The Exchanges

Q I've got a couple of closing questions. We can wrap and then go to dinner, where the real conversation starts. All right, we'll go around. The first question is, what type of investment do you gravitate to like a moth to the flame?

A This is so generic. I like scrappy managers who are in this space because they've been in the business forever, and they have a skill set that no one really pays attention to, and they're willing to stay at a size that enables them to execute on those little things. That's what we really love to look for, and a lot of our opportunities fit that dynamic, whether it's within the hedge fund space or even in real estate or private equity. Private credit. There's a lot of that. We're not doing the cashflow lending. There's a lot of these scrappy, amazing people who've been in the industry forever, and they're just okay being smaller and executing on this real hard work.

AI assessment note: “I like scrappy managers who are in this space”

Q I asked you if there's anything else. No, I said all along, like, this isn't an interview. Finally, I don't have to ask all the questions. Um, so I'm asking everyone I can answer to, which two people have had the biggest impact on your professional life? And we're going to start with Casey.

A Well, David Swenson, obviously, and what a super sad year, um, with everything else going on, both, and actually I didn't say professionally and personally, um, Just, I was talking to someone about having your parents know you as an adult, but they know you in a different way, and so having someone who's been with you since senior year of college, your whole adult life, and losing that's been really hard. I've been really lucky to have mentors, like, across My career, who've been really, you know, instrumental, like Carol Einiger at Rockefeller, she was one of the first female partners on Wall Street, and being able to work with her and get confidence from her, and kind of the approach at Rockefeller was, was similar but different enough that it was kind of great training, so I've just been, I think, really lucky to have great mentors throughout my career.

AI assessment note: “Well, David Swenson, obviously... like Carol Einiger at Rockefeller”

Q Everyone generally is quiet these days about public equities. So all this talk about privates. What are you thinking about active versus passive?

A On the U.S. equity side, we've taken a more conservative approach that we just want to be in like larger cap stocks now, even though that was where you should have been, but more just because it's such an uncertain world and there's all these paths that we could be taking. I just would rather be there and still actually active managers today because we always say being passive, you're still active. You're actively choosing because it's so concentrated to own those securities. I think in the non-U.S. markets, we continue to find compelling Value from being active in more concentrated positions. The only big shift in our world is really the rise of ETFs, which we're happy when our managers decide they want to do an ETF because they're fantastic vehicles for taxable clients. That's been a huge area that's actually helping us. So we'll have the exact same manager we had before, but because they're in an ETF, it's helpful to the clients from that perspective.

AI assessment note: “I just would rather be there and still actually active managers today”

Q Everyone generally is quiet these days about public equities. So all this talk about privates. What are you thinking about active versus passive?

A On the U.S. equity side, we've taken a more conservative approach that we just want to be in like larger cap stocks now, even though that was where you should have been, but more just because it's such an uncertain world and there's all these paths that we could be taking. I just would rather be there and still actually active managers today because we always say being passive, you're still active. You're actively choosing because it's so concentrated to own those securities. I think in the non-U.S. markets, we continue to find compelling Value from being active in more concentrated positions. The only big shift in our world is really the rise of ETFs, which we're happy when our managers decide they want to do an ETF because they're fantastic vehicles for taxable clients. That's been a huge area that's actually helping us. So we'll have the exact same manager we had before, but because they're in an ETF, it's helpful to the clients from that perspective.

AI assessment note: “I just would rather be there and still actually active managers today”

Q hey, the things I understand are asset management businesses. Let me just own that stuff. So something like Blue Owl, which is Owl Rock and Dial, You know the people, you know they're going to grow, which is good if you're the GP, you can own the stock, but also the underlying assets are these great cash flowing machines. So that's the stuff I love. How about big blind spots?

A I was thinking about this because we've been doing this for so long, 25 years. Part of our competitive edge for a lot of us is our pattern recognition. This year's interesting in pattern recognition. When things go down and they keep going down, our instincts, because we're all a little contrarian, we should be buyers. We just had this debate on the investment team in the public portfolio. I don't know, though. Growth is down a lot, but some of these companies could go down even more. A lot of those things that you instinctually grew up on and then created pattern recognition around, you just got to be careful that you're creating a framework and discipline that still works. And we still believe in a lot of that stuff, but you're not getting caught up in some of your hardwired patterns, not actually focusing and re-underwriting the portfolio at that moment in time to say the incremental dollar might go to value with a specific manager and not to rebalance growth because we don't know where that's going to shake out.

AI assessment note: “you're not getting caught up in some of your hardwired patterns”

Q This quality stock idea, which we're all just going to nod our heads now and say, yeah, we want to own quality stocks for the long term, is no different to me than small cap in value, 20, 25 years ago. Look at the academic research, you want to be small cap in value. What do you guys think about quantitatively defined value stocks as a style today?

A We all grew up as value people, right? And then I think slowly over the last few years, we've been making sure that we're just not unintentionally a hundred percent value. And so we've actually balanced, I think without having to, um, lower our standards on manager selection, we've tried to balance out actually our portfolios and the public equity side between value and growth. And there's definitely negative business quality selection bias and value. So to Brett's earlier point, you might want to own cyclical sometime, but it doesn't marry with our five to 10 year hold on other things. So you need not only to find managers that can be in this space, but be very aware of the risks that you're taking and the timing and the valuations that you're taking it. And then we used to do this back Teddy when we worked together, but you play off the volatility of the managers and the opportunity set within it. I don't need every manager kicking it at every time. I just need the portfolio at the U S equity level or the international equity level to be working. And so I think if you can have a balanced portfolio and then you have to be more alert around valuations and Not market timing, but really valuation discipline around what you're doing. And you might be early and a little late, but that's going to protect you from getting completely whipsawed by these factor risks. Some of the manage…

AI assessment note: “there's definitely negative business quality selection bias and value”

Q point, if people are paying full fees, it hasn't been worth it, except for the pods, which seem to continue to deliver and sucking up all the portfolio managers. Do you look for the guy who was washed out, Meredith, like that used to short but doesn't? Rates come back up, the box looks a little better. Today, everyone's invested in the large funds and they seem to be delivering.

A There's like huge dispersion in long short. That comment that it hasn't worked, I don't think that that's true for everybody. A lot of these funds that have just gotten so big, that to Meredith's point, you cannot short the way that you used to as your size goes up on the long side. And especially if you're then levered long on the long side, which a lot of these guys did, it's even harder to do the shorting and the number of ideas and the size. You have to move up market everything. The whole mousetrap is you get bigger and bigger and bigger unravels. So I think it's about finding new talent, honestly, this constant iteration. It's not moving out of your lane, but it's this idea of self-improvement and constantly trying to better yourself and understand what you're doing. I always use Nikolai Tangent at AKO, the epitome of this. I think just this constant stay in your lane, but want to be improving, improving, improving versus before you could pick your portfolio and sit for a while and it worked, but that doesn't work anymore.

AI assessment note: “So I think it's about finding new talent, honestly, this constant iteration.”

Q I was curious about this like concept that it's really important to dip your toe in the water, be involved, like we have a little bit. How do you take it from there to more or not more?

A I think the dipping your toe, we learned this in our early days at Yale, is that When you dip your toe in, when you're invested in something, you just learn more. You pay more attention. You live it and breathe it, right? The ups and the downs. And so for me, and I think by being invested in it, you then get greater conviction if there is a big dislocation to go in big, if that's the right thing to do at the time, or just stay away from it based on your experience. So I think you learn a lot more. You learn a lot more when you're in, and I think that's the benefit of dipping your toes on the margin. And it's one of the benefits, I think, for all of us being multi-asset class Investors is we can dip our toes in without destroying portfolio value. If it doesn't work out, you have to take risk. And that's part of taking risk is thoughtfully doing that. And I think by dipping your toe in, you're able to do it in a thoughtful way and then learn more going forward.

AI assessment note: “you then get greater conviction if there is a big dislocation to go in big”

Q That's only going to get you so far, right? You could look at it and like, it's easy to say like blockchain is important. Cryptocurrency, who knows? Commodity-like. But it's just a whole different world.

A I think it's been interesting to watch the VC community. There were the ones who adapted it early, right? And then there's ones who are now slowly adapting it. So I think it's been interesting. We always get our best research from our managers, right, across. That's the whole point. We want independent research. We want it from people that we think are critical, independent thinkers that can be intellectually honest. So I think it's been interesting to watch VC Who were not in it originally, who are slowly like dipping their toes into things and getting their thought on it, as well as people who were all in. I mean, you want to see all sides of the equation and then look through the research and what it says and how independent it is and what it looks like. So I think that's been for us the most interesting is just from our managers.

AI assessment note: “We always get our best research from our managers, right, across.”

Q government is a partner that you don't want. But it's sort of like, how do you decide when to take that risk? It's a wild risk reward, and that you know it is. What was stunning to me was eight out of the 10 people, I'm making up those numbers, but roughly eight out of the 10 people I ran it by wouldn't even look. All right, so what's interesting?

A We love longshore equity, and we've loved it for like a while, and We decided probably five years ago to start migrating the whole portfolio with the exception of maybe one manager to non U S just with this idea again, that people kind of looked at us a little weird, but we said just inefficiency, where is it less efficient? And then the fact that the talent was there. So in Europe and Asia, you now have enough of a bench of talent with still, we would argue inefficient markets. And so we always think even managers like in Europe, we make a ton, we do really well in Europe long short. Like, it's just a great market if you have great managers. And what we found after oh eight too, is with managers, I felt like a huge amount of the U S managers who had been very successful, just kind of put their head in the sand and said, we're long, short, we're fundamental. That's what we do. We're just going to like stick with it. And what we found is the managers that are more willing to stay in their lane, but kind of be focused on self-improvement, I guess, for lack of a better word, and almost iterate, um, The way that they approach things, whether it's through more data, more factor analysis, whatever it is, a lot of its data, but still stay in their lane. But this concept of like self-improvement, we found that that really differentiates very simplistically, like another qualitative thi…

AI assessment note: “We love longshore equity, and we've loved it for like a while”