CIO Greatest Hits: Public Pensions – Ash Williams (Florida SBA)

Summary

Capital Allocators – Inside the Institutional Investment Industry Episode: CIO Greatest Hits: Public Pensions – Ash Williams (Florida SBA) Release Date: August 11, 2025

In this insightful episode of Capital Allocators, host Ted Seides engages in an extensive conversation with Ash Williams, the former Chief Investment Officer (CIO) of the Florida State Board of Administration (SBA). Ash shares his extensive experience in managing one of the largest state pension funds in the United States, detailing his career trajectory, strategic initiatives, and the challenges he faced both in the public and private sectors. This summary encapsulates the key points, discussions, insights, and conclusions from their engaging dialogue.

---

1. Ash Williams' Background and Career Path

Ash Williams begins by recounting his deep roots in Florida, tracing his family history back to the early 20th century. Born in the mid-1950s in Jacksonville, Florida, Ash's interest in business and investments was evident from a young age. Graduating high school in 1972, he initially aspired to pursue a career on Wall Street, planning to attend graduate school at New York University for investment banking. However, an unexpected opportunity diverted his path.

At [05:43], Ash explains:

"I ended up doing a consulting engagement for a committee of the Florida House of Representatives back in the mid-70s as a senior in undergraduate school."

This involvement led him to work closely with prominent political figures, ultimately steering him towards public service and investment management within the Florida SBA.

2. Leadership at Florida State Board of Administration (SBA)

Ash's tenure at the Florida SBA was marked by significant reforms and strategic shifts aimed at modernizing the fund's operations. When he assumed the role of executive director in December 1991, the SBA's portfolio primarily consisted of U.S. equities, a nascent private equity program, fixed income, and a unique real estate strategy.

At [16:29], Ash discusses the SBA's investment structure:

"We manage about 60% of that book, or a little over half in what we call our principal portfolio, which means we own the properties directly and we manage them ourselves."

This hands-on approach to real estate investment allowed the SBA to maintain control over its assets, ensuring stability and long-term value.

a. Compensation Reform

One of the most notable challenges Ash faced was overhauling the compensation structure within the SBA. Initially earning $140,000 annually, Ash identified a misalignment between the fund's fiduciary responsibilities and its compensation policies. Facing political pressure to divest from tobacco holdings—a sector that was both lucrative and controversial—Ash advocated for separating fiduciary duties from political policies.

At [24:09], he reflects:

"There was a misalignment between the decision authority stakeholders... and the beneficiaries and the staff of the state board."

His efforts culminated in a comprehensive six-year initiative to redesign the compensation framework, aligning it with market standards while ensuring it remained fair and motivational for the staff. This transformation was pivotal in sustaining the fund's performance and morale.

3. Transition to the Private Sector

In the mid-90s, after successfully doubling the fund's size and achieving robust investment results, Ash was approached by Schroders, a renowned British asset management firm. This marked his first foray into the private sector.

At [25:05], Ash recounts:

"It was a completely different environment... at Fir Tree. It was a scrappy, creative place. We built an unbelievable business."

His experience at Schroders underscored the importance of organizational culture and adaptability, especially in a global context. However, the rigid structure and legacy systems presented challenges, highlighting the stark contrast between large, established firms and more agile, boutique operations.

4. Return to Florida SBA During the 2008 Financial Crisis

The global financial meltdown of 2008 was a critical juncture for the Florida SBA. Ash returned to lead the fund amidst unprecedented challenges, including a significant liquidity crunch caused by illiquid asset holdings.

At [36:19], he describes the situation:

"The cash pool of the SBA, which is about a $34 billion pool, received redemptions for something on the order of 80% of its assets."

Despite the panic, Ash's strategic foresight and long-term investment philosophy allowed the SBA to navigate the crisis effectively. By leveraging their substantial asset base and adopting opportunistic investment strategies, the fund not only weathered the storm but also capitalized on favorable market conditions as they emerged from the downturn.

5. Investment Philosophy and Asset Allocation

Ash emphasizes a disciplined, long-term approach to asset allocation, advocating for a balance between active and passive strategies tailored to the fund's objectives and risk tolerance.

At [43:58], he outlines their strategy:

"Setting an allocation that's a rational allocation to begin with, given your liabilities and your liquidity needs and your governance environment, and then sticking to it over time will work."

Key components of their investment strategy include:

• Equity Beta: Maintaining a substantial allocation to equities to harness long-term growth.
• Private Equity and Venture Capital: Complementing traditional investments with alternative assets that offer higher returns and diversification.
• Opportunistic Strategies: Allocating a portion of the portfolio to transient opportunities, such as high-yield debt, based on market conditions.

a. Passive vs. Active Investing

Ash highlights the importance of a balanced approach between passive and active investing, leveraging scale and internal management efficiencies to outperform benchmarks.

At [48:32], he states:

"We have been the lowest cost provider for three or four the last five or six years per cem. Our costs on average are about half those of our peers."

This cost-effective management, combined with strategic asset allocation, positions the SBA to achieve superior risk-adjusted returns consistently.

6. Governance and Proxy Voting

Robust governance structures are integral to the SBA's operational integrity. Ash details their meticulous proxy voting process, highlighting their commitment to fiduciary responsibilities and ethical investment practices.

At [62:50], he explains:

"We have developed a lot of credibility. ... we can tell anybody on a given day out to two decimal points what our performance is and what our benchmark is and what the difference is between the two."

Their proxy voting strategy involves:

• Automated Processes: Utilizing third-party service providers to manage the high volume of proxy votes efficiently.
• Ethical Considerations: Integrating ESG (Environmental, Social, and Governance) factors into investment decisions, such as their proactive engagement with Airbnb regarding its policies in disputed territories.

7. Private Equity and Hedge Funds Management

Ash discusses the SBA's selective approach to private equity and hedge funds, emphasizing due diligence, strategic partnerships, and value-driven investment choices.

At [65:55], he articulates:

"We've done an awful lot in the private equity space over the past five or 10 years to refine the portfolio."

Their approach includes:

• Concentration on Top Performers: Focusing investments on select, high-performing funds rather than spreading across numerous managers.
• International Diversification: Partnering with funds that have a strong regional focus, particularly in Europe and Asia, to mitigate risks associated with global market volatility.

8. Team Building and Organizational Culture

A cohesive and motivated team is crucial to the SBA's success. Ash recounts his efforts to foster a flat, inclusive culture that values expertise and collaboration.

At [40:47], he reflects:

"We offer a work culture that's a very flat culture. They'll have direct access, no matter how junior they are, to everybody on the team, up to and including me."

Key elements of their organizational culture include:

• Competitive Compensation: Aligning pay structures with market standards to attract and retain top talent.
• Continuous Learning: Encouraging a learning-oriented environment where team members can grow and innovate.
• Recognition and Respect: Valuing each team member's contributions, fostering a sense of ownership and responsibility.

9. Personal Insights and Closing Thoughts

In the final segment of the interview, Ash shares personal reflections and life lessons that have shaped his professional journey.

a. Hobbies and Interests

Ash enjoys a variety of activities outside of work, including cooking, wine collecting, hunting, fishing, and riding his motorcycle. These pursuits provide a balance to his demanding career and reflect his appreciation for both fine arts and the outdoors.

b. Pet Peeves

Ash expresses frustration with:

• Social Media's Impact: Concerned about the increasing number of people who are under-informed and susceptible to manipulation due to their reliance on social media for news and information.
• Ineffective Investment Inquiries: Annoyed by unsolicited and poorly researched investment pitches that ignore the SBA's established investment criteria and preferences.

c. Life Lessons

One of Ash's profound realizations is the importance of humility and continuous learning:

"The more you know about the world, and I consider myself a lifelong learner... the more you realize you don't know."

This lesson underscores his commitment to staying informed and adaptable in an ever-evolving financial landscape.

Conclusion

Ash Williams' tenure at the Florida SBA exemplifies effective leadership in institutional investment management. His strategic vision, commitment to ethical governance, and ability to navigate both public and private sector challenges have significantly enhanced the fund's performance and reputation. This episode of Capital Allocators offers valuable insights into managing large-scale pension funds, emphasizing the importance of disciplined investment strategies, robust governance, and a motivated, cohesive team.

---

Notable Quotes:

• Ash Williams [16:29]: "We changed the law to allow up to 25% of the portfolio to go into US equities."
• Ash Williams [24:09]: "There was a misalignment between the decision authority stakeholders and the beneficiaries and the staff of the state board."
• Ash Williams [48:32]: "Our costs on average are about half those of our peers."
• Ash Williams [62:50]: "We have developed a lot of credibility... we can tell anybody on a given day out to two decimal points what our performance is and what our benchmark is and what the difference is between the two."
• Ash Williams [75:39]: "Social media is creating a generation of people who are grossly under informed and very subject to manipulation."

---

For those interested in delving deeper into Ash Williams' strategies and the operational intricacies of managing a large public pension fund, this episode provides a comprehensive overview. Visit capitalallocators.com to access more episodes, join the community, and explore premium content.

Transcript

[Ted Seides]

Capital Allocators is brought to you by my friends at WCM Investment Management. To outperform the markets, you have to do something differently from others. In my 30 something years investing in managers, there may be no one I've come across who does that as clearly and as well as wcm. I've seen it up close. As an investor in their international growth strategy for the last five years, WCM is a global equity investment manager majority owned by its employees. They believe that being based on the west coast, away from the influence of Wall street groupthink provides them with the freedom to live out their investment team's core values, think different and get better as advocates of integrating culture research into the investment process and advancing wide moat investing. With the concept of moat trajectory, WCM has delivered differentiated returns while building concentrated portfolios designed to stand out from the crowd. WCM is committed to defying the status qu by dismantling outdated practices, believing in the extraordinary capabilities of its people, and fostering optimism to inspire each individual to become the best version of themselves. To learn more about WCM, visit their [e-mail] and tune into this slot on the show to hear more about WCM all year long.

[Unknown]

This testimonial is being provided by Ted Seides and Capital Allocators who have been compensated a flat fee by wcm. This payment was made in connection with Capital Allocators testimonial and production of podcasts and is not depend on the success or level of business generated. The opinions expressed are solely those of Capital Allocators and may not reflect the opinions of others. Investing involves risk, including the possible loss of principle. Past performance is not indicative of future results. Please visit wcminvest.com for WCM's ADB and further information.

[Ted Seides]

Capital Allocators is also brought to you by AlphaSense. AlphaSense has become indispensable in modern investment research. It's the market intelligence platform trusted by the world's top institutional investors and for good reason. AlphaSense combines premium content with powerful AI to deliver clarity fast. From company filings to over 200,000 expert interview transcripts, it helps investment teams zero in on what matters most when deeper insights are needed. AlphaSense's expert call services provide direct access to high quality vetted experts on demand. Unlike Traditional Expert Networks, AlphaSense Custom sources experts to fill specific research needs. Whether validating a thesis, pressure testing an idea or gathering real time field intelligence, all without the friction or price markup of legacy models, what truly sets AlphaSense apart is its ability to surface proprietary insights combining expert access with AI purpose built to extract qualitative intelligence at scale. The result is differentiated perspectives and decision making confidence delivered faster than ever. See it in action at alpha alpha sense.com capital that's alpha-sense.com capital hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access Premium [e-mail] All opinions expressed by Ted and podcast guests are solely their.

[Unknown]

Own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only.

[Ted Seides]

And should not be relied upon as a basis for investment decisions.

[Unknown]

Clients of Capital Allocators or podcast guests.

[Ted Seides]

May maintain positions in securities discussed on this podcast. This week's summer series is with Ash Williams, the former CIO of the Florida State Board of Administration, where he oversaw one of the largest state pension funds in the U.S. ash was an innovator in the space, modernizing the compensation scheme, asset allocation and governance in a public pension fund. A notoriously tricky political seat.

[Unknown]

Before we get to the interview, a quick announcement. We've set new dates for our Capital Allocators University for Investor Relations and Business Development Professionals. Those dates are December 3rd and 4th in New York City. Later in the year is just a better time of year for this gathering. It's post AGM season. Travel starts to wind down. It's right before the holiday crunch time and it's a great time for capital raisers to reflect on their previous year and plan for the year ahead. December 3rd and 4th in New York City. CAU for IRBD is a closed door gathering for capital raisers to connect with peers, learn from Allocators and other experts and really share in best practices with each other. You can learn [e-mail] University thanks so much for spreading the word about Capital Allocators University for Investor Relations and Business Development professionals.

[Ted Seides]

Please enjoy my conversation with ash Williams from 2019.

[Ash Williams]

Ash, thanks so much for swinging by.

[Unknown]

Thank you for having me.

[Ash Williams]

There aren't that many people who come through that are truly Florida royalty. So why don't you start with your history in Florida and the start of your investment career and we'll go from there.

[Unknown]

I grew up in Jacksonville, Florida. I was born in the mid-50s. My family had been in Florida for quite a while. We actually came to Jacksonville from a place called Fernandina, Florida in 1916. My family had been in Fernandina since before Florida was a state actually. And a relative of mine by the name of Marcellus Williams was a surveyor who worked for George Washington's surveying firm and did the original survey of the territory of Florida when it was being considered for statehood. Florida became a State in 1845. So Marcellus, small group of other people and a handful of mules somehow surveyed the entire peninsula of Florida without being eaten by anything else, either two legged or four, and filed a survey that was acceptable to Uncle Sam and Florida became a state and that was that.

[Ash Williams]

So as you went through, how did you get started in investing?

[Unknown]

It was like so many things in life, it was indirect, but it wasn't without intention and it wasn't without thought. So ever since I was a little kid, I was always interested in businesses and why people did things. And so you walk into something like a grocery store where there are hundreds of thousands of consumer choices, people follow consistent patterns with what they put in that basket. There's brand loyalty, there's product loyalty, there's all kinds of stratification about how people make consumption decisions. And that's true at every level of economic activity. That's always fascinated me when I was in high school. I graduated from high school in 1972. So if you think about all of the giant conglomerates that were formed in those days, I was absolutely fascinated by the notion that people would do these add on entities like AT&T or any number of the other big ones of the day that had all kinds of businesses that were seemingly unrelated but were represented to be highly synergistic and collectively additive each to the other. Well, we know history proved that wasn't quite the case, but nonetheless it interested me and caused me to want to at some point have a career on Wall Street. And the original direction I was thinking in terms of going was studying business at the undergraduate level and then coming to graduate school in New York and probably going into investment banking as a normal entry level path. And I was in fact planning to go to grad school at New York University. And when I was a senior in undergrad, that plan was somewhat, at least temporarily derailed by a professor approaching me and saying that he had been approached by one of the committees of the Florida legislature to do a consulting project that was in his area of expertise. And he told them, look, I'm too busy. My star pupil could do this under my supervision. Long story short, I ended up doing a consulting engagement for a committee of the Florida House of Representatives back in the mid-70s as a senior in undergraduate school. And that in turn led to being invited by the chairman of that committee, who was one of the rare individuals who was actually a very successful private business person, was not a career elected official. And he had made a decision he was going to give back a certain number of years in public service and that he intended to complete his service by being speaker of the House of Representatives, which is a bold thing to say. Priori I'm going to be in the House for six years knowing that I'm going to be speaker for the last two, because there's this planned succession in these political institutions that extends out years in advance and that was in place at the time. Well, this fellow didn't let that stop him for a second. He made plans to disrupt the succession mechanism and succeeded. And he then approached me and said, what are you going to do? I need staff in the Speaker's office while I'm Speaker. I need some people who are completely independent and you are apolitical, merit driven and you business background. It's very unusual. Most of these people are political science types of one kind or another, hangers on of one flavor or another. So I said, well, thank you very much. This gentleman's name was Hyatt Brown. He's still around, he's a wonderful guy and a mentor. And I said thank you, but I'm planning to go to New York and pursue my career in the investment world. And he said, listen, you're a native Floridian, you're coming back here at some point, aren't you? And I said sure I am. And he said, so here's my proposition. Stay here, go to graduate school at Florida State. The marginal difference in an MBA from NYU and one at Florida State will be more than offset by the walking around sense. You will pick up working two years at the very top of state government at this stage in your life. And if you're ever going to come back to Florida, the relationships you will build at this point will be with people that most would never have an opportunity to come into contact with until they were in their 40s, at least. So it's a major head start. By the way, the other thing is, if you go to grad school here, the legislature will pay for it. You have no debt. I was thinking those are all good points. And then there's the matter of my girlfriend, now my wife of 37 years, all of which Said, matthew can wait. I'll get up there later. I stayed put. And one of the first things I was asked to do was look at the legal investment authority for the state pension fund, which had been newly created in 1974 and was created by bundling together a large number of state and local government pension plans that shared the characteristics of being either chronically or acutely underfunded or both. So the funded ratio for this overall statewide plan that had just been created was something like 45%. And in most places you'd say, just dig a hole and bury it. Don't even think about this. Not Florida. So I was asked to take a look at that. This was a period of very high inflation, if you think back. And the allowable investments were U.S. treasury bonds and investment grade corporate bonds. Well, very hard to close an underfunding situation in a high inflation environment with fixed income instruments. So I looked at that question and we changed the law to allow up to 25% of the portfolio to go into US equities. And as part of that process, I got to know the various people who were involved with the pension plan and the way Florida's constitution works and Florida's laws work. The state Board of Administration has responsibility for investing pension assets. And so I became acquainted with the state board way back in about, oh, gosh, this must have been 1976, something like that. And then after working in the House for a couple of years, Hyatt finished his speakership. The next speaker came to me and said, by the way, I'm forming a staff and I've been elected speaker. But the difference between you and me is, you know what the speaker does. So I think it'd be a good idea if you'd come to work for me. So I did. And about a year into that, we had a new governor named Bob Graham, who later became a U.S. senator, was chairman of the Senate Intelligence Committee. And Governor Graham was having a terrible time with the legislature. One of his staff people called me up and said, would you consider coming to work for the governor? We conducted a little poll of House members and Senate members, and we asked each of them if we were going to hire a staff person to cover you, who you pick. And apparently the House members liked me. I think I was 23 years old or something. And he persuaded me to join his staff, which I did. And that was a wonderful learning experience for me. And then just rolling the clock forward, one of the things I covered for him was the pension fund. The governor is one of the three trustees of the state board. So I continued deepening my knowledge of the state board and its activities. And then after a number of years in the governor's office, he decided to run for the U.S. senate. And at the time, my oldest daughter was a little girl, and it didn't make any sense for me to relocate to Washington. And one of the other trustees of the sba, the state controller, asked me if I would come be his chief of staff. Well, he also happened to be the banking and securities regulator in the state. And this was right before what is now known as the savings and loan crisis, which, which nobody knew was coming. So I wound up being chief of staff to the state financial regulator during the SNL crisis and saw all kinds of businesses fail, saw all kinds of chicanery where boards had shirked their responsibility, they covered up self dealing. There were fraudulent real estate deals. Florida, Texas, Arizona and California, known as the sand States, were the epicenter of the SNL crisis. It was an incredible crucible of learning because you saw the consequences of poor underwriting, ignoring the risks, insider dealing, lack of transparency, and just plain out and out greed. So that was a great learning experience. And all the while, I'm still working for one of the trustees of the SBA. I'm involved in working with the SBA day to day. And finally, in about 1991, I believe it was the fellow who was then the executive director of the board, Cliff Hinkle, came to me and he said, you know, I've decided I'm going private again, and it's really important that the board be led competently. And we don't want to have this thing fall into a political environment that will not be helpful. You need to come run it. You've been engineering it behind the scenes for years. You know, as much as anybody, more than most, you need to come do this job. And I thought, you know, that's I could actually do that. And it was up to three elected officials to decide. So the treasurer and the comptroller were immediately there, and their offices were next door to each other. So that took all of about 10 minutes to cover those votes. So I went to see Governor Childs with two votes, and he gave me great advice. He said, you know, I'm going to give you the same advice I give my airplane pilots, which is there are going to be plenty of times when I'm going to push you to do something because I want to go somewhere and I'm in a hurry to get there. He said, the first time you listen to me and Override your own judgment and get us both in trouble, I'll fire your ass. That's exactly what he said. I thought that's great advice and that's how the world works. Because it's your job as a fiduciary to know when to say when and just say no if you have to. And there are plenty of times in life where that's the best thing you can do.

[Ash Williams]

What did the plan look like when you were first head of the board?

[Unknown]

Well, now I became executive director for the first time in December of 1991. And back then we had US equities, we had a brand new infant sized private equity program. It wasn't even really a private equity program yet because we hadn't clarified the law about partnerships and whatnot. We had fixed income and we had a real estate program. And the most advanced thing we had, I would say, was our real estate program to this day is a unique model in that we manage about 60% of that book, or a little over half in what we call our principal portfolio, which means we own the properties directly and we manage them ourselves. And we often have them with not a great deal of leverage on them. So we have a terrific valuation cushion. And you know, if you think about Warren Buffett's stories about the best possible businesses, what's example number one? Owning the only toll bridge across a body of water that everybody needs to cross because the places on either side are important and you get to set the price. So if you own a fabulous piece of real estate, why wouldn't you want to keep it forever? But if you're on a traditional partnership structure, partnerships have lives, which means there's a capital raising cycle, there's an investment period, there's a holding period, and there's a contemplated liquidation date that might have a year or two of extensions, but it's not infinite. And all the while you're paying carried interest and management fees.

[Ash Williams]

So this was in place back then?

[Unknown]

Yes, I think it was pretty close to unique in the country then, and it still is.

[Ash Williams]

What percentage of the portfolio today is in direct real estate?

[Unknown]

Well, the direct book is a little better than half of our real estate allocation. I think that's currently around 8%.

[Ash Williams]

And are some of those assets the same ones they were when you were first in the.

[Unknown]

Yeah. One of my favorite examples is if you think about uniqueness of location, location, location, what do you want? You want to be in a wealthy area, so you have pricing power. You want an asset that's absolutely needed and is not Subject to becoming an eight track tape as an asset. You also want to have natural barriers to entry for competition. So the example I give is a place that we bought back in that period called Corte Madeira Town Center. If you left San Francisco on your way to a weekend in the Napa Valley and you went on the 101 over the Golden Gate Bridge, on your left is a very nice residential area called Corte Madero. And the little mixed office building in the town center is called Corte Madeira Town Center. We own all of it and have ever since way back then.

[Ash Williams]

So this isn't just Florida real estate.

[Unknown]

No, our real estate portfolio is national and is now global. But our direct book is us.

[Ash Williams]

Why did you decide to leave SBA the first time?

[Unknown]

Well, there was a great reason, and it is emblematic of the problem that plagues public pension funds everywhere, which is there was a misalignment between the decision authority stakeholders, in this case trustees and legislature, and the beneficiaries and the staff of the state board, as reflected by the fact that I think I was there six years on the first tour of duty. In six years, we doubled the size of the fund. We had terrific investment results. We had a completely clean control environment, no issues there, and did a lot of pretty creative things and we moved the fund some new directions. One of the things I did was globalize the fund and go into emerging markets for the first time, which we did during the Mexican peso crisis. That was entertaining a lot of interesting things like that. During that six year period, I think I had one change in my comp and at the end of six years and doubling what was then one of the biggest pension funds in the country and still is, I think I was making $140,000 and the direction that our governor was going, and he was well intended from a health policy standpoint. But Florida was the place where the tobacco litigation originated. The idea that tobacco companies knew they were selling a lethal product. And to the extent they sold it, and as a result, serious if not fatal diseases affected thousands of people, many of whom were on Medicare, Medicaid and those on Medicaid. The states ended up paying the bill for a lot of that health care. So the idea was there's a course of action for states who provide Medicaid expenditure, that the tobacco companies should make the states whole for that Medicaid cost. That was the genesis of the tobacco litigation that became a national, if not international phenomenon and resulted in settlements way into the billions of dollars for the tobacco companies. And so our Governor was very focused on that. And we were in the odd spot that we had a tobacco portfolio of $740 million or so, as I remember. And our top performing outside managers were heavy in tobacco. And I raised the question and said, listen, we really need to separate the fiduciary duty and the political policy as it relates to health and dangerous products like cigarettes. Because I can't really hold a manager for beating the S&P 500 and then tell him he can't own one of the fastest growing, most lucrative sectors of the S&P 500 with no legal authority to do that. I just pulled it out of the air. Cuz you thought it was a good idea, Mr. Chairman. And the other problem I had was two of the three trustees agreed with my point of view and didn't think we should get into tobacco divestiture. The governor was emphatic on that and that's all he wanted to talk about. And there got to be a point of stress over that subject. And. And we had had an accord for the first couple of years that this battle was brewing that if it came up, each of us would say, we're going to separate the fiduciary duty from the health policy. But the fight got so ugly between the governor and the tobacco people, he wanted to stop it and wanted to use the equivalent of the nuclear weapon, which in his mind was divestiture. So he became equally emphatic to me. I want those blanking stocks sold. And I view, well, sorry, the other two trustees don't think so. And about that time, I got a call from Schroder's, based here in New York, the British asset management firm, the oldest asset management firm in the world, asking if I would consider coming to work for them. They were making their first U.S. acquisition, and the proposition was come to New York, work for us. You know the firm we've worked for. You, your family's half English. It's a good fit. You're an angle father. Come on, you'll love this. And I thought, wow, what a contrast. On the one hand, I have the chief executive of Schroeder's calling me ever so politely and deferentially from London, offering me a path to a different life versus here at home, where I've worked and done the best I can for years and years and years. I'm getting no recognition for what I've done. I'm getting beaten on for something I won't do that I don't think is in the fund's best interest. So I left and the wrap up on that is that there was. After a number of years the legislature decided they did do divestiture. They then came back years later and reversed the decision. One of the consulting firms did an analysis of the impact of tobacco divestiture on public funds. I think Florida's piece of that cost about 500 million bucks. I think in California it was a couple of billion.

[Ash Williams]

So what was that experience like for the first time shifting to the private sector?

[Unknown]

Pretty intense. Pretty darn intense. I was living in Connecticut, commuting into Manhattan. Our offices in Those days were 787 7th Avenue, which from Grand Central where we sit now, that's a hike. Even double timing it. About the best I could do was around 17 minutes. So if you got a 17 minute walk from the train you're catching, your normal morning train would be 6:50 in the morning, 6:51 and best case you're going to catch a 5:40 train home. More likely you're going to catch something later in which your base day was about a 12 or 13 hour day, base day and three hours of that is tied up with a combination of walking and riding on the train, which means you're extremely well read. But wow, it takes a lot out of your life. Yeah.

[Ash Williams]

So what was your experience at Schroeders like?

[Unknown]

It was good. It's a global company and one of the lessons there was that cultures matter and cultures are different in the UK and Europe work wise than they are in the us particularly New York. Just different work norms, different expectations. And you have particularly in a company that at the time was, I think it was 220 years old, there were things that they had to deal with that we didn't. Particularly in the tech area. They had a lot of legacy mainframe computer systems. So when the whole Y2K thing was around, that was a hair on fire issue in London and they were asking us to do all kinds of things here, keep people in the office overnight and have supplies for a nuclear war. It was really something. It was over the top. So you'll learn things like that. And you also learn that there are layers in organizations and one of the great lessons in life always is knowing what you don't know. And you might think you know an issue based on the inferences you've drawn from talking to your colleagues here in New York. But if the headquarters is 3,000 miles away and there are a lot of other players there that you're not talking to on a day to day basis, some of whom may be from families that have owned equity stakes in the firm for hundreds of years. There's a pretty good chance what you know is a thimbleful of what there is to know. And your idea that you understand a situation is just wrong.

[Ash Williams]

How did you process that? As you're in the seat, there are things you see, believe, and know from the people you're talking to. And then you find out, oh, that's not what the organization believes or what other people that are important believe. Like, how do you work through that?

[Unknown]

Well, I think it's really. That's where working in a legislative body and in government was great training, because it's the same thing. You've got all kinds of people with agendas that have nothing to do with the signals that are being messaged publicly or the framing that's being messaged publicly. And the faster you get used to the idea of, look, life is sort of like one big card game. And unless you're incredibly good at reading tells in human behavior, there's a very good chance that you have no idea what cards are involved here or where your hand stacks up. So play accordingly.

[Ash Williams]

Yeah, makes sense. So then you go from one of the most established asset managers to a boutique.

[Unknown]

Another shock. Well, that was a great thing. One of the people I've always admired is a fellow named Sandy d'. Alembert. Sandy was president of Florida State University at one time. He's a noted lawyer from northwest Florida, was dean of the Florida State Law School, president of the American Bar association, et cetera. And Sandy used a phrase once before he became president of Florida State University. People need to be intellectually repotted from time to time. And serving in a university presidency, for someone like me, this was him talking, who's sort of naturally curious and a scholar by nature. This, to me, is a real intellectual refreshment. And he did that later in life. And in retrospect, that's what Fertree was for me, because I'd always been in big organizations. I'd worked for state government in Florida. I'd worked for the sba. I had legions of people and analysts and levels of folks at least that I could access, and Schroeder's big global company resources all over, everywhere. And when. When we completed the cleanup of their acquisition here in the US which was the old Wertheim Investment Partnership, and got that on a completely clean control footing and rebuilt the professional staff, et cetera, it was integrated into Schroeder's Global Investment Management out of London. So the good news was I had fulfilled my mission. The bad news was there was no longer a need for a CEO of Asset Management in the us so the options were really three, a stay in New York at a lesser rank, which if you've been the sheriff who cleaned out the saloon, that could be a dangerous role without a gun. Two, go to London and assume some role in the headquarters down in the city. Three, if you want to continue being a country head for Asset Management, the immediate option was Kuala Lumpur. And so while that decision process was going on, I was sort of thinking, well, obviously there are other options in the world. And a gentleman named Jeff Tannenbaum cold called me. Jeff founded Fir Tree Partners and was a very gifted guy. He had worked for Jerry Kohlberg as Jerry's analyst when Jerry left KKR. And he had started a fund about, about five years prior which had earned net returns of around 25% annualized over that time. Very unique business model combining private equity and public markets and activism in a constructive way. He had gotten just big enough. He had around 400 million in assets, including some very silk stocking founding investors, that he was looking for somebody to be between him and potential clients and existing clients so that he could focus on the portfolio and somebody else could do the other. And he got some advice from a fellow named Steve Berger. Steve years ago ran hedge funds for Cambridge Associates. I think he was the first hedge fund guy there. Steve told Jeff, jeff, you're a young man. Let me give you some advice. Whoever you want to be your ambassador to your investors and potential investors needs to be an older person relative to you. Doesn't mean they're an old person, just means they're older and have enough gray hair and they have some independent reputation on the street. Because most IR people walk into a room with a PM carrying a bunch of books, introduce the PM and then sit there and take notes and then do follow up. That's not what you need. You need somebody that's capable of knowing this book inside and out, presenting it, answering questions, understanding the client's needs, and having the credibility that they're perfectly happy talking to that individual. So you need somebody who's been around. And of course, Jeff was no fool. He was a value guy. And his immediate reaction was, do you know what somebody like that's going to cost? I don't like that idea. So Jeff got my name from somewhere and called me and, and I said, you know, that actually could work. Might be very interesting. It was a real shift. But so here I had the shock of going From a place that literally at tea time every day we had people who served tea and cakes to. At Fir Tree. If you need a legal pad, I think there's an office supply store down the street. Go get one. You want some coffee? Go make it a pencil. Fine, I think I might have one. You can go sharpen it and use it, but give it back, you know, that kind of thing. So it was a completely different environment in that regard, but it was a scrappy, creative place. We built an unbelievable business. We had a great team. Our clients were the best of the best in the family. Offices, university endowments, all kinds of folks.

[Ash Williams]

How long did you stay for a treat?

[Unknown]

Nine years.

[Ash Williams]

And then what happened?

[Unknown]

Well, what happened then was when I left the state board in 96, it was in very good shape. And in the ensuing dozen or so years there were a couple of changes in leadership and there were some changes in attitudes. And what happened that led to my coming back to Florida was in the fourth quarter of 2007, the ranks of the SBA, over the years that I had been gone, the headcount had stayed, was actually down a little bit. The assets under management had grown very substantially. The number of investment mandates they were managing had quadrupled, the budget had remained flat. Something's not right with that. Somebody's not putting on the right number of coats of paint to make the car look good and be durable. And sure enough, a young portfolio manager who had more or less sole responsibility for about a a 30 plus billion dollar cash pool that the state board ran for local governments, bought some securities that were asset backed paper that were legally not suitable.

[Ash Williams]

Let me guess, aaa.

[Unknown]

Of course, supervisory chain had been winnowed down to being non existent. There was no money being spent on training. There was very little participation in industry thought leadership, getting out and building the brand like the conversation we're having today. And so that news hit Bloomberg. These securities were downgraded and became illiquid. There was a lead Bloomberg story on it that with the luck of no one lucky hit the Bloomberg wire during coincidentally the day that the Florida Finance Officers association was meeting, I think in Orlando. So I'm picturing all of these local government types who all have their money and the SBA local government pool standing around at a reception saying, do you believe that? What are you going to do, Ted? Well, I think I'm just going to redeem. Well Ted, if you're redeeming, we're redeeming too. And guess What? In about 48 hours, the cash pool of the SBA, which is, like I said, about a $34 billion pool, received redemptions for something on the order of 80% of its assets. I don't think there's a financial institution in the world that could survive that. And in reality, the proportion of the illiquid assets was tiny. It was less than 3%. It was not life threatening. It was not really even material to the size of that pool, given a normal liquidity environment. But when you get a panic like that, no theater has exits big enough to handle a stampede like that. So it created a huge problem. It was front page of the Journal and the Times at the time. It led to major political issues. I had been working in Manhattan and living in Connecticut for 12 years. My wife and I had a third child while we were in Connecticut. She was at about age 7 or 8 when this was going on. And we thought, you know, the first two girls came out beautifully. We think part of it was because they grew up in a humble place called Tallahassee, Florida, that's very family oriented and you don't have anywhere near the level of, what would you say, sharp elbows and perhaps situational ethics that you have in big cities. So we thought, you know, it might be time to go back and we could do some good things and fix what used to have our fingerprints all over it.

[Ash Williams]

So when you show up in this seat, now it's 2008, you know, you have problems. How do you start?

[Unknown]

It was way better than anybody thought. And I had a huge head start for several reasons. First of all, many of the people who were in positions of responsibility at a senior level were people I had hired at a junior level years before. So I knew these people. It's not like I'd never seen them before. And I didn't have any judgment on who they were or what their competence or trustworthiness was. Quite the opposite. The problem that was the blow up was not a failed pension portfolio. It wasn't even in the pension. It was a cash pool. It was completely independent, had nothing to do with the pension. But the other advantage I had was by the last week in October, the financial markets were way closer to a bottom than they were anything else. So my view was this is an ideal time to come in because the building's burned to the foundation. It's going to be essentially up from here. And I always steal this quote from Brit Harris, but I always give him credit credit for it. The major advantage we had was being long term oriented, liquid and unlevered. So we had the ability to look at opportunities and be a solution provider to others who are in a jam. So there were lots of very prestigious institutions, endowments and what have you who were longer illiquid investments and particularly those subject to capital calls than they realized they were. And they got in a Liquidity pinch in late 08, early 09 and were quietly doing secondary offerings to raise cash. So we picked off a number of those at very advantageous prices and a number of things like that.

[Ted Seides]

We're going to take a quick break in the action to tell you about macabacus if you're in private equity, venture capital, investment banking or asset management, you know how much your team relies on Excel, PowerPoint and Word to deliver financial models, presentations and investment committee memos. Today that work is time consuming and error prone. But what if Please Fix was a thing of the past and your workflows were seamless with models, slides and reports working in sync, free of errors and fully brand compliant? That's where macabacus comes in. Macabacus is the leading productivity and brand compliance suite designed for financial and professional services. With features like Seamless, Excel to PowerPoint, linking model check for error free financial models, shared library for brand consistency and digital asset management and tools like AI Writing assistant, Doc builder and logo library, your teams can get their work done faster and more accurate. Every spreadsheet, every slide and every document is a reflection of your firm's reputation. That's why teams at the world's leading private equity, venture capital and investment banking firms trust macabacus to help them deliver polished, error free deliverables so they can focus on insights rather than edits. Get [e-mail] cap that's Mac abacus.com cap and now back to the show.

[Ash Williams]

Let's walk through the investment program. I know there's pension fund, there's a bunch of other pools, but a lot of the money's in the pension fund. How do you think about how you attack managing such a large pool of assets?

[Unknown]

It's sort of like eating an elephant. You do it a little bit at a time. And I think the way to do it is like any super complex task. You divide it into units that are manageable and divisible and then you assemble them so that each has its own infrastructure and its own intellectual feeds for ideas and oversight and everything else. And if you build a team right, you just go from there and it's simpler than it sounds.

[Ash Williams]

So let's start with the team you touched on when you left. After years of toiling away and making great progress. You, at the top, were getting paid $140,000 a year. How do you start with building a team or keeping the people that you have in place when compensation clearly isn't the driver?

[Unknown]

Well, the first thing you do is you fix the compensation. The problem is in the public sector. That's sort of like saying, well, all you need to do is have peace in the Middle East. People have been trying that for a long time and it's hard, which is why it doesn't exist. But in our situation, we had historically had less turnover than one would imagine, because a lot of people were in their jobs, not the way people are in jobs in New York or Los Angeles, where there are a million alternative employers right around the corner. And if you're unhappy, happy at point A, you cross the street and go to point B and take another job. If you're a portfolio manager in Tallahassee, Florida, there aren't a lot of other options than the sba. So most people were there for some combination of having family there, enjoying the lifestyle, enjoying the reality that you could live in a very peaceful place, travel to New York pretty regularly, have New York come to you, and the rest of the world come to you pretty regularly. The parade of talent we get in and out of our building is absolutely amazing and very refreshing. People were there for non economic reasons. The problem is that's sort of like the line from the old Marilyn Monroe movie about relying on the kindness of strangers. It's just not a reliable way to run a railroad. When I got back, there was a lot of talk about dramatically increasing the compensation of the position for the executive director. And they added the term and CIO to give it a little more specificity. And at the end of the day, what was done was about half of what was said, but the direction was good. And I think the reasons that it came out that way were very appropriate, which is to say the state had just been dealt the worst financial blow in its modern history and was completely broke. And the idea of making some massive pay move for somebody in a job like mine, when all the beneficiaries are in a terrible position, believe me, I got it. I was fine with that and I was interested in the service anyway. And it was still a significant shift from where it had been before, and the commitment was given. Look, we understand this needs to be addressed and we want you to work on it, so go do it. And that was the beginning of a six year effort that I undertook where we figured out how to completely change Our compensation culture and design a comp scheme from the ground up that was legitimate, market driven, created great alignment, included an element of base and incentive compensation that was very specifically tied to achievement, bounded to avoid unnecessary incentivization of risk, et cetera. We spent six years and working through our advisory council, got an actual plan document written, had I want to say between 15 and 20 public meetings on this thing over all that time. It's been in place and operating now for going on five years and it is a life changer.

[Ash Williams]

Let's dive into the investment side and start with your thoughts on asset allocation.

[Unknown]

I guess our view is that what is practical and has been proven to work for us, I can't speak for others over time has been to have a thoughtful allocation process that you revisit annually at a sort of a high level just to validate your asset class return assumptions and make sure it's still reasonable. Then about every three to five years do a much deeper dive on how you're approaching it. But what we found is setting an allocation that's a rational allocation to begin with, given your liabilities and your liquidity needs and your governance environment, and then sticking to it over time will work. What was tried in the 80s and to a degree in the 90s that failed miserably was the idea of making active judgments and jiggling around the tactical asset allocation, as people now call it, just a bad idea.

[Ash Williams]

So where do you end up across the assets you invest in?

[Unknown]

We end up with a pretty heavy equity beta that we will always have. But as long as you are truly a long term investor and one of the powers of defined benefit plans is risk pooling, which means you're always investing as a perpetuity over a very long horizon. Horizon, you're not constrained by the mortality curve of risk that individuals can tolerate. That's important because over the long periods of time, equities by definition are going to be the higher returning asset class relative to fixed income. And then when you have what I would call equity, like risk assets, private equity, venture capital, et cetera, then those, those are complementary as well and will tend to be a little more pro cyclical in a lot of ways. And then we have another sleeve in which we put more opportunistic things that might be transient opportunities that come and go. So we wouldn't have a permanent allocation to those. High yield debt would be an example. There are times when high yield is compelling, there are times when not so much. So let's go there when the spreads are attractive and leave when they're not. And we'll get paid for running our capital for that period of time. So that at the high level is the way we do things. And to the extent we can find ways to win on a relative basis by playing by a different set of rules, we'll take that opportunity every chance we get.

[Ash Williams]

What are those set of rules that are different how you're playing the game?

[Unknown]

So what do we have to offer? Well, first of all, we have scale in our favor. Secondly, we have the ability to manage money ourselves. We've got a lot of investment professionals. Our team is over 200 people, investment professionals 50 plus and a lot of people with deep experience. And we're running active and passive fixed income. And in equity investing we do passive investing and factor investing. We're not saying we can necessarily say what the factors are or what the mix of the factors ought to be in any given month. But we are really, really good at replicating indices dead accurately. And then through a combination of SEC lending and playing the names that the index providers signal in advance are going to be added to or taken out of the index index. Doing those two things will get you enough marginal revenue that you can beat the index pretty consistently. In a passive fund. Well, that kind of tastes great. Less filling, isn't it? So what we've figured out how to do, and I give our global equity team credit for this. It wasn't me was buy from some of the factor investing firms instead of buying their services in a traditional asset management relationship. Do the equivalent of buying the recipe. Don't buy the cake, buy the recipe, go bake the cake yourself. And you can bake as many cakes as you want from that recipe without paying any more money. That's powerful. So we do that. One of the great powers we bring is our low cost operating environment. We have been the lowest cost provider for three or four the last five or six years per cem. Our costs on average are about half those of our peers.

[Ash Williams]

And does that mostly come from that internal management piece?

[Unknown]

That's a big, big part of it. And the other thing is scale. Better team, better terms, better fees, very powerful. I think those are the main things.

[Ash Williams]

So when you go through the global equity piece, you mentioned that sort of passive, passive plus and factors, how do you decide how much should be internal and how much is external?

[Unknown]

Well, it's pretty easy. That's not a complicated thing. What we do is we think first of all how much should be active and passive. We're really good at the passive Part. And you can do that in scale. If you look at what the compensation packages cost for our traders who execute this, even though I think we pay them in a manner that they're happy and motivated and it's reasonable and competitive, that compared to management fees on a similar amount of money, it's practically free, in which case you got a huge advantage. And then you do the active in the parts of the market where you're going to get paid for spending the money and taking the extra risk, which is generally going to be as you move out of the US into non US equities and the further afield you go into emerging markets and eventually into frontier markets, then the attractiveness of active versus passive becomes compellingly active.

[Ash Williams]

Are you restrained on your travel budget?

[Unknown]

There are several areas of natural friction with public pension funds because in a political environment where optics are everything, the truth of it is most legislative bodies these days are under term limits. So somebody's got two or three two year terms to make their bones and move on to the next highest office. You can't raise money constantly and move on and keep your name in the press to get free media without regular sound bites. And if you can make a sound bite by grousing about something that some public employee did that the average taxpayer might take out of context and see as an affront, you're going to do it. That's just the reality. That is it. So in a lot of places there are travel restrictions, et cetera. What is that derived from? Same thing on what they pay people and how they're resourced. Key thing there is government governance. If you did an analysis of pension funds, I'll bet if you looked at pension funds and answered the question, are you under the state legislature for your budget or are you under some separate body of trustees? If you're under a state legislative body, any politically derived body, chances are you're going to be suppressed for compensation for resources, including travel, train, materials, systems, risk.

[Ash Williams]

Controls, everything, everything you need.

[Unknown]

You're just not going to have the money. Because it's not like you're dealing with a board of directors of fill in the blank Goldman Sachs or an organization like that that values excellence and is willing to pay for it. And in our case, our budget is under our trustees and we're self funded. We operate as a fee on assets. And the fee on assets, although it's ridiculously low, the assets are so big that we just need the trustees to authorize every year what we need. And we have developed a lot of credibility. I Think what the whole thing comes down to is public pension funds, because they're big pots of money that are in a position to be diverted for bad things. There's plenty of US history. Whether you look at the coin scam that happened in Ohio some years ago, or the pay for play scams that have happened in other jurisdictions, or all kinds of irregularities over the years, those kinds of things earn funds a bad reputation and put them in a weak position. But if you have in the environment you operate in, the jurisdiction you've operated in, if you have earned trust and credibility through consistently telling the truth, delivering the results you're supposed to deliver. And unlike most other parts of state government, we can tell anybody on a given day out to two decimal points what our performance is and what our benchmark is and what the difference is between the two. And we have audited financial numbers every year that are part of the state's financial statements. So there's no ambiguity about whether the schools got better or got worse. With us. With us it's did you beat the benchmark or not? And if the answer is not, and it's persistently so, you have an incident. If the answer is yes, you did, and it's by a lot, and it's very consistent and it's also very strong relative to your peers, people like that. My sense is in humankind, just like all animals, we've all read the stories about how the weak animal in the litter is likely to be pecked to death by its own siblings or parents or something. People are the same way. If you show evidence of weakness, you will be set upon and eliminated. And if you show signs of strength, persistent signs of strength, and a willingness to be a voice of wisdom and a steady hand, and you have the advantage of having done that for years and years and years, and knowing generations of people in leadership in whatever area you're from, which is an advantage I have. It's very helpful.

[Ash Williams]

You mentioned this consistency in so much of investing. You can have the right process that works over time, but in shorter term periods you might not have the right outcome. How have you navigated that inevitable times when maybe this pocket or that pocket underperforms because you're being very transparent about what the benchmarks are. When you have so many people with a shorter term focus and a political mindset that want to point fingers?

[Unknown]

Well, the good news is, to the extent there have been downdrafts, fourth quarter of 2018, great example, that was a miserable period in global equities and we took a beating like everybody else did. But in a time like that, then people understand. I mean, everybody has a portfolio. And these are people who are smart enough to say, yeah, I took a beating too. You know, you can run, but you can't hide. We can do well relative to benchmark, but doing well in an absolute sense is very different from doing well relative to a benchmark. So I think we're good on that. I think we message things too, that diversification is our friend and we've put a lot of thought into doing things that are helpful when the equity wins are negative or. We had a spirited discussion several years ago. We had a member of our advisory council who, when we did our little annual checkup on our asset class return expectations, he said, wait a minute, you're expecting an intermediate term return on fixed income of negative 3%? Well, as fiduciaries, we shouldn't own bonds. We need to eliminate the asset class. You can't knowingly lose money. And we said, that's not how this works. It's not each ingredient. It's not every egg and cup of sugar and bit of flour. It's the entire totality of the recipe that makes the cake. And here's what the fixed income is for. It's not to get the marginal negative 3%. It's there because if the bottom falls out of the equity market, there will be a flight to safety, which will be fixed income. That will be the liquid asset that will be appreciated at the time. And you can rebalance into equities while they're down and make benefit payments out of liquid assets that are appreciated. We have negative cash flow to the tune of 700 million or thereabouts a month. So the explanation I gave to try and make it accessible was, listen, if you've ever been on a private airplane or a boat, a yacht, space is precious. And tying up a lot of space with life rafts and parachutes is just intrusive. It's no fun. But believe me, if that craft ever gets in trouble and you need the parachute or the life raft, it's going to be the best use of space you could ever conceive of. And you're going to be grateful that you took advantage of it. That's why the fixed income needs to be there.

[Ash Williams]

When you turn to these opportunistic strategies, you started by saying, okay, you want to be tried and true to your asset allocation, but then you've got these opportunistic strategies that will flex. How do you go about that piece of the puzzle?

[Unknown]

Well, we are not in a position to do transactions direct other than our real estate area. And I don't think we ever will be. That's the province of the Canadian model and you're just never going to see that here. But what we can do is partner with people who have deep and broad capability and then if, and this sounds easier than it is, we don't have many of these things. But if you can create a structure through mutual agreement and a deep partnership that creates great alignment of risk and reward the shared, you can do things that are highly unusual. And I think in times like this where assets broadly are highly appreciated, having investments where you really understand where the cash flows come from, what the quality of those counterparties is, why those cash flows should be resistant to broad market dislocation, that's golden.

[Ash Williams]

What are some examples of some of those today?

[Unknown]

Well, the real estate is a lot of it. We're renovating a building just down the street from here right now at 155th Avenue where we bought 120-year-old building some years ago. We've had some sort of routine tenants in there and we had a music company in there and their lease has run out. We're redoing the building and we've pre leased it. This is all public information. It's been in the press, so it's not out of school. Pre leased it to MasterCard in a long lease with good provisions from our perspective. And it'll be MasterCard's tech department. And this is in the area of Manhattan around 20th Street. That's as hot as a pistol right now in terms of where young people want to be. It's the same region where Google is. There's a lot going on down there. And a building like that, if I've got somebody like MasterCard and a 15 year lease, frankly, if the equity market falls off the end of the planet tomorrow, people are still going to use their MasterCard and MasterCard's still going to need a tech backbone to run their system and maintain their security. So that's a good thing.

[Ash Williams]

Single asset in the scheme of $200 billion can't possibly amount to much. So how do you monitor so many different. Your portfolio is transparent. You can go on, you can go and look at the annual report. And there's just lots of managers there.

[Unknown]

Well, there are a lot of managers, but there's concentration among them. We have a lot of managers wearing a lot of products with them. That comes back to something else. That's fundamental. The most important thing I think and I sound like I'm quoting Howard Marks. You know, he wrote the book the Most Important Thing and every single thing in that book, and there are like 30 of them, you can make an argument is the most important thing. And that's the whole point. It's all important. And any one of these things can blow your legs off if you're not careful. But I think there's no substitute for character. Character. And if you can find relationships in life with people who are competent, honest and therefore trustworthy, as simple as those three characteristics sound, as frequently as people always say, the most important thing is character. And that's why you should partner with us. We've both been around long enough to know the vast majority of people in a situation of real stress can't necessarily be counted on. And if you've ever been through a real jam with a partner and worked it out in a way that reflected honesty and empathy and integrity and just humanity, that's a gift. You reward that by doing more with them.

[Ash Williams]

As you look at the program today, what are your kind of key initiatives to continue to evolve what you're doing on the investment side?

[Unknown]

I think we have a true learning culture. I think the team we have in place is an extraordinary team. We've turned over fully half of our top management over the 10 years, plus that I've been back. Every one of our asset class heads is super solid and capable and young enough that they've got got plenty of Runway in front of them. And they've all built deep teams. And again, this fits into what I was saying earlier about compensation. If you're going to keep capable people who are young enough to go anywhere they want to go in the country, you got to give them a reason to feel valued and motivated. So we offer a work culture that's a very flat culture. They'll have direct access, no matter how junior they are, to everybody on the team, up to and including me. And that's motivating because most big asset management firms can offer that. Second, we compensate people in reasonable ways, in positive ways. And third, because of our size, you can come to work for us. And on any given day you might have. Recently we've had Q Song Lee in to visit us. We've had David Solomon twice in the past couple of months. New CEO of Goldman Sachs, Larry Fink, comes to see us. We've had people from all over the world make the trek to Tallahassee because they're good relationships of ours, and we reciprocate and help them here whenever we Can.

[Ash Williams]

One of the things you think about in these plans is the concept of governance. And we've talked a lot about how you've worked with the trustees. The other side of that is the whole issue of proxy voter. I remember reading in your report that you filled out last year 11,000 proxies.

[Unknown]

My hand was so sore after that.

[Ash Williams]

That's a mind boggling number to me. To begin with, how is that staffed? And then how do you think about that sort of governance standards when it applies to so many different situations?

[Unknown]

So the answer to that is reflective of so much of what we have. Do we accept the value of voting the proxy and valuing the vote? We actually financed a study at Harvard Law School a few years ago called Valuing the Vote that quantified the value of fiduciary participation in the proxy process and ensuring that companies did the things they should to enhance shareholder value. In fact, back in the 1980s, Florida was one of the founding members of the Council of Institutions Institutional Investors. So Florida has a high profile in governance circles and much the way we've done other things, have figured out ways to automate proxy voting processes and use a limited staff internally that's levered through using third party service providers as extension of staff to do exactly the kind of monumental job you just sketched out the idea that you can, you could vote proxies in, I don't know, 50 or 70 different countries that number in the tens of thousands. It's mind boggling. But on any given thing, no, we actually know these things. And if somebody calls and says, what about Airbnb? We had one of the earliest things that came up with the new governor. I first met with him in December of 2018 after he was elected in 17. He asked me if we were aware of Airbnb and had Airbnb had issues involving the Boycott, Divest and Sanction Israel movement. And I said, as a matter of fact, we're very familiar with that and we've been in contact with Airbnb already. Here are the issues. Here's how our process works. Happy to work with you on it. He was stunned. You actually knew about that one little company that's not even publicly traded. Roll the clock forward. We engaged Airbnb. They have done a 180 on the policy that they were pursuing in the disputed territories. It was announced publicly about two weeks ago. The governor and cabinet of Florida are doing the first cabinet meeting ever in Israel, I think later this month. And one of the items on the agenda is going to be this Airbnb thing. So I'll be in Tallahassee on a satellite connection, a video connection to the rest of the group that will be in Israel. Israel, Cinderella scrubbing the floors of the castle while everybody else is at the ball. But anyway, we'll talk about that. And the Israeli government is keenly aware of this and very appreciative of the outcome. So once again you do well by doing good.

[Ash Williams]

I want to turn to your thoughts on private equity and hedge funds. Private equity is an important component and has been for a long time of what you're doing. How do you think about it in the context of portfolio and how do you decide who you're going to partner with?

[Unknown]

Well, we've done an awful lot in the private equity space over the past five or 10 years to refine the portfolio. What I mean when I say that is rather than putting a whole lot of money with big US mega LBO centric funds that have lots of products that cover the world, we think we've been smarter to really dig deeper and understand where the persistent ability to add value is in organizations and how has their focus remained, how has their asset growth been? Have they just gotten geometrically bigger because they could and proliferated products, or have they stayed focused? And we've sort of tried to concentrate relationships with the best players. So if we were in three funds in a given space now we're more likely to be in one, maybe two. We've also taken up more specialty relationships of various kinds. Funds that distinguish themselves by very strict folks, by capsized geography, industry, region, things of that nature, or some cross cut of those sorts of screens. We've also made an effort to be more international in our private equity through actually partnering with people who have a European focus, for example, or likewise Asia. Where that gets more problematic is when you get particularly in Asia where you're dealing with China, India, Southeast Asia, differences in law, differences in culture, a whole lot of things make that infinitely more complicated. So we're in early days there, but we've done some things that I think are fairly innovative where we partnered with a private equity fund of funds that we're well aligned with and have good co investment relationships. And they in turn have found tremendous GPS for us and it's worked out beautifully. And we've done similar things in the venture space.

[Ash Williams]

At your size, I imagine you're one of the few people in this ecosystem that has the possibility of being somewhat of a price maker in some of these relationships. Now at the same time, there's so much aggregate demand for private equity. It's not clear that that would be the case. Where do you come out across your portfolio on just finding the funds you like and other people like them and accepting the price compared to doing something off market?

[Unknown]

There are definitely times when something is a scarce commodity that's always oversubscribed and getting any allocation to it is a good allocation. In those cases you take the terms and frankly the reason you don't feel bad about that is net of whatever the terms are. The performance is so good, that's why there's a line out the door. That's a high class class problem. I always tell people the fees should not be your first focus. The net result should be and if the net risk adjusted result is tantalizing, go for it. If the result is mediocre and the fees are cheap, is that appealing? The analogy I like to give people is, listen, I'm very picky about food and drink and if I go to a restaurant and the food's not very good, I don't care what it costs, I'm not going to back, period.

[Ash Williams]

And then how does that break out across your portfolio? If you were breaking out the. Take the private equity relationships as a whole, what percentage of them do you think are kind of market terms best in breed managers? And what percentage of them do you think because of your size, they may also be your perception best in breed, but you're able to get better terms?

[Unknown]

I don't have an exact answer for that, but I think the majority of them we would have some superiority in terms. And, and the reason I think that's a pretty safe statement is there's some things that are required under Florida law that are inconsistent with most GPS documents. So for example, one thing we can't do is indemnify people. Any GP agreement will have an indemnification provision. And if we can say, look, it's Florida law and most MFN provisions, most favored nation provisions and partnerships, we'll have some sort of provision about applying to similarly situated investors. And if we can say, okay, we're a state fund, this is a function of state law. If you have other state funds with other state laws, you're going to have to accommodate them otherwise as well, because they just can't give you money otherwise.

[Ash Williams]

And how about hedge funds? I know hedge funds or absolute return are not a line item, but if you do go through manager by manager, there are a number of them in the opportunistic bucket. How do you view those strategies?

[Unknown]

Well, I Think a lot of those strategies have not distinguished themselves of late. And the common reason that's given is this strong equity tailwind and you can't keep up, et cetera, et cetera. I suspect hedge funds will venerate themselves when the market cycle fulfills itself. That said, there are a lot of them that have disappointed in the interim, and we've made changes in our lineup, and we're constantly searching for folks that are doing things that are different.

[Ash Williams]

When you have a market headwind like that, particularly say in long, short equity, which is commonly known, to what extent do you look at an individual manager that you thought deserved a place in the portfolio, hadn't delivered for a while, and you're replacing with another who maybe has delivered? And how do you make that determination?

[Unknown]

Well, first of all, we're paid. I mean, chasing performance is the bane of any successful investment existence. So we tend to be very patient. We tend to listen to people. We've been through iterations with firms where they've had an overseas office and a New York office and they've decided to close one or the other. They've moved people around. We tend to be patient through things like that. Could be they come up with a structure as a gesture of good faith after a period of sort of being under satisfying to their investors. That is attractive. And if we still have confidence in the group, we might take advantage of something like that. Sometimes there'll be a unilateral offer to change the terms to our advantage as an acknowledgement of, look, we've disappointed ourselves. We know we've disappointed you, and we want to reflect good faith. So we're lowering your fees or we're going to do this or that or the other. So we tend to be patient with things like that. And I wouldn't say that if we pull out of any given fund, we're automatically going to repurpose that capital into another fund sequentially. It could be that we'll repurpose that capital into something altogether different. That may be a different investment format.

[Ash Williams]

With all the people on your team, particularly people focused on external managers, how do you ultimately make your investment decisions?

[Unknown]

Well, most of them are made pretty much at the asset class level. We make broad decisions in terms of characteristics that we like, areas that we want to emphasize at a given point in time. And then the different asset classes all have depth and existing manager basis. And we do annual work plans where we take the time at the asset class level to really think through what does our current pipeline look like vis a vis the portfolio today. How do we envision the portfolio evolving as we go through this pipeline over the next 12 months? What resources are we going to need? What capital flows are there? What are going to be the flows in and the flows out? We're a mature plan. So our private equity program is largely self funding. Strategic is largely self funding.

[Ash Williams]

And at the manager level, as cio, do you make the ultimate decision?

[Unknown]

I sign all the documents and nothing gets done without my okay. And if we have an objection to something, and there have been things that I've held up before, our process is such that the checks and balances are constant and they're both internal and external, and the transparency is very high. So we have simultaneous compliance, participation and oversight. We have an internal investment memo that's written at the inception of an idea, say, to propose the Harvest Volatility Fund or something like that. We'd have an initial write up on why this strategy makes sense, and the principals are good people, and we think it would complement our portfolio. And on the basis of that, and I've got to sign that, we go forward with due diligence, with some rough idea of what we might put into it, pending the diligence and negotiation of terms. And then if it comes out the back end and it could be a year later with an investment memo, that's the actual memo authorizing the completion of the docs. And then the next thing is the docs themselves. All along the way, there are going to be business points that are going to come up. They're going to be terms that are going to come up. There'll be scaling, issues, constraints, all that kind of thing. And once in a while, you will have a barrier in the form of. Could be you've gotten some intelligence somewhere or somebody does something that was inappropriate. And I remember a case years ago where we were looking at a fund and an item appeared, and I think it was the New York Post on a Monday morning where somebody who was a principal of a fund had had a fit at a social event out on Long island over the weekend. And the behavior just. We just thought, you know, if that's what's under this individual, life's too short.

[Ash Williams]

All right, Ash, I want to leave a little time for some closing questions, so we'll get you out of here. What's your favorite hobby or activity outside of work and family?

[Unknown]

Well, I don't have a single thing I would say if I looked at where most of my time goes, it involves food and wine. I cook a lot. I have all my life. I collect wine, I love to entertain my wife and I love to entertain and I like to play with an idea for a themed dinner for a long time and put it together and figure out the execution and match the wines and get a nice group of folks together and do that. You can't live live where we live and not do a little hunting and fishing. I also like live music and enjoy the fine arts. And with the university right in our backyard and all the trips I take to major cities, there's ample opportunity to indulge those tastes. And lastly, I have a motorcycle and I love riding out in the country in the quiet of a weekend morning. Nothing better.

[Ash Williams]

What's your biggest pet peeve?

[Unknown]

I think the thing that bothers me the most right now is I think social media is creating a generation of people who are grossly under informed and very subject to manipulation. Nobody seems to read newspapers anymore, really understand issues in real time. And I read a lot of newspapers, I read a lot of books. I read things like the Economist and other Barons and stuff that comes out weekly. And if you read enough and you understand the nuances, you really understand the world around you and the number of people I know and I see this in my own kids whose idea of understanding the news is whatever their Facebook feed tells them. That's scary.

[Ash Williams]

How about your biggest investment pet peeve?

[Unknown]

I think the thing there would be the constant barrage of inquiries and pushes we get from people who've obviously taken no time to know who we are, what we do do, what we're interested in, what we've signaled we're not interested in. Think about the message that gives a potential investor. You are out here recruiting for business and you're either so, shall we say unmotivated. That's more charitable than saying lazy. Or your research skills are so poor that you're writing me a letter or an email saying Dear Ms. Williams or. Or you're proposing something that we just don't do and would never do and we've all spoken about it publicly. Why on earth would we do business with you? Just do your job, will you?

[Ash Williams]

What have you learned recently that's most struck you?

[Unknown]

I don't know that I could point to a single thing. Maybe it's just the more I learn about the whole cyber risk area that is truly terrifying. And I don't know that we've got our arms around that as a country. I don't know that we can what.

[Ash Williams]

Teaching from your parents has most stayed with you?

[Unknown]

There are several things I think of that I can hear my father and mother saying, two from my father, one from my mother. My dad used to always say to me when I was yammering on about one thing or another, the empty vessel makes the most noise. Very true. How many times have you met somebody and they're just off into the acronyms and basically singing their own tune over and over and over again and you just think everything you're saying is based on a phony premise. You should listen to this. No, it's just wrong. Cut it out. So that would be one and another one would be. Which I think was attributable to Roosevelt. Walk softly and carry a big stick. And there's a lot to be said for that. And particularly if you have an institution like ours, there are times when you get into some sort of potential conflict. And I'll never forget one time somebody was threatening to sue me and sue us. And I said, you know, if you've got a minute, we were in our offices in Tallahassee. I said, if you've got a minute, we can walk around the corner, I'll show you a row of offices with our lawyers in them who work for salary and frankly, we can tie you up for the next 15 years if you'd like. And the incremental cost to us is nothing. And by the way, I could also show you the list of outside firms we have in New York and other places who would be happy to make your life miserable if we'd like them to. So if you really want to go there, you can, but I don't think that's a great opener for you. I think we need a peaceful resolution. And I can remember my mother saying, know thyself. Great advice.

[Ash Williams]

Alright, last one. What life lesson have you learned that you wish you knew a lot earlier in your life?

[Unknown]

How much I don't know and the more you know about the world, and I consider myself a lifelong learner and I'm interested in just about everything. I'm always asking why and how does that work and what's the history and how'd that policy get the way it is, all that sort of stuff. And the more of that you do, the more you realize you don't know. And when you're young, think about it. Anybody who's ever been a parent knows nobody knows more about the world than a 16 or 17 year old kid. They know everything. And if you try and tell them anything, you're just, no, you're wrong. So that's pretty important.

[Ash Williams]

Ash, thanks so much. Fascinating.

[Unknown]

Thank you.

[Ted Seides]

Thanks for listening to the show. To learn more, hop on our [e-mail] where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time.