Capital Allocators – Inside the Institutional Investment Industry

Scott Malpass is the esteemed Vice President and CIO of Notre Dame, where he oversees the University's $12 billion endowment. Scott earned his B.A. and M.B.A. degrees at Notre Dame, and returned to South Bend at the ripe age of 26 following a brief stint on Wall Street. His track record for almost 30 years, as defined by both performance and impact, place him indisputably in rare company at the very top of the field. Among his many accolades, Scott received Institutional Investor's Endowment Manager of the Year award, NACUBO's Rodney H. Adams Award, and CIO Magazine's Lifetime Achievement Award. He has taught students at Notre Dame since 1995 and among other directorships and advisory councils, he serves on the Boards of the Vatican Bank, Vanguard, and TIFF, and previously served on the Investment Advisory Committee for Major League Baseball. In 2014, Scott became part of the founding group for Catholic Investment Services, Inc., a not-for-profit offering top tier investment solutions to Catholic organizations nationally. Our conversation is a full-blown master class on endowment management, including the benefits of a long tenured team, asset allocation frameworks, passive management, preparing for dislocations, the state of venture capital, sourcing, monitoring and exiting managers, incremental process improvements, professional and personal development, and education and alignment across constituencies. It's hard not to be in awe of Scott's combination of humility, experience, and success. For more episodes go to CapitalAllocatorsPodcast.com/Podcast Write a review on iTunes Follow Ted on twitter at @tseides Join Ted's mailing list at CapitalAllocatorsPodcast.com Show Notes 3:26 – How Scott got started at Notre Dame 6:22 – Why tenure of the staff is so long on Scott's team 8:26 – How did he handle bad hires among such a tight knit team 9:37 – Committee makeup 11:18 – How the continuity and depth of institutional knowledge allowed them to make better decisions 12:51 – Their first single asset real estate investment 14:21 – What is the best use of time for the investment team, managing a direct investment or researching new managers 15:07 – Core investment beliefs from Scott's past that drive the portfolio 17:28 – Core investment beliefs that drive the portfolio today 20:43 – How does Scott think about portfolio construction techniques 22:49 – Factors they like to tilt towards 23:36 – Any concerns about the focus on active managers in a world that is moving towards passive 26:02 – How much of the US investing market should be indexed-based 27:37 – The baseline that Scott has to consider when making investment decisions 29:43 – Their focus on emerging and middle markets, particularly Europe 34:01 – Pricing in the venture capital markets today 36:31 – Implications of all of this new money moving into private market investing 37:40 – Do private equity owners make better decisions for businesses 39:52 – Scott's manager selection process 41:44 – How much time does Scott spend with managers before making a decision to invest with them 43:14 – Jim Dunn podcast episode 44:04 – What has Scott learned about the behaviors of making that final decision on a manager 45:39 – Mistakes that Scott has learned from and corrected over the years 49:36 – Creative ways to monitor managers in the portfolio 52:08 – Scott sharing how special the managers in the portfolio are to them 54:49 – How would Scott think about an investment portfolio of $1,000,000,000 of cash 56:57 – Benefits and drawbacks of direct vs co-investments 59:43 – Biggest current subject of debate on an investment topic in the office 1:01:47 – Lessons from their annual offsite meetings 1:04:31 – Biggest concerns about the markets today and over the next 10 years 1:07:52 – Closing Questions

Jim Dunn is the CEO and CIO of Verger Capital Management, an Outsourced CIO business whose anchor client is Wake Forest University. Prior to forming Verger, he served as CIO of Wake Forest for five years. That transition from a sole client to an OCIO business, is a fascinating part of our conversation. Before joining Wake, Jim traveled the world as CIO of Wilshire Associates, where among other things he experienced the best story of a manager getting their foot in the door that I've ever heard. He got his start in the business trading death spiral convertible bonds at a now defunct hedge fund and got introduced to manager selection at Investorforce. Our conversation starts with Jim's career path, and covers a full range issues in allocating capital. We discuss defining risk tolerance, a factor-based approach to asset allocation, separating talent from luck in manager selection, the politics of endowment management, challenges using internal management, and culture. If you listen carefully, you'll hear a few one-liners. Jim is chock full of gems and life lessons. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Dan Egan is the Director of Behavioral Finance and Investing at Betterment, the market leading robo-advisor overseeing $10 billion in assets. Dan has spent his career applying behavioral finance principals to help individuals make better financial and investment decisions. Prior to joining Betterment in its early years, Dan spent six years as a Behavioral Finance Specialist for Barclays Wealth Management. He is a graduate of Boston University and the London School of Economics and lectures at New York University, the London Business School, and the London School of Economics. Our conversation discusses how Dan has created evidence-based tools that improve outcomes for individual investors, ranging across tax-loss harvesting, rebalancing, client reporting, mental accounting, commitment mechanisms, and communication during turbulent market times. As he spoke, Dan had head my head spinning thinking about how institutions and individuals alike could implement quantitative tools in their investment processes to avoid known behavioral pitfalls during critical market moments. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Chatri Sityodtong is the Founder and Chairman of ONE Championship, Asia's largest sports media property. Chatri started his career as many listening to this show have: he graduated from Tufts University, worked at Fidelity Investments and Bain Consulting, attended Harvard Business School, took a run at a technology start-up, and then spent a decade working at hedge funds, culminating in launching his own fund, Izara Capital, that grew to $500 million in assets. But Chatri's story is vastly different from any stereotype he may appear on paper. Despite a comfortable life growing up, his family lost everything in the Asian financial crisis. A decade later, despite his financial success, Chatri felt an emptiness and loneliness at the top that he couldn't shake. Instead of pushing on, he returned investor capital and moved back to Asia. From there, he followed his passion for Muay Thai fighting and began building a budding sports empire. Our conversation tells Chatri's story, replete with lessons about entrepreneurship, investing, hard work, and the warrior spirit. For those who wonder if a career in the financial markets is the only thing they know, Chatri's path suggests a different and fulfilling way forward. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Richard Lawrence is the Chairman and Executive Director of The Overlook Group, a $5 billion investment organization focused on Asian equities that Richard founded in 1991. Over the past quarter-century, Overlook developed and implemented disciplined investment and business philosophies that interconnected to drive extraordinary results for its partners. Overlook has compounded capital at an annualized 14.5%, outperforming its benchmark by an insane 9% per annum. But that's not all, as Richard would proudly tell you himself, the capital weighted return of the average investor in Overlook is nearly identical to the time weighted return over any period of time – a rare feat in the money management industry. Indeed, today's asset base is the result of $4 billion of investment gains on top of $1 billion in contributed capital. Our conversation starts with a look at investing in Asia in Overlook's early days and walks through the particulars of the approach Richard takes to investing and running his business, including attractive investment attributes, management integrity, portfolio construction, selling discipline, and China Yangtze Power - the only stock the firm supersized in an SPV in its history. We discuss Overlook's long-held cap on subscriptions and periodic reductions in its management fee, two business philosophies that Richard believes have been key drivers of Overlook's success. If you enjoyed my conversation with Tom Russo, you won't want to miss this one with Richard. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Kip McDaniel is the Chief Content Officer and Editorial Director at Institutional Investor. Prior to joining II a year ago, Kip spent seven years as the Founding Editor and Editor-in-Chief of CIO Magazine, a media platform that led him to interview 2,000 Chief Investment Officers across every type of asset base around the world. Kip is a graduate of Harvard College, received a Master's at Cambridge University, and was an elite crew rower, culminating in bringing home bronze medals for Team Canada in two World Championships. Kip is inordinately well-liked in the community, and I had a hunch I would learn a lot from getting his perspective on the people who make capital allocation happen. Suffice it to say, I wasn't disappointed. Our conversation starts with an inside look at Chief Investment Officers – how Kip finds them, ranks them, and discovers what makes them tick. Over the back half of the discussion, we turn to the lessons he's learned about investment success, incentives, fads, and issues that permeate capital allocation. Kip's modus operandi is story-telling, and this conversation is chock full of good ones. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Dan Schorr is the founder of Vice Cream, an early stage company that is bringing back unapologetic indulgence to the ice cream industry. After graduating from Tufts University, Dan turned his passion for running into a career working with consumer brands, including Power Bar, Saucony, and PepsiCo. Following two unexpected life events, he turned his focus towards developing a brand of his own. Our conversation tracks Dan's path and walks through his start-up story. His energy is infectious and his road traveled has great parallels with investing and lessons for managing a business. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Tom DeLong is a renown expert in organizational behavior, leadership, and human development of high performance professionals, the so called "soft skills" often dismissed in the asset management business. After starting an academic career under the wing of Stephen Covey, Tom found himself recruited by John Mack to work alongside him to develop a positive culture at Morgan Stanley. After eight years in the trenches, he returned to academia as a professor at Harvard Business School, where he has remained the past twenty years. Unlike most of us, Tom's resume and achievements are unusually difficult to locate online or elsewhere. It was a sign of things to come in our fascinating conversation, which is simultaneously a master class in authentic leadership and a live case study in self-exploration with Tom as his own protagonist. Tom is exactly the type of person he has studied, and strives to be the type of leader he promotes. We discuss the meaning of work, the importance of feedback, the ways high performing professionals derail themselves, the difference between your image and your essence, the omnipresence of insecurity in high achievers, and some techniques to foster deeper conversation in relationships. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Adam Blitz is the CEO and Chief Investment Officer of Evanston Capital Management, a $4.5 billion hedge fund of funds manager with a decade and a half of experience managing hedge fund portfolios. Adam joined Evanston at its inception in 2002 and leads investment research and portfolio management. Previously, he worked in the Prime Brokerage area and Asset Management Division of Goldman Sachs and served as head trader at AQR. Adam earned a B.S. in Economics at the Wharton School. Our conversation dives in the hedge fund category of investing, covering how a leading allocator in the space thinks about strategic asset allocation, portfolio construction, risk management, manager research, decision making, and monitoring managers. Adam's perspective on the evolution in how allocators perceive hedge funds and the resulting unattractiveness of the "average hedge fund" today resonate strongly with how I've viewed this widely discussed and recently scrutinized corner of the markets. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on twitter at @tseides

Tom Russo is the Managing Member of Gardner Russo & Gardner, where he manages $11 billion in a long only, global value strategy. Tom buys the stock of global consumer businesses with great brands and holds them for a really long time. He looks for businesses with a capacity to reinvest free cash flow and a capacity to suffer through short-term pain in order to achieve long-term gain. Tom started his investment career at the Sequoia Fund in New York, where he worked from 1984 to 1988. His first partnership, Semper Vic Partners, has compounded at 14.6% per year for 33 years, besting the S&P 500 by 3.6% per annum. Tom is a graduate of Dartmouth College (B.A., 1977), and Stanford Business and Law Schools (JD/MBA, 1984). He has served on Dean's Advisory Council for Stanford Law School, Dartmouth College's President's Leadership Council, and the Advisory Board for the Heilbrunn Center for Graham & Dodd Investing at Columbia Business School, as well as on the boards of the Winston Churchill Foundation of the U.S., Facing History and Ourselves, and Storm King Art Center. Our conversation covers how Tom created an investment strategy by personalizing early lessons from Warren Buffett, the capacity to re-invest, the capacity to suffer, and what it takes to own a stock for decades. Tom's time horizon and fortitude as an investor parallels those of institutions with permanent capital. Listeners will get a fresh perspective on what it means to be a long-term investor For more episodes go to CapitalAllocatorsPodcast.com/Podcast Write a review on iTunes Follow Ted on twitter at @tseides Join Ted's mailing list at CapitalAllocatorsPodcast.com Show Notes 3:20 – How the spark got lit for Tom to become a value investor 3:54 – The Sharpe Ratio 6:26 – Family and personal background 8:03 – Move to consumer brands 12:06 – Key tenants to investing in consumer brands 12:26 – Family controlled 14:04 - Capacity to reinvest 15:17 - Capacity to suffer 19:10 – Portfolio turnover and the investment in Heineken 22:46 – Position sizing when portfolio turnover is so low 25:08 – Opportunity costs and behavioral finance 28:58 – Benefits of insider insights 31:02 – The capacity of Tom's investors to suffer 34:00 – What is happening today with the investor base and their capacity to suffer 36:07 – The structure of Tom's strategy vs. a more a diversified portfolio 37:28 – Sitting on investment committees 38:02 – Comparing Tom's decision-making process to Warren Buffett's 40:29 – Case study of Wells Fargo 44:21 – Does reputational damage impact the ability to reinvest 47:04 – Tom's research process and the importance of listening 49:46 – How Tom keeps track of nuggets in everyday conversations 51:00 – Closing questions