Josée Mondoux on advancements of women in the world of finance, private market investments and building
a sustainable DEI culture
CFA, CAIA, FMA, FCSI
Chief Investment Officer
Canadian Medical Protective Association (CMPA)
As the private market continues to transform and navigate successfully through the current inflationary environment and COVID-19, how have these events impacted the future of the private markets investing? How do private market investors need to position themselves in order to attain new opportunities, growth and ensure their portfolios meet fiduciary objectives?
In advance of Private Markets Forum 2022, Josée Mondoux, Chief Investment Officer, Canadian Medical Protective Association provides comments to some of these questions along with words of encouragement to women who are seeking leadership roles in the world of finance.
As Chief Investment Officer at Canadian Medical Protective Association (CMPA), Josée is responsible for the oversight of a $6.2 billion Reserve for Claims. She provides strategic leadership and management to the CMPA’s front office, namely the public assets and private assets units, as well as the middle office responsible for the performance and risk functions.
Josée: I think the opportunities and acceptance is varied depending which segment of the world of finance one is looking at. Clearly, there continues to be a significant absence of women in the world of hedge funds and private assets. Over my 25 years in the industry, I have seen some improvement, but not at the speed or scale one would like to see. It is comforting, however, to see many private firms realizing that it is not simply a matter of hiring or promoting women, it is about having a culture that is supportive of women, or anyone of varying gender/ethnicity for that matter. As for words of encouragement or lessons, I have found that the world of finance is still, mostly, a merit-based environment. Possessing an intellectual curiosity to better understand and contribute in a work environment and pursuing advanced education and leadership training can better position anyone, woman or not, to be rewarded in the workforce.
Josée: We combine both systematic and process-based approaches. We utilize the models we built to determine our commitment amounts, the composition of the portfolio, the sizing of our commitments, what is the optimal number of managers, etc. We devote significant time analyzing the broader market trends, opportunities and threats, yet ultimately our decisions are bottom-up at the selection process. In conducting detailed investment and operational due diligence, we consider opinions from varying team members in reviewing and building our thesis. Even though we are not as big as some of the pension plans that are managing larger portfolios, our allocation of 40% to privates is possibly placing us amongst them in terms of the strategic allocation. Yet, our size also means that we may not have the same restrictions they would have in their selections. For example, it may make more sense for us to commit to smaller sized funds or more niche strategies. By the same token, we will not have the same flexibility they have in allocating larger resources and dollars to direct investments or co-investments, which remains a smaller portion of our portfolio.
Josée: LPs are pushing for more transparency from the GPs, which should help mitigate risks (examples: ILPA recommendation on reporting, as well as ESG and DEI initiatives). LPs are also broadening the DD process with ODD reviews to help understand potential gaps that managers may have in their organizations. These efforts should lead GPs to better manage their operational risks. In addition, the SEC is also coming up with further proposals affecting private asset managers on areas of expenses, fees, as well as secondary transactions, which will impact the industry.
Josée: Managers will need to continue to focus on growth. Companies that compete on price or that have slimmer margins will have difficultly navigating an inflationary environment. Managers have been highly active in tech, healthcare and digitization, all growth areas where many companies have intellectual property and pricing power and are able to not compete on price. Inflation will likely act as gravity to valuations and what investors are willing to pay for growth will be under pressure. In recent years investors have paid up for growth and going forward buyers will be more selective, especially in sectors where margins could face pressure or where the growth is more speculative.
Josée: Fundraising for new GPs has been a challenge during 2020 and 2021. A reversion to mean should take place as more LPs and GPs start to travel, but over what duration that will happen is difficult to predict. With respect to new opportunities, we saw a fundamental acceleration of certain trends during COVID-19 and the current geopolitical climate is intensifying it further. The supply chain issues that started off with the pandemic have worsened due to geopolitical tensions, further increasing the demand for digitization, 5G, digital infrastructure and Internet-of-Things (IoT). Similarly, cybersecurity was another trend that accelerated as the world first adopted the WFH model. Now, with reports of Russia’s expected use of cyber weapons and attacks against Ukraine allies, the topic of cybersecurity is gaining attention again and we expect more capital to flow in this vertical of the tech industry.
Josée: Investments in the digital economy and technology are the largest segment of private markets investment, accounting for close to 40% of private equity deal value in 2021. We expect continued growth in this space for the foreseeable future. We have also seen a trend of businesses in traditional sectors (industrials, business services, etc.) looking to modernize and improve their operations through tech enablement, another trend we expect to see grow. The results have been equally as strong as activity, as private markets valuations and performance in technology have been a strong driver of overall private equity performance. This strong sector attribution helps explain the outperformance of growth funds relative to buyout funds. The ability of this outperformance to persist likely depends on whether valuation multiples can be sustained at their current levels.
Josée: On this front, I would say that I see fewer challenges today and more opportunities. The pandemic has brought upon a massive shift to working from home, something that is suitable for many institutional investors who were already used to doing their jobs while on the road and/or off work hours. As a small to medium sized institutional investor based in Ottawa, it had always been tricky to attract talent, at both the junior and senior levels. Since the pandemic, we have seen more doors open to us as we are able to attract talent from different cities, without a need for relocation. This widened pool of candidates allows for better sourcing in building a sustainable DEI workplace, which is a key priority for the CMPA.