Aug 1, 2022 · 51m · capital-allocators
Sarah Samuels – Framework and Rigor at NEPC (Capital Allocators, EP.264)
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In this episode of Capital Allocators, host Ted Seides interviews Sarah Samuels, Partner and Head of Investment Manager Research at NEPC, exploring her transition from public pensions and endowments to leading a $1.5 trillion diligence platform. Samuels details NEPC's rigorous manager evaluation frameworks, quantitative diagnostics, committee governance best practices, and industry initiatives to expand diversity in asset management.
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 21.9% of the talking time here. How this is scored →
Ted as informed peer 4.1 Guest teaching 2.7 Guest disagreement 0.3 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 43:23 Dismantling naive replication of the Yale model
Sarah directly pushes back on standard industry orthodoxy that assumes institutions can replicate David Swensen's performance simply by copying asset allocation buckets.
Hardest push from Ted ▶ 15:43 Pushing on transparency versus elite GP accessTed challenges whether small institutions are genuinely better off pursuing elite brand-name managers with limited transparency over more transparent boutique alternatives.
Biggest teaching moment ▶ 23:25 Explaining why past performance is low-weightedSarah educates on behavioral finance traps, explaining why allocating based on historical outperformance is defensible but ultimately flawed first-level thinking.
Ted holds their own ▶ 7:09 Connecting non-traditional career pathsTed demonstrates industry familiarity by comparing Sarah's unconventional rise through Wellington to institutional peer Gene.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Sarah Samuels's Non-Traditional Path into Asset Management | 4 | 1 | 0 | 0 | Ted opens the interview by prompting Sarah on her background and draws a connection to industry peers. Sarah shares her non-traditional trajectory from admin assistant at Wellington to investment analyst. | |
| Transition to Boston Advisors and Shifting to Allocating | 5 | 2 | 0 | 0 | Ted guides the timeline through Boston Advisors to MassPRIM. Sarah details the contrast between quantitative portfolio construction and long-term allocator governance. | |
| MassPRIM Portfolio Structure and Fiduciary Realities | 4 | 2 | 0 | 0 | Ted asks about portfolio architecture and public fiduciary subtleties. Sarah breaks down MassPRIM's active-passive decision matrix and multi-stakeholder governance structure. | |
| Synthesizing Pension Rigor with Endowment Strategy | 5 | 2 | 1 | 2 | Ted probes whether smaller transparent managers or elite brand-name GPs are superior. Sarah outlines how top-quartile venture access and halo effects justify qualitative underwriting over pure transparency. | |
| Allocator Themes: Hedge Funds, Private Growth, and DE&I | 4 | 3 | 0 | 0 | Sarah details NEPC's scale across 1200 focus managers and highlights key institutional shifts away from generalist hedge funds toward private markets, ESG, and DE&I. | |
| Implementing Research Architecture and Change Management | 4 | 4 | 1 | 0 | Sarah details her change management framework across research teams, emphasizing that relying heavily on past performance represents flawed first-level thinking. | |
| Behavioral Checklists, Hot States, and the Three Whys | 4 | 3 | 0 | 0 | Ted inquires how 265 diligence criteria are operationalized. Sarah explains cognitive bias mitigation via cold-state checklists and using the 'three whys' method on GP pitches. | |
| Sponsor Advertisement: Ridgeline Investment Management Platform | 4 | 3 | 0 | 0 | Following a sponsor read, Ted asks about quantitative tools. Sarah breaks down break-even information ratios (IR) and custom regression factor attribution. | |
| Deconstructing Value Creation in Private Equity and Second-Level Thinking | 4 | 4 | 1 | 0 | Sarah explains Howard Marks's second-level thinking and breaks down private equity returns into earnings growth, multiple expansion, and leverage. | |
| Alignment of Interest, Succession Planning, and Conviction Ratings | 4 | 3 | 0 | 0 | Ted asks about manager alignment and conviction ratings across NEPC's extensive roster. Sarah stresses the hazard of unaddressed GP succession planning. | |
| Team Culture, Five Pillars, and Performance Measurement | 4 | 2 | 0 | 0 | Sarah details team culture, evaluating multi-generational work styles, and adjusting due diligence practices to post-COVID hybrid realities. | |
| Private Market Risks, Denominator Effect, and Commitment Pacing | 4 | 4 | 1 | 0 | Sarah sounds the alarm on $10T in private market dry powder and explains how clients should handle denominator effects without stopping vintage commitments. | |
| Targeting China Healthcare and Moving Beyond the Yale Model | 4 | 3 | 1 | 0 | Sarah argues for contrarian exposure to China healthcare and challenges the superficial replication of the David Swensen endowment model. | |
| Advancing Diversity, Equity, and Inclusion in Manager Research | 4 | 3 | 0 | 0 | Ted asks about low-hanging fruit and roadblocks in DE&I. Sarah describes NEPC's diverse manager underwriting events and institutional hurdles in mandate adoption. | |
| Girls Who Invest: Mission and 2030 Capital Target | 3 | 2 | 0 | 0 | Sarah outlines the founding vision of Girls Who Invest and the operational target of reaching 30% of global capital managed by women by 2030. |
Statements from this episode (39)
Samuels: Prioritize Company Quality Over Job Titles Early in Career
“Don't worry about titles. Go into the best company and you'll find amazing opportunities there.”
Samuels: MassPRIM Defied Stereotypes by Championing Innovation
“Some people might think that state pension funds are overly bureaucratic or risk averse, but Prim was just the opposite. We had a fantastic executive director and chief investment officer in Michael Trotsky. He's still there. He really encouraged us all to cha…”
Samuels: Presenting to Public Pension Boards Is Harder Due to Non-Industry Trustees
“The other thing that I learned is that boards, in many cases, at least for a public pension, tend to be composed more of maybe retired state policemen or people who are not in the industry. And so learning to present at a different level is actually much harde…”
Samuels: Investment Committees Fixate on Line-Item Risk Over Portfolio Hedges
“But it's very difficult for humans to think in terms of pair trades. The temptation to look at line item risk is huge. Even if you know that a long treasury position is in there to offset the meaningful equity risk in the rest of the portfolio, you still might…”
Samuels: Allocate active capital only where median managers beat fees and dispersion is wide
“We developed an active management versus index framework where we would put more active dollars to work and asset classes on the traded side that had a wider dispersion of results from the best and the worst managers, and where the median manager outperformed …”
Samuels: MassPRIM held 240 underlying hedge fund relationships before moving direct
“Our hedge fund portfolio began a long time ago as fund of funds. We realized we had 240 underlying relationships when we looked through those dozen or so fund of funds, and we built a direct program when I was there.”
Samuels: Sole fiduciary structures pose governance challenges for public pensions
“When you have an institution that has a sole fiduciary, that can be tricky from a governance perspective.”
Samuels: MassPRIM and Wellesley shared 7% nominal return targets
“The return targets were pretty much the same for the public pension and the endowment, about seven percent nominal, but the investment approaches were really, really different.”
Samuels: Wellesley allocated two-thirds of portfolio to illiquid assets
“Two-thirds in less liquid, either private markets or hedge fund strategies, and the rest, a third or so in tradable.”
Samuels: Generalist model works best for smaller investment offices
“We were generalists at Wellesley, which I think is a really good model. It works really well with smaller investment offices, and I learned a lot about how to think like a CIO and allocate capital across the liquidity spectrum and have perspectives on everythi…”
Samuels: Granular private market exposure data is of limited use due to illiquidity
“Even if you knew your exposure to Chinese venture to the 10th point, you can't really trade on it because it's illiquid unless you do a secondary sale.”
Samuels: VC and growth equity halo effects make accessing top managers essential
“So the good GPs attract the good LPs, and this all also attracts the greatest portfolio companies. It's super important to get into those best top names.”
Samuels: Early-stage private market return potential dwarfs manager fee impact
“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.”
Samuels: NEPC advises and manages over $1.5 trillion across 400 clients
“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.”
NEPC tracks roughly 1,200 high-conviction focus placement managers across asset classes
“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.”
NEPC deploys $5B in private strategies and $26B in public searches
“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…”
NEPC expects to expand private markets deployment to $8B in two years
“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.”
Samuels outlines six-phase change management cycle including a critical danger zone
“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…”
Samuels: NEPC Assigns a Low Weight to Past Performance in Manager Model
“One is that performance is actually a pretty low weight in the model.”
Samuels: NEPC's diligence framework uses 265 questions and data points
“These 265 questions, data points that we calculate are guideposts for our diligence.”
Samuels: Asking 'why' three times bypasses GP marketing scripts
“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…”
Samuels: Managers Needing an Information Ratio of 2.0 Won't Succeed
“And if they need an IR of two to be successful, I don't think they're going to be very successful.”
Samuels: Smaller asset managers manage risk by gut compared to larger firms
“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.”
Samuels: NEPC resists paying 2-and-20 fees for PE returns driven by leverage
“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.”
Samuels: Public and private specialists struggle without a common performance language
“And I think that's a big issue with teams, especially when there are specialists in long only versus specialists in privates is creating a common language. You've got multiple uninvested capital and IRR versus time way to return. You've got all sorts of differ…”
Samuels: GPs must groom next-generation leadership at least five years before succession
“Really, you need to start grooming that next generation at least five years before it's time.”
Samuels: NEPC does not evaluate researchers on short-term pick outperformance
“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.”
Samuels: On-site diligence remains essential despite remote work tools
“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…”
Samuels: Millennials Were Raised as 'Mini Consultants' Expecting Workplace Inclusion
“Millennials were raised as mini consultants to their parents. Parents would say, where do you want to go on vacation this year? What should we have for dinner tonight? And they want to be part of every decision. They want to be involved.”
Samuels: Private markets AUM approaches $10 trillion, with $2 trillion in VC
“The amount of capital in private markets, it's almost 10 trillion dollars in private markets AUM, and two trillion of that is held by VC firms, which is astonishing when you think about those numbers for early stage investments.”
Samuels: Top private equity vintage returns occur during corrections and recessions
“Some of the best vintage year returns are in years like this, leading up to and during a market correction or a recession.”
Samuels: Allocators cannot successfully time private market vintage year commitments
“Don't try to time vintage your allocations to private markets. You can't do it.”
Samuels: Chinese Healthcare Offers Tremendous Returns Despite Allocator Fears
“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…”
Samuels: Replicating Swensen's Yale Model Requires Differentiated Selection, Not Formulaic Allocation
“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…”
Samuels: Ideal investment committees should have five to seven members
“Ideal committees should be five to seven people. It increases accountability, it increases the preparation, the discussion is different in the room”
Samuels: Private market allocations can only increase 1.5% to 2% annually
“We went from 10 to 20% in terms of target, 10% in privates to 20%, and they want to do it overnight. You can't. You can't increase it more than one and a half to two percent a year.”
Samuels: NEPC underwrote 17 diverse-owned strategies into client portfolios last year
“And last year, we underwrote 17 diverse-owned strategies that are in client portfolios now.”
Girls Who Invest targets 30% of world's capital managed by women by 2030
“We have hundreds of students now each year, and the idea is to have 30% of the world's capital managed by women by 2030.”
Samuels: Committing to 30 Seconds of Bravery Yields Career Benefits
“I wish I knew this much earlier, but the advice that I got from someone once is just have 30 seconds of bravery. If it's asking for a promotion, if it's interviewing for a job, doing something bold, speaking up in a meeting, just be brave for 30 seconds, even …”