E166: $20 Billion CIO: Why Small Cap Stocks Have Underperformed (and why that’s unlikely to change) w/Brad Conger

May 23, 2025

Brad Conger, Chief Investment Officer of Hirtle Callaghan, oversees $20B in investments and shares his insights on small-cap stocks and their structural decline. He explains how private equity has shifted the market dynamics, siphoning off top growth companies. Brad discusses the appeal of illiquidity for investors and the importance of strong processes over predictions. He also reflects on a contrarian bet that paid off in Europe and shares his unique 'crazy trade' for his 90-year-old mother, illustrating creative thinking in investment challenges.

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INSIGHT

Small Cap Index Quality Decline

The small cap index has fundamentally changed and is now lower quality than in the past.
Private equity keeping companies private longer has truncated the growth capture in small caps.

INSIGHT

Quality Shift in Small Caps

Many small cap public companies are 'zombies' with EBIT less than interest expense due to increased debt risk.
High quality growth companies now mainly remain private, raising the public market's risk profile.

ADVICE

Adapt Portfolio to Private Markets

Allocators should increase private market exposure to access high-quality growth companies unavailable publicly.
Even modest alpha from private equity justifies its illiquidity in diversified portfolios.

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Brad Conger has a rare view into the evolving dynamics of institutional portfolios—and how allocators can adapt. As Chief Investment Officer of Hirtle Callaghan, a $20B OCIO, Brad is responsible for investment decisions across public and private markets, and he's developed a highly nuanced view of what's working, what's broken, and where alpha really comes from. In this episode, we cover the structural decline of the small-cap index, how private markets have siphoned off the highest-quality growth companies, and why illiquidity can actually be a feature—not a bug. Brad also shares how he builds conviction in contrarian positions, what makes a great spinout manager, and why bigger private equity funds may still outperform. If you're building or managing portfolios across public and private markets, this episode is full of actionable insights.

Highlights:

Why the small-cap index is now “adversely selected”
How private equity and venture capital have changed public markets
The alpha case for private markets (even at today’s prices)
The emotional benefit of illiquidity for investors
Why “alpha fetishism” leads to poor portfolio construction
A contrarian bet on Europe—and why it paid off
Why good process beats good predictions
Lessons from writing puts during a market selloff
The underrated strengths of large PE firms
How to underwrite spinouts—and what can go wrong
Brad’s “crazy trade” for his 90-year-old mother

-- Guest Bio: Brad Conger is the Deputy Chief Investment Officer at Hirtle Callaghan, one of the largest outsourced CIO firms in the U.S., overseeing over $20 billion in assets. He is responsible for investment strategy across asset classes and geographies, leading the firm’s efforts in portfolio construction, manager selection, and tactical asset allocation. Brad previously worked at Goldman Sachs and holds degrees from Harvard and the Wharton School at the University of Pennsylvania.

Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email David Weisburd at david@weisburdcapital.com.

We’d like to thank @JuniperSquare for sponsoring this episode!

#VentureCapital #VC #Startups #OpenLP #assetmanagement

-- Sponsor: Juniper Square is dedicated to transforming the private markets investing experience. The company provides a full range of modern, connected fund technologies and services for over 2,100 private markets GPs across fundraising, reporting, fund administration, treasury, compliance, and business intelligence. Today, over $1 trillion of assets and 600,000+ LP accounts are managed through Juniper Square software and fund administration services. Learn more at www.junipersquare.com/vc.

-- Stay Connected: X / Twitter: David Weisburd: @dweisburd

LinkedIn: David Weisburd: https://www.linkedin.com/in/dweisburd/ Brad Conger: https://www.linkedin.com/in/brad-conger-2990884/

-- Links: Hirtle, Callaghan & Co.: https://www.hirtlecallaghan.com/who-we-are/

-- Questions or topics you want us to discuss on How I Invest? Email us at david@weisburdcapital.com.

(0:00) Episode preview (0:45) Changes in the small cap index and implications for private equity (3:07) Quality and balance of public small cap companies in the new economic environment (7:15) The virtue of illiquidity in investments and issues with LP consultants (9:20) Asset allocation and finding quality in the small cap space (16:32) Thesis on investing in Europe and executing contrarian bets (20:26) Building conviction and the benefits of discretionary investment management (22:54) Role of corporate governance and client-manager relationships (25:45) Leeway for general partners and the European investment landscape (28:00) Navigating tariffs, strategic communication, and risk management (34:43) Bullish perspective on big private equity funds and talent retention challenges (41:06) Effective generational planning and diversifying a private equity portfolio (44:24) Preference for spinouts, their advantages, and fund scalability (52:09) Personal vs. client investment strategies and received wisdom in asset allocation (57:26) Evolutionary psychology and herd behavior in finance (58:33) Closing remarks