Podcast Summary: How I Invest with David Weisburd
Episode E118: Loyola University's $1.2 Billion Edge
Release Date: December 6, 2024

Introduction and Overview

In episode E118 of How I Invest with David Weisburd, host David Weisburd delves into the intricate strategies and investment philosophies that underpin Loyola University's impressive $1.2 billion endowment. This episode features a comprehensive discussion between David Weisburd (referred to as Speaker A) and his interlocutor (Speaker B), exploring Loyola's diversified investment approach, including venture capital, private equity, hedge funds, and opportunistic investments such as helicopter leasing.

Opportunistic Investments: Helicopter Leasing

One of the standout topics of this episode is Loyola's foray into unconventional asset classes, particularly helicopter leasing. Speaker A elaborates on how this investment strategy emerged from their prior experience at a family office and evolved into a strategic component of Loyola's endowment.

Speaker A [00:54]:
"We came across this new fund that was looking to buy and lease helicopters. And there were some interesting tax benefits to it that the family got on board with. So we ended up making a commitment."

Speaker A explains that as private credit markets matured and spreads narrowed, Loyola sought alternative investments capable of delivering mid to high net returns. The decision to invest in a helicopter lease fund was driven by the unique tax advantages and the potential for attractive after-tax yields, distinguishing it from more conventional investment options.

Due Diligence for Unique Asset Classes

The conversation delves into the rigorous due diligence process Loyola employs when assessing esoteric investments like helicopter leasing. Speaker A underscores the importance of comprehending the fundamental mechanics of such markets to effectively communicate their value and risk profiles to stakeholders.

Speaker A [05:19]:
"We really spent a lot of time with them and just, I think, just asking a lot of what may be perceived as dumb questions. But it just, I think that's one of my biggest learnings in my career is ask those questions early because it helps really kind of set the table and help you learn."

To ensure clarity and confidence in their investment decisions, Loyola frames unfamiliar strategies in terms familiar to them, facilitating better understanding and communication with their board and investment committees. This iterative process involves extensive research, consultation with industry experts, and leveraging Loyola's internal expertise to validate investment opportunities.

Investment Committee Dynamics

The episode explores the dynamics within Loyola's investment committee, highlighting how divergent viewpoints can lead to superior investment outcomes. Speaker A acknowledges that while consensus is ideal, having a range of perspectives often uncovers unique opportunities that might otherwise be overlooked.

Speaker A [08:56]:
"Having a differentiated viewpoint, you know, is important. Having a differentiated viewpoint amongst kind of your investment committee, I think is helpful for conversation."

This diversity of thought fosters a robust deliberative environment where controversial or unconventional ideas are meticulously evaluated, ensuring that only well-vetted investments align with Loyola's overall strategy and risk tolerance.

Asset Allocation Strategies

Managing a diverse portfolio requires strategic allocation across various asset classes to optimize returns while mitigating risks. Speaker A discusses Loyola's balanced approach, emphasizing the importance of flexibility and responsiveness to market conditions.

Speaker A [10:48]:
"We have some bandwidth and capacity limits to, hey, could we do 10 venture funds? Like, I think that would be in a given year. I think that would be a lot. So try to kind of have a good mix."

Loyola employs a dynamic allocation strategy that allows for adjustments based on performance, market opportunities, and internal capacity. This ensures that incremental investments are directed towards areas with the highest potential for risk-adjusted returns, maintaining a well-rounded and resilient portfolio.

Building and Managing the Venture Program

Since launching its venture program in 2022, Loyola has focused on early-stage investments, leveraging extensive networking and collaboration with fund-of-funds managers to curate a robust venture portfolio.

Speaker A [12:05]:
"Lots of meetings. It's just I've never been one to manage my calendar well, but when it comes to venture and we've decided to kind of focus in on the earlier stage and I can talk a little bit about that, about why as well, but there's a lot of GPS out there..."

Speaker A highlights the critical role of allocator friends and experienced investors in shaping Loyola's venture strategy, underscoring the steep learning curve and the necessity of adapting strategies based on fund size, management experience, and portfolio construction nuances. This collaborative approach has been instrumental in refining Loyola's venture investments, ensuring alignment with their broader investment objectives.

Hedge Fund Portfolio Management

Loyola's hedge fund portfolio is another key component of its diversified investment strategy. Speaker A outlines the criteria Loyola uses to evaluate hedge fund managers, focusing on strategies that offer low correlation with public equities to enhance portfolio diversification without compromising on returns.

Speaker A [16:08]:
"We have event driven managers, we have macro managers. Macro environment can be pretty dynamic depending on your breadth of focus..."

Loyola prioritizes hedge funds that employ unique strategies such as event-driven, macro, arbitrage, and relative value investments. The emphasis is on finding managers who maintain strong alignment with Loyola's risk-adjusted return goals, possess disciplined investment processes, and demonstrate repeatable success through stable teams and robust strategies.

Market Efficiency in Public Equities

The discussion also touches upon market efficiency, particularly in the context of public equities. Speaker A reflects on the varying degrees of efficiency across different market segments and the implications for investment strategies.

Speaker A [18:16]:
"I think there's different degrees of efficiency. I think that there's. If you're looking at large and mega cap US listed companies, that's going to be tough. If that's your bogey, it's going to be a tough bogey to beat because those companies are well covered..."

Loyola recognizes that large-cap markets are highly efficient and challenging to outperform consistently. Consequently, their investment approach favors smaller, less-covered markets and international equities where inefficiencies present more opportunities for excess returns.

Lessons Learned and Reflections

Reflecting on Loyola's investment journey, Speaker A shares insights on the importance of patience, strategic pacing, and continuous learning, particularly when venturing into new asset classes like venture capital.

Speaker A [19:20]:
"I think it was been nice to maybe have a few more reps with venture capital managers and a little more knowledge on the venture capital market and its history..."

Loyola's strategic restraint during market distortions allowed them to avoid overcommitment and focus on high-quality investment opportunities. This disciplined approach, coupled with leveraging insights from experienced allocator friends, has been pivotal in navigating the complexities of diverse investment landscapes.

Conclusion

Episode E118 of How I Invest with David Weisburd offers an insightful exploration into Loyola University's sophisticated investment strategies managing a $1.2 billion endowment. Through thoughtful discussions on opportunistic investments, rigorous due diligence, dynamic asset allocation, and the cultivation of a robust venture program, Loyola exemplifies a balanced and informed approach to endowment management. The episode underscores the importance of adaptability, continuous learning, and collaborative decision-making in achieving sustained investment success.

Notable Quotes:

• Opportunistic Investments:

  "We came across this new fund that was looking to buy and lease helicopters... we were able to make a commitment to the second fund." [00:54]

• Due Diligence:

  "Ask those questions early because it helps really kind of set the table and help you learn." [05:19]

• Investment Committee Dynamics:

  "Having a differentiated viewpoint amongst kind of your investment committee... is helpful for conversation." [08:56]

• Asset Allocation Strategies:

  "We try to have a good mix... within the whole portfolio." [10:48]

• Building Venture Program:

  "It's been a steep learning curve, and so it's been just instrumental into our venture portfolio development." [14:32]

• Hedge Fund Management:

  "Strong alignment. We need to see that we're all working for the same goal... the best risk adjusted return." [16:08]

• Market Efficiency:

  "If you're looking at large and mega cap US listed companies, that's going to be tough... as you go down market into the small and micro cap space..." [18:12-19:01]

• Lessons Learned:

  "Understanding some of the dynamics that go into portfolio management and construction would have been helpful." [19:20]