The Exchanges

Q Well, let's turn and focus on kind of the investment side of it. So you had a model or a structure in your mind from working at Yale, and now you're going to a much smaller pool of capital. What did you take? What did you leave behind?

A So I think the core tenets of being equity-oriented and diversified are sort of universal, and you really want to adopt those, so that was clear. I mean, we have a very high hurdle as well. We think we have to make seven and a half or eight percent nominal over long periods of time, and you can't really do that unless you're equity-oriented, so those sort of things seemed obvious. We didn't have some of the same flexibility In our capital structure that Yale does. And what I mean by that is we had about two hundred million dollars of debt outstanding at the university when I came on a five hundred million dollar endowment pool. So we knew we could not generate liquidity by going back out to the capital market. So we had to generate all our liquidity internally. That means translated that we could never be as illiquid as Yale. So that was something we did a lot of modeling around to try to figure out what was a liquidity risk we could really take.

AI assessment note: “core tenets of being equity-oriented and diversified are sort of universal, and you really want to adopt those”

Q And how did you decide, or when did you decide that it was time to kind of step into a CIO role?

A Yeah, I would say I wasn't looking. I was perfectly happy there. The story of Wesleyan is one that goes back to 1929 for my family. The call didn't even come from a headhunter, came from my uncle who attended in 1961 and had been on the board. He was emeritus at the time, but he called and said, look, we're going to open up this search. Would you have any interest? I really hope you would consider it. And so my great uncle attended in 29. My uncle was 61. My sister was 88. My brother was 82. I had cousins that were 88 and 90, and my niece just graduated in 17. So I've had almost a hundred years of history with this school. I knew at the time it was super small. It was five hundred million. There were certainly a lot of reasons not to do it. But there were a lot of reasons to do it, too. Number one, I really cared. I'd grown up singing these Wesleyan fight songs, and so even though I didn't go there, I always loved the school. In fact, I probably would have gone there, but my brother was only 15 months older than me, and he was already there, and at the time I was looking at colleges, there was no campus on earth that could hold the both of us. And now we're best friends, of course, but, so anyway, it was very appealing from a psychic reward standpoint. It needed help. It was clearly under-managed for a long time, and, and I believed in the mission of the school. There was a new…

AI assessment note: “I would say I wasn't looking... The call didn't even come from a headhunter”

Q And that was now 10 years ago, I guess, just about. What did you find when you showed up?

A Well, it's hard to know even where to start. I would just say it was very much a startup kind of opportunity. You name it, we had to work on it. There was one person there with some institutional memory. There were a lot of Excel spreadsheets with our historical performance, none of which I was certain didn't have fat finger errors in them. And there was a portfolio with 26 managers in it. And there was an investment policy statement that had been written, I think, in 1982 and was completely like we weren't an adherence To it. And there was a spending policy that had been written in like, 1961 that we weren't in adherence to either. So there was a lot of work to do. So we ended up having to do all those things, figure out the back office system, put a new policy portfolio together. We had to review the entire portfolio, decide, I mean, everything sort of went into a red, yellow, green bucket and hire people. It was just, it was a lot of work. But really exciting.

AI assessment note: “There was one person there with some institutional memory. There were a lot of Excel”

Q Yeah. And how do you think about that as, that means it leads you to more kind of down the middle strategies?

A Yeah, it does, for sure. But on the other hand, we're less prone to making mistakes, which are super costly. You know, it's the old, that's the best way to make money, don't lose money. I think the more, if we look at 700 venture firms, we're pretty sure they might, won't all work out, but we're pretty sure we know who, like, the top 20 are that we want to be with. I don't know that we can do that with litigation firms. I don't really know. We're always afraid of the risks that we can't perceive. So the more experience that you have in an area, the better from that standpoint, although the reason we probably have experience in it is because we're doing it a lot, and everybody else is doing a lot, and the returns may be driven down. But I would rather have a high confidence, 12% return than a really not high confidence, 16% return or 17% return.

AI assessment note: “Yeah, it does, for sure. But on the other hand, we're less prone”

Q And so how did you manage your time when you were there, when so many people want to meet with you?

A Tim Sullivan used to say this thing, which has really stuck with me, and I repeat it often, which is, you don't have to do every good deal. Just every deal that you do has to be good. And so you have to be not afraid to miss something good. So you're really playing the odds here. You want to have a very high hit record, and it's okay if you let one go by. It's okay when you filter to say, okay, I'm going to have these first principles of this has outside ownership in the GP. Forget it. Or there's been a lot of turnover in this firm. It's going to be too hard to underwrite. There's that kind of filtering that can go on up front where you can just eliminate a lot of things.

AI assessment note: “filtering that can go on up front where you can just eliminate a lot of things.”

Q Are there any other kind of big principles that stuck with you?

A Well, independence is obviously a huge one. The economics accruing to the investment professionals that are hard at work every day is a huge one. The, the focus on returns for our managers rather than on asset gathering, having an appropriate size for the opportunity set, those are, those are really first principles. I would say something over time that maybe isn't quite as obvious is that everybody, I think, eventually gets to And something I really underscored at Yale over and over again is the quality of the people that you're investing behind. If you don't want to go to dinner with them, I often tell my group this now, if you don't want to go to dinner with them, let's not invest with them. Because you're not really investing for the good times, you're investing for the really terrible times when you're going to have to be in the trenches together. And so how are these people going to treat you then? How honest are they going to be with you? How much of a frank conversation can you have? And if the chemistry is not right, Then you're never going to be able to have those conversations, so it just makes sense to sort of move on.

AI assessment note: “Well, independence is obviously a huge one. The economics accruing to the investment professionals”

Q When you're looking at, let's say venture capital in particular, You start your portfolio with relationships that you're pretty comfortable, you've got the right ones, maybe you're accessing capacity, and then over time you look in newer managers. What's that process like in trying to underwrite a smaller venture capital fund or something that isn't known by the community to be oversubscribed?

A Yeah, I think it's really hard. Again, here's a place where we've done some experimenting and tried to figure out how good can we be at identifying those emerging managers in venture. And one of the issues that you have there, there's two things that we've really wrestled with. One is there's a lot of them. If you look at my inbox, inboxes often go through these phases where you'll see, I remember there was a time when I was at, at Yale, and I would get like 10 Funds that were in agricultural businesses every day. I was like, I didn't even know there were this many funds doing this, but the theme du jour is definitely the small under hundred million dollar venture fund, and there's just so many of them. It's, they could be great, but we only are five people, and we have to manage the entire portfolio, and so sifting through that to try to find the gem is really, really hard. I think the other thing that's very hard is, because venture has such a long feedback loop, That you're going to be on the third fund before you really even know, and that gets back to, like, how are you going to size if you do decide to do some emerging manager? How do you size it so that you're not, when you're three funds deep, you haven't committed one percent of the endowment to this manager who's unproven? So you really have to think about sizing if you're going to do it. So I'd say it's not impossibl…

AI assessment note: “sifting through that to try to find the gem is really, really hard”

Q As you think of your portfolio as a whole, and now that it's settled in after 10 years, There's a lot of people are always kind of looking for the next thing, whether it's analyzing based on risk factors these days, or a new asset class, or how have you thought about balancing kind of going deeper into what you have with broader into what the next thing is?

A Yeah, I think it's really easy to get mesmerized by the next shiny object, and I think we try our best to resist that. One of the ways we do that is we don't go to any conferences. Another way we do that is we don't meet with any firms that are trying to sell us, you know, factor risk or smart beta or any of those things, and maybe those things are great, but we still ultimately believe this is about fundamentals and fundamental investing, and so understanding a Understanding the company, understanding the management team, understanding the capital allocation decisions, understanding the industry structure, the competitive factors, all that stuff matters a ton. I don't know how to get conviction in something that's, that's machine based. Uh, so we've really resisted the shiny object thing.

AI assessment note: “we still ultimately believe this is about fundamentals and fundamental investing”

Q Manager selection punches. And why do you think there's two areas out of eight, or whatever it is, that you had sort of weaker results than in the others?

A Emerging is just hard, right? Because it's hard to find great managers in emerging markets. The return on time is so terrible. We've been going to China for years and years. We've been going to India. There was a period of time, four years or five years, we went to Brazil a ton, and we ended up with no managers there. So it's just been a slog. You know, I think that today we're seeing the quality of the manager In China, for example, we're seeing some really interesting managers, but if you go back eight years ago, I think they were fewer and farther between, and we settled a couple times to get the exposure and to get some learning under our belt, and, you know, in retrospect, those didn't work out. I mean, it didn't obviously kill our returns, and maybe you have to take some punches to figure it out.

AI assessment note: “Emerging is just hard, right? Because it's hard to find great managers”

Q How do you think about your own competitive advantage or edge relative to people that are in some sense competing against you?

A Yeah, it's funny. We had an offsite last year and we talked about this very question. What is our edge? And everybody had a slightly different answer. It was really interesting. First thing is we have As you know, endowments and foundations are super special because we have the longest time horizon of any investor, so we can be super patient. So that's just an edge for our class of investor. I think for us in particular, our people, I think We try to cultivate a lot of intellectual curiosity in the office. We try to, when we meet with managers, we're really trying to hard to have a dialogue. We like to be prepared. We kind of feel like if we leave a meeting and they didn't think, oh, gosh, I, she really made me think about that harder. Or, oh, that's a new perspective, or I, oh, I really learned something about how somebody else is doing stuff. If we don't add something in the meeting, We kind of feel like we failed. So I think our competitive edge is maybe everybody does this, but I really do think we're very intellectually engaged on the subjects our managers care about. And then Wesleyan. I mean, I think Wesleyan's an amazing school. And part of my job is to sell managers on why you want to help Wesleyan. And it's an incredible place. It's been around since 1831. We have amazing alums that come out of it. We have interns in our office every summer. I see these people. They'r…

AI assessment note: “So I think our competitive edge is maybe everybody does this, but I really do”

Q So when you joined Yale, you dove in on the private equity side?

A Originally, I came in as a consultant, and only because when we moved to the East Coast for John's job, I took about 18 months off. I had twin boys at that point. They were seven years old, and I was trying to get them situated in school. There was just a lot of change. We had moved to Princeton for one year while John coached his team. We moved back to San Francisco. We moved to New Haven, and so that was the right thing to do. I signed them up for Little League. They got assigned to a team, and the coach was David Swenson. So that's how we met. And so my kids played baseball. David and I got to be friends. When I decided I was going to go back to work, I just started talking to him about what's available in Connecticut. What should I think about? And he said, why don't you come in and, and work here? I said, I don't know if it's a fit. He didn't know whether it was a fit. As you probably know, it's very unusual for Yale to hire somebody laterally. And I didn't know anything about what they did, honestly. And that was probably one of the things David liked about me. I didn't come in with preconceived notions. So I started as a consultant, and after several months, they offered me a full-time job. I started actually in natural resources. I did a lot of discovery work in the world of mining to see if there was something interesting to do in mining, and I managed the oil and gas …

AI assessment note: “I started actually in natural resources. I did a lot of discovery work”

Q And where did you come out on that, on the policy portfolio?

A So when I started, it was about 35% we set as a ceiling, and now it's up to 42%. But we've had to do that gradually over time, and at a billion, we've got more room to do that. So that was one of the things that was really different about the portfolio. The other thing that Yale does extremely well is find really talented people and put them in business. And I quickly realized, like, that's not going to be the model for us. We are not price negotiators. I spent a lot of time at Yale Working on LPAs and negotiating terms, we were going to be a price taker. So it was sort of a take it or leave it decision when we found managers we liked rather than, I mean, and yes, we like to say we punch above our weight or people want to hear our opinion, but the reality is that the, the larger investors are setting the terms. So that was one big difference. And then over time, I think what we've had to think about is how early can we be with managers? You know, do we want to be a day one investor? Do we want to be a day two investor? You know, We have a different risk profile. We have a different set of resources that we're six people, so there's only so much we can do, and our capital, because we're so underfunded, we have 3000 students at Wesleyan, and when I came, it was a five hundred million dollar endowment for 3000 students. Now it's a 1,000,000,001 for 3000 students, but our size, we'…

AI assessment note: “when I started, it was about 35% we set as a ceiling, and now”

Q What was that like back in your crew days?

A So I think certain people just are born with a certain energy level. Nobody told me I had to become a rower, but when I was eight years old, I joined a local swimming club and I loved it. And I was one of those kids that couldn't be happier except swimming, you know, back and forth over a black line in the pool for hours. So somehow I just always had that, that gene, I guess. And when I got to college, I actually swam my freshman year, and my event was a 400 IM, which is the most painful event on the planet, and I actually did pretty well. I qualified for the division three championships, and I told the coach I'm not going, and he said, you're not going to the national championships. I said, to you, it's a national championships. For me, it's just a 400 IM, another painful event, so I ended up going skiing with my family instead, so I was burned out in swimming, as so many swimmers get. By the time I was 18, I was just ready to call it a day, and One of my roommates on my hallway was a rower, said, you ought to come out and see the sport, and I went to Smith. We had this beautiful little pond called Paradise Pond. I met the coach. He said, go down to the pond and just do the recreational, weary rowing of a big, very stable boat around this tiny little pond, and I instantly fell in love with it. It was the middle of the spring. The crew was already in session, but somehow, and t…

AI assessment note: “I met the coach. He said, go down to the pond and just do the recreational”

Q And what did you find when you first got to Yale? There's a group of people that have been terrific at what they've done, but they haven't had that similar type of experience before going. So were there situations where you found even within Yale's portfolio that you wondered about, say, the partnership dynamic or the quality of the companies that the people were investing in?

A I wish I could say yes, but I can't even remember that far back. That was like, 15 years ago now. I'm sure I, my perspective was additive, but I mean, the Yale people are obviously so well-versed in what they're doing. I do think the perspective of having lived in Silicon Valley, having worked with these companies, having seen the distortions that can be created along the way, was helpful in sorting through Stuff that comes over the transom or interpreting if a manager is in your, your conference room and you're saying, tell me about these five deals and, you know, to ask, were you the lead? Were you the lead? Were you the lead? No, no, no. And you start to realize, okay, this manager has fallen from a place where they were setting the terms and that they were going to be the first phone call from the entrepreneur to tagging along with other people. Do we really want to invest with this firm? So I'd say there were a few things, but it's hard to remember that.

AI assessment note: “I do think the perspective of having lived in Silicon Valley... was helpful”