Jun 12, 2017 · 1h 9m · capital-allocators
Larry Kochard – Endowment Professor (Capital Allocators, EP.11)
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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 Larry Kochard, CEO and CIO of UVIMCO, exploring his career trajectory, the trade-offs of internal versus external asset management, UVIMCO's five core investment principles, and the governance frameworks essential for long-term endowment success.
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 22.7% of the talking time here. How this is scored →
Ted as informed peer 4.7 Guest teaching 4.9 Guest disagreement 0.5 Ted pushing back 0.4
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 50:40 Mocking quantitative precision in asset models
Larry rejects the conventional allocator practice of carrying risk metrics to several decimal places, calling it a false sense of precision and a sign of humor.
Hardest push from Ted ▶ 57:43 Pushing on relative benchmark career riskTed directly challenges Larry on the practical reality that straying too far from peer allocations (like Yale's equity heavy mix) threatens an allocator's ability to stay the course.
Biggest teaching moment ▶ 43:47 Due diligence as historical investigative researchLarry educates the audience and host on why manager qualitative reference checks should mirror the deep archival and circumstantial investigative work of a biographer.
Ted holds their own ▶ 36:54 Separating manager assessment from exit executionTed demonstrates seasoned allocator insight by articulating the subtle framework of separating the decision to fire a manager from the optimal timing to liquidate underlying assets.
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 Beginnings and Formative Market Lessons | 3 | 4 | 0 | 0 | Ted opens with standard biographical prompts regarding Larry's early career at EF Hutton, DuPont, Fannie Mae, and Goldman Sachs. Larry reflects on the crash of 1987 and the value of partner skin in the game. The dynamic is collaborative and conversational with minimal pushback. | |
| Transitioning to Institutional Allocating at the Virginia Retirement System | 3 | 4 | 0 | 0 | Ted asks how Larry transitioned to institutional allocating at the Virginia Retirement System while remaining in academia. Larry describes the mentorship of Nancy Everett and the dual role of teaching while managing equity portfolios. The tone is entirely friendly and narrative-driven. | |
| Managing Capital Internally: Quantitative Strategies at VRS | 6 | 5 | 1 | 1 | Ted explores internal asset management versus external manager selection, referencing the classic Harvard versus Yale operational dichotomy. Larry details why internal direct management rarely offers a sustainable edge for endowments due to compensation structures and team cohesion. Both allocators demonstrate deep sector expertise. | |
| Institutional Risk Tolerance and Georgetown CIO Experience | 5 | 6 | 1 | 0 | Larry explains the qualitative dimensions of institutional risk tolerance and the danger of de-risking at market troughs. Ted listens closely as Larry describes building Georgetown's inaugural internal investment office. Larry emphasizes that understanding board dynamics is essential to avoiding panic selling. | |
| Board Communication and Leveraging University Alumni Networks | 5 | 3 | 0 | 0 | Ted highlights the operational necessity of continuous board communication given term limits on investment committees. Larry agrees, calling regular one-on-one stakeholder education and alumni network leverage essential to portfolio stability. The dialogue reflects strong professional alignment. | |
| Sponsor Break: Ridgeline Investment Management Platform | 3 | 4 | 0 | 0 | Following the sponsor read, Ted asks Larry to outline UVIMCO's five foundational core principles. Larry articulates their long-term horizon and bottom-up manager selection philosophy, noting how the rise of macro ETFs has encouraged harmful short-termism. The interaction is a standard structured interview setup. | |
| Manager Sizing, Conviction, and the Discipline of Knowing When to Exit | 6 | 6 | 1 | 1 | Ted probes how UVIMCO navigates the discipline of holding through rough performance patches versus terminating underperforming managers. Larry explains the behavioral and organizational warning signs of manager decay, including style drift and lost competitiveness. Ted adds that allocators must disaggregate the manager evaluation from the market exit timing. | |
| UVIMCO Core Principle 3: Price Matters and Valuation Discipline | 5 | 5 | 1 | 1 | Larry reviews UVIMCO's third principle that price matters, explaining how they trim managers whose portfolios have become overly expensive and rebalance toward unloved strategies. Ted questions whether this valuation discipline extends to top-down asset allocation, prompting Larry to explain the difficulty of timing private market commitments. | |
| UVIMCO Core Principle 4: Quality People and Investigative Due Diligence | 4 | 6 | 0 | 0 | Larry describes the fourth principle around quality people, framing thorough manager reference checking as akin to investigative historical research. Ted listens as Larry emphasizes looking for behavioral integrity and partner alignment over polish. The tone is deeply educational and reflective. | |
| UVIMCO Core Principle 5: Diversification and Cognitive Diversity | 4 | 5 | 0 | 0 | Larry discusses diversification, differentiating between security-level sizing, illiquidity risk management, and cognitive diversity among team members. He emphasizes that illiquid investments require smaller sizing due to the irreversibility of mistakes. Ted provides brief affirmative prompts. | |
| UVIMCO's Asset Allocation Framework and Risk Budgeting | 5 | 6 | 1 | 0 | Larry details UVIMCO's risk budgeting framework, centered around historical maximum drawdown tolerance (60/30/10 policy portfolio) rather than arbitrary asset targets. He warns against the false precision of over-engineered quantitative models. Ted clarifies the historical baseline parameters used for these stress tests. | |
| Peer Benchmarking and Long-Short Equity Conviction | 7 | 5 | 1 | 2 | Ted presses Larry on peer benchmarking risk, noting that UVIMCO's lower equity beta could cause severe career risk if peers like Yale outperform during bull markets. Ted also challenges the hypothetical extreme of holding 100 percent in out-of-favor long-short equity. Larry explains that risk is calibrated so UVIMCO can sustain its strategy without panic selling. | |
| Developing Macro Themes: Friendly Activism in Japan | 5 | 5 | 0 | 0 | Ted asks how UVIMCO identifies and sizes macro themes across the endowment. Larry outlines their friendly activist thesis in Japanese equities, pointing to multi-decade underperformance and corporate governance reforms. The interview concludes on an amicable note. |
Statements from this episode (21)
Kochard: Private partnerships ensure active crisis management through personal capital risk
“Goldman Sachs was still a partnership, and you saw what happened was that day, and partners at Goldman Sachs were always extremely hands-on, very talented, but you could see it firsthand where the senior people got on the desk and were actually actively involv…”
Kochard: Internal institutional quant strategies need strict 100-200 bps tracking error
“Knowing that probably the best way to implement that is in a very low tracking error approach. So tracking error on the order of, say, a 102 hundred basis points. Because knowing that if you tried to have too big a tracking error, If you really underperform fo…”
Kochard: Mega pension funds are too large for capacity-constrained active managers
“In the instance of VRS, and you certainly see this a lot with some of the large public Canadian funds and other funds that have very big pools of capital to deploy, They can't be as active, meaning taking the type of tracking error that we take, hiring very co…”
Kochard: Management fees consume a larger share of returns in low-return environments
“In a lower return world, fees take a disproportionately larger percentage of the total return, and anything that can be done to knock those down a bit is, you know, going right to our bottom line.”
Seides: Yale's endowment model will likely outlive David Swensen for many years
“Whereas Yale's model Likely sustains itself past Dave Swenson for many years because it's mostly, you know, very well-selected external managers.”
Kochard: Institutional managers face strict underperformance thresholds to keep their seats
“If you're managing someone else's money, you have to at least have an understanding that there's probably some either absolute loss or relative loss that you can't go beyond and really continue to sit in that seat.”
Kochard: High board turnover causes irrational panic selling at market bottoms
“Meaning if there's been a lot of turnover, you're probably going to be more likely to
To do those irrational moves and getting out at the bottom.”
Kochard: Endowment sweet spot is $4B-$5B to $15B-$20B in assets
“Partnering with great, extraordinary managers, which I would say at our size of right now, eight and a half billion dollars, we're at a sweet spot. And I don't know exactly where that sweet spot is, but it's probably four or five billion up to, you know, 15 to…”
Kochard: Manager volatility matters most when it poses existential business risk
“With that said, what could be a problem is if the manager themselves, the volatility that they're experiencing, does that cause their business to suffer? And so there's, it's an existential threat to the organization. So, so It could very be right that if you …”
Kochard: Manager underperformance is usually driven by operational or behavioral issues
“There's usually a correlation between bad performance And something else going awry. And so that's where it becomes a little more difficult in practice. There could be a situation where just bad luck that that concentrated portfolio produces a sort of an outli…”
Kochard: Private equity multiples are rising due to excessive dry powder
“Right now multiples have been increasing across really every private, just about every private strategy. And they're increasing because there's so much dry powder out there and people are just, you know, putting it to work and paying more and more and more.”
Kochard: Allocators cannot easily time private equity because capital takes years to deploy
“When you commit today, if I were committing to a private, you know, buyout manager today, They may not deploy the capital for four years.”
Kochard: UVIMCO caps underlying company positions at 100 to 200 bps
“A large position for us is going to be in the order of an, at the underlying company level, a hundred, maybe 200 basis points.”
Kochard: Portfolios should concentrate liquid assets and diversify illiquid bets
“I'm a much bigger fan in less diversification when things are very liquid. When you can change your mind. But when things are illiquid, I size them smaller. And so I believe in more diversification.”
UVIMCO benchmark is 60% global equity, 30% bonds, and 10% real estate
“Which right now is 60% public equity, 30% public bonds, 10% public real estate. All global. And that's a level of drawdown risk that we re-underwrite every year that the university is comfortable, would be comfortable with.”
Kochard: Excessive decimal precision in quantitative analysis leads to major mistakes
“A lot of quantitative analyses, I think, give people false sense of precision, and we provide a lot of quantitative statistics about our portfolio, but I also, I'm a firm believer that, you know, a lot of mistakes are made when you kind of take it to the neare…”
Kochard: UVIMCO caps unfunded private commitments at 25% of total pool
“It's a minimum of 20% that we have access to within three months, a minimum of 30% over a year, and a maximum unfunded commitments of, to private Whatever, of 25% of the total pool.”
Kochard: UVIMCO reduced private equity allocation from low 20s to 16%
“Our Private equity, which is a mix of buyout, growth equity, and venture capital, has come down from, over the last, say, six years, from low twenties down to 16%.”
Kochard: UVIMCO holds 8% to 12% in cash, contrarian to Yale
“You know, we've been running, I try to run between eight and 12% in cash and low duration treasuries, and it's been closer to the high end of that range. It's now kind of in the middle of the range, but that's still, you know, higher than what Yale and some of…”