The Exchanges

Q What did that due diligence process look like with Rashmi?

A We took our time. We visited her twice in Singapore. I think she had one or two employees at the time. She came to visit us in Chicago a number of times also in the summertime. We met her first in 2018. I introduced her to a bunch of other people. Not just to be nice to her, but also I wanted to find out what other people whom I respect in the business, people, you know, and respect also thought of her so that I did a little extra indirect triangulation through people I knew when she was in the Chicago area with all those family offices and other institutional investors. And then the big thing, we booked a trip with her on the ground in Manila and my team and I went to Manila And we met five to seven portfolio companies with her. Half the companies we met were already in the portfolio. The other half were not, but it was the opportunity to see how she interacted with management, which was something I really wanted to see firsthand, given her age and the fact she's a young woman of color in an otherwise very white profession. And so that was really critical for me and my team.

AI assessment note: “We visited her twice in Singapore... we booked a trip with her on the ground in Manila”

Q So when you switched over to the University of Illinois now, I guess five years ago, what was there at the time?

A The University of Illinois is a very big and terrific public university with a relatively small endowment. As is the case with many public universities, they had relied quite happily on state funding, and when I joined, the state of Illinois was in slightly better financial shape than it is today, but they were providing about six hundred fifty million or 11% of the total budget of the university. The endowment, when I showed up, was around 1.2 billion, and it had been on track to be totally outsourced, and I think that the The board of the foundation realized that if one was going to really emphasize private philanthropy, having our own investment office with our own brand would really go hand in hand. So they said, you know what, we're changing strategic direction, and I marvel the, the guts and the speed with which the board did this, and they did a total out face. We're going to do a national search, and we're going to find a CIO to build a brand new team. Prior to that, the CIO and a very small team had been embedded in the foundation offices in Urbana, which is in central Illinois, about two and a half hours south of Chicago, and when I was recruited, I tried to explain how important it was to recruit investment professionals to a great city like Chicago, and that is, in fact, what we've done. So you're seeing me at the end of the, uh, startup entrepreneurial phase. We're…

AI assessment note: “The endowment, when I showed up, was around 1.2 billion”

Q So I want to chat a little bit about Rashmi and 16th Street, and why don't we start by framing out, when you looked at your old portfolio at University of Illinois, how did you think about a concentrated manager focused in Southeast Asia?

A I had been looking for a way to pivot a little bit away from China About 18 months to two years ago, and we had done a deep dive for Indian managers, and in the context of that, we started talking to Rashmi. One of the beauties of managing a reasonable size endowment is that we can always look at funds the size of Rashmi's. I wanted her to be a part of the emerging market portfolio as well as the emerging manager, but also we had followed her pretty closely for the first two and a half, three years of her operation, getting comfortable with her. For me, finding someone with her talent, her age meant that it would be a really long runway for a 30 year investment with this one fund. And I certainly loved the fact that she was concentrated, And as you know very well, I don't care so much about mark to market volatility, which is the case with all these smaller markets.

AI assessment note: “I wanted her to be a part of the emerging market portfolio”

Q So once you got to know him over a couple of years, and you were thinking you were ready to make an investment, how do you go about doing that confirmational due diligence on someone who, as we've talked about, is probably off the run, doesn't really network with a lot of the managers you might already have in your portfolio?

A Well, we spoke to the managements of some of his companies in the portfolio to really get confirmation that what he said he was doing with them was in fact what was happening, and he has built some very long-term constructive relationships with public company managers. We got great confirmation that this was someone who really was helpful to the newly public company, someone who had a long-term view, someone who was willing, if necessary, even To step on the board of one of his portfolio companies, despite the fact that the trade-off was that he would be restricted. So that really helped a lot. We did a lot of off-reference checks. I met his wife, I met his kids, I met his dog. We just did a lot of background checking, previous employers. Also, he's the kind of person who has only built his team from people he's worked with before. So he's very much, uh, Long-term relationship family guy, and I just was able to develop a very deep sense of trust with John. We did ladder in our exposure, but for a long time we were the largest single investor in his long-only fund. My operations person did spend a lot of time talking to him and then ultimately his COO about, all right, once you Get a little more traction. What are the steps that you're going to take to beef up the middle and back office as most new funds that they were pretty bare bones when they started, but it was always an on…

AI assessment note: “we spoke to the managements of some of his companies in the portfolio”

Q And what did you do right out of business school?

A I worked for Fiduciary Trust International to build an investment team in Miami, and they had just bought a trust company in Miami, and they wanted to build a significant subsidiary there, both for New York retirees in Florida, but also to see if they could Figure out a way to get access to more international high net worth investors. And I really grew up at a fiduciary trust over a 13 half year period. Jeremy Biggs was the chief investment officer, and he really mentored a lot of people, mostly women. It's kind of a, you know, the Biggs family investment dynasty, as you know, they're all pretty brilliant. Jeremy and Barton's father was an investor, and then obviously Fiona was an investor also, so I do think there's something really good in the big genes, but Jeremy was very tough on me, but I realized that I liked this notion of seeing a portfolio holistically, and I didn't have the pieces in my repertoire yet to do that, but it was, I think, between Swenson, uh, value investing, and then Jeremy kind of put it all together in terms of wanting to ultimately see how, how does one become a CIO? Loved managing money. I think direct management of portfolios is a wonderful training for someone who ultimately becomes an allocator because you get used to pulling the trigger, you get used to being wrong and having to extricate yourself from mistakes and understanding the nature of you…

AI assessment note: “I worked for Fiduciary Trust International to build an investment team in Miami”

Q So when you first show up, there's so much to do. And it's just you, but you, you mentioned the board had already decided to go in the direction. How do you start to prioritize your time to move forward in the direction that you want to?

A When you have everything to do, it's easy to get overwhelmed. I believe that the reason I was successful in accomplishing a lot in a short period of time was that all the big gnarly stuff was agreed upon prior to my hire. So I had a list of 15 things. I decided it's always good to start with the most difficult things. So I spent the first six months on governance, and it was very hard not to do anything in the portfolio, but I really felt that if we got the governance framework in place, there would be plenty of time to work on the portfolio. So we, we had to figure out a way to shrink the size of the investment committee from, I believe it was around 16 or 17, In half. Everyone agreed that that needed to be done, and we needed to do it in the most diplomatic way possible, and I think we did reasonably well. And then all the policies, I had to write some new policies.

AI assessment note: “I decided it's always good to start with the most difficult things.”

Q So let's go through those. Agriculture. How do you structure it? How do you think about the opportunity set, and what excites you today?

A Well, Ag, University of Illinois has a long and storied history in agriculture. Agriculture is a great asset class for an endowment, because it is very long-term, and the cycles are long. Fortunately or unfortunately, the last cycle peaked in 2012, but ag really was the best performing asset class for the decade ending 2012. It has components of real assets, but also of private equity, so we are in the wonderful position of being given gifted farms, so we have about one hundred fifty million in gifted farms, and we recognize, you know, people are very attached to their farms, not like a donation of stock, and so If our donors understand that we're not going to dump the asset immediately, they are very happy about that. So we have started retaining all gifted farms for, to the foundation from, from donors. So we have this direct portfolio that's managed on the ground. A lot of it is in central Illinois. And then we said, all right, let's talk to all the really smart agribusiness, P.E., Venture capital, uh, growth equity type people in the ag and food space, and we have a number of really, really storied graduates from the university in the profession, and we just have spent the last three, four years talking to a lot of public and private groups and have made some investments outside of, you know, we said, okay, we got central Illinois. We have investments in Brazil and also in …

AI assessment note: “we're looking for companies that figure out better ways to increase value with less waste”

Q Right. And what, what goes into that bucket?

A That's the anchor to windward bucket. Again, a nautical analogies. Um, we have global sovereigns. We have that little three percent cash. Uh, it's a one to three, three year duration type of investment. We have our real estate in there. We have our real assets in there and we have our global inflation Linked investments in there. And some are passive, some are active, some are public, and some are private. So, once you don't have to really be focused on liquidity, I, once we realized that and got comfortable knowing that I wouldn't need to distribute much more than was coming in over the course of the fiscal year, I thought, let's just put everything together and make decisions Not based on these increasingly unhelpful categories that consultants talk about. So we eliminated hedge funds from the vocabulary, and we eliminated alternatives from the, we don't talk about alternatives or hedge funds. We talk about equities, credit, inflation-linked things, etc.

AI assessment note: “we have global sovereigns. We have that little three percent cash. Uh, it's a one”

Q So, if your asset allocation is global equities, global credit, things that go up in the night, that's now the official category for whatever we're calling that. What's the logic? That's quite different from asset classes. It's also different from risk factors. So how did you get there?

A It's, I don't think I was particularly creative. We need growth. So you got your growth, growth coming from global equities. Hedge funds are a fee structure or a legal entity so that I don't care if it's a hedged equity, directionally long hedge fund or private equity, it's equity. So we put Everything public and private into that 63% in global equity. And then the category of non-sovereign credit stuff, and that could be anything that's not a sovereign bond or a global inflation linked security. So we have a very eclectic group of managers within this category. In general, it's a diversifying part of the portfolio. So you have growth, you have diversifying growth, and then you have The things that work when nothing else is working.

AI assessment note: “So you have growth, you have diversifying growth, and then you have The things”

Q And have you had any situations where being gifted a plot of land became a big time sink for you, even though it was sort of a small individual investment?

A Not as yet, and I think it's because we said, alright, if we're going to take these into the endowment, and if we're going to commit, not to hold them forever, but to hold them For the foreseeable future, that basically says that this is not a saleable asset. So we go, okay, it's going to be pooled, but we're going to put it below the line. We recognize that this is the kind of asset that has a number of different goals. We don't take in anything that doesn't pass what I would call an institutional due diligence process. So far, since I've been there, we've only accepted two relatively large farms. And I think we're, we would like, you know, we're hoping very much to get more gifts as we go into this new fundraising campaign. The, uh, have you spent any time on a farm recently, Ted?

AI assessment note: “Not as yet, and I think it's because we said, alright”

Q everything from portfolio accounting to reporting to reconciliation, trading, compliance, and more. In the AI era, asset and 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. How do you think about where you have competitive advantages?

A 1.7 billion dollars. Our advantage is the fact that we're large enough to be relevant and also small enough to be relevant so that I believe we've gotten good at identifying talent earlier and figuring out ways to partnership over the long term with younger managers. We, um, have put some people in business. We've been in founder share class. I feel very comfortable now Figuring out ways to get comfortable with the business risk of a newer firm, and also we're doing more oddball strategies. We like orthogonal strategies that are pre-institutional, and in those I include things like, we're doing a lot of agriculture, which is a core competence of the, uh, of the institution. We're, we've done some litigation finance, so we're looking, there's really nothing that we won't Look at. We've done some co-investments, and we've also done direct investments with some large family groups.

AI assessment note: “Our advantage is the fact that we're large enough to be relevant”

Q And how big do you think you can get?

A I would say we're about 12%. The arm's length investments, I really do consider the risk to be much more along the lines of private equity, because these are companies. So even though they're investing in ag-related things, I'm not so sure the risks are the same as owning real, you know, assets in the ground as we do with these direct gifts. I think it should be a significant part of the portfolio all in, so I would say somewhere between 10 and 20% over time. One of the professors at the university had mentioned to me that why couldn't we build a platform onto which all the other Midwestern universities that didn't know what to do with With their farms could give us the farms, and we, the idea would be to create our own REIT. You add a little bit of leverage, and then you grow it, and down the road, you sell it to TIAA, so that would be, that would be a great project, but that's obviously, you know, we're talking long term.

AI assessment note: “I would say somewhere between 10 and 20% over time.”

Q What are you most excited about in the markets?

A I have a couple of overweights in, in the portfolio. One is Japan. I had been studying and waiting. For a long time. Studying and waiting, like everyone else, but I, I did, Put a, an overweight on Japanese equities in June of, and I have also one active strategy on top of, of this allocation. So it's, it's about a four percent overweight. I am not inclined to reduce it because even though it's like watching paint dry, the things that I had, nothing has changed about the story. It's just, it's obviously taking a very long time. I'm very encouraged by The improvements in earnings at many of the companies that we own. I think that the valuations are still reasonable. I think that most people still don't believe that Japan has moved out of this deflationary period, but I think they have, and this will be really apparent maybe a year from now. So that's one thing I'm still pretty enthusiastic about, and I'm headed to Japan in a, in a month or so. Again, I, I have, I love Japan. I really enjoy the sensibility. And the great thing about Japan is that, you know, because of this 25 year drought, it's pretty, you know, there's not that many people to meet, and I'm always amazed when I see people like, hey, I saw you in the early nineties, and you're still here, so there's a lot of continuity amongst some of the strategists and investors in Japan. We've had a lot in Europe that's worked o…

AI assessment note: “One is Japan... So that's one thing I'm still pretty enthusiastic about”

Q So what does it take to be the world's worst investment banker?

A Well, you're looking at her. So this was in the early eighties. I joined Smith Barney. They hired kids right out of undergraduate liberal arts institutions, and so no one had a particularly strong Accounting or finance background, I really had maybe one statistics course, and it was a fairly fallow period in the market, and there was not that much to do, although they kept this there very late, not doing very much. I used to have to sneak out through the ladies room on Friday afternoon to catch the train to go visit my then boyfriend, and since then, Husband so that there's, there's something with investment bankers and, and bathrooms. I figured out, I only lasted a year, I figured out that it would be much better to be on the asset management or the buy side, and so that's kind of been the rest of my career since my early Smith Barney days. I joined Merrill Lynch on the sell side, I, and then finally made my way back to graduate school at Columbia Business School. I really needed to round out my brain and get good at Quantitative reasoning, uh, finance and statistics, and I feel like that was a challenging program for me, but it was really good. I was blessed to be in Bruce Greenwald's first class at Columbia after he came from Harvard, and Bruce Greenwald is one of the best people you could ever meet in academia or in the business profession, and he really just decided that I…

AI assessment note: “Well, you're looking at her. So this was in the early eighties.”