Nov 29, 2021 · 1h 9m · capital-allocators
Chas Cocke - From Allocator to Manager (Capital Allocators, EP.224)
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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 Chas Cocke, founder of LB Partners and co-founder of Investure, exploring his evolution from endowment allocator to concentrated direct equity investor. Cocke discusses manager due diligence, structural fee alignment, his 'swimming ducks' transformation framework, and the intellectual habits essential for long-term compounding.
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 14.7% of the talking time here. How this is scored →
Ted as informed peer 4.9 Guest teaching 5.1 Guest disagreement 0.3 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 45:20 Critique of standard annual hedge fund incentive fees
Chas criticizes traditional fund managers who claim 3-to-5-year time horizons but charge annual performance fees simply because the Earth makes a trip around the sun.
Hardest push from Ted ▶ 48:03 Ted challenging ETF venture against core focus principleTed directly challenges Chas on whether launching the BYTE index ETF conflicts with his stated core philosophy of intense operational focus.
Biggest teaching moment ▶ 37:55 MoneyGram digital fintech transition analysisChas breaks down how consensus quant screens misvalue MoneyGram as a legacy wire business while overlooking its 100% growing digital payments segment.
Ted holds their own ▶ 44:07 Ted analyzing allocator vs principal emotional realityTed draws on his deep institutional allocator expertise to probe the psychological divide between evaluating third-party drawdowns and absorbing personal client losses.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Childhood Origins: Baseball Cards to Early Equities | 4 | 3 | 0 | 0 | Ted opens with a simple biographical prompt about Chas's early investing experiences. Chas delivers a narrative about collecting baseball cards via Beckett's Monthly and picking early stocks like Thiokol. | |
| Navigating UVIMCO's Unique Long-Short Hedge Fund Portfolio | 5 | 4 | 1 | 0 | Ted references UVIMCO's reputation and long-short equity hedge fund legacy. Chas shares an anecdote about an investment banking colleague expressing disbelief that an endowment had 55% in hedge funds. | |
| Michael Bills Mentorship and Long-Duration Sourcing Strategies | 5 | 5 | 0 | 0 | Ted asks what Chas learned from mentor Michael Bills. Chas details how endowment duration serves as a core competitive advantage and how he sourced managers at 24. | |
| The Founding and Early Growth of Investure | 5 | 4 | 0 | 0 | Ted prompts Chas to recount the transition from UVIMCO to founding Investure with Alice Handy. Chas describes the creation of the early OCIO model and realizing his entrepreneurial drive. | |
| Investure's Bottoms-Up Due Diligence and Manager Collaboration | 5 | 5 | 0 | 0 | Ted asks about portfolio construction at Investure. Chas explains their bottom-up approach of acting as co-pilots during due diligence and analyzing individual stock holdings rather than top-down risk metrics. | |
| Identifying Emerging Talent and Championing Investment Purists | 6 | 6 | 1 | 0 | Ted asks how their research bias shaped manager selection. Chas explains how they bypassed Wall Street cap intro marketing pitches to back investment purists focused on 20-year net returns. | |
| Protecting Calendar Time for Deep Thinking and Reading | 5 | 5 | 0 | 0 | Ted asks how Chas spent his time as Investure scaled. Chas outlines his 70% reading and thinking rule and his transition into internal direct investing after Nomad's success. | |
| The Unconstrained Mandate and Ethos of LB Partners | 4 | 5 | 0 | 0 | Ted allows Chas to describe the transition out of Investure to launch LB Partners. Chas explains the philosophy of unconstrained generational compounding using his own capital as the anchor. | |
| Core Tenets of Direct Investing: Compounding and Non-Obvious Transitions | 5 | 6 | 0 | 0 | Ted asks about translating allocator lessons to direct investing. Chas highlights the power of business compounding and identifying non-obvious transitions where market perception lags reality. | |
| The Swimming Ducks Framework and MoneyGram Case Study | 4 | 7 | 1 | 0 | Ted asks for an example of a transition investment. Chas walks through his swimming ducks analogy and delivers an in-depth pitch on MoneyGram's disguised high-growth digital fintech business. | |
| Idea Generation and the Intersection of Hubris and Humility | 5 | 5 | 0 | 0 | Ted questions how Chas sources independent ideas when surrounded by elite manager networks. Chas articulates operating at the intersection of hubris and humility to avoid investing scared. | |
| Structural LP Alignment, Multi-Year Fees, and Downside Protection | 6 | 6 | 1 | 0 | Ted contrasts the theory vs practice of managing emotional volatility. Chas details structural safeguards at LB Partners, including multi-year incentive hurdle periods with clawbacks. | |
| Digital Infrastructure Strategy and the BYTE Index ETF | 6 | 6 | 0 | 1 | Ted presses Chas on how launching the BYTE digital infrastructure ETF aligns with his emphasis on focus. Chas clarifies that digital infrastructure is 21st-century real estate and equity in the index firm was gifted to his fund LPs. | |
| LB Partners Portfolio Construction: Concentration and Long Tails | 4 | 5 | 0 | 0 | Ted asks about LB Partners' portfolio structure and Chas's engagement on Twitter. Chas explains having 70% of capital in the top five positions alongside a long tail of monitoring positions. | |
| Balancing Public Visibility with the Tall Poppy Mindset | 5 | 4 | 0 | 0 | Ted asks how Chas balances running a closed fund with maintaining an anonymous Twitter presence and public visibility. Chas explains the tall poppy syndrome and seeking intellectual sparring partners. |
Statements from this episode (28)
Cocke: UVIMCO allocated over 55% of its portfolio to hedge funds in 2002
“I got down there, and they had 55% in hedge funds, and it was going higher. Almost nothing in loan only, and the rest in privates.”
Cocke: Top investors gravitate to structures offering highest pay and freedom
“The best investors in the world are generally running structures where they can get paid the most, where they can have the most creative freedom, and where they can attract and surround themselves with the best talent and the best investors, and that, that mom…”
Cocke: Concentrated 10-position equity managers were distinctly uncommon in early 2000s
“A concentrated long manager who might only have 10 positions at that time was distinctly uncommon, but that was also the kind of thing that would have fallen within my purview.”
Cocke: Short-term trading strategies forfeit endowments' perpetual duration advantage
“A lot of funds are fairly short term trying to pick quarters or events or trades or macro, and I often think that forfeits a big part of the competitive advantage that endowments have.”
Cocke: Smith College agreed to back Alice Handy as Investure's first client
“And she had a conversation with Smith College where they basically said, we'll back you. We'll become your first client. Why don't you go create this kind of OCIO, this outsource chief investment officer model”
Cocke: Investure differentiated its diligence by acting as co-pilot to managers
“And the way to differentiate, and for me, frankly, to enjoy it, was to sit co-pilot with our managers from the diligence process on through when we were partners. And that meant if we were going into a meeting with a prospective manager, it might be that we sp…”
Cocke: Wall Street cap intro pitches prioritize marketability over fund performance
“I started to realize, you know, what's happening is the Goldman Sachs and Morgan Stanley's of the world are getting these guys in their cap intro department and they're creating their presentations for them, which it occurred to me what that really meant is th…”
Cocke: Investure tracked junior analysts years ahead of fund launches
“And so that became a big part of our research effort was we need to understand who the number two, three, and four are at these firms that we love, whether we're invested with them or not. And figure out the next generation is going to come from this person, a…”
Cocke: Kept calendar permanently blocked to protect reading and thinking time
“I have this ridiculous calendar system where basically I made it look like every day was fully blocked off so that no, nobody would ever schedule a meeting without coming and asking, are you actually busy or are you available?”
Cocke: Investure was the first institutional investor in Nomad Investment Partnership
“We were the biggest investor in Nomad, and we were a third of their capital. I think we were their first institutional client. They didn't even have a hundred million dollars.”
Cocke: A $10 billion endowment likely paid $500M in fees in 2021
“I would bet that if you looked at a ten billion dollar endowment in fiscal year, 20, 21, it would shock me if they didn't pay at least Five hundred million dollars in fees in fiscal year, 20, 21. It wouldn't surprise me if it's even higher than that.”
Cocke: Extending investment horizons exposes portfolios to low-probability risks
“When you extend the time horizon, like all the low probability risks begin to potentially show up.”
Cocke: Small, tightly aligned investment units generate the best returns
“And it turns out that actually what I was very drawn to was a guy, a Bloomberg and a dog. And I actually think that is where the most special returns lie. And it doesn't have to be someone who has no team. But in small units where they are very, very synced up…”
Cocke: Quant strategies struggle to systematize businesses undergoing fundamental transitions
“That if you can find a business that is going through transition, where it's becoming a greater and greater business, but its perception lags, that type of opportunity set, I think, is really hard to systematize from kind of a quant perspective, where the busi…”
Cocke: Corporate transitions progress through three distinct stages of growth offsetting decline
“If you break it into three stages, you've got this initial stage one, where the decline of the legacy business is swamping the growth of the new business. It looks like the whole thing is going to die. You get to this middle stage where the duck Is perfectly s…”
Cocke: Valuing MoneyGram's digital unit at 7x revenue would double its stock
“MoneyGram, the whole company trades for less than one times revenue. And if all you did was put seven times revenue on just the digital business, the stock would be a double from here. That would give no value to everything else.”
Cocke: Great investors operate at the intersection of hubris and humility
“The great investors live at the intersection of hubris and humility. You have to be arrogant enough to believe in yourself and your ideas and your research. And yet you've got to know that you're going to be wrong almost as often as you're right. And that set …”
Cocke: Investor complacency during winning streaks is harder to manage than losses
“For me, the heaviest bags are actually not when you're getting punched in the face. It's when you're succeeding. That's where I start to slip. You start to believe your own press clippings a little too much and might get a little bit lazy about buttoning down …”
Cocke: LB Partners uses multi-year incentive measurement and clawbacks
“And so when I built LBP, we intentionally built it with a multi-year measurement period. We built it with a hurdle so that if I'm having a down year or a down moment, In year two, and I was up in year one, well, our clients can actually begin to claw back some…”
Cocke: Digital infrastructure is the Class A real estate of the 21st century
“I think that digital infrastructure, which is in the bite index, is 40 digital infrastructure businesses. So think data centers, fiber, towers, cable. I believe that is the class A real estate of the 21st century. It's incredibly recurring, inflation protected…”
Cocke: LB Partners fund investors receive equity in the BYTE Index business
“I actually took a piece of the ownership of that index firm and just granted it to my fund investors. So the idea there is if we raise money for our partners who actually own an ETF and license the index from us, I actually just to be clear, don't own the ETF …”
Cocke: LB Partners holds 70% of capital in top five positions
“We probably own 60, 50 positions. Very long tail of small things where they're still doing diligence, or we started buying and it ran away from us, or the purpose it serves is small. And we're too concentrated. Our top five positions are 70% of capital. Our la…”
Cocke: The greatest value of financial Twitter lies in private DMs
“A lot of the magic of Twitter happens behind the scenes on DMs. And I have since become, I would say, very close with maybe 10 new people in my network. I trust their insights. I trust their feedback. I share ideas with them. We meet in real life. And disclose…”
Cocke: Journaling is an investor's equivalent to reviewing game film
“I also think it's an important part of deliberate practice. So if you were a basketball player and you were playing a game at the end of the game, you get video that you can go break down, you know, how'd you do, you know, did you show some tendency to me and …”
Cocke: It is better to risk being screwed over than to act untrustworthy
“You come to the world a little bit vulnerable and willing to trust, and honestly, I think I would rather have somebody screw me over a hundredfold than vice versa, and so she errs to that side, and I think it served her really well”
Cocke: Good investment ideas become terrible when treated as dogma
“There's a very fine line between a mantra and a dogma, and you risk taking a good idea and turning it into a terrible idea when you get attached to your initial thought.”
Cocke: Financial accounting is the exhaust of a business, not the engine
“And you think that accounting is sort of the Rosetta Stone of investing, and in the end, you realize, no, accounting is the exhaust. It's not the gas, and so you can't let it Take over your mindset. You've got to think about what does the business actually do?…”