Oct 21, 2019 · 55m · capital-allocators
Ana Marshall – Applied Direct Investing at the William and Flora Hewlett Foundation (Capital Allocators, EP.111)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Ana Marshall, Chief Investment Officer of the William and Flora Hewlett Foundation, explains how her eighteen-year background in direct fundamental investing informs her high-conviction portfolio construction, rigorous executive field research, asset class restructuring, and collaborative team culture.
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 23.2% of the talking time here. How this is scored →
Ted as informed peer 5.0 Guest teaching 4.4 Guest disagreement 1.3 Ted pushing back 1.4
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 29:00 Rejecting Long/Short Hedge Fund Fees
Ana bluntly rejects standard hedge fund fee structures, declaring that paying two and twenty for levered equity beta was unjustified when the foundation could short cheaper directly.
Hardest push from Ted ▶ 27:40 Probing Directly Held Macro ViewsTed presses Ana on whether her extensive proprietary macro diligence translates into direct overlay trades or remains strictly delegated to outside managers.
Biggest teaching moment ▶ 11:00 Challenging US Governance AssumptionsAna breaks down the societal and historical purpose of Korean corporate structures, explaining why standard US governance critiques miss the local context.
Ted holds their own ▶ 34:00 Mapping Equity Risk to Foundation PayoutTed synthesizes Hewlett's venture and bond weights, prompting Ana to demonstrate how she balances risk to achieve the mandatory five percent foundation payout.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Early Passion for Markets and Career Mentorship | 4 | 3 | 1 | 1 | Ted prompts Ana on her early beginnings in investing and mentorship. Ana explains her structured five-year career plans and early experiences learning from industry veterans in high yield. | |
| Direct Career Trajectory and Investment Conviction | 5 | 4 | 1 | 1 | Ted tracks Ana's progression across asset classes from debt trading to equities. Ana highlights the core philosophy of knowing enough to have conviction to double down when an investment declines. | |
| Global Citizen Perspective and Corporate Governance | 5 | 6 | 2 | 2 | Ana explains how growing up globally in Mexico City shaped her perspective on corporate structures, challenging US-centric assumptions about Korean corporate governance and capital preservation. | |
| Contrasting Global Regulatory Systems and China | 5 | 6 | 2 | 1 | Ana breaks down regulatory differences between Europe, the US, and China, correcting naive Western expectations that economic liberalization in China would replicate US-style capitalism. | |
| Transition to the Super Buy Side at Hewlett | 5 | 4 | 1 | 1 | Ana recounts her transition in 2004 to Hewlett's endowment, describing the shift to the 'super buy side' and the discipline required to avoid backseat driving active managers while conducting direct CEO diligence. | |
| Portfolio Concentration and Global Networks | 6 | 5 | 1 | 2 | Ted explores how Ana constructs concentrated manager rosters. Ana details using focused global networks and deep underlying stock knowledge to evaluate manager skill beyond standard pitch decks. | |
| Hewlett Investment Team Domain Expertise | 5 | 4 | 1 | 2 | Ted asks about domain expertise across non-equity asset classes like venture. Ana credits her senior asset directors and outlines how she uses ongoing global research trips to evaluate disruptive trends. | |
| Sponsor: Ridgeline Investment Management Platform | 6 | 5 | 2 | 2 | Following a sponsor read, Ana details why Hewlett entirely dismantled its traditional long/short hedge fund allocation, arguing that the foundation could short beta cheaper directly rather than paying two and twenty. | |
| Fixed Income Ballast, Venture Sizing, and Risk Mandates | 6 | 4 | 1 | 2 | Ted probes Hewlett's allocation to fixed income and venture sizing. Ana explains holding twelve percent in fixed income as portfolio ballast and managing a seventy percent total equity risk exposure to meet the foundation's five percent distribution mandate. | |
| Manager Selection Hurdles and Disruption | 5 | 4 | 2 | 2 | Ana describes a strict one-in-one-out policy for managers and insists on selecting partners who anticipate disruption across all asset classes, including real estate and corporate debt. | |
| Manager Sourcing and Committee Governance | 5 | 4 | 1 | 1 | Ted asks about sourcing and committee communication. Ana explains staying open to talent in both large institutions and spinouts, alongside managing investment committee expectations through clear beta and factor risk reporting. | |
| Peer Networks and Collaborative Information Sharing | 4 | 4 | 1 | 1 | Ana describes peer collaboration among foundation and endowment CIOs, dismissing competitive posturing in favor of confidential, candid annual data sharing. | |
| The Hewlett Foundation Partnership Pitch | 5 | 4 | 1 | 1 | Ted asks about pitching competitive top-tier managers. Ana emphasizes Hewlett's mission-aligned capital and practitioner background as a collaborative partner rather than an arm's-length allocator. | |
| Core Team Values and Intellectual Humility | 4 | 4 | 1 | 1 | Ana articulates team culture, emphasizing intellectual humility, welcoming junior challenges, and building diverse teams combining fundamental and quant backgrounds. | |
| Overhauling the Real Estate Portfolio | 5 | 5 | 2 | 1 | Ted asks about her most difficult portfolio decision. Ana candidly details liquidating an overdiversified fifty-manager real estate book down to five core managers via secondary sales to re-establish high conviction. |
Statements from this episode (39)
Marshall: Fundamental analysis is insufficient without trading experience to understand risk
“Unless you knew how to trade the bonds and how people were really pricing risk, all of the analysis in the world wasn't going to help you get to the answer. You needed to understand pricing of risk, and the only way to do that was trading.”
Marshall: Avoid investments without deep knowledge because you won't double down
“Know when you don't know enough. And if you don't know enough, don't do it. Because you're never gonna have the conviction to double down if it goes against you. Whereas if you know enough and you have enough of a sense or a conviction when it's something goes…”
Marshall: Minimizing left-tail risk is the best path to long-term compounding
“I think, if anything, my bias was more about capital preservation, because when you grow up in the world of high yield, emerging debt, and even growing up in Mexico City, you grow up understanding that capital preservation and trying to do your best to minimiz…”
Marshall: Corporate activist campaigns will not change Korean corporate governance systems
“And so the purpose of a corporation was different, very different in Korea than it is in the United States. And so you have to understand those nuances to understand that they will never, no matter how much Corporate raiders and campaigns are there. For the Ko…”
Marshall: US Equity Multiples Are Higher Due to Lighter Corporate Regulation
“So in the United States, especially in the last 30 years, it's been basically very light regulation, and the corporate sector gets to do a lot of things. Whereas in the rest of the world, that doesn't happen. And so you see, in some ways, that's why multiples …”
Marshall: China Blended Capitalism With Nationalism Without Losing State Control
“Whereas what they have done is they have blended the system, the nationalist system they had with elements of capitalism, but without losing that element of control.”
Marshall: Endowments shifted from treasurers to professional investment teams around 2002-2003
“And at this time was right when endowment and foundation money management was undergoing its own level of professionalization. For decades before that, you had had sort of the treasurer of the university or the treasurer of a foundation serve as the primary pe…”
Ana Marshall: Former portfolio managers risk backseat driving when becoming allocators
“So I think the biggest lesson was how to not backseat drive, because that is, I think the biggest risk to having this model of people from switching from being existing portfolio managers to our side.”
Ana Marshall conducted about 75 CEO and CFO visits annually at Hewlett
“I still, for the first, I would say, 10 years of being here, I still managed about 75 CEO, CFO visits a year. Of companies in the portfolio, or companies that were adjacent enough to the portfolio that would help me inform how to manage the portfolio.”
Ana Marshall: Direct executive interviews yield better capital allocation than economic strategists
“Really talking to CFOs on the ground and CEOs on the ground is really where you understand where the pressure points are in a system, and it actually helps you allocate capital better.”
Marshall: True investment conviction requires running concentrated portfolios
“Because the only way to have real conviction is to really know something, and you only have so much of a brain to do that.”
Hewlett Foundation limits each asset class to 10 to 12 managers
“When we have an asset class, we only have roughly 10 to 12 managers per asset class. And so, each one of those managers, in and of themselves, for the most part, is a concentrated portfolio manager. So in effect, you basically have a hundred stock portfolio, w…”
Marshall: Evaluating managers requires deep analytical dives into their stocks
“The only way to really know if somebody's good is to dive into a stock. And so you have to be up on what's going on in these stocks to be able to really have deep analytical conversations.”
Marshall: Majority of Hewlett Foundation managers have 10+ year tenures
“A majority of our managers have been in our portfolio for at least 10 years.”
Marshall meets 80% of Hewlett managers annually as second chair
“In any given year, I meet with probably 80% of the managers in the portfolio, but I am there as a second chair entirely.”
Marshall: Hewlett Foundation team manages $10.5 billion with eight people
“We are eight people in an investment team, okay? We're managing 10 and a half billion dollars.”
Marshall: Foundation allocators have no edge making direct tactical investment calls
“There is no competitive advantage on sitting in my seat to be able to make those kinds of calls, and the amount of attention it would require would probably take our eye off the ball as something else we needed to be doing.”
Marshall: Hewlett Foundation eliminated its hedge fund category entirely
“What is different about our portfolio is we don't have a hedge fund category. So we run a risk management system and hedge funds just never fit into the risk management system.”
Marshall: Hewlett exited long/short equity over paying 2-and-20 for beta
“What we decided is we can short cheaper than a hedge fund just based on our balance sheet if we ever wanted to. So why are we paying two and 20 to have somebody short beta for us? Why don't we just hire the best stock pickers on the planet? And then we can fig…”
Marshall: Multi-strategy and distressed credit deliver 70% equity return at half volatility
“My theory, which has proven, but I had no way of proving then, was that this group of managers could get me about 70% of the equity return with half the volatility.”
Marshall: Hewlett Allocates 12% to Fixed Income, Far More Than Peers
“12 points in the portfolio, something like that. It's not huge, but it's far more than any of my peers, for sure.”
Marshall: Managing a Treasury Book Generates Negligible Alpha
“There's not much alpha you can add managing a treasury book. So we don't really bother doing too much of that, so we have an index treasury book.”
Marshall: Large Asset Pools Cannot Maintain Concentrated Venture Manager Portfolios
“As you grow in assets, I think it's a very difficult thing to try to keep to that 10 core managers and focus just simply because you can't get enough access.”
Marshall: Foundations Need 70% Equity Risk to Meet 5% Mandate
“Because in a foundation, I have a mandated five percent payout. So I have to have at least 70% equity risk in this portfolio to be able to, on a long-term basis, Achieve the objective, which is to grow or maintain the real spending power of this institution.”
Marshall: Hewlett enforces strict one-in, one-out manager policy
“For every manager that they want to bring into the portfolio, somebody else is leaving. I give them maybe a margin of one extra guy, but that's it. I am pretty merciless on this one.”
Marshall: Disrupted corporate bond issuers offer minimal recovery value
“In corporate bonds, if you get disrupted, you are toast on your recovery.”
Marshall: Hewlett finds talent in mega-firms that peer foundations ignore
“We have found tremendous talent
Locked within ginormous organizations that my ENF peers don't really talk to.”
Marshall: Hewlett does not require three-year track records for managers
“Like, we don't need to see a performance track record. Very little of what we do is based on a three year track record. So much of what we do is about the people.”
Marshall: Hewlett receives no new capital inflows unlike endowments and sovereigns
“We don't have inflows of capital. So an endowment, an insurance company, a sovereign wealth fund, they're always putting money, new money to work. We don't have any new money. We just have existing money.”
Marshall: Large foundation CIOs conduct annual open-book portfolio sharing
“We also have a more dedicated group, which is the large foundations, who share I would say similar challenges in that the granting programs and just the board ambition for granting programs really does color the type of risk and the type of duration we can run…”
Marshall: Hewlett pitches managers on funding planet and women's empowerment
“We have a very coordinated pitch in the sense that we, if we're allowed in, every dollar you make for us goes to save the planet for women's reproductive health or for women's economic empowerment.”
Marshall: Hewlett pitches managers as empathetic former direct investors
“And so our pitch is, we were once in your seat. We know what it is to be in your seat. And we really believe in your ability to generate returns for us. And we are longstanding partners, and we are here to help.”
Marshall: Hewlett investment team compensation is tied to portfolio performance
“Everyone's compensation is based on how the portfolio does.”
Marshall: Investment teams must mix perspectives to avoid institutionalizing bias
“So you do have to have various points of view to make sure you're not institutionalizing biases into your investment process. Because I think that is a really dangerous thing if you do that.”
Marshall: If I cannot convince my team, my investment argument is inadequate
“If I can't convince somebody, then that means my argument's not strong enough, and therefore I need to go back and strengthen my argument.”
Marshall: Foundation investment teams are enabling utilities, not the stars
“We're all here to generate the money so that the Hewlett Foundation can do what it does. We are not the stars of the play. We are here as the little wheel on the corner.”
Marshall: Hewlett Foundation executed secondary sale to reset real estate portfolio
“We had to accept that we made a pretty significant mistake in the way that we had constructed our real estate portfolio, and it happened to be at the time when we were also switching coverage, and we ended up basically doing a secondary sale and starting over.”