Alpha Edge Recognition – Credit-Oriented Hedge Fund Strategies
This year, Allocator Intel will be recognizing leaders in the allocator community, acknowledged by their peers, for exceptional leadership in key areas of portfolio construction in the Alpha Edge Recognition Awards.
Nominated for Credit-Oriented Hedge Fund Strategies, Ryan Abrams is Managing Director, Return-Seeking Investments at Constellation, which spun out from Exelon in 2022 to become the largest producer of carbon-free energy in the United States.
Ryan is a graduate of the University of Notre Dame, where he received his bachelor’s degree in Economics, and the University of Texas at Austin, where he graduated from the Institute for Latin American Studies with a focus in International Finance. Prior to joining Constellation, he spent four years in hedge fund research and due diligence before joining Wisconsin Alumni Research Foundation where he covered hedge funds and public markets for eight years.
At Constellation, he leads the team responsible for public equities, hedge funds, real estate, private equity, private credit, and sub-investment grade credit across more than $27 billion of trust assets.
The following is edited for length and clarity.
Let’s start with you sharing an overview of your portfolio today. Are all your funds managed internally or externally?
We manage multiple trusts at Constellation, each of which has its own unique funded status, tax, and inflation-sensitivity considerations, so we build custom asset allocations for each of them. We then populate each of the trusts with external managers to obtain the relevant asset class exposures and active management where relevant.
What have been some of the most important changes?
Constellation spun out of Exelon early last year, which resulted in significant changes to the liability profiles of many of the investment trust assets we manage. Broadly speaking, we’ve tried to de-risk some of the trust asset allocations where appropriate; get more liquid and better diversified; and channel active risk into idiosyncratic risk with the goal of better controlling investment outcomes and increasing risk-adjusted returns.
When you’re sourcing managers, what are some of the factors you focus on?
For me, the goal of manager selection is to separate skill from luck, so I like to see consistent excess performance relative to relevant market and style benchmarks. This can help confirm that investment decisions rather than market environment are driving performance outcomes, and performance should persist even as market environments change.
Portfolio construction and risk management are also key to superior implementation of investment ideas and building investment processes that are resilient in the face of the inherent uncertainty in markets.
How do ESG and DEI play into your process?
ESG and DEI can be valuable tools in the toolkit. Managers have always implicitly or explicitly factored ESG into investment decisions – all else equal, why wouldn’t you take these into account like you would any other risk factor?
It’s similar for DEI: teams that are diverse across a variety of dimensions should be more resilient, less likely to have blind spots, and should make better decisions.
What challenges do you anticipate over the next few years?
The current setup in capital markets is a weird one. You’ve got a flat capital market line, so the traditional relationship between risk and expected returns doesn’t appear to be present. You also have a potential shift in the inflation regime, which makes portfolio construction more difficult. These considerations complicate the always-present challenge of how to get the returns that our stakeholders need.
We have also had a great opportunity to build our team in a hybrid model, which has allowed us to attract some really talented people who we otherwise wouldn’t have been able to bring on, but the benefits of the model also come with challenges. We especially want to make sure we are bringing our colleagues along who are early in their careers and making sure they are getting the opportunities to develop and contribute as they should.
What do you think about ChatGPT and the unfolding development in artificial intelligence?
I’m by no means an expert, but I think the power and potential for this to be a revolutionary technology are there, but my impression is we’re still in the early innings.
It’s also critical to be aware of its limitations and to check outputs. A friend of mine who’s a lawyer uses ChatGPT for work sometimes, and it can do funny things like generate references to non-existent statutes.
What would you say is your office’s greatest accomplishment since you joined?
I’m proud of the team that we’ve assembled at Constellation in the last year and a half. I’ve been blessed to work on some extremely high performing teams, but this one is among the strongest I’ve ever been a part of over the course of my career.
What do you do in your spare time?
Outside of my work, I enjoy spending time with my wife and our three young kids: I’ve got a 6-year-old daughter and two sons, 4 and 21 months old. The three of them keep us very busy, so there’s never a dull moment at home!
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