Catherine Ulozas has been chief investment officer at Drexel University for the past 12 years, with responsibility for the management of approximately $1 billion in endowment assets. Over the last 30 years, Ulozas has also managed funds for insurance companies, banks, and a state pension fund. Prior to Drexel, she held senior roles in fixed income portfolio management at ING Direct, Arizona State Retirement System, and several large insurance companies.
At Drexel, Ulozas has instituted important policy and operating improvements that have repositioned the institution’s assets and improved its investment performance. Her efforts resulted in the endowment’s 10-year performance achieving a position in the top 8% of the Wilshire Consulting universe of endowments and foundations in Spring 2022.
Ulozas’ responsibilities include work beyond the school’s endowment. For instance, she has provided support and advice on Drexel’s affiliation with the Academy of Natural Sciences, and its recent purchase of St. Christopher’s Children Hospital.
Alternatives Watch recently asked Ulozas to share a few of her thoughts on her CIO role at Drexel and on her outlook on the current investment environment and on alternative assets.
AW: Given your investment experience with different types of institutional investment funds (endowments, banks, insurance funds, state pension funds), how would you characterize or contrast your current role as CIO of a large endowment fund versus your roles at other institutional fund types?
Ulozas: The critical difference is that an endowment’s focus on liquidity is not the same as liquidity for an institutional fund. Our liability, the annual spending, is far more predictable and controllable than that of the needs banks, insurance companies or pension funds. The university can generally decide its spending rate (in Pennsylvania it must be between 2 -7%) but banks must have money for the withdrawal of demand deposits, pension funds must pay retirees and insurance companies must pay claimants. This predictability allows the endowment the luxury of a long-term time horizon. The endowment supports the university through calculated spending removed from the cash account every quarter. The amount fluctuates slightly, but our close communication with the university’s Treasury and Finance offices and Board of Trustees allows us to anticipate the timing and dollar amount. We keep close tabs on our cash position to meet known expenses and capital calls. Further, the endowment is one of the largest assets on the university’s balance sheet, and we are keenly aware of the need to balance liquidity with long-term returns.
AW: What, in your view, makes today’s markets particularly challenging?
Ulozas: Information moves much faster today, and we have so much more available to us at all times. And, because of the speed and quantity of data and information, it can be hard to filter out what is most important—what aids in deciding versus what may confuse us further. However, we’ve seen technology offer real solutions, allowing us to have greater oversight of investments, track performance in real-time, and understand risk and exposures far better than before.
I would add that markets have become far more efficient, which calls into question whether active management is superior to passive management. Is there an advantage if everyone has the same information at the same time? We also see challenges in equities compared to fixed income. There are now real opportunities in bond markets, which have been ignored during an extended period of ultra-low, if not negative, real rates. Last, while private markets have become more accessible, today’s private funds are far more focused on one sector, requiring greater industry expertise to “diligence” these funds and the associated risks.
AW: What are you doing currently regarding managing risk and maintaining positive returns for your portfolios?
Ulozas: Our team takes a risk-based approach to portfolio construction. In 2021, we started looking for opportunities to capture inflation in real assets and have expanded our allocation to private and marketable real assets, which has proven successful in the current environment. We have also vastly improved our risk management system, speeding up our ability to monitor risk, exposure and scenario-test the portfolio.
AW: What are your expectations for alternative investments in the years to come?
Ulozas: From a private markets’ perspective, institutional investors have experienced earning strong risk-adjusted returns, but that is now changing. The space is crowded, and many GPs have impressive Fund I and Fund II returns, drawing in new investors’ capital. I expect institutional LPs will spend more time conducting diligence and seeking counsel from expert advisors who can dial into the sector focus, geographies, and underlying businesses. We will see more scrutiny over the “structure,” ranging from the GP structure, the fund’s legal structure, fee structure, and capital structure. We will need to understand the risks around costly leverage, how it is used in each case and how it could impact valuations over time.
AW: In what manner, if at all, does your work with the LeBow College of Business, as an adjunct professor teaching classes on financial institutions and capital markets, influence or inform your role as the university’s CIO?
Ulozas: Interacting and supporting students is one of the best parts of the job. I have taught courses at our business school and have mentored many students through Drexel’s successful co-op program. One of the endowment’s best managers is the student-run mid-cap fund called the Dragon Fund. Now in its 16th year, we are delighted to applaud and support the Dragon Fund and tune into their twice-yearly stock pitches. It is incredibly rewarding to see how these young managers think about a sector and how they present their picks to each other and seasoned investment professionals. They spot trends others don’t, and we learn a great deal from them.
AW: Some of your responsibilities include work outside of the endowment, such as being a key member of the Drexel team that led to the University’s real estate development project, Schuylkill Yards, which, in partnership with Brandywine Realty Trust, is transforming 10.4 acres of endowment real estate into a leading innovation hub. What is the purpose of the “innovation hub,” and what salient benefit(s) do you expect the project to deliver to your endowment portfolio?
Ulozas: Innovation is at the heart of Drexel. University City in Philadelphia is rapidly growing into the affectionately named “innovation hub” that attracts new talent to the area and affords Drexel students the unique opportunity to work in innovative sectors not previously found in Philadelphia. For the endowment, we are pleased to see real estate holdings in the portfolio transform into something with a greater use for the surrounding community and offer new opportunities for Drexel students.
AW: What was the last book you read, and what did you glean from it?
Ulozas: The book is Quit by Annie Dukes. Annie is a very successful former poker player, and she discusses the process of quitting and the challenges and benefits of deciding to quit. We all know that hope is not a strategy, but too often, given the bias that quitting is wrong, we stay with a goal, process, relationship, or plan longer than we should. A skill to develop is to know when to walk away. This book arms you with insights on how to develop that skill. It makes you think about your past decisions and challenges you moving forward.
