Nov 6, 2023 · 1h 3m · capital-allocators
Allison Thacker – Different Perspectives and Different Assets at Rice University (EP.348)
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In this episode of Capital Allocators, host Ted Seides interviews Allison Thacker, President and Chief Investment Officer of Rice Management Company, exploring how Rice University manages its eight billion dollar endowment through contrarian portfolio construction, a substantial twenty-five percent allocation to real assets, and a collaborative, silo-free governance model.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 20.8% of the talking time here. How this is scored →
Ted as informed peer 5.4 Guest teaching 4.2 Guest disagreement 1.3 Ted pushing back 0.6
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 41:35 Dismissal of commoditized private credit
Allison sharply challenges the private credit boom, questioning why high fee-burden products aren't simply handled by the banking system and warning about hidden leverage.
Hardest push from Ted ▶ 29:14 Challenging manager selection in specialized sectorsTed directly challenges Allison's reluctance to invest in biotech, arguing that an allocator's job is to hire specialist managers rather than trying to replicate deep technical domain expertise in-house.
Biggest teaching moment ▶ 28:36 Explaining why domain expertise enables holding volatile tradesAllison educates on the reality of managing volatile sectors, explaining that without deep deal-level underwriting capability, allocators panic or fail to defend drawdowns to their board.
Ted holds their own ▶ 45:50 Recognizing Ted's hedge fund expertiseTed presses on modern hedge fund structures and pod shops, prompting Allison to immediately acknowledge Ted's authority in the hedge fund domain before explaining her board's skepticism.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Early Career Roots and Signs of Apocalypse Wall | 4 | 3 | 1 | 0 | Ted guides the conversation smoothly into Allison's early background at Merrill Lynch and her 'Signs of the Apocalypse' wall. Allison recounts her experiences with Enron bankers and market anomalies with lighthearted reflections. | |
| Direct Growth Investing and Dot-Com Lessons at RS | 5 | 4 | 1 | 0 | Ted asks about her direct investing lessons at RS Investments during the dot-com era. Allison explains the importance of thick skin, long time horizons, and the reality that things can fall much further than expected. | |
| Transition to Rice University and Managing Legacy Holdings | 4 | 4 | 1 | 0 | Ted inquires about the transition to Rice and the legacy assets inherited by the endowment. Allison provides historical details about board-driven legacy ownership such as timberland, mineral rights, and Yankee Stadium. | |
| Endowment Budget Dependency and Risk Allocation Debates | 6 | 4 | 1 | 1 | Ted asks pointed questions about balancing liquidity, risk/reward, and asset allocation given Rice's heavy 40% operating budget dependency. Allison explains the philosophical tension between protecting downside vs. needing long-term compounding. | |
| Substantial Real Assets Allocation and Decarbonization Strategy | 6 | 4 | 1 | 1 | Ted probes Allison's 25% allocation to real assets and the paradox of managing heavy oil/gas exposure alongside decarbonization goals. Allison articulates Rice's approach of engagement, carbon neutrality targets for 2030, and cash-generative tangible assets. | |
| Energy Transition Strategies and Sector-Specific Due Diligence | 5 | 5 | 1 | 0 | Ted asks about findings from direct research into the energy transition. Allison outlines the spectrum from unproven venture science risk to low-yield infrastructure, explaining why sector-specific underwriting talent is mandatory. | |
| Biotech Manager Selection Hurdles and Team Construction | 6 | 5 | 2 | 2 | Ted pushes back on Allison's reluctance to invest in biotech without internal domain expertise, asking why she cannot simply select top specialist managers. Allison explains why allocator due diligence requires deep understanding to hold trades through volatile drawdowns. | |
| Sponsor Message: Ridgeline AI-Native Investment Technology | 5 | 4 | 1 | 1 | Following an ad break, Ted asks about balancing specialist depth against multi-asset breadth. Allison details her board battle to split real assets into two distinct sector heads and the requirement for team members to cover multiple sectors. | |
| Public Equity Frustrations and Navigating Global Markets | 6 | 4 | 1 | 0 | Ted asks how Allison approaches public equities and global allocations. Allison candidly addresses the severe headwinds facing value/GARP strategies in momentum-driven markets and evaluates tech pullback opportunities. | |
| Evaluating Private Credit Hazards and Structured Debt | 6 | 4 | 2 | 1 | Ted introduces private credit and structured solutions. Allison expresses skepticism toward the massive flood of generic off-the-shelf private debt funds while highlighting niche opportunities in structured growth debt. | |
| Hedge Fund Skepticism, Portfolio Rollup, and Debt Strategy | 7 | 5 | 2 | 1 | Ted brings up hedge funds, leading Allison to playfully deflect to Ted's established expertise. Allison explains her board's skepticism toward hedge funds and details Rice's conservative, fixed-rate university debt strategy. | |
| Institutional Governance, Silo-Free Culture, and Investment Resilience | 5 | 4 | 1 | 0 | Ted asks about governance, team culture, and lessons from direct investing vs. allocating. Allison describes her anti-silo philosophy, the requirement for direct collaboration, and closing reflections on transparency. |
Statements from this episode (23)
Sequoia's 'Forever Fund' Belongs on the Apocalypse Wall
“Actually, the Sequoia Forever Fund is up on there too. Things where you're like, I don't understand what's going on. I'm going to put this up here.”
Thacker: S&P 500 Reliance on Magnificent Seven Is Not Healthy
“And maybe you put up on your wall when you say a hundred percent or 95% of the S&P 500 year to date performance is from the magnificent seven. That's not normal. That's not a healthy sign.”
Rice University Owned Yankee Stadium Until Eminent Domain Forced a Sale
“Although Yankee Stadium, which was owned by Rice, was given to us by an alumni in the sixties, we probably would have kept holding it, and I would have inherited it, if not for eminent domain. So it was recaptured for a giant renovation project, and Rice was f…”
Thacker: Rice University still owns 50,000 acres of Louisiana timberland
“We still own the original forest that William R. Rice gave us in Louisiana, 50,000 acres of timber forest, and we own parcels of land that notable Houstonians gave to the university, and that's just how boards do it, I think.”
Thacker: Rice University endowment covers 40% of operating budget
“It's 40% of the budget is covered by the endowment.”
Thacker: Rice covers full tuition for families earning up to $120k
“Rice has expanded financial aid to the point where you don't pay tuition up to about a 120,000 in household income.”
Rice Excludes Fund Managers Who Won't Commit to Carbon Neutrality
“We don't invest in a single fund that hasn't committed to be using carbon offsets and become carbon neutral.”
Thacker: Rice avoids biotech investing without internal scientific expertise
“It's one of the reasons we don't do much in biotech because we have not managed to hire that onto our team, and the more time I spend on it, the more convinced I am that without that knowledge, I just don't believe that we can be successful choosing managers i…”
Former Operators Struggle as Portfolio Managers Because They Over-Fixate
“And I think the closer you are to an operator, the less you've been trained to let something go. You're at one company and your job is this one company and make it work. And the reality is You're a portfolio manager. You have at least a hundred choices across …”
Rice University's public equity portfolio has not outperformed over 3-5 years
“And from that statement, you can assume that our public equity portfolio has not outperformed over the last three to five years.”
Thacker: Value and GARP strategies mathematically underperformed without momentum
“It's just a mathematical reality, which is if you believed in any value or GARP orientation, you have underperformed. You needed to be a momentum investor In your asset allocation, as well as owning those type of managers.”
Rice University is revisiting its public equity strategy toward indexing
“We have struggled with that, and we're actually revisiting our public equity portfolio strategy right now because it just continues to be a giant issue, which is most managers do not outperform the indices, and therefore why would you not be better off paying …”
Thacker: Value is the only viable equity strategy in Europe
“So in Europe, I really believe in value, partly because I don't see a lot of growth in Europe.”
Thacker: Enterprise software valuation multiples have returned to 5x–7x revenue
“We went from five to seven times EV to revenue multiples for enterprise software companies to 20 times, and now we're back to five to seven times.”
Asset Managers Prefer Gathering AUM to Providing Real Capital Solutions
“And the traditional money management business is not really in the solution capital model, right? Because it's just much easier to be a large publicly traded or large very private but profitable money management business and just keep serially raising the 20% …”
Rice University endowment fixed income and cash yields close to 6%
“Our portfolio right now from a fixed income and cash perspective is yielding close to six percent.”
Thacker: Existing fund managers rarely lead investors to the next 5-year opportunity
“The ones that you have today will not be the people who take you to the next opportunity for five years from now. It just won't be the same people. If it is, great, but it probably won't be.”
Thacker: Rice endowment has avoided multi-manager pod shop hedge funds
“We have, for the good or the bad, really not participated in the pod model, multi-manager model”
Hedge Funds Are the Rice Board's 'Least Liked Asset Class'
“Hedge funds are the least liked asset class by the rice board”
Thacker Breaks Down Rice's Endowment: 25% Real Assets, 60% Equities
“You have 25% real assets, and then about 15% really ballast that will always be there, and some of that is in fixed income, cash, a little bit of it is in some truly hedged alternative managers, which is, I think, the minority of the alternatives bucket for mo…”
Thacker: Universities should avoid risk by using only long-dated, fixed-rate debt
“We use debt financing to finance very long-dated capital projects like dormitories. We should have the most boring portfolio of debt ever. It should be long-dated, and it should be a fixed rate to provide budget certainty. If we're going to take risk, we shoul…”
Rice Mandates Four Office Days Because Zoom Halted Casual Information Sharing
“We are four days a week in the office because at the end of the day, we did not find that we could share the casual information. We shared the nine one and we did not share four one. We shared the emergency. Everyone has to know this information during COVID o…”
Fund Managers' Purported 'Trade Secrets' Are Already Known to Competitors
“It is amazing to me how often managers say, oh, I can't tell you that because that is a trade secret or that's our secret. It is not a secret from anyone. All of your competitors know it. Let's say that Apollo told me that. I could call Carlisle and they'd be …”