The Exchanges

Q Can you share an example of how having that continuity and kind of institutional knowledge over the years has either translated into a good or better investment decision or something that you imagine might have gone a little bit differently if you didn't have the same type of consistency?

A No, absolutely. So the number one example I can think of would be going through the global financial crisis where everybody's sort of rethinking Everything, right? Liquidity. Strategy. Philosophy. Where, where do we go from here? The, we didn't know where the bottom was. And you're, you're tested, right? And, and you're thinking, okay, how far down is this going to go before we do something different? We never wavered, of course. I mean, we, we believe in our program and, you know, there was not one single voice that felt we should be doing anything differently than what we're doing. We stayed the course. We rebalanced as we could. That was difficult. Because of liquidity, so you're a little more cautious there, but we came out of that very well. I think we were the only endowment in the top 20 major endowment that did not cut endowment spending. We actually didn't cut. We had a flat year and then up again, so that was very unusual. So just, just that we were on the same page, we, we had a long-term approach in philosophy. We weren't gonna change that. It was a very difficult time, but we stayed with it, and you know, we went a little over seven billion pre-crisis to high fives, and now we're at 12. So by not panicking and staying the course. So having, having a group that's been together a long time really helped work through that. I get another example. We bought our first si…

AI assessment note: “the number one example I can think of would be going through the global financial crisis”

Q And do you take a asset allocation framework approach? Are you more, as you're talking about it, it's more, let's find best of breed managers. Obviously they own certain assets and that'll roll up. How top down is it?

A Yeah. So when we first, when I was first evolving in our program, we really needed to set some asset allocation targets. I needed to get the board comfortable. With, okay, we're gonna do this much in private equity. We're gonna do this much in venture. So, I think, I thought it was important at the time to have a pretty good structure in place that was a clear asset allocation plan, and then within that, we were just looking for the best people. And so, I think that, that, that evolved. Then it did become, honestly, very bottoms up. As we, as we matured and grew in size, you know, we've had dramatic growth. Like I said, I was, it was four hundred million dollars when I started. Now we're, our pool's over twelve billion. So, So as we evolved and matured, it became much more about, about the skill and fit with our program. I will say, we've come back a little bit, when you think about some of the market changes, the changes in market structure, the, the movement to passive. I think portfolio construction techniques, at least in the public side, have sort of come back, and we, I think you need to think about those a little more.

AI assessment note: “Then it did become, honestly, very bottoms up.”

Q I don't think this will ever come to anything else. I think you're going to be here for a long time, but what profession, other than investing, might you, uh, want to attempt?

A Well, I, I, I thought I might be a football coach at one point, you know, years ago, before I started here. Thought I might coach, teach and coach high school football, maybe go on to college or something. Probably too late for that. I, I'm, I serve on the board of the Vatican Bank, I think you might know. I was appointed by Pope Francis to that last year. I'm, I'm working with them on some transformational things in their asset management, which we're hoping to get done. I find that extremely attractive and fulfilling. We started this separate company, a not-for-profit called Catholic Investment Services, with the Jack Brennan from Vanguard, who's also chair of our board. We're trying to build that. We have a great staff there. My team is, is involved in helping get managers to be part of the program, but I think, you know, when you think about 4000 Catholic charities in the U S about a hundred and fifty billion aggregate dollars. Most of it not particularly well managed. And this is a problem across all faiths. You know, I just felt there's something I could do to help with that. So I would very much like to continue to help them and maybe 10 years from now I'll help them even full time, you know, or do something to really move that ahead.

AI assessment note: “I thought I might be a football coach at one point”

Q Did it work in terms of the intellectual transfer of your team being responsible for building, building their knowledge base to make better partnerships?

A We are so much savvier real estate investors than we were prior to that. No question. You know, dealing with property management and all the details of a Of a building, and, and even now as we interview kind of restaurant operators, we're putting in a real nice high-end restaurant in the building. Just doing that, you know, has been fascinating, and I try not to get too, you know, spend too much time in those kind of details, because I want to stay a little, a little higher than that, because there's so much going on, but I've learned a lot from that myself, so I love sitting on those meetings with my team, and being involved as much as I can.

AI assessment note: “We are so much savvier real estate investors than we were prior to that. No question.”

Q 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. Let's dive a little bit into the manager selection process. It's such an important part of what drives the returns. How do you go about sourcing these managers?

A Yeah, so a lot of ways. I mean, we, we, we certainly get a lot of ideas from our current partners. No question. They're the smartest people in the markets we know, or we, we wouldn't be with them, right? So they're, they're really good. We're always asking them for ideas. They tend to know other smart people in their space, especially as they evolve. So a lot of ideas, uh, from our managers, uh, We also, there, there's just a lot of friends of Notre Dame that, that we've met over the years, alumni, non-alumni, parents of kids, just different folks that we come into contact with, and I have a, a discipline where I, I sort of have a call list, and my staff does too, my senior staff does too, and we just touch base with certain people periodically, and say, you know, what are you seeing? What should we be looking at? You know, is there anybody out there you, you think is of interest? And so we'll, we'll, we'll just try to follow up on that, and you know, a lot of the time there's nothing particularly new, but, but every now and then there's something very interesting, and you get one or two ideas a year from that, it's great. So we've, we've, I think, I think you do have to be more entrepreneurial. Use the tools you have available. The, the, the public sources are now a commodity, and there's a lot of them. People forgot how to get on the phone and call people. I tell my students …

AI assessment note: “we certainly get a lot of ideas from our current partners.”

Q And do you tend to learn that following a softening and returns?

A We've tried to get better at anticipating that by, by, by just asking the right questions. Yeah. You know, I mean, how are you spending your time? You know, what are your hobbies? What do you like to do? How, yeah, it's hard. It's the ultimate you make judgments about, about their activities and focus. We try to anticipate and then move on While things are still good, but that's just, the timing of that is very hard. We're doing, we are doing that better than we used to. It used to be a little more after the fact. We'd see it, and then we'd say, all right, well, we're moving on. But, but we, I think, I think my team's gotten better at anticipating some of that.

AI assessment note: “It used to be a little more after the fact... gotten better at anticipating”

Q So I want to close and move towards a couple of closing questions with, with something that I've thought a lot about. This is clearly a mission-driven organization and very personal to you and, and how often when you're going through a tough moment does that sort of come into your head? Is it every day?

A It's every day. It's every day. Yeah. I wake up every day thinking about that my work today is going to be important to this place. You know, one way or the other. It's going to, what I do today is going to be built on in the future and other things. So, whether it's a student I see or a faculty member, just that being open, you know, hearing their perspective. They want to talk about social responsibility, which we have a longstanding social responsibility policy as a Catholic school. It's very rigorous, and they, it's, it's nice for them to come in and want to understand that, but then they have their own perspective on that. But just being available, And, and, you know, look, we're busy, right? I travel a lot, I got a lot of meetings with managers, making time for that, but every one of those is important, because that, we're a university, and they need to understand, you know, how that all fits in. So just knowing that, and taking those meetings, and those, those half-hour conversations, you have to have that perspective. If you're not thinking that way, you won't take those. And I have a lot of peers who don't do any of that. They just won't. And, Maybe that works at their institution. I don't think it really works here, and I think it makes my job easier if I do that. And then I've got, I've got emissaries all over campus who, who know the facts, and then they can tell th…

AI assessment note: “It's every day. It's every day. Yeah. I wake up every day”

Q That's true. What today drives the core beliefs that overlie the portfolio?

A Well, we never called it the endowment model back when I started. That came from the press later. I'm sure my peers have been around would say the same thing. We felt that being a spending institution and needing high real returns, we had to be in equities. But we wanted to diversify because we didn't want the risk of a single category. Pretty basic portfolio theory, to be honest. The twist was that the big endowments were really savvy and At developing long-term relationships with the top people, getting them early, getting good alignment with them, and then staying with them for a longer period of time and growing with them. I think that large endowment funds have done a really good job of that, unlike a lot of other kinds of investors. Some have now caught up. It's a lot more competitive today, right? But I'll give, I'll give a lot of credit to Jim Bailey at Cambridge because Jim assembled a group of endowments in the seventies to talk about these issues. And that, from those meetings, came the endowment model. Now, the bigger endowments were able to execute it faster, because they, they were, just had the resources, so the Harvard, Yale, Princeton. But then you think about Notre Dame, and Northwestern, and others, as they started growing, they were doing the same things. But it was really the philosophy that Jim and his colleagues sort of put out, really did help move this …

AI assessment note: “being a spending institution and needing high real returns, we had to be in equities”

Q What's the biggest current subject of debate in the office about an investment topic?

A Yeah. So all the geopolitical stuff, of course, is massive. And of course, we can't control any of that. So You know, we talk about it, you know, what would we do in a crisis? What would we do if the market was down 20, 30%? You know, the sort of those sort of scenarios. I think all major investors think about that. But that's, you know, day to day, who knows? It's, it's hard to predict. You know, you're gonna, at least you have a sense of what you do, but there's not much else to talk about. I think we're focused more on, okay, how can we drive our edge? What is our edge and how can we drive it? You know, thinking about maybe we have too many managers. Maybe we should have more concentration. Maybe we have more conviction. Probably an area we, we probably could have, could do better at, you know, bigger allocations to a fewer number of firms. You know, the big endowments tend to have a lot of partners, because they do so much private investing, but I, I think we're probably at the higher end of that, so that's something we talk about. More control activities, you know, like I've been talking about. More ways to control the alignment, and maybe it's people younger in their life cycle.

AI assessment note: “thinking about maybe we have too many managers. Maybe we should have more concentration.”

Q Yeah, let's dive in there a little bit. How do you think about it? Right. So let's just, let's take a subset, a U S equity portfolio or developed market international equity portfolio. What had your book looked like and how do you think about this sort of the power of a passive index?

A Yeah. So when I first started, we spent a lot of time looking for skill, but we were very conscious of styles. You might remember it was sort of large and small, And mid-cap growth and value and blends, and that was micro-cap, and then you had minicamp, and I think some of these firms kind of went crazy with this stuff. It got silly, but there's merit to factor now. I mean, it's undisputed that factors are really important in determining stock price performance, stock market performance of individual companies. So paying attention to that, I think, is important. I mean, you can have long periods where certain styles are out of favor, no matter how skilled the manager is. That's just a fact. We've seen that. Value's been really under pressure. We've seen that before, by the way. We saw that in the nineties, but it's really severe right now for a lot of different reasons, including just that some of the real growth areas like technology are just really much bigger than they used to be, and the banks are smaller, you know. So, I mean, there's been a lot of shifts in the sectors.

AI assessment note: “when I first started, we spent a lot of time looking for skill”

Q Have you found that there have been instances either at a manager level or a portfolio level where the aggregation of that data informed you of something that you clearly wouldn't have known about?

A Yeah, yeah, I, I, yes, I mean, definitely, there, there's, uh, factor concentrations, you know, that maybe were more extreme than we would have thought, growth or value or whatever the factor is, uh, yeah, and, uh, you know, currency exposures, you know, tend to move around, uh, You know, some of our managers hedge, some don't. You know, we, we're not overriding that centrally at this point. We used to have a, a little more of a program there when we were more liquid in all of our exposures, but that's evolved. So yeah, you need more of these tools today too in a global world. I mean, look, we weren't, most people were investing in China when we started, right?

AI assessment note: “definitely, there, there's, uh, factor concentrations, you know, that maybe were more extreme”

Q bit of That behavior is forced to be better in the private markets, right? You give your money to the venture capitalist. He has it for 10 years. They make whatever decisions they make about the companies, but because of the illiquidity, um, do you see that as you look through the venture capitalists to their portfolio companies that businessmen are making better decisions at all because they're still private?

A Yes. The answer is yes, but I do worry about short-termism in general as an investor. I think that is one of the biggest threats to high returns over the next, you know, 1020 years. I think financial media, social media. I worry about a next generation of, of people overseeing these kinds of funds having a very different time horizon than, than the folks who, for example, in my committee who oversaw it the last 30 years who really thought long term. I'm not too worried about it at Notre Dame, because I think we have that in our culture, but I'm seeing changes in other places, not necessarily the big endowments, but I get calls from all kinds of investors, you know, looking for advice, and some of the way they frame questions shows me that they're thinking very short term, quarterly annual results, even this annual beauty contest of the big endowments that Bloomberg and some of the financial media just, they love to get those numbers as soon as they can. I don't, I don't really think about the one-year numbers very much. I've got a long-term strategy, and you have to have snapshots periodically. You have to compare, and I get all that, but a lot of that's noise in terms of earning the kind of returns long-term that we want, so I, I really worry about short-termism. You know, Warren Buffett is so great about cautioning people about that, you know, and I, he always talked about th…

AI assessment note: “Yes. The answer is yes, but I do worry about short-termism in general”

Q So what, what do you think, as you've learned over the years, have been some of the mistakes that you made that you now feel like were actionable and have corrected and try not to make again?

A Yeah, we, so most of the time when people don't, don't become successful, They, they ended up getting away from some of their own core beliefs. You know, they ended up raising too much money. I think of private equity, some of the early buyout funds that were small, they said, oh, we'll never, we'll never raise that kind of money. Or even some large multi-strat hedge funds. We'll never be that big. Well, you know what? They're like 10 times that now, you know, and, and their returns show that. So at some point, we sort of get off the train, you know, and say, well, it's nothing we did. You're the one who decided to do that. So don't be mad at us, because that was a decision you made. We're moving on, and obviously we always try to part in a very professional, friendly way, and I think we've done a good job of that. But, but at some point, size is very challenging for most strategies. There's some that it's okay. Bonds, maybe large cap equity, you know, there's some it's okay. But, but for most, most, most of our strategies, it's not okay. And then I'd say, Greed can come in. Sometimes the terms, the alignment ends up moving in a different direction from what originally was, and that's also related to size, you know, and that changes the relationship. So there's a few things like that, and then there's people. They're people. Stuff happens in their lives, and they become less fo…

AI assessment note: “well, it's nothing we did. You're the one who decided to do that.”

Q with that type of passion and commitment. Somewhere along the way in your 30 years, I imagine you would have had someone that you hired into the team who didn't work out for some reason. Or maybe they shared that passion and commitment, but they ended up not having the degree of competency that you would have liked. How do you handle those situations when it's such a family-type culture?

A You know, it's actually gone fine. I mean, you're right. You want some turnover over time. I absolutely agree with that. And Not everybody wants to be in the same position for their entire career. And, and the culture is not to make them feel guilty or bad in some way because they want to do something else. We don't, we don't have that. I tell all my people, if you want to be a CIO, I'm a hundred percent behind you. Let me know and I'll help you. And, and that's happened with a couple of people and they've done really well and others that hasn't. So the culture is not, boy, if you don't stay here You're disloyal or you're, or you're a bad person. The culture is, we'll help you do whatever you want to achieve in life. It just happens that most of them just want to be here.

AI assessment note: “Not everybody wants to be in the same position for their entire career.”

Q What are the things today in the markets, or the last couple years, or looking forward, that you think might be more interesting areas to be exploring in terms of those tilts?

A Well, I will tell you that we've been spending a lot of, a lot of the last couple years thinking about some of these longer-term portfolio construction ideas. I think just, you know, obviously, the market's been good the last couple years. Volatility's been low. And it's been a time where you could sit back and think more about some longer-term construction, and we've been doing a lot of that, and especially given our size now. Look, we were opportunistic when the energy collapsed. There were some things we did there. Those are relatively easy, right, because it's clear that there's an opportunity, and you just have to be positioned to take advantage of it, and you have liquidity, and I think all the big endowments and foundations are pretty well set up for that. I, I know whenever we've, I've been through, what, four distress cycles. The next time there's a distress cycle, I'm sure we'll hit that really well again.

AI assessment note: “we were opportunistic when the energy collapsed... The next time there's a distress cycle”

Q And then what have you learned when it comes to me at that point where you're making a decision, what have you learned about your own behavioral tendencies? And those are the people you've worked with for a long time. You know, do people like the gut instinct decision with backfill research?

A That's a good question. You know, when I first started, it was easy for me to see the really, really good ones. They stood out. And of course the bad ones are clear. The middle area when you're younger was harder to discern, right? That middle 80% or whatever. We've certainly gotten better at figuring that out, you know, and making faster assessments of, of that group and, and either moving on or keeping them on a watch list or whatever. I like, you know, people say, oh, you have all Notre Dame grads, so you, you, you know, you're all thinking the same way about everything, and, and that, that's just not true. We, yes, we are all Notre Dame grads, but I have so many different personalities and ways of thinking about things, and they bring very different perspectives from On these manager selection issues. So you have to have some common narrative and you have some common criteria that you really have to hang your hat on. We have that, but we're also willing to, uh, you know, willing to weigh different factors differently at times based on the asset class or the life cycle of the manager, you know, and how mature they are. There's very, there's a lot of variables. You know, this, I mean, it's just, there's a lot of variables. It's not an exact science. It's, it's probably half and half. It's hard. It's very hard to predict who's, who's going to really excel from here and, and, a…

AI assessment note: “The middle area when you're younger was harder to discern, right? That middle 80%”