The Exchanges

Q If you move on to liquidity and illiquidity, how do you think about your budgets for how much you can lock up?

A So when we decided on the 40% number on the 10 plus year liquid type structures, it came from thinking about our ability to rebalance. So we didn't want more than 40 would not allow us to rebalance when we wanted to. And then we thought about unfunded liabilities. So saying, look, at the end of the day, unfunded liabilities and the commitments you make are contractual and callable, so they're leverage, and we don't want too much leverage in the portfolio. And so About 20% was what we were comfortable with in terms of leverage, which if you think about the ratio of unfunded to NAV results in about a 40% illiquid investment. And then on a yearly basis, we try to commit no more than six percent of the AUM to illiquids, so that we don't bust through that 20% unfunded.

AI assessment note: “when we decided on the 40% number on the 10 plus year liquid type structures”

Q How did you get the governance set up so that it was effective and allowed you to do that focus on the process and the people?

A So where we spent most of our time was communication, communication, communication, transparency, transparency, transparency. In that time that I took off between the two jobs, I was also lucky to get connected with a whole bunch of people that were already CIOs. Through my friend Rahul Mudgal, who knows everybody in the world, apparently, and so he put me in touch with great people, and I was able to just show up and say, hey, I'm doing this for the first time. You've done it before, and I just love to learn about how to think about these things. Jim Dunn at Verger, he said, hey, get to know everybody. Get to know all the stakeholders. It's not just your investment committee. It's not just your leadership. It's everybody, and that served me really well, and then Jack Mailer at Cystic Fibrosis Foundation said, look, we're all used to speaking a certain language, But what is useful is to listen and figure out what language the organization speaks, and then contextualize those things in that language. And that was incredible advice. So when I got to Inetai, I listened a lot, and the language was equity and inclusion and representation and all those things, and that the pool of capital is there to provide ammunition for that. We contextualize things in that lens, which was really, really helpful. And then when you think about children's RAM now, it's the language that's spoken is …

AI assessment note: “where we spent most of our time was communication, communication, communication, transparency”

Q When you have just the equity-like and the credit fixed income-like buckets, how do you decide how to size public equity, private equity, public credit, private credit, whatever else might fit in?

A It gives us the equity beta target of .7, and we allocate that across managers and try to manage it to the .7. Within public and liquid realms, we look at actual beta, and then within private realm, we look at an assumed beta. And we think about assume beta in the private side of about 1.4, and then measure the beta of our public equity and liquid managers and construct the portfolio that way. Sizing wise, we look very specifically at what is the risk return profile of each of the strategies that we're putting in the portfolio? What's the liquidity that we're taking on? And where's the firm and its evolution? So we have some pretty broad strokes on where that ends up. Ted, so we generally target about a 50 basis point allocation per fund to venture managers, usually about a one percent allocation per fund for private equity managers, and a three to five percent allocation for more liquid managers, and then adjust those as time goes by. But if you think about our allocations broadly, we have a 40% target to privates, so that leaves us 30% in public equities, 30% in the more defensive type portfolio. So if we sized each one of our Public equity managers are about three percent. That's about 10 managers for us. Steady state. And then on the defensive side, there'll be three percent per managers. And the private's a little harder, given AUM, and so we'd have more venture managers. …

AI assessment note: “we have a 40% target to privates, so that leaves us 30% in public equities”

Q So you step into the seat, two billion dollars of cash to put to work. Not many people have that chance to do it with a clean slate. How did you go about doing it?

A So I initially thought it felt like building a house. You need a foundation, or you need a framework on top of that to drive things. And foundationally, what you needed was strong governance, really good resources, access to great managers, and aligned investment team. So we thought about building that as the foundation. And We were lucky to recruit some amazing people. So Peng Wang, who is the CIO there now, Charlotte Zhang, Julia Riley, Don Wilson, we all built it together, Ted, but we got the foundation right. And then framework wise, we're going to step back and said, look, you know, we're here to provide performance, but performance is an outcome, and it's an outcome of apt investment philosophy, operationalized by a rigorous process, and run by aligned people. So that's the framework we hung on top of everything. And built from there on those three pillars.

AI assessment note: “foundationally, what you needed was strong governance, really good resources, access to great managers”

Q 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. So when you turn to healthcare and technology, you've had very different dynamics, particularly in the public markets over the last couple of years. How have you thought about investing in both of those sectors?

A On the tech side of things, we think most of our exposure will come from the venture portfolio. And on the life science side of things, we spent a lot of time thinking about private versus public. And so where we're expressing the life science view now is in the public markets. And The reason for that is when we look at venture in life sciences, and there's a broad statement, this is not, doesn't cover everybody, but the strategy seems to be to invest in a platform that has multi-molecule outcomes. And in that construct, dollar that goes to a company, it seems like 60 cents goes to building infrastructure and 40 cents goes to R&D. So not super capital efficient in terms of what they're building. And then by the time liquidity comes, it's based on the success of one molecule, which the private fund gets to participate in. And then the other four molecules are up for grabs for public equity investors, who seem to be doing a great job at that. When we thought about those dynamics, it didn't feel to us that we needed to take a liquidity in the life science market. So we ended up and are a lot more public in life sciences than we are private.

AI assessment note: “On the tech side of things, we think most of our exposure will come from”

Q What are some of those things that you've grown to having more clarity about in those markets?

A When we're looking at managers, it feels like we're looking for managers with edge at the end of the day, and if you were to broadly say that you have behavioral edge, analytical edge, relationship edge, information edge, and execution edge, all of those exist in private markets. You can pull all of those levers, and what I realized was it was about figuring out if people had the tools and the skill sets to be able to consistently pull those levers, and Seeing, hey, how do you use your behavioral edge to stay invested longer or stay away from things? How do you analyze something better than another private equity firm? How do you really show up in relationships? Even when you're consummating the transaction and after the transaction, it felt again, you're going to be partners with somebody for like seven years to build a business. There's a way to transact the front end of that in terms of building the relationship. What do you do with your information? And importantly, how do you execute? What does your playbook look like? How's it gotten better over time? How do you buy, build, sell?

AI assessment note: “what I realized was it was about figuring out if people had the tools”

Q What did you find when you showed up in terms of the structure of the portfolio?

A So we had more sub-asset classes. And so the first notion we did is work on those three buckets of philosophy, process, and people. And we worked on collapsing our asset class buckets. So we did that to mirror the notion of an allocation to equity-like and an allocation to fixed income-like. And the second part of that, when the buckets go away, there's certain investments that go away. Second part of that was consolidating the portfolio, which, 12 months in, we took our liquid equity-like portfolio from somewhere around 35 managers to 12. So we're running a fairly concentrated portfolio now, and then structuring the team from being siloed to being generalist, so that they could focus on a smaller number of managers, but also focus across asset classes.

AI assessment note: “we had more sub-asset classes. And so the first notion we did”

Q Why don't you take me back all the way to your childhood?

A I was born in India, and then when I was about three, we moved as a family to Australia, and then to Papua New Guinea, and then I moved back to India in grade level in 12 and went to college there. I grew up traveling a lot. Growing up that way, I think for myself, established my biases towards people. I always had to go to a new place and figure out the people and try to fit in and go to a new place again and try to figure out the culture of the people and try to fit in. People became a big bias for me, and that ended up college-wise me doing hospitality management as an undergrad, because I was like, I like this people aspect of things.

AI assessment note: “I was born in India, and then when I was about three, we moved”

Q Once you arrive at Children's, the hospital system, different operating setup than endowment foundation. How did you think about the investment program as integrating with the hospital business?

A Yeah, going back to those fundamentals of communication and transparency, a very close connection to the operation so we know what the needs of the hospital are was the main focus. I'd say one difference that I've noticed is that people on the hospital side of things have to react to economic realities a lot quicker given what they do and how complex it is and pushing costs through and reimbursement. The conversations around volatility are a lot different. They inherently understand volatility because they go through Operation volatility so much, which was different from the other places that I'd worked, but I think the nature of the capital is pretty similar, so how we put it to work is pretty similar.

AI assessment note: “a very close connection to the operation so we know what the needs of the hospital are”

Q What does your due diligence process look like for a manager?

A I don't think it looks dissimilar from a lot of our peers. We've all been doing manager selection for a long time, but we tend to focus on unpacking the three pillars. What is your philosophy? And definitionally, is it the same as ours? So, If you're saying you run a concentrated portfolio, but you have 50 names, we might have a definitional mismatch on what it means to be concentrated. So it's things like that on the philosophy to say, does their philosophy align with our philosophy, and do we define things the same way? Process-wise, really looking for repeatability, rigor, collaborativeness among the team, and then on the people side, looking first and foremost for alignment. I think our folks aligned with us. And then spending time on culture. So I think those are the broad strokes of what we look for.

AI assessment note: “we tend to focus on unpacking the three pillars. What is your philosophy?”

Q What investment mistake have you made that you'll never make again?

A I made plenty. The one that I got the most learning from was when I was at Spider, we made an investment in an Indian infrastructure private equity fund, which didn't work out so well. And when I went back and thought about my analysis, I was just like dead sure this thing would work because there was a power investments in the fund and thematically it felt like, oh, look, demand wise, India has a lot of demand for power, but there doesn't seem to be a lot of infrastructure to provide it. Oh, great theme. And the second step was, well, they have purchasing power, purchasing contracts. Prices are set in. How could this go wrong? And then it all went wrong.

AI assessment note: “we made an investment in an Indian infrastructure private equity fund, which didn't work”

Q What was it like when you were first in that CIOC?

A Between Emory and Inetai Foundation, I took about a month off, and I remember calling Neil Aronson at Rourke in Atlanta to let Neil know that I was making the move, and, and he was very encouraging. And I said, look, the place I'm going to is a clean slate. There's no team, there's no active portfolio yet, it's liquidity waiting to get invested. And I said, you've built this business, and do you have any advice for me as I go into this in terms of how to build something from the ground up? And he gave me really, really good advice. He said, one of my favorite quotes is a Mark Twain quote, where he says, if I had more time, I would have written a shorter letter. And he said, I encourage you to take time off, if you can, to read a lot, to listen a lot, and then really try to refine what you want to do and how you do it and how you communicate it, and that should serve you. And so I did that, and I listened to a lot of Capital Allocator podcasts. So I took that, I took that month off, I read as much as I could, and I would literally take a walk every day and listen to one podcast. And it's just an absolute treasure trove, because you get to listen to people like Scott Malpass and Larry Cochard, and just these eminent investors that are just sharing all these treasures with you, and it was amazing. So that made me feel a little bit more confident about the transition. So when I got…

AI assessment note: “the place I'm going to is a clean slate. There's no team”

Q So in each of those, there's different dynamics. I'd love to pull apart. You start in India, your home country. What did you find when you decided you want to have some concentrated investments in India?

A Getting concentrated on the public equity side because of valuations in terms of where we started that concentration process was a challenge to say, you know, do we want to, at this point in the cycle, put more money into India? And how that evolved for us Was to spend time in places or in pockets of India where we thought valuations were somewhat more reasonable. So early stage VC was probably one of those areas where we spent a little bit more time, but we had two investment managers that are already focused on India going into the portfolio, which we have kept and tried to size up given we think they hold some stuff that's a little different from others.

AI assessment note: “Getting concentrated on the public equity side because of valuations... was a challenge”

Q As you built out the structure of this portfolio in your image, and then look to enhance on the margin, I'm curious, what are the things beyond a roster of managers that you're implementing or would like to?

A As we define our objectives to deliver on top of the benchmark, to make sure that we're providing for today's spending, compounding capital, one thing that we try to think about is being the best manager in our portfolio of managers, and I think we will never get there, and we shouldn't ever get there, but it's an element of learning from the folks that we're invested with and seeing what we could bring over. It translates into working on our processes, And making sure that we refine them over and over and over again, and going back and doing analyses on what worked, what didn't, what was skill, what was luck? Where should we go? Where shouldn't we go? And it's taking a page from Alpine investors out in San Francisco, Graham Weaver, where he says, we try consistently to water the flowers and take out the weeds. And that's a part of what we try to do too, to look back and say, what could have we done better? What didn't we get right? What did we get right? Process wise. And then people wise, it's about growth for everybody. We've all been in places where people want to grow. And so constantly thinking about where people can grow within the team. I think the generalist model works very well for that in terms of people have their bias and they've spent time in one place, but they grow and learn more in another place.

AI assessment note: “It translates into working on our processes, And making sure that we refine them”