The Exchanges

Q So as you circle back, you're walking across the Charles River repeatedly with Josh Friedman. Who else was in your class that you've been alongside on this investment journey the last few decades?

A Yeah, it's really interesting to reflect on it. When I sat down on the first day of business school, right next to me or one seat over was a young guy that had already made a name for himself, but in sports named Steve Mandel. So I ended up studying with Steve first year of business school. The guy who sat right next to me in the investment management elective, which was my first serious exposure to investing, was a guy named Seth Klarman. So he was in our class. Jamie Dimon was in our class. Karen Firestone. Brian Rogers, who ended up running T. Rowe Price. It's a pretty long list. So apologies to people that I'm not remembering right on the spot, but I remembered there were exactly 90 seats in each classroom. When I walked in for the first day of the investment management elective, With Seth, with other people, a third of the seats were empty. Come back 20 years later, and that was oversubscribed. Everyone was clamoring to get into Mike Porter's strategy class because everybody wanted to go to work at Bain or BCG, or they wanted to take Bill Porvo's class in realty because they wanted to go to work for Heinz Interest or Trammell Crowell. And there were a few of us who said no. Those of us who entered the money management industry roughly when I did had essentially a forty-year tailwind of falling discount rates in the global economy generally. Which creates multiple expansion…

AI assessment note: “Steve Mandel... Seth Klarman. So he was in our class. Jamie Dimon was in our class.”

Q As you look back to your tenure at TIFF, what were some of the biggest investment lessons that you learned that you hadn't known when you started in the role?

A Not rank ordered. The immense value and utility, practical and psychological, of having cash in any portfolio you're managing. What you learned over the years is that it actually has a utility that goes way beyond its obvious help in meeting unexpected redemptions. Psychologically, it frees you up, and Buffett, more than any other actor in my lifetime, has proven the value because you can seize an opportunity that others may not be positioned to seize. Second major lesson, this would actually be number one on the list. As an outsider, you can never really know in a manner that really counts what's going on in an organization of which you're not a full-time employee. The germaneness of that to selecting and evaluating and managing external managers is rather obvious, but it goes beyond that to understanding, oh, I think I understand the pressures to which one of my key deputies is subject on the home front, but you don't really. Okay, that's fine, David. That's a rather obvious observation, but what have you done with it over the years? And what I've done with it in allocating, frankly, either human or financial capital is to just think about the broadest plausible range of outcomes that I can. You look at an organization, you look at GMO when I joined it, everything's firing on all cylinders. The returns are great. They're growing. The sun is shining. You get in there and after…

AI assessment note: “The immense value and utility, practical and psychological, of having cash in any portfolio”

Q So how'd you get started in the business as you left school?

A Well, I got to know a fellow that probably doesn't get as much credit as he deserves, Hunter Lewis, who was co-founder of Cambridge Associates. I actually got introduced to him through Jim Bailey, who had been also in the JD MBA program. So I actually went to work directly for Hunter Lewis doing research, and it was a kid in a candy store. It was in the early days. Swenson hadn't even yet arrived in Yale in May of 1985. I met David, I think, the first week he was on the job. A couple years later, I met Jack Meyer, formative in my career and in the formation of TIFF. Due credit to Hunter. I think he could sense, as I was several years into working with him, that I wanted to get closer to the action, not just consulting. I had learned a lot, and at that point, GMO was exploding in size. It was still called Grantham Mayo Van Otelo. The GMO hadn't been coined yet, and I can say so now with the utmost fondness and respect, but as they grew and Jeremy became more and more enamored of quantitative methods, the three senior partners whose name were on the door. Jeremy Grantham, Dick Mayo, Ike Fran Ottoloo weren't getting along very well, and the firm was really suffering from growing pains. Money management is such a curious industry where a lot of the precepts and principles that work really well in other industries only work in money management if you reverse them. So I was starting …

AI assessment note: “So I actually went to work directly for Hunter Lewis doing research”

Q How did you come to leaving GMO to found TIFF?

A That gets us to Larry Landry. The MacArthur Foundation hired Adele Simmons to come in and be the first full-time professional president of the foundation. She brings in Larry to be CFO. At that point, the common fund for higher education was open only to essentially degree or diploma granting institutions. And Larry said there are many more foundations in the U.S. than there are schools that are eligible for the common fund. Most of them don't manage their money well. What we could do is start a common fund for foundations. And around about the same time, because I was a GMO managing a lot of money for the MacArthur Foundation, interacting with Larry and his staff regularly, and I had voiced the same sentiment over dinner one night in Boston. And then he, working with Adele, made it happen and came to me and said, look, you would never be stupid enough at a young thirty-something to leave GMO. You're standing under one of the greatest spigots ever created, and it's growing. I know you would never leave, but we want to get this off the ground. Can you help us maybe put together a little business plan and maybe do a search for a CEO? And I said, of course, what are you going to say? Very important client. And I liked Larry a lot. After quite an extended period of assisting and Larry pulling together others from the foundation community, Larry then said to me, look, we're about to…

AI assessment note: “we're basically looking for somebody like you, but you would never leave GMO.”

Q So let's turn to the investment side of TIFF. At that point in time, how did you think about deploying assets for a variety of foundations?

A Well, we were thinking about it very dynamically and flexibly. We ended up having to set up a taxable not-for-profit, and we had to register the vehicles under the 40 Act. So these are mutual funds. The Investment Company Act of 1940. We also had to set up an entity under the Investment Advisors Act of 1940. That then conditioned everything we were doing. We had an initial lineup of a short-term fund, a bond fund, a U.S. equity fund, an international equity fund, and an emerging markets fund. And they were benchmark driven. And then by definition, we were relying on the charities we were seeking to serve to figure out what mix of these funds was optimal for their particular situation. And I'm running around the country traveling 250 days a year trying to gather assets. We had a head start from some of the major charities that were on our governing board. In every single investment committee or board conversation I had, they said, well, how do we figure out what the optimal mix is? Oh, there's a real opportunity here to set up something. This is many, many years ago, before the world changed completely with OCIOs and multi-asset funds. What I ended up deciding to do was recommending to our board that we set up another fund called the Multi-Asset Fund, which still exists, and it still tips basically the biggest vehicle. And what we did there is we tried to bring to bear the endow…

AI assessment note: “We had an initial lineup of a short-term fund, a bond fund”

Q If you had the chance to redesign the structure that was wrapped around the private equity activity to allow the compounding of capital Knowing the constraints that say an LP has for liquidity, a GP has for capital availability, how would you go about designing it?

A I've actually had that opportunity on several occasions, and I've had some success, not complete and unqualified success, in getting what I thought were some of the very best people in the business to adopt variants of the model. I take no credit whatsoever for what I'm about to say. The model is the General Atlantic business model. General Atlantic, that now massive global private equity firm, began its life as a folder in the file cabinet of the Bermuda-based Atlantic Foundation, later doing business as the Atlantic Philanthropies. And when Ed Cohen and Steve Denning persuaded Chuck Feeney, To give a little bit of the Bermuda-based foundation's money to them so they could go out and make inopportune investments in Winchester disk drives and other things in the early eighties. They adopted a business model for private equity investing that was very distinctive. It was not a fund model. So it was basically based on a multi-year commitment from each LP. For years and years, it was just the foundation. When I arrived on the scene, and as you know, I was on the investment committee for 16 years, starting from when they sold DFS, duty-free shoppers, to LVMH. And the foundation's assets exploded in size, the liquid assets. They already had a lot of money. They had an annual conversation with Steve, Bill Ford, and other leaders at General Atlantic, and then they could draw down the m…

AI assessment note: “The model is the General Atlantic business model... It was not a fund model.”

Q The industry itself, no matter where you look, has had this incredible run in the 40 years since you made the contrarian decision to get involved. As you look out over the next five, 10, 20 years, what are the aspects of asset management as an industry that you think are clear in terms of where the trends are going?

A Well, I think because I believe that many corners of it, with very conspicuous exceptions like Japan, we have excess financialization, certainly in the United States, and an overpopulation of the industry. So I'm afraid I can't be very upbeat about that. What I would say is that on the upbeat note, I do think I'm a huge fan of Dr. King. He said from the speech that he gave in the National Cathedral a few days before he died, the arc of the moral universe is long and bends towards justice. The arc of commerce, in my words, is long and eventually bends towards transparency, ease of use, and particularly in money management, but elsewhere like Amazon, shared economies of scale. Transparency, ease of use, shared economies of scale. So if you're running or working in an asset management shop today, particularly here in our overcrowded market, but anywhere in the world, I think it behooves you to ask yourself, are we positioned properly to For increasingly intense demand on transparency, ease of use, and shared economies of scale. There's a less polite way of saying shared economies of scale. It's massive compression of fees. The opacity of a lot of the fees that have been charged. And I think you're generally a fan and a supporter of private equity, and so am I. Notwithstanding that, if there had been perfect transparency of a lot of those fees, ex ante, before the LPs that are invo…

AI assessment note: “eventually bends towards transparency, ease of use, and particularly in money management”

Q And it may well be the same, but how about the most memorable day?

A I'd have to go back to my GMO days. It had to be either August second or August third of 1990. And I'm working very closely with Jeremy. And we're already doing some asset allocation work. And what happens? Saddam invades Kuwait. And I remember I was in my office. Jeremy walks in. I think he called in Forrest Berkley, great guy, and maybe Chris Darnell and a few other key members of the team. He goes, all right, markets cratering. Equity markets were in a free fall. And Jeremy posed a whole series of questions. I didn't have, Ted, a clue where Kuwait was. Let alone a coherent or intelligent or even half informed answer. I couldn't even form questions to rebut Jeremy's questions. And that's because there was no Bloomberg. We barely had computer technology. I didn't have access to anything. And I think about that in answer to your question, a memorable day. And I think about how different the world is today. If you were to walk out of this room and just go 10 feet, you could hit buttons here where you could answer certainly with GPT to just about any questions. So that was a particularly memorable day to me in hindsight, because what did we then do in light of all those boundary conditions? We did nothing. And what happened? The market went down pretty steeply, and then we did nothing, and we did nothing, and we did nothing, and then the market came roaring back. By the way, the …

AI assessment note: “It had to be either August second or August third of 1990.”

Q lineup of investors appearing on a podcast. There's only one team they all play for. You guessed it. Capital Allocators. Thanks so much for spreading the word about our championship lineup of guests at Capital Allocators. Please enjoy my conversation with David Saylor. Well, David, this is a long time coming. Why don't you take me all the way back to your path to getting started in the investment business?

A Sure, I'm happy to do that, Ted. I was born and raised in Boston, as close to Fenway Park as you can be birthed, and became very enamored of what we had up north with the White Mountains and the Green Mountains. Decided to go to Middlebury to college, thinking I would just enjoy the outer environs. And I got there, and I never got to enjoy the outdoors, because I ended up just getting sucked into my studies. I worked very closely with a professor of political science, Murray Dry, who really rubbed my nose in American constitutional law, and I became really enamored with the works of Alexis de Tocqueville. I wrote my senior thesis about Tocqueville with a focus on what I think really does make America truly exceptional. What Tocqueville called the voluntary spirit. People getting together and saying, the community needs whatever, a fence around the commons. And we get together and we have just measured objectively by a fraction of our economy. That voluntary effort, we can call it the not-for-profit sector, the independent sector, is gigantic. So I wrote my thesis about that. And then off I go to law school, thought that's what I wanted to do. And just by pure serendipity and accident, I happened to be spending almost every frigid winter morning in Boston walking from the business school campus where I was living all the way over to the law school. And at most of those walks, I …

AI assessment note: “Sure, I'm happy to do that, Ted. I was born and raised in Boston”

Q What was it like working next to Jeremy day to day?

A I'll try to be as concrete as I can in answering that, just a little sliver of what it was like. I would get up early, get to the office early, read the Wall Street Journal, get ready for the day, and Jeremy would wander in, really pretty much like clockwork, at nine a.m., and we would have the newspapers on his desk, and he would come in, smile, nod, he would close the door, and some indistinct point between nine 15 and nine 30, the door would swing open, and typically he would walk right over to me, and he would usually have the Wall Street Journal and say, did you see this? And he would sit down in a chair, and at about 11:45, where I would not have gotten a word in edgewise, although I would sneak in questions. So Jeremy would get to the end of something brilliant, as always, I'm scrambling, taking notes, and then I would ask him a question, and about 11 45, he would say, I'm hungry, should we get a bun? Which he meant lunch. This didn't happen every day, but it was an amazing tutorial, and what Jeremy would do, and I later discovered it through my readings of Cairo's highly praised biography of LBJ, He said in that, that LBJ would absorb information by talking. Now, I actually wish I could reverse the rules and stop talking right now, but I promised I'd do an hour-long interview with you, so here we are. But LBJ would read body language, so he wouldn't have to say to Sarge…

AI assessment note: “I'll try to be as concrete as I can in answering that”

Q Which two people have had the biggest impact on your professional life?

A I would certainly cite Larry Lander because of the leash that he gave me at a very young age. But the second would, of course, be Jack. I talk about Swenson all the time, and if you said three, he'd be on the short list. But Larry did something very wise. Because I was a young, untried pup, I had a lot of energy and passion for investing. He said, David, look, we're going to give you a whole bunch of money, and my career is on the line here. And I want, among other boundary conditions, I want you to promise me that when you start to build out the board, and I'll help you do it, I want one of the early nominees to We'll approve them to be a CEO. I want that man or woman to have a CEO experience because you're going to make a lot of mistakes, and I want them to have the candor to come to you and say, look, David, you made that mistake. Maybe I saw it coming. Maybe I didn't. But here's what I would suggest you think about, and that should never happen again. So I said, Larry, I got it. I think I got just the right guy. And Jack had more or less recently arrived at Harvard to be the CEO of Harvard Management Company. So he was both CIO and CEO, and I went to Jack and said, would you serve in this role? And he did. And I like to say sometimes smilingly, 120% of the success I had at TIFF was attributable to my board members. You do the math.

AI assessment note: “I would certainly cite Larry Lander... But the second would, of course, be Jack.”

Q As you go through doing that work, meeting with managers over and over to get at whatever you've determined are those essential characteristics, you then ultimately have to make a decision. What have you found leads to excellence when it comes to making an investment decision?

A I'm going to go back to my four-part framework. What you're looking for is the absence of disqualifying attributes of the process and the people making the decisions, the relative absence of unfavorable attributes, because you're making trade-offs. Maybe your top pick has one feature or attribute that you find rather off-putting. And then as you move down the list, you're looking for an abundance of the favorable attributes, and the essential attributes are exactly that. They must be present. I actually found that when you do it and you do it in a rigorous rinse and repeat manner, that's your process for vetting other people's process. It's like a second derivative in some ways, but in the best sense. So you're trying to look for that soundness of the process and that delicate balance in the human beings that are overseeing the process between a commitment to what they're currently doing and a commitment to changing it if and when external circumstances compel them to change it. What you want is a manager that's committed to that continuous monitoring of the external environment, and that, frankly, the intellectual and moral courage to come back to the client and say, we know you're very happy with what we're doing, and frankly, the easiest thing for us to do would be to tell you we're just going to keep doing it, but we want you to know this may be a little bit uncomfortable f…

AI assessment note: “I'm going to go back to my four-part framework. What you're looking for is”

Q As you've seen these different disciplines, the discipline of trying to understand the listening of storytelling, the macro, and trading of markets, how have you brought that into the original way that you had invested in, say, a multi-manager, multi-asset approach, and used these different tools to enhance more traditional asset allocation multi-manager approach?

A I grabbed the low-hanging fruit first. When you think about any investment program, whether it's endowment management, a family office, a sovereign wealth fund, a DB plan, the defined benefit plan, You've got policy, strategy, and tactics. The low-hanging fruit I'm alluding to are the tactics. So I started to get enamored of hedge-eye, which is a combination of fundamental bottom-up work and quantitative work. Some would call it quantum-end. And I started to see if I was involved in stewarding a pot of money, and there was, as there always should be, a rebalancing discipline. Is the rebalancing discipline sensible, optimal, and sensitive to the fact that the market is telling you things if you would just shut up and listen? So I started changing tactics, and I started to see, wait a minute, this is actually working. This could help me not only with the decisions that I don't enjoy making, but I need to make. When do I put incoming cash to work? If I have a standing redemption request that's six weeks or six months away, how do I start to plan for it? Should I sell now? Should I wait to the last minute? And then you start to work up that hierarchy of tactics, strategy, policy. It starts to permeate what I was doing with strategic asset allocation, and now I've taken it to the level of investment policymaking. Most of the investment policy making stuff that we're doing around her…

AI assessment note: “then you start to work up that hierarchy of tactics, strategy, policy.”

Q What did you see when a manager came time to decide they needed to make a change in communicating with their investors or prospects that made that work in the nature of the relationship compared to the many instances where change leads to adverse outcomes?

A The analogy I'll use is years and years ago, I had the great good fun of going with a good buddy who was the auto analyst for DLJ. We underwent training at the Pocono racetrack for two days. The guy running the whole show was a Formula One driver. And somebody described an incident where in an amateur race a month earlier, they lost control and they slammed into the wall. And they said, what would you have done in that circumstance? He said, well, the problem is by the time you're at that point of trying to make the decision, it's way too late. The decision had to have been made 300 meters or maybe even a half mile earlier to not get into that situation. So answer your question is you have to set up the boundary conditions way before the conversation unfolds where you're going to impart to a trusted and valued client some significant, noteworthy, uncomfortable change in what you're doing. And I'm going to give a shout out to somebody you and I both know quite well, Charlie Ellis. He was for a long time the chair of the Yale Investment Committee when David was the CIO. And I saw him in the same capacity at the Whitehead Institute at MIT, where Tiff was, when Charlie took over his chair, he called me and said, look, I want to keep this really, really simple. I don't think committees are very good at anything, so I'm going to take the marketable portion and send it out to my frien…

AI assessment note: “you have to set up the boundary conditions way before the conversation unfolds”

Q And what are the aspects of the hard work and the particulars that make an investment committee function well?

A There's almost nothing that makes a committee qua committee function well. I fully appreciate that there are investment committees of any money management firm that have a regular Monday meeting of the committee, and they function beautifully. What's the best performing investment committee of all time? It was two guys that lived 1800 miles apart, one in Omaha and one in Pasadena, and they seemed to function pretty well. What makes investment committees, I did a talk a couple years ago, it's probably the favorite talk I ever crafted and delivered, called Imperfect Practice Makes Imperfect, colon, Investment Committees at Work. So conceding that there are exceptions that prove every rule, what do committees do? Logically, they meet on a part-time basis in an environment where consensus comes first. That is the worst possible environment for investment decision-making, bar none. So that doesn't work. What makes a committee work? Well, I would say first and foremost is crafting, this is where Charlie was great, Charlie Ellis, craft the mandate of the committee in a manner that doesn't cause it or compel it to function like most committees. Maybe it's giving guidance. Maybe it's just asking the right questions. It's certainly doing compensation. It's helping the CEO pick a team and motivate and incentivize them. But the classic investment committee tends to be quite dysfunctional. …

AI assessment note: “craft the mandate of the committee in a manner that doesn't cause it”

Q How do you think about manager selection within those pools?

A When we started, I was a young thirty-something that didn't have a track record of my own. Our initial governing board, I think they admired my energy. I think if you ask them, well, what do you think of his investment acumen? Actually put money to work. I think when I say, well, that's untested. We're going to invest in his development. We'll let him make mistakes on our watch, and we'll supervise him very closely. So what we had to do, Ted, is we had to present managers in the classic, I think, generally perverse, dysfunctional beauty pageant sense. But the beauty pageant was in front of a set of judges that were very expert. It was Swenson here and Jack Meyer there, and Mike McCaffrey from Stanford, Larry Landry from MacArthur. I could go right around the table. It was intimidating for the managers that we had pre-screened them at the staff level, and of course it was a great opportunity for them to pitch not only to TIFF for our little piddling money, but indirectly to pitch to a Swenson and Jack Meyer. So we're relying almost exclusively on external managers, and I'm thinking, all right, I have a very, very small staff. I only have so many hours in the day. How am I going to separate wheat from chaff? I had been subject to that separation process on the opposite side of the table, meeting with dozens, maybe hundreds of investment committees with particularly my GMO hat on,…

AI assessment note: “what I came up with was a four-part framework”