How I Invest with David Weisburd - E101: Lessons from University of Texas ($70B) and Stanford Endowment ($40B)

Episode Date: October 8, 2024

Mark Shoberg, CIO & Partner at Capital Creek Partners sits down with David Weisburd to discuss the keys to successful institutional investing, how large should an endowment be for optimal returns, and how to build the perfect investment platform for family offices and endowments.

Walk me through the nightmare scenario when it comes to organizational risk at a fund. You're marrying these institutions when you make these first commitments. You're looking at 10, 12, and sometimes even longer relationships in these underlying funds. And at the end of the day, organizations that stayed together, and even if they were challenged or investments were challenged, generally you're getting your money back and a little return on those types of investments. And when you looked at things that did not work out and really you had a loss of capital, it was usually an organizational breakup. What is the ideal endowment size or ideal check size?

To me, the ability to invest 10 to $30 million in funds is probably a pretty good sweet spot to not limit you too much in what you can invest in. If I've run the math on that in some scale of doing five to $600 million a year across alternatives and what that builds to, and you assume you're kind of 40 to 50% illiquid, you get to somewhere north of 5 billion, but it's probably less than 10. The national debt, every investor that I talk to says it's a big problem, but not many investors actually are constantly thinking about it and allocating their portfolio accordingly. How do you prepare for something like a ballooning

national debt? Mark, I've been really excited to chat. Welcome to 10X Capital Podcast. Well, thanks for having me. Really excited as well. So Mark, you've worked at some of the top endowments on the planet, University of Texas and Stanford. Tell me about your experience at University of Texas. You know, the big thing about the experience for me at UTIMCO is that was my inroad into the investment world. I was a mechanical engineer out of undergrad and spent the better part of the 90s in technology, first as a consultant, and then with a startup company that kind of went through the full boom and bust of the dot-com era and went back to business school from there. So I had predominantly a lot of technology background and was really excited to try to get into the endowment world. I had sought out to sort of pursue working with

an endowment and found my way to Utipco. And I started there as a generalist in private equity, tended to do a lot of our venture capital and emerging markets work, but did touch all areas. It was a tremendous opportunity I got in my 30s. And I think it afforded me a lot of experience and responsibilities and ability to form relationships that I probably wouldn't have otherwise gotten to do. Is investment management a solo sport or is it a team sport? In what way is it one or the other? It's definitely a team sport. One of the things I also learned there was the need to surround yourself with really good people and everyone that would add in building a team. And even the team that we had on the private equity side, we were all so complimentary. We all brought very

different things to the table that were really important. And just talking through the real estate example, I didn't really have a lot of experience in real estate. I had a lot of experience in sourcing managers, dealing through negotiations and structures and governance, assessing organizational dynamics. I really needed that person who knew real estate through and through and went out and found that person to bring on. You mentioned that your CIO, Bruce, came in and instituted a new asset class like real estate. Tell me how a large endowment like Utemco goes about building a competency in a new asset class. My relationships in the private equity side tended to have many of them that focused in real estate were in the smaller endowments, the $2 to $5 billion endowments where those teams would

spread across the different asset classes. So I leveraged them. We went and met with many groups, what's worked, what hasn't worked, what are your challenges and pitfalls. So I learned a tremendous amount just through that experience. One, it's just sort of about building and outlining the strategy that we wanted to do. Second was also building the relationships. I think we were fortunate at the time that a lot of other institutions were a little more hamstrung, not able to be as active in real estate. And so we were able to harness and access some of the best managers out there that had capacity. And we were also in a fortunate position of people being knowledgeable that we were putting a lot of capital at work.

And a lot of the spin outs, you know, folks that kind of had lost the golden handcuffs, so to speak, as the recession hit, that we're spinning out and investing from scratch. We took a lot of interest in that idea of not having a backlog of troubled assets to manage, but with really good talent that we could be pretty proactive and progressive in what we were building. Talk to me about you, Tim, focus on spinouts. Why did you guys focus on spinouts? I'll bring this back to the venture a little bit. Early 2000s, FOIA was established in Texas, which put us in a little bit of a backseat on the Venture side. Freedom of Information Act. And that was Freedom of Information Act. And through that, we did work with a couple of venture firms in Texas to work through the issues and had a law established that what

information would be released, had it challenged and protected. So there was precedent set. And so we did a lot to sort of improve the one. But two, we also recognize that we may not be able to go after those top decile managers that were going to be might be a little more resistant to the need. And, you know, in 2005, six and seven, that was a time where the world was sort of saying, if you can't invest with those groups, forget about it. You know, Venture had a, I think the 10 year record was probably negative at that point. And so we were, we were challenged about what do we do in Venture? Do we build it? Do we give up on it? And we did a deep dive in assessing the opportunity set and what really worked.

We found ourselves gravitating to capital efficiency, less tech risk, a little more market risk in the types of investments we would make. And we just said to build that next generation portfolio. I got to give credit. Linda Lachman was a big part of that in helping establish that and build what we did. And through our work, we built that out and focused on establishing relationships in a way that probably the market didn't really appreciate or think was a real viable option. But fast forward, and I think it's worked really well. When it came to the real estate asset class, how long did it take for you guys to go from exploring investing to making your first investment?

We made our first investment pretty quickly. I joke, we had... Bruce had hired somebody that came in and had a short stay and left. And there was... Literally, in his office, there was a stack of PPMs that were about waist high of just things that hadn't gone through. And again, this, where do we go? How do we do it? Our first step was like, let's just go through these things and make sure there's nothing here that we're missing and understand what's out there. What are the different opportunities? What are the different things that we might assess while we're talking to other managers? And through that, we had one that really rose to the top. I always like to joke, it read like the Jerry Maguire memo, the things we think but do not

say in the real estate industry. And I was just very intrigued by it. And we set up a call and quickly started migrating to making that first investment. So that was one of our first active investments. And it was fairly quick. They had happened to be a group that had ambitions to raise a fund. The financial crisis hit and they became an operating partner under a very large hedge fund. They had a carve-out right to allow investors to ride alongside some of those investments that were happening. That hedge fund happened to also be a relationship of ours. We had a lot of trust in them. And that was a way for us to begin dating, so to speak, before we anchored them in their

first institutional fund. Looking back at your endowment experience, what are the pros and cons of anchoring a fund? A big piece of it for us is that we were at pretty significant scale. And it was challenging to, if you kind of think about this world where we gravitated to lower middle market generally, and that was true across the board. We liked early in seed stage. We liked lower middle market buyouts. We liked smaller real estate firms. And a lot of that was based on the, you know, particularly in real estate that we felt like that was the universe of investment opportunity. That was the best place to be in place to navigate. And for us to go find a, you know, $200 million venture firm or $100 million buyout or $300 million real estate firm that was really well established, it would be very difficult for us to go deploy, you know, 60, 70, maybe $100 million in that asset. So it leaned us to, if we can find really great talent that we can build a deep relationship

with, get the time to really get to know them, it was a meaningful way for us to step in in a more meaningful way to build that exposure we needed. So I'd say that was probably a big piece of it. Secondly, you do have the ability to form closer relationships. I think a big part of what's important in creating alpha long term is that you have smaller, closer relationships that you really get in the flow of understanding how they think, what they're seeing in the markets. Because of all these areas that we're allocating to the ability to kind of see when a dislocation happens, be close to it, that we can sort of rifle shot and flex. I think that's a big value creator. And I think as an anchor and a core relationship, you're able to have those relationships more. Do you believe in the liquid assets? Do you believe first call alpha exists

that relationship? To jump to that, just to a third layer of this anchoring is I do think you get your alignment is a big piece of it. And you're forming a relationship with a group that is forming a new organization. It's likely their only product. They really need to get it right. It's a time that all of their eggs are sort of in one basket and that we think that that generally forms a much better, closer alignment for us. The flip is you have to worry about organizational risk. That's probably an elevated risk with a new organization.

And so if you can spend the time to really get comfort with that, we think that ability to get that alignment is really strong. To your question on first call alpha, I think it's I'm a little mixed on that topic because I, you know, one, I very much believe that it's important to have true partnerships where all partners and LPs are kind of treated equally. I don't like the idea of, you idea of special economics for an anchor or, hey, we get the rights to this, your co-investments versus the others. I just feel like you need to build that community and close partnership. And so I feel like that first call alpha still exists in that world where you still can have a very close relationship. You still are in constant dialogue. And maybe there are other LPs in the group that don't do that. And if you have those close relationships, I do think you're in the

flow of seeing what they're seeing and that you're in a position to be active when something happens. And I absolutely think that it's a very important way of being able to create that alpha. Just to play devil's advocate, shouldn't anchor investors get preferred economics because they provide the opportunity for the fund to exist and they provide opportunity for other LPs to go into an otherwise non-existent fund. I get it for sure. And I do think there are reasons that for being an early supporter of an organization that there are probably some benefits to be had. I think it's just you got to be very careful about how that's set up. The flip is that I think really good LPs out there really want the

organization itself to be strong and very well positioned and raising the right amount of capital for the right opportunity. And you can imagine if, in that scenario I said earlier, if we were to come in and we're $100 million of a $300 million fund. And we say, you know what? We should get half of your carry. All that's going to lead to is that either you can't hire and retain the best talent to go execute because you're hamstrung versus that other $300 million fund executing the same strategy. Or you got to go raise twice as much as you probably should have to be able to support that great team. But you're maybe missized your opportunity set. And so I think that's the dynamics we really try to understand.

There's always nuances. I'm a big believer in sort of Goldilocks scenarios where, you know, usually nothing in its extreme are the right answer. And there's always nuances of these hybrid approaches to think about. At the end of the day, if there's some ability to recognize the supporters, early supporters of a team, it's great. I think you just got to be really careful about how that's implemented and what that looks like. I had Mike Maples on the podcast and he reflected on his relationship with David Swenson. One of the things that he said is a nuanced explanation of David Swenson's style, which was he made sure he got really good

economic arrangement for Yale. He made sure he got a really good economic arrangement for other LPs. And he also made sure that the GPs were sustainable, were happy, were growing, and they were partnering with the GPs. So he was able to balance these three seemingly conflicting dynamics. And it is extremely important. And I do think it plays into the LP community and our networks that we build and the groups that we share ideas and opportunities with is you want those other like-minded investors alongside you. And it can look very different if you feel like somebody might come in and want to stronghold their positions or maximize for themselves over the collective. You had experience at UTimco and

then later Stanford Management Company, two of the most prolific endowments on the planet. You mentioned organizational risk. Can you unpack that? Walk me through the nightmare scenario when it comes to organizational risk at a fund and what are the actual effects to the underlying investor, the underlying endowment? That's interesting because I've done work on this in the past. And one of the nice things to me is those large institutions is there was a lot of private equity history to look back on and learn from. And it's an interesting dynamic around organizations are you're marrying these institutions when you make these first commitments, you're looking at 10, 12, and sometimes even longer sort of relationships in these underlying funds. And at the end of the day, organizations

that stayed together, and even if they were challenged or investments were challenged, generally you're getting your money back and a little return on those types of investments. And when you looked at things that did not work out, and really, you had a loss of capital, it was usually an organizational breakup, a big divorce, a split organization with nobody really there to help maximize the return of capital. And so I think that's the underlying risk we think about, one. And two, in assessing that organizational risk, I think it's all about, you know, again, I love the alignment factor of early funds and what they bring. But you have to think a lot about those organ dynamics and what they're assessing, their

ability to kind of stay together. Do they have the right incentives in place? Does the team have, are they cohesive? Have they worked together before? If they haven't, are they coming from similar cultures or are they coming from very different cultures? We want to explore all those things. We've hit a world of remote working and more and more often you see partnerships with partners in different towns and states and even countries. And that's kind of an interesting development when you think about organizational risk. In the old world, when these partnerships would come together, they kind of had to get married, right? They're coming together, they're moving to the same towns, whatever they

had to do. We're now, they can kind of test the waters, right? Like, hey, I don't really have to move yet. I can have this startup, this fund. And those are things that are like, how committed are they? And we just really want to understand that because we don't want to find ourselves two or three years into a 12 to 14 year relationship and seeing those things breaking apart. Absolutely. I think a partnership is like any relationship and long distance relationships are inherently fragile. Congratulations, 10X Capital podcast listeners. We have officially cracked the top 10 rankings in the United States for investing. Please help this podcast continue climbing up in the rankings by clicking the follow button above. This helps our podcast rank higher,

which brings more revenue to the show and helps us bring in the very highest quality guests and to produce the very highest quality content. Thank you for your support. When you look at the operational risk, it's not just a sunk cost of time, but also worse performing. Why does a fund that's only around for one fund perform worse than a fund that's there for several funds? It's really about managing the assets and the underlying investments, right? So in venture, you have... This speaks across different illiquid strategies, but in venture, there's follow-on decisions. There's protection positions that have to be made.

And it's just about having somebody that's really keeping their eye on the ball and seeing what's really happening. And if you have partners that have kind of split up and they've now tried to go start their own firms or maybe a startup company and they're doing something different, they're just they're taking their eye off the ball and they may not maximize the outcomes of those underlying investments. So I think that's that's the real big one. So you went from UTemco, one of the top endowments in the country, to another fairly elite endowment, Stanford Management Company. What were your first couple of years like at Stanford? It was an amazing experience. I think the big part of this and the decision to leave is I did have a huge affinity for the University of Texas and all that it represented. I grew up in Texas and

my wife's from Austin. So there were a lot of reasons that I thought I may never leave. And I always thought if I did, it would be one of my alma maters. And when Stanford came along, it was interesting. I mentioned earlier with Utimco, my entire career there was about first principles. We all learned on the job. We didn't really have those outside influences of education in this space to know what the right answers were. Everything we did was very bottoms up oriented how we did it. Where Stanford was kind of a totally opposite situation. I mean, here you had Rob Wallace, who had an amazing reputation.

He trained under Swenson at Yale. David helped him find his first job and sat on his board for a large family in Europe. And Rob was recruiting people from all over the industry. So folks that had worked at Yale, from Hilton Foundation, from University of California, from Temco. There were some amazing people at Stanford already. And that was really intriguing to me of this thought of like, we've done what we thought made sense. Now we can go see how the sausage was made at all these different institutions. You went from UTIMCO where you were going into new assets

and Stanford that had more of an established program. When it comes to large pools of capital, like endowments, how often should ICs really recalibrate their portfolios construction? First, from an asset allocation perspective, I think it's something you revisit annually, right? You're always constantly running your models of long-term assumptions by asset

class and as you're building. And so I think you want to have this consistent approach, right? And generally, the revamping of asset allocation you're doing is probably pretty marginal, subtle shifts. And at the same time, I think you're constantly evaluating your processes, the investments you're making and thinking about what are the new challenges ahead and how should we be shifting our thinking, right? And a case in point was seeing both of those institutions going from $20 million when I joined to north of $40 billion, your ability to invest changes. And you have to constantly be evaluating are there things that we need to do similarly or different. You can probably always maintain

those principles in how you invest, but you may have to shift subtleness in that strategy. A lot of institutional and sometimes non-institutional investors will say they don't like to time the market. They don't like to play macro investor. Is that a naive approach or do you really want to take the same portfolio allocation in any market? This gets back to my Goldilocks theory of many things. I definitely do not believe in market timing and too much macro tactical shifting. Premise number one. But two, I think there's components of both that can live together, right? We do... Our asset allocation work is relatively high level. It's fixed in, you know, how much fixed income cash are we going to have? How much private equity,

how much venture energy, real estate, credit, public markets, maybe you get granular to public markets of how much do we do in developed markets in the U S and emerging markets. And what do we do in hedge funds? Right? So that's kind of this big picture that I think can stay very consistent over the very long term. But when you take those buckets individually, and you're very bottom-up in your approach of how you assess and find really good managers, you're going to have a lot of tactical things potentially happening within each of those investment categories. And I do think it's often hard for us as allocators to make those decisions. We're a little more removed. We want to be knowledgeable what's going on in the industry and see it.

But we may be a little more hamstrung to be able to execute as things are happening. And so finding ways that you find amazing managers, amazing talent, and that having the flexibility to migrate the market dynamics that they're seeing, I think allows you to do some tactical things without being too macro in your orientation. From my conversations with a lot of limited partners, one thing that seems to be highly rational is almost a counter cyclical market timing. So you invest as a general rule, there's obviously exceptions, but you invest into assets that are out of favor for macro reasons or otherwise.

That seems to be an interesting kind of contrast with, of course, making sure that you have a conservative tilt to your liabilities and making sure that you're able to cover your liabilities as a first rule. I also believe in animal spirits quite a bit and figuring out ways to protect yourselves in some ways of succumbing too much to emotion. And to me, that asset allocation methodology helps that quite a bit. So if we're building these models in a little more detached framework of how we want to build, they serve as amazing guardrails. And more times than not in my career, they have moved you to make the right decisions at the right times without necessarily that macro overlay. And what I mean by that is when the pandemic hit and equity markets sort of unfolded, all of a sudden here we are finding ourselves well under allocation and our rebalancing efforts would allow us to put dollars to work at a time that valuations were necessarily diminished. And similarly, on the upside, when markets are really running, you'll get out of your asset allocation. So you're rebalancing out of more frothy investments. I think those are kind of nice little guardrails

that serve the ability to help you be a little more counter-cyclical in how you think about things. So you're both riding it up, but also taking some chips off the table and making sure that in the case of a retreat, you're balanced in an appropriate way. So you've mentioned real estate a couple of times at UTIMCO as well as Stanford Management Company. And a lot of your peers in endowment world today will say that real estate, especially for non-taxable investors, is a dominated assets by other asset classes. A lot of them aren't even allocating or allocating low single digits. What are your thoughts on real estate today, specifically for tax exempt investors? I'm still a believer. And I think there are areas that maybe are more challenged than not. And I think it probably depends on the size of the institution. You know, there's different levels of scale that I think bring different opportunities or deteriorate, maybe delete

the opportunity set. In my world, I think we are small and nimble enough that we can play at a pretty wide universe. And we tend to do a lot of things that build portfolios that are highly desirable by really large institutions. We still see that as a pretty nice opportunity set. There's a lot of institutions you see out there that probably bucket in every category. Like we're going to have this much in office and retail and storage and multifamily. And I do think that's a pretty challenged concept over the very long term. And we do have pretty tactical approaches to how we think about that real estate. There'll be times that we're going to be heavy in multifamily and there might be times that we're going to be very opportunistic and pursue different things just based on where we see value

and how that compares to a lot of what we're seeing in both the public markets and just fundamentals and pricing. We're still pretty supportive of it and think it fits an important role in an overhauling portfolio. And then lastly, I would say it also brings some level of yield that depending on the organization and their needs can serve a pretty important portion. Let's talk about something related, the national debt. Every investor that I talk to says it's a big problem, but not many investors actually are constantly thinking about it and allocating their portfolio accordingly. How do you prepare for something like a ballooning national debt? think it can often drive this higher level of inflation. Four or five years ago, inflation kind of fell away. And I think that's a lot of the questions around oil and gas, energy and real estate. Are they really even needed for inflation protection? But I think that's reared its head in recent years and that national debt can play a big role in kind of what the future looks like

there. So I think that you have to incorporate that and you're thinking of what assets you want and which ones may be able to support you in a different environment. The national debt, I think doing a little bit could go a long way. Having some exposure to Bitcoin, having some exposure to real estate. A lot of people don't realize real estate is a really great hedge because as prices go up on a relative basis, real estate stays in the same amount because it's a fixed, scarce asset. So doing a couple of those things, I think, could go a long way. After you account for and prepare for inflation, you kind of, in a Zen way, want to let it go because you can't affect national policy. You can't affect what's going on in Washington.

We talked a couple of weeks ago, and you mentioned that large endowments have both economies of scale as well as diseconomies of scale. What are the economies of scale endowments? True economies of scale that help you be a better investor and put you in a position to perform better. And at the same time, I think it has a narrow window before you begin to see diseconomies, right? I heard some of your past speakers say things that, you know, size is the enemy of performance. And I do think there's some truth to that at a level. And so there's this notion of getting economy at scale to a point and what's that ideal platform look like and when does it start to deplete? And the economies of scale I think about are the resources you can get. You can get great human resources, great talent. You have the means to

hire great talent and you have outreach and technical advances and support that you can utilize. So different systems for research and Bloombergs and team and all these different things that really put you in a better position to do your work. Our job to do it well requires a very proactive approach to sourcing. And that means a lot of boots on the ground, a lot of meetings, identification of who are those managers that you really want to court and potentially invest with. And without those resources and team, that's a very difficult thing to do. A lot of groups that are sub-re, that don't have those resources, they end up being a lot more reactive. It's the,

what finds their way to them, who's having to market, who's probably been in the market for a long time, or they're doing things on more of a regional basis. So the resources are important. You want to be proactive. And then secondly, I do think capital, you want your capital to be of size that you're a meaningful partner. We talked a lot earlier about that sort of first call alpha, and you want to be in that position, having the capital to have the real communications, close relationships, beyond LPACs, all those things that are going to help you know that manager a lot better are very important and part of that scale dynamic. On the dis-economy scale, I think it's all about kind of too much capital, right? We talked about the idea of I can't go do an amazing $75 or $100 million fund when at the end of the day, your check size minimums are $100 million. So you just get to a

point where the universe of opportunity that you can invest in becomes too small. And it can be at a detriment with that scale and a detriment to performance. I do think sometimes you can have agency issues creep in and you have a really large organization with many asset classes. All of a sudden, you've got specialists coming in. You have a lot of some silos that can form. And each of those silos might start building their, they might optimize their own portfolios. And that may not be the optimal portfolio for the full corpus. So again, I get to this Goldilocks scenario of scale. There's a scale that's optimal.

And if you kind of think about it, the PT boats of the world are, you know, they're really small and nimble, but they, but they have a lot of vulnerabilities. You know, the big aircraft carriers that are less nimble, they're really hard to turn. They're hard to put in the right direction. And they're kind of limited to just being in these big open waters. And the flip is if you found a battleship that's, you know, fast and nimble and has lots of capabilities, that kind of feels like an ideal world to try to operate in. You know, I'm going to have to put you on a number. So whether it's asset size or check size, what is the ideal endowment size or ideal check size that puts you in the position of getting the most amount of calls while also being able to deploy effectively?

I think it's a range. And I think it's still a little bit to be determined. But I've always been enamored by the idea of having a $5 to $10 billion pool of capital to invest in an optimal way. To me, the ability to invest $10 to $30 million in funds is probably a pretty good sweet spot to not limit you too much in what you can invest in. Venture capital is probably the limiting factor. And on occasion, you might drill lower. If I've run the math on that in some scale of doing $500 to $600 million a year across alternatives and what that builds to, and you assume you're 40% to 50% illiquid, you get to somewhere north of $5 billion, but it's probably

less than $10 billion. I had Tom Lovera from IVP and he said, it's not that your fund size is your strategy. It's that your strategy is your fund size, which is the right way to think about it, which is how many checks, what's your check size, and then what's your portfolio construction versus setting an arbitrary fund size and then coming up with a strategy. So tell me about Capital Creek Partners. So Capital Creek Partners, we were formed in 2018. And I like to say we're a little bit of a hybrid between a multifamily office and an outsourced CIO.

And what we are building and what we're solving for is twofold. I think one is what we want to build towards this ideal investment platform. And so we think a lot about what is the platform endgame? What do we want to build to? What are the resources we need for that? And so that's one component is we want to build an ideal investment platform. Secondly, in everything we think about on how we charge our fees, how we're building our team is all sort of with that guide of like, here's where we're

headed. We want to bring that to smaller institutions and large families that otherwise can't be in that ideal situation. So we want to have a collective that we're providing that resource to. And really, it's about helping them compete. These families and smaller endowments and foundations do amazing things. The groups that we work with are, you know, they're deep into philanthropy, heavy education, heavy on homelessness, heavy in inner city youth, heavy in no-kill pet shelters. So they're doing all sorts of things that they're passionate about. And we just think about how do we help them maximize their capabilities?

And we want to have that platform in place that they can leverage and invest through. I know every LP is going to have a slightly different construction, but what's your view on portfolio construction? What's the optimal portfolio construction? We believe every individual, every institution has a different risk tolerance. They have different liquidity needs. They have different uses of the capital and they have different existing exposure. So just based on those things, you necessarily have to maintain true customization for them. And so we think about how do we individualize and

customize each client's asset allocation framework. However, on the other end, we want to build, again, this optimal investment platform and we want to invest as a firm. And so we are channeling everybody's needs into a collective that we're investing out of. And so that means every year we do asset allocation, we do their budgeting across particularly in alternatives and venture and real estate, energy and buyouts and credit. And we aggregate all that. And that's what we're investing out of. Within each of those five series, we think about three to five funds annually and then reserve about 20% for co-investments and directs. I mentioned everybody's different. And from an

asset allocation level, they're all very different. We do have kind of a sharp optimal model portfolio that ends up looking pretty endowment-like and probably where most of our families gravitate. And what that looks like is generally, it's about 45% illiquid across those five categories. We have a fairly heavy amount of fixed income, upwards of 25%. Usually, they have a little bit more of a liquidity needs. Their distributions might look like 4% to 5%, but they may just have needs that come up that maybe endowments might be protected from having to distribute on. So we do maintain a little bit higher level there. And that growth has also been because of just where rates have gone.

A lot of the dollar we would otherwise have in hedge funds and the like, we've moved to fixed income. Where's your edge when it comes to sourcing managers? Talk to me about how you source managers. I think there's four core pillars for us. This is probably helpful for a lot of the GPs out there to think about how do they approach different institutions. And there's some of these avenues that just won't be feasible for them. And then others that are going to be right up their alley. So for us, you know, the four pillars, we have the first, which one,

which I say probably is our highest probability is rationalizing old relationships. We've got folks here from, from Utipco and Stanford and Texas teachers and other family offices that have, you know, prior relationships they feel strongly about. And as those groups come back to market a good number, then they find their way into our portfolio. So that's number one. Two, it's really about utilizing our network. We have tremendous relationships with many great managers, and they are often our best source of recommendations and referrals for other groups that we want to talk to. Similarly, we've been, you know, LPAX and different LP sort of communities over time

and have a lot of close relationships there. We share ideas and gravitate to certain investments together. So anywhere we can really sort of have that comfort level of the relationship and some depth in knowing these partners that are either spinning out or getting referred to by groups that we know and trust. That's a really important part of what we do. And then perhaps the one that's more interesting for the new managers out there or groups that maybe don't have that connectivity in the same way is we have a grassroots approach. Sometimes we'll say, you know, this is a strategy we're really interested in.

Let's go figure out, do the landscape of the market and really figure out who we want to go target. That's where that's this big part of this proactive approach to investing is that need. And we have managers in that bucket that I'd say we've been courting for 18 to 24 months with the idea of when you come back and you're going to add that one or two new LPs to the mix. We'd love to be a part of that. And that's a big part of this grassroots or it's strategy driven. You know, we did one in gaming and e-sports a few years ago where we kind of landscaped the full market and said, let's go figure out who the best in that market is. We don't care who's in the market today. We want to make sure we know who it is when they're in the market, we can approach them. So that's a little bit of the grassroots. And then the last piece is the over the transom, right? And that's literally the I coined that phrase also from from Lindell.

This is the one where the BPM just finds its way to you and they do direct outreach. And there's something about it that's really unique and interesting that makes you want to spend time on it. I talked about the real estate group that was sort of the Jerry Maguire memo. We spent time with them, really liked them. And we jumped on board. We're looking at a unique and really great managers can come out of that. My case in point one was Union Square. Again, Lindell, that was a truly over the transom, just something that was different. And Sundana too, right?

No. Sundana was... I got introduced to Michael Kim through one of my classmates at Stanford originally. So that was the beginning of that relationship. So that was a little bit more... I'm not trying to take credit from you. Apologies. Yeah. No. Yeah. Yeah.

Lindell closed it and nurtured that right when I was going to the real estate side. Well, Mark, I'm always afraid to show favoritism, but I think what you've built and what you're continuing to scale is a very unique platform in terms of endowment style. But at the right size, it's been an absolute pleasure to jump on the podcast. Thank you for jumping on. Yeah, I really appreciate the opportunity and really enjoyed the conversation and hope that we can do it again before. Thank you, Mark.

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