The Ledger
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Kochard: Endowment sweet spot is $4B-$5B to $15B-$20B in assets
“Partnering with great, extraordinary managers, which I would say at our size of right now, eight and a half billion dollars, we're at a sweet spot. And I don't know exactly where that sweet spot is, but it's probably four or five billion up to, you know, 15 to…”
Kochard: Short-selling alpha is episodic across cycles, not consistent annually
“I think what people have missed is that the big value on the short side is, is very episodic. It's not just month in or year in and year out.”
Public market managers transition to private investing better than vice versa
“Oftentimes, I found that it's public managers that, you know, have invested publicly, that do the fundamental work, can really understand these companies, get to know management teams, that can develop the skill set of investing in private companies, as oppose…”
Abandoning hedge funds for trailing post-GFC equities is a mistake
“So having the right expectation of what role it's playing in the portfolio, I think is really crucial, as opposed to the said equities, it should outperform equities. And so at that point, you know, after a decade plus of underperformance relative to long earl…”
Top-tier venture managers will deliver the best returns over 10-20 years
“The skill That exists and the innovation that exists, whether it's in Silicon Valley or whether it's in New York and other technology hubs, will continue to make investing in top tier venture managers the most attractive returned over, not necessarily the next…”
Emerging market economic growth failed to translate into corporate profit growth
“Over that long period of time, the economic growth hasn't, Clearly translated into profit growth. And it's been a, from a beta standpoint, it's not been an attractive asset class to be invested in for that extended period of time.”
Makena's Larry Kochard does not believe cryptocurrency is digital gold
“Because we're not believers that this is going to be digital gold. I've also never been a big believer in gold.”
Investors abandon short-selling strategies because the returns are too episodic
“Shorting's hard. It's very difficult to do behaviorally. It's very difficult to generate returns consistently. The returns are very episodic, so oftentimes people just give up at the wrong time, but I do think there's an inefficiency that can be exploited on t…”
Allocators should trim multi-product managers to fund single-product spinouts
“Your managers get big, you develop multiple products, and over time, you might not fully terminate them, but you'll reduce their size in the portfolio, and then try to layer in more emerging managers, which has been a big theme of ours, is constantly looking f…”
Makena mechanically clones its public managers' top 13F positions internally
“Second, we have a portfolio where we size up our top underlying portfolio positions from our public managers, and we do it strictly based on the ThirteenF filings. It's not completely mechanical, but it's relatively mechanical.”
Makena's venture capital allocation will never reach 20% to 30%
“We have slowly built this up and we will continue to slowly build it up just a little further. It will never get up to the size that you see in some of the largest endowments that, you know, over 20% or in some instances over 30%.”
Makena's venture manager roster operates as a strictly one-in, one-out portfolio
“We're pretty much at a zero sum game. Meaning if we add a new manager, someone has to be let go, but I'm very comfortable with where we are right now.”
Under-allocated LPs will keep venture fundraising active despite institutional crowding
“I think it will make it a little more difficult for fundraising, but with that said, I still think there are enough potential LPs that had difficulty getting access where there's still going to be allocations made to venture from LPs that are under allocated t…”
Public E&P equities offer a better intermediate-term opportunity than private energy
“I think there could be an intermediate term opportunity within the EMP world on the public side where it creates greater liquidity than investing privately. And it's probably the right timeframe.”
Makena's crypto allocation will likely reach 10% of its venture portfolio
“We've now built up an allocation such that over time, it'll probably end up being about 10% of what we have in venture, and we're excited about it.”
Larry Kochard has moved Makena away from quantitative investment managers
“So I've increasingly, even though I have an appreciation for quantitative risk management, really have moved away from quantitative managers. Don't overly rely on quantitative risk management. Use those as tools, but they're more tools, but really try to overl…”
Kochard: Private partnerships ensure active crisis management through personal capital risk
“Goldman Sachs was still a partnership, and you saw what happened was that day, and partners at Goldman Sachs were always extremely hands-on, very talented, but you could see it firsthand where the senior people got on the desk and were actually actively involv…”
Kochard: Internal institutional quant strategies need strict 100-200 bps tracking error
“Knowing that probably the best way to implement that is in a very low tracking error approach. So tracking error on the order of, say, a 102 hundred basis points. Because knowing that if you tried to have too big a tracking error, If you really underperform fo…”
Kochard: Mega pension funds are too large for capacity-constrained active managers
“In the instance of VRS, and you certainly see this a lot with some of the large public Canadian funds and other funds that have very big pools of capital to deploy, They can't be as active, meaning taking the type of tracking error that we take, hiring very co…”
Kochard: Institutional managers face strict underperformance thresholds to keep their seats
“If you're managing someone else's money, you have to at least have an understanding that there's probably some either absolute loss or relative loss that you can't go beyond and really continue to sit in that seat.”
Kochard: High board turnover causes irrational panic selling at market bottoms
“Meaning if there's been a lot of turnover, you're probably going to be more likely to
To do those irrational moves and getting out at the bottom.”
Kochard: Manager volatility matters most when it poses existential business risk
“With that said, what could be a problem is if the manager themselves, the volatility that they're experiencing, does that cause their business to suffer? And so there's, it's an existential threat to the organization. So, so It could very be right that if you …”
Kochard: Manager underperformance is usually driven by operational or behavioral issues
“There's usually a correlation between bad performance And something else going awry. And so that's where it becomes a little more difficult in practice. There could be a situation where just bad luck that that concentrated portfolio produces a sort of an outli…”
Kochard: Private equity multiples are rising due to excessive dry powder
“Right now multiples have been increasing across really every private, just about every private strategy. And they're increasing because there's so much dry powder out there and people are just, you know, putting it to work and paying more and more and more.”
Kochard: Portfolios should concentrate liquid assets and diversify illiquid bets
“I'm a much bigger fan in less diversification when things are very liquid. When you can change your mind. But when things are illiquid, I size them smaller. And so I believe in more diversification.”
UVIMCO benchmark is 60% global equity, 30% bonds, and 10% real estate
“Which right now is 60% public equity, 30% public bonds, 10% public real estate. All global. And that's a level of drawdown risk that we re-underwrite every year that the university is comfortable, would be comfortable with.”
Kochard: Excessive decimal precision in quantitative analysis leads to major mistakes
“A lot of quantitative analyses, I think, give people false sense of precision, and we provide a lot of quantitative statistics about our portfolio, but I also, I'm a firm believer that, you know, a lot of mistakes are made when you kind of take it to the neare…”
Kochard: UVIMCO caps unfunded private commitments at 25% of total pool
“It's a minimum of 20% that we have access to within three months, a minimum of 30% over a year, and a maximum unfunded commitments of, to private Whatever, of 25% of the total pool.”
Kochard: UVIMCO holds 8% to 12% in cash, contrarian to Yale
“You know, we've been running, I try to run between eight and 12% in cash and low duration treasuries, and it's been closer to the high end of that range. It's now kind of in the middle of the range, but that's still, you know, higher than what Yale and some of…”
Kochard: UVIMCO targets global equity beta under 0.70 versus peer averages
“We try to target a beta that's just under .7 beta to global public equity. Our large peers are anywhere from, say.75.”
Kochard increased Makena's venture allocation from 5% to nearly 13%
“When I started, we were about a five percent allocation to venture capital, despite our location on Sand Hill Road, and so we've slowly gotten that up over time to now closer to 13%”
Makena maintains a hedge fund allocation of 18% to 19%
“We are right now, we have an allocation to hedge funds, which is just below 20%, say, 18, 19%.”
Makena caps direct and co-investments at 10% of its total portfolio
“We're never going to become a direct investor. It's going to be a, I think our edge ultimately is forging these long-term partnership relationships with managers. And what we're trying to do is leverage those over time to develop some of these co-investments t…”
Emerging markets trailed US equities by 400 basis points over 30 years
“More or less, the U.S. Return is about 10 and a half percent. Non-U.S. Developed market equities close to six percent. Emerging markets slightly above developed market equity at about six and a half percent. So that's a 400 basis point under performance during…”
Makena redirected rebalancing capital into biotech instead of emerging markets
“When I think of how do all of those compete with each other, it's not going to be emerging markets that gets my, say, redeployment, rebalancing dollars. We just actually put more money to work in biotech.”
Makena has made no private natural resource commitments in 3-4 years
“We have not made a commitment to natural resources in over three to four years, and so that's been, it's, we have an interest, yeah, we have a reasonable size NAV in the ground of about six percent.”
Makena manages portfolio drawdown risk within a 0.55 to 0.65 beta band
“We want to make sure at all times the portfolio has a level of risk that is close to the 6040, sort of as a drawdown risk. And we operate within bands. The minimum is a .55 beta. The maximum is a .65 beta.”
Kochard: Management fees consume a larger share of returns in low-return environments
“In a lower return world, fees take a disproportionately larger percentage of the total return, and anything that can be done to knock those down a bit is, you know, going right to our bottom line.”
Kochard: Allocators cannot easily time private equity because capital takes years to deploy
“When you commit today, if I were committing to a private, you know, buyout manager today, They may not deploy the capital for four years.”
Kochard: UVIMCO caps underlying company positions at 100 to 200 bps
“A large position for us is going to be in the order of an, at the underlying company level, a hundred, maybe 200 basis points.”