The Exchanges

Q After some pretty reasonable stretch of time, like perhaps some other people before you, you left Cambridge to come to Amherst. What was that decision process for you?

A I always had in the back of my mind being a CIO, and by the time I had sufficient time under my belt at Cambridge, the choice before me was, you know, stay at Cambridge and act in that capacity or actually become a CIO. Towards the back third, I would say, of my Cambridge experience, I was starting to become totally disenchanted by the asset allocation model. I was looking at the way decisions were made and thinking to myself, this is not the way I want to make decisions. I am not good at predicting what asset class is going to do well over the next couple of years. I have some serious reservations about these long-term expectations around asset class performance. Also, all of these asset classes overlap. These delineations and asset classes don't actually reflect the manager opportunity set. I would much rather focus on decisions that I think I can have conviction in, which for me at that point were just bottom-up manager decisions. And I was trying to do that basically with some of my clients, and it is an incredibly hard thing to do in the governance structure. It's just so, so hard. And that mostly has to do with issues around short versus long term feedback loops and thinking. So it's becoming increasingly clear to me that I would like to try and invest. It's hard for me to do that here. I would love the opportunity to do that somewhere else. Also, I would say having a bun…

AI assessment note: “I always had in the back of my mind being a CIO”

Q I'd love to dive into how that works. So there's this framework or lack of framework of asset allocation versus manager selection. How do you describe the approach?

A What we are trying to do is have a collection of relationships, partnerships in the portfolio where we have a tremendous amount of conviction in these managers. The conviction grows over time, which, by the way, is a huge thing and is not always the way the endowment world thinks about things. We need to have at least a ten-year thesis. If we are going to do this bottom-up competition for capital across the entire portfolio framework without the quote-unquote rules of an asset allocation policy, my view is that we need to have a very concentrated portfolio so that we can understand the portfolio deeply. So we have less than 40 managers in the portfolio. Half of our assets are in our top 10 managers. And the general framework is you initiate a relationship. If the relationship works well over time, you let that manager get big over time. So there's this journey from small to large in the portfolio that happens as the managers prove out. You make a tremendous amount of money on that ride. And then as managers reach our top 10, they're managers that we trust a ton. They're managers that have produced a tremendous amount of value for the portfolio, and then they become sources of capital because we need to spend, just as a reminder, four to five percent from the portfolio every year. So that's the shape. A few other things to say. In this kind of a framework, one of the central ten…

AI assessment note: “we have less than 40 managers in the portfolio. Half of our assets”

Q Why don't you take me back to your growing up?

A I grew up overseas. I was born in Singapore, lived in London, Tokyo, and my parents moved to India when I went off to school. It was a unique childhood, and that international adventure was a huge part of my childhood and school. I loved school. From a very early age, I loved math, and I loved reading novels. So right brain, left brain was something that has been the heart of my existence and, of course, carries through today. I'm I went to undergrad at Brown, and Brown, like Amherst, has an open curriculum, so there are no requirements. I was a math major, and I finished that within two years, and then I took all English courses and bio courses, so this is incredibly nerdy, but the day that the course catalog came out was one of my favorite days of the year, which is so embarrassing to admit, but it really is true, and my college career really was like a survey of everything that I thought was cool.

AI assessment note: “I grew up overseas. I was born in Singapore, lived in London, Tokyo”

Q What did you take away from investing for different types of pools of capital?

A In terms of the breadth, different objectives can have really meaningful implications for how you might manage it. And I'll just use an example. I worked very closely with Margaret Chen for many years, and I worked with her on the settlement trust clients. The quick and dirty on asbestos trusts is they tend to be low to mid single digit billions. So these are large pools that were created out of the bankruptcies of these companies to pay out claims against asbestos litigation for people who are exposed to asbestos. Call it 10 to 30 years ago. They pay out half their value in five years, and then there's this very long tail. The way that these pools are managed and overseen is they hire an advisor, and then they meet monthly with the trustees that oversee the trust, as well as all of the lawyers that are involved on the litigation side. And so this is a very different set of people than the Investment Committee for the Museum of Fine Arts Boston. So You actually have to come up with a completely different solution for how to invest these assets. That's just one example of how it obviously matters what it is you're trying to do and what is actually going on with these pools. And also endowments are super interesting. They are a passion of mine, but they are just a small slice in the globe in this institutional asset investing field.

AI assessment note: “different objectives can have really meaningful implications for how you might manage it”

Q Were there any of those management lessons that you learned in that early year that you still apply today?

A Very basic things like treat your employees well and be honest. It's important how you're managed. And it matters in terms of the productivity of the crew and how profitable the business is going to be and who your next client is going to be. Oh, and by the way, how beautiful the garden is. It all matters. And it's funny because I had all these jobs. I worked for an ecology grad student in college. I worked for a fruit fly lab. I did all these really random disparate things. And my main takeaway from all of those experiences was the most important thing in terms of your quality of life are the people. Doesn't matter what you're doing. Are you picking books? Are you pulling weeds? Are you trying to figure out some science? Doesn't matter. It's just the people.

AI assessment note: “Very basic things like treat your employees well and be honest.”

Q So I'm curious if you go back a couple of years, this modeling of how you're going to size commitments to privates that isn't dependent on NAV. What does that look like compared to the alternative?

A Most private commitment modeling, there is a cell in which you input your private target. That's very, very typical. It really should matter what the rest of my portfolio looks like. So that's goal number one. Goal number two is build me a model where I don't feel better when my private portfolio is cut in half. I want to feel bad when that happens. And also the flip side of that, where we don't get punished when our private portfolio doubles. And then the other important piece is I need my private portfolio to produce its proportionate amount of cash. So we source spending every year. If I have half the portfolio coming in our privates, it had better produce half of my cash needs. So those were the key tenets. I have no control over private marks. The one thing that I do have control over is my commitment. Amounts. And oh, by the way, that's what gets me into trouble in times of crisis. The private NAV doesn't get me into trouble in times of crisis. It doesn't matter. The time that it matters is when it flows through to spending. But for Amherst, that is extremely lagged. That takes years to flow through to spending.

AI assessment note: “Most private commitment modeling, there is a cell in which you input your private target.”

Q 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 adjust when before a couple years ago, the amount of cash you were generating for the private portfolio could have been pretty meaningful, and then that's effectively dried up?

A So that's the thing. There's always the risk that it will dry up, and that's why you run the stress test on the portfolio. That's why we hold four to five percent of our portfolios in cash. That's a really important feature, but through this entire time period, our portfolio has been cash flow positive, and I think that's a function of incredibly high-quality managers that have continued to push capital back to us. I mention all of this because the key risk in all of these endowment portfolios, no matter what your investment framework is, Is getting through periods of extreme stress. There are other risks, of course, but that is a key one. So we spend a tremendous amount of time stressing the portfolio and figuring out what we would do in those situations. You need stuff in the portfolio that you can use as sources of funds during that period of time. What you don't hear me saying is I need to make sure to protect the downside in terms of a mark to market on the value of the portfolio. That matters to some degree, but it matters a lot less than cash flow that I can get To meet my cash needs during stress. In a nice way, those two things do line up. But I think it's important to acknowledge that the way that many of these endowments are invested, the private portfolios themselves aren't mark to market. There's a lot of noise in terms of the actual mark on these portfolios that w…

AI assessment note: “That's why we hold four to five percent of our portfolios in cash.”

Q How do you think about the flexibility of pursuing an attractive investment opportunity that may not be present in your portfolio?

A That's hard. Our approach is not quite that. A nirvana for us is when our current portfolio produces our next portfolio. So we have amazing managers spinning out, or our managers are calling us and saying, you better talk to this person. I know them from when I was just starting out in this business, and I think they're amazing. You should invest with them. So we spend a lot of time developing those relationships so that we can get that call. A corollary to that is we try to be as smart as our portfolio. This all works extremely well if If we have a really high quality portfolio that produces a really high quality portfolio, and that gives us ideas on where to invest. What that means is the pressure is on to keep the portfolio as high quality as possible and to try and make sure within the parameters that we have set, which is super long-term partnerships with amazing people that are trying to build amazing firms, we want to have as much difference as we can so that we see a lot of interesting things. An important result of that is that you tend to invest with generalists because we do not know what the market is going to look like in 10 years. We need these people to be building investment processes and have diverse enough interests that they can thrive across a number of different market environments. So we have a lot of generalists in the portfolio. We also specifically have…

AI assessment note: “Our approach is not quite that. A nirvana for us is when our current portfolio”

Q So when you had that idea from the outside, how do you then bring it into an actual opportunity at Amherst?

A Okay, well, so this is where I feel like I hit the absolute jackpot, and I still can't even really believe my luck. When you look at the history of the Amherst portfolio, they have had unbelievable success and productivity in supporting managers for very long periods of time and really leaning into relationships. Across a wide variety of asset classes, we are talking 10, 15, 20, 30 year relationships, Being highly, highly productive in the Amherst endowment. And when I joined the Amherst team, I could see this, and the committee itself was extremely supportive of an approach that leaned into that clear edge that Amherst had in its portfolio. I always talk about the Amherst portfolio as being a gift. It was an incredible gift. It's an amazing portfolio of relationships. And when you have that history Of success, you can actually very naturally make this argument that this is what we should be doing going forward. They did have a more traditional policy portfolio that was written down in paper, but in actuality, the way that they had managed the portfolio over time was a much more bottom-up, flexible framework. The thing that Amherst gave me was this bridge from what I had learned at Cambridge to what we were doing at Amherst now, which is The way that you do the bottom up competition for capital across the entire portfolio, more flexible framework is to lean into relationships. …

AI assessment note: “you can actually very naturally make this argument that this is what we should be doing”

Q When you manage a portfolio this way, what does it take in terms of your governance and your investment committee to pursue an approach that doesn't have the same type of vocabulary or guardrails that people are accustomed to?

A Well, the committee has been amazing, and I will say it has been a journey that we have absolutely been on together, so it didn't happen immediately. I do think that this is an approach that was largely happening already. There is an element here where having a history of success doing this is extremely important, and Amherst has that, so that's amazing. And having a committee that works together with the investment team and builds conviction alongside us, and in some cases, I have committee members that had conviction around this, Approach way before I did. So they have helped me. They're amazingly supportive, and it's terrific. I make the joke that when I was at Cambridge, I loved my committees, but I would go to committee meetings and feel like I had to strap on the body armor to go into battle. And now the committee is like a board of advisors, and I feel like we're all very, very focused on the best solution for Amherst, and they are extremely supportive in how we're going about doing that.

AI assessment note: “having a history of success doing this is extremely important, and Amherst has that”

Q As you look at your portfolio today, over the next couple of years, where are you excited to be leaning in?

A What we are trying to do is invest with a collection of great people, and then some of them will do really well. I think there are some really interesting pockets of the world. I am excited for the opportunity set for our more flexible capital managers. I think this is a very interesting time for that because the world is changing, and it does feel like that could be a great opportunity for them, and some of them have done very well recently, so we're excited for that. I think biotech is a really interesting place to be investing in the public markets right now. But generally, what I'm really excited to watch is to see which of our managers are really going to capitalize in the next few years. I'm also really excited to hopefully continue to get some next generation managers into the portfolio.

AI assessment note: “I think biotech is a really interesting place to be investing in the public markets”

Q So once that gets brought to a committee, a thousand investment committee meetings, what happens in the committee meeting that creates the difference between a highly functioning group and one that struggles?

A So the first thing I'll say on that is that there is no one size fits all. The way that you make decisions and the way that you govern these portfolios has to take into consideration the portfolio itself, the history of the pool, and the people around the table. And that includes the advisor that you've chosen, that includes the committee members, that includes the staff. The people are incredibly important, the history is extremely important, and the portfolio itself is really important. Every solution needs to reflect those things, and I would say when you are in the process of figuring that all out, the solution that you come to has to have very clear delineation of roles and responsibility. A lot of institutions fall down is if it's not clear who is deciding what. The other place where you can fall down is if you have a solution that might be clear But it doesn't even remotely take into consideration the history or the portfolio itself, then the whole thing doesn't hold. So what you're really trying to do in any kind of a governance structure is figure out a solution that has the highest probability of sticking for the longest period of time. Because we are in the investment business, things don't work all the time. You need a process and a solution that is as robust as possible. And you can get that robustness Through something that truly reflects the assets around the tab…

AI assessment note: “A lot of institutions fall down is if it's not clear who is deciding what.”

Q What are the things that you like to see when a manager's going through a tough time?

A It goes back to what I was just saying. It's like the stages of grief. From the outside looking in, we really have no idea, and sometimes it looks obvious, but it's not. Nothing is actually going wrong. This is just the markets sending us false signals. That's it many times. We want to have very productive and engaged partnerships with these managers, but every manager is different in terms of the way they engage with LPs, and we take a flexible view there. We will meet managers where they are in terms of their preference on that. What you don't hear me saying is they have to call me monthly or they come and see me every quarter or whatever. There's nothing like that. It's more like I want to hear that you're acknowledging that there is something going on. You are letting us know at some point that this is what's happening and you are dealing with and being thoughtful about that. The other thing that I think it is important to note here is the ability to For managers to actually just do what they think is right based on their wealth of knowledge and experience and all of the work that they have done is incredibly important, and that is so much about partnership and the LP base giving them the freedom to do that. And that's as much about me as it is about them. They need to have the ability to reflect, evolve, and problem solve. That's important. And then we need to have the pat…

AI assessment note: “I want to hear that you're acknowledging that there is something going on.”

Q How do you work with your team when there's such low turnover of ideas?

A There's a low turnover of ideas, but we do spend a lot of time talking to new managers. It's interesting because I was trying to think about how much time do we spend with current managers versus prospective managers the other day, just as a sourcing exercise. And it's actually somewhat hard to differentiate between the two because any time I sit down with a manager and I'm talking to them about some space or given asset or industry or whatever it is, You're learning about your current managers because they invest there as well. I do think it is fair to say, though, that for this approach, it's not a sourcing oriented approach. 100%, obviously, because we just don't do that much. It's more of a keep the bar incredibly high and very occasionally something will clear that bar.

AI assessment note: “we do spend a lot of time talking to new managers”