Infovest21 Investor Focus

Q&A with Ascension Health’s Joshua Kaplan

Josh Kaplan, former chief investment officer of Drexel University was hired in February 2010 to manage the hedge fund allocation at Ascension Health-Catholic Healthcare Investment Management Company.

Catholic Healthcare Investment Management Company was started in January 2011 to manage the assets of Ascension Health as well as a select number of current and potential outside institutions. CHIMCO is a wholly owned subsidiary of Ascension Health, which is the largest nonprofit healthcare system in the country. CHIMCO manages roughly $20 billion of which $17 billion belongs to Ascension Health. CHIMCO has 20 associates at this time.

Infovest21: What is the role of hedge funds? How does it fit into the portfolio?
Joshua Kaplan: The hedge fund allocation is divided into two categories: absolute return and directional. The absolute return book is designed to demonstrate minimal beta exposure, little correlation to the public markets and generally low relative volatility. This is in contrast to the directional book, which typically exhibits more beta and higher volatility. Practically all of the underlying strategies in the absolute return book are found in the deflation/recession bucket. The strategies in the directional bucket tend to deviate a bit and are mostly classified as growth or inflation investments. Overall, we expect the hedge fund portfolio to possess risk-adjusted performance superior to most of the other asset classes.

Infovest21: What is the asset allocation to hedge funds? How has it changed over the years?
Joshua Kaplan: When I started at Ascension, I inherited a hedge fund allocation of roughly 15 funds that comprised 7.5% of the overall portfolio. The newly created investment policy statement sets a target of 22.5% to hedge funds of which 12.5% belongs to absolute return strategies and 10% to directional. Consequently, there was work that needed to be done to boost the allocation to its target and shape the hedge book according to the strategic blueprint put in place. After nearly two years, the hedge fund allocation is only a couple pieces away from where we originally envisioned it. Today, the portfolio is fully diversified, well positioned going forward and contains high conviction, opportunistic strategies that we strongly believe will add alpha.

Infovest21: Where do you see opportunities and do hedge funds fit in?
Joshua Kaplan: Currently, I am focused on finding a dedicated European distressed strategy as an opportunistic play for the directional bucket. I believe that the crisis in the European Union should lead to several attractive places to allocate. With the banks being forced to recapitalize and required to hold 9% tier one capital, there is going to be an enormous supply of stressed and distressed paper hitting the market. I’m looking for a manager that has the compulsory skill set to be able to source attractive deals and sort through the supply to identify strong investments at distressed prices. Finding a seasoned and successful distressed manager in Europe is very difficult as the region has not had the same history with those cycles that we have had here in the US.

The full interview can be found in the current issue of Investor Focus.