Dec 19, 2022 · 51m · capital-allocators
Ana Marshall – Preparing for the New Environment at Hewlett (Capital Allocators, EP. 288)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Ana Marshall, Chief Investment Officer at the William and Flora Hewlett Foundation, discussing macroeconomic regime shifts, secondary market portfolio management, liquidity buffers, geopolitical risks, and pragmatic ESG investing.
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 23.6% of the talking time here. How this is scored →
Ted as informed peer 4.1 Guest teaching 5.3 Guest disagreement 2.2 Ted pushing back 1.5
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:48 Dismissing armchair economics
Marshall forcefully brushes aside macroeconomic forecasting, saying everyone wants to play armchair economist despite nobody having a crystal ball.
Hardest push from Ted ▶ 5:59 Steering past dismissal back to inflationSeides directly pushes back on Marshall's attempt to skip macro economics, reframing the topic around practical portfolio positioning for inflation.
Biggest teaching moment ▶ 42:50 The risk of budgeting against artificially high NAVsMarshall educates allocators on the hidden systemic threat of lagging private market marks distorting institutional operating budgets.
Ted holds their own ▶ 15:19 Synthesizing secondary sale scenariosSeides categorizes Marshall's secondary execution strategy into three clear market-driven and internal operational scenarios.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Shifting Macro Paradigms and Unlearning Zero-Rate Habits | 4 | 6 | 4 | 3 | Marshall dismisses armchair economics right off the bat before Seides nudges the discussion toward inflation. She educates on why zero-rate assumptions from the last 14 years were artificial and need to be systematically unlearned. | |
| Demanding Manager Discipline and Operational Focus | 4 | 5 | 3 | 2 | Seides probes into manager responses regarding rising debt costs. Marshall details how buyout models must shift focus from EBITDA adjustments to cash flow coverage. | |
| Strategic Portfolio Rebalancing via Secondary Sales | 5 | 6 | 2 | 2 | Marshall explains Hewlett's distinct framework for using secondary market transactions to rebalance allocations and accommodate new asset class directors. Seides prompts her to clarify the mechanics and rationale. | |
| Proactive GP Communication and Secondary Execution | 5 | 4 | 2 | 2 | Seides highlights that many allocators fear alienating GPs by selling secondaries. Marshall explains how transparent risk management communication preserves GP relationships. | |
| Best Practices, Underwriting Ease, and Deal Timelines in Secondaries | 4 | 5 | 1 | 1 | Marshall breaks down the operational timelines and asset packaging needed to make secondary portfolios easily underwritable by buyers. | |
| Liquidity Management and Protecting Allocation Buffers | 4 | 5 | 1 | 1 | Marshall details the option value of maintaining a 4-5 percent cash buffer in endowment management to bridge foundation grantmaking obligations during illiquid market troughs. | |
| Market Reality Checks and Private Market Valuation Lags | 5 | 6 | 3 | 2 | Marshall outlines valuation lags in private markets and the geopolitical friction complicating long-term China allocations, comparing public market opportunities to historical trading ranges. | |
| Macro Challenges in Broader Emerging Markets | 4 | 6 | 3 | 1 | Marshall expresses skepticism toward emerging markets supply chain shifts, noting scalability bottlenecks in Vietnam and macroeconomic vulnerabilities in Brazil and India. | |
| Sponsor: Ridgeline AI-Native Investment Technology | 3 | 6 | 4 | 1 | Following the mid-roll sponsor break, Marshall provides a candid critique of ESG compliance burdens, analogizing upcoming greenhouse gas verification requirements to Sarbanes-Oxley. | |
| Economic Alignment in ESG and Challenges with Social Metrics | 4 | 5 | 2 | 2 | Marshall argues that ESG incentives must be economically aligned to lower cost of capital, while discussing the analytical flaws in measuring social metrics across differing industries. | |
| Macro Historical Analogs and Cognitive Edge in Manager Research | 4 | 5 | 1 | 1 | Marshall describes Hewlett's method of interviewing concentrated managers across unprompted cross-asset topics to identify consensus crowds and manage systemic risk. | |
| Institutional Worries: Stale Valuations and Long-Term Plans | 4 | 6 | 2 | 1 | Marshall reveals her top concern: stale private valuations leading institutional boards to budget against inflated NAVs that risk depleting real endowment capital. | |
| Mentorship, Investment Philosophy, and Cognitive Blind Spots | 3 | 4 | 1 | 1 | Marshall reflects on key career mentors, the imperative of disciplined stock-picking fundamentals, and managing cognitive blind spots by inviting younger analysts to challenge her assumptions. |
Statements from this episode (27)
Marshall: The macroeconomic environment is returning to a 1990s normalized regime
“What we're really doing is going back to a world that existed starting in sort of 1991, 1992, through up into the crisis. So it was more of a normalized economy.”
Marshall: Believing deals work at any valuation is investors' worst lesson
“This whole concept of the math works for any deal at any valuation because the cost of capital is near zero. I think that is probably the most pernicious thing that was learned by a generation of investors.”
Marshall: Private market inflows completely obliterated the illiquidity premium
“The fact that illiquidity premium had been completely obliterated as more and more money poured into private markets.”
Marshall: Private equity managers must halt deals and focus on operations
“I'm a big believer that the people who we trust with our capital need to be pencils down and really working with the portfolio companies. We have had five to seven years of Massive amounts of capital going into buying private firms and taking companies private…”
Marshall: Offloading only underperforming fund managers never works in secondaries
“You can't just sell your duds. That never works in a secondary.”
Marshall: Institutional secondary sales generally range between $100M and $300M
“Secondary sales can't really happen in a world for like under a hundred million dollars. They don't really go out in more than bulks of like 203 hundred million dollars.”
Marshall: Halting fund commitments due to NAV limits is a major mistake
“Because I think not being able to commit because you are already over your NAV is actually a really big mistake, because some of the best funds are actually invested during down years, and so you don't want to miss those years.”
Marshall: Secondary sales succeed when underlying assets are easy to underwrite
“Usually if it's partnerships that a lot of people know, where people don't have to do an extraordinary amount of work in order to understand the assets. At the end of the day, yes, they're firms and they're funds, but they're a bunch of assets. So people need …”
Marshall: Foundations cannot use credit lines to buy market dislocations
“Many of us have credit lines in place to be able to fund the granting parts of the organizations, but you can't use credit lines to lean into a dislocation. For lots of tax reasons. If you think a dislocation is coming, you need to have cash to be able to even…”
Marshall: Hewlett Foundation maintains 50% illiquid assets and 5% cash buffer
“We have probably about 50% of the portfolio in illiquids. So we have about, I would say four to five percent in cash, some so that we can bridge what should be the contribution to pay out, and some so we can lean into dislocations.”
Marshall: Lagging private market markdowns are paralyzing transaction activity
“The private markets have done what they do, which is they take forever to actually get reality checks. For the most part, the marks have been way slower and way less than I would have expected, even for this stage, given the increase in the cost of capital. So…”
Marshall: Frozen debt markets will prevent private equity fund capital calls
“Even if your cashflow model is wrong on distributions, you're probably not going to get any capital calls anyway, because no one can really fund anything in the debt markets. So for the time being, it won't be a huge squeeze for people because there won't be a…”
Marshall: Funding private obligations without distributions will pressure public markets
“I mean, you still have institutional investors that, whether they reallocate back to fixed income, or they have to fund cash flows, or they have to fund private market capital calls without there being the benefit of distributions. I still think that hits your…”
Marshall: US investors will struggle to profit from Chinese state-sponsored winners
“And great global companies were created, and I think more global companies will be created in sectors that the government really wants to sponsor. I think it will become ever more challenging for us to be able to benefit from that.”
Marshall: Underwriting geopolitical risk raises the hurdle rate for China
“When you've been investing without thinking of geopolitical risk as one of your main things, you then have to add it into your underwriting. So that just makes the hurdle rate higher for a China investment.”
Marshall: Chinese public equities are at their cheapest relative valuation ever
“From a relative valuation, they're the cheapest they've ever been.”
Marshall: Supply chain relocation is slow because subcomponent suppliers must follow
“It's really difficult to make ten-year capital decisions on manufacturing plants and the ensuing supply chain that has to follow you into those manufacturing plants. Because remember, when you build a manufacturing plant, you have to have all the other little …”
Marshall: Oil reliance and corruption make India difficult for foreign manufacturers
“India, you know, oil continues to be the, you know, sort of their Achilles heel as far as their current account, and we're seeing the reserves come out, and it still is a market with a ton of corruption, and so it's from an ease of doing business for foreign m…”
Marshall: SEC emissions rules will expand to all registered investment firms
“We don't think this will stop at public equity, by the way. We think it'll go through to all SEC registered investment firms, because that is the intent of the SEC in all of their working papers.”
Marshall: Scope 1–3 emissions compliance costs are projected to exceed Sarbanes-Oxley
“It's going to be complicated, and the estimated cost of compliance for scope one, scope two, and scope three is expected to exceed Sarbanes-Oxley.”
Marshall: Hewlett prioritizes ESG improvers over already-good companies
“I think the getting better is what we should be aiming for. I mean, the point is, isn't to reward the ones that already are good. A lot of the point of our granting dollars is to improve conditions, and so I think from a philosophical perspective as part of He…”
Marshall: ESG improvement yields lower capital costs and higher exit multiples
“You will have a lower cost of capital, and you will have a higher exit multiple. So the incentive structure should be aligned to doing the right thing, not because it's the right thing, but because you're going to make more money.”
Marshall: Current ESG social scores mean little due to slow industry demographics
“What you really want in the S is to have more senior professionals, either people of color or women, but in many industries that will take decades. And so to give a score today, I don't know that it means much.”
Marshall: Artificially high private NAVs are causing institutions to overspend budgets
“I would say my basket of worries, number one, is that our NAVs don't really reflect what's the reality of the situation is, and I understand the reasons why the buyout and venture and all the private firms, they're being careful with the marks. But all of the …”
Marshall: Geopolitics, FX, and financing costs will reduce asset class returns
“I think the other basket of worries is that we now have to include FX and geopolitical risk in every single investment decision we make. I think it was a gift. That for 15 years, we didn't have to do that. But, you know, these costs are real, and that and the …”
Marshall: The current economy will struggle to match 1990s GDP growth
“That's one of the biggest differences between now and the 19 nineties is that, yeah, you could have three percent inflation and four percent rates, but you also have three to four percent growth. And right now, we're gonna struggle to get that.”
Marshall: The fund boom massively expanded the universe of non-excellent managers
“There are very few really consistently excellent stock pickers. There are very few consistently excellent bond investors, just like in venture and just like in buyout. The last 15 years have massively expanded the universe of funds and firms. That weren't exce…”