The Exchanges

Q Well, let's circle back. So in that period of time at Andover, what happened under your tenure?

A Well, the returns got better. And the global financial crisis happened. So two big things. On the return front, we were bottom quartile when I took over. I don't think we knew we were bottom quartile, because you tend not to look at that as an all-volunteer committee. We had more than 60 managers for a six hundred million dollar portfolio, and more or less firing about a third of them was very important in boosting performance, and I've not figured out the math, but somehow the tail of managers seems to drag you down more than it pulls you up, and I think that's true with stock positions, too. I think it has probably to do with conviction levels. We definitely narrowed the manager roster. In many cases, we would have four guys doing the same thing. We'd take it to two. Then the financial crisis. I mean, that was huge. And that I really feel we did well in the financial crisis because we had a high level of trust between the board and myself and the rest of the staff. So when the markets were imploding in the fall, We actually issued some debt on behalf of the institution to stay invested, and we rebalanced back into equities in February, March, not because we thought the crisis was over. In fact, I had a horrible stomach ache for, I think, that whole three-month period, but we were so far under our targets that the decision was made to put one percent back into both emerging ma…

AI assessment note: “Well, the returns got better. And the global financial crisis happened.”

Q You mentioned defining asset classes or what they meant. Did you come out of that with sort of a different than, let's say, common definitions of asset classes?

A I have on several occasions felt that common definitions are not helpful. I like to define asset classes in terms of risk and correlation, and somewhat what risk factor do they imply. I'm probably closer to what you would call factor analysis than asset classes, but it gets tricky because that's just not the way the world is really organized. But I think it's helpful when you think about something like fixed income. What do we mean by fixed income? For us, we wanted to have something that was liquid, highly safe, or would have a negative correlation with equities and not complicated. So I don't really want the Barclays Ag. I don't need a bunch of mortgage-backed securities in there that have complicated duration, complicated character. Don't need a bunch of investment-grade corporate bonds either. So if you define it that way, you might put credit elsewhere in the portfolio But your fixed income for me is really like a treasury portfolio so that I can say with some degree of confidence, this is the kind of characteristic it's going to have. It's going to be up for me in down markets, not always. Similarly, hedge funds or absolute return, I've typically divided that into two categories, equity-oriented strategies, i.e. long short, because there we assume you're going to have a . seven-ish correlation to stocks. But you're going to have less volatility and more alpha. And then we…

AI assessment note: “I have on several occasions felt that common definitions are not helpful.”

Q So through that experience, say, post-Ninitiate in Russia, what was it that led you to move from being on the fixed income desk to what you've done since?

A It was really the benefit of volunteering. So I moved from JP Morgan to Morgan Stanley, was very actively engaged in my professional life, but was asked to serve as a volunteer on the investment committee for the high school I had gone to, which had really changed my life and done a lot for me as a person, and which has a needs-blind tuition policy, which is supported by the endowment. So I was asked to serve on the investment committee for the endowment as a volunteer. In 1998 or nine, and so I did, and that just really opened my mind to this whole world of endowment management, and at the same time, Barton Biggs, who I adored, periodically would write a book report, because he was, maybe didn't want to write about the markets, and he basically wrote about David Swenson's book, Pioneering Portfolio Management, which was really the first time I heard of David Swenson, so I read the book, I was involved at the Andover endowment, And it fascinated me to think about using finance to support philanthropy and thinking broadly about markets. And of course, fixed income markets are huge, but they're not huge in most endowments. So again, it kind of opened my mind that there's a lot more to the world than trading bonds.

AI assessment note: “It was really the benefit of volunteering.”

Q What did you find both expected and unexpected being in the seat as that first CIO?

A Unexpected was the manager selection piece is really critical. I think the asset allocation was something that I understood at the end of my career, I'd moved out of emerging markets into global fixed income strategy. I worked with a lot of allocators and institutional investors on how to think about divvying up a portfolio globally and across different risk factors. But I think the importance of getting the manager piece right And what that actually entailed was a very new kettle of fish. I remember spending a lot of time generating enormous spreadsheets, and then going to see one of the board members, Fred Schumann, who'd run a hedge fund of funds for years, and just reams of data, and he said, Amy, Amy, let's just get the 10 best guys. It's not all in the math, but the math is important, and the track record is important, but there's so much more to it, and I think that's what's been The most interesting surprise and also skill to kind of start to try to build is how do you assess an organization that is run well to succeed in investing?

AI assessment note: “Unexpected was the manager selection piece is really critical.”

Q What was an example of an odd tilt?

A Like, 20% long short equity. It's like a lot. It's not crazy, but I asked each person, why do we have this? And nobody had an answer. It had been a manager-driven process. And the board would come up with eight million managers that they liked, and then the staff would react. There had been a fair amount of turnover, too, so that was an issue. They also had ranges, as I said, I hate portfolio ranges, so equities could be five to 20%. Do we want to be five, or do we want to be 20? So the biggest change we made was to move to portfolio targets for asset classes, to define what we meant by the asset classes, And the long short equity was a perfect example when you ask the question, not should we fire this guy or that guy, but how much do we want in this asset class with these characteristics? The answer was more like 10 to 12. So that just implied behavior that then had to happen. So I think it was really about creating, again, a framework. The other thing that was really interesting was the spend rate was quite high, about six percent And I asked the CFO, what return expectation are you putting in the budget, which is impossible if you don't have portfolio targets. You can't have an expected return with ranges. You can have a range of expected returns, but you can't have one. So they turned out they had gone to the common fund, and the common fund has a model for intergenerationa…

AI assessment note: “Like, 20% long short equity. It's like a lot.”

Q What does ownership of a manager relationship that's in the portfolio mean in terms of what's asked and deliverables of the people?

A Well, again, this is evolving, but the idea would be a regular review of every manager. It's interesting because one of the challenges is that private managers, you kind of do a deep dive re-up when the fund is re-upping. And the rest of the time you think, well, I can't really do anything until they come back to market. So there's this weird every two or three or last couple of years, every year, you basically do the due diligence on their timeframe. Public managers, there's a risk that you kind of just float along. You never get to the threshold of cutting anyone. So what we've tried to do is create a regular, like, everybody gets reviewed once a year, and we have a framework now across publics and privates with sort of a scoring method, and it's sort of intended to say green light, yellow light, red light, and we're not fully implemented. I think it will be useful and interesting, but we'll see.

AI assessment note: “everybody gets reviewed once a year, and we have a framework now across publics and privates”

Q How do you balance that longstanding desire from your fixed income days to look at the data and have an assessment, knowing that there's a lot of noise around whatever that data is, and the human side of having relationships and the value that those relationships bring to an investment portfolio?

A As someone who likes data, that's been the most important evolution is you have to look at the human side. And in lots of parts of the market, the data is easy to manipulate. Depending on how liquid, even not just private equity, but how do you mark a credit book is very important. Some people market mid-market, some people mark bid and ask. I think it's useful to start with the data because it helps point you to questions. But in things like private equity, I always say like, okay, I need to go through every company in the portfolio. How's it marked? Because if there are aggressive markers or conservative markers, only comparing the IRR doesn't really tell you the whole story. But the important thing about relationships is trust. And many, many managers will hit some kind of an air pocket because whatever they're doing hits an air pocket. It's inevitable almost that something will go bump or some investment goes astray or some person goes. So I think it's really important to invest with people that will do the right thing under pressure.

AI assessment note: “I think it's useful to start with the data because it helps point you to questions.”

Q How do you decide where you're going to lock it up?

A We want to lock it up where you're going to get the best return for locking it up, but I believe that's true pretty much across the board. We did an exercise a while ago that actually grew out of a criticism that Jim Simons made of the asset allocation work, and he said, this is so stupid. We don't invest in asset classes. We invest in managers, and all that matters is their beta and their liquidity, which was kind of weird. Well, it is kind of true in some ways. We ran an exercise looking at all of our managers divided not by asset class, but simply by the liquidity terms, not even including private equity, but just the public managers who had annual or longer locks, who had quarterly locks, and who allowed monthly liquidity. And then we looked at 10 years of risk return data, and we found that you could make an efficient frontier, and basically the curve for the longest lockup was higher and steeper. So I think That yields a pretty important insight, which is you want your least volatile stuff to be your most liquid stuff, because it is your dry powder, and then you compromise liquidity where there's the most risk, because you probably get the highest payout doing that, and the chances are you might want the liquidity or need it, but the thing is down 20%, you're not going to want to sell it. So I personally like to barbell I'm not hugely adverse to cash and short duration tr…

AI assessment note: “We want to lock it up where you're going to get the best return”

Q So with the potential, as you mentioned, increased bankruptcies and talking about fixed income, How are you thinking about traditional private equity?

A We were underweight private equity. So we are using this moment to think about where is the best place to add. Obviously, there's an adjustment as the cost of capital goes up, leverage strategies get hurt, and then there has to either be more equity in deals and prices have to come down. So there's like an adjustment period, and that is what it is. I'm happy that we are in a position to be like adding capital. Gradually. Unfortunately, there are other parts of the portfolio that are not returning capital, and I'm not speaking about venture, but natural resources and real estate, which probably we would have expected would have returned a little bit more capital. That's been a little slower. I think that earnings growth is going to be critical. So when we think about the future, we think about potentially higher inflation, potentially higher interest rates, That probably means lower multiples, but it probably favors companies that can profitably grow earnings. And I think that's interesting. So within private equity, we really like the people that are good at growing earnings, and it might be interesting outside the US. I feel like there may be more opportunity for real corporate enhancements. We just did a Japanese private equity fund as an example. So I think back to basics in a world where money isn't free, you got to earn money. So I think companies that have Good revenue gr…

AI assessment note: “We were underweight private equity. So we are using this moment to think about where is the best place to add.”

Q I'd love to take a step back from your work on a number of prestigious investment committees. What have you learned from being on the same side, but that chair at the table that's impacted how you go about investing?

A I think really ensuring partnership between the committee and the staff, and that is a lot about how you communicate. There's a few things I would say I think are important. One is if you flood a committee with information, you won't get any feedback. If you come to committee meetings with every I dotted, every T crossed, very few people are going to say, gosh, I know you've done months of work here, and you have a point of view. I happen to disagree with the point of view. As a board member, you kind of go, yeah, but it's not worth upsetting the person who's put so much work in. So one of the things we do when we do committee meetings, we have an on-deck section, which is these are some managers that we're just starting the process on. So if you have a thought, let me know now. That's really intended to invite them into the conversation before it feels annoying to get into the conversation. So I think there are a lot of subtle ways that committees Can either be shut down or encouraged to participate. And again, as I said, I prefer dialogue. I like to ask questions. I try to say, okay, what are the five things I really want the committee's point of view on before every meeting? There are committees that aren't run that way. There are committees that aren't healthy enough to be run that way. But what I would say is if you can foster partnership between a great committee and And …

AI assessment note: “really ensuring partnership between the committee and the staff, and that is a lot about”

Q What did you take away from those varying experiences looking at different international bond markets?

A It really was the macroeconomic underpinning for everything I've done since, and the other thing was that it was critical to think of a framework for organizing a ton of information. I think when you're talking about countries, you could talk about the politics, you can talk about the economics, you can talk about inflation, you can talk about growth. There's so much information, and so I think what was helpful was to develop a framework as to, well, what would really impact your ability to pay? What is really the risk I'm trying to assess? What information is critical to that risk? And how would I look at that historically and across a set of peers? So I think the really interesting lessons I learned early on and from some early bosses was figure out how to make a framework to rank the risk profile of different banks or different countries. So it's kind of how to organize information because there's a lot of noise and that's only gotten worse.

AI assessment note: “It really was the macroeconomic underpinning for everything I've done since”

Q What have you found resonates as your sweet spot on picking a manager?

A It's multifaceted. The data helps to understand how they do and under what circumstances. I also like to read all of their letters. I find that if you start with a book, I usually make a paper binder, of all the letters since inception, you will really begin to understand the thought process of a manager and how they handle mistakes. That doesn't help you with new launches, and frankly, I find that the most challenging, but I do find understanding how people talk about what they've done and what went wrong actually gets at accountability and thoughtfulness. Then we try to look at compensation. How do you reward and value people? Because I really do believe people will do what they feel they're supposed to do.

AI assessment note: “understanding how people talk about what they've done and what went wrong”

Q And now back to the show. Curious on the manager selection side, you went from having your portfolio at Andover to turning over a portfolio and ending with a portfolio at Rockefeller. That roster of managers could be different from the one you stepped into at Northwestern. How do you think about your own favorites compared to the competition for capital with the legacy portfolio you walked into at Northwestern?

A There were people in this portfolio that we didn't have at Rockefeller, and maybe couldn't have had at Rockefeller. Now I think that world is changing, so right now I think access is less of an issue. So I didn't feel the need to bring in all my favorites, but rather just like, let's understand each player and how they fit, and if they've served the university for five, six, seven, 10 years, and they're doing a great job, there's no reason to change. Change is costly, but I think there are managers I knew that maybe either weren't well-known to this institution or where there was more of a relationship, so I've definitely brought some relationships over, and there's a few that I feel really strongly about where I thought, gosh, this would be a perfect fit in this portfolio. In some cases, it was more about sizing, so they may have had a relationship with a manager, That I had high conviction in. I might say, gosh, we should be twice as big in this manager. So there's been some of that. But I would say, in both the case of Rockefeller and here, it's a re-underwrite everything as unbiased an opinion as possible.

AI assessment note: “I didn't feel the need to bring in all my favorites”

Q Along those lines, have you thought about private credit space?

A There's a lot, I think, to like about that space, other than that it was so popular. Anything that grows that fast makes me a little nervous, but I think there are some inherent benefits. We were talking about matching your funding liquidity with the liquidity of the assets, and I do think banks have had, in some ways, a bit of a mismatch. I mean, not the traditional bank with retail deposits, because those are quite sticky, but There's something to be said about locked up capital for markets that are not liquid. Like, it's kind of rational in that regard. And I think there is a healthy ability to do due diligence, and you're certainly getting paid a lot more than probably the average loan officer did. So I think there are some things that are really positive. I think that clearly also there was an opportunity created by regulation of the banking system, which is maybe appropriate, right? The government says, we don't want to be on the hook for all this bad lending, so we're just not going to So we are now. You don't have any guarantees, and it may be that people aren't really thinking about losses in these funds and what they could look like. So I like the asset class. I think it's evolving, and I think that there's been so much growth. We're looking at it. We didn't have a lot of that in the portfolio, and I feel like we're at a point in the cycle where I think it could be ma…

AI assessment note: “We're looking at it. We didn't have a lot of that in the portfolio”

Q So once you make those definitions clear to your committee and you see a pruning process necessary, what actually happens from in the first year, is it the low-hanging fruit changes, not complicated, but important to make, and then you go out and implement?

A Yeah, I mean, it's usually really unpleasant first year of everybody hates you because you have to fire people, and it's often not because they're not doing a solid job. One of the things we talked about was David's view of culling versus weeding. Like, you could have four really good managers that have very similar characteristics. You just don't need all four of them. So then you pick the two that you think are the best, and that may also be how they relate to one another. Generally speaking, I would look at the whole roster plus people outside the roster. That's where the math and the statistics of risk and return and portfolio concentration, just a whole series of measurements. I like to read all the letters, understand the culture, Early on, didn't have, like, a scoring chart. It was a little more loosey-goosey, like, write up a memo as to why you're picking these two. I've evolved more and more towards, like, not a checklist, but a set number of things that you sort of try to score people on, but always a deep look then at the historical data of their returns and what drove returns.

AI assessment note: “it's usually really unpleasant first year of everybody hates you because you have to fire people”

Q Which two people have had the biggest impact on your professional life?

A It's really hard to pick two, but it's really easy to say David Swenson had the biggest impact, but there have been many others. I feel Peter Natashie, all the Andover Investment Committee. I've had a lot of great mentors over the years. Barton Biggs, who I was a little afraid of, but boy, he made you think. Mostly men, Ted, I'm going to say one thing. Because I do feel like it's really important. I think women need to have good mentors, and I think there will be a world where there's a fifty-fifty chance that the mentor is a male or a female, but until we're in that world, it's very important for young women to be able to find mentors who don't look exactly like them. I think there's a difference between mentor and sponsor, like someone who really promoted you, and in that regard, I think, you know, Someone like Peter Natas, you really brought me into a lot of conversations. David, who like opened the door to his office and said, come on in and learn from me. Those are people who really sponsor you, put your name up for jobs or whatever. That kind of active sponsorship really helps in a career, and I think sometimes you just got to be able to build those bridges across difference, and that's true for all kinds of diversity.

AI assessment note: “it's really easy to say David Swenson had the biggest impact”