Jan 22, 2018 · 53m · capital-allocators
Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37)
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Ted Seides interviews veteran Chief Investment Officer Bill Spitz on the evolution of the endowment model, actionable frameworks for allocator edge and qualitative manager selection, and the nuances of adapting institutional strategies for private wealth management.
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 31.8% of the talking time here. How this is scored →
Ted as informed peer 5.8 Guest teaching 3.6 Guest disagreement 1.2 Ted pushing back 1.6
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:27 Spitz rejects the death of the endowment model
Spitz firmly dismisses market commentators declaring the demise of the endowment model, arguing that recent 60/40 outperformance is an unsustainable bull market anomaly.
Hardest push from Ted ▶ 21:20 Ted confronts persistent underperformance against the S&P 500Ted directly challenges Spitz by noting that value-oriented macro forecasters like GMO have incorrectly predicted flat or negative equity returns for over a decade while missing market rallies.
Biggest teaching moment ▶ 16:42 Spitz explains operational leverage in private equitySpitz educates listeners and the host on why active skill fails in public stocks but creates persistent alpha in private equity through governance levers, corporate restructuring, and long time horizons.
Ted holds their own ▶ 13:34 Ted synthesizes manager edge into allocator edgeTed demonstrates his deep investment literature mastery by translating Johnson and Sonken's stock-picking edge taxonomy into institutional allocator dimensions.
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 Endowment Landscape and Spitz's Career Foundations | 5 | 3 | 1 | 1 | Ted contextualizes Spitz's 1985 start at Vanderbilt alongside Dave Swenson at Yale, probing the historical institutional landscape. Spitz collegially recounts the simplistic asset allocations of early university investment offices and his shift from Wall Street to endowment management. | |
| Pioneering Distressed Debt and Unconventional Investments | 6 | 4 | 1 | 2 | Ted probes how Spitz navigated portfolio construction before institutional playbooks existed and asks about board governance sequencing. Spitz recounts pioneering distressed debt in 1987 and generating a 40%+ IRR on bankrupt bonds to build committee trust. | |
| Retirement from Vanderbilt and Defining Allocator Edges | 7 | 4 | 1 | 1 | Ted cites Johnson and Sonken's 'Pitch the Perfect Investment' to framework stock picker edges and prompts Spitz to delineate allocator edges. Spitz details three core allocator edges: structural time horizon, privileged access, and skill. | |
| Evaluating Skill in Private Versus Public Markets | 6 | 4 | 1 | 2 | Ted uses Baupost and Seth Klarman to illustrate how market efficiency has shifted talent discovery toward access rather than informational advantage. Spitz explains why active skill fails in large-cap liquid markets but thrives in private equity where managers possess operational control. | |
| Defending the Endowment Model Against 60/40 Portfolios | 6 | 5 | 3 | 3 | Ted challenges Spitz by noting that a simple 60/40 portfolio outperformed the diversified endowment model over the past decade. Spitz pushes back against declaring the endowment model dead, using Black-Litterman and GMO forecasts to argue forward 60/40 returns cannot support institutional spending rates. | |
| Client Psychology and Navigating Cryptocurrencies | 6 | 4 | 2 | 3 | Ted pushes on client psychology, observing that forecasters like GMO predicted zero returns a decade earlier while equity markets soared. Spitz discusses managing client frustration regarding hedge funds and explains why he views Bitcoin as unvaluable speculation under discounted cash flow frameworks. | |
| The Founding of Diversified Trust Company | 4 | 3 | 0 | 0 | Ted invites Spitz to describe the origin story of Diversified Trust Company in 1994. Spitz explains how institutional-style multi-asset portfolios were adapted into a trust company structure to serve high-net-worth families. | |
| Endowments vs. Taxable Wealth Management | 5 | 3 | 1 | 1 | Ted explores structural differences between managing tax-exempt endowments and taxable wealth. Spitz highlights the three-year behavioral horizon of trustees, tax drag in manager selection, and emotional panic during political events. | |
| Manager Selection and Qualitative Due Diligence | 6 | 3 | 1 | 1 | Ted questions how allocators objectively evaluate subjective qualities like character and passion during brief manager meetings. Spitz rejects historical track records as non-predictive and compares qualitative manager due diligence to dating. | |
| Manager Exits, Style Drift, and Avoiding Knee-Jerk Decisions | 6 | 4 | 2 | 2 | Ted highlights the common allocator mistake of firing underperforming managers right before mean reversion, bringing up manager 'crack-row' addictions. Spitz details red flags such as strategy changes, firm sales, and asset bloat, citing Buffett's historical periods of underperformance. | |
| Exploring Esoteric Assets in Low-Yield Environments | 7 | 3 | 1 | 2 | Ted compares modern interest in esoteric asset classes like cat bonds and music rights to early endowment timber adoption that got crowded out. Spitz concedes that large endowments face capacity constraints and that virtually no asset classes appear cheap except volatility. | |
| Cash Allocation, Fee Scrutiny, and Low-Cost Alternatives | 7 | 4 | 1 | 3 | Ted presses on why institutional allocators refuse to hold cash when forward risk premiums compress. Spitz explains institutional spending rate pressures make cash holding career-limiting, though he maintains a large personal cash buffer. | |
| The Trifurcation of the Asset Management Industry | 5 | 4 | 1 | 1 | Ted asks where asset management is heading over the next two decades. Spitz outlines the trifurcation into mega-scale low-cost beta providers, high-alpha active boutiques, and bespoke high-touch wealth advisory practices. | |
| Advice for Money Managers and Meaningful Career Impacts | 5 | 3 | 1 | 1 | Ted inquires about career advice for young managers in an increasingly commoditized industry and Spitz's proudest career achievements. Spitz emphasizes self-awareness of true edge and cites funding endowed university chair professorships and scholarships as his legacy. |
Statements from this episode (23)
Spitz: Vanderbilt Endowment Held VC and International Equities in 1985
“So when I got there in 1985, you know, we had a couple percent in venture capital. We had some real estate exposure, traditional stocks and bonds. We had a large international exposure, which wasn't all that common at that point. So we were actually, you know,…”
Spitz: Most Mid-1980s Endowments Kept Conservative, Simple Portfolios
“In general, I think endowment portfolios were still relatively conservative and relatively simple in their structure. Now, Harvard had obviously evolved. Yale was beginning to evolve. Notre Dame and Duke and some others were starting down that path, but it was…”
Bill Spitz: Vanderbilt's First Distressed Debt Fund Returned a 40%+ IRR
“I think that that initial fund we did in the bankrupt bond space earned a forty-plus IRR, so that gave me a little bit of credibility.”
Bill Spitz: The Illiquidity Premium in Private Equity Has Disappeared Recently
“Some people give up liquidity, and we all talk about an illiquidity premium in private equity and real It hasn't particularly shown itself recently, but you would think it would over time.”
Spitz: Investors lacking top-tier fund access should avoid venture capital
“Particularly acute in, for example, venture capital, where, you know, if you're not in the right funds, probably don't want to do venture capital investing.”
Spitz: Identifying manager skill in advance is doubtful given competition
“I'm a little skeptical about how much of that is really around and whether it's so much competition that you can really identify it and capture it in advance, but there's some there.”
Spitz: International Equity Managers Outperform Benchmarks More Often Than U.S. Peers
“Although when you look at the data today, there's still a much higher percentage of international equity managers that out Perform the benchmark than U.S. Domestic managers.”
Spitz: Private Equity Is the Ultimate Form of Capitalism
“Dave Swenson has said, and I agree with him, that the ultimate form of capitalism is private equity, and I really agree with that, because, you know, you have a long time horizon, you're not beholden to quarterly numbers, and you can do the right thing, and th…”
Bill Spitz Predicts 60/40 Portfolios Will Yield Mid-Single-Digit Returns Post-2018
“And where we end up is sort of a ten-year expected return on equities of Five-ish, let's call it five and some change, a little more for international stocks. Bonds are sort of three-ish. So I think looking ahead, the simple sixty-forty portfolio is going to g…”
Spitz: Private Equity Will Deliver a 300-400 BPS Premium, Not 15% Returns
“And we're not going to see if we have five percent return on stocks, we're not going to have 15% returns on private equity. But historically you've gotten a three or 400 basis point premium, and maybe we'll get that kind of premium again, and that's real money…”
Spitz: Institutional Equity Managers Generally Ignore Tax Implications
“Particularly on the equity side, one of the things we do is pay attention to tax efficiency, and whether the, you know, a lot of managers, primarily those who deal with institutional portfolios, don't think about taxes, so we do try to find managers who will t…”
Bill Spitz: Historical Track Records Have Virtually No Predictive Value
“Well, first of all, I'd say my favorite way not to do it is by looking at track records and long believed that track records have virtually no predictive ability.”
Spitz: Asset Management Firm Acquisitions Are Almost an Automatic Exit Signal
“When firms sell, that's not an automatic red light, but it's close to it, because people who are hungry, who are Excited about being in the game, and they've recently made a stack of money, and now they're going to cruise.”
Spitz: Firing top managers during cyclical underperformance usually fails
“I think the point is that the best people in this business underperform for significant periods, and if you pull the trigger in those periods, it's probably not going to work.”
Spitz: Big macro hedge funds have delivered underwhelming returns for years
“Well, and regardless of what you think, for example, of the macro managers, most of them have not gotten it right for a number of years now, so I'm not entirely convinced that that provides a lot of value added. Yes, you need to be aware of what's going on in …”
Spitz: Endowments Will Struggle to Hit Required 6-8% Return Targets
“So if I'm an endowment fund, and to sustain the spending rate, got to earn seven, eight percent, six, seven, eight percent kind of return, I think that's going to be a pretty significant challenge, you know, looking ahead.”
Spitz: Esoteric Niche Strategies Lack Capacity for Large Endowments
“We're looking at all sorts of niche kinds of investments, but the problem is if you're a big endowment, a lot of these categories probably can't take a lot of capital.”
Spitz: Management fees in non-traditional categories will continue coming down
“I also think that fees will continue to come down in some of the non-traditional categories, but nevertheless,”
Spitz: International stocks are significantly more attractive than U.S. equities
“One thing I would say is, at least from the valuation work that we do, we think the international stocks are a good bit more attractive than U.S. Stocks, so you can obviously do that on a relatively low cost basis as well.”
Spitz in Jan 2018: Volatility Is the Only Cheap Market Asset
“I don't see any overwhelmingly cheap assets today other than volatility, and I think volatility is cheap, but I have no sense whatsoever as to when it may turn”
Spitz: The Asset Management Industry Will Trifurcate Into Three Business Models
“I think, or maybe what's, what's the word for three, three Trifurcates? I think you have big time scale players, particularly in the low cost beta sorts of products. I think you have some, a small number of active boutiques that you know, do what they do very …”