Endowment

“Institutions have generally 25% of their assets in, in alternatives, let's say. The more sophisticated ones, like endowments, are 50. Retail was at two percent.”

“If you keep those portfolios, you're going to spend most of your time reviewing what's in there, slowly changing things out and adding new stuff. Whereas if you start over and start from scratch, you get to build the institutional knowledge from day one. You g…”

“Historically, endowments have done a great job of that, but in the last 10 or 15 years with the obsession of private assets, that tool has been taken out of the toolkit.”

“If you take endowments that are looking at selling some of their private equity and venture positions, the primary demand for those secondary positions are coming from evergreen private equity vehicles.”

“I tend to weight the quality of the game the manager's playing more heavily than most do. Most of the endowments I talk to tend to say we're looking for the best people, and the quality of what they're trying to do, or how hard it is, or the base rates around …”

“So if you look at the side of the managers, most managers are tapped out on LPs. So if you go, if you're starting a venture fund tomorrow or you're starting a new middle market private equity fund and you're going to go pitch the traditional pension funds, end…”

“That is the, of that 37 or thirty eight billion, a lot of that money was given by people who gave it very specific things, and you can only use that payout for very specific things. So those are big numbers, but they're, it's not as flexible as people think.”

“You know, they're relative to just a traditional, in their private portfolios, they're underexposed to private alternatives relative to, say, a pension fund at, call it 40%, or an endowment at 50%. So at three to five percent, that should probably go up.”

“But the thing people may not realize is the managers of the VC group at the large endowments have no incentive to try and right size this number. In fact, many of them are bonused on paper marks. And so, if anything, they have the reverse incentives to get the…”

“Venture's a rounding error in most of most endowments, right? It's a subset, just like seed is a subset of venture. Venture's a subset of PE. It's not that important. It's just juice, right? It's just a way to juice your returns. P.E. Is where you put, deploy …”

“They've outperformed so much that the rebalancing that you're going to see in every pension fund, in every endowment, away from these strategies back towards listed equities or back towards, frankly, just bonds, it should be relentless.”

“When I speak to a lot of endowments today, they're simply not adding new managers, and they're even trimming their existing, and so I think that's bluntly gonna really impact the amount of new managers that we see this year.”

“I think if you talk to smart endowments or pension plans or stuff, they, they've definitely as fund sizes have gotten to three, four, five, six billion dollars. Like those people have raised eyebrows and maybe voted with their feet to either scale down or walk…”

“Many endowments at that time were essentially where alumni went to retire after a successful career, and they put in some stocks and some bonds, and they didn't really do a whole lot, and so that profession was evolving massively at the time, in part the tech …”

“Many of the endowments were invested heavily in hedge funds that shorted the tech rec in 2001.”

“It took about two weeks of immersion in not-for-profit management to realize that the real action was in the endowments. It was early on when investment management, I could even say finance broadly defined, were extremely unpopular. It was a non-consensus, con…”

“It's a pension fund is not levered. So it's one of the only pools of capital on the planet that doesn't actually have balance sheet leverage. So you're talking about a public pension funds, endowments, and sovereign wealth funds. These are the unlevered pools …”

“Asset allocation doesn't tend to vary that dramatically. Most endowments tend to have an equity bias. Their bonds are going to be somewhere between five and 10%.”

“There's a real difference that comes in in the manager selection piece. And I think one of the things that I started to realize over time is that the manager selection piece is as important and as impactful”

“At the end of the day, running an endowment isn't any different than running any other portfolio. In fact, based on what endowments are invested in, they're a lot less complex than a lot of hedge fund portfolios. They're predominantly long biased.”

“Now, I would say the one thing that I found that is dramatically different Is the cash flow liquidity piece. That I think is very tricky to get that right. That takes a lot of thought and a lot of anticipation and forecasting and thinking through how you're go…”

“And I think at the time, foundations were a lot sleepier than endowments. Most of them did not have professional staffs.”

“The traditional endowment or foundation, I think part of the reason they're not good at this stuff is they don't have an incentive to be right, and people, when they don't have an incentive to take risks, they're not going to want to stick their necks out.”

“There are benefits to being small. There are also obviously benefits to being large, but we are able to be very concentrated as a result of that. We are also Able to access fund managers that might have smaller funds or be a bit earlier in their life cycle bec…”

“If you're an institution that already has had perhaps a smaller endowment and they get a big gift, it's as if you start over.”

“If you get money from endowment A, endowment B, endowment C, endowment D, that all, like, are very close to each other and talk to each other, and then one of them leaves, Then they might all leave. So having diversity of, like, mindset”

“A big endowment just said growth equity doesn't work.”

“Another example of that was the venture capital world, which has really driven a lot of the high-end endowment returns for decades.”

“It's 40% of the budget is covered by the endowment.”

“The world is full of Goldman Sachs partners that formed a private fund, and they manage a billion dollars or something like that, and they charge two points off the top plus this, and that enables them to make very handsome livings themselves, but the endowmen…”

“The endowments have started to say to the, all these people that charged three and 30 or whatever they charge, they said, we'll pay your three and 30, but we're going to put in twice as much money, and then the next half you'll get nothing on it, or you're jus…”

“It's about 11 of the biggest endowments, and it's all of the people that hold positions like me, and basically we have a day where we just talk about what are the five most important things going on in your organization.”

“What happens is people change strategy and or panic sometimes in really bad times, and that can set you back for a long period of time, and or organizations take on way too much risk at what appears to be a great time, but it's actually the absolute worst time…”

“The things that sometimes people forget is there's really no hundred year money. So there are institutions that have money that will be around for a long time. But most institutions have a spend rate, and even the best institutions may have enough reserves tha…”

“I don't see a lot of technologists sitting on boards of directors of pension funds or sovereign funds or endowments. You see lots of ex-finance professionals. You see lots of representative people coming out of the constituencies, teachers, firemen, public emp…”

“Harvard, on the other hand, has every tub on its own bottom, so the Faculty of Arts and Sciences gets More than half of its income every year through the endowment, but the Divinity School does not, and the School of Education gets almost nothing from the endo…”

“If, you know, I've met with all the top endowments in the world over the years, and they're very kind to me, but it's always been like, solo GP is a blocker, no track record.”

“We have slowly built this up and we will continue to slowly build it up just a little further. It will never get up to the size that you see in some of the largest endowments that, you know, over 20% or in some instances over 30%.”

“People think endowments are the smart money, and I disagree. I think endowments are often run by committee And of a dozen smart people in the room that are paid a lot of money that give money to the obvious stuff. And committees kind of push people towards tha…”

“Rockefeller had a very unfortunate circumstance with one of their scientists, and there were a lot of lawsuits that came through. That we had to basically take an extra year's worth of spend out of the endowment at Rockefeller to help pay for a lot of these la…”

“I'll call it tiger chase, and so I've seen some signs that Would suggest they're full, actually, partially because of the returns and partially because of, you know, how far do you want to take the risk on morphing your asset allocation model?”

“A lot of funds are fairly short term trying to pick quarters or events or trades or macro, and I often think that forfeits a big part of the competitive advantage that endowments have.”

“I would bet that if you looked at a ten billion dollar endowment in fiscal year, 20, 21, it would shock me if they didn't pay at least Five hundred million dollars in fees in fiscal year, 20, 21. It wouldn't surprise me if it's even higher than that.”

“But I do think as time goes on, endowments are gonna have to be more transparent in their financial statements about what their carbon footprints are, so that's something I'm interested in.”

“I think we're starting to see that now where endowments and so on are realizing they need to have some portion, maybe one or two percent of their portfolio in crypto.”

“What you've seen across decades of the venture industry is that different pools of capital can go in and out of the venture market. There have been times where endowments have pulled out of the asset class because they face liquidity challenges and their own o…”

“I really truly do believe, Ted, that these are the most important organizations on the earth, and that's full stop. I don't even have a caveat around that or a constraint.”

“I've done this in a research project in the last four years, and I have to tell you, I was blown away that most of these organizations actually have different definitions of success.”

“I think a lot of endowments take the approach that we only invest with single strategy firms. And I get that, but I would argue vehemently against that. I think there's been huge benefits to us having the various strategies and the benefits are to both us and …”

“Because the type of capital that an endowment runs or a foundation runs is similar compared to a pension fund or compared to a wealth advisor, they do tend to have a similar way of looking at the world. Because of the nature of the capital.”

“The reality was in the financial crisis, endowments and pensions were net sellers, not net buyers.”

“But my guess is that in another year, that's similarly will feel not like a terribly difficult allocation decision operationally.”

“So if you look at the biggest investments in Grinnell's history, it wasn't uncommon for them to have north of 10% of the portfolio in a single individual name.”

“With all due respect to some of the best endowments or investor groups out there, doing it internally is very complicated because you just don't have the expertise, or you see lots and lots of opportunities that are decently scaled but low return.”

“They're not going to shoot the lights out because those opportunities don't exist anymore.”

“The very long-term orientation and a willingness to take some illiquidity risk is not so bad as long as you set aside enough money to pay, let's say, three years' expenses and have a healthy cash flow into the organization.”

“I think we're going to find that the portfolios that applied that logic to the greatest degree are the worst performing. And so that behavior will be significantly curtailed, whether it's through regulation or whether it's through investment committees and end…”

“Because at this point, there aren't many endowments that can do that. I'm sure universities can, but everybody else, it's difficult to get those analytics, even working with a lot of great groups like we do.”

“Most of the people in those seats pursuing these strategies all will tell you that there are only a few dozen pools of capital that are properly structured to pursue these and succeed. It requires an army of people, a small army of people, a small army of tale…”

“Great paradox of the small endowment is that we have the capital base to do really interesting things, but we don't have the people in terms of resources on your team.”