Cameron Black is chief investment officer and treasurer of Blue Cross Blue Shield of Arizona in Phoenix. He is responsible for the company’s short- and long-term investment strategies and overseas its risk management. Prior to joining BCBSAZ, Black held positions in television production, was an independent investment adviser and a director in the foundation arm of a biomedical research institute. At the foundation, Black raised money and developed its investment policy statement and investment strategy. Though Black has a affinity for biology and found the cutting-edge science and level of commitment of the principal scientific investigators “invigorating,” he says, “I wanted to manage larger pools of capital.”
Black now serves on the investment committees of the Arizona Community Foundation, one of the state’s largest philanthropic organizations with approximately $1 billion assets, and the Arizona State University operating Fund. He also sits on the finance advisory board of W.P. Carey School of Business, (the business school of Arizona State University) and is an IA Advisory Board member.
IA: What is the mission of Cross Blue Shield of Arizona
Black: Blue Cross Blue Shield of Arizona (BCBSAZ) is a taxable, not-for-profit health insurer serving customers in the State of Arizona. We are an independent licensee of the Blue Cross Blue Shield Association. We have been in business for 80 years. Being a taxable not-for-profit entity makes us a bit of an anomaly. We pay full federal corporate income taxes as well as state premium taxes, but nobody owns equity in the business, which means we don’t have to pay dividends to shareholders. Consequently, when we have profits, we retain the capital. Over time, BCBSAZ’s investment portfolio has become a meaningful contributor to net income, which allows us to offer lower premiums on our policies than we could otherwise.
like many insurers, our portfolio is designed to have one foot in total-return land and one foot in current-income land. As a health insurer, we don’t expressly liability match. Because the tails on health claims are so short, we wouldn’t own anything but T-bills if we matched. We do have a bias toward short duration, however.
IA: What are Blue Cross Blue Shield of Arizona’s total assets?
Black: The general account is currently $1.8 billion. There is another $600 million so in retirement-related assets.
IA What led you to your current role with BCBSAZ?
Black: My undergraduate degree was in international relations and my first job after college in 1992 was in television production in New York City. It would be hard for anyone to predict where I might end up if you had met me even three years after college. But, out of personal interest, I began collecting designations including the CFA [Chartered Financial Analyst] and CAIA [Chartered Alternative Investment Analyst] charters as well as a CFP [Certified Financial Planner] designation. And, after a stint at an internet startup in San Francisco, I decided to pursue an MBA.
My next stop after business school (the W.P. Carey School of Business at Arizona State University) was another startup organization in Phoenix called Translational Genomics Research Institute (TGen), which was launched in 2002 as a public-private partnership to conduct fundamental and clinical research and advance the development of genomic based diagnostics and therapeutics. The then CEO of BCBSAZ, Rich Boals, was on the board of TGen and he told me about an open position working on investments in BCBSAZ’s Treasury department. The Treasurer, Kate Baker, was a phenomenal mentor who gave me lots of runway to take the investment program to the next level. When she retired in 2015, I became Treasurer and Chief Investment Officer.
IA: How is your investment team at BCBSAZ structured?
Black: My Treasury department is segmented into investments, cash and risk management. I have three dedicated investment positions. I hire generalists like myself and they are all CFA charter holders or working towards the charter. We run lean and know our limits. We only manage certain high-grade fixed-income internally and outsource the vast majority of the portfolio to specialists. We spend most of our time sourcing compelling opportunities and developing informed opinions about the markets.
IA: What is the asset allocation breakdown of Blue Cross Blue Shield of Arizona?
Black: AM Best has described our investment portfolio as being ‘bold’ for an insurance company. I assume that is their way of saying that we own less fixed income than the average health insurer. But, I doubt most of your readers would find us particularly bold. Nevertheless, I am proud of what we have done: We regularly benchmark to our peers, and not only do we have very strong relative returns but generally have better risk-adjusted returns.
Our current targets are: 48% diversified investment grade fixed income, 14% liquid non-core fixed income (includes HY, bank loans, structured credit and EMD), 6% private market debt, 15% domestic equity, 6% international equities, 11% alts (including real estate, private equity and some niche strategies).
IA: Which investment consultants does the fund use?
Black: We only have one investment consulting relationship and that is with Wilshire. We use them mostly for performance reporting, risk analytics and asset allocation studies. Tom Toth is the fund’s representative at Wilshire.
IA: How would you characterize your investment philosophy?
Black: I am philosophically opposed to losing money.
Aside from that tongue in cheek answer, I would say thatan investor needs to know his/her edge when they make allocation and manager decisions. For instance, it isn’t typical for health insurers to have private equity in their investment portfolios, but we decided to focus only on healthcare private equity because, by virtue of who we are, we can get access to the top decile managers that would not take our money if we were just an anonymous pile of money looking to allocate. In the middle-market PE space, the really good managers stick to their fundraising hard caps and they have no trouble raising money. For instance, one of the GPs we do business with is usually done raising money for a new fund in two weeks. That’s not an exaggeration. It’s literally, “We are raising our next fund, how much are you in for?…Sorry, we can’t give you that big an allocation…How about 75% of that…Okay, great, we will circulate documents in a week.”
IA: What is your view on active versus passive management?
Black: We believe both have a place, but the answer is not the same for every asset class. The difficulty in adding value through active management within large-cap U.S. equities is well known—especially if you are a taxable investor who cares about net-of-tax returns, like BCBSAZ. So, over the years, we have shed all our true active public equity exposure and now our public equities are split between tax-managed passive and what I’ll call semi-active-factor tilt portfolios.
However, within fixed income, we are 100% active and we don’t see that changing. The vast majority of our long-term outperformance has come from our public and private market fixed-income portfolios.
IA: How would you describe your management style?
Black: I try to lead by example and endeavor to overcommunicate. I find that it is easy to get people on board when they are truly in the loop and understand ‘the why’ of what they are being asked to do.
IA: What has been the best experience in your career?
Black: It’s hard to narrow it down to a single experience. I am fortunate that in my position I get to work with so many smart folks both within BCBSAZ and outside the company. Very few days go by where I don’t have an illuminating conversation with somebody.
IA: What has the worst experience in your career?
Black: During the GFC [Global Financial Crisis], there were many points where I just wanted to crawl under my desk and not come out until it was over. I felt that my crystal ball had completely broken and literally anything could come next. I also found myself being asked questions I couldn’t confidently answer–questions like “which firms are most exposed to a potential AIG failure and how can we hedge that risk?” In the end, it was fine for BCBSAZ, but it was a humbling period.
IA: In what part of the industry have you witnessed the most change?
Black: That’s a tough question because I feel like everything is changing so fast. Technology is dramatically changing the way we interact with, think about and consume information. There is no corner of our personal and professional lives not impacted by this. But if I had to highlight one thing, it might be the rise of factor investing. With all the available ways to cheaply and easily slice and dice a portfolio and to target desired exposures, it has made life very difficult for the traditional, fundamental equity investment shops that used to dominate the landscape.
IA: Are there noteworthy initiatives in which Blue Cross Blue Shield of Arizona is currently engaged?
Black: BCBSAZ, as a company, is focused on the social determinants of health and we try to make an impact not only with our business initiatives and charitable endeavors but even through the investment portfolio. For example, we look to support the development of low-income housing through tax credit investing because of the importance of economic stability to health outcomes.
IA: How about your personal life? Do you have a family and what do you like to do in your free time?
Black: I’ve been married to my wife Nikki for 18 years and we have a 16-year-old boy, Xander, and a 13-year-old girl, Julia. My family keeps me on my toes. Both are involved in competitive sports. It’s cross country and track for my son and tennis for my daughter. My daughter also competes in speech and debate and my son has a charity he started in middle school that has now raised over $100,000 for rare disease research.
We also love to travel, and we all love nature. The next two family trips on the calendar are to Costa Rica and to New Zealand.
IA: Do you have any hobbies?
Black: Before I had children, I would have said scuba diving and photography. Now, it’s spending time with my children and watching them grow up to be these awesome and fascinating people.
IA: What was the last book you read?
Black: I tend to read newspapers, trade journals and research reports, but I listen to lots of books on tape while I am traveling or at the gym. I am currently listening to Strategy Beyond the Hockey Stick by a couple of McKinsey consultants and re- listening to Ray Dalio’s Principles. Probably the most fascinating book I have listened to lately is Life on the Edge: The Coming Age of Quantum Biology by McFadden & Al-Khalili. The book discusses how quantum mechanics may answer probing questions regarding what is life.