for a curious mind.
Hometown: Bryn Mawr, Pennsylvania; I moved to Tokyo when I was 3.
Education: Princeton University, B.A. in politics and Soviet studies; Johns Hopkins University, School of Advanced International Studies, M.A. in international economics and Russian studies. And I studied political philosophy at the University of Cape Town on a Rotary scholarship.
Career highlights: I spent a summer working at the U.S. Embassy in Ulaanbaatar, Mongolia. I was one of four embassy staff, including the ambassador.I spent the early 1990s running privatization projects in Russia, first privatizing small businesses, milk stores, bread stores and hair salons, and then state and collective farms. In 1996, I co-founded and built a software company that we later sold.
Hobbies: Sailing, surfing, kayaking, paddle boarding, squash and reading.
What are you reading now? The Three Body Problem by Cixin Liu and Margaret Atwood’s MaddAddam Trilogy in science fiction. Pandemic novels Station Eleven by Emily St. John Mandel and The End of October by Lawrence Wright are current favorites. Also, three audiobooks: The Rise and Fall of the Third Reich by William Shirer and Post Corona: From Crisis to Opportunity by Scott Galloway. I listen to podcasts, too: Invest Like the Best, Capital Allocators, Pivot, The Daily and Escape from Jonestown by Billy Rivers (to better understand cults).