Sep 18, 2017 · 1h 24m · capital-allocators
Scott Malpass – The Fighting Irish's Twelfth Man (Capital Allocators, EP.25)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
University of Notre Dame Chief Investment Officer Scott Malpass discusses how three decades of mission-driven governance, disciplined manager sourcing, and factor-aware asset allocation grew the university's endowment to over $12 billion. Malpass shares critical insights on team continuity, direct real estate investing, navigating late-cycle venture markets, and stewarding capital in alignment with institutional values.
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 24.4% of the talking time here. How this is scored →
Ted as informed peer 4.3 Guest teaching 4.7 Guest disagreement 0.3 Ted pushing back 1.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 37:45 Skeptical reframe on unicorn survival rates
Scott firmly disputes market euphoria around late-stage venture valuations, pointing out that historical data shows 80 to 90 percent of unicorns do not make it.
Hardest push from Ted ▶ 47:15 Ted pushes back with peer compensation sharing dynamicsTed counters Scott's view on easy institutional sharing by citing Jim Dunn's perspective that peer-benchmarked compensation structures actively disincentivize CIOs from collaborating.
Biggest teaching moment ▶ 28:20 Resolving the apparent paradox of passive indexing and active endowmentsScott breaks down why passive indexing is mathematically superior for retail and large pension funds while only 50 to 60 well-resourced global endowments possess the infrastructure to justify high active risk.
Ted holds their own ▶ 11:55 Ted drills into the vulnerability of lifelong tenure cultureTed sharply challenges Scott on how an ultra-loyal, alumni-only endowment culture addresses competency gaps and underperforming hires over a 30-year span.
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 Career Journey and Becoming CIO at 26 | 4 | 5 | 0 | 0 | Ted opens with a warm, open-ended question asking Scott about his path to becoming CIO at age 26. Scott shares the narrative of his early career from pre-med to Irving Trust and returning to Notre Dame under Father Richard Zang and Bob Wilmoth. | |
| Endowment Team Culture, Loyalty, and Career Longevity | 5 | 4 | 1 | 4 | Ted probes into potential downsides of an insular, family-like culture where all senior directors are alumni. Scott explains that turnover is handled without guilt and that departing staff receive full support. | |
| Investment Committee Continuity and Governance Structure | 5 | 5 | 0 | 2 | Ted asks how committee continuity impacted real decisions during crises. Scott details holding the line during the 2008 global financial crisis without cutting spending and buying a direct real estate property in Chicago. | |
| Hands-On Real Estate Knowledge and Time Allocation | 4 | 5 | 0 | 1 | Ted inquires about the trade-offs of time spent managing direct real estate versus selecting external managers. Scott shares his early days meeting legendary managers like Don Valentine of Sequoia. | |
| Evolution of the Endowment Model and Manager Alignment | 6 | 4 | 0 | 1 | Ted explores bottom-up manager picking versus top-down asset allocation. Scott clarifies that the endowment model evolved from Cambridge Associates roundtables and emphasizes setting strict factor boundaries to avoid style drift. | |
| Public Equity Management, Market Structure, and Passive Investing | 5 | 6 | 1 | 2 | Ted asks whether active management might become obsolete given the rise of indexing and quant investing. Scott, drawing on his Vanguard board experience, argues that passive is optimal for retail but endowments with global search teams maintain an active edge. | |
| Healthy Levels of Indexing and Tactical Portfolio Tilts | 5 | 4 | 0 | 1 | Ted asks about healthy limits of market indexing and opportunistic tilts. Scott describes using passive ETFs tactically and preparing liquidity well ahead of distress cycles. | |
| Lessons from the London Pilot and Global Team Dynamics | 4 | 5 | 0 | 1 | Ted asks about the outcomes of Notre Dame's two-year London office pilot. Scott explains that while accretive for mapping European GPs, keeping the team together in South Bend provided stronger collaborative alignment. | |
| Late-Cycle Venture Capital Pricing and Unicorn Realities | 5 | 5 | 2 | 3 | Ted questions valuation dynamics and whether unicorn success is an LP self-fulfilling prophecy. Scott pushes back with historical cycle data, noting that 80 to 90 percent of unicorns fail to generate sustainable value. | |
| Private Market Capital Saturation and Decline of Public Listings | 5 | 5 | 1 | 1 | Ted observes the shrinking number of public companies and asks whether private ownership enforces better long-term decision making. Scott agrees but sounds the alarm on pervasive short-termism across institutional media and governance. | |
| Sponsor Message: Ridgeline Front-to-Back Investment Technology | 3 | 3 | 0 | 0 | Following the mid-roll sponsor break, Ted steers the conversation into manager sourcing channels. Scott emphasizes human networks and advises students to get on the phone rather than relying on internet data. | |
| Due Diligence Timeframes and Inter-Institutional Collaboration | 6 | 4 | 1 | 4 | Ted counters Scott's claim of open peer sharing by citing Jim Dunn's observation that peer-relative comp hinders collaboration. Scott disagrees, asserting that peer-benchmarked comp is a mistake for mission-driven endowments. | |
| Assessing Manager Pitfalls, Asset Growth, and Conviction | 4 | 5 | 0 | 0 | Ted asks about behavioral tendencies and mistakes in manager selection. Scott notes that managers failing usually results from asset bloat, greed, or losing focus after early success. | |
| Detecting Manager Focus Drift and Managing Capacity | 5 | 5 | 0 | 2 | Ted explores detecting when a manager drops from full capacity to 80% or 50% effort. Scott explains using probing lifestyle questions and advanced factor and currency analytics to spot shifts before performance deteriorates. | |
| Collaborating with Industry Operating Executives in Private Equity | 3 | 5 | 0 | 0 | Ted invites Scott to discuss special manager relationships without naming names. Scott describes partnering with sector operating executives transitioning into private equity and helping them structure their first funds. | |
| Strategic Blueprint for Deploying a New One-Billion-Dollar Fund | 5 | 5 | 0 | 1 | Ted presents a hypothetical scenario of deploying a clean $1B institutional pool today. Scott details a measured, patient strategy prioritizing high liquidity, pacing PE allocations over a decade, and explaining why he avoided hedge fund GP stakes. | |
| Internal Office Debates and Portfolio Concentration | 5 | 4 | 0 | 2 | Ted asks about internal team debates regarding portfolio concentration. Scott reflects candidly that despite managing $12B, his conservative mindset still views $20M as a large sum, keeping him from concentrating as aggressively as theoretically ideal. | |
| Annual Offsites, Leadership Development, and Holistic Team Care | 3 | 5 | 0 | 0 | Ted asks about key takeaways from annual team offsites. Scott details their two distinct retreats—one focused purely on technical portfolio deep dives and another dedicated to leadership, whole-person care, and team development. | |
| Macro Headwinds, Return Expectations, and Industry Competition | 4 | 6 | 0 | 1 | Ted asks what worries Scott most over the next decade. Scott cites excessive global leverage, low 60/40 real return expectations, and compressed endowment return distributions driven by explosive talent competition. | |
| Mission-Driven Alignment and Engaging the Campus Community | 3 | 5 | 0 | 0 | Ted asks about the daily psychological impact of managing a mission-driven pool. Scott describes engaging directly with students and faculty about ethical investment guidelines to build campus-wide trust. | |
| Advisory Roles, Personal Background, and Foundational Work Ethic | 4 | 4 | 0 | 1 | Ted asks closing personal reflection questions about favorite sports moments and parental advice. Scott reminisces about the 1988 Notre Dame vs Miami football game and describes learning blue-collar work ethic working in a 120-degree factory. | |
| Celebrating Campus Transformation and Father Hesburgh's Vision | 3 | 5 | 0 | 0 | Ted asks what Scott is most proud of in his 30-year tenure. Scott celebrates the physical and academic transformation of Notre Dame and shares warm memories of celebrating endowment milestones over dinner with Father Hesburgh. | |
| Global Leadership Concerns and Catholic Investment Services | 4 | 5 | 0 | 0 | Ted asks about Scott's fears and alternative professions. Scott laments the worldwide shortage of civic leadership and outlines his work for Pope Francis on the Vatican Bank board and Catholic Investment Services. | |
| Life Lessons, Student Guidance, and Final Reflections | 3 | 4 | 0 | 0 | Ted concludes by asking what advice Scott would give his younger self. Scott emphasizes teaching high-achieving students to enjoy the journey rather than obsessing over the next achievement. |
Statements from this episode (35)
Malpass became Notre Dame's endowment CIO at age 26 in 1989
“So in April of 89, I became CIO at age 26.”
Notre Dame's entire core endowment investment team consists of alumni
“All of the core investment team are Notre Dame alumni.”
Non-rotating investment committee chairs succeed at Notre Dame despite governance orthodoxy
“It's very unusual and probably most people would say it's probably not the best governance practice, but actually it really has worked for us.”
Notre Dame was the only top-20 endowment not to cut post-2008 spending
“I think we were the only endowment in the top 20 major endowment that did not cut endowment spending.”
Notre Dame's endowment rebounded from under $6 billion post-crisis to $12 billion
“We went a little over seven billion pre-crisis to high fives, and now we're at 12.”
Notre Dame strictly limits direct real estate investments to nearby Chicago
“In our size, look, we're not going to have 10 of those in our portfolio, and Chicago's a great market for us. We wouldn't probably do that anywhere else, or it'd be very limited because it's so close to us.”
Notre Dame is one of Sequoia Capital's largest domestic investors
“Now we're, you know, one of the largest investors with Sequoia in the country, and it's been a fabulous friendship and partnership.”
Cambridge Associates co-founder Jim Bailey sparked the endowment model in the 1970s
“But I'll give a lot of credit to Jim Bailey at Cambridge because Jim assembled a group of endowments in the seventies to talk about these issues. And that, from those meetings, came the endowment model.”
Notre Dame's endowment is doing record amounts of PE and real estate co-investing
“We do more co-investing in real estate and private equity than we've ever done, you know.”
Notre Dame's endowment grew from $400 million to over $12 billion
“Like I said, I was, it was four hundred million dollars when I started. Now we're, our pool's over twelve billion.”
Notre Dame's spending requirements prevent tolerating a decade of factor underperformance
“We're not willing to have 10 years where values out of favor and we've got 90% value managers. That we just can't, we have too much to do here. I mean, sure, you say it's perpetual, but it's perpetual in many ways, but it's also, we got to spend every year, an…”
Public equity represents roughly 40% of Notre Dame's endowment portfolio
“So our public equity bucket, which includes long short equity, is about 40%. But long short's about 10%, so a quarter of that.”
Malpass argues only 50 or 60 global investors can execute the endowment model
“And I would argue there might only be 50 or 60 investors in the world who really can do this model well. I don't think there's a lot. I think most people should be using more of these other techniques.”
Malpass rejects the narrative that index fund inflows structurally overvalue stocks
“Well, I don't believe that because there's been a lot of flows in the past that all these stocks are overvalued. They're structurally overvalued and people are gonna lose money because they're buying at a high. I don't believe in that general narrative, to be …”
Notre Dame uses passive ETFs temporarily for tactical exposures and transitions
“We'll do some passive ETFs temporarily when we're looking at exposures or transitioning some managers, or we might have a theme we want to put in place that's opportunistic for a shorter period. We've done some of that, and we'll continue to do that, and I act…”
Notre Dame builds relationships with distressed managers well before market collapses
“We're talking with managers now that we won't use until the next collapse. But when that happens, we'll be ready, they'll be ready, and we'll be able to put a lot of capital to work.”
European middle market private equity is attractive due to struggling local banks
“In private equity, we've always done more of that middle market and lower middle market. And in Europe, that's a very attractive space right now, because the banks are struggling so much.”
Endowments without large direct PE strategies do not need permanent foreign offices
“We decided that unless you're really, like, if you're a big pension fund doing a lot of direct private equity, you know, probably be on the ground. We don't need to be right now.”
Malpass estimates that 80% to 90% of unicorn startups fail
“You know, I think the data shows that 80 plus percent, maybe 90% of unicorns don't make it, so I don't get too high and fired up.”
Only two or three truly transformational companies emerge in every VC cycle
“But if you really look at What are the companies that really become big and sustainable? Every cycle, there's only two or three. You know, the Googles, you know, the Facebooks. There's only a couple, and those tend to be funded by the same people.”
Notre Dame values its venture capital investments using 20% to 40% discounts
“Look, we, we're very conservative in our valuations. We report what our managers give us, On our valuations. They're very conservative. They take huge discounts. They're 2030, 40%, depending on the company.”
Public investment research is a commodity and direct calling is forgotten
“The public sources are now a commodity, and there's a lot of them. People forgot how to get on the phone and call people.”
Malpass has never found a single good investment idea on the internet
“You're going to get ideas from smart, experienced people who've been around, not from looking online. Online can affirm things. You can develop some of the thesis. It could give you research, put the framework around it, but the best ideas, I haven't gotten on…”
Institutional CIOs share due diligence and collaborate more frequently today
“My peers, you know, I'm not afraid to go call another CIO if I hear they might be looking at the same thing, and we'll share due diligence and confirm. You know, I think people are doing that more today, to be honest, than they used to. I don't think there was…”
Benchmarking endowment CIO compensation against peer performance is a distracting mistake
“See, I think that's a mistake. We do not have that. We never had it, and our board will, I don't think they'd ever do that. That, that, we don't, Honestly, at the end of the day, we don't really care that much what other people are doing. We, we've got our own…”
Investment managers fail most often by raising too much capital
“Most of the time when people don't become successful, They ended up getting away from some of their own core beliefs. You know, they ended up raising too much money.”
Malpass notes long-time hedge fund partners are working less than before
“We've had long-time partners, some of the best people ever in the business, they're clearly not putting the time in they used to.”
Private equity fund formation is shifting from rigid pitchbooks to LP collaboration
“So we, we're seeing more of that in different sectors, whether it's consumer goods, healthcare, energy, you know, definitely seeing more opportunities for To partner with people in those ways. And that, that wasn't the case before. They'd show up with a pitch …”
Emerging private equity managers with operating backgrounds possess an advantage
“And, you know, a GP loves the idea of hearing about that, especially if they didn't come from the asset management business, which can be an advantage. Right? They know their sector. You know, they know the people.”
Building an effective institutional private equity program takes at least a decade
“People ask me, I want to start a private equity program. How long is it going to take to get a, it's a decade, maybe more, but it's probably at least that, right?”
Notre Dame halted its GP stake ownership strategy to avoid conflicts
“At one point, it was very fashionable to want to buy a part of the GP. Or want to, you know, have an ownership stake, or buy some of the cash flow of a hedge fund. We did one of those, and it's been fine. It's worked out. There's still a partner. It's been fin…”
Notre Dame sizes private fund commitments based on absolute downside risk tolerance
“I look at almost any private fund, how much can we afford to lose? I know that's probably
Too conservative, to be honest, because we do such a great job of getting the right people, but I do think of that. So we probably could be a little more aggressive there…”
Malpass predicted a 60/40 portfolio would return under 5.5% over the next decade
“Sixty-forty, the last 10 years was probably five, five and a half percent, and it feels to me like the next 10 years could be that or worse.”