AlphaEdge Recognition - Next Gen in Alpha Generation
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.
Yangge Seaman, nominated as a Rising Star for Alpha Generation, is Head of Private Investments at Children's Health System of Texas, where she is part of the founding team that has fully “in-sourced” the investment function under Chief Investment Officer Ken Lee starting in 2020.
At the University of Notre Dame, Yangge attended the Mendoza College of Business, where she graduated with a Bachelor of Business Administration in Finance. Following graduation from Notre Dame, she worked as an Investment Analyst, first at the University of North Carolina at Chapel Hill, then at Texas Children’s Hospital. After four years as Senior Fund Manager at ICMA-RC, the Washington D.C.-based pension, she has returned to Texas to lead the build out of a private markets portfolio for Children’s Health.
The following is edited for length and clarity.
Can you share an overview of what your portfolio looks like today?
We re-started our private markets program in 2021 to align with broader changes at the hospital, and with a new strategy for the overall portfolio. When I arrived, we had a total of just 4% across private equity and venture capital. It was also the peak of irrational exuberance. We made the decision not to chase a frothy market; instead, for our VC portfolio, we focused on early-stage seed and series A investments; we also de-emphasized late-stage VC and less differentiated growth equity strategies. In the last two years, we have built a portfolio of smaller, early-stage venture managers with unique sourcing and value creation angles. Meanwhile, in the buyout portfolio, sector focused, lower middle market strategies have resonated the most with our overall strategy.
Alongside our core investment strategy, we also set up a program called Rising Manager, where we look to allocate 1% of the Foundation per year to emerging managers who come from under-represented backgrounds in the investment management industry. It is still early, but I am so proud of this program. I think it will be able to outperform the rest of our Foundation portfolio in the long run—and we are really bullish about our portfolio.
What have been the most significant changes?
There have been a lot of changes. Many of them can be traced back to a single strategic shift at the enterprise level. Historically, we thought of our long-term investable assets more like an operating reserve. During the COVID pandemic, however, our operating performance surprised to the upside. Our board reconceptualized the role of the Foundation’s assets; they made a strategic decision to shift toward an endowment mindset: That means we are now managing to a higher cost of capital and higher expected returns.
The goal is to sustain an endowment-like payout policy that supports the hospital’s strategic cap ex and other key programs through regular distributions. As a result, we have shifted our asset allocation to feature private markets more prominently because of the higher expected returns they can be expected to offer. We also changed our governance structure as we made this transition. For example, we moved from working with three investment consultants to fully in-sourcing all research and decision-making functions. The board and the investment committee have been extremely supportive, and we have moved toward a delegated authority model that allows us to make decisions as an internal investment team, subject to risk limits and a negative consent mechanism that are creating a strong degree of collaboration and communication between investment staff and stakeholders.
What are some of the factors that influence you when evaluating opportunities?
I spend a lot of time thinking about why a particular market opportunity exists in the first place. Why are we seeing this deal, and why is it “our turn” to invest in it? When a fund manager checks all the boxes and has demonstrated an amazing track record, of course that fund is likely to be oversubscribed, and there may be limited capacity available to us despite the mission we represent. There is some efficiency to the private equity funds market. As a result, I often think about what risks I am okay taking, where others may not.
One area where I have tended to express a differentiated point of view is with earlier stage fund managers (Fund I to Fund III). Those groups have not yet achieved “consensus” buy status; they do not clearly fit what a lot of LPs want, and it takes a lot of work to underwrite them. Another area I like is niche, under-the-radar opportunities, or areas that other LPs choose not to invest in for non-economic reasons. The lack of consensus makes those markets less competitive. For example, we have established ourselves as a credible buyer of energy secondary assets within the institutional investor community. In 2021 and 2022, we made several purchases of orphaned oil and gas assets. Several market dynamics combined in these cases, and I ended up being the only bidder for high-quality assets at significant discounts.
What investment opportunities are you focusing on in the next 12 to 18 months?
I think the dislocation in venture capital and growth equity will continue, and that will offer up interesting opportunities in the secondaries space. Public markets experienced a huge leg down in 2022, but private marks have not reflected much of a correction. In my opinion, valuations in private markets from the COVID-era vintages will decline in the next year or so. That will help the bid-ask spread narrow gradually, allowing more secondary transactions to get done. I tend to be more contrarian and I am not afraid to go toward the pain and the dislocation.
One dynamic I am hearing about is that many LPs over-committed in the last few vintages. Today, with slower exit activity and a “denominator effect,” some LPs have had to cut back. They are mainly doing “re-ups” on a subset of their existing relationships because they are already maxed out on their private asset allocation target. An incredibly deserving next generation of fund managers may struggle to raise capital. This dynamic creates both opportunities and challenges. In the Chinese language, “Crisis” and “Opportunity” are one word, so this dynamic is creating both.
What would you say is your greatest accomplishment?
We have done a lot in two years. This particular two-year period was especially challenging because our team was working remotely, and we had big changes to make. We increased the allocation to private markets from 3% to more than 12%. I was able to establish a lot of exciting new relationships that I think will stand the test of time—without a head start because this is the first time I have focused directly on private markets. We were also able to build a really strong team when we were fully remote, and at a time when the hiring market was extremely competitive.
I am particularly proud of what we have been able to accomplish on the operations side. Our Director of Investment Operations, Chris Andry, joined from a local hedge fund. In the past two years, I pivoted from public to private markets. Similarly, Chris joined with strong training, but he didn’t know the LP side of the business when he started. He has completely revolutionized our investment operations, and I think some of the processes and controls he put in place are going to be seen as the gold standard.
What do you enjoy doing most in your spare time?
My husband and I travel quite a bit, and we have two toddlers: They are 4 and 2 years old. My kids constantly challenge me, inspire me, and make me laugh, so I try to be there for them as much as I can and treasure every minute when the family is together.
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