When Kim Lew arrived at Columbia University’s endowment office in the fall of 2020, she was unapologetic about her plans to change the portfolio.
It was a bold move for a newcomer at an elite university endowment, but with Lew — who joined Columbia after nine years in charge of the portfolio at the high-performing Carnegie Corporation of New York — that level of confidence is well-earned.
“Let me be clear: I inherited a good portfolio,” Lew says of her new role. But like all portfolios, “it had some bets and biases in there.” Lew, who was co-CIO at Carnegie for four and a half years before becoming sole CIO in February 2016, argues that she needed to step back and assess whether Columbia’s strategy and positioning still made sense. “Just because it worked for the last ten years doesn’t mean it will work for the next ten years,” she says.
Part of her philosophy as an investor is to weave big ideas into institutional portfolios to “future-proof” them. “I don’t know the path of electric vehicles, but I know they’re the future. I don’t know exactly what is going to happen in biotech, but I do know personalized medicine is going to be important,” Lew explains. “You have to build knowledge into your portfolio now so they can be ready. I do research on things that maybe I can’t take care of right now, but at some point, I will.” For example, she would like to have her team at Columbia research Southeast Asia and how its role may pivot with China’s evolving position in the world economy.
But Lew also needs a portfolio that reflects her own vision and the investment skills she has honed over her long career.
It’s not about ego.
A collection of investments should manifest the expertise, the world view, and the perspective of the person who leads it, argues Lew, who attended Bronx High School of Science and went on to earn degrees from the Wharton School at the University of Pennsylvania and Harvard Business School.
“These portfolios have to reflect the personality of the person who leads them,” she says. “I have to change Columbia’s portfolio, not because it’s bad” — but because it’s not hers. “It’s not the way I look at the world, so I won’t be able to judge when things get better or worse because I don’t see the world that way.”
Still, Lew cautions that a portfolio shouldn’t be a mirror image of a CIO. “The difference between a good CIO and a bad one is that a good CIO appreciates their limitations and biases and puts processes in place to offset them,” she says. The portfolio “does reflect you, but you don’t want to end up with a portfolio that is too swayed and too much a bet on your view as opposed to a world view.”
With Lew having joined Columbia only last year, her version of the portfolio is still in its infancy. So far, she has focused on rebuilding the infrastructure of the investment office and ensuring that the investment team and the board are aligned in their objectives.
She’s also working to improve the process behind the investment office’s data science and analytics capabilities, which Lew believes can help performance. As for research, she is evaluating the quant market in China and the potential impact of the evolving regulatory environment.
And Lew is increasing the endowment’s investments in private assets.
“As an institution with a long-term time frame, we should be leveraging that time frame to invest in this asset class where there continues to be the ability to add alpha through manager selection,” she explains.
Unlike Columbia, with its $14 billion in endowment assets, Carnegie is a relatively small foundation, with $3.5 billion when Lew was there (it’s now closer to $4.5 billion). Lew, who joined the fund in 2007 as a director of investments, overseeing private equity, says she learned to use what she calls Carnegie’s gifts, including its small size, to outperform. For the ten years ending in 2020, Carnegie generated 9.2 percent annually. That period includes Lew’s time as co-CIO with Meredith Jenkins, as well as the four years as sole CIO. Carnegie’s benchmark was 5 percent plus inflation.
Because of its size, Carnegie could play in markets where others could not. That meant smaller countries in some cases, and using emerging or smaller managers in others. For a short time, for example, the foundation invested in Peru with a manager with unique expertise.
Being small also pushed Lew’s team to take a different approach from those of many allocators, a choice that Lew says was reflected in the fund’s performance.
“We were the underdogs. We saw ourselves as the small guys playing with the big guys. That means you have to prove yourself every day,” she says. “We were striving to be on par with the biggest sources of capital out there.” That entailed taking meetings with smaller, relatively unknown managers, always returning phone calls, and contributing to the industry as a whole, among other things.
Lew has a history of proving herself. She began her career at Chemical Bank, where she was an account officer and head of the credit department. Later, she worked at the Ford Foundation, starting as a technology portfolio strategist.
At Carnegie, Lew and Jenkins also outperformed in part by adding alternatives, such as private equity, hedge funds, and emerging-markets assets, and constantly upgrading the portfolio. That meant closely monitoring managers, including the quality of their teams and alignment; resizing positions; and being contrarian when it was warranted.
But the real reason Carnegie outperformed came down to people, Lew says. “My team was kick-ass,” she adds. “There wasn’t a weak link in the team.”
She pins part of that on the group’s diversity. “By that I mean people didn’t see the world in the same way,” she says. “They were willing to put their views out there.”
Lew’s long-term track record comes from portfolio construction as much as, if not more than, selecting good managers. If portfolios are just a collection of good managers, institutions will end up with unbalanced portfolios and take unintended risks, the Columbia chief says. Lew is okay with making bets, whether on sectors or geographies, but she wants to understand the bets and factors, quantify them, and make sure she’s being rewarded.
A CIO also needs to structure a portfolio specifically for the organization he or she is serving, Lew argues. Carnegie, for example, didn’t invest in quant funds, but not because they were opaque black boxes that were difficult to explain to the board, she says. It was because using quantitative strategies to dampen volatility came at the cost of lower returns.
That trade-off wasn’t worth it for Carnegie, which as a foundation has flexibility and variable operating costs. For example, Carnegie funds broad sectors like education that have many other capital sources, giving it the ability to pare back grants when markets are down. “It costs you money to reduce volatility,” Lew says. “I don’t need to pay for that. That’s a purposeful, analytical decision.”
In contrast, Columbia, like most universities, has high fixed costs and is dependent on the endowment to provide financial support. “We invest in quant funds, black boxes, that do what they say they’ll do. We’ll pay for that,” Lew says.
Then there’s the big picture. “If you don’t think about how the world is changing and have a point of view on those things, then you will lock your portfolio into something that doesn’t perform over the long run,” Lew notes. At Carnegie, the team went on trips to explore themes. One was an extensive agricultural trip to research the changing nature of food; the team visited farms and examined issues from climate change to growing population to food insecurity.
Lew also spends time doing the unsexy, on-the-ground work, such as attending pension fund meetings to see, for example, how big bond investors influence interest rates because they represent, in aggregate, the demand side of fixed-income. “The way I process information is to see it up close,” she says.
A pivotal experience for Lew was sharing the role of Carnegie CIO with Jenkins — an arrangement that was not only successful but unusual, as top executives don’t always share leadership roles easily.
“I would have been a different leader if I didn’t have that experience,” Lew says.
At the beginning, however, she was angry.
“I thought they would never do this to men,” says Lew, adding that she had felt the board’s decision was setting them both up for failure.
Although she was disappointed, Lew notes that the two CIOs committed to each other’s success. As a result of the partnership, she says she became less defensive as a leader — one of many things she attributes to her years as co-CIO. “I think we were complementary. I was quick to stand up and say, ‘We’re not doing that,’ while she is much more accommodating.”
Lew concludes: “Your worst moment may be your best moment.”
Kim Lew accepted the Lifetime Achievement Award on September 22 at the Allocators’ Choice Awards in New York City. Click here to watch her full speech.