The Exchanges

Q mentioned earlier that you had A terrific group of venture capital managers from when you showed up. It's still a small percentage of your portfolio, both on an absolute basis and relative to some of your endowment foundation peers. I'm curious how you've thought about, you know, clearly an asset class that's done extraordinarily well with the managers you've had, whether or not you'd grow it, and if so, how?

A So our target allocation is six percent. Our current allocation is like Three times that. We haven't done anything differently. We have the same managers, and we commit the same amount of capital when a fund is raised. So we have terrific managers, and we look forward to them taking advantage of the IPO market, and doing direct listings, and returning capital to us. That's not a secret. Anyway, so between that and the private equity, it's 20 some odd percent of the portfolio. The allocation to venture and private equity haven't changed since I started with the college, and it really goes back to this need for liquidity because we support so much of the operating budget. So we spend a lot of time looking at liquidity and unfunded commitments and how we compare to peer institutions and how much they have in unfunded commitments and, and illiquid investments. So we are slightly less than the schools that have the best tenure returns. But not very different, and we haven't really moved off of those targets because we have to be careful about our liquidity, and, and we look at our unfunded commitment level moving around and what that means, and, you know, we didn't get upside down in the last financial crisis and have to borrow because we couldn't get money in our portfolio, and, and that's just really important to Williams. The endowment is here to support the college. The endowmen…

AI assessment note: “haven't really moved off of those targets because we have to be careful about our liquidity”

Q Yeah. So, what did it look like when you arrived?

A It was like the phone and the cube again. There was like nothing, and so part of the plan was to set the office up in Boston, but there was nothing, so I had to go work in Williamstown for the first six months, which was great, except that I had to leave my family every Monday morning and come back on Thursday night, but Williamstown's amazing, and the portfolio was incredible because the way that the college invested the money is they had Committees of alumni volunteers all in the investment business. There are a lot of Williams people in the investment business, and they got Williams into funds that they liked, and so it started off with Joe Rice at CDNR and a couple other people of his era, and they would sit around at the old Williams Club in New York and decide what to invest in. So they started off in stocks and bonds, and then one of the guys up here in Boston, Alan Fulkerson, who Knew something about venture. Said, you know, let's, let's try a little venture. And, and so we did a little venture. And so this was like, I don't know, in the seventies or something. So we ended up with this incredible venture and private equity portfolio. Joe Rice's good friend was John Canning. So we were in like the earliest CDNR and Madison Dearborn funds. And that was true, like across the board in every asset class, just like something special. Because of those incredible alumni volunte…

AI assessment note: “It was like the phone and the cube again. There was like nothing”

Q What was the impetus for moving then onto Lucent?

A I'm from the Bay Area, and we had two little girls, and I was desperate to live closer to my parents to have more help, you know, both of us working full-time and two little girls, so I started looking for something in San Francisco, and there was a guy at Goldman back in the day named Tom Healy who ran something called the Pension Services Group, and he covered pension funds very effectively, and he invited me to lunch one day, and he said, oh, I, I know you're looking for something. I have the perfect job for you. There's this company that's spinning out of AT&T called Lucent, and I'm like, where is it? And he said, it's in New Jersey. Tom, New Jersey is not San Francisco. And so he kind of reeled me in. Goldman had done the IPO when Lucent spun out of AT&T, and he was very close to the treasurer, and it was just an amazing opportunity. Despite not being in the Bay Area, they had seventy five billion dollars in AUM, and it was like the last piece of the spin-out from AT&T, and the treasurer was a forty-year-old woman, so in the AT&T world, that's unheard of, and she was amazing, and she convinced me to take this job, and like, literally nobody knew anything about what I was doing, and they're like, here's a phone and a cube, and seventy five billion dollars, go at it. It just felt like the opportunity of a lifetime, and how could I pass it up?

AI assessment note: “It just felt like the opportunity of a lifetime, and how could I pass it up?”

Q How impactful could that have been in size, you know, relative to seventy-five billion dollars of assets?

A Well, part of the seventy-five billion was the defined contribution plan, which we invested in the separately managed accounts of the Defined benefit plan. So of the defined benefit plan was probably fifty billion, but, and I don't remember the numbers because it's been a long time, but it was, there was a lot of venture and private equity. The returns on the portfolio had been very good, so I started there in 1998. We're getting a lot of distributions off of our venture portfolio. I used to make the joke that Lucent was really a pension fund with a little bit of technology on the side, Which is what drove the earnings of the company for that whole time, but nobody thought that joke was funny except for me, but it was actually pretty close to the truth.

AI assessment note: “Which is what drove the earnings of the company for that whole time”

Q wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. What are your conversations like with the kind of longstanding managers in your portfolio on a routine basis? What are you trying to dig into to learn about?

A Well, if you ask my team, they would answer that one way. If you ask me, I would answer it in a different way. So I've done one manager meeting during COVID. I was in San Francisco a couple weeks ago, and I met with one of our managers out there. And we spent more time talking about everything but the portfolio. And this manager, they're fabulous investors. They're not crushing it right now. But I didn't really want to go talk to him, like, can we go position by position? Can you tell me why this isn't working and why this is working? And we talked about a lot of stuff. We talked about the election and COVID and their lives and what's been going on, and I feel like I walked away from that knowing a lot more about how they're thinking about things without having talked about the positions.

AI assessment note: “we spent more time talking about everything but the portfolio”

Q 16. Was that a recent phenomenon in the last couple of years with extraordinary performance, or is that just something that's evolved over time and you haven't changed the allocation target?

A It's all performance driven. So we really, we had some core relationships when I got here that we've been with for a very, very long time that have been great. And then we've added a few names in our portfolio, but not a lot. And mostly first-time funds in different parts of the world or here, but we haven't really added much as far as relationships, but when the funds do well, it grows. I mean, we saw the same thing with our private equity portfolio where our target's nine percent, and it was well above that when buyouts were doing well, and now it's venture's turn. The good thing is we have all these people on our committee who have seen it before, as have I and my team, so it's like, This too shall pass.

AI assessment note: “It's all performance driven.”

Q What's evolved in your process and thinking kind of over your time from when you first got to Williams to today?

A You know, I think I'm a lot more comfortable taking risk. I mentioned that a third of our managers are first time fund or day one investor, and if you asked me in 2006 when I first got here, I would be like, there's no way we're doing that, and now I'm a lot more comfortable with that risk and can see, you know, 10 years from now why you want to be with that person today, and it doesn't always work out, but I'm much more comfortable with that kind of risk and Meeting somebody and having a few meetings with them and understanding what they're doing, and yeah, let's take that risk. And sometimes it makes my team crazy, I think, because, you know, I'm ready to step off that cliff before they are, but that's probably, for me personally, that's probably the biggest difference.

AI assessment note: “I think I'm a lot more comfortable taking risk.”

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

A I was with my family recently in California, and we were coincidentally talking about stuff that we learned from our parents that's really been impactful on us, and one of the things that I think was most important is to be positive, and it was something that my parents both were, and my siblings are, and, and it's just, you know, life is so much better if you're positive. You know, bad things happen, but You know, it was kind of like always, you'll get through this. It's not really Pollyanna-ish, but you know, the sun will come up tomorrow. There's another day. And in what we do, that's incredibly helpful because there's always something bad happening in our portfolio. Like, why do managers do what they do? And you kind of just like, you know what? It's okay. We're going to get through this. And so being positive, that was like an incredible gift for my parents.

AI assessment note: “one of the things that I think was most important is to be positive”

Q What kind of conversations you're having with your peers these days?

A Frequent. Well, you know, it's funny. One of the things I really miss about not traveling is seeing all my friends. Because you, as you mentioned earlier, you're in these investments with other good investors, and you become friends with them over time, and when you travel, you know, oh, I'm going to this annual meeting, I'm going to see so-and-so, or we're all going to China at the same time, or, and I really miss that, and so when COVID started, a lot of people made more of a concerted effort to, like, regularly check in on the phone, not on Zoom. When I'm talking to my friends, it's sort of a reality check of, we're going to get through this, and You know, what are you seeing, or hearing, or doing, and it's kind of talking to each other about this actually isn't that different from pre-COVID, or I mean, it's easier to say that now than in late March and early April, at which point we were all talking about liquidity, and is your line of credit going to be there if you need it, and that kind of stuff, but it's, it's more just reassuring each other.

AI assessment note: “we were all talking about liquidity, and is your line of credit going to be there”

Q So if you go back to that time, what was the most outlandish thing you were offered?

A So the pension funds up here are terribly underfunded and mismanaged. Each city and town has its own pension fund, and so the state one started doing well, and so then the towns could invest with the state. So there was actually a client facing part of it, and the guy who did the client stuff was offered a car by a manager, and he said that it was okay to take it because they had the name of the firm on the side of the car. So it wasn't actually that they were giving him a car. It was like they were giving him a pen Or some other kind of swag, because it had their name on it. So it was, it was a joke in the office. As long as it has a firm's name on it, it doesn't matter what they give you. And there were certainly people who took full advantage of that opportunity.

AI assessment note: “the guy who did the client stuff was offered a car by a manager”

Q You spent that time in the State Pension Fund, and then you spent a long time in the Corporate Pension Fund at Lucent. What are the key lessons and differences you saw in those types of pools of capital?

A Well, some of it's all the same, right, across the three different public corporate pension funds and endowment. You know, we're looking for good managers and trying to find them, and the difference is that those pools of capital, you have liabilities, and you have retirees that you are supporting, whereas at Williams, we support over 50% of the operating budget, so it's incredibly important, but there, there are like people I knew who retired and were relying on what we did every day. And that was amazing. You know, you really felt the importance of what you did, and the other difference at the state pension fund is you get paid nothing, so it really is public service. You're doing it for the greater good, and that was amazing. I love that part of it, but you also have to worry about your name showing up in the paper every single day of your job, and so when I left there, that was like what we celebrated at my going away party is that They never got me. You know, you're just, you're just collateral damage for them going after the state treasurer, and it's like, oh, if we can embarrass that person, it might embarrass the state treasurer, and it's very tempting when you're not making much, and people are offering you things, and a lot of people in public funds get in trouble for that reason, um, and it's not a very glamorous part of this world, and people are really, their missi…

AI assessment note: “the difference is that those pools of capital, you have liabilities, and you have retirees”

Q In tennis lingo, that's to some extent an unforced error. How about forced errors?

A For me personally, it's, um, all your friends are doing it, And you say, this doesn't feel right to me. But all the cool kids are doing this, so we're gonna do this. And that's never a good strategy. And there are some big things that have blown up that we haven't been in, and there have been things that we would prefer to not have been invested in. It's funny because in pension fund law, there's some protection for investing in something that everybody else is in. Here, it's not like that. Like, if I said the reason we invested in Ted's firm is because All these really smart people were in it, and even though we couldn't really get there that, you know, they're in it, that's like not a good answer.

AI assessment note: “For me personally, it's, um, all your friends are doing it”

Q How did that influence how you invested the capital?

A Well, we had liabilities, and so despite those liabilities, we still had a lot of equity in our portfolio. The pension fund had two underlying groups of employees, one occupational, one management, and they both, at different points in time, were well overfunded their assets to their liabilities, which is unusual for corporate pension funds. So we actually suggested to the board of the company that they Basically immunize the portfolio and lock in the gains. After I left, one of them was in process when I was leaving, and the other one, I think, got done after I left. But it didn't happen before various market corrections, so. But you actually have a number that you have to meet. It's different from an endowment or a foundation.

AI assessment note: “we actually suggested to the board of the company that they Basically immunize the portfolio”

Q So Take me back, say, 10 years. You get out of the crisis, you have the liquidity to match, and now you can put in place the policy portfolio that you think makes sense. What did that look like, and what does it look like today?

A Well, I wish it were as you described, Ted, that we got through the crisis and then we got to get started, but we were actually doing all of that starting in 2006 through the crisis and coming out the other side. It wasn't like they said, okay, just like hang out here and wait for this to be over. So we're in the crisis. We had just set up our investment office. We had just moved the files from Williamstown to Boston, and I don't know if it was the weekend of Lehman or Bear Stearns. It was one of those weekends, and we're in the office looking for our contracts to see what we can do in the situation with all of these managers, and we had some contracts. So it was an interesting time when you're, you know, it's a new office, and you have long-standing relationships, and you're trying to figure out what is going on here while the world's coming apart all around you. But coming out of that, what did we do? We really didn't do much differently. We had sort of core fixed income going into the crisis because of this manager who was kind of a balanced fund, so that was helpful, and we had added to that Fixed income going into the crisis, because you look at how much we support at Williams, and it was like, wow, we might want to have some fixed income in here. So that was helpful, and then we also had put in some credit, non-investment grade credit in the portfolio, not because we had …

AI assessment note: “coming out of that, what did we do? We really didn't do much differently.”

Q Do you see any commonalities in that group of managers of either the way they invest or the size of the balance sheet that they're using or their exposures that, Have been more conducive to success than others?

A So the legacy of our portfolio was Andreas Halverson was part of the committee that started this portfolio, and there are a lot of Williams people who have worked at Tiger or Tiger family firms, and so what that means for our portfolio today is there's kind of this fundamental bottom-up kind of investing style. We have managers who We're not part of Tiger, but there's definitely coming into Williams and never having invested in a hedge fund. I learned a lot from those people, and the culture of Williams is one of incredible accomplishment and success and incredible modesty and humility, and people really helped me when I got started. So when I look at our list of Global Long Short, they're doing all different things, and some Move their exposures around, and some do privates, and some are incredible at shorting, and you know, we have a small number, and they all do different things, so we don't need to have three firms all doing the same thing in a much bigger portfolio.

AI assessment note: “there's kind of this fundamental bottom-up kind of investing style”

Q Outside of the basics of, you know, you want to get to know the people and the strategy and how they go about it, what do you think Are the most important aspects of a manager you're trying to tease out in the ones that do make it to their portfolio versus the ones that might be close but don't?

A I mean, there are a lot of good investors in the world, right? And we don't need to be invested with all of them, but the ones that we have need to be really good. So that's how we kind of think about it. We do lots and lots and lots of meetings. We track the number of meetings. We do like 500 meetings a year between our current and potential managers, and we only will add a small handful of new managers every year. So part of it's just meeting So many different people that you start recognizing things, and I've been doing this for a long time, so you start recognizing things, and you also remember where people came from, and what they used to do, and when they changed the name of their firm so people wouldn't know what they were doing, and that kind of stuff. So that's definitely helpful. It's years and years of experience, but some of it's art, and some of it's science. You know, there's a lot of what my team calls desk Work that you can do, and that might tell you part of the story, but it's really meeting people, and does their strategy make sense for what they're saying they're doing, and for their assets under management, and we've done a lot of investing with first-time funds, or a day one investor, about a third of our portfolio. When I went back and looked, it's, you know, we were in fund one, or invested with somebody who started, so a lot of times the track record is…

AI assessment note: “does their strategy make sense for what they're saying they're doing”