Podcast Summary: How I Invest with David Weisburd
Episode E148: TIFF's $8B Portfolio Revealed: Strategies Institutions Need
Release Date: March 21, 2025

In Episode E148 of How I Invest with David Weisburd, host David Weisburd engages in a comprehensive discussion with Brendan Parry, a key figure at TIFF, delving into the intricate strategies and philosophies that underpin TIFF's impressive $8 billion investment portfolio. This episode offers invaluable insights into institutional investing, private markets, and the nuanced approaches that drive long-term success for nonprofit institutions.

1. Introduction to TIFF and Its Mission

Brendan Parry begins by elucidating TIFF's foundational role in providing specialized investment solutions to nonprofit institutions. With over three decades of experience, TIFF acts as an outsourced Chief Investment Officer (OCIO), focusing particularly on private market solutions to address the unique challenges faced by nonprofits.

Key Points:

• Founding Vision: Initiated by the MacArthur and Rockefeller Foundations in 1991 to solve issues of scale, access to premier investment opportunities, and high fees associated with suboptimal investments.
• Mission: To partner closely with clients, educate them on investment areas, and deliver top-tier investment returns consistently over extended periods.

Quote:

“TIFF has existed over 30 years to provide investment solutions primarily to nonprofit institutions. We're really specialized as outsourced chief investment officer and specialize in private market solutions.” [02:09]

2. TIFF's Partnership with David Swenson and Influential Foundations

Parry highlights the pivotal role of David Swenson from the Yale Endowment in TIFF's early development. Swenson's expertise and strategic asset allocation were instrumental in shaping TIFF's investment landscape.

Key Points:

• Board Involvement: Swenson served as a TIFF board member, contributing significantly to asset allocation strategies and facilitating access to elite closed managers during TIFF's ramp-up phase.
• Legacy: His pioneering work in portfolio management emphasized the importance of multi-faceted investment approaches, favoring diversified portfolios over narrow, speculative bets.

Quote:

“David Swenson... helped TIFF access great closed managers just as we were ramping up.” [00:34]
“TIFF is actually one of a very few number of ALLOC or fund of funds that he thought merited consideration by serious investors.” [02:05]

3. Strategic Partnerships with Foundations

TIFF's collaborative approach with foundations is central to its investment strategy. Parry explains how TIFF tailors investment portfolios to meet the unique needs of each foundation, regardless of size.

Key Points:

• Customization: Each portfolio is crafted based on the client's specific situation, ensuring alignment with their long-term mission and objectives.
• Private Markets Focus: Emphasis on seed and early-stage venture, lower mid-market Private Equity (PE), and direct investments alongside independent sponsors in micro-cap PE.

Quote:

“We are trying to deliver client centric investment solutions crafted to support that institution's long term mission and objectives.” [03:04]

4. Model Portfolios for Foundations

When advising foundations on portfolio construction, TIFF employs a diversified asset allocation model designed to balance risk and return while addressing liquidity and inflation concerns.

Key Points:

• Typical Allocation:
  • 25% Private Markets
  • 40% Public Equities
  • 20% Diversifying Strategies (e.g., low beta hedge funds)
  • 15% Traditional Fixed Income (e.g., Treasuries)
• Objective: Achieve a target return of approximately 8%, factoring in 3% inflation, to maintain and grow the foundation's corpus.

Quote:

“The standard portfolio is something like 25% private markets, 40% public equities, 20% diversifying strategies... and then about something like 15% to pretty traditional fixed income.” [05:45]

5. Emphasis on Lower Middle Market and Early-Stage Venture Capital

Parry elaborates on TIFF's strategic focus on the lower middle market and early-stage venture capital as key areas for alpha generation. This approach leverages market inefficiencies and the potential for significant value creation.

Key Points:

• Alpha Generation: Targeting smaller, less mature companies where competition is lower and the potential for value addition is higher.
• Competitive Advantage: TIFF's size allows it to effectively engage in these niche markets, unlike larger firms that may struggle to focus on such segments.
• Risks and Diligence: Acknowledges the wider return dispersion and inherent risks, necessitating rigorous sourcing and due diligence processes.

Quote:

“We are focused on owning equity in good fundamental business that they're smaller, they're earlier in their life cycle... because that's a fertile ground for alpha generation in our view.” [07:11]

6. Leveraging Independent Sponsors

A significant portion of the discussion centers on the attractiveness of independent sponsors in today's investment landscape. Parry outlines why independent sponsors have become "sexy" and how TIFF evaluates and partners with them.

Key Points:

• Access to Microcap PE: Independent sponsors facilitate entry into markets that larger PE firms typically overlook, uncovering hidden gems in the sub $10 million EBITDA range.
• Efficiency and Value Creation: Despite market inefficiencies and higher variability in quality, skilled independent sponsors can create substantial economic value through strategic and operational enhancements.
• Evaluation Process: TIFF employs a dual diligence approach, assessing both the sponsor's capabilities and the specific investment opportunities they present.

Quote:

“Independent sponsor is a team without a specific deal. And today there's not a lot of capital for new funds... It's a way to access microcap PE that you just, you can't get even if you're focused on lower mid market fund investments.” [13:09]
“We view this as a great way not only to build conviction or not in an individual deal, we view it as a great way to build or not conviction in that sponsor...” [17:59]

7. Balancing Fund One and Independent Sponsor Investments

TIFF's strategy includes investing in both fund one opportunities and independent sponsor deals, leveraging the strengths of each to enhance overall portfolio performance.

Key Points:

• Fund One Opportunities: Recognized for their potential to deliver outsized returns and align interests between investors and managers.
• Independent Sponsors: Serve as a pipeline for identifying promising fund one managers by building long-term relationships and assessing deal quality.
• Strategic Integration: Investments in independent sponsors enhance TIFF's ability to underwrite and evaluate subsequent fund one commitments effectively.

Quote:

“Independent sponsor investing not only has been a great way to make money... but also to find the next great fund one and actually have real data points and a long relationship...” [21:10]
“Fund ones we do see great return opportunity... These are the types of people that we will typically start spending time with.” [23:20]

8. Organizational Transformation: Becoming a Public Benefit Company

About a year and a half prior to the episode's release, TIFF underwent a significant organizational change by becoming a public benefit company and transitioning to an employee-owned structure.

Key Points:

• Employee Ownership: Enhances long-term retention and aligns the team's interests with the company's mission.
• Consistency in Mission and Leadership: Despite structural changes, TIFF's advisory board and core mission remained unchanged, ensuring continuity in strategic direction.
• Benefits of Transformation: Facilitates employee retention through equity grants and reinforces commitment to maintaining a stable, dedicated team.

Quote:

“We now have that ability and so we only think that it will... keep the team, same team in their seats for as like for as long as possible.” [27:45]
“We are smaller than some but certainly mighty, you know, around 8 billion of assets and growing... nimble enough to focus our capital on the most attractive parts of the markets.” [39:59]

9. Lessons Learned and Reflections on Investment Philosophy

Parry shares personal insights and lessons learned over his 14-year tenure at TIFF, emphasizing the importance of humility, adaptability, and a clear understanding of investment risks.

Key Points:

• Humility in Success: Recognizes that success is often the result of cumulative knowledge and teamwork rather than individual brilliance.
• Avoiding Overconfidence: Advocates for a disciplined approach to investment, avoiding bets that hinge on overly specific or unpredictable future states.
• Focus on Core Expertise: Emphasizes investing within areas where TIFF has demonstrated expertise, ensuring more reliable and informed decision-making.

Quote:

“I wish I'd better appreciated that we know a lot less about the future than any of us think... allows us to be better underwriters and better investors and focused.” [29:01]
“There is a place for that in portfolio management... it's a general waste of calories and time to be focus on overly focused on those factors.” [37:33]

10. Building an Anti-Fragile Portfolio

The conversation delves into the concept of creating an anti-fragile investment portfolio—one that can withstand and even benefit from unforeseen economic downturns and market volatility.

Key Points:

• Diversification: Spreads investments across various sectors and factors to mitigate risks associated with any single economic event.
• Quality Assets: Invests in businesses with strong fundamentals, niche leadership positions, and the ability to generate value through operational improvements.
• Asymmetric Returns: Aiming for investments that offer the potential for high returns in favorable conditions while maintaining capital protection in adverse scenarios.

Quote:

“We want to own good, good fundamental companies with a real reason to exist that can generate return either by buying low at a cheap price...” [33:48]
“An asymmetric return fan where the business is good enough, the price is low enough... you can protect your capital if you run into a really bad economic environment.” [34:21]

11. Conclusion: TIFF's Unique Position and Future Outlook

Brendan Parry concludes by reflecting on TIFF's unique position in the investment landscape, balancing substantial assets with nimbleness to capitalize on attractive market segments. He underscores TIFF's commitment to excellence, its specialized focus, and the enduring strength of its team.

Key Points:

• Specialized Focus: TIFF's concentrated expertise in private markets and niche investment areas provides a competitive edge.
• Team Stability: Employee ownership fosters long-term team retention, ensuring continuity and sustained performance.
• Future Prospects: With $8 billion in assets and a growing portfolio, TIFF is well-positioned to continue delivering exceptional returns for its nonprofit clients.

Quote:

“TIFF is truly a special place... We are smaller than some but certainly mighty, you know, around 8 billion of assets and growing.” [39:59]
“It's a storied organization... doing a lot of good.” [41:19]

Notable Quotes with Timestamps

• Early Investment Philosophy:

  “Early on I would consider sort of a wider range of investment opportunities willing to take certain risks that I wouldn't now.” [00:02]

• David Swenson’s Contributions:

  “He helped TIFF access great closed managers just as we were ramping up.” [02:05]

• Model Portfolio Allocation:

  “The standard portfolio is something like 25% private markets, 40% public equities, 20% diversifying strategies...” [05:45]

• Independent Sponsors’ Appeal:

  “Independent sponsor is a team without a specific deal... access microcap PE.” [13:09]

• Organizational Transformation:

  “We became a public benefit company, an employee owned company about a year and a half ago.” [27:45]

• Investment Lessons Learned:

  “We know a lot less about the future than any of us think.” [29:01]

• Building Anti-Fragility:

  “If you put together enough a portfolio of these good companies that have multiple paths to victory and you diversify appropriately...” [32:05]

Final Thoughts

This episode offers a masterclass in institutional investing, particularly within the nonprofit sector. Brendan Parry's expertise and candid reflections provide listeners with a deep understanding of TIFF's strategic approaches, the importance of specialized investment focus, and the nuanced processes involved in partnering with independent sponsors. Whether you're an institutional investor, a foundation manager, or simply interested in the mechanics of large-scale investment portfolios, this episode delivers valuable knowledge and actionable insights.

Connect with Brendan Parry:
For those interested in further discussions or inquiries, Brendan Parry can be reached via LinkedIn: Brandon Parry