Aug 21, 2023 · 59m · capital-allocators
Stan Miranda – Modern Endowment Model at Partners Capital (EP.334)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Partners Capital founder Stan Miranda joins Ted Seides to explain how his firm modernizes David Swensen's endowment model across a $50 billion multi-asset portfolio, detailing their quantitative factor risk management, disciplined manager selection, and institutional organizational design.
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 21% of the talking time here. How this is scored →
Ted as informed peer 3.4 Guest teaching 3.1 Guest disagreement 0.7 Ted pushing back 0.3
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 34:00 Stan dismisses volatility budgeting
Stan forcefully rejects conventional industry reliance on standard deviation volatility budgets, explaining that selling after volatility spikes forces allocators to de-risk at market bottoms.
Hardest push from Ted ▶ 24:27 Ted challenges emerging VC managers versus manager repsTed directly challenges Stan on an apparent contradiction between emphasizing experienced repetitions and allocating to emerging venture capital managers.
Biggest teaching moment ▶ 40:20 Stan deconstructs private equity returnsStan provides a sharp attribution breakdown showing that half of the 15% net returns in private equity over the decade came entirely from public multiple expansion rather than operational value creation.
Ted holds their own ▶ 24:27 Ted points out tension in manager selection frameworkTed demonstrates keen analytical oversight by identifying the conceptual tension between Stan's emphasis on Malcolm Gladwell-style reps and his endorsement of early-stage emerging managers.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| The Founding of Partners Capital and Swensen's Influence | 3 | 2 | 1 | 0 | Ted opens with foundational prompts asking about the origin story of Partners Capital. Stan narrates his transition from private equity and Bain to founding the firm using Swensen's book as a blueprint. | |
| Deconstructing Asset Classes from First Principles | 3 | 3 | 0 | 0 | Ted asks how Partners tackled unfamiliar asset classes from a blank slate. Stan explains their methodology of triangulation and data-driven manager evaluation. | |
| Scaling the Firm and Institutional Client Growth | 3 | 2 | 0 | 0 | Ted inquires about early scaling milestones and client portfolio customization. Stan describes hitting early AUM hurdles and onboarding Cambridge colleges. | |
| The Three Core Pillars of the Endowment Model | 4 | 4 | 1 | 0 | Ted asks Stan to define his interpretation of the Yale endowment model. Stan breaks down the three core pillars: high static risk, multi-asset diversification with illiquid bias, and entrepreneurial specialist managers. | |
| Evolution of Public Equity Alpha and Factor Risks | 4 | 4 | 1 | 2 | Ted questions Stan on past errors and challenges Stan on how to reconcile backing emerging venture managers with requiring extensive repetitions. Stan differentiates between firm spin-outs and unproven talent. | |
| Quantitative Factor Screening and Investor Psychometrics | 3 | 3 | 0 | 0 | Stan elaborates on multi-factor regression screens that eliminate 95% of equity managers and outlines the psychometric traits of elite investors. | |
| Risk Management Dashboard and Factor Neutralization | 4 | 3 | 1 | 1 | Ted probes into how Partners evolved risk management beyond Swensen's original blueprint. Stan describes their granular 16-metric risk dashboard to identify hidden beta. | |
| The Three-Tiered Tactical Asset Allocation Framework | 4 | 3 | 0 | 1 | Ted asks how static risk aligns with tactical asset allocation. Stan explains their three-tiered framework spanning equity-equivalent beta, asset class valuations, and sub-asset tactical tilts. | |
| Value-Add LP Partnerships, Fee Alignment, and Volatility | 4 | 4 | 2 | 0 | Ted asks how alpha/beta unbundling impacts fee structuring. Stan discusses value-add LP strategies and rejects standard volatility budgeting as flawed. | |
| Portfolio Construction and Maximizing Information Ratios | 3 | 3 | 0 | 0 | Ted asks how Partners solves for alpha in public markets and balances internal versus external management. Stan highlights maximizing information ratios and opportunistic internal strategies. | |
| Organizational Design: Client CIOs and Specialized Research | 3 | 3 | 1 | 0 | Ted asks about organizational design and private equity return expectations. Stan breaks down private equity returns, arguing that 7.5% was multiple expansion rather than operational value add. | |
| Hedge Fund Structuring, Alpha Leverage, and Platform Spinoffs | 4 | 3 | 1 | 1 | Ted asks about the evolution of hedge funds and how Partners handles multi-manager platforms. Stan explains avoiding mega-platforms due to fee capture, preferring their spin-outs. | |
| Investing in Niche Uncorrelated Alternative Assets | 3 | 3 | 0 | 0 | Ted inquires about esoteric alternative asset classes and real estate. Stan reviews litigation finance, royalties, and real estate sector selection. | |
| Perspectives on Artificial Intelligence and Cryptocurrency | 3 | 4 | 2 | 0 | Ted asks for views on AI and cryptocurrency. Stan dismisses direct crypto investing as pure speculation detached from utility value. | |
| Institutional Succession Planning and Governance | 3 | 2 | 0 | 0 | Ted asks about leadership succession and future business trajectory. Stan reflects on institutionalizing knowledge and transitioning his CIO duties. |
Statements from this episode (39)
Miranda: Private bank investment managers produce no alpha
“When we went through the manager's performance, we realized that most of the managers had no alpha, so why would we ever hire a private bank?”
Miranda: Asset Allocation Must Start with Asset Classes, Not Fund Managers
“It had to be rooted in And some deep insights about each asset class, and it always started there, not with the managers.”
Partners Capital capped growth at $1.5B annually before the financial crisis
“The next year was three billion, and we capped ourselves about one and a half billion a year until the global financial crisis.”
Miranda: Portfolio Customization Focuses on Allocation Sizing, Not Asset Selection
“Almost all asset classes are included in almost all client portfolios, even the private equity GPs today. So the customization came down to really sizing of managers or simple allocation decisions, whether it's eight percent private debt versus 10% private deb…”
Endowments avoid publicly listed asset managers for concentrated, owner-operated specialists
“Something we definitely copied of the Yale model was that you don't give money to the big retail, publicly listed asset managers that are in the business of turning out 40 new funds every year. You went with the concentrated specialist, entrepreneurial, owner-…”
Miranda: Investment teams must codify and teach lessons from past mistakes
“The most important thing is not just how many mistakes you've made, but did you stop, analyze it, codify it, and teach it? Did you educate your team about why that was a bad idea? Why you succeeded with certain managers?”
Commodities trend downward over time due to economies of scale
“Because you learn about commodities, there's no yield, there's no income. So over time, they actually go down because of economies of scale.”
Miranda: Partners Capital does not invest in commodities
“That was a big learning, so we don't do commodities today.”
Private equity-style public investing lost its edge when growth beat value
“So we started with the private equity approach to public equity investing, as you'd expect us to, because that's deep Fundamental analysis, and that's the only possible explanation for how you could have security selection alpha. That worked, actually, from ab…”
Miranda: Focused biotech and China equity funds carry excessive non-beta risk
“We learned that there's a lot of risk other than equity beta in these portfolios, ok? China, there's geopolitical risk, and Biotech, there's basic regulatory risk, small company size risk, unprofitable or profit tomorrow company risk, and all of those are risk…”
Early-stage venture consistently outperforms late-stage venture across tech cycles
“Late stage is the same as early stage returns, but if you adjust for tech bubbles included in both the beginning and the end, the early stage is where you definitely are generating superior returns, so you want some of that.”
Partners Capital avoids early-stage venture managers without prior institutional track records
“We almost never invest in early stage manager without reps. So they've almost always come from another place.”
Partners Capital's multi-factor benchmark eliminates 95% of public equity managers
“We run massive regressions against their historical performance, and we attribute that performance to certain factors that we can replicate, and we create the multi-factor replication benchmark, and if they didn't beat that by a significant amount, they don't …”
The best investors are unbalanced 'square pegs' and workaholics
“The shorthand is the best investors are square pegs, ok? And that, there's lots of exceptions. In the investment world, there's lots of investment rules that have exceptions. We see that more often than not, that they're not Balanced individuals. They're worka…”
Partners Capital averages 300 to 500 diligence hours per private equity fund
“We do, on average, 300 to 500 hours of due diligence on the average private equity fund, for example. So later in the due diligence, we learn that, but also from references. We do a ton of reference. Typically, 20 references”
Miranda: Risk management is the single biggest evolution in the endowment model
“That's the single biggest change in the endowment model is the risk management, and that's what risk management means to us.”
Allocators must scrutinize alpha because it is likely unrecognized factor beta
“You should pay huge attention to any source of alpha. It's probably beta.”
Miranda: Partners Capital uses liquid futures and ETFs to offset overweights
“The main impact is that we will counterbalance certain overweights that we don't want as intentional overweights. So we have to have enough liquidity in the portfolio where we can use ETFs or index funds or futures that we can offset those.”
Miranda: Partners Capital seeks to pay performance fees only on alpha
“We're always trying to make sure we're only paying performance fees on the alpha, not the beta.”
Miranda: Partners Capital shares a 70-page value-add playbook with PE managers
“We have actually a best demonstrated practices book. It's about 70 pages on post acquisition operating value added that we share with private equity managers.”
Fixed volatility budgets force endowment managers to sell low and buy high
“A lot of people out there in our business think about the average endowment portfolio should have 10% standard deviation around its annual returns, 10% volatility budget, which makes no sense, because what happens when markets go down, volatility goes up, all …”
Miranda: Information ratio is probably the most important metric in liquid securities
“Turns out information ratio is probably the most important metric in liquid securities or asset classes, ok?”
Miranda: Partners Capital is exploring an internal brown-to-green energy transition strategy
“Right now, we're looking at one in the energy transition space. It's all about owning brown to green. We cannot find anyone else doing it.”
Miranda: Partners Capital rejects the generalist model for specialization
“We believe in specialization. We don't believe in the generalist model. And so that's all they do is live and breathe their asset classes.”
The average private equity firm created zero real value over a decade
“The average private equity firm over the last 10 years earned 15% net. Seven and a half percent of that was from multiple expansion, which is basically referencing the public equity markets, multiples, and those companies get valued in line with those, and so …”
Leveraged small-cap public equities outperformed the average private equity fund
“So if you leverage small cap public equities, we think you could have done better.”
Partners Capital passes on Fund I spin-outs to monitor for Fund II
“We'll typically meet the management team the first time. We pass in most cases, not in all cases. We've done some fund ones, but generally we say, we're going to watch you. Please hold some space for us for fund two, and we're in fund two.”
Miranda: Multi-manager absolute return portfolios produce 1.2 IRs ready for leverage
“So what we learned is you can create, say, with 20 managers with the right mix of strategies and a very consistent source of alpha, call it three to four percent, not big numbers, with only three percent or even two percent alpha volatility, so information rat…”
Multi-manager hedge fund platforms consume 80% of their gross alpha in fees
“The EROC is terrible. And another way to think about it is, of the total gross alpha, how much do they keep? It's about 80%. We get 20% of the alpha. The alpha's huge. Absolutely huge. But we could never get comfortable with only getting 20%.”
Partners Capital prefers allocating to platform spin-offs to keep more gross alpha
“So what do we do? We allocate it to their spinoffs. And it's mostly Citadel spinoffs. They've done very well, and they're closer to two and 20, and we get roughly 50% of the gross alpha, and we diversify.”
Alpha in niche alternative assets decays rapidly without deep specialization
“The problem with them is that they have limited capacity. And as soon as I start talking about them on a podcast, then all of a sudden the alpha goes away. But in most of those categories, it has gone away unless they're in certain specialist areas.”
Investors should avoid double promote fee structures in real estate
“Real estate, first of all, stay away from the double promote. You don't pay a private equity firm to pay a private equity firm.”
The US real estate market offers significantly more alpha than overseas markets
“Frankly, the U.S. Property market is a lot more alpha rich than Then European and Asian property markets.”
Natural resource fund managers fail to hedge commodity risk despite their claims
“And all our due diligence had us being convinced by these managers saying that they hedge the commodity risk. They don't.”
Miranda: Partners Capital avoids crypto except through blockchain venture capital
“On crypto, we have studied it. And we have come to a decision not to invest other than in blockchain venture capital.”
Miranda: Bitcoin's price bears no resemblance to its actual utility
“If you look at the value of Bitcoin, it bears no resemblance to any value proposition or utility that Bitcoin has.”
Miranda: Succession requires giving candidates the job before they officially take it
“I think succession in all companies, not just investment companies, is about giving the job to the individual before they take it on.”
Catastrophe insurance investments failed because global warming outpaced insurance pricing
“I think invest in catastrophe insurance. You already said we're long global warming. That's what catastrophe insurance is, but global warming has always been ahead of pricing, so that was a painful experience.”
Miranda: Board meetings should focus on underperformance rather than pitching successes
“You don't go into the board meeting to convince them that our investment performance is great. You find the area that's not great. You spend all the time on that, and you're honest about it, and you focus them on it, and you face into the unvarnished truth.”