James Walsh, executive director of strategy and alternatives for London-based Hermes Pensions Management, will manage Cornell’s $5 billion endowment as the university’s new Chief Investment Officer beginning in September. The England native takes the reins from former CIO Don Fehrs ’77, who resigned in January.
When The Sun caught up with Walsh, he was in Switzerland with his wife, leading boy and girl scouts on a nature expedition. He took a breather from hiking, white water rafting and Swiss National Day to talk about preparing for his job at Cornell, managing hedge funds and buying a new motorcycle.
The Sun: Describe your role at Hermes.
James Walsh: Hermes manages about $110 billion dollars of assets. My responsibility is to advise the trustees on strategy and to manage some money tactically and to invest in hedge funds and other alternative asset classes.
Sun: What made you decide to come to Cornell?
Walsh: There are a number of reasons. One of the key reasons is that endowments in the U.S. are sort of well-known as being some of the most forward looking investment organizations, and that’s been shown over the last decade. The opportunity to come work within an organization that has such a forward looking purpose — it’s just fantastic.
Walsh: The other thing is, over the period of time when I was talking to members of the investment community at Cornell, I just got a sense of the real energy and enthusiasm that there was within the investment community, the real desire to achieve things and the sort of willingness to do what it takes.
Sun: Any thoughts on your investment strategy for Cornell?
Walsh: I have thought about it, but in some ways it’s too early … I need to spend time with people in the investment office. With them and the investment committee, I’m sure changes will take place, but I wouldn’t like to say what they are yet.
Sun: What are the key differences between the investment strategies for pension funds and for university endowments?
Walsh: There are remarkable similarities. We’re both long term investors. And the asset classes are very similar — hedge funds, commodities, equities, it’s all the same thing.
One of the differences and one of the nice things about working at Cornell is that I hope to see the benefits of the good performance the endowment will have over the next few years.
One of the difficulties of the pension schemes is that you never really see the benefit of the good performance, because it’s something people benefit from many, many years in the future. Also, at Cornell there’s the need for money on an ongoing basis. Cornell is building, growing and developing, and quite rightly, people are who are doing this building and developing want access to more funds. My job is to make sure they get access to more funds.
Sun: What are you known for among your peer investors?
Walsh: I’m known for and the company is known for its being the first pension fund adopter of hedge funds. We were also the first fund to invest in commodities. Those are both things that I’ve done over the last five years here. Pension funds in the UK traditionally are quite sleepy — we stand out as an organization that is anything but sleepy. That’s visible in performance terms: the BT Pension Scheme is the best performing fund amongst its peers over the past 10 years.
Sun: Hedge funds seem to be the buzzword these days. Can you explain what a hedge fund is and how you go about managing hedge funds?
Walsh: One definition is that it’s a manager who can go long assets and short assets. The truth is, there isn’t a good definition. Really, a hedge fund is a business model – it’s a business that manages money for clients in all sorts of different ways. We find some of the smartest investment managers doing some of the most innovative things in hedge funds.
Sun: Hedge funds are typically described as high risk. How will this risk affect Cornell’s investment strategy?
Walsh: Hedge funds are like people – they come in every single size and shape possible. You can find high risk hedge funds if you want to; you can find low risk hedge funds if you want to. The risk with hedge funds isn’t just the investment risk. Very often these funds are small businesses. You have to spend as much time worrying about the investment approach as you do worrying about whether as a company, as a business, they still stack up.
Sun: The endowment grew from a reported $3.8 billion in 2005 to $5 billion this year. How do you plan to replicate or surpass that success?
Walsh: It’s tough coming in after a period of good performance. It’s going to be a tough act to follow. The last three years have been a good time for financial markets around the world; my concern is that the next three years will be tougher. We’ve seen the uncertainties coming back into the market – interest rates have risen around the world and security issues weigh heavily on all our minds. The job of the CIO is as much about protecting the funds through the bad times as it is making good returns in the good times. Returns of the past three years will be hard to repeat.
Sun: Anything else you would like to share?
Walsh: I found out last night I can’t bring my motorbike with me. Apparently, it’s not designed for U.S. standards – I’ve got to sell it and buy a new one. If anyone knows a good motorcycle store, they’ve got to get ahold of me.