May 16, 2022 · 1h 4m · capital-allocators
Larry Kochard – From Endowment Professor to OCIO Chief at Makena Capital (Capital Allocators, EP.250)
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Makena Capital Management CIO Larry Kochard joins Ted Seides to discuss the nuances of the outsourced chief investment officer (OCIO) model, institutional portfolio construction, collaborative team culture, and tactical asset allocation across venture capital, hedge funds, real assets, and emerging markets.
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 17.8% of the talking time here. How this is scored →
Ted as informed peer 5.0 Guest teaching 3.3 Guest disagreement 0.3 Ted pushing back 0.7
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 52:45 Rejection of the crypto digital gold thesis
Larry bluntly dismisses mainstream promotional crypto narratives and celebrity endorsements, framing crypto strictly as early-stage tech infrastructure rather than an alternative store of value.
Hardest push from Ted ▶ 11:13 Pushback on crossover fund liquidity risksTed presses Larry on the structural pitfalls of crossover investing, citing past liquidity crises where private investors crossed into public markets during boom times.
Biggest teaching moment ▶ 33:25 Empirical breakdown of 30-year EM returnsLarry provides a granular historical performance breakdown from 1992 onward, explaining why top-line economic growth failed to translate into shareholder earnings across emerging markets.
Ted holds their own ▶ 15:05 Demonstrating deep hedge fund academic backgroundLarry recalls Ted's published research paper from two decades prior in the Financial Analysts Journal, validating Ted's long-standing domain authority on long/short equity strategies.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Transition to Makena and the OCIO Business Model | 4 | 2 | 0 | 0 | Ted prompts Larry to discuss his move from UVIMCO to Makena and how the OCIO framework compares to single-institution endowment management. Larry details portfolio shifts and client communication demands in an entirely collaborative tone. | |
| Implementing a Collaborative Generalist-Specialist Team Structure | 5 | 3 | 0 | 1 | Ted asks how specialist investors adapt when transitioning into a generalist model. Larry explains his philosophy of keeping deep domain expertise while encouraging cross-asset class collaboration. | |
| Evaluating Crossover Investing and Market Inefficiencies | 6 | 4 | 1 | 2 | Ted brings up past market cycles like 2008 where crossover growth investing ran into major liquidity bottlenecks and asks what private investors struggle with when going public. Larry breaks down fundamental valuation versus momentum dynamics. | |
| Hedge Fund Strategy, Shorting Inefficiencies, and Portfolio Ballast | 7 | 4 | 1 | 1 | Ted references the historical hedge fund legacy and underperformance, while Larry recalls Ted's early FAJ paper on long/short equity. Larry gives an extensive structural thesis on why short alpha serves as non-correlated ballast rather than an equity replacement. | |
| Emerging Manager Selection and Concentrated Partnerships | 5 | 3 | 0 | 1 | Ted observes the binary fundraising environment for hedge fund spinouts where managers either launch with billions or struggle. Larry explains why Makena intentionally seeks out smaller single-product managers for closer access and bottom-up idea sharing. | |
| Direct Co-Investments, 13F Portfolios, and REITs | 5 | 4 | 0 | 1 | Ted inquires about sizing and evolution in direct investing and co-investing. Larry describes Makena's systematic 13F replication portfolio and internally managed REIT strategy designed to capture secular themes at lower fees. | |
| Venture Capital Allocations and Innovation Cycles | 5 | 3 | 0 | 1 | Ted notes the irony that Makena was low on venture despite its Sand Hill Road address. Larry outlines his gradual ramp-up in VC, drawing parallels to the dot-com aftermath and emphasizing long-term innovation cycles over short-term drawdowns. | |
| Venture Capital Capacity Constraints and Fundraising Dynamics | 5 | 2 | 0 | 1 | Ted asks what happens to new venture funds when institutional LPs are at capacity limits. Larry clarifies that Makena operates on a one-in, one-out zero-sum basis but notes there remains LP appetite among under-allocated institutions. | |
| Reassessing Risk and Return in Emerging Markets | 6 | 5 | 1 | 1 | Ted brings up the 30-year disappointment of emerging markets diversification. Larry delivers a comprehensive data-backed breakdown of EM returns since 1992, arguing that geopolitical fragmentation and uncompensated risks make him cautious about marginal redeployment. | |
| Sponsor Message: Ridgeline | 3 | 3 | 0 | 0 | Following a mid-roll sponsor message, Ted asks how travel restrictions affected international manager underwriting. Larry explains that Makena will not deploy capital into EM without conducting on-the-ground due diligence. | |
| Real Assets, Energy Transition, and Public E&P Opportunities | 6 | 4 | 1 | 1 | Ted asks about balancing ESG divestment trends with fossil fuel reliance highlighted by the war in Ukraine. Larry contrasts private natural resource illiquidity with emerging public E&P opportunities driven by improved capital discipline. | |
| Macro-Aware Risk Management and Portfolio Guardrails | 6 | 4 | 0 | 0 | Ted probes how Makena navigates macro volatility, inflation, and rate hikes. Larry details their disciplined risk guardrails (0.55-0.65 beta targets and tiered liquidity buckets) that allow them to remain bottom-up focused while macro-aware. | |
| Cultivating Investment Culture, Psychological Safety, and Team Dynamics | 4 | 3 | 0 | 0 | Ted asks how Larry manages team dynamics and encourages open communication. Larry discusses establishing psychological safety so junior analysts can table contrarian ideas without fear of reproach. | |
| Analyzing Crypto and Blockchain Opportunities in Venture | 4 | 3 | 1 | 0 | Ted asks how Makena approached assessing crypto as an asset class. Larry explains framing crypto purely as seed-stage technology venture rather than digital gold or speculative currency. | |
| Leadership Succession and Long-Term Organization Planning | 4 | 3 | 0 | 0 | Ted asks about future organizational initiatives at Makena. Larry reveals their five-year succession plan, promoting a homegrown deputy CIO to ensure stability and smooth leadership transition. |
Statements from this episode (22)
Kochard increased Makena's venture allocation from 5% to nearly 13%
“When I started, we were about a five percent allocation to venture capital, despite our location on Sand Hill Road, and so we've slowly gotten that up over time to now closer to 13%”
Public market managers transition to private investing better than vice versa
“Oftentimes, I found that it's public managers that, you know, have invested publicly, that do the fundamental work, can really understand these companies, get to know management teams, that can develop the skill set of investing in private companies, as oppose…”
Makena maintains a hedge fund allocation of 18% to 19%
“We are right now, we have an allocation to hedge funds, which is just below 20%, say, 18, 19%.”
Investors abandon short-selling strategies because the returns are too episodic
“Shorting's hard. It's very difficult to do behaviorally. It's very difficult to generate returns consistently. The returns are very episodic, so oftentimes people just give up at the wrong time, but I do think there's an inefficiency that can be exploited on t…”
Abandoning hedge funds for trailing post-GFC equities is a mistake
“So having the right expectation of what role it's playing in the portfolio, I think is really crucial, as opposed to the said equities, it should outperform equities. And so at that point, you know, after a decade plus of underperformance relative to long earl…”
Makena allocates to only three credit managers to preserve sizing optionality
“Right now, we just have three managers that have that credit background, that we could size that up if the opportunity becomes right.”
Allocators should trim multi-product managers to fund single-product spinouts
“Your managers get big, you develop multiple products, and over time, you might not fully terminate them, but you'll reduce their size in the portfolio, and then try to layer in more emerging managers, which has been a big theme of ours, is constantly looking f…”
Makena mechanically clones its public managers' top 13F positions internally
“Second, we have a portfolio where we size up our top underlying portfolio positions from our public managers, and we do it strictly based on the ThirteenF filings. It's not completely mechanical, but it's relatively mechanical.”
Makena caps direct and co-investments at 10% of its total portfolio
“We're never going to become a direct investor. It's going to be a, I think our edge ultimately is forging these long-term partnership relationships with managers. And what we're trying to do is leverage those over time to develop some of these co-investments t…”
Top-tier venture managers will deliver the best returns over 10-20 years
“The skill That exists and the innovation that exists, whether it's in Silicon Valley or whether it's in New York and other technology hubs, will continue to make investing in top tier venture managers the most attractive returned over, not necessarily the next…”
Makena's venture capital allocation will never reach 20% to 30%
“We have slowly built this up and we will continue to slowly build it up just a little further. It will never get up to the size that you see in some of the largest endowments that, you know, over 20% or in some instances over 30%.”
Makena's venture manager roster operates as a strictly one-in, one-out portfolio
“We're pretty much at a zero sum game. Meaning if we add a new manager, someone has to be let go, but I'm very comfortable with where we are right now.”
Under-allocated LPs will keep venture fundraising active despite institutional crowding
“I think it will make it a little more difficult for fundraising, but with that said, I still think there are enough potential LPs that had difficulty getting access where there's still going to be allocations made to venture from LPs that are under allocated t…”
Emerging markets trailed US equities by 400 basis points over 30 years
“More or less, the U.S. Return is about 10 and a half percent. Non-U.S. Developed market equities close to six percent. Emerging markets slightly above developed market equity at about six and a half percent. So that's a 400 basis point under performance during…”
Emerging market economic growth failed to translate into corporate profit growth
“Over that long period of time, the economic growth hasn't, Clearly translated into profit growth. And it's been a, from a beta standpoint, it's not been an attractive asset class to be invested in for that extended period of time.”
Makena redirected rebalancing capital into biotech instead of emerging markets
“When I think of how do all of those compete with each other, it's not going to be emerging markets that gets my, say, redeployment, rebalancing dollars. We just actually put more money to work in biotech.”
Makena has made no private natural resource commitments in 3-4 years
“We have not made a commitment to natural resources in over three to four years, and so that's been, it's, we have an interest, yeah, we have a reasonable size NAV in the ground of about six percent.”
Public E&P equities offer a better intermediate-term opportunity than private energy
“I think there could be an intermediate term opportunity within the EMP world on the public side where it creates greater liquidity than investing privately. And it's probably the right timeframe.”
Makena manages portfolio drawdown risk within a 0.55 to 0.65 beta band
“We want to make sure at all times the portfolio has a level of risk that is close to the 6040, sort of as a drawdown risk. And we operate within bands. The minimum is a .55 beta. The maximum is a .65 beta.”
Makena's crypto allocation will likely reach 10% of its venture portfolio
“We've now built up an allocation such that over time, it'll probably end up being about 10% of what we have in venture, and we're excited about it.”
Makena's Larry Kochard does not believe cryptocurrency is digital gold
“Because we're not believers that this is going to be digital gold. I've also never been a big believer in gold.”
Larry Kochard has moved Makena away from quantitative investment managers
“So I've increasingly, even though I have an appreciation for quantitative risk management, really have moved away from quantitative managers. Don't overly rely on quantitative risk management. Use those as tools, but they're more tools, but really try to overl…”