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Shawn Wischmeier, Chief Investment Officer, Margaret A. Cargill Philanthropies

Institutional Investor • 13 October 2023

Alpha Edge Recognition - Foundation of the Year

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.
Margaret A. Cargill Philanthropies, nominated for Foundation of the Year, is represented by Shawn Wischmeier. Chief Investment Officer since March 2012, Shawn counts his team, which he built up and structured, among the fund’s greatest accomplishments.
Shawn is a graduate of the Rose-Hulman Institute of Technology in Indiana, where he received his Bachelor of Science in chemical engineering, then worked as an engineer for both Milliken & Company and for Eli Lilly and Company. After obtaining his MBA at Northwestern University’s Kellogg School of Management, he rejoined Eli Lilly and Company in their Global Treasury function, then spent four years..
Following four years as CIO at the Indiana Public Employees’ Retirement Fund and the North Carolina Retirement Systems, he has spent over 11 years at Margaret A. Cargill Philanthropies in Eden Prairie, Minnesota. The mission of the $9 billion foundation is to preserve and promote the environment and the arts; encourage the humane treatment of animals, and enhance the quality of life and to prevent and relieve the suffering of children, families, and older adults.
The following is edited for length and clarity.

We can start by you sharing your portfolio and what it looks like today

We carry higher exposure to credit and real assets than most peers. A key to our portfolio is our ability to achieve strong returns in recent years despite holding a relatively higher allocation to interest rate and credit sensitive investments, and relatively less in equities. We have achieved strong returns in ways other than being solely long equity beta. In our portfolio, about 43% is equity; 31% is fixed income; 20% is real assets; 5% is risk premia, an internally managed fund; and 1% is cash. We have 16 investment professionals, and our approach tends to be global in nature. Many domestic investments have generally done better in recent years, but over the long run, we believe a globally diversified portfolio will be additive to overall portfolio returns.
We are structured in a risk-aware manner, such that we lose a lot less than peers in bear markets and capture a large enough share of the upside in bull markets: We make tactical bets when opportunities present themselves, and utilize derivative overlays to manage exposures and hedge risks effectively and quickly across each portfolio.

What have been the most significant changes?

Our core beliefs and core structures have remained the same in recent years. We’re sufficiently active and adjust allocations over time to take advantage of market movements. We have not overreacted to recent market events; however, we have tweaked our approach based on new market realities. For example, we utilized interest rate derivatives to help control inflation exposures in the portfolio. During Covid, we noticed the market came back so quicky that we missed taking advantage of the large drawdowns in key equity indices, so we have integrated systematic risk-on strategies in our investment policy to purchase risk assets during significant market dislocations - andwe are now able to react much more quickly to the changing pace of markets and the opportunities they sometimes present. The ability to react quickly to market movements is one component of our strong performance, aided greatly by a strong governance structure at all levels of the organization.
We have also leaned in heavily on DEIJ (diversity, equity, inclusion, and justice) initiatives in recent years. We focus on key measures of diversity in our work and engage with outside groups to help us measure progress and enhance sourcing for diverse groups.

What are some of the factors when you’re evaluating opportunities in the investment space?

We’re quite careful about liquidity management because we’re a foundation that doesn’t raise money, so we maintain enough liquidity to make sure that not only we meet all our grant payments, but also have cash to go on the offensive when there’s stress in the market and good returns to being a liquidity provider: We don’t mind taking illiquidity risk or using leverage if the expected returns are at acceptable risk levels; if we have liquidity, we have the governance to step in quickly and deploy the cash to make strong returns.
We also look at MRI, mission-related investing (similar to ESG). We’re not looking to put large amounts of money in things that don’t measure up, but we are intentional about funding things that closely align with our mission, all else equal.

When looking to form strategy partnerships, what do you focus on?

Given our size of over $9 billion, we are large enough to utilize strategic partnerships where they make sense. Some of the things we look at are flexibility and speed of execution; we need to have direct access to the decision-makers: Our strategic partnerships tend to have more involvement — and tend to be in a separate account or fund of one — but they’re actively managed portfolios. We want to partner with managers who focus on research and allow us to be invested in opportunities before they are well known.
Once in a while, we run into managers where they want our money but don’t necessarily like our hands-on approach. We have learned that style generally doesn’t work for us. We also can’t partner effectively with groups who will promise to do anything we ask in exchange for money.

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

We’ve had a strong credit capacity for over a decade. We’ve got a large, dedicated allocation, and we have strong partnerships with key managers. We expect to capitalize on our team and these relationships to add opportunistic credit returns through the cycle.
We are focused on opportunistically taking advantage of stress/distress in the commercial real estate markets. Additionally, we are open to purchasing direct private equity secondaries from other LP’s seeking liquidity. We endeavor to add to existing funds already in our portfolios, or to purchase into funds that might have previously been unavailable to us for whatever reason. 

What challenges do you anticipate for the next one to two years?

A primary challenge is to maintain enough liquidity in the portfolio to allow us to be a liquidity provider during any stressed/distressed periods. Private funds are not returning capital as quickly as in prior years, necessitating a close watch on the timing of cash flows.
Reduced allocation budgets in recent years have forced deeper decisions on how much capital to allocate to co-investments versus primary fund commitments, and small teams must make careful decisions as to how to best allocate their time.

What would you say would be your office’s greatest accomplishment since you joined?

My proudest feeling thus far is building out an extremely capable team early in my tenure. This team helped design our approach to portfolio management, which includes the ability to use derivatives to achieve exposures, without compromising expected return for the portfolio. 
We utilize a number of complex investment strategies and structures. Without breadth and depth of our team and strong Investment Committee governance, we would not have been able to have achieved so much.  

What do you like outside of work?

Boats (powerboats, sailboats, jet skis, any version of being on the water), snowmobiles in the winter – all kinds of track machines, anything that gets you outside in the winter or summer.

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