The Exchanges

Q And what, I don't know if it's varied that much, but that baseline long-term target Independent of market conditions, asset allocation. What is, what does that look like roughly?

A You know, we, we have to earn a lot of money, so it's equity biased. If we just kind of go around the pie chart, it's 10% dedicated to domestic equity, long-only managers, six percent to other developed markets, long-ish only managers, 10% to emerging market public equity managers, 25% in the category we call independent return, subset of what the world calls hedge funds, what many others Call absolute return. 25% in private equity as a long-term target. That's venture and buyout. 19% in real assets. That's real estate, energy, timber, some other things in public and private format, and then if I said that right, at least five percent in fixed income. You know, the midterm allocation is quite different from that. For the first half of the 22 years, those differences were all intentional You know, we could see there were such dislocations in markets that even we, you know, felt confident in swinging hard at them.

AI assessment note: “If we just kind of go around the pie chart, it's 10% dedicated to domestic equity”

Q That generally gets calibrated, I would imagine, across just public markets and cash. How do you think about it if it's not in line with your strategic asset allocation and rebalancing the relative performance of those asset classes?

A From time to time, and this is one of those times, we are willing to make a bet when the pitch is fat enough. When things are so far out of whack, when the duck is moving so slowly, we're willing to shoot at it. And going into this crisis, we had marginally built up our defense, meaning had built up a little bit of extra liquidity, meaning a little bit less equity and a little bit more fixed income and cash. Not so much with an idea of doing it in size enough that it would dampen a downdraft in returns. It was doing it in size enough that it would create some well-deserved comfort in terms of our own liquidity situation so that we might be able to play some offense. So we went in with less beta than, and I'm talking marginal amounts. This is, again, icing on the cake.

AI assessment note: “we are willing to make a bet when the pitch is fat enough”

Q Golf course, I think. All right. What advice would you give your children early in their career? In fact, your kids are coming up to that point.

A My kids are certainly, uh, one that's in well past first inning. So, uh, I'm going to answer without the presumption that their career is investing. If you want, I can return to that. There's a cliche about following your passion. I feel that it's true, except for I want to modify that and say, follow your like. The problem with telling someone follow your passion is it presupposes that they know what passion is, and, you know, it's almost like a dating situation. It's like saying, well, You should go out with the person that's going to be your spouse. Right? Like, well, I don't know that yet. Right? And I don't want to have to figure it out before I go out, and that's right, you should iterate on it. So I think you should, you know, really go down paths that have a real natural attraction to you, and, you know, not try and plan too far in advance. You heard my story, and I think it actually Was a source of strength when I finally did get interested in investing. Having done things that I had liked along the way had at least two advantages. One is I learned a lot about a lot of different things that I might not have otherwise learned if I had followed a straight and narrow. But the also, the other issue is it enabled me to develop an ego that was In the early years, quite detached from investing. So when I first got involved in investing, I could think of myself not as a person…

AI assessment note: “I feel that it's true, except for I want to modify that and say, follow your like.”

Q Let's start with that. Why, why outside managers and not internal managers?

A I think, you know, the arguments are pretty clear that for any activity that we might pursue, and we pursue a lot of them, there are firms bringing just a whole lot more bandwidth. I won't even say firepower. I don't think that the people who work there are smarter than my colleagues, but they're focused, and, you know, they're structured to reward, and they're culturally just About really getting into the weeds. And, you know, it's hard to imagine us doing that across such a varied portfolio and competing well against, you know, these specialized firms. You could take the approach of, well, then don't try and do it everywhere. Just do it in some areas, or maybe even just one area. And I think where you run into problems there is from an organizational dynamic and a culture. And, you know, the rhythms of those decisions are so different.

AI assessment note: “there are firms bringing just a whole lot more bandwidth”

Q How have, there's been this explosion of data, usage of data, financial markets, companies, everything. How have you Used data increasingly, or have you used data increasingly in your process?

A There's a lot of information that's a whole lot easier to get, and so it, it means that you can kind of test the stories that, the arguments that managers put forth, because they no longer have the same kind or degree of information asymmetry that they used to have, or at least you can hone in on The edges that they do have in terms of just having more information, you know, but I think it's, um, not as important to the way we think about investing the long-term horizon, investing in people. You know, the issue is that, I say this as a recovering quant, you know, you can't drive the ship if the ship is to build a roster of managers. You can't get enough data to base a decision without, you know, running afoul of a key premise, which is that the engine that produced that is stable, right? And that nothing's changed.

AI assessment note: “you can kind of test the stories that, the arguments that managers put forth”

Q Has there been anything that surprised you in how people have tried to approach you during this time?

A I have been surprised by Folks who have approached me even more intensely than normal about non-investment things, and I wonder a little bit about their calculation as to thinking, even if I want to be receptive, how I'm going to be receptive on that. I think it's also interesting that the really kind of off the beaten path investments, like a Sports betting fund. That's interesting that you would think that I would think that what I need right now, when very traditional things are on sale, is to go far afield. I know they're not thinking that, that they just need to do what they need to do, but it just strikes me as I'm being unfair, but I'm using, we'll get right on that.

AI assessment note: “I have been surprised by Folks who have approached me even more intensely than normal”

Q So that's a first tenant was the use of external managers. And what are the other key advantages or disadvantages that you have sitting here?

A Well, you know, I mentioned that the long horizon is a potential advantage. There's some other ones, like the fact that Princeton itself, and then Prinko has augmented this, we're an attractive client, and that's enmeshed in the ability to take a long term. You know, there's, um, there's a saying that good clients make for good architects. It's also true that good bosses make for good workers, and so the fact that our governance structure is filled straight up and down the line with people who really are not just Brilliant, but get it. Like, you know, understand investing. And so, you know, getting back to that buy low, sell high, it means you're buying when everyone else is selling, so anyone else is buying. It means that you got to be contrarian, and it means that you got to be able to do some uncomfortable things. And people who understand what you're doing will allow you greater units of discomfort, and they will also allow you to optimize that discomfort Spending them in ways that are counter to conventional wisdom. So, you know, we got this loyal network. It's information network of Princeton alums, but also Prinko alums or manager. So why wouldn't I want to exploit that intelligence? And, and, and, you know, I don't want to compete against those managers. I want to kind of work with them. So I think those are, uh, you know, some of the, uh, obvious ones.

AI assessment note: “I mentioned that the long horizon is a potential advantage. There's some other ones”

Q about that whole notion of balancing, you know, size is the enemy's performance? As these guys grow, can they extract that much return in dollars from the markets? And, and at what point in time do you say, huh, boy, they're awfully big. You know, we probably wouldn't give money to that fund if we hadn't had money with them for a long time. Uh, to get to this point.

A Yeah, so you'll hear me talk a lot about vectors, things that push a decision one way or the other, and obviously there are a lot of things that would make, should make one skeptical about ballooning assets. You know, on the other hand, the world's a lot more complicated, and there are certain strategies where the size actually helps. Now, those strategies bring with them a different kind of risk and a different kind of calculus. You know, there are some who've been very successful at keeping a war chest through long periods of time, so that when there's a highly motivated seller who really needs help with a problem, the fund can step forward and, you know, write a billion dollar check. So whether or not that's a approach that is attractive depends upon some implicit calculations that you're making. The drag of that dry powder.

AI assessment note: “there are certain strategies where the size actually helps”

Q Once you get your own nervousness out of the side and the broader picture of the landscape of the university, you mentioned wanting to be in a position to play offense. As you're looking at where to play offense now, how are you doing it?

A Well, I think in some ways it's a little too early to be playing offense. And that was kind of one of the understand if we talking today, as opposed to three weeks ago, four weeks ago, it's again, embarrassing to admit this, but I have a much greater appreciation of the range of possible outcomes in the real world, the loan and financial markets. And that uncertainty suggests that we should really wait until we see the whites of their eyes before we start firing. We're really hitting pause on the offense for now, because it's just so hard to figure out. Even if you need this many dollars to play offense, how would you optimize that? But the number of dollars you have to play offense is actually pretty variable itself. Obviously, this construct of defense and offense is a little vague and fuzzy. I was thinking about a long time ago, an investment manager used the phrase, in order to Finish first. You first have to finish. And I think defense is about making sure that you finish and offenses strive to finish first. But I think it's kind of hard to have a clear view as to how to optimize. And, you know, ultimately you want that to be a bottom up decision anyway. So it's facts and circumstances as opposed to saying, oh, this is the sector that is ripest. You would say, Our manager in the sector. Is expressing this argument, and yeah, that A makes sense, and B is different from some…

AI assessment note: “I think in some ways it's a little too early to be playing offense.”

Q If this lasts for longer than we anticipate, what have you seen in the change in the way you've worked that you think will continue to work effectively?

A I think we're gonna have to be a bit more intentional About our talent development efforts. We have scheduled four investment interns to be starting first week in June. That's part of our summer program. These are current juniors, you know, rising seniors at Princeton, which is where we get a lot of our talent. And it's like a classic summer internship program where it's a feeder for full-time offers. That's been an important, not exclusive, but important way of getting to know each other, and we run a pretty good program, if I do say so for ourselves in that regard, where we, we do get to know each other in both directions. Well, we may not be able to do that this summer, so as we speak now, we are trying to think about what does an ideal remote internship program look like, and I find myself Making the analogy to evolution in the tech world of when PC based engagement moved to mobile, it wasn't as good as stuff that was developed just for the phone. And I think it's pretty interesting right now as we think about, you kind of necessarily have to start with something. So we'll adapt, but we're also trying to figure out is there A native remote engagement, or is there a native smaller bite-sized engagement? And that gets pretty exciting in terms of thinking about casting a broader net with folks, which gets to One of my favorite topics, as you well know, is our efforts to improv…

AI assessment note: “we're gonna have to be a bit more intentional About our talent development efforts.”

Q What are you doing to figure out what's right, the theory or the data?

A We want to talk about, in the first instance, what's the simple explanation, the kind of attribution, but we don't want to get too Involved in that. You know, attribution studies tend not to be worth the paper they're written on, and I believe or not can go on long about that. I think that's a kind of step into the, what's really going on here, guys? And let's, let's talk about not what's happened, but what we think, what the future might look like. So let's go through a portfolio and understand what your arguments are for this position versus that position, and see if we can get You know, confidence in, from, from that perspective. You, of course, want to, maybe the short answer is you want to just re-underwrite. And if, if you've, have experience like we have, of investing with people who don't have a long track record, it's not that unusual. It doesn't feel that strange to invest despite a recent bad track record. It's not that much, no, no big deal. You know, so what are we trying to think about? We're trying to think about Who the people are, what motivates them, and what are they doing? Do they have an approach that can give them an edge, and do they seem to be executing on that? You know, you rarely have to re-look at that point at some of these other kind of agency issues. People tend to develop bad habits when things are going well, in terms of separating interests wit…

AI assessment note: “maybe the short answer is you want to just re-underwrite”

Q You mentioned the potential long horizon. Most of the time people In a, in a seat like yours talk about having a long horizon. So why don't you talk a little bit about the word potential in that phrase?

A Well, first of all, yeah, talk about long and what we mean by long. Uh, there's a phrase we use here that we actually think BLT. We think beyond the long term, because a lot of people say, you know, long is 10 years or something. And I think, well, I'd like to push our thinking on that. You know, I'd like to not just produce the best possible results over the next 10 years. But I want to make sure that in doing so, at the end of those 10 years, we have a program that really looks like it's got unfair advantages for the next 10 years. So, you know, that's, that's pretty good if you can do that. But the real horizon is not what you claim your horizon is. The real horizon is this thing that you maybe don't even discover until after the fact. It's how long Can you go with a large amount of discomfort without changing your path inappropriately? One of the things I love about this business, and I love about what I get to do in terms of focusing on the long term, is it brings back the philosophy to me, right? It's like, if you set up a system where you say you won't really know how well you're doing until the long term is done, wow, that sounds a little odd.

AI assessment note: “The real horizon is not what you claim your horizon is.”

Q Do you change the allocation or will you just port over the exposure? Which is another sort of viable. So if you had a framework of an asset allocation and you had too much in US equity, you could either short out or swap it into.

A We do a little bit of that, but it's in the first instance, it's more like, well, that 10% domestic equity is an arbitrary number. Do we really think it's much better than nine percent or 11%? Well, it depends how you make it up. So that gets us back to the one team, one dream. We try really hard to not think about these things as silos or, you know, make them justify themselves relative to just themselves. So within domestic equity, we've got 40% of that 10%. Your listeners can do the math. It's about four points with just one manager, right? If you were running a domestic equity portfolio, if you were compensated on just how domestic equity Did. You would never take that much tracking risk. But everyone who works here is just thinking about the overarching bottom line. I guess your bottom line should be underpinning. Your bottom line should be on the bottom, not on the top. And, you know, we want to kind of partner with great people, and then we figure out which bucket makes the most sense.

AI assessment note: “We do a little bit of that, but it's in the first instance”

Q And how have you balanced the desire for the interaction of members of the team with separating that into getting work done?

A That's the question we always have, whether it's a crisis or not. In some ways, it's easier To get work done, because people kind of sort of understand the need for focus, and in some ways that's dangerous, because since it's easier to say, hey, I don't have time for this right now, you can use that tool too often. We are very committed to growing our own talent. You can only grow your own talent if you don't grow well, at least if they see not just the output of decisions, but see the how the sausage is getting made. And so in terms of big worries right now, a surprisingly large share of my worries are not about getting through this crisis, not even about Exploiting as much of the opportunity created by the crisis as possible. It's more about what happens after the crisis and, and how do we make sure that we have maintained the culture, maintained the development. And so much of our culture has really been about physical proximity. It has been a strength of ours and a weakness of ours. It creates a threat because it precludes a lot of things that A workforce would like, like remote work, like being able to live in a bigger community. So that may be some benefit that comes out of this is that we have learned how to marginally be better at remote engagement.

AI assessment note: “we have learned how to marginally be better at remote engagement.”

Q How are you spending your day from the minute you get up to the minute you go to sleep?

A I am kind of curled up in a little fetal position under my home office desk, which is different from global financial crisis because that was my office desk. It remains true just like normal times. Every day is different. And I think they're particularly different. This crisis obviously is a special kind of crisis. And to state the obvious, we've got the remote work aspect of it. So we've had to institute some routines. You know, normally we all, the investment team, 20 of us all work in one big room and people wander in it. Various hours in the morning, but you're kind of got a little ability to adapt based upon visual cues, and here the need to have routine because of the remote work creates a special challenge during a time when you kind of want maximum flexibility, but we gotta do it. So how do I spend my time? One thing I have been doing is I What I usually don't do is I actually look to see what's going on in the market. Our job is, as you well know, is really more about relationship management, partnership management than day-to-day asset pricing. But there's this little thing called fiduciary responsibility, and during what I think is objectively the most volatile markets in my career, even compared to the Lehman days, you gotta understand Is there anything particularly unusual going on?

AI assessment note: “One thing I have been doing is I actually look to see what's going on”

Q What market areas have you seen your underlying managers find particularly attractive at this point in time?

A There was a brief moment where there's such dislocation across high quality corporate debt that had to take precedence of like, because you were pretty much guaranteed a multiple. You didn't know what your IR would be because you didn't know the time. But when you get past that, It's almost like, where aren't people seeing opportunities? And I guess maybe one answer is, it's not that they don't see opportunities, it's that they themselves have their own uncertainty. The analogy that We've often used in trying to describe it to ourselves, also to our managers as, hey, it's a buffet line, right? And you got a plate and you don't want to fill up your plate too early because often the lobsters at the end, they start out with a nice salad, bread and stuff, but make sure you leave room for the lobster at the end.

AI assessment note: “dislocation across high quality corporate debt that had to take precedence”

Q You mentioned earlier having a session with your team that sounded like it was about a new investment opportunity. How have you adjusted to adapting, not just to the assessment of opportunities within your current portfolio of managers, but maybe something that was in your pipeline or even something that may come that's new in this virtual world?

A Yeah. Partnership management, roster management, as I said, is job one. And we Have never, and can't imagine we ever would create a new relationship to seize upon an acute opportunity, because then what happens when that opportunity goes away? We want to partner with A-plus people, and we're going to try and make that work however we can in whatever environment we can, subject to some of the constraints of physics of You can't start a relationship. You can't give that money, right? So the decision meeting today was about something that was long in the pipeline, and we think it was a A plus group, and you know, so it came out positive, and that's where we're going to go. It is not uncommon, even within our roster, to have to do the math between IR and multiple In its various flavors, which is for relationships that can compound over a long time into something Really big, even if there's a lower nominal return to that, if you don't have that kind of reinvestment risk, you may want to choose that relationship over something that has more of a burst of high IRR, but you're not sure that you're going to be able to keep compounding with the manager, and we're still north of twenty five billion. I'm not sure how far north, because it changes moment to moment, but Certainly, we always need to be cognizant of the ability to deploy capital in appropriate sizes, which as you well know, we…

AI assessment note: “the decision meeting today was about something that was long in the pipeline”

Q So you could start at the market level. Will you then also do that within the cap buckets or style buckets or sectors?

A Back in the day when we had a ton of money in the first place in the US, that was a huge area that occupied this. About half, more than half the portfolio is in non-marketable investments, and you got already this underweight in the US, so you can only underweight so much. There probably are some opportunities there, but I think the more interesting thing is less about what we've been doing, and it's not because I'm trying to avoid talking about it, but more about what meta issues we're being reminded of, and there's this question, like, already on this brief interaction, we've spent a lot of air time on icing, which is natural, but one of the things you ask How was my day every day? Not my first wake up, but probably about eight times during the day. I'm thinking, is this really the right thing for me to be focusing on to a point where it's counterproductive. I keep asking myself, is this the right thing to be focused on? And the right thing is. Really engaging with our partners in the first instance with our investment partners, but also with our partners on campus. We're trying to work through the implications of what today looks like a slight loss for the fiscal year, but it has over the past several weeks, sometimes like more of a loss. How do we think about that? And again, those meta level questions get to be a bit more So, excuse me, more about epistemology. Like, how d…

AI assessment note: “the more interesting thing is less about what we've been doing”