May 22, 2023 · 1h 9m · capital-allocators
Amy Falls – From Bonds to Boards to Leading Northwestern (Capital Allocators, EP.316)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Northwestern University Chief Investment Officer Amy Falls sits down with host Ted Seides to explore her career transition from fixed income trading to leading major institutional endowments, detailing her frameworks for governance, qualitative manager selection, liquidity architecture, and macroeconomic risk.
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 18.5% of the talking time here. How this is scored →
Ted as informed peer 5.3 Guest teaching 5.8 Guest disagreement 0.5 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:20 Rejecting conventional asset class classifications
Amy forcefully pushes back against standard industry definitions, rejecting benchmark composites like the Barclays Aggregate in favor of strict factor-based risk definitions.
Hardest push from Ted ▶ 51:26 Challenging growth categories in private equityTed presses Amy to distinguish between investing in naturally high-growth tech sectors versus GPs who actively create operational turnaround value.
Biggest teaching moment ▶ 43:28 Educating on lockup premiums and efficient frontier steepnessAmy details proprietary empirical findings prompted by Jim Simons, proving that locking up capital across public managers yields a structurally higher and steeper efficient frontier.
Ted holds their own ▶ 38:15 Synthesizing data rigor against human relationship biasesTed demonstrates his deep understanding of allocator decision friction by asking how Amy balances quantitative underwriting with qualitative interpersonal trust.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Backing into Finance and Sovereign Debt at J.P. Morgan | 4 | 5 | 0 | 0 | Ted prompts Amy on her early career trajectory into finance. Amy walks through her early background analyzing bank balance sheets, sovereign risk, and Yankee bonds at J.P. Morgan in a collaborative and informative manner. | |
| Core Macro Frameworks: Solvency, Liquidity, and Capital Flight | 5 | 6 | 1 | 0 | Ted asks about core takeaways and frameworks from international bond analysis. Amy explains the critical distinction between solvency and liquidity crises, balance of payments data, and how assessing capital flight saved her desk during the 1998 Russian default. | |
| Volunteer Committee Experience and Becoming Andover's First CIO | 5 | 5 | 0 | 0 | Ted explores how Amy transitioned from fixed income to endowment management. Amy details how serving as a volunteer on Andover's investment committee during the late-90s venture runup prompted the school to professionalize its office. | |
| Developing Manager Selection Frameworks and Aligning Incentives | 6 | 6 | 1 | 1 | Ted probes into manager selection nuances and structural alignment. Amy explains the shift from raw spreadsheet modeling to qualitative organizational evaluation, reading historical letters to test accountability, and aligning compensation with trading strategies. | |
| Portfolio Pruning and Navigating the 2008 Financial Crisis | 5 | 5 | 0 | 0 | Ted asks about the track record at Andover and navigating the 2008 financial crisis. Amy details pruning redundant managers to boost returns and following rigid rebalancing targets at market troughs. | |
| The Value of In-House Leadership and Student Insights | 6 | 6 | 1 | 0 | Ted asks about the structural necessity of a dedicated CIO versus committee oversight, and her transition to Rockefeller. Amy articulates how she eliminated sloppy portfolio ranges, established disciplined targets, and rationalized unrealistic spend rate assumptions. | |
| Re-architecting Asset Classes and Pruning Redundant Managers | 6 | 7 | 1 | 0 | Ted asks how Amy defines asset classes differently from standard convention. Amy clarifies why benchmark blends like the Barclays Aggregate are unhelpful for endowments, preferring pure risk-factor categorization like pure Treasuries for negative correlation ballast. | |
| Motivations for Joining Northwestern and Regional Mission | 4 | 4 | 0 | 0 | Ted asks about Amy's decision to move to Northwestern. Amy highlights teaching opportunities with students, regional affinity, and supporting university expansion in the Midwest. | |
| Modernizing Team Structure with a Hybrid Generalist Model | 6 | 6 | 0 | 0 | Ted drills down on how Amy restructured Northwestern's investment team. Amy details moving away from rigid asset-class silos toward a collaborative hybrid model featuring two-person coverage on each manager with cross-asset fluency. | |
| Sponsor Message: Ridgeline AI-Native Investment Technology | 5 | 6 | 0 | 0 | Following an ad break, Ted asks how Amy balances data analysis with human relationships. Amy explains how performance data and marks can be manipulated across credit and private equity, emphasizing trust and evaluating how managers react under failure. | |
| Liquidity Architecture, Lockup Premiums, and Rolling Cash Plans | 6 | 7 | 1 | 0 | Ted probes into liquidity budgeting and capital lockups. Amy references an insight sparked by Jim Simons on liquidity vs. beta, describing how lockup terms steepen the efficient frontier and explaining her dynamic two-year rolling cash model. | |
| The Rigor of Collective Debate in Investment Decisions | 5 | 6 | 1 | 0 | Ted asks about Amy's decision-making frameworks. Amy emphasizes the value of forced debate and group discussion, noting she rejects autonomous decision-making mandates because collective argumentation surfaces flawed assumptions. | |
| Repositioning Private Equity for Earnings Growth and Operational Value | 6 | 6 | 0 | 0 | Ted explores opportunities in fixed income, private credit, and private equity amid rising rates. Amy outlines how Northwestern is allocating to middle-market managers who drive operational improvements and profitable earnings growth rather than financial engineering. | |
| Global Public Equities, Multipolar Dynamics, and China Exposure | 6 | 6 | 1 | 0 | Ted questions Amy about public equities and the endowment's stance on China. Amy outlines her rationale for international diversification in a multipolar world and explains Northwestern's neutral target posture in China via liquid public markets. | |
| Fostering Committee Partnership and Managing Boardroom Dynamics | 6 | 7 | 1 | 0 | Ted asks about board dynamics and committee governance. Amy provides practical advice on avoiding information dumps, managing board impasses, and dealing with members who prioritize personal affiliations over fiduciary duty. | |
| Land Stewardship, The Tomato Blight Analogy, and Capacity Limits | 5 | 6 | 0 | 0 | Ted asks how Amy's organic farm in Maine informs her investment philosophy. Amy shares her tomato blight analogy to illustrate false diversification and emphasizes not taking on more operational complexity than resources permit. | |
| Reflections on Mentorship, Arrogance, and the Art of Listening | 4 | 5 | 0 | 0 | In standard closing questions, Ted asks about mentors, pet peeves, and key life lessons. Amy reflects on David Swenson's mentorship, the importance of active sponsorship for women, and the imperative of curbing arrogance by listening. |
Statements from this episode (38)
Falls: SVB faced a liquidity crisis while First Republic faced insolvency
“So in one case, it's probably more of a liquidity crisis, too much reliance on short-term funding, and in the other, it may have been more of a solvency crisis, real loan impairment.”
Falls: Andover's VC Exposure Hit Nearly 35% of Endowment in 1999
“So we were pretty heavily invested in venture capital. Andover was an early mover in venture capital in the eighties. So we were early investors in funds like Matrix and some others. And that had risen to, in 99, to be almost 35% of the endowment. It was like …”
Falls: Reviewing investor letters from inception reveals how managers handle mistakes
“I find that if you start with a book, I usually make a paper binder, of all the letters since inception, you will really begin to understand the thought process of a manager and how they handle mistakes.”
Falls: Niche investment managers need long-short capability to survive market downturns
“So I love the idea of niche managers, but the issue with niche managers is that if the sandbox gets bad, they're stuck in the sandbox. So generally with really niche managers, I'm a bit more in favor of long short if you can.”
Falls: Siloed compensation fails in multi-strategy funds by discouraging capital rotation
“So then if you have a strategy that pays people in a very siloed way, that's not going to work because you're not encouraging people to pass the puck. Compensation structures need to align with what the strategy is.”
Amy Falls: Firing one-third of Andover's fund managers boosted endowment performance
“We had more than 60 managers for a six hundred million dollar portfolio, and more or less firing about a third of them was very important in boosting performance”
Falls: Long tail of managers and stock positions drags down performance
“Somehow the tail of managers seems to drag you down more than it pulls you up, and I think that's true with stock positions, too. I think it has probably to do with conviction levels.”
Amy Falls: Portfolio allocation ranges are sloppy compared to fixed targets
“I think rebalancing just doesn't happen by itself. It's a reason I love targets rather than ranges. Ranges are really sloppy. Just having someone sit in the seat forces you to say, you know, we're actually way overweight this or that.”
Falls: Rockefeller University held an unexplainable 20% long/short equity allocation
“Like, 20% long short equity. It's like a lot. It's not crazy, but I asked each person, why do we have this? And nobody had an answer.”
Amy Falls: Endowment fixed income portfolios should only hold U.S. Treasuries
“For us, we wanted to have something that was liquid, highly safe, or would have a negative correlation with equities and not complicated. So I don't really want the Barclays Ag. I don't need a bunch of mortgage-backed securities in there that have complicated …”
Amy Falls: Equity long-short funds typically exhibit 0.7 correlation to equities
“Similarly, hedge funds or absolute return, I've typically divided that into two categories, equity-oriented strategies, i.e. Long short, because there we assume you're going to have a . Seven-ish correlation to stocks. But you're going to have less volatility …”
Amy Falls: Allocators should cull redundant managers instead of keeping all four
“One of the things we talked about was David's view of culling versus weeding. Like, you could have four really good managers that have very similar characteristics. You just don't need all four of them. So then you pick the two that you think are the best, and…”
Falls: Siloed asset classes sacrifice cross-thinking across investment teams
“It's really easy to know what to do when you own an asset class. Each person runs their little business, and the CIO just makes sure that everybody's doing a good job running their business and sets the big picture. I think you lose some cross-thinking and cro…”
Northwestern endowment assigns roughly 15 active managers per team member
“So the way we're trying to create a comparable kind of discipline is to actually assign managers. So everybody has a manager roster. It maps roughly to the old asset classes, but not entirely. And then each manager has a partner. So there's two people on every…”
Northwestern endowment tracks three to four alternatives for every active manager
“And then we've sort of beginning to adopt a slot concept, like we're trying to have a more or less set number of managers. It won't be precise. And then always for every manager, we want to keep track of three or four alternatives.”
Falls: Public manager diligence risks floating along without cutting underperformers
“Private managers, you kind of do a deep dive re-up when the fund is re-upping. And the rest of the time you think, well, I can't really do anything until they come back to market. So there's this weird every two or three or last couple of years, every year, yo…”
Falls: Access to top investment managers is becoming less of an issue
“Now I think that world is changing, so right now I think access is less of an issue.”
Amy Falls: Private equity IRR is easily manipulated via portfolio marks
“In lots of parts of the market, the data is easy to manipulate. Depending on how liquid, even not just private equity, but how do you mark a credit book is very important. Some people market mid-market, some people mark bid and ask. I think it's useful to star…”
Falls: Allocators must visit manager offices rather than hosting conference room pitches
“I definitely think you got to go to their offices. This idea that people come and sit in your conference room, that's fine, and I'm happy to host people here in Evanston, but I really like to walk around and sense what the vibe is.”
Study: Public managers with annual lockups deliver steeper efficient frontiers
“We ran an exercise looking at all of our managers divided not by asset class, but simply by the liquidity terms, not even including private equity, but just the public managers who had annual or longer locks, who had quarterly locks, and who allowed monthly li…”
Falls: Allocate liquidity to low-volatility assets and lock up high risk
“You want your least volatile stuff to be your most liquid stuff, because it is your dry powder, and then you compromise liquidity where there's the most risk, because you probably get the highest payout doing that, and the chances are you might want the liquid…”
Amy Falls: Rejects full delegated authority to keep investment committee debate
“I have been offered in various situations, you know, you don't have to bring managers to the committee anymore. Just do what you think. I always say no, because I don't actually think I'm going to get to the right answer by myself.”
Falls: Standardized manager analytics prevent cherry-picking data and references
“So I like to have a set analytics that you're going to do for every single manager could be different between private equity and public or whatever, but it's always the same. So that you don't end up just cherry picking data or cherry picking references.”
Falls: Sharp Fed rate hikes will trigger bankruptcies and higher defaults
“I do think the Fed is probably at the end of the tightening cycle, but it's been a very sharp, short move. I think it's going to result in bankruptcies, credit events. So I think there will be higher default rates, and I'm not sure that's fully reflected in co…”
Falls: Northwestern is evaluating private credit after historically low exposure
“We're looking at it. We didn't have a lot of that in the portfolio, and I feel like we're at a point in the cycle where I think it could be making sense.”
Amy Falls: Northwestern endowment was underweight PE and is now adding capital
“We were underweight private equity.
So we are using this moment to think about where is the best place to add.”
Falls: Rising cost of capital forces lower buyout multiples and more equity
“Obviously, there's an adjustment as the cost of capital goes up, leverage strategies get hurt, and then there has to either be more equity in deals and prices have to come down.”
Falls: Real estate and natural resources distributions are slower than expected
“Unfortunately, there are other parts of the portfolio that are not returning capital, and I'm not speaking about venture, but natural resources and real estate, which probably we would have expected would have returned a little bit more capital.
That's been a …”
Falls: Northwestern holds high public equity allocation relative to peers
“We actually have a lot of it relative to our peers.”
Falls: Transition to multipolar world will keep inflation sticky
“That's one of the reasons I think inflation is going to be sticky, but I also think that could be valuable to have more international diversification because I think you're going to have different zones of economic activity, and I'm not sure you want to be com…”
Amy Falls: Northwestern targets 8% to 10% portfolio exposure to China
“We've sort of defaulted to eight to 10% of the portfolio, which is probably underweight relative to GDP, but probably bad on when you look at market cap and percentage of total private equity. So I think we're kind of neutral, but we're not abandoning the fiel…”
Falls: Flooding investment committees with finished proposals suppresses critical feedback
“One is if you flood a committee with information, you won't get any feedback. If you come to committee meetings with every I dotted, every T crossed, very few people are going to say, gosh, I know you've done months of work here, and you have a point of view. …”
Falls: Northwestern uses an 'on-deck' section to involve committees earlier
“One of the things we do when we do committee meetings, we have an on-deck section, which is these are some managers that we're just starting the process on. So if you have a thought, let me know now. That's really intended to invite them into the conversation …”
Falls: Apparent portfolio diversification often masks concentrated underlying beta
“I use that analogy to think about when we talk about a diversified portfolio, you got to be sure they're not all secretly tomatoes. And I think that understanding what does create that diversity, there's diversity in public large cap equities, but not that muc…”
Falls: Allocators must not take on more positions than they can monitor
“The notion of don't sow what you can't reap, because the amount of waste that happens because you just can't get to the crop, it's very hard. It all comes at one time. So just a lot about not setting yourself up for failure, because you can't keep track of it,…”
Falls: Relying on data over manager caliber causes the biggest investment mistakes
“I think the biggest investment mistakes were usually around too much reliance on data and not enough focus on the caliber of the person. Sometimes the data is either not right. The biggest mistake I ever made was really being swamped by how good the numbers lo…”
Falls: Young women in finance must seek mentors across gender differences
“I think women need to have good mentors, and I think there will be a world where there's a fifty-fifty chance that the mentor is a male or a female, but until we're in that world, it's very important for young women to be able to find mentors who don't look ex…”
Falls: Allocators should avoid investing in solo GPs and one-man bands
“Don't invest in one man bands. And I sort of feel like I would just broaden that out to just be careful about the Lone Ranger and yourself and your team and the managers. And again, it gets back to this view that I have that an iterative process results in bet…”