Investing Billions - E100: CIO of $2.9 Billion University of Illinois Endowment

Episode Date: October 3, 2024

Travis Shore, CIO at University of Illinois Foundation sits down with David Weisburd to discuss how CIOs can adapt to the next big change in time, the critical mistakes made in mastering risk in uncer...tain markets, and identifying which strategy may save your endowment in the next crisis. The 10X Capital Podcast is part of the Turpentine podcast network. Learn more: turpentine.co – X / Twitter: @dweisburd (David Weisburd) @uofi_foundation (University of Illinois Foundation) -- LinkedIn: University of Illinois Foundation:https://www.linkedin.com/company/universityofillinoisfoundation/  Travis Shore: https://www.linkedin.com/in/travis-shore-cfa-34a05712/  David Weisburd: https://www.linkedin.com/in/dweisburd/  – Links: University of Illinois Foundation: https://uif.uillinois.edu/  – Questions or topics you want us to discuss on The 10X Capital Podcast? Email us at david@10xcapital.com -- TIMESTAMPS: (0:00) Episode Preview (1:28) Evolution of University of Illinois endowment and investment philosophy (3:09) Navigating herd behavior and the financial crisis impact on strategy (6:32) Evaluating venture managers and approach to asymmetric risks (8:34) Investor vs. allocator roles and decision-making in teams (11:18) Leadership principles and the value of iterative decision meetings (14:28) Developing institutional knowledge and asset allocation flexibility (17:49) Managing market cycles, risk, and liquidity (22:21) Adapting to market changes and liquidity management strategies (25:36) Governance's impact on endowment performance and board relations (30:36) Addressing bias in growth strategies and investor re-ups (33:11) Transition challenges to a CIO role and asset allocator decision-making (36:41) Closing remarks

Transcript
Discussion (0)
Starting point is 00:00:00 One of the things I love about our team is we love to argue. This team argues every day about lots of things. We have really strong relationships with one another. It's never personal, but we have strong intellectual disagreement around whether it's parts of the market, asset allocation, whether we should hire a manager, whether we should make a co-investment or a direct investment, what our growth assumptions are in something. Even silly things like where our margin for being right or wrong might be like $52.48 or something, whether to hedge FX or something. But we debate those sorts of things deeply. We use a framework called beta factors. Everything is either equity, credit, interest rates, cash, real estate, or commodities. Equity is just equity, public or private. Credit's
Starting point is 00:00:41 just loans or packages of loans to operating businesses for projects, real estate just land and buildings on it, cash is what it sounds like, interest rates are just loans to government, and then commodities are basically things you could set on fire or drop on your foot. So everything falls into that. What were your learnings in 2022? you joined University of Illinois two and a half years ago as a new CIO tell me about the history of the University of Illinois so the University of Illinois Foundation which is the entity that employs me it's about a 2.9 billion dollar endowment we're in the loop in Chicago with the staff here about 12 of us. And you came to University of Illinois. You're at University of Florida, NYU, Vanderbilt. You've
Starting point is 00:01:30 been at some great endowments. When you came two and a half years ago, what changes did you make and what did you keep the same? So you might imagine there's been meaningful turnover in the portfolio. We built a team. And with the changes we made inside the portfolio, it's been on in public markets and private markets, but our most immediate impact was certainly on the public market side. And, you know, through the lens of if you're an investor, you know, every investor needs a portfolio they can have confidence in, in periods of stress. And to do that, you really need to have one you can call your own. So it needs to fit to where when things get difficult, you know what you own and you have confidence in, and you don't feel like you're dog chasing your tail or you're
Starting point is 00:02:09 panicking. So that was our immediate effort really in the first 18 months was to get the portfolio to where it was something we were comfortable with. What is your philosophy when it comes to endowment style investing? First, and a big point, I ask our team at the core to think like investors and not like allocators. So, you know, the word allocator here is not one that we use. In fact, I start getting a little twitchy when it's used and people people on the team know not to use it. So that is core to everything we do. You know, we we don't allocate capital to certain parts of the world or certain strategies. We don't allocate capital to certain parts of the world or certain strategies. We don't fill buckets.
Starting point is 00:02:46 Core to our approach is the idea that we are fundamentally investing in operating companies predominantly and at the right point in the capital structure to where we can compound capital over time in a way that supports a long-term high time horizon and a long-term entity. The endowment should persist, you know, the lifetime of everyone on this team. A lot of your peers, especially those who have been CIOs for multiple decades, talk about this kind of herd behavior. People pile into asset classes oftentimes in the late stages of the cycle. What are your thoughts on that? Yeah, I think that's what makes markets right. Like I had an old board member, I'll leave him nameless, even though I adore him, but he always said like, you know, you could, investors generally don't make money. And he was focused on mutual funds because none of them had the courage to buy at the bottom. It's manifestly true, at least in my belief, because that's why cycles happen. So it's sort
Starting point is 00:03:39 of like which drives the other. I think you have to know yourself a little bit as an investor and what, you know, you'll be able to execute on and what you can. Part of that's your temperament, your distribution, or your willingness to take risk. And I think I want to be on the right side of trends and things where there is capital formation over a reasonable period of time. The tricky thing is when do you sell them or when do you reduce them? So where we have those, I'm not dogmatic about rebalancing as an example, we will let things run. But we're always sort of itchy about staying too long and when to sell. You started at University of Florida in 2006. So you lived through the global financial crisis. How much does that inform your investing strategy today?
Starting point is 00:04:24 Probably too much, honestly, David. It took me years to outgrow that. I joined Florida in February of 2006, I believe. Brand new investment office, very young CIO. Our CIO there was Mike Smith, who I remain pretty close with today. And he was a great mentor. But he and I and some of the other folks on the team were all really young. And I think he was 32 when he was named CIO at University of Florida. We got there. So he started in like 05, I think, or no, mid 04. And I started at the beginning of 06. And, you know, 06 was sort of a normal year, a pretty good year. 07 was a weird year. Markets okay, like optically we're really healthy,
Starting point is 00:05:06 but you can feel lots of things going wrong under the surface and asset prices behaved weirdly. We were positioned well for it. I was probably a little naive at the time. I'm like, wow, you know, we saw this, like other people saw it too, but we got it right. We still lost money as everyone did. But, you know, coming out of that on the other side, one of the biggest reflections was that you have to be able to play both sides of the tape. And this is where I use this phrase with our investment committee or board or stakeholders and our team, like you have to be able to transition through a market cycle and do so in a way that allows you to play offense. And it was at Florida, that was really what I learned, David, one of the many things,
Starting point is 00:05:46 but vividly learned was the idea that coming out of a cycle, you need to be willing to take risk. And honestly, I think by 2011, maybe 2012, and I had left UF at that point, but I realized coming out of that cycle in 2009, we had not taken enough risk. And I think one of the things I admire about venture and growth sorts of investors is their, their optimism. And they're always able to like see the, the upside. And, you know, if you spend too much time with like the value community and public equities and credit, like you'll, you'll find everything in the world that can go wrong and markets need both sides. And as an investor in a place like an endowment, you need to be able to do both or at least surround yourself with people that can.
Starting point is 00:06:30 So when you look at venture investing, how much of it is which venture manager checks as many boxes versus which one has the biggest strengths? How much are you playing to a manager's strengths and weaknesses versus overall kind of broad skill set? The venture community uses the phrase like, what's your superpower a lot? And that's really like the only area of where we work that I hear that. But I do think at least in that area of the world, it has some merit to it.
Starting point is 00:06:58 For a university endowment that's $2.9 billion, how much space do you have to take these asymmetric extreme risks? Like how much could you invest in crypto plays and things like that that have very binary outcomes? It gives us room to do it, but we have to be picky or selective. You know, we don't we're not of the scale to where I think it makes sense for us to do dozens of very small, highly binary distribution sort of bets. So we don't really do crypto as an example, in part because I don't really fully understand it.
Starting point is 00:07:36 Someone on my team understands it very well, but we've not done any. That's not to say we wouldn't, but we've not to this point. And because of the size of our team and the size of the pool, we just have to be targeted in where we pick them. So, you know, we've got a vertical on our team. We refer to it as learning, research, and engagement. On the learning side, that person, Jeremy, on our team is focused around structuring, you know, our research and our flow and our learnings and having the team sort of be disciplined about theses and why we're looking at something, putting in the proper like check marks and coming back to things, told ourselves
Starting point is 00:08:10 accountable what we said we needed to learn in order to proceed on something. So when we do that, we'll go slow, but we'll go deep. It just means you can't go wide, maybe to your point. So like we're, you know, we're not going to be doing 10 of those at a time or even five of those at a time because we don't have the bandwidth. We don't need to be everywhere doing lots of things. With the things we do, I want to do them really well and understand them as well as anyone. You mentioned you're very particular that you're not an allocator, you're an investor. What did you mean by that?
Starting point is 00:08:37 Even just with the way we organize our team. So we have somebody who we informally refer to as our head of growth and somebody we informally refer to as our head of value. So our team at the senior level is split up with head of operations, the head of growth, the head of value, and then the learning, research and engagement person. You can think of growth really as things or sectors that are industries that are income statement focused or revenue focused, and then values, just areas that are more balance sheet focused. So, you know, then that translates into asset classes, but also industries and verticals too. So, you know, obviously banks, industrials, cyclicals would fall under value, but also credit or real estate would fall under value.
Starting point is 00:09:28 Whereas things like software, our head of growth actually used to be a software analyst and is an engineer by background. Venture growth sorts of strategies, regardless of the geography, even like retail growth stories anything income statement focused really falls under that part of the spectrum so that one obviously with growth is more equity focused than not where's values a little more broad but at a high level those are just first-line accountability assignments so everyone on the team is a generalist and is able to work on virtually anything except for a few no-fly zones here and there, but virtually anything in the world. But they have first-line accountability for certain segments of the market.
Starting point is 00:10:17 How do you make sure that you're making the right decisions? What's your decision-making process? Yeah, we debate things in a way that can become borderline or absolutely beyond borderline frustrating for folks, including me. So one of the things I love about our team is we love to argue. This team argues every day about lots of things. And we have really strong relationships with one another. It's never personal, but we have strong intellectual disagreement around whether it's parts of the market, asset allocation, whether we should hire a manager, whether we should make a co-investment or a direct investment, what our growth assumptions are in something, even silly things like where our margin for being right or wrong might be like 52, 48 or something, whether it's like
Starting point is 00:11:01 whether to hedge FX or something. But we debate those sorts of things deeply. Ultimately, somebody has to decide. So that's me. But I rarely would decide without lots of debate going into that decision. Do you believe in the Jeff Bezos principle of the leader should speak last? I believe in it more than I don't. I will confess I sometimes have a hard time waiting to go last. I have a few pet peeves that I try to – I just can't – I want to outgrow some of them.
Starting point is 00:11:34 I just – I've reconciled myself to the fact that, like, with some of them, I won't. But, like, one of my pet peeves is, like, I just – I hate hearing inaccurate information presented as fact in a discussion. So when I hear it, I just I can't I can't stay quiet. It drives me absolutely bonkers. And that doesn't happen very often. But, you know, I just I'm very focused on making sure that the the criteria in which we're debating to make a decision is the right criteria with the right information. And when that is happening and I'm just an observer, that's fantastic. I read something years ago and they're like, you should have thinking meetings or discussions and yet you
Starting point is 00:12:14 should be very clear about when you're deciding. So we have a lot of meetings where we're thinking or discussing, but we're not deciding. And I love those. I'd rather take in the information than give it out. So it's really easy to remain quiet or observer. One of the things that I've really applied in my life is whenever there's big decisions to be had, the belief in iterative meetings. So if there's an organizational decision, instead of having one big two-hour meeting where everybody gets their best opinion, having these small iterative meetings, allowing people to evolve their thinking, to think higher, to think more
Starting point is 00:12:49 about their decision-making, come to a better solution. It also is less daunting when you're kind of coming across big tasks. I like that idea, actually. I should give that some more thought. You know, we're even two and a half years in we're still thinking about what what our meeting cadence should be and like the types of meetings we have uh we've pivoted a little bit on these a couple times over that period part of that's a reflection of where we were in our development and part of it is just a recognition that the way we had things structured wasn't wasn't working the way we would like it to so uh i have no doubt we'll change it again. That's an interesting idea. What we've tried to do to this point is we have standing meetings. So like we
Starting point is 00:13:31 have a weekly team meeting. People travel, it can get moved. We have a bi-weekly meeting that's a little bit deeper on investments. Sometimes that one will get moved or have to be moved around. But then we have some other meetings that are immovable. We have a monthly research meeting, which can run anywhere from two to four and a half hours. That meeting does not get moved. I've done that meeting from the other side of the globe at three in the morning or at midnight. It doesn't get moved. If you can't make it, then that's fine if you have to miss it for something, but don't miss it because you're scheduling a meeting that you could have scheduled the next day. I just figured with some of those, especially the less frequent ones, you just have to have them on there. You
Starting point is 00:14:14 have to honor the fact that they're there and hold to the calendar, even if you miss people occasionally. So we're still working through some of those things. I'll have to think through more on the iterative meeting idea. How do you know that you're building institutional knowledge? A couple of ways we can see it tangibly and then other ways where we're really still trying to get better are more intangible. So, you know, we have a growing library of research here. It could be things like one of the things we've got a project going on now is just around studying carbon capture. We've done some things on sustainable aviation fuels. It could just be as simple as like mapping a market.
Starting point is 00:14:50 On the other side of that are the more intangible things about intellectual honesty and making sure we're making decisions. I keep a diary as an example. in the endowment, especially if it's something where it's direct and in liquid markets. And, you know, you constantly ask yourself like every day, like, why do I own this? Or why did I buy it or sell it? I keep a diary just in my iPad about why I'm doing everything. And then at an endowment level, one person on our team is responsible for trying to make sure that we're sort of ex ante. And really, this is just documenting our discussions.
Starting point is 00:15:28 But ex ante, we're identifying exactly why we're doing this and what we believe and don't believe about it. So when things happen over the life cycle of an investment, we can be honest with ourselves about whether it was part of the thesis. Thesis is broken or it's just new information we need a form of view on. You guys are clearly first principles when it comes to investing. How much of your investing is around filling buckets versus kind of best ideas? Like how much flexibility do you have in terms of different assets? We have wide ranges. So we use a framework called beta factors, which I'll give credit to my CIO at Vanderbilt, Anders. So everything in the world for us is either at a security level, so not a manager or a fund level.
Starting point is 00:16:09 Everything is either equity, credit, interest rates, cash, real estate, or commodities. Equity is just equity, public or private. Credit is just loans or packages of loans to operating businesses for projects. Real estate is just land and buildings on it. Cash is what it sounds like. Interest rates are just loans to operating businesses for projects. Real estate just landed buildings on it. Cash is what it sounds like. Interest rates are just loans to government. And then commodities are basically things you could set on fire or drop on your foot. So everything falls into that. For three of those categories, there's a range, but the floor is zero. And then for equity, it's a pretty wide
Starting point is 00:16:44 range. But in reality, the way we think about this is credit is the most tactical part of the endowment. So it could be 7% of the endowment at one point and, you know, 22% at another point based upon the credit cycle and the market cycle. And, you know, I stole this from Rich Bernstein, who, you know, said, I think he wrote this in one of his books, but it's better to be late to credit. I'm sorry, early to credit and late to equity. And that's stylistically how I think about it. So, you know, our equity exposure has been as low as 57 percent since I've been here and as high as I think 71. And, you know, credit's been as low as 11, maybe 10 and as high as 18 or 19. That could be an even wider distribution over time,
Starting point is 00:17:29 just we haven't had a full cycle since I've been here. Generally speaking, equity is going to drive the return of the endowment. So that is where we spend the most time day to day, is just looking at industries, managers, and companies in public and private markets globally. How does endowment know what part of the market cycle it finds itself? It's really hard. And I won't claim to have mastered it. What are some signs? What do you look for? And how do you try to probabilistically predict it? I'll give you the two opposite ends of the spectrum here. One obvious end would be in 2007, 8, 9, where virtually all endowments had huge liquidity
Starting point is 00:18:13 considerations. And there were rumors that some were even calling their GPs and saying not to call capital because we're not going to wire you the money. So that's the one in that's that's bad. And then there's the other end who, you know, my my boss, who's probably my greatest mentor, Bill Peterson from the Sloan Foundation. He jokingly, but I think only half jokingly, says they will ride on his tombstone that he never took enough risk. So Bill would carry, you know, 15 to 20 percent fixed income in cash for long periods of time. And, you know, markets would grind higher. I mean, I remember we were doing that at Sloan in 2013. And I don't remember exactly, but like, I think the Russell was up like 40 something percent that year or something, something crazy. And we had meaningful cash and fixed income. And, you know, Bill was kind of banging himself in the head, just reconciling like all the liquidity we were
Starting point is 00:19:04 carrying around. So that's the delicate portion of it. So I don't try to really do either of those. What I really try to do is just make sure I can manage risk with liquidity because I don't. And this is the key part. I don't want to be a for seller of assets at the tail end of a cycle. In my mind, if you can traverse the cycle to where you can play offense and meet your spend, you know, we spend over 5% or distribute over 5% a year at the foundation. I've got to be able to do both. And then I also have to be able to meet capital calls if we get them.
Starting point is 00:19:34 Our unfundeds are pretty low here, so that's pretty manageable. But those are the biggest requirements that would satisfy, you know, traversing a cycle or being, you know, being able to invest the same way on the other side of it that you were going through it. Speaking with Victor Mayer the other day from Pantheon, he runs their Evergreen Fund among other roles. And he mentioned that one of the tricky parts is that when you have something like the global financial crisis, you not only have NAV go down, but you also have capital call risk and all these confounding factors basically almost overnight appear. And there's much more of a compounding to it than you would intuitively kind of be able to predict. It's totally true. And that's part of what I try to
Starting point is 00:20:17 avoid. Since we do a decent number of co-investments and direct investments, that does limit the amount of unfunded commitments we have. Over time, it'll continue to do that. So, you know, that helps. You just have a better understanding of like the timing of illiquidity on your balance sheet because you've already made the investments. It's not an unfunded liability. So that definitely helps. And that's something more people are probably doing now than they were doing, you know, in the financial crisis in 2007, 8, 9. So that's probably one of the biggest differences, I think. And the other difference, I think, just generally people learn their lesson that were, you know, you asked earlier about, you know, lessons learned going through that period and how much it would impact my investment philosophy. And I'd say broadly, I think anyone that worked in this sort of role through that period has seen that mistake and knows what it feels like. So it's one of those generational sort of learnings. I don't think
Starting point is 00:21:16 we'll really see that at broad scale until people in that cohort begin to phase out. 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
Starting point is 00:21:37 and helps us bring in the very highest quality guests and to produce the very highest quality content. Thank you for your support. What were your learnings in 2022? I started with the foundation here in April, beginning of April, 2022. So my earliest learning here was the playbook and plan I had written in call it October, November, December of 2021
Starting point is 00:22:01 was obsolete the day I walked in the door. That in some ways was terrifying. I'd spent months preparing to walk in the door with a strategy that I thought we'd be able to execute on pretty quickly. And it just wasn't realistic because a lot had changed since December of 21. So in some ways it was good for us. We then venture in sort of growthy sorts of areas, direct investments and funds. We had some things available to us more quickly because capital became a little bit more scarce. So that I hadn't really planned for. The cycle turn kind of changed my priority mix or hierarchy is probably the best way of looking at it.
Starting point is 00:22:37 So we shifted where we were going to work first. Are there any practical hedges or instruments that endowment can utilize in order to either stay long, extra long on a long bull market or hedge against a bear market? From our perspective, there's two things you can do. Number one, you can be conscious about liquidity in liquid markets and not sacrifice liquidity for unnecessary structure, just to wrap around liquid assets. So what I mean by that is you'll see funds that have rolling locks or long lockups or complicated sorts of exit mechanisms and just liquid public equities. We generally don't do those.
Starting point is 00:23:20 The public markets book, I try to keep reasonably liquid, but there's a balance there. Like I will accept a little bit of illiquidity there if I think there's legitimate sort of market structure reasons or other sorts of liquidity driven reasons to do so. But not just to access a group who has a high demand for their limited capacity. And because of that, you're going to do a three-year lock or something of that nature. So that's one thing. The second thing is you can use derivatives. So it's not a hedge, but it helps you manage liquidity pretty well. So we think on the margin, we think a lot about asset allocation and the use of sort of, you know, cash product versus derivatives and what helps us better be flexible in managing
Starting point is 00:24:04 our liquidity. Those are the two biggest things. Not really outright hedges, done a little FX hedging here, but for the most part, we're just trying to be thoughtful about the risk we're taking. We're not levered, so we're not really hedging a lot either. I'd rather undo the risk than wrap a hedge around it. Outside of the liquidity constraints, which is a 5% deployment per year, what other constraints do you have on your strategy? Not a lot, really. We have an asset allocation that's approved by our board, our investment policy committee, and we have an investment policy committee that asked us
Starting point is 00:24:36 to have certain restrictions around the amount of derivatives we would hold on the balance sheet. But for the most part, we're pretty unconstrained. You know, our biggest constraint is really our bandwidth. And that's intentional. And then, you know, our ability to execute. So the foundation has been great with resources. We are very well resourced with technology, with travel and the office budget, the ability and the resources to hire. So I give the University of Illinois Foundation a lot of credit. I mean, they've fully resourced this group and a lot of the constraints you would typically have. There were discussions, obviously, up front if you want to do derivatives. What does it mean? What does it require? We are in Chicago, after all, and it's a huge commodities and derivatives town. So there are stakeholders that had questions and rightfully so. But at this point, we really don't have,
Starting point is 00:25:30 we don't have a lot of restrictions or things standing in our way. I had Dr. Ashby Monk, who runs the Stanford Long-Term Investing Initiative. And he said the most underrated part of endowment pension funds is their governance. That's the biggest kind of differentiation between returns. How much has governance played into the four endowments
Starting point is 00:25:48 that you've been on? How much has investment committees affected a team's ability to maximize returns or maximize objectives? Well, I tell you, those four groups could not be more different. So, I mean, in virtually any way. In a way, it's probably helped better prepare me. You know, when I was at Florida, as an example, like our CIO, Mike, did most of the board management. We were a small team. We were a new team. Like, I had no idea at that point what it
Starting point is 00:26:20 meant to manage a board. And Mike had some background as a consultant for a little while before that. So he was much better prepared to do that. But even by the time I left Florida, like I had zero sort of knowledge or appreciation for what went into it. It really began when I got to Sloan and learning from Bill and then really, really kind of took off at Vanderbilt. So, you know, I'd say in that phase at Vanderbilt, one of the things I really learned was that was a tough committee, but a very fair committee. But, you know, there were folks on there that asked deep questions that made you think and you had to be prepared. So, you know, one of the takeaways is it helps make me a better investor, but I prepare incessantly for board meetings, not just to present to the board, but it helps
Starting point is 00:27:11 me understand the portfolio even better and introduces another level of accountability. My question had a false promise, which is that investment committees detract from returns, but you're actually saying investment committees can actually improve decision-making, improve returns. I can say this publicly because I know every investor says it privately and boards are not naive to this, but every person who reports to a board in virtually any kind of setting, not just investors at endowments or foundations or a pension or whatnot, it's like an old pastime. Everyone complains about their board. And if you're not yet, you will. So I just, at some point in the last decade, I just kind of accepted that as being part of the role. And, you know, when I, when I do that, typically I just, I look
Starting point is 00:27:57 internally and I'm like, all right, this is what it is. Like you can either accept it for what it is and be good at it, or you can complain about it. And you're, it's just a confession that you'll probably be terrible at it forever. So you're not going to change it. And if you want to have a great relationship, if you want to have a great support from your governance structure, like you have to earn their confidence. And as long as you can keep their confidence and have a great working relationship, then you just have to perform in your role. But my biggest focus with this board and certainly the prior board was just initially earning and then maintaining their confidence. And numbers will be good at times. Numbers will not be so good at times. But as long as you have their confidence, again,
Starting point is 00:28:40 surviving the cycle and the path, like if you can get to the other side of that and you're still executing well and you still have their confidence, you'll be fine. Like if you can get to the other side of that and you're still executing well and you still have their confidence, you'll be fine. Even if your numbers get better and you've lost their confidence, you have a problem and you've created a problem for your team also. It's the ultimate iterative game and you have to avoid the temptation to sacrifice political capital in the short term or relationship capital, no matter how much you believe in the investment.
Starting point is 00:29:05 Yeah. I had another great board member, and this one was at Florida. We had somebody who, it wasn't a board member, it was actually a university person. And they were, I'll just say, difficult to work with at times. And I remember we were having just a small chat after a board meeting, and I remember we were having a, a, a, just a small like chat after a board meeting. And I was lamenting like the difficulty I was going through and having, we were trying to set up this offshore structure. And I was like, this really shouldn't be that difficult. And he just looked at me and goes, he's listening. He's listening, listening intently. And he goes,
Starting point is 00:29:40 what else? I'm like, that's really it. Um, he's like, well, what are you going to do? I'm like, we're just going to have to get it done. Like, we'll figure it out. And then he finally, he's like, well, that's exactly what you should do. But just keep in mind, they're only trying to help. And as long as you remember, they're only trying to help and you can work with them and you let them think that they've helped and hopefully they do help, then you guys will still have a great relationship. And I never forgot that. If you take relationships or dialogue and you engage with the presumption of good intent, and people are not trying to do harm, or they're just trying to help, then you'll generally find a way to work through it productively. Yeah. To put my master's psychology hat on,
Starting point is 00:30:26 people are complex systems and they both have positive intent and negative intent. So you could align either with the positive intent or the negative intent. You can find both in every interaction. You mentioned when we last spoke that you don't use targets for your growth venture and buy out funds.
Starting point is 00:30:41 Why is that? We have a head of growth and head of value and they're constantly looking at interesting ideas. I don't want to bias what we're looking at simply because last year we didn't do enough of one thing and this year we need to do more of it because we're in danger of not hitting a target. So I focus more on trying to find the best ideas, having this intellectual debate about what gets past those initial conversations, and then it being sort of dual-sided. We're doing thesis-driven work and industry work on one side, and we're looking at companies and industries on the other side. And hopefully we meet in the middle with the right partners and an opportunity to maybe invest with those partners further.
Starting point is 00:31:24 And I think introducing targets to that just really muddies the waters. Do you think institutional investors are overly biased when it comes to doing re-ups? I think that's fair. You know, one of the things at least rumored David Swenson used to say was that they would get off the train one stop earlier, the bus one stop early, and they thought that was one of the things they had done well over the years. I don't think that's true of like the industry, the LP industry at large. And I understand why. And in fact, I think we're often, our team is probably guilty of overstaying our welcome sometimes too. And I just knowing how I'm wired, like I always ask my team, like,
Starting point is 00:32:00 what else do you need to know? Like, we know what this is. We can, we can handicap the variables and discuss them, you know, fund one to fund two to fund three to fund four. Like we know what all of them are and we know the variables. And if the alternative is we're going to do something else, we've got a diligence. It's probably earlier. What sort of margin error do we have to allow for the potential of better return or better outcome versus what we already know. I personally know myself well enough to know I'm biased to staying longer rather than, you know, back to what I said earlier, like I'll see everything that can go wrong with it. Thankfully, I have teammates who are wired differently and can see what can go right. So that's why I enjoy having that as a team discussion and really engaging on it and beating up each other on it. But I do think, by and large, LPs probably stay too long.
Starting point is 00:32:51 And then the outgrowth of that is like the terms get worse or the structure gets worse or provisions change here and there. And to the extent they don't stay, that's what kind of catalyzes that turnover is things tangibly changing. But when they haven't tangibly changed, I think the bias is definitely not to move on. What do you wish you knew before starting as CIO of University of Illinois Foundation? I was the deputy CIO the last couple of years at Vanderbilt. And I have this phrase I use occasionally. It's every investment organization has one CIO and that person is the one who has to make or where's the burden of the decisions. And I knew as a managing director and deputy CIO at a couple of different places,
Starting point is 00:33:34 like the distinction between being someone who's advocating or supporting or advising on a decision, but not actually being the person who has to do it. And even with, I think, pretty good conscious awareness of the distinction, I think I still didn't fully appreciate the burden that comes with having to be the person who actually decides. And then the number of decisions you have to make about things, you know, the investment decisions are actually easier than a lot of the other decisions, you know, the organizational decisions or things around like how are you going to approach stakeholder considerations or lots of other things that just come with the job. So as I asked in advance of taking the role, you know, a lot of people I'm close with that are CIOs, you know, what do you say about the role
Starting point is 00:34:18 versus not being in the seat? And they're like, it's lonely. And it's the number one thing I heard from people is that it's lonely. And it can the number one thing I heard from people is that it's lonely. And it can be. There are periods where you stress about performance or you stress about decisions. And as I said, even with conscious awareness of that, I still underappreciated the magnitude of it. Is that because you have to,
Starting point is 00:34:37 you can't complain to people, you have to be the one absorbing kind of all the stress or what makes it a lonely position? When you're one of many people who are not the CIO, it's very easy to create like these dialogues or these conversations are like, I think we should do this. And when you have to actually decide, you don't have the freedom to say, well, I think we should do this or like you have to actually choose. So you hear everyone and, you know, not everyone's going to agree.
Starting point is 00:35:02 I've intentionally built you know a team with with folks who are very opinionated so we're going to disagree and like you you have to live with your decisions I can vent about the fact that I made the wrong decision but then I made it that's really what it is those those moments where you're just really not sure and you're like I think this is like 55 45 uh and you're trying to weigh it and it's not clear, but you do have to decide and you have to live with the decision. Those are the hard points. Reflecting back, you've been at four endowments and a foundation. What is the best way to come to a decision for an asset allocator?
Starting point is 00:35:38 There was a period probably, you know, eight years ago or something. I really put some time in to try to figure out what the best structure would be. You know, I surveyed some asset managers and, you know, like people would vote. I'm like, oh, this voting idea is like pretty cool. Like are the weights voted? And like we tinkered with lots of that stuff with my prior team. And I guess, you know, again, there's only one CIO in every organization. And so with this one, at least the way we've adopted it, anyone really can advocate for something. Ultimately I have to decide, but like that, that discussing and advocating, as long as people can do it in a way that it's like, they're informed, they're well-read and studied, and they're trying to advocate for what they think the best outcome would be, or at least add value to the conversation, even if they don't quite know what
Starting point is 00:36:25 they would choose to decide, like, we'll ultimately figure out the best decision. And if we don't, then we just won't do it. But if there's still some uncertainty, ultimately, then I have to decide. This has been a masterclass on endowment and foundation investing. Really appreciate you taking the time and look forward to continuing the conversation. Oh. You're too kind, David. Thank you. Thank you for having me. Thanks for listening to the audio version of this podcast. Come on over at 10X Capital Podcasts on YouTube by typing in 10X Capital Podcasts into youtube.com and clicking the subscribe button. On the YouTube version of this podcast, you could see the graphs, visuals, and key takeaways that accompany every episode.

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