Apr 18, 2022 · 1h 5m · capital-allocators
Tom Lenehan – Taking the Helm at the Wallace Foundation (Capital Allocators, EP.246)
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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 Tom Lenehan, Chief Investment Officer at the Wallace Foundation, about transitioning into the CIO role, executing a comprehensive portfolio overhaul, and managing endowment assets amid macroeconomic volatility. Lenehan details his strategic approach to asset allocation, committee governance, team culture, liquidity planning, and sustainable 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 17.9% of the talking time here. How this is scored →
Ted as informed peer 4.4 Guest teaching 3.2 Guest disagreement 0.1 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:17 Reframing energy transition timelines
Tom directly reframes the narrative around rapid energy transition, asserting that anyone experienced in the space knows you cannot simply flip a switch to abandon fossil fuels.
Hardest push from Ted ▶ 24:42 Challenging historical emerging markets allocationsTed presses Tom on why institutional allocators maintain heavy emerging market and China overweights when historical performance has consistently lagged the US.
Biggest teaching moment ▶ 16:25 Fixed income duration risk breakdownTom educates listeners by detailing how an inherited 22-year duration treasury strategy lost 15% in three months when yields moved marginally, debunking the misconception that fixed income cannot lose money.
Ted holds their own ▶ 37:24 Battleship versus fleet boat framingTed demonstrates deep allocator expertise by contrasting multibillion-dollar institutional endowments to massive battleships incapable of making fast tactical shifts.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Transitioning from Deputy to Chief Investment Officer | 4 | 2 | 0 | 0 | Ted opens with a collegial check-in on Tom's transition from deputy CIO under Amy Falls to CIO at the Wallace Foundation. Tom explains the practical realities of managing time and an overwhelming volume of inbound solicitations. The dynamic is warm, collaborative, and reflective. | |
| Rebuilding the Investment Team and Policy Framework | 4 | 3 | 0 | 0 | Ted asks about building the team and operating investment processes virtually during COVID. Tom details restructuring the inherited investment office, rewriting the investment policy statement, and moving to a hybrid schedule. | |
| Private Market Targets and Capital Allocation Strategy | 4 | 4 | 0 | 0 | Ted probes into asset allocation decisions and target exposures. Tom shares how Wallace raised private market targets from 25% to 35% and capitalized on existing manager re-ups during a favourable window. | |
| Restructuring Fixed Income, Hedge Funds, and Public Equities | 5 | 4 | 1 | 1 | Ted guides the conversation through hedge funds, fixed income, and public equities. Tom shares a vivid anecdote about inheriting a long-duration treasury position that dropped 15% quickly, reinforcing the need to reallocate into benchmark-aware aggregate managers. | |
| Real Assets Strategy and Portfolio Decarbonization | 4 | 3 | 0 | 0 | Ted inquires about core portfolio priorities beyond privates. Tom outlines the real assets strategy, detailing the decision to transition away from carbon-intensive fossil fuel holdings toward sustainable agriculture and renewables without taking steep secondary haircuts. | |
| Energy Security, Geopolitics, and Fiduciary Responsibilities | 6 | 3 | 1 | 1 | Ted pushes on the tension between ideological decarbonization and the pragmatic near-term reality of fossil fuel dependency following geopolitical disruptions. Tom acknowledges the necessity of reliable energy security while noting the conflict accelerates long-term decarbonization. | |
| Underwriting the Long-Term China and Asia Thesis | 6 | 4 | 0 | 1 | Ted questions how allocators justify long-term emerging markets and China overweights despite years of underperformance relative to the US. Tom defends the 15% Asia exposure, arguing regulatory tightening is cyclical and secular economic growth remains compelling. | |
| Conducting Remote Due Diligence and Sourcing Pan-European Venture | 4 | 3 | 0 | 0 | Ted asks how diligence is conducted without international travel. Tom explains relying on trusted networks, cross-referencing with existing US incumbents, and leveraging native Mandarin speakers on his team for local diligence. | |
| Navigating the Venture Boom and Diversifying Private Equity | 5 | 3 | 0 | 0 | Ted asks about dynamics in venture and private equity fundraising cycles. Tom explains how venture has become intensely competitive with rapid fund turns, while private equity allows Wallace to deliberately target non-tech diversified buyouts. | |
| Positioning the Portfolio for Inflation and Rising Rates | 5 | 4 | 0 | 0 | Ted asks how Tom approaches rising inflation and interest rates across the endowment. Tom explains relying on floating-rate direct real estate lending and empowering absolute return managers to adjust tactically rather than making top-down macro bets. | |
| Sponsor: Ridgeline Investment Management Technology | 5 | 3 | 0 | 0 | After an ad break, Ted uses an analogy of endowments as battleships versus fleet boats to ask how macro risks are evaluated across underlying holdings. Tom explains how direct company-level data from managers provides real-time inflation insights. | |
| Cash Management and Establishing a Contingency Credit Line | 5 | 4 | 0 | 0 | Ted asks about day-to-day cash management and liquidity buffers. Tom discusses establishing a fifty-million-dollar contingency line of credit to prevent selling core portfolio assets during sudden market drawdowns. | |
| Navigating Market Volatility with the Investment Committee | 5 | 4 | 0 | 0 | Ted challenges whether teams actually have the fortitude to deploy capital when markets drop sharply. Tom outlines the importance of presenting data-driven playbooks and maintaining high-trust governance with the investment committee beforehand. | |
| Talent Acquisition, Internal Development, and Intellectual Humility | 4 | 3 | 0 | 0 | Ted asks about recruiting philosophy and developing investment talent. Tom draws analogies to golf regarding luck versus skill and highlights intellectual humility and internal promotion as core criteria. | |
| Generalist Team Dynamics and Collaborative Investment Decision-Making | 4 | 3 | 0 | 0 | Ted asks whether Wallace uses generalists or sector specialists. Tom advocates for a generalist team with informal majors and minors, describing a benevolent dictatorship where everyone reviews memos and stands behind final decisions. | |
| Investment Committee Memo Architecture and Pipeline Discipline | 3 | 3 | 0 | 0 | Ted asks how investment committee memos are structured. Tom describes keeping the core rationale and pros/cons within the first three pages, focusing on clear synthesis over dense documentation. | |
| Deliberate Diligence and Learning Approach to Cryptocurrency | 4 | 3 | 0 | 0 | Ted asks how Wallace approaches emerging asset classes like cryptocurrency. Tom explains that Wallace intentionally avoids first-mover risk, choosing instead to study the space slowly through existing venture relationships. | |
| Closing Questions: Teaching, Pet Peeves, and Formative Mentors | 3 | 2 | 0 | 0 | Ted initiates closing questions covering career alternatives, pet peeves, and key professional mentors. Tom discusses teaching ambitions, frustrations with procrastination and herd mentality, and tributes Bill Dietrich, Amy Falls, and Bill Ford. | |
| Maternal Work Ethic, Humility, and Finding Career Sweet Spots | 3 | 2 | 0 | 0 | Ted concludes with questions on parental influence and formative life lessons. Tom reflects on his mother's resilience as a union head nurse and recalls his early realization in 2000 that venture capital was not his natural strength. |
Statements from this episode (33)
Wallace Foundation survived by divesting Reader's Digest stock before bankruptcy
“Had he not done that, and we were still in the public company stock of Reader's Digest, it went bankrupt in the 2000. And so yet another case study of the beauty of diversifying.”
Time is the only controllable variable for institutional allocators
“Not every email, I hate to say this, not every email deserves a response. And so you got to be very picky. It's a broader idea that you got to be very picky with how you spend your time. That is the one thing I can say that we can control in this crazy world i…”
Wallace Foundation raised private markets allocation target to 35%
“And so from an asset allocation perspective, we increased our exposure to privates from 25% to 35%.”
Wallace Foundation secured full allocations from targeted private funds
“I had estimated that maybe of all the ones that we wanted to go after ourselves, we might get half of those in terms of allocation, and we might get half the number that we asked for. We batted a thousand, we got everybody we were looking for, and we got the n…”
Wallace's inherited Treasury position dropped 15% in Q1 2021
“And when I got that, the ten-year treasury rate was 90 basis points, and this was January of 2021. And I said, okay, I got plenty of bigger fish to fry. Let me just kind of Put this one on hold for a little bit, and had my first IC meeting at the end of Februa…”
Lenehan: Fully exit unwanted positions immediately rather than dollar-cost averaging
“It was a good lesson learned. It was like, look, if you figured it out that you don't want that position, then you don't have to dollar cost, just get out and move on to bigger amount of things.”
Lenehan: Wallace plans to trim long-only equities to fund private investments
“Over time, I think we'll start to trim a little bit from the long only side to help feed the increase in the privates as they start to come out, because a lot of it's very liquid.”
Wallace Foundation committee voted to decarbonize portfolio in 2021
“We actually made a decision last year at the committee to decarbonize the portfolio.”
Secondary bids for legacy oil and gas funds hit 60 cents
“We looked at the secondary market pricing for the partnership interest that we had. And even back then the prices were 60 cents on the dollar.”
Rockefeller withdrew an extra year of spending for historical scientist lawsuits
“Rockefeller had a very unfortunate circumstance with one of their scientists, and there were a lot of lawsuits that came through. That we had to basically take an extra year's worth of spend out of the endowment at Rockefeller to help pay for a lot of these la…”
Lenehan: Wallace Foundation allocates roughly 15% of portfolio to Asia
“We have about 15% of the portfolio, public and private, in Asia. And we'll just, I'll start with China first. So it's, and of that, half of it is in China, half is elsewhere in Asia, which I actually think is a good number.”
Chinese regulatory crackdowns cyclically occur every seven to ten years
“If you take a broader perspective and kind of open up the aperture, this is cyclical. This happens every seven to 10 years, where the Chinese government makes sure everybody knows and realizes kind of who's in charge at the end of the day.”
Lenehan: China will very shortly become the world's largest economy
“But from our perspective, we actually think that China's going to be the largest economy very shortly. It will grow. It'll continue to grow. At a rate higher than any other developed country kind of post COVID.”
Lenehan: Wallace Foundation relies primarily on pre-existing relationships for manager commitments
“I would say the vast majority of the things that we put on the books here at Wallace have been relationships that I've had either at Rockefeller or Wintergren or any of the other organizations in which I'm affiliated with.”
Lenehan: Diligencing a new fund manager from scratch cannot be done over Zoom
“Otherwise, if we were meeting a group from scratch, it's great that we can certainly meet them on Zoom, but until we actually get on the ground, walk the floor, meet the people, meet the team in person, one-on-ones, you can't do it.”
Lenehan: Diligence in China requires a native speaker to capture critical nuances
“When you're dealing with China, I think our secret weapon is to have a native speaker. And when you're speaking in the native language, she can pick up on so many of the nuances that I can't, and she can be on the chat boards and just get so much richer view o…”
Wallace Foundation is deliberately seeking non-tech private equity managers
“Most of who we have incumbent managers are heavy tech, if not all tech. Everybody's doing tech these days. Everybody has a tech group, but most of these groups that we have and that I inherited are solely tech, so we've been Looking for decidedly non-tech.”
The Federal Reserve never successfully executes economic soft landings
“I tend to think that the Federal Reserve, they never seem to get it right. They're right in the direction, but in the execution, they never really navigate a soft landing, per se. We're expecting bumps along the ride.”
Lenehan: Distressed debt windows close too fast for dedicated funds
“I've seen the last 10 years as if there is a distressed moment in time, it's a blip. There is so much capital that is just waiting on the sidelines to kind of plow into from dedicated distress managers and their time, the window just opens and closes very quic…”
Lenehan: Widespread inflation across corporate operating costs is not temporary
“I was speaking to somebody yesterday who has a public investment, I think, in DoorDash, and he talks to that management team quite often, and the inflation that they're feeling is everywhere. It is in the packaging of the materials. It is in the food costs. It…”
Wallace Foundation holds 7% in liquid cash and fixed income
“So right now we have about two percent of cash, and then we have another five percent in the fixed income piece, which is incredible. It's daily liquidity, so call it seven percent.”
Lenehan: Half of US foundations maintain credit lines
“When we did our research, about half of the foundations in the country have credit lines, half don't.”
Wallace Foundation secured a $50M credit line for liquidity cushion
“So we're two billion dollars in AUM, our five percent Target is roughly a hundred million dollars. So half of that, fifty million dollars is what we took out.”
Lenehan: Biotech and Software Were Probably Way Oversold in Early 2022
“The market went from being heavy risk on to heavy risk off in those particular sectors, and probably was way overbought, and now it's probably way oversold.”
Some Wallace Foundation growth managers fell 50% from market peaks
“Some of our managers were down 10, 15% so far in 20, 22, that's a big number, and some of them are down 50% from their peaks.”
Staff are not evaluated on whether sourced deals make the portfolio
“No one's going to get graded on whether or not their idea made it in the portfolio. At the end of the day, we all make that decision.”
Wallace Foundation re-underwrites incumbent manager re-ups identically to new managers
“We re-underwrite any commitment to capital, whether it's to a new manager or to an incumbent the same way, but really have to be thoughtful.”
Lenehan: Investment memos should distill impactful points, not document all diligence
“One of the things that, that I had to train folks at Rockefeller when they came from other jobs, they put everything and anything into the memo. And I said, let's just distill this down. We're not going to put all the work that we did, you know, quite the oppo…”
Lenehan: Wallace Foundation avoids being a first mover in new asset classes
“When it's something that's brand new, we don't ever want to be the first mover. Here at Wallace.”
Lenehan: Wallace Foundation has no dedicated crypto funds but has Coinbase-invested managers
“So we don't have any dedicated crypto funds, but we have a couple, not all, but a couple of venture managers who were early investors in Coinbase.”
Western response to Russia altered near-term risk calculus for Taiwan
“Given the response of the Western allies and NATO to Ukraine and to Russia, perhaps that has maybe changed the calculus a bit as it relates to what's going on in Taiwan.”
Wallace Foundation receives one pitch per day for new crypto funds
“We're getting a solicitation a day about a brand new crypto fund from some incumbent managers, from brand new managers, folks spinning out.”
Venture capital requires acting as a promoter despite a 90% failure rate
“If anybody thinks venture is easy, they are out of their tree. It is incredibly difficult. You have to get, you have to be a salesperson. You have to promote things and think they're the best thing ever, if you're a good venture capitalist, realizing that you'…”