Investing Billions - E138 Do Relationships Drive Financial Returns? w/Jeremy Heer

Episode Date: February 14, 2025

In this episode of How I Invest, I speak with Jeremy Heer, Managing Director at the University of Illinois Foundation, about the art of networking, the power of super connectors, and the evolving landscape of institutional investing. Jeremy shares his insights on building relationships that drive investment success, the importance of strategic networking, and how attending conferences with intent can create game-changing opportunities. He also dives into the future of nuclear energy, the role of generalist investors in discovering new asset classes, and the long-term value of investment engagement.

What makes a super connector a super connector? A large network of interesting people, broad knowledge of who's who across a given industry, a given vertical, a given subject matter, and really just the ability to make connections and bring people together and the willingness to do that. Super connectors are these unique unicorns that are connected to thousands if not tens of thousands of individuals. What special skills do they have and what view of the world do they have? They're able to maintain relationships across a large number of people and to connect with

them on some level. They usually have very good recall of names, faces, places, the sort of things if you're talking to someone and you talk to them a year later, I remember a year ago we talked about X, how does that come out? You have a very unique role and one of your responsibilities is to be one contact point away from anybody in the world. Tell me about that. All investment offices kind of have this stream of inbound activity. You're getting calls, emails and all that all the time. And we do have a bunch of that too.

But we think in order to really set up ourselves up for kind of top decile returns, we need to be able to source and reference all kinds of things across the entire universe of investing. So that could be other, it could be managers. It could be other LPs. It could be brokers, service providers, bankers, founders, CEOs,

academics, government officials, whatever it takes, right? The whole idea is to be able to talk to experts, talk to people, and gain information across places that we might otherwise be able to get it. And there's also University of Illinois aspect to the engagement part. There are something like 900,000 active Illinois alumni out there across the system, and we like to engage that ecosystem whenever possible. A lot of your role involves building relationships with super connectors. What are super connectors?

I love the term. I don't know if I coined that term, but I do use it when I talk about this. And I think it's really important to know those types of people. I think a super connector is there actually people that kind of thrive on making connections. They tend to have very large networks and very broad networks. And they are willing to make and take introductions. I think that having a few of those people in your network, if your job is to be a networker and to be externally focused, is absolutely essential. There are a few folks that I consider to be super connectors.

I've kind of modeled the term after a few of them. And they tend to have very large networks. And you'll often hear them describe, everybody knows this person. Everybody knows that person. I think those people are essential. What makes a super connector, a super connector, a large network of interesting people, broad knowledge of who's who across the

given industry, a given vertical, uh, a given subject matter, and really just the, the ability to make connections and bring people together and the willingness to do that. Super connectors are these unique unicorns that are connected to thousands, if not tens of thousands of individuals. What special skills do they have and what view of the world do they have? They're able to maintain relationships across a large number of people and to connect with them on some level. They usually have very good recall of names, faces, places, the sort of things if you're talking to someone and then you talk to them a year later they're like yeah I remember a year ago we talked about X, you know, how did that turn out and what

do you know, are you still working on that, is there anything interesting with that, now those sorts of things. They're just very good at that. I think that they tend to be very giving people and they tend to be, you know, they know that by being a giving person and kind of putting out into their network, that they'll be able to, that that will come back to them and they'll gain some benefit from that professionally, personally, whatever. It seems that these super connectors have these non-financial drives. What are these non-financial drives that drive many super connectors? Managing a venture capital firm is complex.

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Non-financial is a great way to put it. They're just driven by providing good in the world a lot of the time. And they know that that's going to come back to them in some form or some function. Yeah, it's interesting. I call it strategic people pleasing. Well, that's a great way to put it. I love that. And I think that's exactly right.

Different people are driven by different things. And I think that I'm driven by that in some way. I think other people are much more internalized and they'd rather just be in their office and let things come to them. I like to be out there and meeting people and making random connections and giving out to the world. It seems that some of these drives come deeply rooted in somebody's DNA. For example, I found a way to leverage that.

I enjoy telling people's stories. I enjoy telling people stories. I enjoy making people shine in front of an audience. I found a way to strategically leverage that versus fighting it. I couldn't agree more. I feel exactly the same way. I love to help other people get things done. I love to help other people shine. And of course, I don't mind being out on stage with them sometimes, too.

And I think that's part of it. You have to be willing to put yourself out there in order to be able to do this. Part of, part of really being able to connect with people is to be memorable in some way sometimes, right? And I think that's an important part. Outside of having a neck tattoo or a walking around in a biker jacket, how does one go about being memorable to others? Part of it is being willing to put yourself out there a little bit.

You mentioned storytelling. I think storytelling is a great way to connect with people. I love to get in a room with people and tell them a story about how I met Daryl Hall at an annual meeting once, or about how my first job was in a Waffle Wall Street kind of place. Or if you can bring a story to life, people are going to remember you for that. I think that's really important. Another way, of course, is to have outside interests and talk about those, or an interesting professional story.

Being able to bring a story to life and being able to kind of pique people's interest, I think it is important. It's this paradoxical mix of sharing and being authentic about your personal life while also being highly relevant and useful in a business context. Very hard to do, I agree. But I think it's the people who are the best in this can do that and they can form that connection with people on both levels. Part of your role at university of Illinois foundation, you attend more conferences really than anyone I've ever met.

Tell me about what conferences you go to and what do you hope to get from these conferences? I have attended everything from the very, very large ones where you have thousands of people, um, and those are great for relationship maintenance. And for, I've talked about it a couple times here, I call it stochastic networking, where there's a random component. Sometimes you make connections with new people

because they happen to know people that you know and you happen to be the same place. So you guys should really get together, that kind of thing, right? Or sometimes I'll sit next to somebody randomly at lunch, at dinner, at a networking event, or the bar after that, or a side event around a big conference.

And that oftentimes that's a wonderful way to make connections across the industry. Small conferences are really more about getting to know people better. And there you can really go in deeper and talk to people more. Sometimes that's what you're looking for. Oftentimes that'll be around a theme, around an industry.

Sometimes like I go to trade shows and trade shows tend to be really more about learning. And that's about, so there'll be much more about the content there, but I'll also be trying to make those sorts of random connections. Oftentimes I'll see the attendee list ahead of time and so I'll have done my homework. But sometimes there's a random piece

that you just can't, that you need to to have any of the mid-sized conferences will split the difference between those. Those are, that's kind of how I think of the conference ecosystem. I think a lot of people focus a lot of time on how they conduct meetings, how they present PowerPoints, but no one really talks about best practices when it comes to networking at a conference. How do you go about networking at a conference? Usually I've done homework.

I've seen an attendee list, or at least a list of firms attending, so I kind of have an idea of who's going to be there. I think that's really, really important. I don't think people prepare enough for conferences, probably speaking. I think you really have to have an idea of who's going to be there, what you're trying to accomplish.

Oftentimes, you've connected with some of the people that are there, and so you'll try to meet up with them and catch up with them and ask them who they're talking to that's interesting there. Usually, there will be maybe one or two people that I don't know and that I know that I want to get to get in contact with because, you know, there might be some interest there. And so I'll try to find them however I can. Most conferences will have, you know, at a minimum, some sort of networking breaks or some sort of, um, they might have a messaging app and I'll try to mess, reach out ahead of time with them. Again, preparation is really key for all this stuff. For someone who's looking to go to more conferences or gain more value from conferences, what are some best practices for maximizing the value from conferences?

Best practices. Number one is obviously do your homework. I've said it a couple of times already. You must prepare for a conference if you're going to optimize your time there. I always tell people to try to leave room for that sort of random stochastic component. And I'll reiterate that now.

I think that some of the best things that happen at conferences, some of the best things happen to me at conferences have been things where I saw somebody that I knew, they happen to know somebody else, they introduced me to them and I went and spent an hour getting to know that person and it turned into something. And you have to remember too, this is really important, a lot of people are, some people are really outgoing, some people are not as outgoing, but if you're at a conference and other people are at that conference, they are there to do two things, they're there to learn and they're there to meet people and

or maintain relationships. You have to remember that. Look, everybody's in the same boat. You are. So it's okay to just go up and talk to some, to, to somebody randomly. Said another way. No one goes to conferences in front of a computer and not be bothered. We chatted last time on nuclear or something I'm very bullish on.

What is your thesis on nuclear? Well, I'll start by saying that I am still doing research on nuclear, but broadly, um, and this fell out of the work I did about the energy value chain in general. I think it's the best source of energy out there. It provides base load power, right? The energy return on energy invested is the highest of all the different energy sources by a decent amount. The problem with it from an investment standpoint is that it's hard to invest because of the long cycle. And the long cycle has a ton of red tape, leads to cost overruns, lower returns on investment.

So capital's hesitant to go there. But right now there's a ton of buzz around it. You've got new designs, you have the small modular reactors, and you have projected energy demands that, let's face it, the science around other things like solar and wind, it might be hard for that to meet the demand. And so I feel like newer designs, more competition in the space is going to create the conditions for a much needed renaissance in the nuclear industry. And I'm hopeful around this. And right now

I'm working on whether or not it's really an actionable investment thesis at this time. When we last chatted, you mentioned that Doge could play a critical part in the nuclear thesis. How does Joe Doge relate to nuclear? Well, the single biggest problem with the nuclear space, other than having some of the worst PR, uh, any industry ever is this very, very long investment cycle, building new reactors is very hard to do. And there's a ton of red tape and a ton of government intervention throughout.

And my understanding of DOGE is that it's not just about cutting spending. Well, that's great. I think that needs to happen. But it's really about streamlining government. And I am very hopeful that part of what they're going to do is to tackle permitting reform. And they tackle permitting reform.

Nuclear is a prime, prime target for that. So I'm still working on how confident I am about that. But in my mind, it's a no-brainer as a thing that they should be tackling. Nuclear seems to be this consensus view as a great energy source among some of the smartest people I know. In fact, I've never actually heard somebody that had a contrarian view on that.

Steel man, the argument against nuclear. Thank you for listening to join our community and to make sure you do not miss any future episodes. Please click the follow button above to subscribe. Nuclear has the worst PR of an industry ever. So people, it's poorly understood and vilified by a lot of people who profess to be environmentalists. And I don't really understand it. I think there's a lot of people that are very committed

to solar and wind as being the answers to everything. And they're great, but they don't provide baseload power. So you always have to have natural gas or something else with them. So what's the case against nuclear? The cases that you think that the energy return and energy invested is not as big as people have said, you think that there are more and different problems that they cause in the environment or you think there's going to be revolutionary changes in technology that will cause other energy forms to be able to provide baseload power rather than intermittent power and be

able to reduce greenhouse gases at the same time. The best argument that I've heard of is that if the US deploys nuclear energy at scale, other countries will want to do that. And the problem with that is that nuclear energy can be weaponized and through a back door, other countries could get nuclear weapons. Yes. There is an aspect of that. It's my understanding that a lot that in some of the, especially in some of the newer designs,

they're using much less enriched uranium. And so it's much harder to turn that into a weapon. The arguments out there, but as for how relevant it is, or what the probability of that is, I mean, and you have to probably wait a bit, you also have to think about the magnitude of the effects. So, you know, it's a tail event with a large probability of loss.

Yeah, the argument's there. I'm not sure how, if you probability weight it, how it stacks up against the obvious benefits of doing it. Prior to University of Illinois, you spent 12 and a half at one of the top endowments in the at the University of Chicago. And that's a bunch of really, really smart people. And I can't be glowing enough about that place. When I got there, I knew virtually nothing about endowment and foundation investing. So to say that I learned a lot there is an understatement. My first few projects involved Monte Carlo simulations of the university's financials

based on capital market drivers like growth and inflation. The idea was to illustrate the risk return trade-off between different levels of equity risk in the portfolio. So the idea was if you had an equity beta of 0.8, then you had a certain X percent chance of a 25% drawdown, Y percent chance of not keeping up with inflation, right? That's sorts of risk measures that an investment committee would be interested in.

So you would compare that against wealth. Also in 25 years, your expected wealth is, you know, 30 billion or 50 billion as opposed to 10 billion or 12 billion, you know, pick your numbers right. The idea was to illustrate that and make it simple for someone in an investment committee seat to be able to decide this is our should this is what our overall risk posture should be. Okay, that that in itself was incredibly instructive right it would nobody else was doing things like that to my knowledge and learning to work with

an investment committee and learning about the different stakeholders in an ENF format. Those were just fascinating lessons. What did you learn while you were at University of Chicago? Learn how to work within a large investment team and try to find common ground among different people. And I spent some time doing private equity and venture capital deals, and I spent some time doing hedge funds. So I learned how to underwrite investments, both in terms of re-upping with existing managers, as well as underwriting brand new ones.

I learned a ton and learned that endowment and foundation investing really fit well with myself and my overall philosophy and way of doing things. Your role, which from what I understand is unique, no other endowment in the world has somebody in charge of relationships. It was created by your CIO, Travis Shore. What was his vision for the role and what was the rationale for creating your position? Most places tend to combine all of that into roles. The private equity person will be in charge of doing all of that in their private equity sphere. Or if it's a more generalist team, you might have somebody who's in charge of doing all of that in their private equity sphere. Or if it's a more generalist team, you might have somebody who's in charge of public or private markets, and they'll

be in charge of doing all of that in their sphere. I think Travis thinks that there's an efficiency gain from having somebody who's just focused on that. He thinks that it'll get us into things that other places may not get into, And that those should provide excess returns above and beyond the sorts of things you get just from being good at taking managers. It could also get you into new asset classes before there's even an industry or a person to hire to cover that asset class. Yeah, that's an excellent point, right? And that's the beauty of the generalist model in general is that you can do that.

Having somebody being the tip of the spear and going out there and being an idea generator and a searcher and a hunter, that increases your probabilities of getting there and a lot of what this is is increasing the source of probability. That's one of the reasons for this paradox where in VC historically generalist investors have outperformed and had these hundred X funds versus these specific funds have not done as well. And one of the explanations is they invest into industries before they even exist. They invest into Facebook before they're social, they invest into Coinbase

before there's crypto. So these are kind of these power law returns that come from investing to something before there's a space. I think that's an excellent point. Um, yeah, I think that's one of the reasons why I like seed investing a lot, right? It's because, you know, and see, you tend to, you see that, but the problem seed, of course, is that, you know, if you miss one deal, right. Then it can ruin your entire fund. And right. We tend to like concentration here.

So it, it, it's a paradox for sure. What do you wish you knew before starting your role as investment, head of investment research and engagement? I really wish I knew how hard it was going to be to fly a plane and build at the same time, David. It's really difficult. Right. Because I want to add value right now. Everybody wants to add value right now. And the value of my role is very long run and it has to be very patient.

And so I don't think I appreciated that part of it when I came in here. And I think that that's one of the bigger things I've learned is that oftentimes adding value is not something you can measure right away. It really does take a long time to do these things. Well, Jeremy, we've, we've only known each other for, for a little bit, but you've already been incredibly helpful and I'm really looking forward to our relationship over the next few years. I am too. And I can't wait to meet you in person so we can, you know, have a beer and I

can find out the dark side about David. Absolutely. Thank you, Jeremy. Thanks for listening. If you enjoyed this episode, please share with a friend. This helps us grow and also provides the best feedback when we review the Absolutely. Thank you, Jeremy.