Sep 4, 2017 · 1h 8m · capital-allocators
Jim Dunn – Protect, Perform, Provide (Capital Allocators, EP.24)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Ted Seides interviews Jim Dunn, CEO and CIO of Verger Capital Management, exploring the spin-out of Wake Forest University's endowment into an outsourced CIO model, factor-based portfolio construction, and purpose-driven institutional stewardship.
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 22.1% of the talking time here. How this is scored →
Ted as informed peer 5.6 Guest teaching 2.2 Guest disagreement 1.5 Ted pushing back 1.9
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 22:15 Jim dismantles trustee manager selection with Madoff profile
Jim forcefully rejects traditional quarterly committee oversight by demonstrating that the board eagerly approved a blind profile of Bernie Madoff.
Hardest push from Ted ▶ 24:07 Ted challenges single-year drawdown framingTed counters that focusing on a single-year 28% drop in 2008 neglects time horizons and the market rebound in 2009.
Biggest teaching moment ▶ 24:35 Jim schools on long-term purchasing power erosionJim runs through the Monte Carlo simulation showing that spending four dollars for every dollar raised inevitably bankrupts an endowment suffering recurring 20% drops.
Ted holds their own ▶ 46:08 Ted offers informed counter-argument on life settlementsTed challenges Jim's negative headline framing of life settlements by articulating how unpaid policy distributions exploit policyholders and why secondary settlements provide a financial lifeline.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Roots and the Genesis of Spinning Out Verger Capital | 4 | 2 | 1 | 1 | Ted probes into the genesis of Verger and the institutional tensions at Wake Forest. Jim explains the financial realities of tuition elasticity and the ten-point list of governance requirements he handed the trustees. | |
| Navigating Bureaucracy and Naming Verger Capital | 3 | 2 | 1 | 0 | Jim shares the administrative grind of building buy-in across university bureaucracy and narrates the literary origin behind naming the firm after Somerset Maugham's 'The Verger'. Ted listens supportively to the background story. | |
| Early Career: Death Spiral Converts and Wilshire Demands | 5 | 1 | 1 | 1 | Ted asks how Jim transitioned from niche convertible bond trading into a major institutional mandate at Wilshire. Jim explains his background in convertible arbitrage and manager selection, including a humorous anecdote about a manager mailing a single stiletto. | |
| The Core Philosophy: Protect, Perform, Provide | 6 | 2 | 2 | 3 | Ted questions whether 'protect' and 'perform' are in tension with one another. Jim clarifies that they are deliberately sequential and prioritized to ensure the endowment serves financial aid commitments in perpetuity. | |
| Governance Reform and Risk-Based Framing at Wake Forest | 6 | 3 | 2 | 1 | Jim describes dismantling the traditional trustee investment committee structure by presenting a blind Madoff profile to demonstrate that quarterly committee manager-picking is obsolete. Ted listens to how governance was shifted toward delegation and downside-loss tolerance. | |
| Protecting Purchasing Power and Restructuring Compensation | 7 | 3 | 2 | 4 | Ted pushes back by noting that measuring a single-year 2008 drawdown ignores the multi-year recovery and time horizon of endowments. Jim responds with Monte Carlo math on real spending versus inflows, showing that periodic 20% drops deplete long-term purchasing power. | |
| Sponsor Break: Ridgeline | 5 | 2 | 1 | 1 | Ted delivers the mid-roll sponsor message before pivoting back to how Verger translates risk tolerance into factor-based portfolio construction. | |
| Factor Optimization, Overlays, and the Golfer Analogy | 7 | 3 | 2 | 4 | Ted presses Jim on how factor modeling is executed in practice, probing whether it relies on historical returns and pointing out that shorting European banks against Lehman claims is a 'dirty hedge'. Jim concedes the imperfections of tactical hedging and frames it as a pragmatic overlay. | |
| Factor Buckets, Portfolio Comparison, and Volatility Management | 7 | 3 | 2 | 3 | Ted questions how Verger's non-traditional factor allocation compares to peers and whether returns diverge significantly. Jim explains that while Verger's portfolio structure differs drastically from peer asset-class buckets, it arrives at comparable annualized returns with significantly dampened volatility. | |
| Manager Selection: Separating Talent from Luck | 6 | 2 | 2 | 1 | Jim outlines the necessity of finding multi-strategy managers to maximize factor exposures and explains why university politics rule out activist investing and life settlements. | |
| Social Responsibility, Due Diligence, and ESG Considerations | 7 | 3 | 2 | 3 | Ted challenges Jim's dismissive stance on life settlements by offering a counter-perspective on life insurance cash-flow realities. Jim acknowledges the shift in the asset class, while emphasizing ESG integration, student involvement in proxy voting, and gender equality in PE selection. | |
| Executing Internal Hedging and Derivative Infrastructure | 6 | 2 | 1 | 2 | Jim recounts trying to negotiate bank ISDAs as an endowment, which forced Verger to partner with an external desk for derivative hedging and secondary liquidity solutions. Ted explores how Verger sources and sizes secondary and co-investment opportunities. | |
| Building Firm Culture and Defining the 'Why' | 4 | 1 | 0 | 0 | Jim articulates Verger's open-floor trading culture, the three-legged operational stool, and Simon Sinek's 'Why' framework, connecting it to his personal background as a first-generation college student. Ted facilitates the closing reflections. |
Statements from this episode (29)
Dunn: Spinning Out Verger Capital Was Wake Forest's Idea, Not the Team's
“We had a chance to do something pretty unique with Verger spinning it out, and it wasn't our idea. It was the university's idea.”
Dunn: OCIOs should not bear their founding university's name
“And one of them said, just don't name it Wake Forest Asset Management. And I went to NC State, Libby George, who had money with UNC. And she said, the only problem with UNC managing our money is every quarter I get a statement from UNC with their logo on it. I…”
Dunn: Jamie Dimon Called Him in 2008 Seeking Seed Money Back
“You know, I had in 2008, we were down 13% in our larger portfolios and I still had Jamie Dimon calling me at home wanting his Lehman, his Bear Stearns, one 30 30 seed fund money back.”
Dunn: Institutional CIO roles are largely ceremonial people-management positions
“As CIO, your role is pretty ceremonial, right? You're basically trying to put fires out and, you know, deal with people. Less about asset allocation. You've got portfolio managers do that and analysts.”
Dunn: Post-2008 illiquidity forced university endowments to borrow or reduce payouts
“After the crisis, because you had a lot of schools that basically were illiquid because they had hedge funds that locked up on them, private equity distributions, and these schools didn't have the money to pay their distribution. So they were stuck. And now so…”
Dunn: Wake Forest endowment lost 28% in 2008
“Looking at Wake Forest again, they had lost two, 28% in 2008 before I joined.”
Dunn: 85% of Wake Forest endowment payout funds financial aid
“For Wake Forest, 85% of the payout goes to financial aid.”
Dunn: Quarterly trustee meetings picking fund managers do not work
“The model of you coming together four times a year as trustees, getting sandwiches, picking managers, playing golf, this doesn't work. And it's gonna get more and more difficult as the market changes.”
Dunn: Wake Forest trustees voted to hire Bernie Madoff in blind test
“So I gave them this big Wilshire book of 400 pages. It had this strategy, and I said, this is the kind of book that you typically get from a consultant. And it was a manager that was on the board of NASDAQ, and he was doing this and that. Eight billion dollars…”
Dunn: Wake Forest spent $50M yearly against $14M in gifts
“So you're spending fifty million dollars every year, And you're bringing in 14.”
Dunn: Wake Forest eliminated peer-group compensation benchmarking for CIO
“So one of the first things we did was we changed the compensation program. You know, I should not be, the CI prior to me was basically paid on a peer group. He had to beat seven schools.”
Dunn: Duke endowment had $5B and 28 staff vs Wake's $700M and 6
“Duke is five billion with 28 people. We're awake with 700,000,006.”
Dunn: Investors only control fees and risk, not returns
“You can control two things, fees and risk. You can't control return. So every committee that comes in and says we want an eight percent return is starting with the wrong output. Focus on the inputs.”
Dunn: Real estate fund returns are driven by spread and duration
“Your real estate managers. Spread and duration. You wouldn't think that. That's a fixed income concept, but spread and duration. Cap rates and, you know, how long the rents are.”
Dunn: Verger pays 75 bps for legacy managers now charging 3-and-25
“And we were paying, you know, 75 basis points for some of these managers that now charge three and 25. But we've been there for 15 years, and we've got capacity.”
Dunn: Mean-variance portfolio optimization is flawed and over-allocates to private equity
“You think about it, you go and say, okay, we're going to use the last 25 years of returns and correlations, and we're going to put that into a machine, and we're going to pretend that the next 10 years will look like the last 10 years. And then the second thin…”
Dunn: Verger avoids major investments in China and Russia over rule-of-law concerns
“China and Russia, we can't do it because we believe in the rule of law. So we're not going to invest in those areas in a big way.”
Dunn: Bridgewater provides eight return factors while PE and activists deliver one
“Bridgewater has about eight factors that drive their return. And you know what they are, their country, their currency, their momentum, duration, spread. And they can tell you, they have the sheet. And when we run our returns-based analysis, we get very close …”
Dunn: Verger holds under 20% in US equities, favoring emerging markets
“How many endowments are, you know, less than. 20% in U S equities. There are very few that have that exposure. You know, we have more emerging markets at frontier than the portfolio than we do there.”
Dunn: Verger sets asset allocation annually while hedging daily
“It's not very dynamic. It's basically once a year... We have a tactical overlay, which is the hedge, and that's every day. So the real asset allocation work is done once a year.”
Dunn: Verger gives Guggenheim's Scott Minerd full discretion via separate account
“We're very fortunate, you know, we've got a West Coast manager who I really like, Scott Minard at Guggenheim, who I think is a bon savant. And we basically let him go and do what he wants to do.”
Dunn: Manager research differences between Mercer and Wilshire provide little differentiated value
“The difference between Mercer and Wilshire's manager research, I don't think it's that, that valuable. Asset allocation, for the most part, everyone uses the same modern portfolio theory.”
Dunn: Verger avoids activist hedge funds to prevent conflicts with endowment donors
“If you give an activist money and you know, we get our money from our donors and some of our donors sit on publicly traded companies, and they're CEOs, and they gave us a million dollars for the endowment, and all of a sudden we take that money, give it to an …”
Dunn: Divesting removes an institutional investor's voice and proxy influence
“If you divest, you don't have a voice.”
Dunn: Verger breaks manager ties using gender equity policies
“If there's two managers and they're equal and one does and one doesn't, we're gonna hire the one with the gender equity policy.”
Dunn: Verger invested in Forerunner Ventures through diversity diligence
“You know, Forerunner. Great investment. Kirsten Green. Great investor. Warby Parker. Dollar Shave Club. But that was led by looking at gender equity policies and trying to find women-owned investors.”
Dunn: Wake Forest pioneered using external managers' trading desks for endowment hedging
“And we asked, can we help? Can we use your balance sheet? Can we use your trading desk? Can we use your collateral to manage this portfolio? And they said, Sure. Why not? Now that's become a big business for them. They've got hundreds of billions of dollars. W…”
Dunn: Verger avoids equity co-investments due to staffing constraints
“We're typically not going to do a co-investment in a equity name, because we don't, we can't do the work to go and be able to say, we don't have 12 people to put on a stock and say, go look at the balance sheet, go meet with the management team.”
Dunn: Operational failures kill fund managers, not mediocre investment returns
“And the reality is, you can have mediocre investments and still have a wildly successful business. And you know a lot of those guys who've raised a ton of money with average returns. You can have the greatest investment returns in the world and not raise a dim…”