Skip to main content

S. Mitchell He, Chief Investment Officer, Chesapeake Employers’ Insurance Co.

Institutional Investor • 29 August 2023

Alpha Edge Recognition - Multi-Asset Investment Approach

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.
Mitch He is nominated for taking a Multi-Asset Investment Approach at Chesapeake Employers’ Insurance Company. Mitch has been the Chief Investment Officer of the $2 billion insurance portfolio in Baltimore for the past eight years. He also serves as the Managing Director and CIO of Chesapeake Employers Insurance Company’s corporate venture capital subsidiary, iCubed Ventures, LLC.
Mitch has extensive experience in institutional investment management and the capital markets. He has worked in both public and private insurance companies. His prior professional experience includes six years at the Springfield, Illinois-based Horace Mann Insurance Companies and five years with the Denver, Colorado-based private equity, merchant bank Keating Investments. 
Mitch possesses an MBA in finance and a Master of Science in accountancy from the University of Illinois at Urbana Champaign. He also earned a bachelor's degree in electronic engineering from the Wuhan University of Technology, China. He is a Registered Certified Public Accountant in Illinois and a holder of the Chartered Financial Analyst designation.
At Chesapeake Employers Insurance, he has led the investment team and developed the company’s insurance asset allocation into a well-diversified portfolio across all major asset classes and generated reliable investment income and additional capital gains for insurance operations.
The following is edited for length and clarity.

Let’s start with you sharing an overview of your role

At Chesapeake Employers Insurance, I lead the investment team on both the internally and externally managed investment portfolios and advise the company’s board of directors on investment strategies to maximize risk adjusted long-term performance. We invest across all major asset classes, including fixed income, equities, and alternatives.
As an insurance company investment program, our assets are fixed-income-focused - it’s about 85% of our allocation - and within the fixed income, we’re also well diversified.

What have been some of the most significant changes for the portfolio?

Over the past eight to nine years, the portfolio has been more diversified with a focus on generating stable investment income. We did this with risk management in mind and did not sacrifice the portfolio’s total risk profile. We improved its risk profile due to better diversification. Some key changes include adding high quality CLOs to the portfolio, establishing a low-risk, spread income program financed with FHLB advances, making investment grade convertible securities a major allocation in the total investment portfolio, and developing our alternative investment allocation into one with multiple strategies such as real estate, secondaries, and opportunistic credits. 
In the fourth quarter of 2021, when the equity market was at its historical high, we meaningfully reduced our equity exposure and brought the equity allocation from above target to below target, given our less optimistic outlook on the equity market back then, and reallocated capital into high-quality, fixed income and floating rate assets. As interest rates rose over the following 18 months, we have been gradually pulling money out of floating rate securities and reinvest into other high quality fixed income sectors. 

What are some of the factors that influence you the most when evaluating opportunities? 

I would say the risk and reward relationship is very important for us, and also whether the new opportunity sets would fit into our existing allocation from a total portfolio management standpoint. We also give priority to income generation and income predictability as many other insurers do.
For an insurance investment program like our size, it’s very important to consider factors from an operational perspective involving investment accounting, reconciliation, reporting, risk management complexity, governance, and compliance.

When looking for strategic partnerships, what are some of the key areas you focus on?

All our strategies are active, and we don’t have any passive or indexed strategies. Some of the areas we look at when we form relationships would be manager performance, performance and strategy consistency, information and knowledge sharing, and back-end office services and responsiveness. You can only make so many big decisions in a year, but our day-to-day, month-to-month work has a lot to do with investment operations.
ESG is an important topic, and we try our best to understand how we can better manage this and incorporate it as much as we can into our investment management process. We also ask the same question to our external manager teams, “What do you guys do?” Most of the managers we deal with make ESG decisions that eventually tie back to the performance. There are so many differences in ESG lenses or standards, I’d rather they handle those directly. 

What are some of your investment opportunities, and what are you focused in the next, say, 12 to 18 months?

This answer is going to be a little bit boring because there is no new asset class or standalone strategy that we’re into right now. What we try to focus on in the past 12 months as well as the next 12 months is what I call “simplification and de-risking.” We focus on our existing portfolio and refine our existing fixed-income assets and core investments, building a high-quality portfolio, while taking advantage of the higher interest-rate environment.
I would call the current environment and the next couple of years back-to-basics time, as we can focus on the not-so-sexy stuff that we as insurance companies are very familiar with and build a good foundation for the next downturn or off cycle. That’s my focus.

What are some of the challenges you anticipate?

There are two challenges I’m dealing with: The first is to balance various investment opportunities with limited additional capital for investments. I believe equities look attractive as valuations have come down, although I still have a bias to fixed income investment opportunities. There are lots of investment opportunities, but we’re facing limitations on additional capital, like many other institutions. Without significant new cash flows into the investment program, it depends on how much we are willing to rebalance and realize losses. That’s a challenge. 
The other one is Human Resources-related regarding talent retention and recruiting. I’m in the middle of recruiting for additional members to the team, and I can see the difference between insurance company compensation packages and those at larger firms or more traditional Wall Street firms. I do believe most insurance companies offer opportunities like work-life-balance and stability. Nevertheless, I think compensation package is one of the key factors high on every talent’s priority list. 

What would you say is your greatest accomplishment?

Since I joined the firm more than eight years ago, we have been consistently enhancing and growing our net investment income, even during the ever-lower interest rate environment in those years. We also realized meaningful gains in those years.
We did this by developing a well-diversified investment program: We made sure the investment activities were a reliable source of capital and cash flow for the rest of the company, so our insurance business could focus its attention on the very competitive insurance market.

What do you spend your time doing?

I have two kids who are in middle school. They are involved in a lot of activities such as music and sports on a weekly basis. I enjoy spending time and accompanying them to those activities with my wife.
I also play golf from time to time, but I’m not a good golfer.

For more content of Investor Week, visit the group here.

To discuss the content of this article or gain access to like content, log in or request membership here.