Mount Sinai CIO Scott Pittman on Alternatives

There is a trend in the asset management world to reclassify the traditional asset classes in a portfolio.

We favor active management and an opportunistic mindset. Position sizing reflects investment conviction. We maintain portfolio diversification and look to add value through manager selection and appropriately sizing what we believe to be the best opportunities. Although much of our portfolio would fall under the category of alternatives, our asset allocation is not built around traditional categories. We do not have a hedge fund allocation or a private equity allocation. These are not asset categories but types of legal vehicles with various terms and liquidity. Portfolio risk factors like liquidity are closely monitored at the portfolio level but do not receive their own allocation sleeve. For example, we have an Equity Focused allocation where long only equity, emerging markets, activist equity, hedged equity, event equities, private equity and venture all compete for capital. After determining our risk preference and equity allocation, we focus on the implementation. We evaluate relative opportunities and portfolio fit. Are opportunities more interesting outside the U.S.? Are specific strategies or sectors interesting? Do we prefer a long-only or trading-oriented approach? Are control-oriented opportunities more interesting in public or private markets?

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When the endowment model was originally conceived, schools such as Yale and Notre Dame were beginning to invest in alternatives. Those schools recognized an opportunity to capture an illiquidity premium that was unavailable to investors that kept to a traditional portfolio of stocks and bonds.

“The endowment model gets misrepresented as a static blueprint for portfolio management,” says Scott Pittman of the Mount Sinai Medical Center. As the hospital’s CIO, Pittman oversees a $1.6 billion endowment that he has invested 70% in alternatives. “Using the term ‘model’ is a disservice,” he continues, “as it’s more of an innovative approach to how institutional investors should approach markets and think about opportunities and risks.”

Given today’s asset valuations, Pittman says, “it is even more important to consider the opportunity cost of each investment. An opportunistic mindset is needed as good opportunities are more limited. Where investment conviction is gained, you have to be willing to express and allocate capital more meaningfully.”

The endowment model’s defining characteristics, Pittman argues, are safe and sound: adding value through investment complexity and execution risk, targeting less competitive areas, opportunistically taking advantage of market dislocations, and leveraging institutional resources and a long-term capital base to gain an edge. “It’s an evolving concept and not everyone has evolved with it,” he adds.

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What will the new model look like as it continues to evolve?

Joel Shapiro sculpture inside the lobby of the Hess Center on the Icahn School of Medicine at Mount Sinai.
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Post by Marcelino Pantoja