Shannon O’Leary, chief investment officer of the Saint Paul and Minnesota Foundation
Shannon O’Leary, chief investment officer of the Saint Paul and Minnesota Foundation

Shannon O’Leary is the chief investment officer of the Saint Paul and Minnesota Foundation, which provides support to non-profit organizations in the Twin Cities and greater Minnesota. O’Leary has emerged as an irreverent voice among institutional investors through her biweekly newsletter named “Say It Out Loud.” In fact, one issue is focused on the importance of being irreverent, and how having a quirky approach when chatting with potential managers can separate the wheat from the chaff. (Another recent issue was entitled: “Have we reached peak stupid?” And, sadly, the answer appears to be ‘no.’)

You’re a supporter of emerging managers and diverse-owned firms, what do you like about that side of the industry?

There are tons of data points out there about the benefits of diverse-owned funds and the higher IRRs they produce. And I don’t see a reason why that would change overnight. Not investing in diverse-owned funds means you’re not only missing out on people with unique backgrounds that help them think differently, but you are also missing out on working with people who are very hungry. If you have a super-established firm and all of the founders are in their 60s, most of them are not hungry. They’re already millionaires.

If you’re looking at a diverse-owned fund, they are hungry. Working with a diverse-owned fund means you are working with individuals who know they have to scrap when they fundraise. They will be very appreciative of their LPs and, most importantly, they are going to hustle. And hustling matters a lot in ensuring successful financial results in private markets.

You are quite possibly the only LP to review your DEI grades with people seeking your business.

A lot of large LPs have mandates where they score managers and potential managers on their DEI efforts, but it sure seems like a lot of it actually is just checking boxes. For us, it’s not about checking boxes. Our foundation has a very strong commitment to diversity, equity and inclusion and we want to reflect that in our investment decisions. What we invest in here at the back of house should reflect the same values our foundation so clearly expresses at the front of the house in our grant-making work.

“We frequently see managers constantly interrupting us while we are asking them questions. They show an inability to listen. If you’re not listening enough, it prevents me from being able to ask the questions that I want to ask”

By reviewing a manager’s DEI results, we can get information from firms that sometimes they may not even have shared internally. We can help move managers in a positive direction in diversifying their investment staff.

And we can also learn more about how they developed their investment philosophies, too. At this point, we have developed a reputation where some managers will come to us not just because they want to pitch us, but they heard from another manager that we acted almost like a consultant and helped them improve their approach to diversity efforts.

The industry’s decision makers are by far majority white and male. Our approach is: “Hey, look, this is where we are as an industry. If we aren’t willing to work with white male dominated managers for a potential investment, then how are we going to make any substantial change? We need buy-in from these folks.” And I’ll say that the tone in our diversity conversations has really shifted dramatically since 2019.

You’ve written hilarious material about mistakes managers make.

I’ve talked with a lot of other CIOs and we all collectively agree that a significant part of our day is devoted to deleting emails. It’s very hard for managers to even get in the door of a potential investor. But let’s say you do get in the door. If we’re on a Zoom call to screen a potential investment, we frequently see managers constantly interrupting us while we are asking them questions. They show an inability to listen. If you’re not listening enough, it prevents me from being able to ask the questions that I want to ask, and that’s not a good thing for either of us.

We almost certainly know a manager’s strategy when we begin talks with them, and we have met with many of their peers. We want to find out how a manager is differentiated from its peers. Some managers lack an awareness of how they are differentiated, or they may be unwilling to make that clear. Then it becomes our staff’s job to find those differentiators, when it could have just been explained earlier in our conversations.

How does private equity fit into your $2 billion investment portfolio?

We’re not short-term investors; we can be strategic. Our long-term policy is a roles-based allocation strategy. We have about 65 percent targeted to equity and equity-like risk and return profile assets in our portfolio, both public and private. We also have large components for fixed income, private credit, hedge funds and for the “hard stuff” like real estate, infrastructure and clean energy. But we really do maintain a lot of flexibility.

We have a well-seasoned private investment portfolio. We’re not in the part of the J-Curve where you’re paying a lot in fees without getting anything back. We focus on managing our private pacing schedule, but we can lean in on things that are more interesting, and we’re not afraid to be creative. We’re not depending on a consultant to bring us a Fund XII or a Fund XV. We can be nimble and participate in new and creative private market approaches.