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Hightower Holding, a Chicago-based wealth management firm, has agreed to acquire a majority stake in Boston-based investment consulting firm NEPC.

Hightower and NEPC executives said the deal should close in early 2025. They declined to provide further details on the costs of the transaction, beyond noting that NEPC professionals would continue to retain significant stakes in NEPC, as well as Hightower.

Small US endowments and foundations are racing to outsource their investment management in the hopes of getting access to profitable but illiquid alternative markets amid growing funding challenges.

After studying economics at what is now Simmons University, Krissy Pelletier “was lucky to work with a great mentor (and) portfolio manager” on the public market side of Wellington Management. She still remembers the words said by Michael Carmen to set the tone going forward on her first day as an administrative assistant.

“He said, ‘Krissy, you didn’t go to Simmons to get this great degree simply to be an administrative assistant. So tell me, what brought you to Wellington? What made you interested? Let’s talk about what I do and how we can work together.’ He wanted to see me succeed. He was interested in what I wanted to be a part of,” Pelletier said.

She would leave Wellington in 2006 as a stock-focused research associate, but Carmen, who is still at the $1.25 trillion firm as co-head of private investments, still serves as a mentor to her. Pelletier still checks in him now as a partner and head of endowments and foundations at the $1.7 trillion consultant NEPC — and as a member of Pensions & Investments’ 2024 class Influential Women in Institutional Investing.

To find the next generation of talent specifically, “you have to look in non-obvious places,” Krissy Pelletier said. At the $1.7 billion consulting firm NEPC, she serves as partner and head of endowments and foundations.

Rather than just finding prospective candidates at conferences or networking events, recruiters and hiring managers need to be “engaged with different colleges and universities,” she said, adding that they should reach out to their network and say, “I’m looking for people with these types of qualities” as opposed to what specific role they want to fill.

“There’s a lot of training we can do in this industry, but there are some really important qualities that we should all be looking for, whether that’s intellectual curiosity, productivity or excitement — people just wanting to make a difference,” Pelletier said.

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For NEPC’s Pelletier, she had the benefit of having flexibility as she was studying in the Executive MBA program at the University of Virginia’s Darden School of Business. From 2012 to 2014 — a time “before hybrid was a thing” — she travelled from her home in Boston to Charlottesville once a month for two days, and attended online classes two times per week.

During this “really difficult, but such a rewarding experience,” the consulting firm allowed her to maintain her full-time job by compressing her work week from four days to two days. In addition to her then-partner and now-husband’s support, Pelletier said that NEPC “really invested in me” and “set a tone for my success.”

This happened before Pelletier became a working parent in the industry, which is a subject “we should talk more and more about, and encourage people to share their stories,” she said.

U.S. public pension funds chalked up a second straight year of positive returns for the fiscal year ended June 30, with half posting double-digit numbers despite a somewhat muted bond market and continuing challenges in private markets.

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Margaret Belmondo, partner and public fund team leader at investment consultant NEPC, echoed that it has been frustrating for the firm to see such a narrow market outperforming when they want to create a diversified all-weather portfolio, but signs are the market is broadening again since the beginning of fiscal year 2025.

“We’re seeing a broader market in value names, and we’re also seeing it in small caps, which is great,” Belmondo said. “It’s so hard because our clients are diversified across all asset classes … so we want to create an all-weather portfolios. It does get frustrating when you just see this narrow market outperforming, but we do see ourselves coming out of it.”

“I also think with the Fed going to begin to cut rates in September, that should be a tailwind. But there’s still a lot of uncertainty,” she said.

From a young age, Krissy Pelletier has spent time volunteering with schools and nonprofit organizations. Her love for the work taught her to build strong relationships by listening to people’s stories and interests, and getting them “to pull that passion” into the job.

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Shifting to work in the nonprofit sector, Pelletier took on seemingly every role including writing grants and planning events. “It was a great experience, but I knew after about a year that I wanted to get back into using my investment acumen,” Pelletier said.

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Sarah has traversed the industry, alternating between asset management, investing as an asset owner, and her current role in consulting. After she earned her bachelor’s degree in German and Business from the University of New Hampshire, she spent six years at Wellington Management Company and one year at Boston Advisors.

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II: What is the biggest challenge facing the industry today?

Sarah: The biggest challenge facing the industry is the required shift in mental models to adapt to an environment where cash and fixed income are viable options to invest in the face of inflation. These are things that anyone under 38 has not had to develop a skill set for. There’s a whole swathe of investors who need to re-map how their brains work to build portfolios, and it may change some long-standing assumptions.

The other is, do the map: Model out what the deals are today.

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II: What is the most exciting part of the job that gets you up in the morning?

Direct investing can provide family offices greater control over their investments and higher rates of return than private equity or venture capital funds. But the proper due diligence to make the right direct investments can be a challenging resource commitment for many family offices.

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“What’s become a little more common is families that are investing more like a syndicate, where they’ll put a consortium of six, eight or 10 families together,” said Dan Gimbel, a principal at NEPC private wealth. “Oftentimes those families will have varying backgrounds in different industries where they created their wealth. They may source a business in real estate, another in manufacturing and another one in oil and gas.”

Richard K. Ciccione joined NEPC in 2017 as a senior consultant and has 19 years of experience in institutional investment consulting and financial services. He is a senior member of our endowment and foundation consulting practice and serves on the impact investing committee and the discovery platform committee. In 2022, Rick relocated from Chicago to Colorado to spearhead NEPC’s presence and growth in the Mountain West and Southwest.

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CIO: What changes are you making to your asset allocation advice, given the current state of monetary policy, geopolitics and the impact of inflation and rising interest rates?

Ciccione: Our endowment and foundation clients construct strategic asset allocations that are revisited annually but changed infrequently. However, the latitude they include in their investment policy statement allows them to tactically take advantage of some near-term opportunities. A few recent tactical changes that many clients have made include introducing (or maintaining) a dedicated allocation to large-cap value stocks, shifting safe-haven fixed income from Treasurys to TIPS, and cementing some gains by rebalancing public equities back toward MSCI ACWI weights. With the tremendous run of the Magnificent 7 stocks, large cap growth has performed exceptionally well and skewed the S&P 500 from a core position to a growth-biased holding. Therefore, to reduce the style bias in a portfolio, we are advising clients to take about a quarter of their S&P 500 exposure and invest in large-cap value. TIPS also present an opportunity to generate modest outperformance versus Treasurys going forward, with elevated inflation in a higher for longer environment. Finally, going back to a lesson learned in Investing 101: sell high, buy low. Based on this simple premise, we’re advising clients to rebalance public equities back toward MSCI ACWI weights after strong performance from U.S. equities.

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CIO: What actionable thing have you learned over the course of your career that has proven itself this year?

Ciccione: While my path to investment consulting hasn’t been a linear one, the primary lesson I learned early in life, which has been reinforced repeatedly during my career, is act with humility and treat people with respect. My parents instilled that in me at a very young age, and it was easy to follow the example they were living daily. I was working at Lehman Brothers as the ship hit the iceberg, and my severance was tied up in bankruptcy court. To make ends meet, I humbly filed for unemployment, cleaned up construction sites and plowed snow overnight.

As it translates to investment consulting, we need to have the humility to acknowledge we’ll get asset allocation recommendations wrong periodically, and at times, investment managers with whom we invest will underperform. This year, any diversification away from the S&P 500 (and the Magnificent 7) presented a headwind to performance. However, being transparent with clients and presenting the rationale for decisions we make helps to garner trust. The only thing we can control, at the end of the day, is how we service our clients. If we aren’t servicing them well, then they have every right to look for someone who will.

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CIO: What asset classes (specific securities or sectors) look good to you now? Why?

Ciccione: We are constructive on lower middle market value buyout strategies in this market environment. Many buyout strategies were able to generate attractive returns through financial engineering during a low-interest-rate environment. With the current elevated rate environment likely to persist for a while, based on Fed Chairman Jerome Powell’s most recent communications, the days of being able to financially engineer attractive returns are behind us. Therefore, we believe lower middle market buyout firms that are focused on low-entry multiples and act as operators give investors the best chance to generate the attractive performance that is needed to generate the total returns our endowment and foundation clients desire.

Additionally, I believe emerging markets equities are poised for a more attractive decade going forward than the sector has experienced recently. My thinking is threefold; First, valuations in emerging markets are attractive on an absolute basis, as well as relative to developed markets equity valuations. Second, the U.S. dollar is trading near historic highs versus many emerging market currencies, so any return to more normalized valuations will serve as a tailwind. Finally, almost everyone else is bearish on emerging market equities, which makes it a perfect time to buy, right?