← How I Invest with David Weisburd
How I Invest with David Weisburd
E261: How Sovereign Wealth Funds Create Alpha w/Peter Madsen
00:33:16
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- [00:00]
A
Peter, before citfo, you ran money in London Vice pension plans.
- [00:04]
B
What drew you to building a sovereign.
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A
Wealth fund in Utah?
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C
Well, candidly, the last dying breaths, if you will, of the fund to fund industry were taking place. And we, although where I was working prior Cube Capital, we had a strong track record, strong team. When I joined, we were managing about a billion across some direct funds and fund to fund strategy and but after about five years, we were still at about a billion, you know, money coming in, being raised as part of our expansion into North America and some other markets outside of just the UK and the. But at that same, there were a few, like closely linked investors that all decided they'd rather be in private markets than hedge funds. And so we, the partners, decided to wind down and that gave me a nice long Runway of, you know, where to spend my, you know, next half of my career, so to speak. So I went to the headhunter person and I said, hey, I'd like to be CIO in like a mountain town or beach town at a college, university or foundation. And she literally laughed in my face and said, you and everyone else. And then it just a month or maybe not even two months after she reached back out and said, you know, you're not going to believe this, but Utah has the sovereign wealth fund and they're looking, you know, they, the money's old, as I like to say, but you know, there was no office. So the, the effort was new in terms of professionalizing it and I would be the first hire if I were lucky enough to get it. And I had, while I was at rvk, I had, we had clients that were this very same type of entity or structure. And I worked really closely with the state of Oklahoma, you know, even worked lobbying to try and help them amend their constitution to help, you know, modernize that trust. So I had a lot of experience with the potential and, you know, how it could grow or be structured, especially if it was going to be brand new. And you know, sure enough it's, you know, it's 10 years later now. But it worked out that it was an entrepreneurial endeavor though, you know, in, you know, being part of the state of Utah, still quite entrepreneurial, still a.
- [02:02]
A
Huge challenge at the Cube. You seem to have a good fund in a bad market. Now, on the other side, as a cio, how important is being in the right market for a fund manager and how do you assess that as part of a fund manager success?
- [02:17]
C
I don't even know if I'd say it was a bad market. So much as just people were deciding they were skilled enough to pick their own hedge funds. But then when they were picking their own hedge funds, they were kind of sorting by aum or brand name and starting from the top. And so if you had a small hedge fund or a fund of funds is you're neither. And so the, you know, the industry kind of went, went the way it did. And now, now that we're here and we're, you know, we've developed our beliefs in advance of making investments. We you know, iterate on our beliefs and one of our beliefs is that, you know, the, the, I mean, I guess two of our beliefs come to mind. But one is that mean reversion is real. It may not seem like it and public equity is a US stock market, et cetera. But especially active management, you know, it comes and goes in waves for the most part, especially if it's a meaningful in size, you know, very low, small numbers, very low volume that might be persistent, but everyone wants higher returns, tends to come with some volume and it tends to come in waves. And so you should be looking at or investigating either managers or markets that have been out of favor or are down and out.
- [03:21]
A
And where do you sit on this active versus passive debate and what are the variables that you're looking to ascertain the market whether you should be more active or passive.
- [03:30]
C
We, we have some passive that can be useful for you know, liquidity sleeve. But if you don't have a huge concern around tracking error and you are, what I'd like to say is like, you know, people refer to the total portfolio approach or you know, being outcome oriented and less benchmark driven. You look at passive benchmarks, they're sort of a active decision in that you chose to participate in passive. They tend to be momentum in nature and each cycle they tend to become more and more concentrated or less diversified. And if the idea is that it's supposed to be mitigating risk, I think the only real risk it mitigates is maybe career risk or benchmark relative risk. But on the other hand it may give you back some bandwidth or spare you the headaches of active management. We kind of took a middle ground approach where we do have some passive, but we have a lot of what we call rules based strategies, especially in public equity. And that for example, what you know, you think of like value, momentum, quality, weight, those a certain way, hold a certain number of names, you're getting broad market exposure, you're getting a beta of one, you're screening out, you know, Bad companies, including companies that aren't terribly expensive and have some momentum. And that seems to me to be a low cost kind of reasonable approach to diversification that while it does include some tracking error or career risk, I think it's from a total portfolio perspective it's a better trade off.
- [04:57]
A
And Fama French came up with this three factor model. Ken French was my professor in business school which basically weighed at small in value stocks versus I guess the opposite is growth large and growth stocks. Do you have a philosophical stance on where the future of the public markets are? Some people say value is a thing of the past. What do you say?
- [05:18]
C
I think value will make its way back, but I think it's, you know, it's something that isn't, you know, it is mean reverting. It is cyclical. We're in a really long kind of odd cycle. I think in terms of the value versus growth it, you know, what happened in the 90s, it was pretty long. But post GFC with monetary policy and then now with the AI and you know, the excitement around AI, I think it's just extending that cycle. Something I'm more convinced of is that the small cap premium, I think the market structure has changed and I'm not sure the small caps of today are the same as the small caps of years past. There's been a decent amount of ink spilt on this and I think that's one area where I've, we've changed our minds on thinking that, you know, because small cap has been out of favor and because valuations have been more attractive, that that should be a, you know, a long term overweight. So in small cap land we're looking for things that can do that. And that means, you know, concentrated, you know, micro caps that you hope get taken out. Or for example, we have biotech hedge fund exposure as part of our small cap exposure.
- [06:26]
A
The CIO of Hurdle Callahan, Brad Conger, and he actually believes that small public companies are fundamentally different than they were a decade ago. What does that mean? A lot of them are fallen angels. They were SPAC targets or direct listings that fell down or they were public companies that are now small. And then to the second point of that is there's some companies that should never be public companies via SPACs or other metrics that constitute the rest of some of these small cap companies. So it's not truly smaller companies, the true smaller versions of the large public companies actually still private companies in their middle market or large buyouts.
- [07:01]
C
I agree with that. And another maybe way of saying the same thing is companies used to go public earlier. So they were small cap ish when they went public on average. And they might have been great companies that grow over time. And that that's just not the case as you highlighted it. So there's just fewer those strong companies with momentum going public at small size. They go public at massive scale. And our focus in private markets is really, you know, along the same lines that maybe the small cap premium is actually in private equity in very small micro, lower middle market and lower type names.
- [07:35]
A
I was going to ask you that exact question, which is if you believe this, how, how do you operationalize that strategy in the market? You would essentially shift some of your allocation from publics into privates into private equity.
- [07:46]
C
Yep, we actually did that. So we, earlier on we were, I think one of the ways of thinking about asset allocation is I had the good fortune of hearing Harry Markowitz present at a really small conference when he was presenting on something about the 401k, how to like optimally use your company Stock in your 401k. But he started out his presentation by saying, I don't want any of you young whippersnappers here to ask me about mean variance optimization and why, you know, it's so naive or whatever. He's like, I did that 50 years ago. It's how you guys are the ones who are supposed to be improving on it. And he said in fact the best, you know, the, the best diversifying portfolio or the best diversification is just to go 50, 50. And that's the naive approach. And it tends to be like from an academic perspective, the best diversification, if you will. And the. So we, you know, I thought about that and then I read another author put together something kind of similar. But and then you look at risk parity and what Bridgewater's done and that it's kind of the same concept of, you know, the naive portfolio is to not, you know, be concentrated in one thing if diversification is the goal. So when we started our asset asset allocation we kind of started from an equal weight perspective and you know, we used optimization techniques and you know, made sure that we were being quite quantitative in the end to stress test our decisions. But we started with what if we were equal weighted, what would our expected returns be? And then what dials should we turn to get our expected return up based on, you know, the size of the portfolio, the size of our resources, the fact that we have money coming in from, you know, land based revenues, you can call it mostly Oil and gas and real estate development. So we thought we put all that together and we were, we were more or less an equal weighted portfolio. Like they, it was pretty close and it was, you know, a terrible experience for the first few years. And as we kind of lived with that and tweaked with it and evolved, one of the decisions we made was to take down the small cap exposure and move it into private equity. That's been about five years or so in the making. It finally was. And being newer, you know, we didn't have enough private equity to have a 20% target. When you're, you know, just pacing in your first dollars, it's kind of ridiculous. So it made sense as we evolved over time to pull down our small cap exposure and direct it towards private equity.
- [09:56]
A
The truly diversified portfolio to me is a very interesting thought experiment which is if you worship at this altar of diversification, this is your model portfolio. You start with that and then you kind of tweak it from that. But you guys literally did that.
- [10:09]
C
Yeah, yeah, that's how we started the conversation. Yeah.
- [10:12]
B
And are you not just trying to.
- [10:14]
A
And why not just optimize on Sharpe ratio and come up with this super efficient portfolio that is optimized on this one variable of Sharpe ratio?
- [10:23]
C
I like to say things that are kind of controversial and maybe I end up just putting my foot in my mouth most of the times when I do. One of the things I like, one of the things I like to remark is that Sharpe ratio is a perverse indicator. So I think if you're optimizing on Sharpe ratio and you're assuming distributions are normal and you're assuming your inputs are more correct than they probably are and if there's any mean reversion, you're sort of top ticking, you know, if you're optimizing on Sharpe or targeting a high sharp investment based on historical experience. So if you really look out ex ante and by the way, like what you know, as being a consultant and having working on a lot of institutions and a lot of asset allocation exercises, it's really hard to take a lot of risk when you have all the different asset classes available to us. If you have some exposure to those and you're, you know, thinking about it pretty clearly, it's pretty hard to have a really terrible experience that you can't survive. Even in 08 and 2022. I mean, those are really dark and terrible periods. I had clients that had a lot of problems to, to deal with. But you know, they, in the end it Was, it was fine. No one missed a benefit payment, no one had to go out of business. It is fine to have a decent amount of volatility ex ante and it is fine to optimize on the return and not the Sharpe ratio. Like if you need a higher return, you're not going to have a great Sharpe ratio. And that's.
- [11:46]
A
So as part of your investment philosophy, you avoid investing from buckets. Instead you focus on facts or factor exposure. Tell me about that. And how do you do that from a bottoms up.
- [11:57]
C
Yeah. So the we actually I like to sometimes refer to as purpose driven investing. So we do have, you know, we do live in the kind of conventional world, if you will, with, you know, you never really. We can't pick our trustees. And just thinking through that and again, having that experience of sitting across from all types of trustees over a decent number of years, wanted to make sure that we were having good conversations with stakeholders as well. So we do have categories and asset classes, but they're pretty broad and vague. And so for example, we have growth and within growth, we have public and private equity. And for us we're like, okay, that's the high risk, high return part of the portfolio. So for something to be in that portfolio, we don't really care what the structure is, what the vehicle is, what the liquidity is. It could be public, it could be private. You know, obviously very, you know, like a venture fund, traditionally structured, wouldn't go in public equity. Maybe a crossover hedge fund that has 25% in private markets could be in public equity. An evergreen private equity fund, we could put that in public equity or private equity. But as, as we try and keep that generalness or that vagueness that allows us to be really opportunistic or open minded about how we invest and what we invested in, we have pretty healthy ranges and, and latitude that our trustees have afforded us. But at the end of the day, we run a factor model that, and we have, we try to have straightforward benchmarks that also represent the factor. So obviously you have AC for public equity. For real assets we use S and P real assets index. For income we use high yield one to three because we don't want duration in that portfolio. We want credit risk. And so as you're, as you're thinking about that and communicating that with stakeholders, that's pretty straightforward. Then when we go behind the scenes, so to speak, we're looking at that benchmark, the set of factor exposures and how we can add value from it. And we either want to have Intentional overweights across factors that we think will be rewarded or we want to neutralize the factor exposure but have a high residual. We're not necessarily trying to have our factors beyond the benchmark. We just want to know that, for example, we have equity beta coming from high, high yield. We if you de smooth and interpolate private market returns, you know, you have equity beta risk coming from private debt, from private real estate, you might have interest rate exposure coming from infrastructure or private real estate, et cetera. So we just want to make sure that we have a holistic view of the portfolio, what risks we're bearing and whether or not we want to bear them or whether or not we think they'll be rewarded. And that in a, you know, sophisticated regression type analysis with factors is cheaper and easier to do than implement than say a risk system that looks at all of your holdings and then tries to, you know, give you the sector weights, geographic weights, et cetera. And even still I'm like, I'm not sure how much my equity beta really actually is just seeing of, you know, how much tech exposure I have when you know, I also have data centers in real estate, for example. And are those correlated? Well, the holdings based analysis doesn't tell you that, but a factor based analysis can.
- [14:57]
A
And what tools are you using to break it down on a factor basis?
- [15:01]
C
Originally we were using MPI Markov processes. I can't remember if it's International Incorporated, but that's a great system, very sophisticated, very robust. It's a little more technical for the average user. And given that we're a smaller team and some turnover at the smaller or I mean at the younger level where you would want people running the systems. We switched from that system to Venn, which is, you might be familiar. It's a software company started by Two Sigma, the hedge fund group. And they're, they have a really robust suite of factors and a user friendly interface based on the web and it can connect with your custodian for example. And just a, just an easier way when you have, you know, interns and people with a couple years experience kind of helping you with analysis.
- [15:52]
A
Let's talk about your private book. You go pretty far down the risk curve on the venture side. You like funds under a hundred million dollars, oftentimes super angels or funds 1 and funds 2. Why play in that part of the market? What's the risk reward like for you.
- [16:08]
B
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- [17:33]
C
We first started as we were first building out our portfolio. Like I said, we have these broader categories and we have private equity as one. And then it's left to us to iterate on our allocation between, you know, buyout, growth, equity, venture, et cetera. And we put venture to the side initially at first. And we, because the, the conventional wisdom and experience I had working with larger institutions and being a consultant is that if you can't access the really well known brand names then you're probably not going to do well in venture. And you know that, that our trustees agreed with that kind of sentiment and met some local investors here who were seed stage investors running smaller funds and, and you're doing it in Utah. And they kind of made their case, had some data to back their story up. And so we worked on our philosophy for venture and decided that we probably don't have the connections or the bandwidth or the time or energy to try and get ourselves into say, you know, Sequoia or whatnot. If they're actually going to be capacity constrained, then you would want that. And if they're not going to be capacity constrained and they're going to raise many different funds and kind of push you or you know, require you to invest across all the different strategies and not just be in the early stage funds. That that wasn't ideal either. But perhaps there are in our initial philosophy was early stage meaning pre seed Seed, maybe series A and kind of off the run markets that might feed up into the food chain of Venture or some of these other shops that you need to write bigger checks. And as we spent time on that philosophy, you know we, we deviated from it a little bit. You know we got in the, in the heyday, you know we got nudged into some bigger funds that and opportunity funds and so forth that you know we call them know, stapling on and but we really honed the philosophy after we worked with a group called Sindana fund of funds and they run an.
- [19:30]
A
Advice Michael, I'm a two time Gus.
- [19:32]
C
Okay. Yeah. So you know the, you know the story. So we, we were drinking the Kool Aid from Michael and his team and then we also ran across another, you know, group of individuals that run a venture fund, a fund called Pattern. And you know, you read some of their work, look at some of their data. Moonfire also has a great website with a lot of data. And if you think about not just fund size but also portfolio construction and you think about relative ownership early on when valuations are arguably cheaper and you have the ability to size up your ownership, you know, early on and your check sizes are, you know, are smaller, the deal sizes are smaller at that stage of the market, then your ability to generate a 5x or higher, you know, mathematically should be easier. If you have a, you know, if you, even if you have a hundred million dollar fund, you kind of need five unicorns to get a 5x. Right. And are you reliably going to get five unicorns each fund, each vintage? It seems a lot easier. The smaller the check size, the smaller the fund size, the smaller the deal size. It's similar for us in private equity.
- [20:41]
A
So all things being equal, you'd love to access the Sequoias and the other capital constraint strategies, but knowing that you can't access those, instead of going second or third tier brands in that same space, you decided to go down market where you could get similar returns maybe with some more Vol. But you actually had a shot to get those kind of great venture returns that you could get in the name brands.
- [21:03]
C
Yeah, I think I agree with that summarization or simplification. And another interesting thing to us is you know, you wouldn't think of it as, we didn't think of it as a good way to invest. But if you're, if you're a solo GP and you have a small fund, you're really well networked, really well connected, you're you know, able to add Value one way or another to the ecosystem. People will, you know, invite you or allow you to write what's often called a collaborative check. And those funds tend to do really well and that you know, those. So it's, it's just us trying to make sure that when we're investing in venture, we're not just doing venture for diversification, we're doing it for, you know, as large of outcomes as we can.
- [21:43]
A
Taking a step back, how did you go about educating yourself in the venture space? Is this through the fund, a fund construct and what's some best practices for an LP that wants to educate themselves on a new space?
- [21:53]
C
Yeah, regrettably we didn't start out with a fund to fund adventure. I think in hindsight, you know, we're a small team, we were trying to be clever and implement our ideas and we work with a mid sized consulting group and it was really hard to try and build out a portfolio across all the potential opportunities for investing. And arguably we should have started with. I could speak to kind of the collaborative model we use now at maybe a later point in the conversation. But either a more collaborative model or just allocating to a fund to fund to make sure you're in the market, you're getting some decent exposure, getting your diversification from those asset classes that are harder to implement and then over time building up your experience and capability. I think that's how most people do it. That's how we should have done it. We spent. You know it is kind of a funny story. We, we. One of the fund of funds we did was China Venture in China. It's early stage met all our criteria except we were like, you know, we'll never get to China in, in terms of being, you know, good at selecting venture managers. So the fund to fund was a pretty kind of a no brainer if you wanted China exposure anyway. And it was supported by our consultants. So that was something we did a 2017ish or you know, plus or minus. And at that conference I met someone who I was describing, you know, this conversation we're having and he said oh, you need to meet this guy, Michael Kim. I couldn't find it, I couldn't. I spent a decent amount of effort trying to get in touch with Sindana and it wasn't until a few years later that we actually synced up and ended up, you know, partnering with them. But the, the amount the, the venture community, the GPs there, the fund of funds and some of the advisors, there's a lot of data that they're working with, it seems, you know, maybe it's just, you know, my, you know, a familiarity or recency bias. But it seems like since Sandana has grown in size and garnered attention, there's been a lot more thoughtfulness around fund size, portfolio construction. And now when I'm on LinkedIn, I often see a lot of data driven analyses around these topics and they don't always all point to the same thing. But just back to the actual question of how do you educate yourself? I think there's a ton of stuff online that's data oriented in nature that makes, you know, that lays all of that out for you. The manager selection part, really difficult. Like I said, we ended up partnering with a couple of fund of funds as scout funds or sourcing partnerships if you will, just because of the sheer volume and difficulty in taking care of the portfolio while also trying to find, you know, 50 $75 million funds, you know, run by a single person or a couple of people.
- [24:28]
A
Tell me about this collaborative model that you alluded to.
- [24:31]
C
So working with consultants is having been one, I think it's okay for me to say, and we still work with consultants. We appreciate the value they bring. They're an extension of staff, they have a lot more resources than we do, but they need to. Their business model is such that they need to serve the, I don't know if you'd call it the largest common denominator, but it is kind of a business of solving for a lot of clients. And if you're, if you have a custom approach or a niche approach or a niche interest, that's a one off for them. It's, you know, it takes away from, from their bottom line. And when you're working in a more collaborative model where you know, consultants would collaborate on the sense that, you know, you're sharing ideas and you're asking for services or getting, you know, some step off the shelf provided. But if you enter into more of a commercial relationship where for example, you're, you know, we're anchoring on some evergreen funds and with some advisory type firms and we're receiving in exchange either revenue share discounted fees or advisory services or database access or other software, one or more of those in each case. And now we have this commercial kind of relationship where we, you know, we are in business together, so to speak, and when we want access to XYZ research or database, if it's, if it's, if that work is done by them, then we, you know, can roll that off the shelf and we don't need to roll up our sleeves and do as much due diligence or underwriting because those very capable people with a lot more resources than we have and in some cases a lot more experience have done that underwriting. So that frees us up on what you might call more conventional type exposures. And then we also have the ability to bring either bring to them what you might call like satellite or niche type fund or strategy. And they're, you know, they're obligated to work with you in some capacity depending on the nature of your, of your collaboration, commercial collaboration. And we, or we just have that extra bandwidth to work on that ourselves and on those kind of satellite exposures, if you will. And in addition to that, we're able to in certain areas where we think the upside is more limited, like private, we call it private income, call it private debt, private real assets, which includes real estate infrastructure, all kinds of natural resources, maybe some other things. You'd be really hard pressed to get like a 2x net or 3x net from those strategies. Right. The odds are really good that if that your downside is really well protected, but your upside is pretty capped. And I think that's like the diversifying benefit there's partially that those types of strategies bring. But in order to really drive returns there we looked at the structuring and you know, fees on committed or how long it takes to deploy or both. And we've, as part of our collaboration we're able to structure co invest accounts that are with minimal expenses. So we're, you know, we're not paying management fees, we're not paying carry, we're not, you know, when the cap, we're not committing capital, paying fees on committed capital. And so that kind of call it like structure alpha, if you will, from the nature of those relationships and how those deals are packaged, we have that uplift of being, you know, we're going to pretty easily get median gross returns, if not better. But then we are adding back all of those fees that fee drag over time and that allows us again more bandwidth for putting private markets money to work or hedge fund exposure to work where we can really focus on making sure we're picking the right strategy or the right manager that might be a little more difficult to require a little more heavy lifting.
- [28:07]
A
Professor Steve Kaplan, who was on the podcast a few months ago, he came up with this Kaplan Shore Index and he figured out that 2 and 20 on a per year IRR basis was actually 6 percentage points. So to your point, if you have half of your funds in a 2 and 20 half in a co invest with 0 and 0, you're actually getting 3% alpha across the entire portfolio. It was pretty significant alpha when it comes to Coindes.
- [28:34]
C
100% agree.
- [28:35]
A
You're also using AI tools to screen decks. What are these AI tools and how are you using them strategically?
- [28:41]
C
We tried to be early adopters of AI when ChatGPT first came out, but then we realized the confidentiality concerns and we weren't really able to put manager material in there. But you can obviously have it proofread a memo that doesn't contain any confidential information or all the other things we might use CHAT GPT for. But we really thought we were going to be able to, you know, adopt it. Early on we had a working group we called Skynet, but each time we met we were like, I like we're kind of locked out because the, you know, because of our confidentiality provisions that we agreed to with managers and put it to the side. And then we finally, you know, got our hands around the corporate, for lack of a better term, you know, subscription chatgpt. And then we were like, you know, individually using it with, you know, everyone's working on their own, different prompts and with more or less success and, and you know, it's actually a lot of work to get, you know, those prompts right and to get, get it where you need it to be. And meanwhile we were working with and looking at software providers. You know, there were quite a few out there, but the, we spent about a year looking at names because each time we looked at a new name, things were moving forward, things were evolving. And each time we had a question or like, well, we're looking for a CRM solution as well, they'd say, oh, give us a month and we'll have that, you know, programmed in and we'll, we'll talk again. And sure enough, you know, people are coming back. And so it took us a while. We were pretty patient. And then more recently, you know, we've, we've adopted a group or, you know, we've, we've subscribers signed on implementing it. And the idea is, I think, you know, maybe to state the obvious, that it does not make investment decisions for us, doesn't make any decisions for us. And not yet. I'm here. Not yet. Yeah, he used to say the, the interns were cheap AI. Now the interns are expensive AI. But you know, that kind of level of work that you might have an intern or an administrative person do you have to gather the data. Then you you know, winnow it down somehow with criteria. Then you collate the rest of it to make sure that you've got all the pieces you need to underwrite and in one place. And you do your best to score it. And, you know, maybe it's after lunch or maybe you had a, didn't have a good night's sleep or you're mad because you didn't source the deal and now you gotta work on it anyway. And all these things, you're like, oh, that's a low score. You know, and we, we've always tried to have objective metrics to look at and point to when we, you know, in our templates that we're underwriting. And it's just really hard to be objective and score certain things. But now we can say, you know, take the first path, like, get all the data, put it all in one place, make sure you're giving us the good and the bad. So you don't just say, like, which man. You know, you're being simplistic. The prompt should be pretty specific on please don't give me an answer to a decision, but please highlight what the ownership structure looks like, what percent you know of this firm is employee owned, and how is it distributed amongst the team. And if it's greater than X or smaller than X or whatever, then that gets a certain score. And when you point the system at a, it's, you know, say a folder or data lake with all your stuff in there, your meeting notes, your manager notes, all the man of the collateral paraphernalia, all that stuff that comes along with doing the due diligence and investigating managers. You can take your criteria, your philosophy, your criteria, and your own framework and your own template and have it be, you know, delivered to you as you want to know ownership, here it is. You want to know fees, here it is. You want to know what terms are in the LPA that you said are red flags. Here they are. You can do that more or less. You know, you can do a lot of the due diligence kind of data gathering and assessment really early up front. If you have all the materials, including legal due diligence, operational due diligence, before really spending the time to do the softer work around culture. And, you know, how do they generate, like, do I buy this philosophy? Is this philosophy going to persist? And it's just such a time, you know, it's a, it's a, it's leverage for the team. We, it affords us time to think and discuss and actually have everyone read the memos before a team meeting versus you know, you're trying to write your own memos, let alone read everyone else's. And, you know, a good example is, you know, someone has to go through the LPA to or something to look up exactly what the fees and operating expenses are when it really should just be in a table somewhere. It's pretty exciting. It's pretty early days, so we'll, you know, we have no real kind of success stories yet other than people are pretty excited about the leverage that's affording.
- [33:14]
A
Us what practically is different about investing out of a sovereign wealth fund versus say, a pension fund or an endowment.
- [33:23]
C
Each entity is going to be different, right? In terms of at least marginally different. But for us, we're permanent capital or perpetual capital. And you know, all sovereign wealth funds are but our beneficiaries like a lot of other western states or 22 Western states that have had or still have sovereign wealth funds. And the beneficiaries are K through 12 public schools. And in our case, you know, that check goes directly to those schools. And so that's one aspect is thinking about the distribution and thinking about it all the way to the end beneficiary. And then the other part of the ledger is the capital coming in from land revenues. So we have to monitor or try and forecast or manage those income and cash flows and then think about making sure those distributions are not disruptive.
- [34:11]
A
Well, Peter, this has been an absolute masterclass in how to invest like a sovereign wealth fund. Thanks so much for jumping on the podcast and looking forward to continuing this conversation live.
- [34:20]
C
I appreciate it. Thanks for the invitation. Good conversation.
- [34:23]
B
That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find it valuable or leave a.
- [34:31]
A
Short review wherever you listen.
- [34:33]
B
This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.