The Exchanges

Q Um, Okay. You, you have them, you've allocated them to managers. What do you do to compare these things and, and what does that actually look like?

A So we spent a fair amount of time thinking about this in terms of what should we be paid for our, for our unit, per unit of illiquidity. And we've examined historical data. We've examined by asset class. We've examined by economic and market regime. And then we came up with a Simple heuristic. Basically a hundred basis points per year. We think that we should be getting in terms of an illiquidity premium to lock up our money. So in a simple case, if we had a public equity or you chose venture capital, if we have a private venture capital fund and we have a public manager that invests in the same underlying risks of those venture capital companies But for stage of development. So if we're talking technology or if we're talking healthcare, then for the, the difference in liquidity, what we'd like to see is our way to a premium of 100 basis points per year for, for each year's worth of liquidity. Um, and that paradigm extends out to other asset classes as well.

AI assessment note: “Basically a hundred basis points per year. We think that we should be getting”

Q How do you involve your committee or do you involve your committee on the manager by manager basis?

A For sure. Everything that we do is we make recommendations to our committee and we involve them. There are each a phenomenally informed, successful person there. It's a collection of page one of the journal kind of names, and we're fortunate to have them. They're also busy. So the challenge to us is how do we do so efficiently and respectively? So what we try to do is we try to discuss strategy with them in advance and get their strategic guidance. We put together a strategy dashboard each year. We focus our conversations with them on asset allocation and market environments. We have, we distribute written materials on our managers at two different points in advance of seeking approval so that we're incorporating feedback from them early in the process in a time efficient way. Hey, Jason, I like this market opportunity, but have you thought about these other two managers instead of this manager? If we're pulling together that kind of a group, and we're discussing a one or two percent position, it's just not the best, highest impact that we can bring their experience to bear on behalf of Memorial Sloan Kettering. So we do access them. They are a competitive advantage for a competitive edge and a competitive advantage for us, but we need to do so in a way that is respectful of their time and gets them focusing on risk and opportunity and not on minutiae.

AI assessment note: “we distribute written materials on our managers at two different points in advance of seeking approval”

Q You have a pool of capital that you're managing focused on achieving these goals, super important goals of creating dollars for, for research and development, and for spending on cancer cures. How do you do it?

A So in terms of setting risk limits for the portfolio, we think of two different things. One, different types of asset classes, identifying discrete sets of return drivers, but then second, we also think about different sets of liquidity and risk parameters. So for example, when it comes to equity returns, what we'll do there is identify different kinds of Drivers of equity returns via either the United's geographically based, either the United States or developed markets or emerging, but also layering on top of that, how much of an excess return premium can we get from private returns? Identifying for a memorial what the liquidity limits are likely to be and needed over the course of the years, modeling those out, planning in advance, and really optimizing and maximizing what we think we can get For, by way of, say, illiquidity return, and then comparing that on a bottoms-up basis for, say, a venture capital return versus, say, a real estate return within the, within the risk parameter of illiquidity.

AI assessment note: “we think of two different things. One, different types of asset classes”

Q And so after that period of time, you come over to Memorial, what did you come to believe about investing in?

A So I remember in one of my interviews for MoMA, the, the trustee had, had ended the interview, nice long, long interview, had ended the interview by saying, Jason, one thing, don't lose money. And I looked at him and then he, he zeroed in. He said, don't lose money in terms of investing beliefs. I think first focusing on goals, one research matters, right? So the investment world is, Uh, is a, uh, is a series of smaller worlds that are quirky, that are funky, that are differently understood, that are driven by some set of underlying fundamentals in the longer term, but many sets of technicals in the near time. Taking the time or finding and partnering with people that can take the time to research and live in those niches can really make a big difference. Second, investing serves a purpose. The investing serves a purpose of the invest store. One of the nice things that we have, uh, at Memorial, and I had this at, at, um, at MoMA as well, of course, is we have only one client. That client has many voices and many constituencies. There's management, there's boards, but there's really only one client. So taking the time to figuring out what's the mission that we're serving, what's the organization that we're serving, What's the real risk appetite? And by risk there, I don't really mean standard deviation or volatility, but I mean, what's the sensitivity to loss? What's the sensiti…

AI assessment note: “in terms of investing beliefs. I think first focusing on goals, one research matters”

Q Curious how you learned this business, because if you start in private equity, there's a particular skill set, right, of finding a deal and transacting a deal and monitoring a deal, working with a company. Which is quite different from the toolkit of most, say, capital allocators, asset allocators. So how did you learn when you first got to the Museum of Modernity?

A So fortunately, one of the benefits of having spent a bunch of years in private equity is, as you mentioned, you get that skill set. It's a bottoms up skill set. It's a granular skill set. It's a spirit of roll up your sleeves, learn on your own, be creative and identify resources. And that all came into play. So at the Museum of Modern Art, it was, here's your portfolio. There was sort of no consultant involved. There was nothing in the way of a team. Uh, there I was, you know, it was, it was a team of one. It was really digging, and it was really learn, and it was really take as many manager meetings as I could. It was really try to network and try to learn from as many people as I could. Committee members were supportive. I developed peers, and I developed colleagues, but it was really learning through doing, and it was really trying to set out organizationally what are the core principles. So at that point, I had lived in private equity. That also gave me a framework for understanding all private strategies. Having lived inside of private equity, how do I branch out? When it comes to public equity, well, that's really sort of similar dynamics and drivers as private equity, but different structures. When it comes to credit investments, I'd done that earlier in my career, so I could extend there. When it comes to real estate, ok, so there, for example, I had the framework and…

AI assessment note: “it was really take as many manager meetings as I could. It was really try to network”

Q those characteristics don't change much. They can, right? People can evolve. They can make all their money and, and lose the curiosity and the drive they had. But for many of these people, they're innate characteristics. So you layer in a certain type of person, and in a lot of strategies that might not be cyclical, say, okay, they're pursuing a certain sandbox. How often do you change your mind?

A In practice, hopefully, if we're finding, if we're aligning ourselves with the right managers, and we are aligning ourselves with managers that are pursuing flexible mandates, come up with a lot of acronyms, one of his FMNs, flexible mandate managers, which is sort of the ideal for us. If we spend the time to research, find the people, understand their worldview, understand their philosophy, understand their risk taking, if we are aligning ourselves with them, Then we can hopefully stay with them forever and, and we'll never, we'll never sort of turn them over. At the other end of the spectrum is we might have a manager that is pursuing a interesting niche market opportunity that we expect to be around for say, I don't know, two to four years that is valuation driven and a manager that might have a fantastic ability to attack or invest, you know, to attack that Market driven opportunity, but maybe that manager doesn't want to invest forever. Maybe they have motivations that are different, but we can align with them for the duration of what we think is a time specific opportunity. We're willing to do that too. That'll have a higher turnover to it.

AI assessment note: “we can hopefully stay with them forever and, and we'll never sort of turn them over.”

Q So what does the homework or the due diligence process look like inside your organization? Once you've met a manager, you like them, you've had a series of meetings, you've asked the questions you want to ask, what happens behind the scenes from that moment until when you're funding or through the committee?

A Sure. So what we're trying to do, just to bring a little, you know, depth to the points that you meant, we're trying to understand everything we can about the manager. So we're trying to understand questions. Qualitatively what it is they're trying to do, where they think they are getting their returns from, and then we're going to try to corroborate all of that through independent sources. We're going to try to corroborate that by speaking to as many people as we can inside their organization, outside their organization. References. References that are provided on list. More importantly, references that we source on our own off list. We're going to try to investigate that quantitatively. Look at the track record. Slice and dice it a lot of different ways and figure out, does it make sense? Is it consistent with the qualitative understanding? We'll do background checks. We'll do reference checks. We'll try to make sure, are we understanding the people that we are aligning with because we are going to trust them? We are going to give them our capital. We will be as informed as we can be, but respect Fully informed. We don't want to get in anybody's way, and we don't want to hinder them from making, you know, from spending their highest and best use of their time. So we're going to try to use independent sources of information, including quantitatively, to truly try to confirm th…

AI assessment note: “We'll do background checks. We'll do reference checks.”

Q What recent piece of information did you read or see in this video social media world that made a memorable impact on you?

A The sharing of investment ideas in granularity in terms of the sort of informal or sort of quasi professional or sort of self-made analysts. So you look at the kind of information that people are sharing On Stock Guru, or Seeking Alpha, and you realize that a lot of the people that are sharing that information, or on Quora, for example, you realize that a lot of the people that are sharing information are not full-time, daytime professionals, and yet they've got an edge, they've got an insight. So when we are talking to full-time professionals, having that bit of information, or having somebody understanding the quality of insight That a non-professional can bring, and then using that to push, probe, and challenge for a professional makes a difference.

AI assessment note: “The sharing of investment ideas in granularity in terms of the sort of informal”

Q ecosystem of talent that all comes together in a particular geographic community. And I'm really curious as these guys talk about The untapped potential in the types of entrepreneurs they want to back. How do you think about the challenge that some of these diverse owned companies or diverse entrepreneurs haven't had that ecosystem of talent around them and they certainly don't. Compared to what exists today in Silicon Valley?

A So I think this kind of gets to the heart of how people interact and the opening up of those avenues for interactions that we've seen that have really been accelerated during the pandemic. It used to be geographically centered, as you noted, and particularly with venture and particularly in California, particularly within the Valley. What we've seen in the past year and a half is the ability to connect with other people to access Access resources to access connections to access people. And then once you have that, though, it's really what you can deliver to that relationship, what you can deliver to that collaboration. And that part really hasn't changed. So the accessibility has opened up because the geographic boundaries have been relaxed through technology and through resourcefulness, um, as inspired through the pandemic. But once you have that access, it really is a question of what do you understand? How can you communicate? How can you support? And those are some of the areas where we see them focused and where we see others focused as well, but particularly where we see them focused. It's on that connection. It's the understanding where the founder has been and where the founder wants to go, what the resources the founder needs. And how you can understand that person's perspective, how you can understand that person's market, how you can understand how that firm is deliv…

AI assessment note: “accessibility has opened up because the geographic boundaries have been relaxed through technology”

Q I'm kind of curious as you go down the road into what becomes a fun two or a fun three, they are so easy to want to root for. How do you go about rooting hard for them with that necessity to have that sharp lens of evaluation when it comes time for fun two or fun three?

A Discipline is key. They've got a lot of things going for them. They are easy to root for, and we think they will win. But maintaining that focus, maintaining that ability and that self-awareness that they have on where they're fitting into the ecosystem, what value they're driving for entrepreneurs, how they're fitting into an ever more crowded space where we met them a few years ago in the last year or two, so many others have come into their space. And it's a much more competitive game as so many different aspects of venture have become so much more competitive in the past year and a half or two years. But maintaining that discipline is really gets to the heart of what you're talking about. Yes, we are rooting for them. And yes, we expect that they'll win. But what we're going to be looking for is how they're hiring, how they're delivering value to their entrepreneurs, how they're maintaining capital focus, how they're focusing on which investments to support through subsequent rounds and which not to. And really that self-aware understanding of where they're adding value and what they're delivering to the entrepreneurs and the broader communities in which they're involved.

AI assessment note: “what we're going to be looking for is how they're hiring, how they're delivering value”

Q As you've done those premortems over time, how accurate have you been in the sense that when something happened, when you exited, how often did you flag it ahead of time, or how long was it something you couldn't possibly have foreseen?

A And what we've learned is that no matter how creative you are, people will always find new ways to surprise. But, but it has, it actually has been helpful, because what it has enabled us to do is to, is to apply learnings from one situation to another. We recently had an I had an opportunity to apply this where, where we were looking at a venture capital manager and we found ourselves identifying a risk that came out of an experience in a private energy situation that clearly it was orthogonal to the, the venture capital situation, but intellectually we were able to take a learning from one situation and apply it in another that in a way that we otherwise would not have and had escaped our forward looking thinking During the underwriting of that venture capital opportunity set.

AI assessment note: “no matter how creative you are, people will always find new ways to surprise”

Q And, and so is that also an important consideration of saying, well, the private market valuations are cheaper than the public market or vice versa, and how do you factor that into the equation?

A Yeah, for sure. Price matters, right? So, so at heart, I'm a value investor, so, so certainly price matters a lot. And with any active strategy, with any security selection, or certainly any, even any private strategy, I mentioned the harvesting or the optimization on the sell, but certainly that links back to the, the opportunity, uh, the valuation on, on the buy. You mentioned comparing managers across different strategies. And one of the things that we've developed is a manager selection paradigm that, that helps us in these trade-offs or helps us evaluate and price figures in. It's the latest part of the, of the paradigm that we've added. For us, when we're looking at managers, what we're looking for is a couple of different things. One, what does a manager believe? What is their core investment philosophy? What's their worldview? Second, what's their investment strategy? How are they Taking that worldview and making it into an economically exploitable game plan. Third is process. What are they actually doing? How are they finding investments? How are they diligencing investments? How are they assembling a portfolio? How are they managing risk? Those are the three components. We think of them as three legs of a stool, uh, sort of like a bar stool. Uh, they hold up the sliver that you see in a profile, uh, Uh, the seats, which is the part that you touch, the part that you co…

AI assessment note: “one of the things that we've developed is a manager selection paradigm”