The Exchanges

Q How'd that compare to the other places where you worked?

A It's interesting. You know, so GE, obviously, the governance was simply the CFO and our CEO of the business unit you were working for, and they are ultimately accountable for the profit and loss of that business, and so it was just very streamlined, straightforward. I think everyone was highly aligned on what the objectives were, and so it was pretty crisp. At Michigan, it's a sole fiduciary state, which is very interesting. There's only four in the United States. For the state plans. And so that means the state treasurer is basically the fiduciary and makes all the decisions. I would say, generally speaking, that has proven to be not a tremendously great model. But in Michigan, the time I was there, I think Michigan has historically bucked that trend and has done well. And the treasurer at the time was a deputy treasurer back in the eighties when they had done some, I'll call it other investing that didn't go so well. And he just saw that you really needed to have a pure investment focus. And he was really supportive of Of doing that and allow the system to generate great returns. But I saw how other organizations ran and, and some of the challenges that they had. And then at Regents, it's a public university. It's a very large government body. It's a lot of different campuses. It's a very complex government structure. And so that just taught me how difficult it can be to have…

AI assessment note: “so GE, obviously, the governance was simply the CFO and our CEO”

Q How did you get back to the States?

A So interestingly enough, I met my wife in Hong Kong. We worked for GE together, and we wanted to go to business school, and so we both applied to business school, and we were accepted to go to business school at Duke, and so I took a job with GE Capital and Investments just to basically get close to Duke. It was in Raleigh, North Carolina, and that's how we came back to the States, but within a matter of maybe two or three months, I just fell in love with investing and in GE. At that time, if you were a high performer, the pace of growth, if you, they put you on was so high, my view was like, why leave? And so I, I switched to the executive program at University of North Carolina and continued to work for GE and investments and was just very fortunate.

AI assessment note: “I took a job with GE Capital... and that's how we came back”

Q Yeah. You mentioned relationships matter. What does that mean? And how do you implement on that concept?

A You have both an institutional brand and a personal brand. I think Irvine, I think, has a strong institutional brand, although not as well known by a lot of people, but among our managers is extremely well known. Personally, I've always tried to build my personal brand of trust, and I do what I say. And so when you couple that with a strong institutional brand, I think it can lead to very strong relationships. And so with our managers, it's really a function of how do they behave. We really want managers that put our interests first. So That means sometimes they'll do things that are not in their interest because it's the right thing to do. That's a small universe of managers that are willing to do that, and it's really a scarce universe. But we have a number of managers that actually outright say that in their principles, that that's their intention, and they follow it, and they do it. And so when they then call us and need something, we try to be supportive and be a good partner and provide advice. And then on the privates, for instance, a lot of people come in and out of funds during different time periods. I think If they're having a more difficult environment and we believe in them, how do we step up and be a supporter, not just financially, but emotionally going out, even introducing them to other investors, et cetera.

AI assessment note: “when they then call us and need something, we try to be supportive”

Q It sounds like a whole career trajectory. So what was it that led you to move on?

A One interesting thing is at GE, I was at a young age and being an expat, being exposed to a lot of very senior executives and just seeing the demand that it had on your personal life was challenging. And I just, to see the experiences and how much, I guess, Carnage there was. You kind of made a decision like, wow, do I really want to do that? And so actually that black and white component to it really helped me to make a decision that at some point I wanted to step out of GE to do something else, to have more balance, but also I'm a very driven person. And without that, I probably would have just kept going and been sort of boiled like a frog, if you will. But what happened is, is that this is late nineties. Keep in mind, it seems obvious today, but probably was not obvious then. GE did a study about future CIOs, and they concluded that alternatives was the proper background for future CIOs. And so, for me, I had been in a job at GE that was considered a long time to stay in one role at that point, and so I was thinking about different roles, and so I actually left GE to go run alternatives for the Michigan Retirement System, which at the time was the fifth largest alternatives provider globally, which today it's, there's so much more dollars in alternatives, but at the time was truly a really Dominant player in that space. And so it was a great opportunity to then just learn f…

AI assessment note: “I wanted to step out of GE to do something else, to have more balance”

Q Yeah. Other than the venture allocation, what's an example of something that you're pursuing that you think a lot of other people couldn't?

A We can pursue much smaller managers. I think the other part is because of the governance, we also pursue concentration. We actually write down our investment principles and talk about what our beliefs are, and then we marry that with our competitive managers as an institution, and that was what informed our manager selection process. And I think at the end of the day, what comes out of all of that is that we have the ability to build a portfolio of best in breed managers, best in class, and so we have a lot of mismatches in the portfolio. So we have completely zeroed out a whole bunch of things that most people would Be completely scared of because it creates a lot of short-term volatility and our governance structure is supportive of that volatility. We believe the best way to generate long-term alpha is to pick high conviction managers. And so, 25 managers make up 80% of the assets across all asset classes.

AI assessment note: “We can pursue much smaller managers. I think the other part is because of the governance, we also pursue concentration.”

Q What are some of those other core beliefs you mentioned?

A Our investment principles are that we're a conviction-based investor with a long-term horizon. We believe that relationships really matter with our partners. We are intellectually curious, and we value independent thinking, that independent thinking goes back to sort of challenging underlying deals. We're flexible and nimble, and that we align our interests with others and our managers, and that's a pretty basic set. I mean, I don't think there's anything really special there, but it's how you implement them. I think we have a belief of sort of intentional simplicity in our portfolio. I think a lot of people are doing a lot of complex things to try and figure out how to make money. I sometimes wonder if we're not doing enough. Even how we construct our managers, where they're located, like we basically have zeroed out private equity in Europe. Going back to your question earlier about mismatches, I don't care. I'm not that worried about, I don't have to be everywhere for private equity. I have European exposure through my public equities, et cetera. I have a highly concentrated portfolio, even on the privates. I think the Best in class managers that we have in the US or China for our privates, I'm pretty comfortable with. And so I think those are examples of us not spending our time traveling to Europe, meeting with private equity managers is, I think, highly beneficial.

AI assessment note: “Our investment principles are that we're a conviction-based investor with a long-term horizon.”

Q We talked earlier about the co-investing you did at Regents. How have you thought about that here?

A Going back to your competitive advantage, it's just not one of our competitive advantages, and we generated almost, call it, 35% net returns plus minus, depending on whether you're using IR or time-weighted returns. That would suggest you should go do that here, but we're not, and it's a function of the complexity that it brings. We're not set up structurally from a resourcing point of view. We're not set up from an operational point of view, from a tax point of view. We're not set up from just Bandwidth and time. So it would be a bit more of a distraction for us at the moment. Now, long term, I think we might do that. It would be a function more of, if there are more of a financial dislocation in the markets, et cetera, when everybody else is sort of maybe running away, we might run in. And it may not look like a traditional co-investment. It might be going to all of our managers and saying, tell me your best idea that you're not doing and why. And maybe it's because I don't have capital and this, it's outside my purview, whatever. And whether we set up a fund of one, whether we do something with them in some unique form, whether we create a small commingled vehicle to go pursue that, to me, that is more likely to happen here than us having a robust program where we're outsourcing individual deals. Our actual buyout managers aren't structured to provide co-investment, because …

AI assessment note: “That would suggest you should go do that here, but we're not”

Q Some of these you didn't talk about and either you don't have them in the portfolio, they're not that important. There's a little bit of bonds that you mentioned, 10%. What about real estate and real assets?

A Very little. So this goes back to mismatches. So real estate, one of the things that I disagree with some of my peers on is I think a lot of endowments have real estate because they think about it as inflation protection. I think it's sort of, it's real estate and it's not really real estate in the true context because it's usually opportunistic real estate, which once you're opportunistic real estate, you're just private equity. And so if that's the case, then just call it what it is and let's let it compete For the best return. And so for us, what we think about is, if we go illiquid, what's the maximum return profile we can get for that illiquid unit? And for us, and given our location here in the Bay Area, going back to one of our competitive advantages, that generally tends to be venture. And then the question, my historical view has always been, you do as much venture as you can get good access to. This certainly tests my theory on that, because it, you know, the amount of access that we have is quite good, and it puts me into sort of risk limits that At a total portfolio parameter that give you pause. And so we can only do that because we have alignment with the full investment committee. But if we have that access on venture, why should I do real estate? Now, we recognize that creates a mismatch around inflation protection, et cetera, but I don't think most institutions…

AI assessment note: “Very little. So this goes back to mismatches.”

Q When you know that the managers know a lot more about, you know, if it's private equity in deals, public equity in stocks, then you really will. How do you create a knowledge base so that you feel comfortable going toe to toe with them?

A I certainly didn't have that when I started my career, and I think only through time and through demonstrated skill can you build that confidence, at least for me. We ran a co-investment program at Regents for 10 years. And what we found through that experience, and through just the engagement that we had with managers, generally speaking, we actually were bright more than the managers were in terms of our analysis. And I don't think it's a function that we were smarter or better than they were. I think it's, they don't know their own bias, and we actually know them better than themselves sometimes, just because we see so many different firms. At least the team, it wasn't just me, it was a whole team of mine that was looking at things. And we really Had an outstanding track record on co-investments that I would think was a function of our ability to pick from a highly curated subset, maybe, to be sure. But that with just even the ones we weren't co-investing with, when we would go toe-to-toe with them and debate whether we thought it was a good investment or not, certainly more than 50% of the time, we were right. And when you're wrong, you also have humility. And even in that conversation, you're never about who's right or wrong. It's in a dialogue and a conversation and just forming an opinion and then tracking that. You build your own hypothesis around the

AI assessment note: “only through time and through demonstrated skill can you build that confidence”

Q And as you walk through that, so someone finds the idea, maybe they have a first meeting, they bring it, team decides we should move forward, what happens from there?

A Usually the person who has the asset class major will take the lead on doing the next diligence as a team, I believe early on in building a hypothesis, you lay out your hypothesis for your investment thesis, and the key risks, and the key things you think you need to understand from a diligence point of view, and then we just discuss the diligence plan on how to prosecute that, and that may be the person that brought it in that will then prosecute it. It may be actually saying, I'm too busy. Can someone else take the lead on this? It could be people tag teaming. So it just depends on what we're trying to accomplish, but it goes to basically an iterative process from there, And which can be handed off to a individual or a group of individuals to then go and do further diligence and bring it back to the team. And they just keep bringing back information and informing the decision-making process. But eventually, we'll go and do a full on-site, you know, do the traditional reference calls, all that kind of stuff. One of the advantages we have is a great investment committee, and I will ultimately always email them and say, do you know so-and-so or anybody? And it's surprisingly, the vast majority of times is yes, and it's just a question of how well they know them. And so that's actually coming back to governance as a real advantage. I think most organizations, they are trying to p…

AI assessment note: “Usually the person who has the asset class major will take the lead on doing the next diligence”

Q So what are you doing in this situation?

A This is where it helps to have a team that all have strong investment judgment, and we all can sit around and have different lenses. I've hired people with different backgrounds. I intentionally built a team with, I'll call it cognitive diversity in their thinking. And so that leads to, I think, a really different set of views on the look forward. So someone that, so I have an individual team that comes, that worked for a hedge fund. I have someone that comes from a private equity background, but someone from the public. And so everyone having a different lens on things and their own perspective I think it gives us different views on it, and it's not clear, and that's the beauty of investing. It's art in some ways, right? And if it was a science, everybody could just do it and do it well. We have to rely on all of our investment judgment to decide, is it worth giving them the chance to perform and turn it around? It was clearly more some lack of judgment was a part of the reason they underperformed it. We can isolate the decisions, but they have historically been a very strong firm, and Do we believe that they've learned from those decisions and are, are not going to repeat that? And are they going to more align with some of their historical performance and decision making that allowed that? And so that's just a judgment on the team and you never know. But I, my experience has …

AI assessment note: “We have to rely on all of our investment judgment to decide”

Q How do you think about the benefit of rebalancing?

A We have probably, in all candor, I think, I believe in being intellectually honest and trying to, like, what have you done well and what have you not done well? We probably have not done as a good job as we can on rebalancing, and so that's something, it's on our list of things to think more about, and how do we do that? Part of it is with such a concentrated manager, and a large portion of those are actually hard, hard closed, so even moving money around within our existing manager base is difficult. When I go to them, they say, well, the wait list is even closed, and you're like, okay. I'll put you in the wait list, but it's eight years until you might, you know, based on the current path. So it's difficult to rebalance with our, and so we've talked about, do we use a small sleeve of passive as a tool to sort of help rebalance, et cetera. So I think we've got more work to do to be more effective on the rebalancing. I think as we look back over the last couple of years, I think that's an area for improvement for us.

AI assessment note: “We probably have not done as a good job as we can on rebalancing”

Q So there's a lot of conversation with VCs and operating experience about being hands-on and helping their portfolio companies. What do you think is different about Homebrew's approach from others who might share a similar story?

A A lot of people talk about that, but you have to live up to what you're articulating your vision is for the firm. And I think from our reference calls with entrepreneurs, we believe that they have lived up to that with entrepreneurs. They are very highly respected and appreciated. You know, there's a balance between helping versus overstepping. It's a time of knowing when to provide just good strategic coaching and when to step back and allow the entrepreneurs to just do their thing. And I think they've built a portfolio that is not just in the Bay Area, but in other Other geographies as well. And they are very intentional about how they manage those relationships, how they interact with the entrepreneurs. Again, going back to being deliberate, I think they really understand everything that they do and why they do it to really align with their long-term vision and mission.

AI assessment note: “there's a balance between helping versus overstepping. It's a time of knowing when”

Q In each asset class or across the whole foundation? Wow.

A And my goal is to get that to 90. So, that level of concentration There's no way your 50th idea is as good as your first idea. But for some reason, it seems like in Damage Foundations, tend to like a hundred managers no matter what. And every private equity program that I walked into, there was a legacy program. They all seem to like a hundred managers. And I just don't understand that. You can't generate returns. It just goes back to my GE days. You can't generate alpha with a hundred managers. So I think that the governance structure here really supports us. And we even talk about it, that how in a lower return, Opportunity set in a more challenging environment. It's gotten much harder than it had. You know, every decade, it seems like it's harder and harder. How do you continue to generate returns? And we believe that concentration is certainly one of the ways to do that. Now, it creates a lot of short-term volatility.

AI assessment note: “And my goal is to get that to 90. So, that level of concentration”