The Exchanges

Q So outside of the notion of diversifying somewhat away from the foundation, the business, How did you get into venture capital private equity?

A So our chairman was at that point at Sir Roger Gibbs, very involved with the Getty family and the Getty Foundation. And through that had met Jim Bailey, one of the founders of Cambridge Associates, who at that point had one office in Winthrop Square in Boston. And Jim and his team said, look, you're very similar to a U.S. foundation endowment. Let us Work with you, introduce you to this group of people, because there wasn't anyone like us in the UK. At that point, Oxford and Cambridge weren't managing their endowments in this way, and there was really only pension funds, and pension funds have come under a lot of pressure and regulation, and so the way they invest today is very different from perhaps the way they invested 25 years ago, which was a little bit more similar to ours. Us, but not quite the same. So with venture capital, it was Jim that introduced us to this whole idea. And one of our governors had himself been a venture capitalist. So he thought it was a splendid idea that we did this stuff. So, you know, Sandra, go out and find some groups.

AI assessment note: “So with venture capital, it was Jim that introduced us to this whole idea.”

Q What are the lenses that you use to decide, if it's not just performance, that one of these farm team managers is making it?

A It's how they're building out the team around them, because often you'll have, you know, one person and a couple of analysts, and maybe a CO that's come in from a prime broker, or whatever, and it's watching them build their organization, watching them how they communicate, how they deal with difficult periods, watching how they build out their investor base, watching when they call capital, and over the last two weeks, A lot of our managers have called capital on the public side. So it's watching them, understanding them really, and I know our team spend a lot of time with them on their positions, how they think about their positions, why they've sold things, why they're buying them, how they think about the overall portfolio management as well. So there isn't just one thing. I'd love to say it's just a whole different group of things, and some of them are better at some things than others.

AI assessment note: “It's how they're building out the team around them, because often you'll have”

Q How do you go about making decisions with your team?

A So one of the things about our structure is that OUEM, Oxford University Endowment Management, is a regulated manager, so we make all the investment decisions. Our investment committee are there for guidance, policy, a fantastic resource to have, but effectively, we as the team make the decisions. We meet on a weekly basis, but we have open dialogue. The team will all have areas or managers that they're responsible for. And the directors are responsible for making a call as to when to add, when to redeem, trim on their portfolio. So they have a lot of responsibility, but we have open and frequent dialogue with that. We have a very detailed process on what information has to be included. But, you know, you can imagine over the last week there's been a lot of dialogue.

AI assessment note: “we as the team make the decisions. We meet on a weekly basis”

Q You've spoken some about some critical aspects of private equity. What are your views?

A I have raised the issue of fees. I think for me is you really have to look at what is really driving these groups. Is it the carried interest and the profits they're making alongside you when they sell or do a fantastic job and make great investments? Or actually has the revenue from management fees got to a point where the carry is just the icing, you know, it's a little cherry on the cake. It's not actually what the organization is about. And I think, unfortunately, what happens is, or if organizations raise significantly larger funds, but don't necessarily invest in their businesses, that profit from the management company can be a real driving factor. And I think that is just, every investor has to really make sure that they understand what is driving the managers, and if their interests are aligned with But there's, I can't say there's a particular fee that's right or fee structure that's right, but I would just say that something we look really carefully at is the management company and how much, uh, P or, uh, usually very little L is going into the manager's pockets on an annual basis.

AI assessment note: “I have raised the issue of fees. I think for me is you really have”

Q Well, why don't we just start with your background and how you got initially interested in investing?

A Well, I wasn't somebody who read the Financial Times growing up. I actually wanted to be a ballet dancer. Then a journalist. I did a general degree in business, did a lot of theory, capital asset price model, absolutely convinced myself that nobody used this stuff, and when I graduated, the notes all went into my parents' loft, like everyone else. But I really fell into, I bumbled into investing. I, after I graduated, graduated in 91, it was a pretty rough time in the UK, particularly for graduates. There weren't many roles. I was in Edinburgh. At this point. Worked for a short time for a stockbroker. A very old-fashioned stockbroker. Doesn't exist anymore. It's been M&A'd out of existence, but my goodness, that was an eye-opener for me.

AI assessment note: “I really fell into, I bumbled into investing.”

Q And what evolved over that period of time in your thinking?

A I think it was growing different types of investments. Great thing about Wellcome was we tried everything. We tried co-investing, direct investing, emerging markets, very emerging markets, markets that never quite merged. We did hedge funds, but never really thought of them as an asset class. We were always encouraged to look at new things, very much focus on the amount of pounds, millions you could make. As opposed to outperforming benchmark. And we always had that freedom, and it was fantastic. But going from two and a half billion to fifteen billion means that some of the funkier stuff we did was just that little bit harder. And to make, we always focused on contribution. It had to be, really had to make a difference to the bottom line. And that's tougher as you get bigger, because your check sizes are bigger as well. And so that sort of takes you out of some parts of the market.

AI assessment note: “going from two and a half billion to fifteen billion means that some of the funkier stuff”

Q And how have you measured your success at that judgment?

A Oh, crikey. So we very much, luckily now we have a 10 year track record. And so we'd say, okay, our investment objective is to annualize a five percent real over extended periods of time. And we've done that. There will be absolutely periods where we look like geniuses and periods where we look like, frankly, look like idiots. But how do we calibrate, I think, is more, of course, you have the total return of the fund, but we go through each position quite regularly and say, okay, what do we think the expected return or outcome of this individual investment can be for the next three to five years? And sometimes the opportunity set just disappears, and distressed credit has been one of these areas. It's been so tough for managers.

AI assessment note: “our investment objective is to annualize a five percent real over extended periods of time.”

Q And what year was that that you came across? What was that first year or two like as you're kind of going through the financial crisis with a portfolio you probably didn't love at that point in time?

A It was really interesting. So there was no infrastructure at the university. It had been done by a committee and a treasury team. And one of the things that Oxford has done is we've actually set up a separate investment management company. The first thing I did was hire my chief operating officer from the Wellcome Trust, and I did have to go and beg forgiveness from Danny for stealing her, but I wanted somebody I knew and trusted. She'd been fantastic at Wellcome. She understood all the various asset groups. She was a chartered accountant, so really needed a good right-hand person, right-hand man, but she's a woman. So what did we do? Well, we sat around trying to figure out actually what assets the endowment fund owned, Because in a university that's not always quite clear, there can be a little bit of fudging that goes on between things that have been gifted that they can't sell, and so I said nothing can be in the endowment pool that I can't sell. So there was a little bit of organization that way. We had to put a custodian in place, we had to put a separate banker in place, and we were starting all of that, um, within about two months I was called to a meeting. And it was with the vice chancellor, and then one of the colleges, and it's very public, and Mike Moritz of Sequoia. I said, oh, hi Mike, how are you? Didn't know you were in Oxford alone, which was quite foolish of …

AI assessment note: “there was no infrastructure at the university. It had been done by a committee”

Q And what did that look like when you put it together?

A Well, it's evolved over the years, as you can imagine, because it was really only Faye and I at the beginning. We started to build up our team early, 2009. Jack Edmondson came on board. He's our deputy CIO. And then we've just grown the team over time. Now there's 24 of us in the business, but not also did we have to build our portfolio. We had to figure out how to market to investors, write letters to investors, Turn up to investors, investment committees, all while trying to build out this portfolio and our business. So it was an interesting time. So very much equity focused, absolute return focused. We knew we were going to have a big slug in private equity and venture capital. And then with our equities as well, we really wanted to have smart managers whose interests were aligned with our own, and we were not there trying to outperform random market indices.

AI assessment note: “We started to build up our team early, 2009. Jack Edmondson came on board.”

Q 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. And then as you walk through those sort of three lenses, talent, themes, and inefficiencies, let's start at the bottom with these kind of inefficient places. What's the most recent example of something you've been excited about that fits into that particular group?

A The one that's really exciting, I can't actually tell you because there's not much of an opportunity set, and if capital comes into it, it won't be inefficient. But I watched this space in a couple of years' time. It just plays brilliantly to everything that's going on at the moment and our long-term advantage. But two areas I can talk about. One in the UK is long-term holding of what we call strategic land. And that is taking an asset that is currently used for, say, industrial use, and particularly in large metropolitan areas in the UK, huge pressure on housing. And so you can see that this industrial use, where it is today through increased transport links or, you know, just better transport links, will eventually become housing. Now that might be a 15 to 20 year play, but for us, for the endowment, we can hold on to that. Perhaps most top of mind for a lot of endowments and foundations is China. I mean, these markets are so inefficient. You've got to have the right managers to make money in these markets. So that would be two areas where we think about this inefficiency.

AI assessment note: “One in the UK is long-term holding of what we call strategic land.”

Q So it's a mix of the two. Yeah. What are the biggest areas of growth for you and your team over the next couple of years?

A Gosh, I think for us, probably more on the thematic side. We've identified two or three things, all related to resource efficiency, where we actually just want to spend more time on understanding that. We've got a great group of public equity managers. We've got a little farm team. Again, that will always be something that's constant in the portfolio. We back quite a lot of new private equity groups. People, experienced investors that have come together. And I think that's an incredible thing about the, the industry is that these young, talented guys who maybe are just under the GP level, but a little bit frustrated are getting, because there's a lot of capital, braver and braver at spinning out. And one of my colleagues, David, is fantastic in the UK market of being aware of who's good and that. So that's an area that we will continue to build and develop. Our real estate or our property portfolio is an area we really want to, to build out even more. It's been quite tricky in the UK. Pricing's been very rich. We might have more of opportunity now.

AI assessment note: “I think for us, probably more on the thematic side.”

Q What do you try to do differently from the other pools of capital you respect the most?

A I think rather than deliberately try to do something that's different, I think we try and do what's right for us and our pool of capital. And that actually means that you have to be pretty strong, you have to have a very clear investment philosophy and approach, and you have to be comfortable with missing out. There is an advantage to us being in the UK and a disadvantage to being in the UK in that we've got great relationships with our endowment foundation peers, but we don't have that fear of missing out all the time. So I think we try and build on what our skill set is, build on what our investment committee are comfortable with, what our investors are comfortable with as well. And so we don't like to be different for different sake, but if you think about us compared to an ENF, we are business. We get inbound inquiries, but we have to convince investment committees to give us their money and lock their money up for five years. We have to make sure they know and understand what our performance is over that time period. We do not report quarterly numbers. I couldn't even tell you what my quarterly numbers were. So we very much, it's all about having a long-term view. I don't know if that makes us different. So we're structurally different. We got a lot more stakeholders or investors, and we're very much focused on having a very simple, concentrated approach that suits us and …

AI assessment note: “rather than deliberately try to do something that's different, I think we try and do what's right”

Q In theory. Then the last lens you talked about was themes. How do you build themes into the process?

A So I think they're not novel. Most people have them, and you know, one of our, I'll go through two of our sort of enduring themes, and one, one is really the, the shift from the West to the East in the terms of consumption, and watching that over the last 10 years, and particularly in China. So that has been one of our themes, and that's played out very well, and that's been reflected in both the public and private portfolio. One we've had for a long time, although it's top of most people's agendas now, is this idea of, we called it resource efficiency. It was pretty clear to us as far back as 2009, 10, that we would have to stop trashing the world in terms of its natural resources. You know, we'd have to really start using less so that we were outputting less, particularly the needs of carbon. So resource efficiency for us has been a long enduring theme, although we really struggled to find anything that was data driven, because I think the whole area has sort of become a bit muddied with ESG, SRI, ethical investing, and no one really knows what they mean by these phrases, but we always thought about it as resource efficiency.

AI assessment note: “I'll go through two of our sort of enduring themes”

Q How do you view that interest in the issue of climate change in particular and with that lens in your portfolio?

A So I think that you can imagine we have many engaged students, and we have some of the leading climate scientists at Oxford, so for us it's, it's always been on our agenda. I think for us it comes back to this resource efficiency. There is no doubt that we have to stop polluting the planet, and carbon is one of these areas. So I think that industries and companies, we just have to get better at understanding What the output is, and at the moment, there's so many different standards, there's different ways of doing it, so I think that's one of the clear things that we actually have to have agreement on, and how do you measure this, because if you can't measure it, you can't reduce it, and so I think that if we take it again away from the ethical, moral areas which tend to be Very difficult for people to get their arms around in some way it is. And take it actually to, like, companies just have to manage their resources. They have to manage what they're outputting into the environment. They have to be responsible for that. But let's give people clear tools that they can actually measure it by.

AI assessment note: “I think for us it comes back to this resource efficiency.”