The Exchanges

Q And how did you decide to leave Cambridge?

A I got into business school. I felt like it was a good next step. There, I think people, they decided to either do CFA or business school. The people that I saw who did business school, I think, had more of a general education and a little bit more of a polish in some ways that I really wanted, because I thought that I was going to return to consulting. And so that really spoke to me, and I joke that I wanted to take two years off, but in reality, there were parts of my business knowledge that there were clear gaps. I could look at a financial statement, but not necessarily rip it apart the way an accountant could. So I wanted to fill this in.

AI assessment note: “I got into business school. I felt like it was a good next step.”

Q And how do you go about the manager selection process?

A So we have kind of a process that we developed. I think a lot of it will sound familiar, and you'll probably smirk a little bit. It starts with the four P's, as everybody should. So people, process, philosophy, performance. But the thing is, is that three of those don't change very often, right? So ultimately, you typically see people making decisions based on performance then, which is exactly what you're not supposed to do. So we basically overlay opportunity sets. So how does the market look right now versus history, What do we expect going forward? And then also edge. So what's so special about this manager? What makes them the best one? Why should we put capital with them? I mean, as fiduciaries on behalf of a children's hospital, we, I mean, that's, this is a serious question and consideration and then role in the portfolio, which is highly analytical. And I, I mean, we spend a lot of time there now just really thinking through what's the value add of this manager to the portfolio.

AI assessment note: “It starts with the four P's... So we basically overlay opportunity sets.”

Q So let's twist on that and turn to private markets, and you had mentioned that you were kind of late comers into investing in private markets. How have you gone about thinking through where you want to make your investments?

A See, this is an interesting one because our institution's first private investment was made within the past 10 years. It's difficult when you look at some universities and they've been working with the same venture capital groups, these marquee names, for decades, and you're a new kid on the block. One of the biggest things that we've done is focusing on lower middle market managers, looking ahead and thinking, okay, well, where do we really think That there is still value to be had? Where do we think that people can still buy at good prices, create operational efficiencies, and then sell upstream? And, you know, the middle market has really been the place that we have seen. And it's so funny, too, because it's not just technology. I personally love the really boring companies. I'm like, aggregate the street sweepers. Like, go find the warehouse space. Because there's a lot of room for growth in technology, right, obviously. I mean, we're in early stages of even, like, SaaS, but I think there's still something to be said for just boring, buy it cheap, create some improvements, and then sell it to somebody with a little bit more money. That's actually worked very well for us.

AI assessment note: “One of the biggest things that we've done is focusing on lower middle market managers”

Q Well, why don't we start with your background and your path to your seat today?

A Oh, it's weird. I'm very non-traditional in that regard. So I started off at Fidelity as an options trader of all things. And it's really funny because the thing about doing options with retail clients is that it's your job to basically talk them out of options trades and to basically help them build hedging strategies or fulfill margin calls and stuff. So I went to Fidelity thinking I wanted to be a trader. In The cool thing. And thank goodness that didn't work out right, because I learned while at Fidelity that trading is just very different from what I envisioned it when I was in college. So I think that I hold a gold star, which I'm a millennial, so I like my gold stars, for being probably the only person who fell into a position at Cambridge. So I was thinking about taking the CFA, actually level one, was in a class with a friend, and she just so happened to work at Cambridge. They had this kind of sudden departure, and Two weeks later, I was hired, and then the next week, I was on an airplane to Boston. That was a very interesting experience, because I didn't even know what endowment management was at the time. I thought that the entirety of markets was, like, hedge funds and retail traders, which now, in hindsight, is so ridiculous. But from that, it's actually fun, because I started in September of 2008. So, literally, while sitting in training, watched markets melt dow…

AI assessment note: “So I started off at Fidelity as an options trader of all things.”

Q What teaching from your parents has most stayed with you?

A With my mom, really instilled a love for reading, and just a love for knowledge in me, but ultimately she taught me consistency. So my mom is actually technically my stepmom, but only mom I ever have known, and just this concept of, in our society, a lot of times we want to blame other people, or mom has taught me pretty much everything in life is a choice. Like, you can't necessarily control what is going on around you, but you can control your reaction, you can control who you love, you can control who you surround yourself with, you can control what you put in your mind, And, um, consistently doing that and showing up for people is really what's important in life. And then from my dad, I would say just the idea that if I'm the smartest person in the room, then I need to go find a new room. Really instilled in me this idea that you want to hire people that are smarter than you, and you want to seek out people who are smarter than you, and you want to seek out people who challenge you.

AI assessment note: “ultimately she taught me consistency... And then from my dad”

Q If you Sort of compare it to whatever standards of the Cambridge Associates average for endowments. What are the tweaks that you've done that are either catered specifically for institution or are just based on views that you have that are different from the averages?

A Being a hospital, one of the things that we kind of go through in the enterprise review is we issue debt for capital projects, so, you know, that's actually really important because these assets back up in a lot of instances the debt issuance, and so we typically have more fixed income. We're also kind of new to the endowment scene, so we typically tend to be a little more conservative. We don't need to be Yale, so we target a beta of about .6, and from there build a portfolio around it. So, I mean, it's difficult, right, because 20% target to fixed income is all of that pure deflation hedging. It's not, I can tell you, because it would be nearly impossible to build a portfolio like that without destroying capital long term. Just have to be thoughtful of that, and so having kind of a broad mandate within there, but making sure that we're still true to the deflation hedging part.

AI assessment note: “we typically have more fixed income... we target a beta of about .6”

Q Yeah, how have you gone about that filtering and research process?

A Working with a consultant has helped. So obviously that's been a wonderful pipeline. We have an amazing committee that has also been a phenomenal pipeline. My boss, my former boss, before he left, met with 800 to a thousand managers a year by himself, and then I met with another three or 400, so really it's just covering the market. It's letting people know what our mission is, letting people know what we're trying to do, and, and honestly a lot of them have reached out to us because the mission speaks to them, which I love. I do not want to ever commit another dollar to somebody who doesn't understand just how important this mission is, and I think that a lot of allocators are starting to realize that. I know that private equity funds are constrained, obviously, and a lot of them are hitting their caps, but I just don't want to allocate to anybody who doesn't want to be a great partner.

AI assessment note: “Working with a consultant has helped. So obviously that's been a wonderful pipeline.”

Q Yeah. So you use the evil E word edge, which comes up all the time. How do you try to figure out what constitutes called a competitive advantage for a manager?

A I've asked thousands of managers at this point in different ways. I try not to use edge, right? Cause I know it's kind of the groan inducing question, but a lot of people say, oh, it's our team or, oh, it's our culture, which those things are really important, but typically your edge is informational or at least the ones that really stand out. So either you have access to better information or you do something better with that information. For example, One that I I've noticed recently is, you know, a lot of us on this side have been looking at China and those of us who are just now looking at China obviously are very late, right? Because everybody else piled in a couple of years ago. But if you look at Europe, actually, I would argue that there's more alpha there because there's more regulation. There's less transparency. It's very difficult because a lot of times it helps to be part of the culture and to speak the language. And if you could build a team executing a strategy, On the ground, with these kind of specialized networks that can get stuff done, it's really powerful. It is an alpha machine, but it's hard to find them, right? And everybody on the whole just says, oh, you know, China's cooler.

AI assessment note: “typically your edge is informational or at least the ones that really stand out.”

Q Let's circle back a little bit on the portfolio management process, because you had mentioned how that really is the key in what you're doing. Manager selection matters. As you go into the year, how do you think about What are the key things that you need to rethink in your portfolio construction?

A Really, since the middle of last year, so since the middle of 2019, my thought has been to challenge both myself, the team, and challenge the stuff that we've assumed, challenge these assumptions that we all hold, either together or individually, and ask ourselves if it's still working for the institution. So is our strategic target where it needs to be? Do we have enough liquidity? How robust is our analysis? So to look at, for example, scenario testing and to test asset allocations, I think that that's so interesting that a lot of people on our side forget that modern portfolio theory drastically underestimates risk because it's a normal distribution. In reality, we know that that is not a true thing. Because when you look at all of the kind of output, it says, oh, you know, the hundred year flood is going to be down 20%. And I'm like, okay, well, there have been multiple times in the past hundred years where we have hit that. So being really, really intellectually honest about what we're doing and why we're doing it, and then to tie that back again to the strategy and to the philosophy and then ultimately to the enterprise. So, you know, when we look at it, Part of that is having to talk to people within our institution. What will the needs be? What are you guys looking at? We're actually expanding our Plano campus in the next few years, so basically, I think more than doubl…

AI assessment note: “is our strategic target where it needs to be? Do we have enough liquidity?”

Q So as you're in these diligence processes, right, everybody tries to do something a little bit different from other people. What do you do differently, maybe in your day to day, from What you think other people do?

A A lot of people assume that I'm meeting with managers all day, and a lot of that happens. I have days where I meet with managers, but in reality, I also don't check my email much because so much of what I do is thought capital, and it's thinking through things. It's talking to my team. It's talking to people that I respect. It's talking to board members. It's talking to executives within my institution and figuring out what they need. It's not Finding the 10th long, short equity manager to stick in the portfolio. And beyond that, it wouldn't be a good use of my time. So I get all of these emails. I think a lot of people, this is kind of an issue with sitting on our side, is that I have 2200 emails in my inbox. I have to have people on a VIP list, so it pops up to the top, Ted's on that VIP list. But the reality is, is it's not to be a jerk, and I don't mean to not respond, but if I Sat down and went through every email and responded, even with a few words, and that would be a terrible use of my time. So I prefer, again, to focus on the strategy component and to really think about how the portfolio is constructed, because as we know, what, 60, 70% of our returns is driven by asset allocation. And then, I'm not saying that manager selection has to be good enough. I mean, obviously we want to work with the best people, but ultimately it's not My number one focus.

AI assessment note: “I prefer, again, to focus on the strategy component and to really think”

Q So we take that, which is, you know, an unambiguous good and say, okay, what's the strategy?

A So, strategy is a funny thing. We obviously have the endowment model, right? And within that, everyone thinks that the endowment model is privates, alternatives. In reality, it's making the best use of your capital, putting your, like, where is your marginal dollar best used? Is it in illiquid assets at this point? Is it in public equities? Newsflash, you'll probably guess wrong, as we've learned. But ultimately, understanding the goals of the institution and making sure that your portfolio reflects that. So, for example, It's hard to generalize institutions because so many people talk about the endowment model and forget that it really isn't for everybody. There are a lot of institutions that outsourcing it or indexing it is actually a really great option. It's for a specific kind of institution. It's for institutions that are trying to basically make a distribution, a substantial distribution at that, that supports operations. And so the strategy is to follow the endowment model.

AI assessment note: “And so the strategy is to follow the endowment model.”

Q And how does that work for you at Children's?

A Our mission is simple and our mission is amazing. It's to make life better for kids. That is the purpose of our fund. Our distributions basically cover all sorts of programs for the kids. There's a payout to our research institute. It's incredible to get to work on behalf of this mission and to be truly a tiny part of it. And we actually look at all of our partners as allies in our mission. We were involved in the CART T clinical a couple of years back for pediatric leukemia, and in this kind of nationwide CART T clinical, 83% of the kids who had recurring leukemia went into remission. And so before, I mean, fewer than 50% lived a couple of years beyond, and now 83%. And so it's like, when you think about that, I know I get chills when I talk about it. I never verbalize it quite right to make it sound as impactful as it really is, but like, those are people's kids. It's like future leaders of America. That's incredible. And so to be a small part of that and to be able to see and to hear just the great stuff that's going on with our nurses and our doctors and our volunteers is just huge deal. I mean, it's a huge honor.

AI assessment note: “Our distributions basically cover all sorts of programs for the kids.”

Q How do you integrate data into your process?

A It's difficult. When you're talking about investing across the liquidity spectrum, it's like I get everything from daily reporting to quarterly-ish reporting, and then everything in between, and I get some risk reports that are really thoughtful, and you can trust them, and then you get others that you hear are like, oh, that's actually not a thing. It's one of my goals in twenty-twenty is to think about how our team can leverage all this data. Maybe trying to filter out some of the noise, but trying to figure out what Where we've made good decisions, where we've made bad decisions, and start to be, you know, really, again, intellectually honest about what are the drivers of our returns. Because at this point, there aren't many endowments that can do that. I'm sure universities can, but everybody else, it's difficult to get those analytics, even working with a lot of great groups like we do.

AI assessment note: “It's one of my goals in twenty-twenty is to think about how our team can leverage”

Q And is the manager selection piece of it similar to the kind of work you'll do and to other private assets?

A It's funny you ask that because you would think that there's only so much of an informational advantage. There's only so much acreage and you can't have multiple teams doing the same thing and just kind of move them to New Mexico necessarily. And now we hear that some groups that have build big acreage positions are saying, oh, we're going to have to operate. And that's a very different conversation to have with your GP. And it's interesting though, because I think that it has Led to some good things. I mean, there have been a couple of big energy groups that are now doing clean tech funds, which is a thing that I never thought that I would see. At first, I was very skeptical and thought, okay, it was like, again, more greenwashing. But they're actually building some pretty solid teams there. And so then you have to look at it and say, okay, well, instead of just being oil and gas, they're across the energy spectrum, and it starts to become interesting.

AI assessment note: “a couple of big energy groups that are now doing clean tech funds”