NEPC

“We're 38 partners who own the business 100%. There's not an outside owner. We're not publicly traded.”

“You don't want to be passive in high yields. And, you know, even if you just want to get exposure, you still want to be active there. You don't want the biggest bonds in your portfolio to be there just because the company's issued more debt.”

“We take that twenty million dollars, put it in a list, and we give that back to the manager, and they make the decision of how they want to allocate, so we're not making the choice of one client over another. We're not choosing OCIO over advisory. They all go …”

“It's very predictive on the bottom half. The managers that are drifting down towards the bottom tend to continue underperforming. So it allows us to say, cut the universe in half.”

“And I tell people, it's the best training you could ever have. I've stood in front of billionaires. I've presented to a room of 400 people at conferences. I've never been more nervous than standing in front of 2015 year olds.”

“So we have what is now a large OCIO business with probably over twenty billion dollars, over 50 clients. Every portfolio that we build is bespoke.”

“If I go by dollar count, it's much, much higher because many of our large public funds are passive in U.S. Equities and often running it internally for cost management purposes.”

“We're setting five to seven year views, and if they're not working in the first three to six months, we've got all of our consultants and clients saying, why do we do this? How do we not see this? And I think Behaviorally, we all fall victim to it, so I fall v…”

“I think the people part to me is the most important. It's not just who they are, but it's how they work together, how they interact, and sometimes that's more subtle things. Sometimes, sometimes there's a named portfolio manager, but you get a group in the roo…”

“We've been talking about over the last year, and US equities have continued to do pretty well, but I think we're really pounding the table now that that's a place where we want to rebalance.”

“I think we have about 350 to 400 managers in long only overall, so probably 200 or so of those, or 150 to 200 are equity.”

“You don't want to be passive in emerging markets. Even if it can be a challenging benchmark to beat, you want to be active there. You want to be trading there and not just stuck with what the benchmark offers you. And we see some skill there, too. We see that …”

“NEPC's been around since 1986. We're a global investment consulting firm. I think probably about 400 clients, about a trillion dollars in assets under advisement, and a very diversified client base.”

“On the other end of the spectrum, we can go to a, say, a public plan, and we've got to go through the governance process, we've got to go through monthly meetings, we've got to think about what that means for their discount rate and have conversations about th…”

“The large public funds aren't doing much in venture. So it's, We definitely think it's worth it. I'd say there's more of an appetite for venture from our smaller and medium sized endowment clients. A 500 or billion dollar endowment can make a five or ten milli…”

“You work your way out of it over time through repacing year over year and not by making a dramatic move in one year.”

“This could be some of the best opportunities that come along in years for new private market funds.”

“So most of those clients have been Less focused on new opportunities, less focused on even rebalancing, just making sure that they have credit lines in place, that they have access to liquidity if they need it.”

“If they had an LDI allocation, which most of them do, They saw some of the biggest gains from fixed income, and they were probably the earliest to rebalance, because rates fell very quickly, and it was actually a positive basis mismatch for them if they had an…”

“While some are saying this is a breakthrough, and we're going to be a lot more flexible working from home, I think we're going to go back to normal pretty quickly, and we're going to be road warriors once again. So it's actually, I'm not answering the question…”

“We just went through a full rerunning of all of our assumptions, and we've got equity assumptions in the sixes, the sevens, even higher for emerging markets, and then a treasury assumption at . Six percent right in line with the yield right now. And you run th…”

“For a lot of well-established, well-capitalized managers, that's not an appropriate use of that pool of capital, and In some ways, they're taking from small businesses on Main Street that can really deserve it, and I believe that list is going to be made publi…”

“That may be one of the things that we lose by not having the in-person meetings in the office. I think that can often be part of the conversation at the beginning or end of a manager meeting, kind of the casual chit chat of, hey, what are you hearing from othe…”

“I actually think it'll be slow right now, and right now being the next One to three months, call it. And then I think it's going to ramp up like crazy. One, it'll be a little bit of a backlog. And two, what we were talking about earlier, some of those credit o…”

“Everyone is looking at the TALF opportunity now, so we've got everything from long only liquid Managers talking about that.”

“Our expectation is that calls and distribution will both be lower. I think when we analyzed it, calls and distributions were down by a third to half through the global financial crisis, and that's sort of our base case right now that we can expect At least a t…”

“So we do think highly of them and we use them in a lot of different ways, but Rick's strategic income opportunity strategy is probably the most notable one that we use.”

“When it comes to the future of diligence, I do think we can do a lot more virtually, but we still need to be traveling and meeting with managers. You miss a lot of stuff when you're not there face-to-face, whether it's the dynamics of the junior person with th…”

“And if they need an IR of two to be successful, I don't think they're going to be very successful.”

“These 265 questions, data points that we calculate are guideposts for our diligence.”

“We're happy to pay two in 20 for the first two, not so much for use of leverage, but it's interesting because some GPs think about the world that way, but many just say, well, it's all alpha.”

“The larger firms generally know what their exposures are because they have risk management teams who are looking at these things. The smaller firms are much more gut-driven in general in terms of managing risk, and they are sometimes surprised.”

“And when you think about the return potential for some of those earlier stage private investments, it dwarfs the fee impact and it's well worth it.”

“The first is loss, so people don't want to change the way to do things usually because we're humans, and then doubt in the new process and their new leader, and then discomfort, and I watched all this happen. It's like a cycle. After discomfort, it's this dang…”

“We're not like the asset management institutions that are going to measure our researchers on their outperformance of names that they pick because it's a long-term measurement cycle, especially with private markets.”

“We expect to put double the amount of capital to work in private markets in the next two years. So looking at more like eight billion.”

“And last year, we underwrote 17 diverse-owned strategies that are in client portfolios now.”

“And another tool that we use is to ask why three times. So if they tell you a story about a stock, You dig a layer deeper and say, well, why is that? Then you can really get to the meat of what is actually happening and go beyond that prepared marketing respon…”

“When you think about the David Swenson model, people think it's this recipe that you can replicate by just throwing ingredients into a bucket and throwing them into an asset allocation model, and you're going to get the same results. And the reality is you hav…”

“We think that healthcare is for sure a theme in healthcare in China. China's a little scary for a lot of people right now. It was a big part of a lot of portfolios, and I would say it's a little scary for investment committees to think about committing new cap…”

“One is that performance is actually a pretty low weight in the model.”

“So in private markets, we expect to put about five billion dollars to work in our highest conviction strategies. Now, our clients have a ton of underlying exposures to some of their own investments that we help them with, but are maybe not our highest convicti…”

“Those are the ones we spend our most time on and try to get into our clients' portfolios, and we have about 1200. So that's across equity, credit, multi-asset, hedge funds, private equity, private debt, and real assets.”

“Really, you need to start grooming that next generation at least five years before it's time.”

“And we have over one and a half trillion in assets under advisement and under management. We have about 400 clients across seven different client groups.”

“If it's somebody's last name, it's a bit of an indicator that perhaps there's maybe going to be some difficulty in imagining a firm without them.”

“If we have an extended period of underperformance, it's going to lead to fatigue on behalf of not only the founder, who has accumulated a great deal of wealth in this organization, and may be tempted to fold and say, you know what, I've made my money. I'd love…”

“They thoughtfully saw the need to begin transitioning ownership, and they had a number of liquidity events, including selling a percentage to clients and then to institutional investors via private placement, and then ultimately via an IPO, and they floated si…”

“A third of our investment framework is what we call analyst opinion, which is our instinct and our gut based on spidey sense.”

“So that framework is very extensive, and it's upwards of 400 questions that I want each and every analyst to be able to answer.”

“And then the other way that we've seen is that next gen buys the ownership directly from the founder with capital that they've accumulated in their personal wealth. Eight times out of 10, I would say they don't have enough money to do that.”

“There's a lot of tension on price, and this is something that needs to be thought about at least five years in advance of a liquidity event or a transfer of ownership.”

“Five years ago, it was very firmly on my radar. We viewed it as one of the largest risks in our portfolio to just put things in perspective.”

“And I would say nine times out of 10, that next gen has no idea what the firm's plans are for them.”

“It just felt wrong to bring in other players at that point, and we felt like having the external advisor validate that the financial terms were reasonable and at market just gave us some comfort that we were only going to screw things up if we brought other pe…”

“We engaged an investment banker to help us not so much scan the universe and bring in other potential suitors, but just help us understand who are the other players besides Hightower. Where does Hightower fit in terms of how they work with their advisors”

“Having our partners keep it confidential for what amounted to about seven months, Which is a borderline miracle at the end of the day.”

“The tailwind that has helped all of us the last decade is the OCIO channel. And that has been a great source of growth for us and many others.”

“If we can bring solutions to Hightower's RIA platform and have them invest in it, that's a more scalable model than we've been able to create historically.”

“There was a moment where there was a rumor out there that we were being bought by one of our competitors, which if you're going to have a rumor out there, having it be the wrong rumor is actually ideal because you can deny it and you don't have to give any mor…”

“We've been fully independent, employee-owned our entire almost forty-year existence, but no surprise, we always say yes to those meetings.”

“We looked at some of the big private equity firms starting to raise hundred person sales forces to attack that market, and we thought, well, that's not really implementable for any PC, so let's keep it on there, but we don't really have anything right now.”

“They are under allocated to private markets. There's a generational transfer happening within the RIA leadership where you have folks who led their RIAs from an investment perspective, and the next generation wants to be more planning oriented and wants to han…”

“Hightower is owned by TH Lee. It's been a very successful investment for them. They've rolled it into a continuation fund. That continuation fund has a life on it, and they'll have to figure out something. There will be another transaction a few years from now…”

“I would say, 20 years from now, there's not many purely institutional, or purely RIA, or purely retail players. Everything is blended together, whether it's asset managers, advisors, or the end participants, even.”

“We made sure that all of our 350 plus employees are getting something out of this transaction. There's a bonus for every single person who's employed when the transaction closes.”

“If you have two great consultants with 10 clients each, you get to that 21st client, you've got to add another great person. So since it's not a super scalable business model, it's always somewhat inorganic.”

“A really important part of our culture is having ownership in our business, being really well aligned, and then being able to pass that ownership on to the next generation. So that was a deal killer if they wanted to go 100%.”

“The other thing is this is going to continue to happen. I don't think these are the last two firms that are going to tie up with RIA platforms.”

“We also just made an acquisition of a business called NEPC, one of the largest institutional consultants in the U.S. And we made that acquisition and wanted to have NEPC part of Hightower specifically so we could start to centralize more of the investment oper…”

“So we're going to roll our first one out the first half of this year with any PC. Our expectation is We're gonna get at least a hundred million dollars of capital raised with each one of these.”