The Wisdom Wall

“I would say at the early stages, having really strong public equity and hedge fund, Expertise is really important because that's where most of the assets are going to live. You can dream about getting into venture funds and buyout funds and all of that, but most of your portfolio return is going to be generated by the…”

“The only risk that can be observed is volatility, but I'm managing seven other ones, and we've tried to do it with vector math. You can't.”

“This whole concept of the math works for any deal at any valuation because the cost of capital is near zero. I think that is probably the most pernicious thing that was learned by a generation of investors.”

“The fact that illiquidity premium had been completely obliterated as more and more money poured into private markets.”

“because I think not being able to commit because you are already over your NAV is actually a really big mistake, because some of the best funds are actually invested during down years, and so you don't want to miss those years.”

“what we decided is we can short cheaper than a hedge fund just based on our balance sheet if we ever wanted to. So why are we paying two and 20 to have somebody short beta for us? Why don't we just hire the best stock pickers on the planet? And then we can figure out what exposure we want. So we pretty much blew out…”

“Because in a foundation, I have a mandated five percent payout. So I have to have at least 70% equity risk in this portfolio to be able to, on a long-term basis, Achieve the objective, which is to grow or maintain the real spending power of this institution.”

“when pioneering portfolio management came out, it seemed like, okay, there's this mountain to climb. Everybody does it like Yale. And then over the course of the last 1520 years, we've had so much more money run into this endowment model, yet every institution or family office is very, very different from each other…”

“the investment world, we have to all be clinically delusional to think that every morning we wake up and we're going to beat the market. Like, if you're a Publix market person, you wake up every morning thinking, I'm gonna beat the market, I'm gonna get myself some alpha. It's clinically delusional point. If you're a…”

“You will have a lower cost of capital, and you will have a higher exit multiple. So the incentive structure should be aligned to doing the right thing, not because it's the right thing, but because you're going to make more money.”

“unless you knew how to trade the bonds and how people were really pricing risk, all of the analysis in the world wasn't going to help you get to the answer. You needed to understand pricing of risk, and the only way to do that was trading.”

“So in the United States, especially in the last 30 years, it's been basically very light regulation, and the corporate sector gets to do a lot of things. Whereas in the rest of the world, that doesn't happen. And so you see, in some ways, that's why multiples for U.S. companies are actually higher, because there is…”

“the only way to really know if somebody's good is to dive into a stock. And so you have to be up on what's going on in these stocks to be able to really have deep analytical conversations.”

“There is no competitive advantage on sitting in my seat to be able to make those kinds of calls, and the amount of attention it would require would probably take our eye off the ball as something else we needed to be doing.”

“What we're getting is, yes, we're getting beta, but we could get cheaper beta buying a REIT, for God's sakes, people.”

“And so I think too many people try to run the sexy part of the job is manager selection. But there's so much that has to be done beforehand, and if you just skip to manager selection, it's highly probable you could fall off the ground.”

“I would say that it usually takes maybe a decade, which is good because a decade gives you time to have at least one crisis.”

“If you're an institution that already has had perhaps a smaller endowment and they get a big gift, it's as if you start over.”

“If you're building from scratch, you need people who love finding new managers. The joy in their life is to meet with seven managers a day. Find really one or two, do a ton of due diligence. That gives them joy. If you put a person like that in a mature portfolio, they'll be so sad. In the same way that if you have…”

“it's key, and it's a great bridge to manager selection, is to separate the opportunity set. Because I think sometimes we pull together manager selection and opportunity set, and I think you have to separate those out between the GP quality, which we can get into with manager selection, and the opportunity set. If…”

“There is so much having worked at three firms that no LP would ever probably unearth, even if they tried. Firms are organic organizations, and no matter how much we think we know, we don't actually know what motivates them.”

“Somewhere I would say between third camp and the summit, you start seeing people fray. It's funny because in climbing, you think these are all proportional, base camp to first camp, first camp to second camp. Going from third camp where you've built your portfolio to the summit, you don't do it in two days, I guess is…”

“If you're going up and they've got a person stuck, even though you're trying to make it to the next turn around the mountain, it's your ethical responsibility to help them out, and I am 100% in that camp. We are here to manage money on behalf of institutions that make the world a better place, whether it's educational,…”

“Well, I think one of the biggest things is that there is so much money trying to invest in this endowment model, yet there's only so much capital allocation within these firms, especially the top tier firms. And so in some ways, yes, we'd love to collaborate with our peers and we do so as much as possible, but we also…”

“You can't just sell your duds. That never works in a secondary.”

“Usually if it's partnerships that a lot of people know, where people don't have to do an extraordinary amount of work in order to understand the assets. At the end of the day, yes, they're firms and they're funds, but they're a bunch of assets. So people need to be able to underwrite the assets and the easier you make…”

“When you've been investing without thinking of geopolitical risk as one of your main things, you then have to add it into your underwriting. So that just makes the hurdle rate higher for a China investment.”

“it's really difficult to make ten-year capital decisions on manufacturing plants and the ensuing supply chain that has to follow you into those manufacturing plants. Because remember, when you build a manufacturing plant, you have to have all the other little subcomponent people also move with you. It's a lot to ask,…”

“Know when you don't know enough. And if you don't know enough, don't do it. Because you're never gonna have the conviction to double down if it goes against you. Whereas if you know enough and you have enough of a sense or a conviction when it's something goes down, you'll double down. And those are the moments that…”

“I think, if anything, my bias was more about capital preservation, because when you grow up in the world of high yield, emerging debt, and even growing up in Mexico City, you grow up understanding that capital preservation and trying to do your best to minimize that left tail is actually the best way for long-term…”

“Whereas what they have done is they have blended the system, the nationalist system they had with elements of capitalism, but without losing that element of control.”

“So I think the biggest lesson was how to not backseat drive, because that is, I think the biggest risk to having this model of people from switching from being existing portfolio managers to our side.”

“really talking to CFOs on the ground and CEOs on the ground is really where you understand where the pressure points are in a system, and it actually helps you allocate capital better.”

“my theory, which has proven, but I had no way of proving then, was that this group of managers could get me about 70% of the equity return with half the volatility.”

“There's not much alpha you can add managing a treasury book. So we don't really bother doing too much of that, so we have an index treasury book.”

“As you grow in assets, I think it's a very difficult thing to try to keep to that 10 core managers and focus just simply because you can't get enough access.”

“in corporate bonds, if you get disrupted, you are toast on your recovery.”

“So you do have to have various points of view to make sure you're not institutionalizing biases into your investment process. Because I think that is a really dangerous thing if you do that.”

“We're all here to generate the money so that the Hewlett Foundation can do what it does. We are not the stars of the play. We are here as the little wheel on the corner.”

“Because the only way to have real conviction is to really know something, and you only have so much of a brain to do that.”