Philip Rotner is the chief investment officer at Boston Children's Hospital, where he manages the hospital's endowment, pension, and short-term investment assets. In this interview, he explains why Boston Children's Hospital continues to be ranked as the number one pediatric hospital in the world, how Boston Children's built its proprietary investment model to support its mission of treating sick children, and how health system's don't ordinarily plan to sustain 12 months of losses caused by a pandemic. Although, Phil adds that investment markets have done just fine despite a challenging 12-15 months.
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There is no index for private equity either.
Founder-in-Residence @ Platform Venture Studio
Chief Investment Officer Phil Rotner shares how he built his investment model for Boston Children's endowment.
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"One of the first things we did at Children's was build a proprietary investment model, what we call a portfolio design model. Some people might call it an asset allocation model. We use the portfolio design model concept, because the first question we ask is: what's the risk here? Risk is something that is not always thought about in a holistic way. Oftentimes, people look at risk and they say, 'Okay, here's the standard deviation, that's the risk.' We think about it in a broader way, perhaps because of my private equity background. We ask, 'What are the quantitative and qualitative risks associated with an investment?' The key element, especially in qualitative risk, is acknowledging risk. Once you acknowledge it, you can start to factor it in, even if you can't exactly quantify it. To be clear, we think risk is best measured over the long term and our model is very much long-term oriented. That’s how we've built the foundation of our model, and from there built our portfolio.
With regard to investment areas, we don't think along the lines of strict asset classes; rather, we talk about investment strategies. People talk about this asset class or that asset class. I find it strange when people call venture capital an asset class. I look at it and I say, 'If there's no index, there's probably no asset class.' Instead, we think about investment strategies. Every investment fits somewhere on the investment continuum in our world. You may or may not like an investment, which is fine, but it fits somewhere on the investment continuum. We divide the continuum into four simple strategies, and every investment fits somewhere in those four simple strategies. It gives us a lot of flexibility to invest with the best managers and opportunities when we see them, and to build a balanced portfolio based on risk analysis.
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"I always think people are critical to any investment strategy. If you think about the best people you invest with, they're usually incredibly transparent. They're incredibly honest. They know their strengths, they know their weaknesses, and you have good dialogue. That's not everything, but it is a really good start when looking at people. Of course, they have to have the intellectual talent to invest well and have a good strategy. If they're honest, transparent, and have the desire to do well and to serve the people that they're investing for, they'll tell you when things are not going well. They'll tell you when they made a mistake. They'll tell you when they have done well. They'll tell you what their concerns are generally. They do this because they are introspective and striving to perform well. When managers are open, honest, and transparent like that, it helps us make better decisions and gives us much greater insight into our own portfolio. At the end of the day, looking at the people is really critical—it is at the top of the list when we evaluate managers."
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