Claude Macorin, Macor Capital Management
October 23, 2012
Claude Macorin is the founder and president of Toronto-based boutique investment consulting firm Macor Capital Management. He is the newest participant to take part in IMMP's "5 Questions."
IMMP: Given 2011’s dismal performance numbers for institutional investors in the endowment, foundation and pension plan space, how do you think Macor Capital Management’s (MCM) customized investment services will help to alleviate future worries?
Macorin: Macor Capital Management offers select investment services that are important levers for creating value. At MCM we put a lot of weight on process and people as well as aligning interests wherever possible. Our experience indicates that a successful investment program requires a comprehensive and practical approach that reflects market realities and investment strategies that are tailored to meet specific client objectives. MCM is independent and privately–owned with revenues coming exclusively from investment consulting thereby aligning our interests with those of our clients.
The low yield, high volatility environment has created a dilemma and is forcing investors into making some difficult choices. Many investors are choosing strategies that have the appearance of improving risk adjusted returns but have the potential to lead to further hardship. For example, there is ample academic literature to support increasing exposure to alternative investments and while we agree with the theory, the reality of the situation is that alternative investments have attributes that make it difficult for the average organization to access economically and add value. This is due to a number of factors including high fees, complexity and a lack of required skills to name a few.
Investors who have tried to emulate the “Yale model” have been disappointed because, much to their chagrin, they have discovered (the hard way) that the model is not simply about increasing exposure to alternatives but more importantly about process and people, and an alignment of interests.
Another distinguishing characteristic that differentiates MCM is how the firm approaches risk management. Risk has many definitions and while we incorporate several into our analysis, we find that defining risk as the “currency” needed to purchase performance puts greater emphasis on the process and allows us to better capture a difficult concept in a more versatile manner. How an investor chooses to spend risk will influence the outcome and impact key measures such as volatility and liquidity.
The challenge is that investment risk is multi-faceted and not always apparent or well understood, thus making it difficult to budget and manage. The complex nature of risk requires that our analysis include both quantitative and qualitative factors. The ability to properly interpret these factors and to develop well reasoned investment strategies is extremely important and an area where MCM has demonstrated experience.
IMMP: With your past experiences as an investment decision maker at Ontario’s University of Guelph and Montreal’s McGill University, what do you think are the major problems facing endowment portfolios in Canada?
Macorin: The challenges facing Canadian endowments are not much different from those facing our U.S. counterparts. There is concern over the difficulty with maintaining the real value of the endowment during a period of low returns and persistently low interest rates. Many endowments are still recovering from the effects of the 2008-2009 financial crisis, a period that saw spending curtailed in order to maintain real values and avoid encroaching on capital.
Most universities in Canada are publicly funded with diverse funding streams and these endowments are most often designed to provide funding for scholarships and special projects and do not (with some exceptions) form a regular component of the operating budget. This makes it easier to navigate troubled waters.
This is not to say that Canadian universities are not facing financial challenges with increasing costs and a reduction in government funding but these are not new issues and have been prevalent for several years. Although, one could argue that the situation is worsening.
Endowments in Canada are, for the most part, in better shape than they are south of the border. The primary reason for this is that the asset mix in Canada is more heavily weighted toward fixed-income and less on alternatives. I know that this sounds like an oxymoron but this is where we find ourselves. Also, when Canadian institutions invest internationally, U.S. equities usually get a healthy allocation and the U.S. markets have performed well in recent years, notwithstanding the strong Canadian dollar.