The Exchanges

Q How does that filter into your decision process with a manager you're invested in?

A Yeah, I mean, so we have spent the last several years spending a lot of time with a firm that we know really, really well, been involved with them in some capacity for probably 20 years. They went away on one direction on the succession planning, didn't work out, went another way, didn't really work out. Came back, and this point, we're saying to them, we are with all the other LPs in needing to see real evidence that there is an actual plan. You folks are in your late sixties. We understand that everyone is amazingly healthy and super fit as one is in this industry these days, but accidents happen. You've made some changes. You've a largely fabulous team. Where's the rest of this picture coming together? And please start demonstrating that it is really coming together. And so as a part of that conversation about our ongoing commitments there, there was a fund that was winding down. We were interested in a new product that this firm spun up. We're pretty excited about it. Planning to commit brought one of the co-founders to the investment committee to present. And candidly, it was a total fail. Got on. We had preceded this with the team. The committee has an 18 page memo. They are going to come with questions. Oh, and by the way, there are two other LPs that are on our committee. That are also in this ecosystem. So you're performing for a bigger audience than you think you're p…

AI assessment note: “Planning to commit brought one of the co-founders to the investment committee to present.”

Q When you finished up your time there, what led you to taking over the St. Paul Minnesota Foundation?

A So I had thought maybe I would go work in philanthropy at some point in my career. I was planning to work in the for-profit space for the duration of having to put my four children through college. And so I was not looking. I had an ownership stake in the firm. A friend of mine who knew I would potentially be interested in working in philanthropy in the future showed me the job posting and was like, hey, isn't this your dream job that you thought about Doing in the future. I was like, well, yeah, I have to not, but I'm a big believer, and I tell my staff this all the time. You have to interview. It's a skill. So following my own advice, I submitted an application, and I think 11 interviews later and a full day trip to the shrink, and they offer you the job. You don't say no. Plus, it's St. Paul Foundation. St. Paul and Minnesota Foundation has been in my life and community and We've seen and benefited from the work of the organization over the many years, and so it's an honor to serve my community so directly.

AI assessment note: “A friend of mine... showed me the job posting and was like, hey”

Q Once you had some of those building blocks in place, what framework did you use to think about how you wanted to invest the capital?

A Well, so I said we're gonna rewrite the investment policy. We're gonna also lean into what's the committee's highest and best use if we're shifting to the staff-driven model as opposed to a consultant-driven model. The committee's best work is what it does at the board level, which is strategy and governance. If we're driving outside the lines, this is when we're coming to you. If we're making a significant allocation shift, we're coming to you on that. We've thought through things like benchmark changes. We ended up shifting from the bucketed model to a roles-based allocation, which is almost like a total portfolio approach. And so we've got our growth allocation, we have our diversifying assets, and then we have a real assets allocation. I'm not going to go through and define all these things because everybody listening to this knows what this is. On the gross side though, because we're trying to support at five percent spending policy while offsetting inflation over time, that's always going to be the biggest chunk of this portfolio. It is a big risk budget. So, 65% where we're seeking higher return, accepting a degree of higher risk, that's a huge component of that portfolio. The diversifying assets, we've got fixed income and hedge funds in there, real assets, obviously stuff you could touch. A little bit of an inflation offset there, too. And what we were really intention…

AI assessment note: “shifting from the bucketed model to a roles-based allocation, which is almost like a total portfolio approach”

Q How did you figure out how to do that?

A When I was at the family office, I found myself on the side of the table as the non-financial spouse in a number of meetings. And I began paying attention to sort of the vibe, what's going on there. You can tell when someone stops listening. You can tell when someone feels excluded or disengaged. It's not just a feeling. You can see it in their body language. And so if you sit and mirror that body language, it informs you that it's time for you to make a shift in your presentation and your behavior in order to re-engage this person. And the other thing that I would do is pre-identify a series of questions that I thought that the non-financial spouse should ask, or might want to ask, but didn't feel like they had the words. And so by sitting on the side of the person who feels the least informed when talking about investments, I could then provide, I'm with you. I'm on your side. I'm going to ask that question that you're not going to ask because you don't think you know the language and you don't want to feel dumb. I'm going to ask that question.

AI assessment note: “When I was at the family office, I found myself on the side of the table”

Q When you get past, let's say the affinity portion of the assessment of a manager, what did you learn in those years about what you liked in your investing?

A That long-term partnerships make it safe. That when things go wrong, we're the first call. That is of an enormous amount of value. It also puts us in the position, especially as firms go through founder transitions, transitions with underlying staff, maybe they weren't particularly good at hiring people early on, they get a little bit better at it, but then they forget how to do the succession planning piece, or they just choose not to. Being able to go in and say to them, like, hey, look, We need to have a really serious conversation about how you just presented to my investment committee, because you totally have egg on your face. And having the relationship there allows you to have that conversation in a more effective way, where it's not necessarily confrontational. And generally what I find with those tough conversations is that this is a huge relief for the IR staff and the business development professionals is they know what the issues are. They would rather they have an allocator come in and be like, hey, I know what the issue is, too. Can I have a conversation with this person who you've probably had this conversation with 16 times? Because it might be slightly more effective coming from a different lens.

AI assessment note: “That long-term partnerships make it safe. That when things go wrong, we're the first call.”

Q So when you came in, what was in place in the investment side of the organization?

A Yeah, it was a little bit of a bumpy ride, Ted. So I came in after the investment team had essentially turned over a hundred percent twice. When those kinds of things happen, there's relationship capital that is fundamentally broken and in need of fixing. And so upon my arrival, my highest priority was really building and fixing those relationships internal, external, boards, committees. Structure, and then getting to know the different committees and understanding sort of what their needs are was a really high priority for me, because very substantially informs what your next steps are as the head of the investment team. What I came into was functionally a very consultant-driven model, and we had an opportunity to shift from that consultant-driven model to a team-led approach. Which is what we've done. And as part of that, we got to work through a whole series of governance and strategy steps with the committee that put us all on a better footing to make better decisions.

AI assessment note: “What I came into was functionally a very consultant-driven model”

Q When you're picking managers for the portfolio, what are your desired traits of a manager?

A So desired traits from an investment perspective is going to be largely driven by what we need. And so what I appreciate is when folks come in when they're not fundraising, it sets up a fundamentally non-transactional relationship, or can, obviously not always. I really appreciate folks that take the time to have the dialogue about how do we mutually assist each other. I know that you, the manager, need my fee income. And you want your carry, but you have to make a pitch to me on where you fit in this portfolio. And there's two ways that can happen. It could happen on the manager side, or it can happen on our side. So really skilled folks will come in, meet with us, and dialogue about what are we looking for? What is our budget for this stuff this year? Understand enough about which slice of the portfolio they're in to ask really great questions that highlight the How they are similar to complementary or could replace an existing incumbent position. If the manager is not skilled at asking those questions, they need to leave enough room for my staff and myself to be able to identify that about you.

AI assessment note: “what I appreciate is when folks come in when they're not fundraising”

Q I'd love to get your thoughts on some of the more topical issues of the day. Private markets, commitments, and pacing is on everyone's mind. How are you thinking about it?

A I thought that your middle of January, 2025 newsletter on this was extremely accurate. Those numbers for us, this was a strange period of time where you had basically two years, almost no shift in marks. Portfolio is not repricing. There were no distributions, but weirdly, we also experienced a dearth of capital calls. And so stayed on our commitment pacing schedule in particularly the growth part of the portfolio. Only to have a big cliff of uncalled commitments that now we're sizing down. Obviously, our ticket size is going to be smaller in 2025 and probably 2026 as well. I don't know that this is coming back. The good old days of the 10 years where the money was free, the allocators were like, hey, number go up, big denominator, and all of the managers are like, money is free, I can fundraise until the cows come home, and it's not that challenging. And I just think, until we resolve what still looks to me like a standoff between buyers and sellers, it's not gonna move. And then you have, on top of it, the structural issue of the allocators, in a lot of cases, We're in decent shape, but we're having to shave back those commitment sizes.

AI assessment note: “our ticket size is going to be smaller in 2025 and probably 2026 as well.”

Q So there's sort of two aspects to succeeding in these environments. One is how are you dealing with the dynamics of the family or the client, and then the other is the investment side. What did you learn about what it took to be successful in working with your clients in those environments?

A Having a very high emotional quotient is extremely helpful. So in all situations where you're dealing with individuals, whether or not they are foundation board member, foundation committee member, an individual family, a couple, inevitably folks that you encounter are going to be the non-financial individual in the room. And probably the most successful thing I ever did was attempt to jettison as much of the investment industry lingo as As I possibly could, because it was really clear to me that when the investment person comes in and starts talking, people get out their phones because they feel like this language, I don't understand this language. This is the part where I'll check my email because I'm not comfortable understanding what this means for my family. And so exiting that language and then inviting people to stay engaged is the secret sauce there.

AI assessment note: “jettison as much of the investment industry lingo as As I possibly could”

Q What was it like when you were at school looking around knowing that most people weren't coming from the same perspective that you were?

A I feel like my first impression was, oh my gosh, I actually got a really good high school education. I am in a lot better position here than a number of my compatriots. And also they're really immature. Sort of the overall feeling. I spent a lot of time running marathons, just processing and running and running and running. I took everything under the sun that I could take that was intellectually stimulating to me. And that's how you end up with all the math classes, all the physics classes, all the econ classes, and then I'm taking a combined course that combines history, art, and language as a symposium class and then enjoying it so much that I took three more.

AI assessment note: “I am in a lot better position here than a number of my compatriots.”

Q How have you thought about the advantages and disadvantages of your size at around two billion dollars? In this market.

A Well, disadvantage from the beginning was access. We just were not on anybody's list to be approached, and a lot of managers are taking a very intentional look at what their clientele base looks like. If you're a manager and you've got 50% of your AUM coming through the consultant channel, and one of those consultants gets to be an outside proportion, And then you end up on the exiting list, you put yourself at, like, risk of losing a significant amount of AUM. As a part of understanding, oh, here's what the pension community is doing, here's how these mixes between endowments and foundations, pensions, family office, RIA, that alchemy, they're becoming very intentional about it, which I think is terrific, and partly as some of these other pieces are more volatile. They're looking to add endowment and foundation, which tends to be sticky, and particularly organizations that have an in-house team. Because then you're building the relationship directly with the client as opposed to going through an intermediary. So I think that piece has benefited us as some of these seasoned managers are being very careful about that.

AI assessment note: “Well, disadvantage from the beginning was access. We just were not on anybody's list”

Q When you had that mindset thrust on you at that age, how did you begin to navigate this blend of wanting to think about your life and career early on with need to be very present, need to act now, need to be very blunt because you don't know what's going to happen?

A I could not wait to go to college. And that was really the most immediate response of it was needing to just move on in order to process what had happened. So for me, going to college was the greatest thing that ever happened to me. So I went to the University of Wisconsin-Madison. It was amazing. I learned that I'd worked way too hard. In order to get whatever I was getting in high school, and I learned that I did not need to work that hard in order to achieve the same grades, and then have more room to think and learn more. It was almost the freedom of coming out of that home situation, and that degree of anxiety and sadness frees up a chunk of your brain that you didn't know was so occupied with what needed to happen in that moment every day in that situation.

AI assessment note: “I could not wait to go to college. And that was really the most immediate response”

Q How'd you go about that process of repair?

A Yeah, I like the challenge. Folks ask me, oh my gosh, this is a total shift for you, you're in philanthropy instead of in private wealth. The skills are exactly the same, because all of it is talking to the human's head. Whether you're in a board member who tunes out when the investment person starts talking, or you're the non-financial spouse, those are the same responses, and I'm going to use the same toolbox to re-engage both parties. I like to tell my team a lot of what our job is with investment committees is putting people who are fiduciaries in a great position to make amazing strategy and governance decisions. How do you do that? Here you have these individuals, they're parachuting in four times a year for board meeting, four times a year for an investment committee meeting, from their regular and extremely busy lives. And how do you get their attention effectively? How do you keep their attention? How do you ensure that they feel safe and comfortable while they're getting informed enough? To make a hard decision. And then you also need to pay attention to the dynamics of the committee or the board itself. So how do we put this group of people in the best position so that the dynamics are favorable to them successfully making decisions together? So from an internal and immediate board and committee perspective, my role was really to go on a mission of trust and grace. Y…

AI assessment note: “my role was really to go on a mission of trust and grace.”

Q What is it about the access to closed managers today that you feel like you're going to have a better opportunity to invest in that you may not have in the past?

A We did not have any access to constrained managers in 2019. I think the reputation and the team is a real testament towards our ability to get in. Folks are constrained for a reason. Generally, it's performance related. And that is of a benefit to the foundation. And as we continue to serve the community, be here as an institution that's available to provide capital in a variety of different ways. It's not a popular opinion that I would say to say like a board or a committee, but I would love some volatility. I think there are a number of managers in the portfolio where you've had the doldrums in 15 years where money was basically free. Fundraising was super easy. I'm a little curious if those marks are legitimate. And then we've also seen volatility on the public market side. You know, twenty-twenty-two fixed income and public equity down in the same year. Anybody with a private book looks like a genius, but really you're just a volatility laundering. Is that what Cliff says. Flip side of that is 23 and 24, where you have really concentrated markets. AI is a little bubblicious. We started to see a little bit of the potential fall that can happen if it turns out the thesis of AI is that you have to spend a hundred and eighty billion dollars on chips every 18 months. If that's not correct, maybe some of that starts to rotate. That could potentially cause additional volatility on…

AI assessment note: “I think the reputation and the team is a real testament towards our ability”