C (7:14)

Bruce, thanks so much for joining me.

A (7:15)

It's great to be here. Ted.

C (7:17)

Why don't you take me all the way back to the influences from your

A (7:21)

upbringing if you believe that investing is a combination of art and science. I had a very unfair advantage. My mother was a printmaker, my father was a geophysicist. I literally am the combination of art and science. I grew up in Hanover, New Hampshire, which was an idyllic college setting. My big passion was swimming. I was very competitive. I won an award. Because Hanover is such a small town. The newspaper came and interviewed me. This was when I was 10. There was a prize that came with it. They asked me what I was going to do with the money. I was going to invest it. Apparently it's been in my blood for a while. I went to Wesleyan University and wanted to be an econ major. I took micro. Absolutely hated it. It was the worst experience. I pivoted hard and we're talking really hard. I became a religion major. I hadn't had a religious upbringing growing up. I was very curious about it. Wesleyan is a great liberal arts school. I decided to take full advantage and dive in. It's pretty much been a life journey since then, trying to figure out how that applies to investing.

C (8:31)

How did you pivot to religious studies?

A (8:35)

I took an Intro to Religion class that was a survey of all religions from Christianity to Buddhism to early religions in Mesopotamia. I was curious. I was young and thinking big thoughts, trying to understand the meaning of the world and thought I would find it there. Where I ended up really getting passionate in my religious studies was with Kierkegaard. He was a religious philosopher from the 19th century. I read almost every one of his works as part of my studies. One of his books leans hard into the concept of true faith is not something that is blind. It's something where you're constantly questioning. There's a back and forth in investing. You have to have faith that what you think you're doing, whatever you think you're buying, whatever manager that you're going to invest with is going to do well. You need to always be asking yourself, where can this go wrong? That was a central tenet of how he thought about faith. I have carried that forward with investing. The analogy dies, though, because I don't think in faith you're supposed to change your mind as much as you have to when you're investing.

C (9:41)

You're coming out of school and thinking about work.

B (9:45)

What did that look like?

C (9:46)

As a religious studies major with some underpinning of microeconomics, Once I got lucky

A (9:53)

in that, I took the second half of intro economics my senior year and had an amazing professor named Richard Slotkin. He had this analogy that sparked my interest in markets. He asked this question, if Martians came down, went to Congress and said, we'll give you $50 billion in real wealth every year. We're going to take 50,000 lives. Would Congress take that deal? Throughout most of my life, the answer would be a clear no. I thought that was fascinating. And his answer was, that's what the car industry has done. By making transportation more efficient, they've generated all this real wealth. But there are 40,000 to 50,000 people that die every year in car wrecks. That is not a decision that can be made politically. It's one that the markets make. I was turned on at that point. I was like, I want to understand how this works. I want to make this part of my life's work. It was a tough time to get into finance. This was post RTC, post 1990 recession. Wall street was not hiring. They definitely weren't hiring. A religion major. I moved to New York. I slept on a friend's couch. I started taking temp jobs. The first one was counting receipts during Christmas in the back office of Bloomingdale's with a group of 12 other temps. I somehow got a break and I got a job at Columbia being a Fundraiser. They had this amazing benefit. They gave you tuition so you could take classes. Wesleyan's a great school, has no core curriculum. So I had not taken a math class in four years. I took calculus. I took intermediate economics, did great in them and realized I can do this. Part of it was to prove to myself that I could do it. Part of it was to prove to a future employer. And I got another big break which was a job in Columbia's investment office opened up. I took my limited experience and my class history and was able to get a job there. It was a wonderful opportunity. This was early days of endowment investing. There was private equity. There wasn't venture and growth and buyout. I got to see everything. It was also a time when a lot of the stuff that's been outsourced wasn't outsourced. We used to get private equity distributions. I had a great mentor there named Steve Layman who ended up working at Pew Trust for a while. He would have me trade the distributions. So I learned how to read a Bloomberg ticker. It was just an amazing experience. And I gravitated towards fixed income. A lot of that was that underpinning of what drives the market. Trying to understand that key drivers interest rates. And I wanted to understand as well as I could the fixed income markets. I applied to Columbia Business School made a huge mistake in that I did not take a single one of the value investing classes. I was too much of a contrarian. This was the Henry Blodgett years. It seemed like every one of my classmates wanted to be an equity analyst like Henry Blodgett. I was like no, I'm not going to do that. I had other great professors though. I took an economic history class with Rick Mishkin who ended up on the FOMC during the gfc. That whole class was just studying Friedman and Schwartz's Monetary history of the US which if you're trying to understand historical parallels is a great background for investing

C (13:06)

with that early experience. Multi asset class endowment. How do you think about what you wanted to do?

A (13:11)

After business school I stayed on the fixed income path. I still had this passion for understanding interest rates. I also thought of myself more as a quant. I liked the closed formed equations of fixed income land. You can answer the duration question and price a bond very clearly. Whereas equity seemed more mysterious to me. I focused exclusively on getting fixed income jobs. And I ended up getting a job at Putnam Investments joining in August of 98 right before the long term capital crisis. My initial boss there was this guy Krishna Mamani. Who has since went on to become CIO at Oppenheimer Funds in the Fixed Income Group and is now CIO at Lafayette. He was a great mentor. Unfortunately I only worked with him for a short time because Putnam stubbed their toe in the long term capital crisis. They had a big reorg. The work that Krishna had me doing fell perfectly into this group called the Global Asset Allocation Group that was run by Jeff Knight. They didn't have anybody who knew fixed income. If you think about the Global Asset Allocation Group, their alpha driver was this global tactical asset allocation model that they used to trade futures. They traded all the major G7 markets, both equity and fixed income. A big part of their alpha driver they had no expert in. Finally my fixed income expertise became relevant and helped me land on my feet in that particular role.

C (14:37)

What do you think you grew to understand with a lens of the fixed income markets that applied both before and since? In thinking about multi asset investing, my

A (14:50)

original driver for wanting to go into fixed income was to understand what set interest rates and how interest rates drove things. That insight was driven by understanding that all cash flows are priced off of the current discount rate. That underpinning in fixed income helped me think about the cascading effect of changes in the economy to how the Fed behaved, to how interest rates were set and then how asset prices were set. I got this intuitive grasp of the dynamics of asset pricing early on. It was ingrained into me the flow through from what unemployment is doing to into interest rates, then into equities, into currencies and then into global markets. You quickly picked up on the fact that the US always seemed to lead interest rate cycles. If you were thinking about overseas investing, you had an edge because you could understand the dynamics of risk asset pricing because you had this underpinning of interest rate knowledge.

C (15:52)

You navigated your career from coming out of school into an asset manager and then went back to the endowment world. Love to hear about your thought process behind that transition back.

A (16:03)

Some of it was driven by personal choice. I decided to move to Charlottesville, Virginia and was a pioneer of the remote work setup. I was still working for Putnam. I was on the portfolio management team managing a hedge fund strategy version of the global tactical asset allocation model that we ran. That particular hedge fund had been anchored by General Motors. I thought I was in a great role and I didn't want to leave. I got a call the day that I moved to Charlottesville from a recruiter for this role at UVIMCO at UVA's investment management company. I thought I'll take this interview. I'll just see what it's about. It was like lifting my head out of the weeds. Which is funny to think about because I was a multi asset class investor. It wasn't like I was just focused on an industry sector and equities. But still I had never thought about venture. Even though I ran a hedge fund strategy, I'd never thought about all the different hedge fund strategies that were out there. I didn't understand multi strats. I never dug into traditional long short investing. It was incredibly eye opening experience in the interview process. It seemed like a great fit for me. The CIO at the time was Chris Brightman who had an untraditional endowment background. He didn't come from the endowment world, so he wanted somebody to marry the traditional investing framework into the endowment model. He saw my background as being quantitative with a risk component. To be helpful in that process. Turned out to be an amazing role for me.

C (17:31)

What was different for you in what you saw from the years spent managing fixing portfolios with those two bookends of Columbia at the beginning and then Virginia afterwards.

A (17:43)

I came at it from a quantitative background. My interest in this all was fixed income was easy because you had closed form equations that could solve the pricing. When I got to uva, I understood how so much alpha was generated by being able to have a more creative thought process about asset pricing. This was when the Tiger cubs were at the height of their powers. Being able to look at the Lone Pine portfolio and see how Steve Mandela and his team could see into the future about what these high quality businesses would be worth was eye opening. It was completely different model for making money than I had understood in the past and it was so much more potent. It lit a fire in me as far as thinking more creatively about investing, which fit my personal background really well.

C (18:30)

Why don't you walk me through your path from there to ultimately the seat where you are today.

A (18:36)

It's a little bit of a rocky path. I learned the hard way that there's a risk to having risk in your title. I was at Uvimco when the GFC hit. Our $5 billion endowment went to 4 billion as the guy with risk in his title. When you lose 20%, sometimes somebody has to take the fall and I was that person. That was a challenging period professionally. I was fortunate to have an amazing experience afterwards that repositioned my career to get me to the path that I'm on. That's a real lesson to when you have hard times is understanding it's cliche to say it. When one door closes, another one opens. In my experience, there's nothing more true. I met this guy named Jim Dilworth who had an idea for democratizing hedge funds. One of the things I had done at uvimco was build a managed account platform. We transitioned a bunch of LP relationships in long short equity into our own prime brokerage account so we could control how much capital was at risk and how much leverage was used. It turns out that's exactly the model you would need to democratize hedge funds. Create a managed account platform and you put a 40 act wrapper around it and you've got a mutual fund. It was a great product for its time in one sense, in that it was so much easier post GFC to find a hedge fund that was willing to do a managed account than it was pre gfc when hedge funds were the cat's meow. It was a lot harder because it was a straight up market and there wasn't a great market for a hedged product, especially in the retail world at that point. We did a good job building a business. We got a three year track record, we got 100 million under management, but it really needed to scale at that point. There was not conviction on the team to hire a sales team, which is what you need to do in mutual fund land. Either hire a sales team or JV with an established fund. So it was time for me to move on. I was fortunate to gotten connected with Larry Koshard and he introduced me to Nancy Everett. He said, Nancy's building this thing down at vcu. You should go check it out. Nancy and I connected, we hit it off. The rest is history. It's been a wonderful experience on so many levels. I didn't know much about the mission of vcu and getting familiar with it has been one of my favorite parts of this journey.

C (20:57)

What's special about that mission as you think about managing the endowment?

A (21:04)

VCU is a public university in the state of Virginia, but it plays a much more traditional role of a public education institution. It tries to serve the less traditional college student. For example, more than a third of the undergraduate student body of 30,000 people is first gender. More than 70% have some kind of job while they're in school. It's a majority minority undergraduate student body and it's predominantly in state students. It's a unique mission among the established endowment world. It gives us a lot of purpose because when you're running that kind of institution, it's not like you have a legacy of great Donors that can provide a cushion to the university. Every dollar that we generate in returns has a profound impact on the university's bottom line. Even though overall endowment spending is single digit, percentage point of overall university spending, every one of those percentage points matters. We also manage money for the health system that's affiliated with VCU that plays a similar role. It's the designated indigent care provider. Every dollar that we earn, we have a sense of impact in everything we do.

C (22:19)

Let's dive into how you go about it. I understand there was opportunity for a whole scale change not too long after you arrived. So why don't you walk through what was going on and what happened.

A (22:31)

We manage money for six different entities at the university. Each one of those entities has its own governing body. The university had a plan to build an investment team. They actually ran an RFP to try and get everybody to pick one manager. So the transition to hiring Vsymco would be easy. Unfortunately, it didn't work out. It's hard to herd all those governing bodies into one box. So when we started, we had the opportunity to take over two portfolios or sell them all and start over. That was a weighty decision. What you decide at that point in time dictates what your primary use of your time is for the next two years. If you keep those portfolios, you're going to spend most of your time reviewing what's in there, slowly changing things out and adding new stuff. Whereas if you start over and start from scratch, you get to build the institutional knowledge from day one. You get to build your culture, build your taste, build your process. One of the most important parts of an endowment management process is sourcing, which would have been muted if you were spending that time looking at the existing portfolio. So we made the choice to sell everything and start from scratch, which was a bit easier than it would be for most portfolios because there was actually no private equity at all. We weren't having to sell privates or figure out what to do with that side of the book. It was hard though. This was a market in 2015, 2016 that had just come through the energy crisis. There was an RMB scare that the RMB was being devalued. So the markets just ripped. We were underinvested as we built out the diversification of an endowment portfolio. We started with a portfolio of ETFs and slowly layered managers in. We weren't going to take the traditional amount of equity risk in those early days because we didn't have the traditional amount of diversification. That was a hard stretch. It was 100% worth it. We built the investment process, we built the culture. Even though those were hard times early on, it deepened our relationship with our board, which has turned out to be a strength of ours. There was a lot of back and forth with staff and board about how to optimize what we were doing. It built trust because we got feedback, we listened to the feedback, we acted on the feedback. It benefited us going forward and building a few key advantages to our process that wouldn't have existed if we had just taken the portfolios we had inherited.

C (24:55)

When you start out that portfolio and you're looking at the world, there are probably some similarities, differences, competitive advantages you wanted to lean into. Walk me through the design of this and how you've implemented it. What's similar from other pools and what's different?

A (25:14)

What's similar is we have equity centric portfolio just like any other endowment. We need to generate a 5% plus real return. You can't do that any other way than investing in equities. We use primarily outside managers. Those two key tenets are pretty similar. What's different are a couple of things. One is we are resource constrained. It's been a team of mainly five investors since day one. When there's just five of you, you can't do everything. You have to make a choice about things to leave out because you're leaving out a lot. You really have to be focused on picking the right things to lean into. Our portfolio probably looks a little bit different in that there's a lot of things that we've decided to not spend our time on because we believed we'd be better spent spending time elsewhere. Things like private credit, China, Latin America, Africa. We decided to keep focused on other areas of opportunity. The other real difference in our portfolio that's significant is we have less illiquidity risk. We only have about 20 to 25% of our portfolio in private assets. Some of that is a structural constraint that we have, which is that most of the assets that we manage are actually not true endowment assets. They're balance sheet assets. There's not a statutory constraint. Elroy Dempson is a researcher. He wrote a paper a few years back. One of the things he looked at was the 75 year history of endowments. What drove returns? One of the surprising findings of this paper was there was a real countercyclical behavior to endowments for most of their history. As asset prices became richer and more fully valued risk asset allocations would decline when there would be a crisis or a downdraft in the market, risk asset allocations would increase. That is a really important toolkit. Market timing is a mugs game. As one of my old bosses said, endowments have an unfair advantage in that we work with the smartest investors out there. It's not necessarily market timing. When your expert in emerging market Internet companies comes to you and says my companies have never been cheaper, we are seeing opportunities we have never seen before. That to me is backing good investments. Historically endowments have done a great job of that. But in the last 10 or 15 years with the obsession of private assets, that tool has been taken out of the toolkit. We pride ourselves in keeping that tool in the toolkit. We have abundant liquidity to stay in step into dislocations either at the manager level or at the market level.

B (28:08)

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C (29:01)

I'd love you to dive into the concept of limited time, limited resources. Have to focus on the things that are most interesting. How do you go about deciding where to spend your time and energy?

A (29:17)

Primarily that has come from our relationships with our managers. Some of that has also come from our own research. An example of the latter would be when we started. If you looked back on the last 10 years of our peers and where overseas they had generated all the returns, it really was in China. From the beginning of the admission of China to the WTO to 2015, that was where the golden years of both the China economy and investing in China. That's right. When we started and we looked back, you could see some of the political winds changing in China. You could see some of the political winds changing in the US in regards to its relationship to China. It was also clear to see that that opportunity wasn't the same as it was in 2005. We then started to think about where that opportunity might be. We spent a lot of Time in India. Since 2018, India has been our largest overseas allocation of any region or country. That was primarily driven by an internal iteration of our own research. We've been fortunate to work with some managers who, this is a rare skill set, can see where economic value creation over the next 10 years will be. There was an individual named David Mott who had done an amazing job at Hill House, riding that China wave. We backed him day one when he launched his own fund, Composite Capital. Within two years he had stopped investing in China and pivoted his portfolio hard towards Vietnam. He just said, the opportunity that I see in Vietnam right now is exactly what I saw in China at a much smaller scale. That resonated. We found a way to make our own direct allocation into Vietnam, which was not easy. There are foreign ownership restrictions on many of the best companies there. With a bit of resourcefulness, we found our way to have that be our own dedicated allocation. It is really a hybrid of trying to pull the best ideas from the smartest people around us as well as doing some of our own iterative research.

C (31:26)

What is it you're doing to get conviction that it makes sense to allocate to India over everywhere else in the world?

A (31:33)

Some of it is first principles thinking. I read this book way back in my Putnam days called the Equity Risk Premium. Gripping title, page turner. One of the great things about that book was it did this study of the equity risk premium. What has been the exceptional equity return in different markets over time? It was fascinating. If you went Back to the 1870s, there were four emerging markets that were super promising that investors were jazzed up about. One was the US one was Argentina, one was Germany and one was Russia. Other than the US three of those went to zero multiple times over the next 100 years. Obviously that's a risk with any emerging market investing. What are the core drivers that allow an emerging market to retain value over time so that the capital gets the accrual of the value that comes from the economic growth? Rule of law is one of the big ones. India, having the English legal history was key to us getting comfortable with India as an allocation. A lot of that was our first principles thinking about what makes sense. Similarly, looking at what the drivers of economic growth have been, for many of these countries that are emerging, having a demographic base that is fairly young is important. That was something where we tried to do our own research but vet it with other folks. Then there were more controversial parts to the thesis that we batted around with a bunch of different people and got different opinions on and had to make our own judgment, call it. One of them was this question of capital recycling. And this is common with many emerging markets. Wealth that gets generated there gets invested somewhere else. That was true still. When we started investing, there was a bit of a leap of faith that that was going to change. And that has started to change dramatically. I was in India for the venture AGM bonanza that happens every spring there. It was shocking to see the evolution of the venture ecosystem there. Where now many of the funds we visited, 60% of their LPs were domestic. That was encouraging, but that was a process of our own insights and then leaning on the expertise of folks around us to pick their brains.

C (33:48)

Once you have the conviction, you want to step in, how did you go about the sourcing of the opportunity set?

A (33:55)

We leaned really hard into our network to get referrals. One of the nice things about trying to invest in these secular tailwinds is you don't necessarily have to get the manager selection piece right. We like it when there's multiple ways to win in the stuff that we do. The nice thing about the secular tailwind is you ideally win on both fronts. But even if you screw up on the manager front, you've got the tailwind behind you. We also got fortunate where managers that weren't necessarily India focused but had family histories in India would connect us with people in industry there. I remember one of my first trips, I got to meet the patriarch of a big real estate investing company. India is such a small world. I could ask him about two managers that we were looking at and he would know them both. Even though I had just met him since I was sitting face to face with him. Even though he would say great things about each of them, his facial expressions would be telling me something different. It's that on the ground, legwork and using our network that we leaned into to make those investments.

C (34:55)

How do you balance where you want to look for secular tailwinds and just global diversification saying you may not be right in picking those secular tailwinds?

A (35:05)

It is a balancing act. We view it as there's a huge part of the portfolio that just needs to be generic US equity risk. When we say a huge part of the portfolio 50% or more has to be generic US equity risk. We invest on the behalf of a US institution. Their expenses are dollar based. We don't want to have too much overseas risk. It's thinking about in the global opportunity set. Call it 50% US, 50% rest of the world. Let's be smart about what that 50% rest of the world is and tilt the portfolio that way. The way endowment portfolios work. If you have long, short or hedge funds, you're not 100% exposed to any market. What we are is 50% US, 30% other, with the rest being manager held cash, short exposure, our cash. When I was at Putnam, if you were a smart international equity manager in the 1990s, your smartest move was to just not invest in Japan. They got to be so exploited, they started to create indexes that didn't have Japan. Because it was such an easy bet, we tried to be ahead of those dynamics. China for us was a perfect example. China became a large part of the index when we started thinking about where is that risk dollar best spent overseas and making sure it's in the best opportunities possible. One of our big advantages is we have a healthy risk culture below the portfolio level. We're happy to take manager risk or the strategy risks. Where we're doing a lot in Vietnam or India, but we're not taking a lot of equity risk. Our total portfolio risk is going to be at a 70, 30 traditional benchmark level. If you can pick some of these higher octane or more promising secular tailwinds and marry it at that total portfolio risk, you end up with a portfolio that is more robust, better diversified than the index, which, as you know, is so concentrated these days. That has been something that has really worked in our favor.

C (37:09)

What are some of those other secular tailwinds you're excited about?

A (37:12)

We started owning gold five or six years ago. Part of the thesis there was we have this India and Vietnam exposure. We were worried about emerging market crises. The traditional emerging market debacle, which seems to me to be the biggest risk. When you invest in India or Vietnam, Gold actually turns out to be the best hedge. The best hedge would be to be short those currencies, but those are super expensive. Gold tends to do really well as a hedge to emerging market currency risk. Initially we held gold for that reason. As time has gone on, the case for gold as an asset has gone up on a secular basis. We're in a period now of a total and complete restructuring of the geopolitical equilibrium. We're in a period of sustained higher inflation. There's one asset that fills that gap that's created. When things change like that, all that change leads to fear, uncertainty and doubt. Gold has historically been the asset that benefits from that. Yes, it's very hard to price. You have no idea what fair value is. Sometimes it gets frothy as it has recently for us. That's another example of a secular theme that evolved that as we saw again, the political environment change in the U.S. the economic environment changed, the geopolitical environment change. The secular case for gold solidified as time went on. Artificial intelligence, there's a tremendous amount of potential there. That is an incredible secular tailwind that we have been studying back to our early days in 2017 when we were doing autonomous vehicle co investments. That has been a profound secular tailwind. We're seeing now that there's headwinds associated with it. That's a key theme for us to stay focused on.

C (39:08)

Those two, gold and AI have such different duration characteristics to them. Longevity, ways of getting exposure on gold, with the initiation of it being. This is a nice hedge for some of our exposure in Vietnam and India. How did you go about expressing it?

A (39:27)

Very simply, just as an etf. Over time we've thought about adding managers who specialize in mining stocks and we're still exploring that area. We thought about private equity strategies in mining. We decided to keep it really simple. This ties back to our focus on liquidity. If we can get the essence of the value of that in a liquid format, we'll do it. There might be a more clever way to do it. You might want to have structured exposure using options, given how volatile it can be and how episodic the returns can be. I find if you get too clever, you can outsmart yourself out of returns.

C (40:07)

It'd be pretty hard to get a simple expression of AI. On the other hand, love to hear how you navigated that landscape to get exposure.

A (40:17)

Ted, it's better to be lucky than good. We did well in the last year, but from managers we would not expect to give us dedicated AI exposure. They were managers who had a keen sense of cycles, supply and demand dynamics historically across industrials or commodities. And they saw some of the bottlenecks that were building in the memory space. For example, we've since pivoted towards trying to find AI experts who run more dedicated strategies that have unique insights and close ties to the AI community so that we can leverage their insights both inside the strategy that they run for us and beyond it in our portfolio more broadly or even in our workflows. That has been key. It's been part of our tangential discussions with managers in the space for some time. It's been focused more recently on finding dedicated strategies to that space. It's a space where expertise is at a premium. There are a few distinguished investors and experts in that space who can really see six to 12 months ahead of the market. That's where we tried to focus our exposure.

C (41:29)

Your past experience in the endowment world before VCU was working at two of the bigger pools. Vcu, like many, is a smaller size. We'd love to hear your thoughts on where you have competitive advantages and disadvantages because of size.

A (41:47)

As far as a competitive advantage, I'd throw Vietnam out there again. If you are a $20 billion endowment and need to write a $500 million check into that market, it's not possible. There are opportunities like that that are size constrained, that give us an unfair advantage. In our early days, we were too dogmatic about thinking about our size as an advantage and trying to find ways to play it. One of the mistakes that we made was early on was we were inclined positively to any asset class that had a smaller total AUM base, thinking that we could be early and make a lot of money. The problem is you need people to follow you. We're in a small cap. ASEAN equity strategy. Things were cheap there. Market caps were small. Nobody has ever cared about it since we've invested. You can be too clever over time. That is one of the things we have refined. One of the early decisions we made though was where our size could be a real advantage was in first check venture with early stage managers, the best of those managers. The best historical fund performance has been in funds that are $200 million and below. Our check size tends to be 5 to 10 million. We want to have a meaningful relationship with our managers. There was a real crossover between the opportunity set being the right size and our check being the right size for us to be a meaningful partner. That's been another space where our check size is the right size, where we can get fit into a fund that might have scarce capacity. We're only asking for 5 million. It's a lot easier to fit us in. Vietnam and early stage venture are two great examples of that. Where it's been a real impediment is resource allocation. We have excluded a lot of things. Most of the time, China and Latin America and crypto have not done well. But there are times when they do do well. If we had more resources, could we be more tactical? There's alpha that we're leaving on the ground because we don't have the capacity to explore it. Buyout is another one. We do very little in buyout. That's been a windfall for us right now because we don't have to worry about private equity software. I'd love to find the next shore Capital, but I'm not going to find it because it's not a research focus of ours. Another example would be the reinsurance space can be periodically really interesting after a natural catastrophe. We've spent a lot of time trying to understand that space. It's hard because we're so resource constrained. We just end up needing to focus on opportunities that are five to 10 years and not things that we trade, which in the end might be the right spot for us.

C (44:23)

How do you go about organizing your team and investment process?

A (44:27)

We have a strong risk culture. There's a few key components to that. One of them is the team, our board and our relationship with our board. We couldn't take the risk we do at the strategy level or at the manager level if we didn't have the board's support, the board have our back and understand what we're doing. We have a team approach that fits well into that risk culture. We do team based underwriting. There is a lead on every investment. Everybody on the team plays some kind of role in the process and everybody on the team has to meet the manager. It diffuses ownership of that idea so that folks might be incrementally willing to take more risk in those ideas. There's only one person who it all falls onto if it doesn't work, and that's me. It's not their career that's at risk. There's a downside to that where we don't have a private equity person who can say, this is my private portfolio. We want to have a team oriented culture. Organizing the team in this team based underwriting way has been the perfect alignment for how we want to manage the portfolio.

C (45:33)

As you've gone over this journey, the last 10 years of starting from scratch, building out the portfolio, ETFs, managers, where have you come across mistakes and places that you needed to change course?

A (45:46)

There's times when we've been too clever in trying to manage overall portfolio risk through hedging. We had great insight in 2021, 2022 that rates were going to go up. We put on an overlay and the way we expressed it was all wrong. It was too complicated. It would have been simpler to have no position at all and not have lost money on the hedge or just taken a short interest rate bet. Excessive complexity is one thing. One of the things that we're known for is running into burning buildings. We'd like to be countercyclical. That's both. In the market, when there's opportunities, sometimes that's with managers. There have Been a couple times where we saw opportunities in managers who were down. They had had great track records up until that point. We thought they've just made a mistake. We were too quick to enter into a new relationship on a short time fuse without doing the normal amount of research that we would do. One thing we've learned is if we're going to step into a burning building, it's helpful to have lived in the neighborhood before. We've had great experiences stepping into burning buildings in our portfolio. Less good experiences stepping into new burning buildings.

C (46:56)

It feels like today there's either a lot of simmering or a lot of burning across a lot of areas. Private equity, private credit, emerging markets, us. Where are you thinking about diving in to do research?

A (47:12)

Some of it is in our own kitchen. India right now is going through a very difficult period. It's got a double whammy now of being in the crosshairs of AI because of IT services and the huge part of their economy that that sector represents. It's got the risk that it's facing from the Iran war where it's so dependent on Middle Eastern oil, gas and fertilizer. That's a place where we're spending a lot of time to underwrite what we have to be ready. As dislocations there might increase. We have been positioning our credit portfolio to better take advantage of dislocations. We've done a fair amount of work to be well positioned for what's happening in private credit. We recently reconfigured that part of the portfolio, added a new manager. We have capacity to add there. That's where there'll be tons of interesting opportunities. There will be indiscriminate selling in private credit. There's good reasons why many of those companies will be sold. But there'll be many reasons where it's just liquidity that's driving prices down. We're excited about opportunities coming from there.

C (48:22)

When you're looking at a burning building inside your portfolio and you're thinking about re underwriting and making that decision, we want to lean in or maybe we made a mistake and get out. How do you go through the process?

A (48:36)

That's unfortunately something that happens. We make mistakes. We pride ourselves on trying to avoid bad investments. Sometimes there are bad investments in our portfolio. One of the things that we do with all the managers that we work with, we'll share our memo with the managers before we invest. We'll have all the work done. We'll run it by them. We want them to fact check our work. Sometimes there's mistakes in there. The most important reason is that we want them to know that we know what they're doing. We want there to be a clear understanding that we have a clear understanding of what they do. There have been some amazing discussions we've had along those lines. Where we have a manager, for example, that's almost a multi asset class mini endowment portfolio. We had to benchmark them versus high yield because they had some credit background. They called us when they got the memo and they're like, we're not a high yield manager. We're like, no, no. We get that. Those are the conversations we want to have before we invest. Because if things do go wrong, the base of understanding was clear at the outset. One of the things we put in our memos are pre mortems. Along with those pre mortems, we have a bunch of KPIs that we monitor. We'll share those with the manager. And there's a big faith based trust thing going on there. They know what we're looking for. They could always game the relationship. But obviously we wouldn't be investing with managers if we thought that would happen. When it comes time to have a difficult conversation, we have a document that we can point to and say, hey, these were concerns we had when we made the investment. We're seeing them manifest. We appreciate the work that you've done for us. We are big believers in you. We're not going to be invested anymore. There'll still be hard feelings. Everybody's got some emotional attachment to their work. It's a better communication mechanism than any other one that we've come across.

C (50:22)

If I told you today, hey, Bruce, it's time to sell the entire portfolio again. Take out liquidity restraints and things like that. But you could rebuild it tomorrow. How different do you think it would be from today's portfolio?

A (50:35)

One of the big changes would be in our private portfolio. Because we have such a limited private allocation, we try to focus on where the most asymmetric return opportunities are. I do think our venture portfolio has many great managers in it. I don't think we've leaned hard enough into the asymmetry. We should have more managers who are at that smaller level of the fund sizes, 200 million and below where their outcomes could be a 50x or an 80x. There's good reasons to invest with established managers. You end up paying a lot in fees for returns that might be available in public markets. Might be a better fit for our portfolio to just have a little bit more of that emerging manager risk or smaller fund risk because the payoff, when it works can be so much greater. That's probably the biggest change we would make.

C (51:26)

How about a different scenario analysis? I told you, you were doubling the size of the pool overnight. What would you do differently?

A (51:33)

What we would do differently is lean a lot heavier into co investments, direct investments. We have a fairly sizable allocation, high single digits. That's where the alpha would be when you get to that size is being able to do more concentrated single name positions. If we had more staff, I'd have a lot more faith in our ability to underwrite more of those. There aren't a lot of interviews with Seth Alexander out there. I found an obscure podcast that he was on. He mentioned that his team did a study similar to Elroy Dempson's of what an endowment looked like 50 years ago and then did a thought exercise of what endowment might look like 50 years from now. That got me thinking. 50 years ago I think there were a lot more single stock holdings. It was just like an equity portfolio with a bunch of bonds, not all this illiquid stuff. Maybe we're back to the future. If you're at a larger size and you can find co investment opportunities where you can have a lot more in a single name, that would be one way to compensate for the fact that your overall portfolio has to be larger. Maybe in larger managers that are less punchy or more diversified.

C (52:49)

Some of those thoughts leaning more towards Publix, more towards co Invest are at least contrarian in the sense that more channels are leaning towards privates. People are concerned that co invest might get crowded out by the high net worth channel in the private markets. How are you viewing the various bottlenecks of liquidity and the new flows that may be coming in from different pools of capital?

A (53:17)

It's been a confirmation of some of the biases we've held. We've not done a lot in the buyout space. A lot of that was driven by. We try to not make things too complicated and think about from a valuation perspective, are the assets priced where we'll get a reasonable return for the amount of risk that we're taking? What we've seen in the bio space since we've been invested is that that's just not been true. The valuations have been extended and some of that was related to low interest rates. But even as interest rates have repriced, we haven't seen enough of a valuation retrenchment to get really excited when we see retail money come in. I almost worry that it's be careful what you wish for private equity managers. You get a bunch of retail investors in there who don't have a great experience. It's not a great thing for the industry. That industry is very mature and super competitive. When there's that much money chasing an idea, all the talent tends to chase it too. I don't have statistics to back this up. Anecdotally, there's been a talent vacuum into private equity. Given the predominance of indexing in public markets and that talent vacuum into another space, there might be a lot more alpha in public markets. Even if there's not, we love the option value of liquidity. Having the ability to step into those dislocations can make up for the alpha that we might be sacrificing in private markets.

C (54:42)

What are the biggest risks you're worried about going forward?

A (54:44)

I continue to worry about geopolitical risks. The current conflict in Iran is troubling from the perspective of our India and Vietnam exposure, so we're focused on that. I worry about the geopolitical reshuffling that's happening. The current conflict that's happening. Does that make it easier for China to invade Taiwan? That particular risk is one of a hugely cascading impact that would be felt across the portfolio. Because so much of the public and private markets are linked to the AI buildout, there's no part of the portfolio that wouldn't be severely impacted by that. When I like to worry, I like to worry about the big things, and that one is definitely worth worrying about. There is positioning changes we can make in our portfolio broadly in terms of equity risk, there's not a lot that you can do to protect yourself. Even getting in front of it and trying to think about your game plan in such a scenario is very helpful. We pride ourselves on being countercyclical, and a prepared mind heading into one of those environments is going to allow us to not feel as much regret and lean into the opportunity set that's in front of us.

C (55:52)

Bruce, I want to make sure I get a chance to ask you a couple fun closing questions before we wrap up.

B (55:56)

Before we get to the closing questions, I want to tell you about one of our strategic investments. We've made a few and each are working on a product or service we think will be valuable to our community. One is Ascension Data. Ascension provides workflow software for compensation that allows you to track, plan and take

C (56:16)

care of your team.

B (56:17)

We're excited for you to check out how they can help solve the sticky pain point of compensation There's a link in the show notes so you can learn more. And here are those closing questions.

C (56:27)

What's your favorite hobby or activity outside of work and family?

A (56:31)

I still swim. There's a sensory deprivation component to it all day. There's a lot of talking both to and from. It's great to have the silence that comes with it. There's a component to swimming that is meditative because it's polyrhythmic. This ties back to music. You've got your stroke rhythm that's happening. You've got your breathing rhythm that's happening. You've got your kicking rhythm, and they all have to fit together. That is when it works. A very gratifying experience. I went to Wesleyan. I was recruited to swim there. When I got there, I. I did a season of water polo, and then I was like, I don't want to swim. Wesleyan had this great program where you could take private music lessons for credit. Music is my other hobby. I always loved listening to it. For three years, I took jazz guitar, and I got really annoyed. In my fourth year, I went to see my teacher, and he couldn't remember my name. I was like, that's it. I'm not doing your lessons anymore. So I'd gotten into bluegrass music, and it just so happened that the guy who wrote the book on how to play the dobro, which is acoustic steel guitar, was at Wesleyan. I ended up taking dobro lessons, and the dobro has been my passion as far as music goes. I actually went back to swimming my senior year, too, and had an amazing experience. One of the challenging things about living as a human is the allegory of Plato's Cave. We mistake our perceptions for reality, the way our brains work. It's really hard to see the essence of things when I play music, especially with other people. There are times when it feels like music approximates more closely than anything else. Getting to the essence of something, it's really a liberating and sustaining experience for me.

C (58:11)

Which two people have had the biggest impact on your professional life?

A (58:15)

My daughters have had a big impact because they taught me patience. I have four daughters. That's big. There have been two individuals. One is Jeff Knight at Putnam. Jeff was an incredible mentor to me. One of the things you have to have to be a successful CIO is to realize that it's not just investing. There's multiple parts of the business. You have to have relationship, expertise and experience with the board. You have to have an ability to sell to managers. The mission of the university. How great Investors you are. There's a lot more that goes into being an investor. Jeff gave me the opportunity to not just be on the portfolio management team at Putnam, but to also take part in pitching for business. He was having me in front of big Middle Eastern clients when I was 30 years old. I couldn't understand why he was doing that, but I was grateful for it. The other thing he did was before he put me on the portfolio management team, he said, bruce, if you're going to take risk, you got to know how to do it. You got to open a futures account and start trading. I have great lessons learned from that. I traded two assets. I traded Euro dollar futures and S and P minis. I was good at one, bad at the other. That is a great lesson when you're looking at managers. It gives me a lens to understand whether or not they're in their sweet spot. Their skill set matches to what they're doing. That's really important. The other person who had a huge impact was Nancy Everett, who hired me here. I had been out of the endowment world for a few years and she took a big chance on me, even from day one. I showed up the night before my interview. I had driven my daughter down to a beach vacation with a family friend. I tried to pack everything for my outfit for the interview with Nancy the next day, and I did, except for shoes. So I walk into my interview in flip flops. Nancy, that's just who she is. Everything for Nancy is substance over form. It was such a perfect fit for me culturally, to be with her. She spent so much time grooming me to be a cio. She told me to build relationships with each of the board members. Her superpower is that she hires smart people and lets them run with it, which takes an incredible amount of trust and faith. Finally, she led by example in that she was fantastic about receiving feedback. It's hard to give your boss feedback and give them direct feedback. She made it so easy. It set an example for me as a leader. I want to do the same thing for my people because getting honest feedback is one of the hardest things to get. The more senior you are was a huge impact on me.

C (60:56)

What's a mystery you wonder about?

A (60:59)

I'm very curious about intuition. I've had experiences personally with it that have been really profound. Somebody was telling me recently, there's clairvoyance, but there's also something called clear cognizance where your body becomes aware of something before your mind does. I've had a few of these experiences where I even got physically ill because I had to make a choice. I didn't understand for even months afterwards what I was doing. It's a mystery to me. There's something obviously outside of your brain that serves some kind of reasoning function that I'm not exactly sure how it works. I'm trying to lean into it, but it's kind of like Peter Parker after he got bit by the spider, where just everything's going all over the place. When I try to use my intuition, that's what it looks like. I think it's real. I think it's there. And learning how to use it can be a really important and valuable skillset for an investor.

C (61:52)

Bruce, last one what life lesson have you learned that you wish you knew a lot earlier in life?

A (61:57)

My oldest daughter, she was 14 or 15 and doing what teenage daughters do, and I got annoyed with her. She looked at me and she said, dad, it's not about you. That has been, wow. One of the best lessons in life as a boss to know that people have stuff going on and how they're acting to you might not have anything to do with you. The real professional one that has been most profound was I did not start building a professional network intentionally until I was 40 years old. It's been such a benefit to me since then. My network now is one of my strengths. If I'd had another 20 years to build it and compound it, how valuable it would be. I used to think of networking as transactional, and I've since learned it's not that at all. It's a real profound life lesson.

C (62:44)

Bruce, thanks so much for sharing this incredible journey you've been on.

A (62:48)

Thank you Ted, for having me. It's been a pleasure.

B (62:51)

Thanks for listening to the show. If you like what you heard, hop on our website website@capitalallocators.com where you can access past shows, join our mailing list and sign up for premium content. Have a good one and see you next time.

D (63:06)

All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.