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Sep 15, 2019

Posted on
May 23 2018

On January 30th, 2018, the Guthrie Center for Real Estate hosted Amy Diamond as part of their Real Estate Center Executive Speaker Lunch Series. As Managing Director of Private Investments & Real Assets within the Northwestern University Investment Office, Ms. Diamond acts as a steward to provide a stable and growing stream of income to support the University's academic and research goals. At the lunch, she shared insights on how the office chooses new ventures to pursue, her career path into the role, as well as an outlook on the future of Private Equity/Real Estate (PE/RE) Funds.

Ms. Diamond's path into endowment stewardship started as an equity research analyst at Dillon Read & Co. covering energy companies, but she soon realized that it wasn't a career she wanted long-term. She then moved to a boutique investment bank focusing on healthcare companies. It wasn't until a serendipitous trip to California where she was introduced to the university endowment world through a friend working for Stanford Management Company, Stanford University’s investment office, that Ms. Diamond realized she was interested in this type of work. She immediately contacted universities back in the Chicago area to learn more and eventually joined the Northwestern University Investment Office. Eighteen years later, with a focus on private investments and real assets, she is an integral part of a team managing 10.8 billion in assets.

Ms. Diamond's objective in managing these assets is to protect the University's funds, as well as meeting its liquidity needs at any moment. In building the ideal portfolio, Ms. Diamond lines up 12-15 real estate managers, looking for a variety of property and deal types as a means to diversify the portfolio over time. Within the private equity portfolio, she is typically working with 40+ managers. Finding a new manager, however, is a very particular process, as it requires finding the right fit for long-term (10+ years) partnerships. Along with meeting the managers and visiting the real assets, Ms. Diamond and her team perform due-diligence on metrics, such as matching cash flows to investing in the public market, value creation models, and looking into how much of the returns are coming from leverage, NOI growth, cap rate compression, income, etc. After this, the choice comes down to the alignment of incentives and if the manager is disciplined enough not to invest when valuations are too high.

When asked about the future of PE/RE Funds, Ms. Diamond responds with the belief that there will always be a place for entrepreneurial capital in illiquid structures. What is changing in the future is having the right incentive structures. Whether the fund is leaning towards an allocator model or an operator model, the future PE/RE funds will need to build human capital incentives to attract and retain new talent. In recent trends in endowment funds, she pointed out the move towards programmatic JV's. In this move, she foresees there will be challenges in the required depth of knowledge and experience to execute on promised returns successfully. Lastly, funds will have to be more mindful of how disruptors such as autonomous vehicles, AI, and blockchain can influence the old underlying industries and the old ways of thinking of where and how to invest, and in-turn how returns will be affected..

As the externalities and realities around real assets continue to evolve, the investment office continually assesses how they allocate funds. Through a yearly assessment, their targets are reviewed based on asset allocation work to best position the endowment for liquidity needs, return expectations, and managing risks.

About the Author

This article was written by Rachele Louis  '19.