Anne Martin - Pulling the Oars as CIO of Wesleyan University (Capital Allocators, EP.114)


Hello I'm Ted Psyches and this is capital allocators. This show is an open exploration of the people and process behind capital allocation through conversations with leaders. In the money game we learn how had these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting Capitol allocators podcasts Dot Com by guest on. Today's show is and Martin the Chief Investment Officer for Wesleyan University where she manages the schools one. A billion dollar endowment career started in the tech world and shifted to endowment management at Yale's famed investments. Office she took over at Wesleyan a decade. Hey to go. As one of a handful of Yale Investment alums serving other institutions our conversation covers and path from competitive rower to the tech back world and a fortuitous connection with David Swinson recovered the transferable skills from private equity to endowment management. Key lessons learned at Yale. Oh experienced taking on startup at Wesleyan application of knowledge to a smaller pool of capital development of a team and a portfolio perspectives on natural resources venture capital and Wesleyan's competitive advantage as an alligator. Today's show is sponsored. Servite top traders unplugged dot com a podcast dedicated to quantum based investing each week. You'll hear up today. Conversations between hosts Neal's Costra Larsen and Turtle Jerry Parker about what's happening inside quant strategies real time as well as deep dive interviews with some of the world's leading quant legends and Thought Leaders Including Turtle Mentor Richard. Dennis H. L. Founders Adam harding and luck and professor Andrew Meals. Also Co wrote the book how to master manage futures with Catherine Kamensky which explains the foundations of systematic strategies. His second book the many flavors of Trent falling is available bowl for free at top traders unplugged dot com slash capital. That's top traders. UNPLUG DOT com slash capital for free copy in. Today's show is sponsored by northern. Trust Front office solutions when I talked to investment teams in. CIO's they often echoed the same concern that they spend too much time managing data and not enough time analyzing it two years ago. Northern Trust took a different approach to this problem and funded an internal startup called northern entrust front office solutions. They gathered together a former endowment chief operating officer a front-office technologist from a Multi Billion Dollar Hedge Fund and Award Award Winning Design Team and a Fintech company founded by Quanta coded for Harry Markowitz himself working alongside dozens of clients to take on this shared mission and the result is a cloud based custody agnostic platform that empowers asset owners with better operations and technology support to meet their middle and in front office needs visit northern trust dot com slash solutions. For more information. Please enjoy my conversation with him. Martin Martin angered to see. It'd be here. I want to start with competitive sports because so many people in this industry ustry at some point in time competed. I know you're right there in that. Mix Okay you're right. I am guilty as charged. What was that like back in your crew days news so I think certain people just are born with a certain energy level? Nobody told me I had become a rower but when I was eight years old I joined a local swimming club and I loved it and I was one of those kids. That couldn't be happier except swimming back and forth over black line the pool for hours so somehow I always had that that gene I guess and when I got to college I actually swear my freshman year in my event was a four hundred I am which is the most painful event on the planet and I actually did pretty well qualified for the division three championships and and I told the coach. I'm not going and he said you're not going to the national championships. I said to US National Championships for me is just four hundred. AM another painful event. So I ended have going skiing with my family instead so I was burned out in swimming as so many swimmers get by the time it was ready to call it a day and one of my roommates on my hallway was a rower. Said you ought to come out and see this sport and I went to Smith. We had this beautiful little pond called Paradise Pond. I met the coach. He said go down to the pond and just do the recreational weary rowing growing of a big very stable boat around this tiny little pond and I instantly fell in love with it. It was the middle of the spring the crew already in session but somehow and this could never happen today today but the coach would take me out on the Connecticut River which is really fast and furious in the spring. And I'd be in this little single or double with him and I learned to row that way so went out for crew through the next year. I did my junior year abroad in Paris but came back my senior year in road and we had a new coach. She had been on the national team. Kathy Keeler she was actually married to to the Harvard. Coach Harry Parker. I didn't even know rowing wasn't Olympic sport or World Championships for it. And she encouraged me to go to the national team testing. And I and I did. And I had great scores on the Erg and got invited to development camp. And that's how I got started. How far did you take? So let's see. That was my senior year. I instantly got the bug. I was convinced I could make the Olympic team someday and so I left college without a job at least without a real job. I moved to Boston awesome so I could. Train and distribute community of rowers one of whom worked in consulting and said you should go and interview at my consulting firm that was a great fit. They hard me and so I spent four or five years in Boston between eighty three and eight rowing training and working at the consulting firm in strategic development so it was a kind of a balancing act but it worked out great. It's not something you could do today. But it worked for me then and I made the eighty eight teams so I was on the national team from eighty five to eighty eight. And so then you want to your career your four years of consulting or three years of consulting which was great. But I knew I didn't want to be a consultant. I met my future husband in rowing. He was moving due to the west coast to take the Stanford Freshman Rowing job as a coach and so I moved out there work for another consulting firm for a year and then went to Stanford Business School also. I graduated in ninety one. I went right to Alex Brown which was my first introduction to finance over my summer at business actually work for Microsoft. I really wanted to see what it would be like to be inside inside a company that did something and let's see. It was probably six thousand or nine thousand people then and I thought it was huge. I feel feel like a cog in the machinery here. This is a great company. But I don't WanNa work here so I ended up going to this. Small Investment Bank called Alex Brown which focused on emerging growth companies. I was in the technology acknowledged practice in San Francisco. This one thousand nine hundred one people who are old will remember. It was actually kind of a terrible time in tech recession. Especially there wasn't a lot to do the first couple of years but it worked with the group I started out in some conductors disk drives moved to some software and then a partner and I I spun off to do the New Media Group. We started this thing called new media and that became the basis for the Internet practice there so that started in like ninety four ninety five with broederbond electronic arts and quickly moved into the Internet so I was involved with the Amazon. IPO The EBAY IPO. We represented zip to which was Elon. Musk I company that nobody knows about. We sold that to compact so there was a lot of really interesting deals than Alex. Farm was sold in ninety ninety nine and I left a week later. That wasn't in my plan to work for a big German bank and from there so I went to a private equity firm after that called Rosewood capital was there for three a years. But in the meantime my husband had gotten the achie- had been the freshman rowing coach at Stanford and then coach at a high school in in San Francisco. Oh and in two thousand. He was invited to be one of the coaches for the Olympic team. He's also two-time Olympian Eighty eight and ninety two and he ended up coaching the silver medal pair in two thousand thousand which forced us to move east coast after that for one year so he could train so I was working for this private equity firm on these. It was impossible so after that that when we moved back he really wanted to coach at a higher level. He got the Yale Rowing Job. Until we moved to new haven and I left my private equity job and then I met David so so. That's how I got to investment management and so through the experience you had in banking and private equity. What priors did you bring with you when you started? I work at the office. Yeah so interestingly there's a lot of stuff you have to leave behind when you enter. Investment management from investment banking. I mean the first thing you have to leave behind is your transactional mindset because when you're an investment banking it's all about the next your fee generating and that's how you get paid. So doing the next deal is sort of what you live for when you get to. Investment management is about doing the right deal at the right time with the right level of thoughtfulness. So you have to leave a lot of that behind on the other hand what you bring with. You is a much deeper knowledge of the capital markets. Then many people in investment management. I think there's a greater understanding of how equity formation work over the life of a company. What makes something attractive when your banker you constantly sifting through companies thinking about about well? I am underwriting. This and I am putting my firm's name on this. What makes a good company until you bring some of that with you? And then the other thing that really helped me was was because I was in emerging technology. There was a whole network of people that I knew from my nine years in San Francisco that were venture capitalists US Growth Equity Investors CEO's and that provided a really nice database for me when underwriting new venture positions for Yale. There were people I could call who I felt would give me a very candid view of people. We were trying to underwrite so those are a couple of things that were super helpful so when you joined Yo you do in private equity side. Originally I came in as a consultant and only because when we moved to the East Coast for John's job I took about eighteen months. Aunts off a twin boys at that point there were seven years old and was trying to get them situated in school. There was just a lot of change. We'd moved to Princeton for one year. Old John Coaches team back to San Francisco Cisco we moved to New Haven and so that was the right thing to do. I signed him up for Little League. They got assigned to a team in the coach. Was David Swinson. So that's how we met and so my kids played baseball. David and I got to be friends when I decided I was going to go back to work. I just started talking to him about what's available in Connecticut. What should I think about and he said why? Don't you come in and and we're here. I said I don't know if it's a fit. He didn't know whether it was a fit as you probably know. It's very unusual for Yale to hire somebody laterally and I didn't know anything about what they did honestly and that was probably one of the things David liked about me. I didn't come in with preconceived notions so I started as a consultant and after several months they offered me a full time job. I started actually natural resources. I did a lot of discovery work in the world of mining to see if there was something interesting to do in mining and I manage the oil and gas portfolio over time surged to take on more and more in venture capital and private equity with Tim Sullivan. And that was great. That felt how much more familiar to me. I often joke that I worked on the two parts of portfolio with the most entrepreneurial people in the world if you think Silicon Valley entrepreneurs are unforeseen Go meet the people in Texas that are drilling for oil and when you first were meeting managers. How did the Lens that you had from Guess banking but also sitting in private equity shop and form what you thought. Yeah interesting I think so. The banking part informed the ability. Look at the actual portfolio and understand the quality of the underlying companies and why people were investing in them. The other piece being inside partnership ship is a great education. About how difficult partnership czar and one of the things we care a lot about an investment management is longevity of the team. You're investing behind the stability of that team or ability to mentor. Other people their ability to share economics overtime. When you're in one of these firms I think you viscerally learn how difficult that is? These are really tough. Balancing Acts Finding the right chemistry between these partners is really important and not always easy easy to find so maybe that allowed me to ask the hard questions about tell me about your culture your organization the economics that had I not been in that position of private equity. I wouldn't ned known to ask. And what did you find when you first got to Yale. There's a group of people that are have been terrific at what they've done but they haven't had that similar type of experience before going so we're there situations where you found even within neal's portfolio that you wondered about the partnership dynamic or the quality of the companies people are investing. I wish I could say yes but I can't even remember that far back. That was like fifteen years ago now. I'm sure I might perspective with additive but I mean the yellow people are obviously so well I and what they're doing. I do think the perspective of having lived in Silicon Valley having worked with these companies. Having seen the distortions that can be created along the way was helpful in sorting through Suffolk comes over the transom. War Interpreting if a manager the jurors in your your conference room. And you're saying tell me about these five deals and you know to ask for you. The lead the lead where you lead. No no no and you start start to realize okay. This manager has fallen from a place where they were setting the terms and the they were going to be the first phone call from the entrepreneur to tagging along with other people. What do we really want to invest with this firm? So it's a few things but it's hard to remember that and what were some of the lessons that you learned from sitting at Yale that really resonated good for you. The first thing is how high the Baras it is super high and how high you have to keep it. I was just shocked. Shocked at how many investment opportunities are until you're in that world and especially at a place like jail where everybody wants to at least have a meeting. I don't know that you can really comprehend the number of opportunities that you have to sort through. So that's pretty nutty into. How did you manage your time when you were there? When so many people I want to meet with you Tim Sullivan? Say this thing which has really stuck with me and I repeat it often. which is you don't have to do every good deal just every deal that you do have to he good and so you have to be not afraid to miss something good? So you're really playing the odds here. You want to have a very high hit record and it's okay if you let one go I hi. It's okay when you filter to say okay. I'm going to have these first. Principles of this has outside ownership in the GP. Forget it or there's been a lot of turnover in this firm firm. It's going to be too hard to underwrite. There's that kind of filtering that could go on a front where you can just eliminate a lot of things very other big principles that stuck with you. Well Independence's attendances. Obviously a huge one the economics accruing to the investment professionals. That are hard at work. Every day is a huge one. The the focus on returns for our managers rather than on attic gathering having an appropriate size for the opportunity set. Those are those are really first principles. I would say something over time that maybe is quite as obvious that everybody I think eventually gets to and something I really underscored yell over and over again the quality of the people that you're investing behind if you don't want to go to dinner with them. I often tell my group this now if you don't want to go to dinner with them. Let's not invest with them. Because you're not really investing for the good times you're investing for the really terrible times when you're going to have to be in the trenches together and so how are these people are GonNa treat you then. How honest are they going to be with you? How much of a frank conversation sation can you have? And if the chemistry is not right then you never going to be able to have those conversations so it just makes sense to sort of move on. How do you balance that concept except with the idea that we all have a tendency to like things that are familiar? So do you end up surrounding your manager roster with certain in personality type as opposed to. Maybe there's a great head tra- manager whose bombastic and you might not WanNa have dinner with them but you can verify is actually a good person person just not your type of person. Yeah that probably wouldn't go in our portfolio. Do you think that creates any kind of behavioral bias. Probably but it it doesn't again the world is very big. There's lots of opportunities so it's I think it's okay and I don't have any facts to prove this but I think the bias is probably is probably in our favor on that one. Why somebody bombastic? Why are they touting something? Why do they want to be in the headlines that says something about their personality as as opposed to you know I'm a rower? So what does that mean like. You are never in the spotlight. Nobody comes your races while you're doing it and it's the hardest sport in the world the ratio of working working out time to actual racing time the poorest that I can think of across any sport except maybe swimming but people are very serious it's Nossa grindstone. They care a lot. bombast is sort of the opposite of that so it just doesn't work very well with us. We're much more interested in people who are super serious about what they're doing can explain. I don't really have to light. Liked the person but I have to respect them enough and I have to be able to have a conversation with them and they have to be interesting enough and articulate enough to help me get inside their mind. How many years did you spend it you sex and how did you decide or when did you decide that it was time to step into a CIO? Yeah I would say I wasn't wasn't looking. I was perfectly happy there. The story of Wesland is one that goes back to one thousand nine hundred twenty nine for my family. The call didn't even come from a head. head-hunter came from my uncle who attended nineteen sixty one and had been on the board. He was married at the time but he called and said look. We're going to open up the search. Would you have any interest. I I really hope he would consider it. And so my great uncle attended in twenty nine. My uncle is sixty one. My sister was eighty eight. My brother was eighty two a cousins that were at eighty to ninety. My niece just graduated in seventeen so of had almost one hundred years of history with the school I knew at the time it was super small. The five hundred million. There's certainly a lotteries not to do it but there were a lot of reasons to do it to number one. I really cared. I'd grown up singing these Wesley and fight songs and so even though he didn't go there I always loved the school. In fact I probably would have gone there but my brother was only fifteen months older than me and he was already there. At the time I was looking at colleges. There was no campus on earth. That could hold the and now we're best friends of course but so anyway. It was very appealing from a psychic awards standpoint. It needed help. It was clearly undermanaged for a long time and and I believe in the mission of the school there was a new president who thought it was really doing a great job. I wanted to work with him so for all those reasons. It seem like an appealing opportunity. When I looked at what was going on at Yale I loved it the people that are so smart? I always felt like the dumbest person in the room. which if you're the type of person that's a really appealing environment? Felt like it was constantly learning but I did see a time where three or four for years out in the future if I were doing exactly what he was doing every day. Maybe that the learning curve would run out and so it seemed a little early but on the other hand I also taught an opportunity where I would have the same real psychic poll. I don't know what that would have been. So that's why I went and that was now ten years ago I guess just about the. What did you find when you showed up? Well it's hard to know even start to say it was very much a startup kind of opportunity. You name it. We had to work on it. There was one person there was some institutional memory there were a lot of excel spreadsheets with performance. None of which I was certain Britain didn't have fat finger errors in them and there was a portfolio with twenty six managers in it and there was an investment policy statement that had been written I think in nineteen eighty a two and was completely like we weren't in adherence to it and there was a spending policy that had been written in nineteen sixty one that we weren't in adherence to either so there was a lot of work to do so we ended up having to do all those things figure out the back office system put a new policy portfolio together. We had to review the entire portfolio decide item and everything sort of went into red yellow green bucket and hire people. It was just. It was a lot of work but really exciting. Let's turn them Focus Choson County investment side of it so you had a model or a structure in your mind from working at L. and now you're going to much more pool of capital. What did you you take what you leave behind? So I think the core tenets of being equity oriented diversified are sort of universal. And you really want to adopt those so that was clear. I mean and we have a very high hurdle as well. We think we have to make seven and a half a percent nominal over long periods of time. And you can't really do that unless you're the equity oriented so those sort of things seemed obvious. We didn't have some of the same flexibility in our capital structure that yelled from. And what I mean by that is we had about two hundred million dollars debt outstanding at the university when I came five hundred million dollar endowment pool so we knew we could not generate liquidity by going back out out to the capital markets so we had to generate all our liquidity internally. That means translated that we could never be as liquid as Yale so that was something. We did a lot of modeling around to try to figure out what was a liquidity risk. We could really take. And where did you come out on that on the policy portfolio. So when I started it was about thirty five percent we set as a ceiling. And now it's up to forty two percent but we've had to do that gradually over time and at a billion we've got more room to do that. So that was was one of the things that was really different about the portfolio. The other thing that Yale does extremely well as find really talented people put them in business and I quickly realized like that's not can be the model for us. We are not price negotiators. I spent a lot of time at Yale working on L. P. A.'s and negotiating terms. We're going to be a price taker. So it was sort of a take it or leave it decision decision when we found managers we liked rather than I mean. Yes we like to say we punch puffer waiter. People want to hear our opinion but the reality is that the the larger investors are setting the terms so that was one big difference and then over time. I think what we've had to think about is how early can be with managers you know. Do we want to be a day. One investor. Do we want. That'd be a day to investor you know we have different risk profile. We have a different set of resources that were six people. So there's only so much we can do and and our capital because we're so underfunded we have three thousand students at Wesleyan and when I came as a five hundred million dollars endowment for three thousand students now now it's a billion one for three thousand students but our size one of the largest universities in the Nasdaq and we've gotten bigger but we're still undersized versus some of our peers so calves really precious so preservation of capital. Something we think about a lot. How did that translate into what your allocation looks like? Say Today we believe in the look. What model still? It's awfully hard to see how you're going to get the kind of returns we need without taking some risk on private equity and venture capital and we. You're lucky enough to have some nice venture capital relationships like that. It's one thing I wouldn't do if I hadn't come from Yale and brought venture capital relationships with me or come from Silicon Valley where I'd had the network. It would be really hard to build otherwise and I would be afraid of making a lot of mistakes if I didn't have that experience experience but we did build a venture capital portfolio so we have taken risk on the privates and venture we have a mid size real estate portfolio. Oh the smaller oil and gas portfolio. But it's really that's not an area we've emphasized sort of moving away from that and then Marketable and absolutely turn we we have but we have a much larger public equity portfolio than yell. Does we probably always will. But I think one of the things you have to figure out over time is what are you good at as a team and I think we've made great choices and private equity and venture. Those both really worked for us. I think we've been really good in real estate to. We've done a nice nice job on domestic equity. I feel like we've taken our punches in emerging markets and in oil and gas and I think over time. We're we're more cautious there because we wondered like are we getting better or we just bought at this. I think we have to figure it out over time and are those punches using on a relative basis relative intersection. I'm why do you think is to areas out of eight or whatever it is that you had to weaker results in and the others emerging is just just hard because it's hard to find great managers in emerging markets. The return on time is so terrible. We've been going to China for years and years going to India. There was a period of time for years or five years. We went to Brazil ton and we ended up with no managers there. So it's just been a slogging so you know I think that today we're seeing the quality of the manager in China for example. We're seeing some really interesting managers but if you go back eight years ago oh I think there were fewer and farther between we settled a couple of times to get the exposure and to get some learning under our belt. And you know. In retrospect those didn't work out. I mean it didn't obviously they kill our returns and maybe take some punches to figure it out so when you're looking at say underwriting. A new manager portfolio saying China or something else. How much comfort do you take in the company of the select crowd of people that you've worked with and that you know that are looking at a similar manager compared to just saying you know what you want to be in your shell rowing on your own? Yeah it's really a balancing act right because you don't Wanna be overly influenced by the thinking of other people. They could be right but it could still be a poor fit for you for all sorts of reasons but on the other hand if you find somebody like Asia and no other great investors investing alongside you. I think you have to ask yourself like am I that much smarter than all these people yell who have been doing this for twenty years or at Princeton or it's like why aren't they here side by side with me or Williams bowdoin and then you really better go back to the drawing board and figure out like why you've love this manager and nobody else has and maybe you're right but you'd better triple check their work in the situation and what. What is that process? I mean is that your triple checking your work on your own or you calling those people and saying hey i. Am I missing something here. Yeah I mean I think we're willing to pick up the phone. Call people well and try to figure out. Are we missing something here. Particularly if we know other people have looked in past but those answers can really very could be like. You're looking at a venture capitalist and you think it's it's great and you can't figure out why isn't so investing you call them up and they're like Oh my God. I'm so over my skis in venture capital. I can't make another investment so there are other reasons that people might not be side nightside with you but you do want to make sure you didn't miss like. Oh Yeah we do those guy and he's a really bad guy when you're looking at let's say venture capital in particular. You Start Your portfolio with relationships that you're pretty comfortable you've got the right ones. Maybe you're accessing capacity than over time. You look in newer managers. What's that a process like in trying to underwrite a smaller venture capital fund or something that isn't known by the community to be oversubscribed correct? Yeah I think it's really hard again. Here's a place where we've done some experimenting and tried to figure out. How good can we be at identifying those emerging merging managers in venture and? What are the issues that you have there? There's two things we really wrestled with one is. There's a lot of them if you look at my inbox inboxes often go through these phases. Where you'll see? I remember there was a time when I was at Yale and I would get ten funds that were an agricultural cultural businesses every day. I didn't even know there. Were this many funds doing this but the team does your is definitely the small under one hundred million dollars venture refund and there's just so many of them they could be great but we only are five people and we have to manage the entire portfolio in so sifting through that to try to find. The Gem is really really hard. I think the other thing. That's very hard is because venture has such a long feedback loop that you're going to be on the third fund before you really even know and that gets back to like. How are you going to size if you do decide to do? Some emerging manager. How do you size it so that you're not when you're three funds steep you haven't committed one percent of the endowment to this manager who's unproven so you really have to think about sizing if you're going to do it so I'd say it's not impossible? We we have taken a few bets there. But we're in a period of time were venture has had this unbelievable tide rising that has has made all boats rise and we think about a lot is when the tide goes out which it will inevitably. Who is doing this for the right reasons? And who who is just who's going to be left standing. Who's going to say that this is too hard because it is really hard? I mean it's hard when times are good. It's really hard when times are bad. And maybe this. This is one of the things that I learned in private equity because I joined my firm was focused on Internet and consumer mostly consumer but we I joined to look at we're Internet meets reads consumer and I joined them in September of ninety nine so every investment we made went through a very difficult time in the next three years while I was there and so I saw a lot of pain so I know how bad it can be at the bottom of the market. So you're not investing with people hole for like. Oh I just want exposure and everything's working right now. You really have to think about what is going to happen when the tide goes out. How big a problem is this portfolio? Folio how willing are they going to be to work through it. How high quality is this portfolio that you can actually survive a downturn? All that stuff really matters. How do you tease that out in your meetings with managers editors we ask? Why are you doing this and we ask when we pick up the phone and due diligence? 'cause you ask. Why do you think this person is doing? It made a ton of money at their start up and I think part of it is just. It's less about trying to figure out why people doing it but once in a while you come across the person who for some reason the meeting thank you just know. They're super hungry and they're not doing it for the money. This is a passion. They love working with entrepreneurs they love innovation. If you have enough a dialogue in the meetings that you have that comes out. How did you build out your team with great difficulties or how did you think we're structuring it? Well when I first started I felt like okay. What am I bringing to the table? I have private equity experience. Public market experience earns from my banking days natural resources experience. Where am I really short? Absolute Return Hedge funds which I'd never spent any time with real real estate so it was like okay as we hired. Let's try to hire people that bring some knowledge. Aaron one of the first guys hired. Who's now at Edgehill? Partners partners had come from a consulting firm and those were the two areas that he focused on to. I felt really lucky. He was with us for three years before moving on and he taught me a lot. What and then the second thing is you just spent time in those areas so I really tried to hire originally in this small shop like us? I couldn't do what Yelda Elda so well. which is highly Undergrad? Keep him around for five years like I needed people now so really no choice but to hire people with experience I look for those complementary skills I also looked for somebody in emerging markets. Because I had no at someone with China connections so we hired somebody into that position. Listen and then over time we've hired more junior people and they have kind of come up through the ranks. But it's it's hard because we're on campus in Middletown so our analysts program. We don't expect people to stay around forever. We think it's kind of a three year program and then people go off to business school or they'll breath moved to New York or something as you think of a five or ten year horizon for you in the office and on how do you think about the roles. Also that those people play yeah. We're all generalists right now. Even though people bring expertise in certain things anybody in the office if you said tell me about out. This real estate manager would be able to articulate the strategy of any manager and our portfolio. You know we've been trying hard to keep the manager countdown. I think we're somewhere around on sixty managers across the entire endowment and there are five of us so it's reasonable but we go through every manager together until when we have to underwrite something. There's a big discussion having said that I've seen both the specialist model where people are in charge of an asset class and the generalist model. Now when I think they both have pros and cons have things that you lose along the way and things that you gain. I think what's great about. The generals model is everybody thinks thinks about the comparative risk return of any investment. And that's super helpful so somebody looking at real estate will be able to say this real commit state managers really interesting but it's more like venture because we're really we're not going to get any pay out on the way we're really depending on appreciation of the asset at the end result on. This looks more like fixed income so you know we can really think about risk and return at the manager level. So that's been helpful over time. Who knows I mean I can see why people move to the specialist specialist model if you have a lot of money to put to work and you WANNA invest with entrepreneurial firms? You need more of them and so you really need to know what's going on. WHO's filling thinning out all the time you need to be there? They want the specialist mile. Works better that way. How you thought of taking advantage of the size of the capital base creep paradox have small down is that we have the capital basis? You really interesting things. But we don't have the people in terms of resources entertainment. Yeah yeah if six people Gulf you have a great base where twenty million dollar and that's what we've done a couple things that are a little bit off the beaten track that have worked out but the other thing I think about with doing those really. Nitty things is. Is this going to compound our knowledge over time or is this a one off where we're going to spend a lot of time underwriting. This one little orphan thing thing and it won't have any bearing on the rest of the portfolio. The thing when you're small you have to really think about that. Like how are we going to compound knowledge in the people people on our vestment experience. How do you try to crystallize that? There's a lot of stuff we just said no at the beginning because we just have limited resources so right off the bat we said look. We're we're going to do any mining we're not going to do any real state outside of the US. We're not going to go to these parts of the world it doesn't matter if that's in the index. Were just not doing it. But then when we come across something like reinsurance or litigation funds sort of like is it returned from this going to be so differentiated that we're willing to go going divert our resources to learn about litigation funds. And how is that can help us in the rest of our portfolio. Where nobody's doing this so it's appealing because it's different front and it's supposedly Beta zero but on the other hand? I don't know that it's really going to help. Build our knowledge base in the Dowman until on the margin. Do you shy away from the and how do you think about that as that means lead you to more down the middle strategies. Yeah it does for sure but on the other hand we're less prone to making mistakes which are super costly. You know the old. That's the best way to make money. Don't lose money. I think the more we look at seven hundred venture firms. Were pretty sure they might won't all work out but we're pretty sure we know who like the top twenty are that we wanna be with. I don't know that we can do that with litigation firm that I don't really know what we're always afraid of the risk that we can't perceive so the more experience you have an area the better from that standpoint. Although the reason we probably have experienced is because we're doing it a lot and every else doing a lot in the returns may be driven down but I have a high confidence twelve percent return than a really not not high confidence. Sixteen percent return seventy. was that return. Where have you either learned? Something adopted a behavior. That's come come in different from what you knew when you start. It wasn't well. I'd say one of the things I really learned from. David is like the quality of the people I don't know he seemed to have a sixth Sense for like are these people you WanNa work with or not as to pretend I was wearing a wristband once in a while. What would David do hit? And somehow I I can't even explain ain't exactly what it is but sometimes you're sitting in a meeting like David Hammer investment. This person you know okay. That probably says what's an example of that type of incite. People aren't clear about what they're doing they can't really a articulated for you. It's a complex area. They can't put it in terms that you understand too much jargon. Math can't do math in their heads. Things like that. And how about about things. We're you've changed your beliefs over the last couple of years. One of the things. We've been thinking about really hard as the oil and gas world and this is. It's an area that I came from so obviously I mean I lived in that world for six years eight Yale and there are some great people there and we still depend on fossil also fuels and yet if you look at the industry as a whole. It's pretty structurally ugly right. Because it's a commodity business. There's also two way to destroy. Capital capital allocation decisions are hugely important. There's so much volatility around commodity price you have all this factor risk in and the commodity price so even your best operators can really overcome a sixty percent commodity price fall. It's just really difficult and I think we've had managers have done really well but we've also had managers have done very poorly. I think a lot of people have learned this lesson to two thousand fourteen commodity price. Plummets limits that leverages pretty ugly when you have that much volatility in your operating business so for all those reasons but probably more importantly if if you look out I'm not saying five years or ten years but if you look out thirty years wonder a lot about tail risk out there every rating these assets right because the longer we go without doing anything about climate change the worst potential shift we could have right away and if that happens these these reserves could lose a lot of value. So when you think about some of these managers if you're investing in assets for fifteen years right fifteen year fun and you're holding the underlying asset at the end of fifteen years. They're replacing reserves along the way. But then you get to the end of fifteen years. Somebody's going to buy that asset from them. Based on the next fifteen years so as you get closer to the end of the fun that terminal value matters and yet the terminal values is way out in the future so it feels like that uncertainty if you will we try to invest for ten or fifteen years but we like the cone of uncertainty sort of narrow and feels like the cone of uncertainty fifteen years out in this particular asset classes widened short. Do you do that well. I think one thing we've done is gotten rid of the target for oil and gas which doesn't mean we can't do it. We can and we have some manager. We really liked that. We think the hurdle but they have to compete against the rest of portfolio and they have to go into the private asset class. And so you are really making the trade off do I want to be in this. Middle Market Buyout Fund has its own versus and oil and gas fund. That has Aziz particular things in depth forces. You to look harder at like what is the expected rate of return. What is the volatility around that expected rate of return out in the future so it doesn't mean we won't do it but we don't want to be the frog in the boiling water and not know we're getting burned because we have this target? We think we have to have a frog in. Its in this pot. You mentioned middle market buyouts outs and you mentioned earlier that in a lot of situations. You're a price taker. Had you think about evaluating a private equity fund today it could be mid market or large fund knowing that the pricing environments higher knowing the fees are high. It's really hard. I'd guess two things one is we do think of it relative to public equities so if somebody's paying eleven times for an asset asset. Look at the public markets. Somebody may be playing eighteen times for that asset so saw relative basis. Maybe you have spread there. I think if you look at the numbers of spread really really narrowed as a whole so you really have to look at the individual asset. And I think you've got to do a ton of work on the underwriting. Like what are you GonNa do with this asset and you know we still do find managers amazingly who have a different they bring something to the table. They have a different angle. They see something thing in an asset that they can do or they've seen to other assets along the way they think emerge here and it can really change the properties of those businesses. And until I still think that the governance model of private equity is superior because the owner of these assets can do those things that maybe they couldn't I'm doing the public market so you can merge those three companies together you can cut people you can end a business. That doesn't make sense. You can sell a business that maybe people think we shouldn't be selling can can do all the things that are economically right thing with the five to ten year horizon but would cause your quarterly earnings to go down oftentimes in these funds. What we see is is that the EPA is down for the first two or three years because it really investing in these companies? That doesn't work very well in the public markets. Right as you think. Think of your portfolio as a whole now that it's settled in after ten years. There's a lot of people are always kind of looking for the next thing whether it's analyzing based on risk factors these days or a new asset class or how you thought about balancing kind of going deeper into to what you have with broader into what the next thing is yeah. I think it's really easy to get mesmerized by the next shiny object and I think we try our best to resist that one of the ways we did as we don't go to any conferences another way we do that as we don't meet with any firms that are trying to sell us. You know factor risk curb smart Beta or any of those things and maybe those things are great but we still tightly believed this is about fundamentals fundamental investing and so understanding a company understanding the management team understanding the capital allocation decisions understanding the industry structure. The competitive factors all that stuff matters of time. I don't know how to get conviction in something that's that's machine he's So we really resisted the shiny object object thing and how about just the incremental edge of innovation within. What you're doing I tell you there's things like everybody talks about quantum funds? I don't even know what that means. But what what would do with something like that. Say Okay the next year. Let's do this project and let's go meet with some of these funds. Let's go meet with people who run these funds. Let's go meet with people who invest with these trainers Shannon. A really A. Is there something different here. That is compelling and be if it's not compelling to us how will it affect what's already in our portfolio so does it have ramifications gamification for fundamental investing that. We should understand so we'll put something like that on the project list and maybe something will come out of it but it's not something we go and Taes. Have you done that with that now. That's that's there's been so much a I this machine learning that and quant this how do you think about your own competitive advantage or edge relative to people that are in some sense competing against you. Yeah it's funny. We had an offsite last year and we talked about this very question. What is edging? Everybody had a slightly different answer It's really interesting. First thing is we have as you know. Endowments foundations foundations are Super Special because we have the longest time horizon. Any investor can be super patient. So that's just an edge for our class of investor. Mr I think for us in particular are people. I think we try to cultivate a lot of intellectual curiosity in the office. We you try to meet with managers and we're really trying too hard to have a dialogue. We'd like to be prepared kind of feel like if we leave a meeting. They didn't think. Oh Gosh she she really made me think about that harder. That's a new perspective. or Oh I really learned something about how somebody else is doing. So if we don't add add something in the meeting. I kind of feel like we failed so I think our competitive edges. Maybe everybody does us. But I really do think we're very intellectually. Engaged based on the subjects are managed care about and then Wesleyan Wesleyan's an amazing school and part of my job is to sell managers on. Why you want to help Wesleyan and it's an incredible place? It's been around since eighteen thirty one. We have amazing alums that come out of it. We have interns in our office every summer. I see these people their incredible. You mentioned the alums have. Is Your board governance structure work. Well that was one of the things had changed when I came in. Because the the governance she used to be the portfolio subcommittee reported to the Finance Committee which reported to the Board so clearly legacy structure leftover from the time that the treasure was probably really picking up bonds and stocks for the portfolio so we disbanded that and we started an investment committee. And it's gets eight people now and we meet four. We're times a year and they are with one parent on the committee. It's mostly trustees but we do have places for advisory members those happen to be mostly alums uh-huh over time too but it's good group. How do they influence your thinking? They have influenced by thinking on a couple of things. I mean we bring all of our manager approvals to them and we don't want them to get obviously bogged down manager approvals but sometimes they have been very good at saying. Wow this looks risky. Are you sure. This is the sizing ewong. We've downsized a couple of things because of their the good dialogue we've had with them and those have turned out to be the right decision so on the allocation they're really the ones that are setting the risk parameters there's for the endowment and so. I think there's really a lot of healthy discussion around equity exposure. We've had a lot of discussions around credit. 'cause credit is a growing being part of the investment tool kit. And there's lots of flavors out there and we've done a couple things there that have worked out so he's a trade off right. You're trading reading off a long-term equity return for what looks like an appealing return of capital along the way but get very low multiples. Turn to some closing questions. What's your favorite hobby? Your activity outside of work and family. Well I'm a big reader. I I try to read fifty books a year. Don't ask me why came up with that number but I did not so long it is a lot so I've only read like twenty four this year so I'm way behind last year managed to exceed the fifty by good number so and. When do you read that in? I don't watch TV. So that frees up a lot of time. I read on lights so I never watched movies on played with lights very rarely so that provides a lot of time issue so my travel schedule so I love love to read. I do the New York Times Crossword puzzle every day and I am a fanatic exerciser. I ride my bicycles. All six of them frequently so row almost never just too much time involved in trying to get to boathouse. Get vote on the water. What's your biggest pet peeve? I don't have an answer for that. That one about in the investment world. Anything that would really bothers me. Investment World is when people talk about gross returns versus net returns. That's a pet peeve can't spend gross returns all right of all that reading you do what reading do you almost never miss. You know. There's another one that I don't have a periodical or anything. I read on a regular basis. It's pretty ECLECTIC. I mean I try to hit pitchbook in the morning. 'cause venture such dynamic area sometimes learn something left. Our portfolio entered our portfolio. I do that and I read the New York Times blurb that comes across my email but other than that I really. They don't have anything. I read on a regular basis and much more books than it is news. I'm I'm not a big believer that I really need to read the news every day. It's kind of distorting it. Distorts reality too much interest. Has that ever tripped you up by kind of not knowing something you felt like you should have known known for some reason not really only when somebody asks about some esoteric thing that I really don't care about if you like all the smart people talking about like this last week this whole repo we don't have any of that in our portfolio. It really quick. I didn't spend a lot of time reading about that. I don't care the teaching from your parents as most stayed with you so my father passed away when I was in college. So that's early when you're eighteen and you lose your dad can hardly remember what taught before that but my mother was a huge role model. My mother was amazing person. She graduated from Smith in Nineteen fifty four magna cum laude and math and went to work for IBM IBM if you can believe it when she married. My Dad's got pregnant. That was it because you weren't allowed to work after that. So she stayed home but always very ambitious and she was super resilient so when I was in high school. She ran for the Congress of the United States for the Democratic Farmer-labor Party in Minnesota. So I remember traveling around and farms with her talking to these farmers and she was just such a ardent believer in social justice and fairness and helping the little person I was just she was just amazing and she lawson the caucus or in the primary to somebody and but she was just so resilient like she just kept fighting her life for the rights of people that were forgotten nor so she's just a real inspiration to me all right last one. What life lessons have have you learned that you wish you knew a lot earlier? I have no idea. I know I'm serious. I looked at this one I was just just like I don't know either. I'm one of those people. I am such a forward thinker and not a backward anchor that I can't even remember like I'm sure I made tons of mistakes mistakes but they all seem favorite motto or mantra that you tell yourself. Mother used to say tomorrow's another day. Wouldn't you have a really bad day day. It'll all look better in the morning and that is for sure and something. We should all remember. Sometimes we get really worried and just going to bed and sleeping on. It will make you feel a lot better. Yeah my mother used to have a a lot of saying you know the two wrongs don't make a right it always better in the morning. Great and thanks so much for taking the time. Thank you for having me. Thanks for listening to this episode. I hope you found a nugget or two to take away and apply in your best thing and your life. If you'd like what you heard. Please tell a friend and maybe even writer of you on I tunes you'll help others discover the show and I thank you for it. I have a good one and C._N._N. Dot.

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