Oct 5, 2020 · 59m · capital-allocators
Scott Wilson – Concentrated Investing at Washington University-St. Louis (Capital Allocators, EP. 159)
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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 Scott Wilson, Chief Investment Officer of Washington University in St. Louis, exploring how his Alaskan upbringing and Wall Street derivatives background informed his concentrated, high-conviction endowment management philosophy. Wilson explains how he restructured WashU's multi-billion-dollar portfolio by eliminating manager overlap, utilizing a generalist internal team, and underwriting idiosyncratic direct co-investments and frontier market assets.
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 22.5% of the talking time here. How this is scored →
Ted as informed peer 5.5 Guest teaching 5.3 Guest disagreement 2.4 Ted pushing back 2.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:40 Deconstructing Hedge Fund Fees and Correlation
Wilson forcefully rejects the standard endowment hedge fund model, arguing that holding thousands of names across multiple long-short managers mathematically guarantees net underperformance due to asymmetric carry and management fees.
Hardest push from Ted ▶ 23:25 Pushback on Reconciling Macro Skepticism with Manager SelectionTed directly challenges Wilson on how he reconciles his broad structural critique of hedge funds with selecting individual managers from the inherited portfolio.
Biggest teaching moment ▶ 27:55 Reconceptualizing True DiversificationWilson educates the host on why asset class bucketing fails during crises, contrasting top-down labels with bottom-up idiosyncratic positions like Swedish medical products and Brazilian utilities.
Ted holds their own ▶ 40:40 Drilling Down on Manager Sourcing ConflictsTed leverages his deep experience with fund managers to press Wilson on whether LP co-investments compete with or strain relationships with general partners.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Alaska Roots and Fast-Break Basketball at Grinnell | 4 | 3 | 1 | 1 | Ted guides the conversation smoothly into Wilson's college basketball background at Grinnell, probing how the fast-break system influenced his worldview. Wilson shares anecdotes collegially without friction. | |
| Wall Street Career: Equity Research and Global Derivatives | 5 | 4 | 1 | 1 | Wilson recounts his path through Wall Street equity research and trading derivatives across Tokyo and London. Ted asks concise chronological transition questions while Wilson explains the progression. | |
| The Grinnell Model and Berkshire-Style Endowment Management | 6 | 5 | 2 | 2 | Ted demonstrates solid institutional knowledge regarding Grinnell's history with Warren Buffett and Joe Rosenfield. Wilson elaborates on how the Berkshire concentrated model fundamentally differs from the Yale model. | |
| Overhauling WashU's Portfolio and Slashing Hedge Funds | 6 | 7 | 4 | 3 | Wilson strongly critiques conventional hedge fund portfolio construction, laying out the math behind fee drags on long-correlated multi-manager portfolios. Ted asks how he reconciles that macro skepticism with bottom-up manager selection. | |
| Manager Selection, Outsource Research, and Generalist Team Structure | 6 | 6 | 3 | 3 | Ted probes the operational friction of firing managers and using a generalist team model with high portfolio concentration. Wilson explains the upside asymmetry and details how idiosyncratic bottom-up positions provide true diversification. | |
| Ridgeline Sponsor Message | 5 | 6 | 3 | 2 | Following the sponsor read, Ted asks how position-level due diligence works in practice. Wilson explains taking controversial contrarian bets in Russia and frontier markets where valuation multiples heavily compensate for perceived risks. | |
| Co-Investment Sourcing and Deal Diligence Case Study | 6 | 5 | 2 | 3 | Ted challenges Wilson on resource allocation and potential conflicts of interest when co-investing alongside private equity managers. Wilson explains how SPVs align incentives and allow outsized returns on high-conviction ideas. | |
| Edge, Governance, Lessons Learned, and Venture Capital Approach | 6 | 6 | 3 | 2 | Ted asks Wilson to define WashU's edge and how they handle venture capital. Wilson gives an intellectually honest appraisal, admitting they have no unique underwriting edge over top peers except the willingness to take idiosyncratic tracking error. |
Statements from this episode (18)
Grinnell's endowment often held over 10% in single stock positions
“So if you look at the biggest investments in Grinnell's history, it wasn't uncommon for them to have north of 10% of the portfolio in a single individual name.”
Grinnell turned $73 million in principal into a $1 billion endowment
“Over that timeframe, I think over that timeframe, they only took in seventy million dollars in gifts and turned three million into over a billion dollars.”
Wilson redeemed nearly half of WashU's endowment in his first weeks
“We put in redemptions for almost half the portfolio in the first several weeks.”
WashU turned over 80% of its legacy endowment portfolio in three years
“At this point, I think we've probably turned over. 70, 80% of the original pool, even more than 80%, actually. So the vast majority of it's been turned over and those we've kept, we've added capital to and concentrated exposures.”
Multi-manager hedge funds act as expensive index funds guaranteeing underperformance
“Because essentially you're an index fund on both sides of the market with an expensive active management fee structure on top of it. And the fee structure is problematic in that it guarantees you always do worse than the average, right? So you're essentially i…”
WashU's endowment portfolio currently holds only four traditional hedge funds
“Right now, I'd say we only have four, what you'd call traditional hedge funds in the whole portfolio.”
WashU's entire investment team operates as generalists without asset class silos
“Everybody on the team is a generalist, so nobody's kind of married to any one geography or asset class”
WashU's biggest wins included Brazilian utilities, Swedish medical, and Indian biosimilars
“So if you look at the largest contributors to the portfolio over the last three years, you'd see like a Brazilian utility company, a Swedish supplier of medical products and Indian biosimilars companies, a U S based aerospace and telecom company.”
WashU's endowment allocation is 45% private markets and one-third public equities
“If you think we're roughly a third public equities, which bounces around, we're probably a little bit overweighted in privates. That's probably 45% of the portfolio today, just because privates, particularly venture and growth equities had such a big run. And …”
WashU drove strong returns buying Russian tech at 5x earnings multiples
“Russia, we've made quite a bit of money in some of the more tech based companies that would trade it. 20 times revenue in the U S that are trading at five times earnings in Russia, growing in return on equity of 60% plus growing at 30, 40% right through COVID …”
WashU requires a $100M minimum position size to reflect genuine conviction
“As a general, if I tell the team, look, if we're not willing to put one percent of the portfolio in it, then like that's not a lot of conviction. And for one percent for us is currently just over a hundred million us dollars.”
WashU rarely makes direct cap table investments without fund partner consent
“So we're rarely trading kind of on our own. Balance sheet. And we would never do that without expressed written consent from the partners. There are times we have gone directly on the cap table, but only because that's how we were asked to invest. But for the …”
Traditional allocators require years of mentoring to adapt to direct underwriting
“I don't think someone who comes from a traditional allocator background and grew up in that world, it takes, I think, several years of learning and mentoring before they're comfortable with this kind of investment style.”
WashU's top 100 look-through positions constitute over one-third of the portfolio
“If you looked at our top hundred positions, that's going to be probably a third of the portfolio and maybe even slightly more than that currently, just because we've had such a big run in some of those names”
WashU expects its three-year endowment performance to rank near top peers
“If you look at what's really generated our returns, if you look at our performance this year and how we've done over the last three years, we'll end up towards the top of our peer group over that timeframe.”
WashU usually fires managers over AUM creep or thematic strategy shifts
“I'd say our partners with managers is typically, if you look at what's ended more relationships, it's, we disagree with them on size of the opportunity set or what the right size of AUM is, or their ability to find idiosyncratic ideas. Or places where the mana…”
WashU avoids micro VC funds due to difficulty underwriting differentiated thinkers
“We haven't had really much success in kind of the micro VC world. Like there's so many of these small micro VC funds. And again, these are a lot of smart, talented people who come from good places, but it's just really tough for us to underwrite and find uniqu…”