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Christine Kelleher, Chief of Investments, National Gallery of Art

Institutional Investor • 29 August 2023

Alpha Edge Recognition: Investing in Early-Stage Managers

This year, Allocator Intel is recognizing leaders in the allocator community, acknowledged by their peers, for exceptional leadership in the key areas of portfolio construction in the Alpha Edge Recognition Awards.
Nominated for her work in Investing in Early-Stage Managers, Christine Kelleher has been Chief of Investments at the National Gallery of Art in Washington, D.C., since 2017. In partnership with external consultants and the National Gallery’s Investment Sub-Committee, she has built out the alternative asset programs, upgraded traditional asset classes, introduced a diversity initiative, and is considering if and how to formally consider sustainability in the investment process.
She attended Bucknell University, where she received her bachelor’s degree in international relations and Russian, and Georgetown University, where she received master’s degrees in Russian area studies and in history. The first decade of her career focused on strategic initiatives in higher education, including the opportunity to build the Central European University in Budapest, Hungary.
In 2004, while pursuing a doctorate in history at Georgetown University in Washington, D.C., Christine spent nine years setting up Georgetown’s internal investment office and building an institutional portfolio. She led alternative investment strategy, sourcing, and evaluation for Avec Capital before being recruited to join the National Gallery in September 2017.
The following is edited for length and clarity.

Let’s begin with you sharing an overview of your portfolio and any initiatives you’re taking on

The portfolio is heavily growth-oriented, even more so than most endowments. Since the National Gallery’s endowment only supports 14% of the annual revenues, the board has decided we can take more risk to grow assets and hence to increase the payout to the institution. The strategic asset allocation is 45% global equities, 20% hedge funds, 25% private equity, and 10% fixed income.
The private equity program is new. We just started committing capital two years ago, so only 4% of the portfolio is in drawdown structures. What that means is 60% of the portfolio is in long-only equities; when the markets are as volatile as they’ve been, governance is very important in staying the course.

How did you weather the Covid situation?

From an institutional perspective, we were blessed. In 1937, Andrew Mellon asked Congress to support the operating expenses of the institution it in perpetuity so we would never have to charge admission for the American people to see world class works of art: 75% of our revenue is federally funded, which provided stability during the pandemic, even though our doors were closed. 
Our spending rule is the most disciplined I’ve seen, so even considering significant drawdowns like March 2020, the endowment’s contribution has continued to grow year over year. The payout supports our mission-driven initiatives: curatorial, conservation, exhibitions, publications, educational programs and, of course, art acquisitions. All of the art is privately donated or funded.

What have been some of the most significant changes?

The biggest change is, six years ago, the same time I joined the Gallery, the board decided to move from a small-endowment model to a large-endowment model. I inherited a portfolio where all hedge funds and private equity had been invested through fund of funds, and we’ve rapidly built out direct investment programs, which has been challenging but very rewarding. 
The entire hedge fund program has turned over. We’ve been committing the private-equity program for just over two years, but it’ll take seven or eight years to meet our 25% target. When I started, the total portfolio had 25 manager relationships across the entire portfolio. Now we’re up to 50.

How big is your team?

You are looking at it! I work very closely with our consultants. When I’m looking at a new investment opportunity or asset class, I am hyper-focused on determining if it’s going to provide diversification or if it’s going to be a distraction; anything that’s too tactical or too idiosyncratic demands more of your time to monitor, introducing the risk that you miss something else. An allocator’s time is our most valuable commodity, so minimizing distraction is a huge part of my risk management process.
If we’re adding a position to the portfolio, it has to complement our long-term investment horizon and be truly additive. I don’t have a team or risk tools, so I rely on finding investment talent that is opportunistic and that will make tactical bets on our behalf. We embrace strategies and portfolio structures that allow portfolio managers to invest across private and public markets, or across capital structures, and that have an edge in identifying and taking advantage of market inefficiencies.

What are you looking for in strategic partnerships with managers?

We’re looking for proven investment teams that are correctly incentivized, internalize the responsibility of managing mission-driven capital, and truly have long-term approaches to investing and enterprise building. I love to hear that they have succession planning in place, that they have the resources to attract and retain talent, and that they have been thoughtful about raising capital. It’s a particular bonus if their former colleagues are investing in the fund.
There’s lots of opportunity out there, and the challenge, of course, of an early-stage manager program is sourcing. That’s one way in which I rely heavily on our consulting partners to extend my own networks. We partner with Forester Capital for our hedge fund program, and we’ve invested in many early-stage firms together. These strategic partnerships provide economic benefits for taking early-stage risk, but even more valuable is the opportunity to foster close relationships with great, highly incentivized investment talent. The strategic partnership program is 25% of our hedge fund allocation. Our two largest core positions today were sourced through this program. 

What are the investment opportunities that you’re focused on in the next 12 to 18 months?

Our private equity program is where we’re spending most of our time, and we will continue to source new opportunities in U.S. buyout, growth, and venture for the next 12 to 18 months. Here, too, our preference is for Funds II or III, for strategies targeting the lower and less efficient end of the market, and for appropriate fund sizing.
Another area of interest is how we express sustainability, which is an institutional priority, in the investment portfolio. We conduct a survey every year of the funds in which we are invested that includes a number of questions on the role of sustainability in the investment strategy, process, and portfolio construction. I’m looking forward to having conversations with our Investment Sub-Committee about if and how we should intentionally allocate capital to support mission-driven issues like climate change.

What would you say is your greatest accomplishment?

Governance is critical to a long-term investment strategy, especially for a portfolio that is in evolution. Three years ago, David Rubenstein, our Finance Committee chair, suggested that we establish an Investment Sub-Committee to extend our expertise. He asked me to produce a shortlist of candidates for his consideration, and we now have a world-class committee. It’s made all the difference, especially during these turbulent times in the capital markets.
One of the first issues the new investment committee addressed is diversity in the investment portfolio, which has been a passion of mine since I crash landed in this industry almost two decades ago. We now have an established survey process each year to measure racial and gender diversity of the investment teams who manage capital on our behalf. We believe that more diverse investment teams will produce better risk-adjusted returns for the portfolio. We have steadily improved the allocation to racially or gender diverse firms over time. The conversations inspired by the surveys with our current investment managers about firm diversity give me hope that we are effecting change.

What do you do in your spare time? 

I’m wrapping up a three-year term as president of the Bucknell University Alumni Association Board of Directors. Some weeks, leading a group of 45 alumni and 10 student volunteers, especially during the pandemic, has been a second full-time job. But it has been the most amazing experience, and I have been so inspired by this group of volunteers, who are so passionate about improving access to and opportunities for current and future generations of students of our alma mater. It has been incredibly fulfilling. 
When I’m not doing that, I love collegiate sports, and my son is a rising junior in high school, so we are launching our college search. My collegiate experience was so transformative and impactful, I’m looking forward to watching him figure out his next chapter and find his next home away from home.

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