Investing Billions - E156: Inside the Mind of a $1.7B Endowment CIO w/Jim Bethea

Episode Date: April 18, 2025

Jim Bethea oversees $1.7 billion at the University of Iowa’s endowment—and he does it with a team of just five people. In this episode, we cover how Jim thinks about asset allocation, governance, manager selection, and why Iowa has decided to specialize in certain asset classes like lower middle market private equity. This conversation is full of nuance, clarity, and hard-earned lessons that every allocator, GP, and fund manager will benefit from. Jim pulls back the curtain on how small teams can still invest in niche, high-performing funds, how to manage investment committee dynamics, and why more isn't always better when it comes to diversification.

When we're talking with folks about whether it's lower minimum market buyer, we're doing it to trade ideas. Everybody's trying to judge, do I think the other person's smart? Right? Am I going to come back to them if I hear that they're in some other asset class to see if whatever school or whatever foundation, whatever, is smart enough and thinks like we do? Probably not smart enough, more thinks like we do.

Our incentives aligned is probably a better way to think about it. But you're dealing with committees, dealing with budgeting, resources, things, and that leads to conversations, not just about investments, things like that, staffing, you know, the Big Ten CIOs get together. It's more than just the Big Ten, but we get together so we can have these idea trading sessions about this one for me, this one for you, and how can we build on that? What are the pros and cons of managing $1.7 billion? The pros is that we're small enough that we can do small and interesting funds.

So flexibility is the biggest pro that a small fund has. We're also generalists. So everyone has a view of all asset classes, and it sets the team up to be specialists in any asset class if they want to go on from here. And it's also easier to transition to a CIO role. From a con perspective, a small team, we have limited resources. So we can't always do everything that we would like just from a financial standpoint, but also investments too.

It's a limited bandwidth that we have. And being a generalist is also a con. We can't get as deep as specialists can, but we're a mile wide and an inch deep rather than a mile deep and an inch wide. One of the challenges that your endowment has and a lot of endowments have is picking its shots, picking which opportunities to even diligence, let alone invest to double click on and to diligence. I think it starts with, is there an interest in it? And so you look and see, is this interesting?

Do we think we have some edge to this or can we even understand it? There's a lot of really cool investments that you could do that you have no idea at the end of the day what those funds are doing. And so if you can't understand what they're doing or explain them to somebody that maybe isn't an investment professional threshold that we need, we're not gonna spend any time there. Essentially, if what you're saying is true, but it doesn't even hit our return threshold, doesn't really matter. Like, I'll use farmland as an example

because we're in Iowa. Farmland's great investment potentially, it's very diversifying, but single digit IRRs just are not interesting to us. As generalist investors, you have this interesting problem of you can invest in anything. How do you choose a new asset class to get up to speed to? The first thing we'll do is kind of talk to the team, we'll talk to each other and see

like who do we know that's in this asset class? And then we'll reach out to those folks and ask them, you know, what is it? What do you like about the asset class? What do you dislike about the asset class? What do you dislike about the asset class? Who's smart in the asset class from a GP community or maybe even other LPs? And what's really good about the LP community is we're all trying to learn from each other and nobody's really going to say like, hey, this is something really nichey for us and we're not going to talk to you about it. I think it's kind of the opposite. If you express to somebody, we think you're an expert in this asset class, teach us, that kind of feeds into their ego and they really

want to help us get up to speed. And we've done that in some private credit spaces where people will tell us, hey, this is a great asset class. Here's why we invest in it. And that might not be why we as an endowment would invest in a pension fund invest differently than an endowment even if we're investing in the same thing. Obviously everybody wants returns but stability of returns might be more interesting for a pension fund where we need to hit high returns and maybe that stability isn't as important to us because you get stability elsewhere and also how they're investing. Maybe somebody is doing private credit, but they're doing it direct in that they're

underwriting the credits, not the fund, not a company. They're underwriting the company credit, not the fund credit. And so you're taking out that layer of fees and maybe that gets them to the return that they want to. But we don't have the resources to do that same thing, so we're not going to be able to invest the same way. One of the interesting things that I've come, come across as this information bartering.

So as you get more information on a specific space, that information itself that you've gotten from different parties becomes an asset and now you could feed that information, those insights back to other individuals in asset class in return for more information. And do you think about things that way? It's not transactional that this is a quid pro quo, necessarily, but definitely when we're talking with folks about whether it's

lower-minimum market buyout or VC or what have you, we're doing it to trade ideas. But everybody's trying to judge, do I think the other person's smart? Am I going to come back to them if I hear that they're in some other asset class to see if whatever school or whatever foundation, whatever is smart enough and thinks like we do? Probably not smart enough, but more thinks like we do.

Our incentives aligned is probably a better way to think about it. And that leads to conversations, not just about investments, but dealing with committees, dealing with budgeting, resources, things like that, staffing, the big 10 CIOs get together, it's more than just the big 10, but we get together so we can kind of have these idea trading sessions about this worked for me,

this worked for you, and how can we build on that. The interesting thing about endowments, while we all compete, and the Kubo says we all compete against each other, and athletic, you know, conferences say we compete against each other there, but we really don't. The way that we solve a problem at Iowa is different than the way any other school solves the problem. We all have generally the same return targets. It's probably 7% to 9%. That's a big range, but that's generally where everybody is.

But you've got other constraints, like how much of the operating budget is that foundation? How much new gifts are you taking in? All these things are nuanced differences that greatly affect our ability to take risks, but there's no great database that says, like, who are our peers? You know, our peers are similar size public schools,

but that doesn't really tell me that what they're doing is different. There's schools that are 30, 40% venture, and there's schools that are 30, 40% private credit. I don't think we could be either one of those. And so, you know, at governance structure dictates a lot of how you, how you invest, what your network is. there's a lot of variables other than your size or your athletic conference

that really tell you how an allocator thinks about risk. On the transactional nature, lack of transactional nature in relationships, one of the standards that we hold ourselves at Weissford Capital to is we make sure that every phone call that we have with somebody, they are somehow better off, whether it's more insights,

whether we make an introduction. And that's how we know that the relationship is sustainable versus us just kind of pinging somebody to get some information just for ourselves. It's a good way to think about it. If somebody's checking on a fund we're in and we're on that list of resources to talk to, we'll talk to them about, we invested in this fund for this specific reason. You might invest in a different fund for a different... If we're being a reference for a fund, we're doing a reference call, we're trying to, hey, this is an area that we're looking at, this scenario we think we're good.

If you ever have any questions in this area, feel free to reach out to us. You're trading that information as well, like, okay, put it in the back of your head. If you want to learn about private credit, talk to this organization. If you want to learn about something credit, talk to this organization. If you want to learn about something else, talk to another organization. So we're definitely doing that and trying to make each other smarter along the way. You mentioned something very sexy, governance, something that everybody gets really excited about. But in seriousness, it is, when you look at the academic literature, governance, especially

in pension funds, is almost one-to-one correlated with returns. So talk to me about governance. What is the best practices for governance? It differs a little bit by the organization. And so like it's, what is the organization comfortable with from a governance construct, right? Like, you know, maybe you've got a committee that wants to meet with every investment manager and maybe you've got a committee that wants to meet

with every investment manager, and maybe you've got another committee that like, hey, we don't even wanna talk about managers. You as a team, just go do it, come back to us, talk to us about the big issues, talk to us asset allocation, talk to us about resources, things like that. So it's really the organization, what they're comfortable

with, the variability of that is, what's helpful is that everybody's on the same page and that the governance doesn't change from one quarter to the next or one chair to the next. The target return doesn't change because you have a new CIO or a new board member, committee member. And so making sure that everybody understands what are each other's roles. What's the role of the committee? What is the role of staff? Do you use any third party consultants?

What is their role? You know, what is everybody for? And get everybody to agree to that. And really what you need above all that is somebody to hold all those stakeholders accountable, right? If a committee says we don't want to be, we as a committee don't want to be involved in the manager selection decisions, okay, that's fine.

But if you then have a committee member that comes on as like, I really want to dive into manager selection discussions during the meeting, somebody, and it's usually going to have to be another committee member. If staff has to do it, it's pretty awkward. But if you have somebody come in and say, okay, that's not what our role is. Our role is oversight. Our role is asset allocation. That's really helpful to everybody involved so that everybody kind of knows what their

role is. I've had many asset allocators say this one thing, which is essentially IC should not be involved in manager selection. They should be involved in asset selection and asset allocation strategy. If you wanted to steel a man, the reason why the IC would be involved in asset selection and asset allocation strategy. If you wanted to steel man, the reason why the IC would be involved in manager selection, what would be that steel? There's one investing category that's outperformed major US and world stock markets over the past three years, private infrastructure.

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One end of the spectrum is we have to bring the manager the name. They're not meeting with the manager, but we're bringing the name. The other one is we as a committee want to meet with every manager and make the determination. We'll take staff's recommendation, but we ultimately determine that. We get hundreds of emails a week. We talk with hundreds of managers in a year.

And we have myself, I've met with thousands of managers over my 20 year career. And so you have this knowledge of what good and bad is, whereas maybe as a part-time committee member, you don't. You have a subset of what that knowledge is. You see the tip of the spear. Like you see the best ideas that your staff is bringing to you, but you're not seeing the 99% of the ideas

that don't even make it to that level. And it's harder to discern good from bad. the 99% of the ideas that don't even make it to that level. It's harder to discern good from bad. If you take the top 5% of any asset class, some of those are gonna be, you're gonna like some of those better than the others, but they're all top 5%. It's kind of like a very specific Lake Wobegon situation.

And maybe you like one better than the other, but it doesn't mean the other one's bad. We can look at the universe and then we bring a specific manager. You don't always want to have two or three managers doing the same thing. You get closer to beta if you do that. And so what I've seen sometimes when I was a consultant, what we would see is you always bring three managers to the finals. And then what would sometimes happen is two get hired.

They would ask us as a consultant, like, who do you like? And we'd say, we like manager A. And they'd say, we like manager B, let's hire them both. You're closer to beta now. And at some point, if you keep doing that and you slice it up enough, you're just beta. You're just expensive beta at that point. It's a little bit different in private markets

because it's not a zero sum game. But at the end of the day, if you think about VC, you end up hiring 100 VC managers, you're just closer to median and you're decreasing that outlier events effect on your portfolio. And so you got to kind of think about that portfolio construction a little bit when you select these managers. I've seen this with committees where they very much want to make a decision on that and it's trying to get them to understand it is just the tip of the spear that you're seeing. And the other thing about that too is there's things wrong with every single manager out there.

There's no... There might be a couple out there where it's like, okay, this is just a no-brainer. Citadel and Sequoia, right? You're never going to turn those down. Beyond that, the other tens of thousands of funds and managers out there, I can find a flaw in all of them. I can actually find flaws in those two as well. It's just in everything, you're overlooking some of these flaws because you think the return potential is better than the flaws.

Reminds me of this decision by committee. Sometimes whoever's just loudest is the one that gets listened to. In other words, every fund has pros and cons, but whoever just had a cup of coffee and wants to interject on a specific manager pro and con seems to be the one that outweighs other committee members.

The other thing too on that would be the first voice. If the first voice is Pro or Con, committees, and not all committees, but I would say most committees are conflict adverse. And particularly larger committees. If you want to have more conflict in a committee, it's got to be three people. The more people you add beyond that. so if you got a 30-person committee,

there's gonna be no conflict in that. Whoever says the first thing, that's probably gonna go. You know, that's one thing about building a committee that people have to think about is, you know, you want some discussion, right? When me or my team presents to the committee, we're not saying that we're right. We're just saying that this is what we think and asking them for feedback, whether it's on a manager or whether it's on asset allocation. You're doing that for feedback. Both of our opinions are of equal value, right?

If it's the committee's opinion that matters more, then we just need to listen. I don't know if you need staff at that point, right? Staff's opinion matters more than the committee. You don't know if you need staff at that point. Staff's opinion matters more than the committee. You don't really need that committee. And so they both need to be there, but they need to be of equal importance. If one is more equal than the other or more important than the other, then it's not going to be good for one of those two. It's usually that the committee is more important than staff. I don't know if there's ever, maybe David Swenson at Yale, he was more important than his committee, but probably not because there's a lot of heavy hitters, I'm guessing, on the

Yale Investment Committee. So the committee members actually drive selection more than the staff? When I was a consultant, I've seen that where it's the committee's decision. I've heard stories from other CIOs where we bring a manager in and its staff makes makes that decision and says hire this manager and they say, no, we're going to hire a different manager. And so that only lasts so long because eventually your staff's going to say, why are we doing this? And they're going to go look for a job somewhere else. I talk with my peers of like, we're trying to figure those things out. And if somebody has a problem with that, we're okay, here's how you might think about that.

And here's how you might kind of drive that change. One of the means in asset allocation is that the incentives are not quite right. You have CIOs with very high bases and sometimes no carrier, no upside. And you also have committee members with similar constructs. Talk to me about the incentives when it comes to committee members and staff

and how you would improve it if you could. For the most part, committee members, they're not getting paid, right? And so, you know, this is kind of a part-time job for them. And I'm on various boards and stuff and I don't want anything to do with like the day-to-day management of it because I just don't know Enough about it, right? So their incentives are more let's make them feel good because they're probably donors It kind of depends like an endowment is different than a foundation like MacArthur, which probably isn't raising new money, right? And so those there's different incentives that that our committee might have to their committee You know make sure that they're happy because they're donors, we're going to ask them for money later on or now. And for staff, you want to make sure

that they're not taking crazy risk because of short-term incentives. And I would say that 99% of endowment staff that has some level of variable comp short-term, it's one in three years. The main reason for that is because most people don't stick around for more than five, or certainly not 10, very few are tenured. I've been here 15 years and there's just a handful of folks that have been around in their organization for that long.

So you wanna make sure that the incentives are aligned and that you can't game the incentives. And that's why, like, when I talk to my peers about what their incentive comp, it is like crazy difficult to kind of articulate what it is. And the reason why is so that you can't game it, right? If it's like one year versus peers, I'm just going to take a ton of like short-term risk. I'm going to do a lot of secondaries. I'm going to probably do more VC than buyout because buy out holds valuations for a year.

And maybe my committee knows that, maybe they don't. There's an information asymmetry, right? We know more about what's going on in the funds and how they value their underlying companies than the committee does. You could kind of game that if you wanted to. And so you're trying to design an incentive plan that can't be gamed, but it's difficult to do sometimes. I have heard that there's a tendency to favor certain asset classes over other ones because

of their markup policies. It seems like an easy fix for that would create some kind of earn out, even if that person left the organization. They would not get paid until DPI, for example. So what you see to mitigate that would be, okay, you're going to earn this comp on like one in three years, but we're going to pay it to you over three years. So you have to stick around, right?

So if we figure this out in year five, then you don't get it. Or what you see sometimes too is you have to be here three years before you even get any incentive comp. What you see sometimes too is you have to be here three years before you even get any Incentive comp so we have to see what kind of investor you are And if you are kind of gaming the system for some of this stuff like the CIO would see it, right? And so then the CIO would have a conversation with with the staff members like hey, this isn't really how we invest I don't know how often this stuff happens But like I could see like, you see, if you tell me the incentive

plan, I can probably tell you a way that I could game it. It's a never ending game theory, terrorist versus counter-terrorist. Managing a fund is complex. Tax season doesn't have to be. That's where Carta comes in. You may already know them as a leader in cap tables and fund admin. Now they're setting the new standard for smoother tax season. With Carta Fund Tax, managers get world-class accounting

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how much dollars are we talking about? If it's, you know, CIO bonuses are like 75 to 100% of their salary. And so like, I can see why people would game that. If it's like 10 grand, I don't think people are going to spend too much time gaming that. I just sat down with Cliff Asness, co-founder of AQR, and he sits on a lot of ICs. One of the things that he said, one of his big pet peeves is how committees focus on the bottom performers.

So they'll focus on the two worst performing funds. And there's a couple of inherent problems with that. One is you probably should be talking to your top performers, making sure that you could get more allocation, build a relationship with them. And the second one is the low performers, especially in something like the hedge fund worlds, might be these diversifying assets that hit every five,

10 years that have very high asymmetry on the upside, but perform poorly on the downside. How should committees think about where they focus their attention in terms of portfolios? That's where you kind of get into governance too is like, you know, what is the committee's role? Is it to understand what's going on in those low or high performers or is it, hey, this asset class, private equity or hedge funds, is that asset class performing the way we think it should perform? And staff, are you concerned about any of the higher low performers in there? You're absolutely

right and Cliff's right. I don't get a lot of questions about the funds that have outperformed what we thought the base underwriting case. But those are the ones where if it's a hedge fund more than private equity fund, you have to think about they're probably taking more risk than they're telling you that they're taking. If they're consistently doing something that you don't think is possible, then it's probably taking more risk. But generally,

you're okay with it because the returns are really good. But we've actually, over the years, have cut some of those top performers because we just think they're taking too much risk. It's going to bite them at some point, and let's get out before that happens. But absolutely correct that I remember this when I was a consultant, we would show the traffic report of red light, green light, yellow, who's not in compliance with the returns, who's outperforming and who's okay. And it was always the red funds, the funds that are underperforming, that's who we want to spend a ton of time on.

And Cliff has experienced this, right? Going into 2021 when value was getting crushed, he was probably red light in almost every strategy that he had and probably every client that he had. And guess what happened if you redeemed from them in December of 2021? A lot of those funds were up 20% and he just got a lifetime achievement award last year and you don't get that for bad performance. That's when you have to look at that. Is this fund doing what we hired them to? Because there's cyclicality to anything, maybe not private equity because that's been cyclically

positive for a lifetime, but any type of hedge fund strategy, any type of long only strategy, it goes in and out of favor. And if you like a manager, if you think they're really good and they're out of favor, that's when you should be making those allocations. And you're absolutely right. When that manager is outperforming, you need to have those conversations with them. Can we get a... If it's a private, can we get a larger allocation?

Citadel's closed, right? So you can't really get in to that flagship fund that they have. They're returning capital. And so you're, you are fighting like, Hey, don't return as much capital. And so you're, Hey, great job, pat him on the back, all that stuff. Part of that is also essentially a failure of the CIO and staff to really educate the IC. This is the role of this asset. This is the role of that asset.

These are the ups and downs. There's a famous case study at pension fund that owned a diversifier for like a decade and it was losing a couple of percentage points. And then the year that it actually hit, I think it would have returned something like 100X of capital they decided to take off the trade because nobody really knew why they had this losing asset.

So I think education is a big part as well. I've been thinking about what you were saying about this reversion to the mean where your consultant, you present three managers and they would choose two managers. The opposite of that is also very interesting. I spoke to Mel Williams, they have this forced ranking system. Their biggest competitor is actually more of their winners. They're like, we want more Founders Fund. We want more Sequoia. I think is actually more of their winners. They're like, we want more founders fund. We want more Sequoia. I think there's not enough of that. It's like, how do we further push our advantage within our portfolio

versus bringing in a new manager? And some would say de-worsifying the portfolio instead of diversifying the portfolio. 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. We've, we've used that term here and I think it's, it's gaining more traction. I think there is a definite push among allocators to have higher concentration in their output. Like I want fewer line items than, than more line items, which 15 years ago, I think the pre-GFC definitely was, let's have a thousand funds in our portfolio rather than 10 funds in your portfolio.

Alpha is really hard to find, and if you can find it, size it appropriately. Now there is the flip side of that where if you only have five funds in your portfolio, then something blows up at one of those funds, you're kind of screwed. As a CIO, if one of my staff members is underwriting that and that person leaves, do I have the ability to maintain that relationship or does that relationship go with that staff member? I think you see that maybe sometimes in the venture community where if Sequoia doesn't know who I am and I'm like, hey, let me try and maintain that allocation, they might say no. The allocation is with somebody else, not the organization. That's a concern is like if you build

that super concentrated book, if something goes wrong with one of those managers, then it's going to be a wild ride. So that gets into that education process of like, look, we think this is a really good alpha source, alpha engine, but maybe it isn't one day and is everybody okay with that? And so we've set concentration limits with some of our managers where if somebody's above 5%, it's not that we can't invest, it's just that we go back to the committee and say, hey, these guys are over 5%. And so they're raising another fund, are we okay with that?

And everybody has to kind of agree to that specific thing because while I might be okay with it as a CIO, a committee member or another stakeholder might not be. And so that is very idiosyncratic to our organization. Somebody else might say 30%. And so it just kind of depends on what that is. What I find is if the relationship is over a longer time period. So if you're in Sequoia's first fund,

if that concentration today is like 20%, you're okay with it. But I don't think many people would say, even Sequoia, we're going to go 20% into Sequoia today because you just don't have that history that some of those other folks do. Alpha is hard to find, right? So we're going to make larger commitments than some of our peers in this space. If I hear that Michigan's in a fund, I'll look and see how big is that allocation that they're in there. That might mean a lot to my committee, but when we find

out, okay, this is like, we're in it at 1% and they're in it at 10 basis points. It doesn't matter as much to them as it might to us, even if that 10 basis point position is like three times the size of our position. And so just because some other university or endowment or pension, whatever, is in a fund, it doesn't really mean much because there's other pools that a lot of these funds have too. And so maybe it's not the endowment pool, maybe it's the cash pool, maybe it's some other pool. And the resources and return

considerations of those pools are different. We might have that relationship with that organization reach out and say, hey, why did you do this? And they can tell us. When we first started doing private investments, we would have these conversations like, okay, Yale's in this, somebody at Harvard's in this, whatever, somebody's in this university that you know and respect. But we would still have to review the legal documents.

There's all this stuff that you have to do. You just can't assume that because one of these schools is in there, they're negotiating the same side letters that you are and they're thinking about it the same way you are. Even though these are really well-respected schools, what they're trying to accomplish from it might be different than what you're trying to accomplish from it.

So you have to think about that. Oftentimes these very large pools, they want co-invest or they want other factors that are not directly related to fund performance, core fund performance. Absolutely. We find with family offices, they will do a fund not because they really like the fund, but because they want co-invest and they're comped on CoInvest. Okay, I get that, but that doesn't necessarily mean that they will have the same diligence that we will.

And we've seen that with some family offices when they're like, oh, we did an hour phone call, but we had done some CoInvest with them. And so we did the fund because we met them through the co-invest. We're just doing it because we kind of have to. We have to check that box. But we really just want the co-invest stuff.

And that's a different rationale, right? Because you can opt in or out of the co-invest. And so if you make some kind of de minimis investment in the fund so you get these large co-invests, then that's just a different ball game than what we're trying to play. I'm curious, you said on other committees, do you find that the size of the investment or the concentration in the portfolio is positively correlated with the fund's ultimate performance?

I never really thought about it that way. I think what you find, like I'm on small boards, right? So it's not like we're managing a billion dollars. I think what you find is they just defer smaller committees, they just defer to whatever advisor is in the room. They generally don't have somebody with an investment background on the committee or on the board. And so, hey, we've got this advisor for 20 years. We work with them. We just listen to them. And so it's difficult from my seat when I come in, I'm like, well, I don't really agree with everything they're saying. It's kind of like, you don't want to be that person that just disagrees, but you kind of take the conversation offline.

Like, help me understand why you're trying to invest in whatever it is and just kind of take the conversation offline. Like, help me understand why you're trying to invest in whatever it is and just kind of get that rationale. I think something like real assets is a great example where people invest in real assets because they think it's an inflation hedge. It's like, okay, most of the time, we're not in inflationary environments. So you invest in this asset

because at some point in the future, we might be in an inflationary environment and that assets supposed to form well but what's it doing in the 80, 90, whatever percent of the time that we're not in an inflationary environment. We're just trying to diversify like what are you trying to diversify from? Equity risk generally, because every endowment has predominant equity risk. And what happens when equities are down or credits are tight and all correlations go to one, right? All these diversifying assets can trade like equities.

And so what are you really trying to get from that? I think trying to understand why people are doing things is really helpful. And maybe they're doing it just because they want to diversify. And a lot of the studies about diversification are like, we're going to take a 60-40 portfolio, we're going to add 10% of some asset, and that asset shows diversifying qualities. But at 10%, right? And so now when you take that and like, hey, we're gonna make it 1%, we're gonna make it 2%,

maybe it's not as diversifying. I'll have conversations like, okay, take this up to 10%, like, oh, that's too risky. It's like, well, the study that you're basing this whole thesis on diversification had it at 10%. You find with a lot of these things that are diversifying away from equities, everybody puts them in the portfolio, too small a size for them to actually be diversifying, for them to do anything for returns when you do have maybe those inflationary

time periods. And you end up with the diversification that you mentioned. That's kind of where that comes from is you just slice this pie up into a million pieces and you're beta. Is that not the incentive of consultants to provide beta to their portfolios? Essentially, they get paid on how much assets they manage. If they could get a 20% return one year and it's 5% return next year, it's not going to look as good as an 8% every year. And they have this kind of incentive to smooth out returns and deliver beta to their clients. I think it's right. I think what they try and do is educate folks about you want a diversified portfolio and

it's really difficult to find alpha in all those diversified pieces. So you need somebody to help you do that. And that's where the consultant comes in. At the end of the day, what you could figure out is like, do you really want alpha or is beta good enough? And then does that beta actually provide what you want? And I think we found and certainly during COVID-19 and GFC, a lot of things that were diversifying were not at that time period. So when you need things to be diversifying, they're not. But it is kind of easier to say, look, you have, we have four asset classes,

but you have 10 asset classes, you're more diversified. It's like it's like, you know, it's private equity diversifying from public equity. It's all equity, right? And so you can divide this up in many different ways, but I don't know if it makes your portfolio any more diversified because you're doing that. It's kind of like 15, 20 years ago when I was doing mutual fund, working in mutual fund doing manager selection, there's the Morningstar style box, right? Like that three by three matrix. And you need to be in all of these asset, all the different equity buckets to be diversified. The reality is they're all the same, right?

There's very few markets where growth is up and value is down. You'll see that where growth might outperform value, but it's not like growth is going to be up 20% like growth is going to be at 20% and value is going to be down 20%. That's pretty rare. And so you're really just over diversifying. And it turns out that what is growth is also value and that's not just some binary construct. It's a little bit grayer than that.

And so you end up with a portfolio that's over diversified. It can make you feel good. It's hard to imagine a world where you just have a bunch of beta and you get to the return target that you need. If you actually believe that that's going to happen, then you don't need... Like manager selection in that world doesn't matter. And I know there's the Princeton study that says that world doesn't matter And I know like there's the Brinson study that says matter selection doesn't matter I will say that they chose like the three asset classes where managed selection matters the least Public equities core bonds and cash think you're gonna win based on your underlying holdings of your cash position, right? And so as you introduce these asset classes that have more dispersion VC with the highest dispersion rate manager selection Absolutely matters. It absolutely matters what companies you own in those asset classes that have more dispersion, VC with the highest dispersion rate, manager selection absolutely matters. It absolutely matters what

companies you own in those asset classes. But if you didn't believe that, then you would say we're gonna shoot for median return and we're gonna shoot for median asset allocation and hope for the best. And I think what would happen if you did that is you would almost always underperform. Like nobody's target is the median asset allocation. It's just the outcome, not the goal. And so if you did have that as your goal, the median asset allocation,

you're probably gonna underperform, probably more often than not. And so then you get into the manager selection piece of it and it's just really, really hard to invest in some of these asset classes. If all you're trying to do is, I don't think you should do anything alternative if all you're trying to do is like,

hey, that median return looks good because it's gonna be a wild ride. And what's gonna happen, kind of like what Cliff was talking about, when you're underperforming, that's when you're gonna be like hey well it's not re-up in this not just manager but asset class anymore and I think people that were kind of thinking about that maybe in venture because they were over allocated those folks are still investing right maybe not as much I don't

I haven't heard anybody that's like I'm completely turned the switch off on venture based on what happened or what's happening right now. Some people did that in 2001 and then they did in 2008. And hopefully this time they've, they've learned the lesson and in this market cycle, they're definitely keeping or even adding to their winners. What you're seeing is maybe that point, like they're adding to the winners. So they're looking at that, it's like, okay, you know, we had 30 venture

managers that we've, you know, we've added a bunch as, you know, late teens in early 20s and like maybe we don't think the all of these funds are going to be top quartile. So you're not going to re-up with some, you're going to re-up with others, you're going to ask them for more allocation, but you're not going to re-up with some. You're going to re-up with others. You're going to ask them for more allocation, but you're really trying to figure out who those winners are. Now, there's not a ton of persistence in these asset classes, but you still kind of think that your ability to figure out the process and philosophy and the people that are involved, that's going to lead to the performance. But I think you're

seeing that more in venture than, Hey, we're just going to turn the spigot off. You guys have a small staff, so I know you don't really focus on venture. Do you look at it from a fun to fun lens or how do you get exposure to that part of the market? Or do you just decide not to play in it? We have historically had kind of the growth equity piece of it. So maybe late stage venture, um venture and growth equity, which has performed pretty well.

We don't have a ton of the late stage stuff. It was more growth equity. You're absolutely right. We're capacity constrained just from a time perspective. And venture is, it's funny because we talk about it as a team, we've got five investors, and there's a lot of fund to funds that are only five people. But those fund to funds only do one thing, right? And so it's not necessarily a people problem.

It's if we do this, it's gonna take a ton of time. We're gonna be flying to Silicon Valley like every week or every other week, somebody's gonna be there. And then there's things that we can't do. As we think about the program, right now we're using fund to funds. Maybe at some point we go direct.

But right now it's just fund to funds purely because we do have times constraints. And there's other places that we've determined that we can find value or outperformance. I think small staffs, and if you talk to endowments that have 20 people, they're gonna tell you that they're a small staff. So whatever endowment you're talking to,

they always say that they have small staffs. But when you're five people, I think there's two or three things that we can do well. And we could say, okay, we're going to do venture and that's going to be an area where we think we can do well. But the reality of that is it's going to be 10 plus years before we figure out whether we were right. And are we willing to wait that long? That's going to be really hard. And I know every endowment says they have a long-term investment horizon, but I've yet to meet one that really does.

Right? Like there's somebody on that committee or stakeholder or something that doesn't have a 10-year investment horizon. It's one year, three year, whatever. And that's, to your point earlier, that's the loudest voice. And so we've chosen to do fund to funds. It's not thrown in the towel because even within that, we talked to a lot of LPs that we respect that have done this before, that have been doing venture for decades.

And we said, hey, if you had to start from scratch, how would you do it? It's funny because the largest funds get the largest amount of money. Obviously, they're the largest funds, right? And they raised like 60% of the VC dollars last year, but we kind of talked to our committee about, okay, if you have a $5 billion fund, what is the probability that $5 billion fund returns a 3X?

Like, and it's really hard. That's $15 billion. Think about all the companies that you need to invest in. They're going to get you to that. And then like a $20 million fund, 3X is $60 million, probably one company, maybe two companies. And so that led us to like think of more on the smaller side, which is, you know, seed, pre-seed, and that's where we can get maybe some of those outlier outcomes.

The later stage stuff, I think it's just going to be really hard. I'm not saying they can't do it. Um, but the probability of them doing it is, is pretty low. I want to highlight something very important that you said, which is we have five people on staff. So instead of trying to do everything, we're going to pick our shots, the two or three asset classes where we could win. So just because you have a generalist team doesn't mean you try to be good at everything.

In fact, it means exact opposite. The biggest mistake I made when I first started here was, hey, here's this asset allocation. That was approved before I started. But then I looked at them like, okay, let's do this. Let's go. let's try and add alpha everywhere. And it was just me. So that was, that was impossible. Right. And then we added somebody, one or two members along the way and like still impossible. And so we spent a lot of time thinking about where can we add alpha. And to, you know, the point earlier about you're going to look at that underperforming manager on the, on the list and be like, you're going to look at that underperforming manager on the list and be like, you're going to talk about that manager for an hour. And if that manager is in public equities, what is the value add that that manager is going to have over time? If you think a public equity

manager is going to outperform by 10 basis points, that's not a right? And so now you're probably gonna allocate tens or hundreds of millions of dollars to that manager. So that 10 basis point is a very good contribution to the portfolio, but there's going to be times when they're detracting by two or 300 basis points, right? And so you don't have that in private equity where you can outperform by three, four, 500, a thousand basis points.

And so maybe it's a smaller amount, but you can do that. Your time commitment is basically the same. Whether you underwrite a long only fund and it's $500 million or you underwrite a VC fund and it's $50 million or $5 million, it's harder to underwrite that VC fund. I'm going to make a statement and I want you to correct me because it's oversimplified, which is you want to focus on a couple asset classes where you have alpha, where you could outperform by 300 to 1,000 basis points. And then everything else, the public equities, you want to potentially index and focus on

fees. So give me more nuance on that. What do you want to do in the asset classes that you don't have the edge? The other thing you got to think about if you don't do beta, let's say you do active management and if you, if you do active management, you're still taking some type of overweight or underweight, right? Whether that's sector, um, whether that's market cap or whether that's geographical region, you're

taking that and somehow you want to be compensated for that. So if I were to do that today, I would probably say, let's have some overlay strategy so we're getting rid of that. And like if I truly think this is manager selection, let's get rid of all these kind of regional market cap or whatever sector biases and just focus on their ability to pick stocks. When you kind of flip it to the private side, you know, you're three to 3% is generally, hey, we think we can outperform by 3%

if we go into private markets. But what I don't think people spend enough time thinking about, but what is the public market return gonna be? Private credit's blown up today, so let's use that as kind of the scapegoat here. Private credit crushes public credit on a PME basis. And the reason is it cheats, right?

It's taking more credit risk than the public markets. And what's your target benchmark on that core or core plus, right? And so like everybody knows you can beat the core. It's the easiest index to beat. You just go longer duration, more risk. Like a huge percentage of core managers outperform the core index because they cheat on it. And private credit is cheating even more. But what you have to think about on that is let's say you outperform by 5% to whatever benchmark you're using.

Is that 5% enough to justify locking up capital? We're an absolute return fund. And so what you can find in a lot of those strategies, I'm beating this public benchmark by 5% or more, but I'm only getting 10% IRR. And you discount that IRR to get to an annualized return, and you end up like, I'm locking up capital below what my target return is. And like, are you really benefiting from that?

Is it really providing you what you need? And I would argue no. For us, I don't think it gets you there. But if I was a pension fund and was trying to allocate and was worried about the volatility of returns, and I knew,, this is going to get me a 10% IRR every single year, I would allocate to that because that's a different incentive than if you're an endowment that needs to hit a target return so you can maintain the spending power of your endowment. To play devil's advocate, when I listen to people like a Stan Druckenbiller or Cliff Asnis talk about how difficult it is for them not to pull the trigger in a down market and to hold steady, I start to think, could too much liquidity be a liability, especially

when you have committee members. So outside of providing for the university's expenses every year and maybe having a good runway of capital, could liquidity actually be a negative function and why is liquidity always seen as a positive? Yes, so I remember talking with some folks at AQR about this years ago where I was like, what's the academic study that says private capital should be 3% better than public equities or public whatever, right?

Because my theory was that number is variable based on kind of governance and other factors that go on, because private capital provides discipline. To the earlier point of you're worried about your underperformers, well, if you have an underperformer in public equities, you can sell them. If you have an underperformer in private equity, you can sell it, but it's going to come

at such a massive discount, you're probably not going to sell it. So you do buy some discipline just from that. So I can make an argument for certain allocators that you don't need to outperform public equities. If you get the public equity performance from private capital, then you're going to be invested all the time and it's going to be a better ride than we're going to allocate to funds that outperform and we're going to redeem from funds that underperform.

And Morningstar has that return of like a flow-based return and it's always less than whatever the annualized return is over the same time period because people will allocate to hot funds and redeem from underperforming funds and so with private capital you can avoid that right so you do get some discipline and the other thing to that is Yeah, liquidity We need to do something right you do have a little bit of like hey, we've got all this liquidity Let's let's play with it a bit. Let's buy this let's buy that and so you have to have that discipline We need to do something, right? You do have a little bit of like, hey, we've got all this liquidity, let's play with it a bit, let's buy this, let's buy that. And so you have to have that discipline

that you're not always buying things because then you get up with that, you end up with a couple different scenarios there. Either A, you could be over diversified because you just buy a lot of different off benchmark things, or you're taking unintended bets. And so you have to figure out, like,

hey, let's add 5% to EM, and EM outperforms. It's like, okay, well, now we're 10% overweight. I don't know what time period you're going to double your EM waiting, but let's assume that it happens. And are we okay with redeeming from that? And I think what you find is you have to really kind of figure out why are you making this decision, right? Like why are you going 5% into EM and predetermine why you would sell from that. Because if you don't predetermine why you're gonna sell when you buy some asset that's liquid What I found when I was a consultant working with clients like they just never sold and so that would trail off

You know the returns would be bad and that's like well. Why did you have us do this? It's like you guys wanted to you wanted this exposure at this size. And so hopefully your meeting minutes reflect that conversation. You can go back and say, remember this happened. Um, but yeah, liquidity, it gives you this illusion that you can kind of do things, um, that from a discipline standpoint, you probably shouldn't do. Yeah. Listening to Stan Drunken Miller talk about how much he struggles with it actually gave me a lot of peace in that it's essentially we're ultimately human beings.

It's kind of the analogy. Do you want to put out a bunch of chips on your counter every day and practice self-discipline? Or do you just not want to buy them at the grocery store? There is a limit to human self-discipline, especially when you have the committee approach where everybody kind of reverts to the person that's most panicked in the room. There's a study by Daniel Kahneman on a topic called myopic loss aversion. So this was a behavioral finance study and it showed that investors who check portfolio daily see losses 41% of the time, far more often than those who

review every five years, which only see 12% losses in their portfolio. So a three and a half X change, just on that one factor of how often do you see your portfolio and how often are you predisposed to these swings in the market and these kind of emotional aspect of investing? Think about private too, you only get four marks a year, right? But even when you get those marks, we're at the end of March, right? So we're just starting to get our 1231 market values trickle in.

And so you're reacting to something that's three months ago. In the stock market, particularly, you're reacting to something that's happening in the moment. You can trade 24 hours a day. So if you know, COVID hits and the market's down 30%, you have to react right then. Whereas with your private portfolio, you're like, all right, well, let's wait and see what happens. And then what might be happening is, well, the 1231 marks were X, but since then, everything's improved. And so we think 331 is going to be higher. and that's generally what happens when you go to an

Annual meeting and like they're kind of intimating what's gonna happen, you know, that's an April man It's like well March is gonna be better And so you do have that where if you don't look at it as often and you don't with private markets You're not gonna worry about as much I I definitely worry about the stock market more than I worry about privates because I can look and see. I can look and see what the stock market's doing today. Where will tariffs affect my public portfolio

more or less than my private portfolio? I don't really know, but I know with my private portfolio, there's not a lot I can do with it. And even though you get the marks every quarter, you might be locked up for 10 years anyways. There's nothing I can do with that mark, whether I like it or not. The only decision I can make, there's two decisions I can make, I can re-up, which isn't going to happen in the moment, but you could sell. And I know there's a lot of organizations out there that just use the secondary markets

all the time. We've never sold part of our portfolio. So if we were to look to sell, if I'm on the other side of that, I'm going to be like, there's something going on in this portfolio. I'm going to give it a bigger haircut or something, or you just do it every year. But you're sending the signal to the market. I think the opposite has been what I actually struggle with, which I would have sold my winners way early on the venture side.

Once something's up 10X, it's like, you know, it's time to exit. I don't have, you know, the cojones to basically hold something that's up 10X. That's just not in my DNA. But that forced hold is also an arguably, especially for venture where everything's driven by power law, arguably even more important than not selling your losers. And so the GP knows that you sold that. So when you go up back for that RIA, they're going to say, sorry. I think there's this mythology to that a little bit. And they're like, yeah, that might happen. But if you explain to them, Hey, here's why we sold, we had to sell.

And you can come up with a story and say, well, we sold, we sold, we sold. We sold, we sold, we sold, we sold, we sold, we sold, we sold, we sold, we sold. And then you can come up with a story and say, well, we sold, we sold, we sold, we sold. And then you can come up with a story and say, well, we and they're like, yeah, that might happen. But if you explain to them, hey, here's why we sold, we had to sell, and you can come up with a story that might resonate with some. It's not going to resonate with everybody. But if they're truly a partner and be like, hey, man, we just had to take advantage of your great fund because all these other funds we had are trash and we just needed liquidity. Maybe that resonates. But if I

sold a fund, I would most likely be doing that because I had no plans of re-upping with that GP. My guess is the GP would tell you, hey, you're not in the next fund if you do this. When we were last chatting, you mentioned that as you looked into the private equity asset class and how you wanted to play it, you asked yourself the question. If everyone wants to invest in private equity, will return stay the same? Tell me about that thought process. I still ask that question because I think even though there's liquidity issues going on in private equity and private capital in general, people still are, hey, let's maybe

not increase our private equity target, but at least maintain it. And funds are growing, right? So you're kind of increasing the dollars in that. And so what we did was we looked at how people were investing. The biggest funds obviously get the most dollars and the most attention. But did we think that those big funds would have the return potential? Anybody can get into the big funds, right? I can call Apollo tomorrow. I feel like I could call them and if they're raising a fund, they're like, okay, yeah, you know, we have space for you. Whereas some of the some other funds you can't, right? You can't do that with Sequoia. What we did

was we looked at like, where do we think value is going to be found? And what we where we found like the higher ability, ability for a higher return is in smaller funds. And so you also have a lower outcome, right? So if you're fourth quartile, it's going to be worse than if you're fourth quartile of the mega buyouts. The medians are all the same. And so we thought, do we have some ability to invest in smaller funds? And so our network happened to be the Iowa network and folks that we knew at the time, they had access to folks that were pretty smart and that were in the smaller fund space. So that's kind of how we built the program in private equity is like, let's do smaller funds. There are a little bit some nuances to that in that, you know, nobody's gonna

know who those funds are, right? You go to a cocktail party and like, yeah, I was in Apollo, it was great, everybody knows who Apollo is. You go to a cocktail party and like, I was in some hundred fifty million dollar fund, nobody's gonna know who that fund is, right? And they're like, are you sure that's a real fund? Are you not getting, you know, is that fraud? But we, since we were introduced from our network, and some of our committee members had, were instrumental in that network, that gave a little credence to this. Like, these aren't fly-by-night folks. It is a little different though, in that like, the underwrite, like, if I underwrite Apollo, I'm pretty sure that organizations would be a going concern. They have HR, they're pretty good at fundraising.

If somebody leaves Apollo and starts their own fund, they probably weren't involved in a lot of that stuff. So you have conversations with them about what's the business plan of this organization? How are you going to fundraise and talk to them about that and get some answers to that. And like, we remember this stuff. I remember distinctly being in the office of a fund that was raising their fund one. And they sat across the table from me and said, Jim, we're never going to raise over a billion dollars. Fund three was a billion dollars.

Now, fund one was a 30 X, a 30 percent return. So that was great. But we didn't do fund three specifically because he told me he'd never raise a billion dollars, and here he's raising a billion dollars. And so we looked to do things that other people weren't doing. And so we were generally, a lot of the funds where you are, one, if not, maybe there's a couple,

one other institutional investor, there's usually a fund of funds, but there's not couple, one other institutional investor. There's usually a fund to funds, but there's not another endowment. So we have to be comfortable being the only endowment in the space. There's family offices potentially, but maybe they're doing a million dollars and we're doing $20 million.

So it's a big difference. And so it was skate where the, really where nobody else was. In the smaller funds, I think you can do a little bit of that. It's kind of in the VC corollary that would be precedency. It's a little bit more capacity constrained in those areas, but smaller kind of leads to, I think, better returns. I think what somebody like Hamilton Lane would tell you

is it's not fund size, it's deal size. What I would tell you is show me a $5 billion fund that's buying $15 million EBITDA companies, all of them, and I'll believe that fund size doesn't matter. And then show me $100 million fund that only bought one company. If the correlation is performance and deal size, I'm going to say there's a pretty strong correlation between deal size and fund size.

And lower middle market is one of these two, three bets that you decided to really specialize in at University of Iowa. Why lower middle market and what's your thesis around that? There's so many companies in the lower middle market. And even if there are a thousand lower middle market private equity firms going for them, they can't cover them all. It's an inefficient market. It's inefficient sellers.

Those sellers aren't as sophisticated. I say that they're not sophisticated and I've never met a business owner that didn't have some idea what their business was worth, right? But they're not as sophisticated as the CEO of Walmart, right? Like just, just, you know. And so it was, it was kind of plain in a pond that not that many people were fishing in and even if they were fishing in that pond, it's such a large pond that it doesn't really matter if there's a million other folks doing that. You're buying these mom and pop companies that a lot of the kind of the tailwind to this is baby boomers retiring and their kids or grandkids or whoever doesn't want to buy

the business, they need to sell the business so they can retire. So that is a tailwind to this. But there's so many of those. And what I always found when I was an investment banker was you have somebody that was running a company and they made whatever level of income they were making, which was whatever the revenues of the organization were, they were comfortable with that. They didn't really want to work 20% harder to get 5% more income revenue or whatever. So they're just, let's maintain status quo.

Whereas a private equity fund can come in and be like, okay, we're going to pull these levers to grow this business to 20%. And we're going to bolt on some other acquisitions on this and we're going to get it to $100 million of EBITDA. And all of a sudden, there's a million funds that are going to try and buy that. And so then it becomes very competitive and more efficient on the pricing side. The way you make change operationally in some of these smaller funds and smaller deals, it's easy to understand.

You're figuring out which skews work and getting rid of the ones that don't. This isn't like, I'm gonna buy this business, I'm gonna sell off the real estate and do kind of a lease back thing and it's more like a financing game. You're not doing that in the lower middle market. You're employing people, job creators,

as Mitt Romney, when he was running, would talk about. Whereas the Elizabeth Warren, their job destroyers and community destroyers, that's not the lower middle market. They're not buying assets, levering them up and selling the aircrafts and firing the people. Exactly. Exactly. A lot of the... I think that's a very rare case in private equity, just for the record.

I think outside of the movie Wall Street, it's not very common. It isn't very common, but that's what gets the headlines. So even if it happens once a year, once every five years, you're seeing, I think, this in the Northeast where there is a hospital, I think in the Northeast that went bankrupt after private equity sold it, and they're blaming private equity now. There's all these laws that are being proposed to have clawbacks on private equity. That's not going to affect us directly, but it will affect us in the fact that maybe some of the companies that we own in our portfolio would sell to some of that stuff.

And so those buyers aren't going to be there They're gonna be more scared. I Will say like from a buyout venture perspective Venture has done an amazing job Selling what they do to the public at large buyout has done a horrible job doing that because like all you remember is like Toys R Us or RJR Nabisco and things like that. It's like, you know, there are probably other things going on.

Which is ironic. Venture has done a much better job PR, but private equity has done much better lobbying. The venture lobby, I'll do respect, has not had the resources or the fact of the private equity lobbying. I think some of that's changing now, particularly with a lot of folks from venture community going into the Trump administration. I think they're kind of recognizing that is where the growth of the United States is probably going to come. I think there's a big baby boomer effect to some of this stuff. I don't see a lot of people from my generation or younger trying to start concrete companies.

If you had a concrete company, you're trying to retire from that, sell it to private equity, car washes, things like that. There's just a lot of those things out there where it's ripe for private equity. But I wonder about, kind of your point of like, when we built the program and everybody's doing this stuff, I wonder about what does 10 years from now look like,

20 years from now, when you kind of have this generational cliff of like Gen X isn't really starting these companies. Will private equity exist? Will the buyout industry exist to the level it is today? I don't think it will. And I think you're going to see just this natural shift towards VC because of that. And the ability to start a company is so much easier on the VC side. If I'm going to start a concrete company that's labor intensive, it's capital intensive, if I'm going to be a pre-seed fund, obviously you're betting on the idea and the person starting the idea, but it's easier to do it at some scale. It's easier to start a pre-revenue tech company than it is to start a mom and pop shop essentially. That needs to change and maybe it will.

But I think in some ways, private credit is going to play into that. Eventually private credit will start lending to that. It's taking away everything that banks lend to. So I can see that happening. Some of these micro private credit funds will do some of that stuff. And so that's just going to change over time. It'll be a little bit easier. There's this belief that lower middle market is more risky and there's a counter narrative that it's actually less risky because there's less leverage. Is it more risky with higher returns or is it actually less risky with higher potential

returns? I would argue that it's less risky because yeah, it has less leverage. The fruit is lower hanging. I don't know what some of those mega buyout funds, the levers that they can pull are, particularly now when it's America first and if your pathway to growth was outside the United States, that's going to be a tougher thing to do. Hey, we're going to build a plant in China. We're going to build a plant in Europe. I don't know if that's going to happen. You've maximized some of your revenue short-term, low-hanging fruit revenue

opportunities, so now you have to bring down costs. Yeah. 10, 15 years ago, it was 20 years ago, it was let's build that plant in China, let's build that plant in Mexico. I don't think you're going to be doing that today, right? And so you're going to have to bring those plants back to the United States or face a tariff and you don't have that problem in lower middle market. So I would argue on that level, it's less risky.

We talk with some of our lower middle market funds about their underlying portfolio companies, they're under stress. There's no question they're under stress. And even though they're not as levered, if you know there's a bank, they would have workout groups, right? And they would just take the keys and they'd figure it out. With the private credit, it just grew so fast, they don't have that ability. And so they're like, okay, you're in breach of covenant, technical default, work it out.

We don't have the ability to take over your company and just work it out. You see a lot of pick loans because of that, and we'll get you on the other side of this stuff, which doesn't give me a great feeling about this is a great time to invest in private credit. What do you wish you knew before starting at University of Iowa roughly 15 years ago? The biggest thing I wish I knew was how difficult it is with one or two people to manage the portfolio. I would have hired two people faster.

I would have hired two people rather than one person. I would have done that sooner. I wish I knew how cold it got here in Iowa in the winter time. I don't think I would have made a different decision, but maybe invest maybe in warmer coats and stuff. The bigger thing is like figuring out how to scale the team because you know at the time we were very consultant driven. We still have a relationship

with the consultant but you're relying on that consultant. It is the conversation that I had with my committee chairs over the years about that was like do we want the knowledge to be in Iowa City or do we want the knowledge to be outside of Iowa City? And so it's hard for me to manage a portfolio of all the knowledge is outside of Iowa City. So let's kind of bring that in-house and have the team get that knowledge and know the companies.

And I think from a GP perspective too, if I was a GP, I would rather work directly with the underlying LP than through a consultant because if I never meet that LP, then I would just intuitively think like re-ups are going to be harder. You just don't have that relationship. It's also relationship driven, right? And so if I know somebody and on a personal level, I'm not going to forgive them for underperforming, but I've given them the benefit of the doubt, like maybe they can work through this.

And so I probably would have pushed for a larger team faster. You could try to get more information, understand why that underperformance is. Is it the market is down? Is it part of the strategy? Sometimes it's part of the strategy to underperform three out of four years like in the hedge fund space. Even in private equity, you find sometimes people are like, we're going to make some operational changes that's going to be expensive, so the markups aren't going to be as fast.

So we're going to look like we're a third quartile, fourth quartile fund. One of our best performing funds was a year before the follow on fundraise, they were deep fourth quartile. And they said, this is what we're going to do to turn this around. And they did it. And it's a 25% IRR fund today. And so we knew from that relationship

that they would do that. And the other thing, we invest in smaller funds. When I give 10% of allocation to a fund, if they're raising $200 million and I give them $20 million, I'm probably on the LPAC, but I'm definitely one of their first calls. And I get a lot of information from them. Whereas if I give $20 million to a $20 billion fund, I'm so far down that list before I get a call returned and I'm not getting much information. You develop that relationship with folks and you truly understand what they're

doing rather than PR talking points about what's going on and hey, we can understand like, okay, at the end of this, it's going to be really good fun. Right now it's got some struggles, but we're okay with it. Jim, this has been an absolute masterclass on down investing and a lot to talk about. I want to do a round two and look forward to catching up live as well.