CIO Greatest Hits: Endowments – Andy Golden (Princo)

Our Summer Series kickoff is a twofer, Andy Golden, now retired after thirty years at Princeton University Investment Management Company, and Scott Wilson from Washington University-St. Louis. We packaged these two leading endowments to compare their investment styles. Andy started his career at Yale with me and became one of the leaders of the endowment model for decades. His discussion of Princo's decision-making process is among the most referenced descriptions of any podcast with a CIO. Original air date: June 26, 2017 Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com https://thepodcastconsultant.com/)

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Ted Seides?

  Capital Allocators is brought to you by AlphaSense. Every allocator sits at their desk for hours preparing the work around investment decisions, getting up to speed on a new theme, prepping for the next investment committee meeting, and tracking what changes across an entire portfolio. AlphaSense just launched something built to help. It's called SuperAnalyst, an always-on agent that works like a power user on your behalf. It draws on over 500 million premium sources, including broker research, expert transcripts, company filings, and earnings calls, and keeps working long after you've gone home for the day. Point SuperAnalyst at a theme, company, or market, and it learns the coverage universe

• 0:46Ted Seides?

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• 1:29Ted Seides?

  built for firms who are rethinking how work gets done. You're at your desk looking at a line graph of your firm's growth. The line is moving sideways, linear growth, and you know exactly why. You're constrained by your operational bandwidth that's been the same for so long, it just feels like the cost of doing business. RidgeLine is built to change that line's trajectory, to be the inflection point that takes your growth from incremental to accelerated with the team you already have in place. RidgeLine is the only AI-native investment management platform that brings together the front, middle, and back office with one set of data and powerful AI agents that automate

• 2:12Ted Seides?

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• 2:57Ted Seides?

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• 3:32Ted Seides?

  Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com.

• 3:59Speaker 01

  All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of capital allocators or podcast guests may maintain positions in securities discussed on this podcast.

• 4:18Ted Seides?

  With eight years and over 500 podcasts under my belt, I'm often asked to recommend my favorite episode. But I can't really answer that question. I feel like I have 500 children and don't think I've disowned a single one. So when asked, I usually offer up a great recent episode to get a listener started. Finding the best episodes in a big library of content isn't easy, so we thought we'd help. Each summer going forward, we're going to share our best. Over seven weeks, we'll replay conversations curated from our favorites and yours, excluding those from the last 12 months. Our 2025 summer series focuses on CIOs.

• 5:03Ted Seides?

  We're blessed to have an incredible library of long shelf life content, and we just couldn't pick seven. Instead, we'll share a dozen gems canvassing every type of institutional asset owner. Our summer series kickoff is a twofer of Andy Golden, now retired after 30 years at Princeton University Investment Management Company, and Scott Wilson from Washington University St. Louis. We packaged these two leading endowment investment officers to compare their investment styles. Andy started his career at Yale with me and became one of the leaders of the endowment model for decades. His discussion of Princo's decision-making process is among the most referenced descriptions

• 5:48Ted Seides?

  of any podcast with a CIO we've had. Scott comes from a direct investing background and has adopted a position-focused approach to diligence and co-investing, leading to a very different portfolio construction. It's perhaps the leading example of a new approach in the endowment world.

• 6:07Speaker 02

  Before we get to the interview, a quick announcement. We've set new dates for our Capital Allocators University for investor relations and business development professionals. Those dates are December 3rd and 4th in New York City. Later in the year is just a better time of year for this gathering. It's post AGM season, travel starts to wind down, it's right before the holiday crunch time, and it's a great time for capital raisers to reflect on their previous year and plan for the year ahead. December 3rd and 4th in New York City. CAU for IRBD is a closed-door gathering for capital raisers to connect with peers, learn from allocators and other experts, and really share in best practices with each other. You can learn more at capitalallocators.com/university.

• 6:49Speaker 02

  Thanks so much for spreading the word about Capital Allocators University for investor relations and business development professionals.

• 6:56Ted Seides?

  Please enjoy my conversations with Andy Golden, all the way back to episode 13 in 2017, and Scott Wilson from 2020. Andy, thanks for joining me.

• 7:09Speaker 04

  My pleasure.

• 7:10Ted Seides?

  You have been here at Princeton for a while now.

• 7:13Speaker 04

  22 years.

• 7:15Ted Seides?

  22 years in the same seat. So you started your career as a professional photographer, which is not the normal path to endowment management. How did you get from being a photographer to running the show here at Princeton?

• 7:28Speaker 04

  You know, I was a photographer really as a day job, supporting artistic aspirations. And what interested me in photography was the idea that maybe I could do some art with it. And I remember getting very excited when I finally landed a day job in photography as opposed to before that. I was basically carrying heavy things, and I drove a truck a little bit, and then of course I had a lot of bartending. I finally got the photography job, and along the way, after some geographic moves, I ended up in the in-house advertising photography group for a department store.

• 8:11Speaker 04

  And I ended up kind of moving up the de facto ranks and getting involved in management. I was the assistant to the manager, not the assistant manager, of this ten photographer studio. And that actually got me interested in organizational issues. I was a philosophy major undergrad and I had not taken anything practical.

• 8:32Ted Seides?

  A philosophical photographer.

• 8:34Speaker 04

  Yeah, yeah. But, you know, trying to organize a bunch of folks to throughput work. I stumbled on this economic principle of adverse selection that if you treat people really badly, then you're unlikely to get really great people working for you and it creates a vicious cycle. So I had this notion that maybe there'd be a better way to let workers share in the gains, the productivity gains that they, maybe they could produce. And I knew I needed to learn more. And so I applied to the only management program that would even look at an application

• 9:15Speaker 04

  like mine, which was the Yale School of Organization and Management, as it was called back in those days. And sure enough, I got in writing an application about employee ownership, of all things. The woman who's now my wife had a wonderful opportunity land in her lap that meant that I should defer, and I did defer my admittance for a year. Again, with no economic training, though I understood the idea of a free option, that I had the free option to try something completely different. And the option would be that if I didn't like it, I could go to school. If I loved it, I didn't have to go to school.

• 9:55Speaker 04

  And so what I did is I went through the newspaper, saw an ad, took a math test, and started to work in a very small money management firm outside of Philadelphia, doing technical analysis. I was essentially a human Bloomberg machine. Bloomberg had just kind of gotten started, this is 1986, but we had a system called Quotron, and I would read numbers going across the screen and calculate them with my left hand and draw up charts with my right hand. And it was really exciting to really be enmeshed in the market in that way. It was intense. And so I didn't like that job enough to stay, but I was fascinated by the market. And so when I went off to school...

• 10:40Speaker 04

  I wasn't quite sure what I wanted to do. And investing was interesting to me, but I was concerned that it wouldn't be fulfilling as a long-term career because of the lack of kind of social impact. And I had heard about this thing called socially responsible investing. And I thought, as many people, you know, of that age think, wow, that, that sounds like cake and eat it too. I need to learn more. And I heard about this guy who had recently started working in the Yale Investments Office, who had done community economic development work. And I was so naive about the world of investing that I didn't realize that those were two very different things.

• 11:22Speaker 04

  So I, I went for Dean Takahashi. And I wasn't sure if that was his name or his title. But I went off for an informational interview. And within somewhere between three and eight minutes, he convinced me that socially responsible investing was a silly concept and certainly not a way that, not how I would want to spend my career. But if I was interested in doing good while investing, they were looking for an intern in really what was ground zero at time, T plus two for this revolution that you know well, the Takahashi Swenson model of investing. I can't, I'm not allowed to use the Y word. Yes, of course.

• 12:06Speaker 04

  The endowment model. And that, I just felt like the luckiest guy. I'd found a, a job that was just so fascinating and I would have stayed there. But for, as you know well, there's an economic issue that endowment management did not pay very well. That was okay. I was, I had bought onto that, but Yale paid particularly poorly. And, um. Back then. Back then, back then. But, uh, so, uh, Dave Swenson, I asked for his help and he got me an offer to come to Princeton for triple my compensation. I got my own offer to go to Duke, my alma mater undergrad for double. So I took the Duke job and everyone in the Yale office applauded, not just because they're

• 12:49Speaker 04

  happy to see me go, but because it meant that finally there was a data point of someone who wouldn't put up with the pay scale there. So I went off to Duke and then 18 months later, Princeton called and said, hey, instead of actually being number two person in the office, we got some things going on here where we have a slot to run the university office. Yeah.

• 13:09Ted Seides?

  And that was 22 years ago. What?

• 13:12Speaker 04

  Almost as long as it took to tell the story.

• 13:15Ted Seides?

  So what? What was here when you arrived? And? What did you felt you needed to change in the first couple of years?

• 13:26Speaker 04

  Yeah, there was very little here here when I arrived. And it's an interesting story about, in some sense, Princeton was a victim of its own success. Its investment track record of what was then a three point some billion dollar endowment was very, very, very strong. And so it hadn't really been motivated. There wasn't that much broken to to fix in, you know, at least in the trustees, you know, the governance powers minds. You can understand why. But Princeton had built up this long track record of success in an unusual way.

• 14:05Speaker 04

  And for decades, there had basically been a a single volunteer who made security level decisions. And that went very well for a long time. Finally, there was a shift to the use of a few, a handful of outside managers. But those were still selected by a trustee committee. Although there was great deference paid to the chair's prerogative. Or back then, they always said chairman's prerogative because it was certainly a man. And it wasn't until 1987 that there was any professional staff dedicated to this. And the Princo, which is a university office, we're not a separate company despite the name,

• 14:50Speaker 04

  was set up and the first Princo president was chosen. He will tell you this. I'm not besmirching him in any way. He will tell you he was chosen in part because he didn't have a whole lot of experience in investing. And so the trustee who had the most responsibility felt he wasn't going to get in the way. He's a tremendous smart guy who was a well-known entity to the university president. At the time, so from eighty seven to ninety five, he served, he then followed Bill Bowen. His name's Dennis Sullivan. He followed Bill Bowen to the Mellon Foundation. Second Princo president came along, Randy Hack, who had, as his first career, he was a brilliant, tremendously successful real estate entrepreneur and well-known entity

• 15:32Speaker 04

  to the inner circle of trustees. So he was brought in, but he had no real experience outside of real estate. He's trying to figure out this governance model where the chair really remained the decision maker. There was a Princo president, but by no means was a Princo president the true chief investment officer. And the chair at the time was a guy named Dick Fisher, who had a day job as chair and CEO of a little firm called Morgan Stanley. And Dick had the vision to put forward three initiatives that he felt were really going to be important in the nineteen nineties. He knew that the nineties were not going to be the eighties. You weren't going to simply be able to make money by simply showing up.

• 16:16Speaker 04

  Oh, well, turns out he got that wrong, but he got the idea right of diversifying into private investment, hedge funds, and also a third leg, which was a little bit less clear, was a good move, global balance management. Randy recognized that the private investment really required an intensity of effort that could not flow through the chair. So he constructed the idea for this affiliated fund, Nassau Capital, that was given an exclusive multi-year contract to manage our non-marketable. Directly. Yeah, I mean, they were holding on to it. They did both funds to funds and some

• 16:56Speaker 04

  direct investment, mostly co-investment. But he basically took what was a small staff, but he took essentially all of it with him. So I showed up here and there was one colleague who was pretty frustrated that she hadn't been given the nod to lead the office and two secretaries and a pretty much of a blank slate. And I spent the next several years trying to present a vision simultaneously, trying to improve the portfolio, present a new philosophy for a decision framework, present a vision for an organization. That was first with Dick Fisher. When his term ended, another longtime trustee, Ed Matthews, who had been, at the time, was the chief investment

• 17:41Speaker 04

  officer for AIG. And it was Ed that really helped move the ball forward on a new governance structure, which became a staff-centric decision model, fully empowered.

• 17:54Ted Seides?

  Yeah, which is, by the way, this is pretty unusual, right, for an investment staff to have full discretion to make, like mostly manager decisions at that point in time, right?

• 18:04Speaker 04

  Right, right. It was really unusual and in fact was not what I originally proposed. I said to Ed, I don't want to reinvent things when there's a good model. You know, here's a kind of Yale-like model where the major decisions, manager hires, fund re-ups, would still flow through the committee or what we'd call the PRINCO board. There'd be a lot of kind of benefit of the doubt, given that there's a presumption that if recommendations-

• 18:33Ted Seides?

  Innocent until proven guilty.

• 18:34Speaker 04

  Yeah, yeah. You know, you reject a lot of recommendations, there's probably a bigger decision that needs to get made. But Ed said, Andy, it sounds to me like you're trying to have it both ways. You know, we're empowering you, I'm going to hold you accountable. And that was-

• 18:49Ted Seides?

  Powerful.

• 18:50Speaker 04

  That was a big deal. And it did come with a little bit of the risks I was afraid of. And the biggest concern was that the PRINCO board would not feel true ownership and therefore might get more concerned during tough times.

• 19:09Ted Seides?

  Yeah, sure.

• 19:10Speaker 04

  And frankly, that wasn't a real problem because that authority model was almost a meal it tested in 98 when there was a little bit of an emerging market and then bigger crisis.

• 19:22Speaker 04

  The long-term capital.

• 19:23Ted Seides?

  Yeah, sure.

• 19:24Speaker 04

  But it was more that the board was, she would show up and say, what are we doing here? That you, there's no decisions for us to make. We're busy people.

• 19:31Ted Seides?

  Yeah.

• 19:31Speaker 04

  You know, so we had to try and educate them about the importance of paying attention to us, that they were to us the way we are to our external managers, that we really need to know what's going on.

• 19:42Ted Seides?

  So as you framed out a way of thinking about managing this pool of capital, what were the core beliefs that governed how you were going to go about structuring the portfolio? Then we talk a little bit about asset allocation and how you actually did it.

• 19:55Speaker 04

  Well, buy low, sell high was one.

• 19:57Ted Seides?

  That's a good one.

• 19:58Speaker 04

  No, I mean, in all seriousness, I think it's a basic business principle about thinking about what you're trying to accomplish and where do you have advantages naturally? Where can you acquire advantages and where might you have the disadvantage? That's unchangeable. And, you know, so that's where you quickly get to the use of outside managers.

• 20:17Ted Seides?

  Let's start with that. Why, why outside managers and not internal managers?

• 20:21Speaker 04

  I think, you know, the arguments are pretty clear that for any activity that we might pursue, and we pursue a lot of them, there are firms bringing just a whole lot more bandwidth. I won't even say firepower. I don't think that the people who work there are smarter than my colleagues, but they're focused and, you know, they're structured to reward and they're culturally just about really getting into the weeds. And, you know, it's hard to imagine us doing that across such a varied portfolio and competing well.

• 20:56Ted Seides?

  In each.

• 20:56Speaker 04

  Against, you know, these specialized firms. You could take the approach of, well, then don't try and do it everywhere. Just do it in some areas or maybe even just one area. And I think where you run into problems there is from an organizational dynamic and a culture. And, you know, the rhythms of those decisions are so different that it's hard to bring a unified approach, mindset, unified talent, you know, this is a reality of the compensation market.

• 21:26Speaker 04

  That in the private sector, comparing private to private, security selection in the trench work gets paid a whole lot more than fund to fund work. And so even though to this day, places like Princeton operate at some discount to the private sector on the fund to fund basis, not much, but still some, it's a huge discount to the front line. You know, this is the issues that Harvard had, and it's even worse than that. Not only are we at a disadvantage in terms of that compensation element, in terms of attracting and retaining people, there's a danger that it weakens an area where we

• 22:10Speaker 04

  have an advantage, which is this sense of mission. So what attracts people to Princo, I hope, I know, are the same four things that I'm attracted to. First, the intellectual challenge is really special. All over the world, all different kinds of things, you know, we get to take a very, in fact, we have to take a very long-term horizon, but we know that the long-term comprises lots of short terms. To coordinate this portfolio, we necessarily have to have the 30, 35,000-foot view. I mean that literally and metaphorically in terms of, you know, the travel, but we also swoop down from time to time and operate shoulder to shoulder with our external partners and ways out.

• 22:54Speaker 04

  I think in the data support, make each other better. So that's really cool. We're given all the tools that we need to compete to be the very best at what we do. Got some tough competition, but no one has any additional tools than we have. You know, but that's the third one is really the distinctive, the sense of mission. And frankly, operating at a slight compensation discount underscores that and makes you feel really good. You know, the fourth one, I used to stop at three because that's what the rhetoric coach would tell you, have three points. Only three points, yeah. Yeah, but the fourth one that I realized is that I get to come to work every day with colleagues who share, you know, interest in that, those same three. Again, that's all culturally that we feel really good about what we're doing.

• 23:39Speaker 04

  And we feel that we are delivering a bargain, you know, to our client, which is kind of us, but we're delivering a bargain. So that's, that's, that's why.

• 23:49Ted Seides?

  Yeah. So that's a first tenant was the use of external managers. What are the other key advantages or disadvantages that you have sitting here?

• 23:58Speaker 04

  Well, you know, I mentioned that the long horizon is a potential advantage. There's some other ones, like the fact that Princeton itself and then Princo has augmented this where attractive client and that's enmeshed in the ability to take a long term. You know, there's, um, there's a saying that good clients make for good architects. It's also true that good bosses make for good workers. And so the fact that our governance structure is filled straight up and down the line with people who really are not just brilliant, but get it like, you know, understand investing. And so, you know, getting back to that buy low, sell high, it means you're buying when everyone else is selling and someone else

• 24:42Speaker 04

  is buying. It means that you gotta be contrarian and it means that you gotta be able to do some uncomfortable things. And people who understand what you're doing will allow you greater units of discomfort and they will also allow you to optimize that discomfort, spending them in ways that are counter to conventional wisdom. So, you know, we got this loyal network. It's information network of Princeton alums, but also Princo alums or manager. So why wouldn't I want to exploit that intelligence and, and, you know, I don't want to compete against those managers. I want to kind of work with them. So I think those are, you know, some of the obvious ones.

• 25:21Ted Seides?

  You mentioned the potential long horizon. Most of the time people in a, in a seat like yours talk about having a long horizon. So why don't you talk a little bit about the word potential in that phrase?

• 25:32Speaker 04

  Well, first of all, you gotta talk about long and what we mean by long. There's a phrase we use here that we actually think BLT, we think beyond the long term, because a lot of people say, you know, long is 10 years or something. And I think, well, I'd like to push our thinking on that. You know, I'd like to not just produce the best possible results over the next 10 years, but I want to make sure that in doing so, at the end of those 10 years, we have a program that really looks like it's got unfair advantages for the next 10 years. So, you know, that's, that's pretty good if you can do that. But the real horizon is not what you claim your horizon is.

• 26:13Speaker 04

  The real horizon is this thing that you maybe don't even discover until after the fact. It's how long can you go with a large amount of discomfort without changing your path inappropriately? One of the things I love about this business, and I love about what I get to do in terms of focusing on the long term, is it brings back the philosophy for me, right? It's like, if you set up a system where you say you won't really know how well you're doing until the long term is done, wow, that sounds a little odd. That, that means you're going to ignore all information along the way? So being able to figure out when you should pay attention to the short-term disappointment is really interesting.

• 26:58Speaker 04

  And I think that speaks to another advantage that we've had to develop around here, which is both the appreciation of theory. We don't use theoretical as a term to denigrate something. We use it to mean not empirically based. Being able to have an appreciation of theory over data in the right balance is key. You know, there are times when you want to say, if the data don't support the theory, the data are wrong.

• 27:32Speaker 04

  And, you know, so anyone listening is scratching their head at this point. And you can say, see why this is an acquired advantage? Because when I used to say this stuff one year, two years into it, people would scratch their heads and say, what are you talking about?

• 27:50Speaker 04

  You know, so another advantage is if you put up good numbers for long enough, all of a sudden, everything you say sounds a whole lot smarter than it used to.

• 27:56Ted Seides?

  Yeah, you do sound a lot smarter than I remember from a long time ago. What's an example of, let's just talk about a manager, and it would be a specific manager, of what happens when a manager is going through a tough period of performance?

• 28:11Speaker 04

  Yeah.

• 28:12Ted Seides?

  What are you doing to figure out what's right, the theory or the data?

• 28:17Speaker 04

  We want to talk about, in the first instance, what's the simple explanation, the kind of attribution, but we don't want to get too involved in that. You know, attribution studies tend not to be worth the paper they're written on, and I believe I can go on long about that. I think that's a kind of step into the, what's really going on here, guys? And let's, let's talk about not what's happened, but what we think, what the future might look like. So let's go through a portfolio and understand what your arguments are for this position versus that position, and see if we can get, you know, confidence in, from, from that perspective. You of course want to, maybe the short answer is you want to just re-underwrite.

• 29:01Speaker 04

  And if, if you have experience like we have of investing with people who don't have a long track record, it's not that unusual, it doesn't feel that strange to invest despite a recent bad track record. It's not that much, no, no big deal. You know, so what are we trying to think about? We're trying to think about who the people are, what motivates them, and what are they doing? Do they have a, an approach that can give them an edge? And do they seem to be executing on that? You know, you rarely have to relook at that point at some of these other kind of agency issues. People tend to develop bad habits when things are going well, in terms of separating interests with clients, not when things are going badly.

• 29:46Speaker 04

  Although it may be an opportunity to... To reexamine some of those collegially with our partners and see if there's some strengthening there. But you're really looking at things to just kind of understand the hows and whys. It's one of the reasons why there's a bunch of strategies that we don't invest in, even though others have made a ton of money. But we know that when the bad times come, we would not be able to do anything to give us confidence to continue.

• 30:15Ted Seides?

  So what are examples of those?

• 30:16Speaker 04

  Any black bucks, any trading strategy where someone's just got a market feel. Someone may have also flipped heads 100 times in a row up to that point, and now they've just done tails.

• 30:28Ted Seides?

  So as you espouse the goals for the pool of capital, I was surprised to see a very high return goal, at least in these market conditions. And the reports say, I mean, the annual report of Princo says above 10% a year. And then you want to generate high returns, beat market indexes, beat your peers. How do you set up your asset allocation to try to get at those goals?

• 30:51Speaker 04

  Yeah, although the above 10% is shorthand. It's, you know, we think about things in real return space, and then we're assuming a reasonable level of inflation. And this is a conversation I think we all need to be sensitive to in both the recent market, but also going forward, is you've got to be consistent in what you're saying. If you think inflation is going to be low, then your nominal return is going to be low. But that's not so bad. I would sign up for that any day. If I can make 5% or 6% real compounding forever, I would sign that.

• 31:28Ted Seides?

  And what's approximately the spending of the university?

• 31:30Speaker 04

  Well, the spending is probably going to average a little north of 5%.

• 31:35Ted Seides?

  5 nominal or 5?

• 31:36Speaker 04

  5. Well, in any given year, it's nominal, but it grows. You know, so to correct what I'm saying, if someone said, devil walks in and says, here's a contract, you can earn exactly 5% real, I'm not sure I would do that. We'd have to readjust our spending approach. But if they said something closer to 6%, for sure, you would do that. So your asset allocation question. We think about asset allocation a little bit differently. I'll give you the answer I would have given to you three years ago, and then I'll give you the answer today. The answer three years ago would have been, we think about asset allocation a little bit differently.

• 32:16Speaker 04

  We very explicitly and intentionally divide our asset allocation decisions up into two buckets. The longest horizoned buckets called our policy portfolio, and it's constructed in a valuation independent framework. That means we're not looking around at what looks particularly good right now or bad. We're saying, what are the kind of core beliefs about investing, the way asset classes perform, and what are their characteristics, and what are our distinctive circumstances, including our objectives as an investor, and create this default position, this neutral position that addresses that.

• 32:57Speaker 04

  I think a lot of investors fail to recognize that there is no one right portfolio. It's right for what you're trying to achieve. Princeton should have a very different portfolio than my 89-year-old mother should have for so many reasons.

• 33:12Ted Seides?

  Even though they're both going to live forever.

• 33:14Speaker 04

  Apparently. Yeah. Yeah. Mom, if you're listening, I want that to happen. You know, so you think about things like how much ill-liquidity can you tolerate, et cetera, and you create that baseline positioning. It's then in step two that we say, is there anything unusual going on, either in the world or with ourselves, that suggests that we need to recognize a midterm target that's different from our long-term target?

• 33:44Ted Seides?

  And so that's the three years ago framework?

• 33:47Speaker 04

  Right.

• 33:48Ted Seides?

  And what, I don't know if it's varied that much, but that baseline, long-term, independent of market conditions asset allocation, what does that look like roughly?

• 33:57Speaker 04

  You know, we have to earn a lot of money, so it's equity biased. If we just kind of go around the pie chart, it's 10% dedicated to domestic equity, long-only managers, 6% to other developed markets, longish-only managers, 10% to emerging market public equity managers, 25% in the category we call independent return, subset of what the world calls hedge funds, what many others call absolute return.

• 34:27Speaker 04

  25% in private equity as a long-term target. That's venture and buyout. 19% in real assets. That's real estate, energy, timber, some other things in public and private format. And then if I said that right, at least 5% in fixed income. You know, the midterm allocation is quite different from that. For the first half of the 22 years, those differences were all intentional. We could see there were such dislocations in markets that even we, you know, felt confident in swinging hard at them.

• 35:04Ted Seides?

  What's, give an example of that from back.

• 35:07Speaker 04

  You know, decrease your domestic equity exposure as much as you can tolerate in general and against the tech sector in particular and move it into emerging within domestic, put as much as you possibly can into value. And so, so we did well coming, you know, at least relative base coming out of the bubble because of that. You know, what's going on for close to the second half of that 22-year period was this, we developed unintentionally an extreme overweight to private equity.

• 35:39Ted Seides?

  Through the crisis.

• 35:41Speaker 04

  Yeah. And even leading up to it, we were steering that, that boat was moving pretty fast for us. And so then it became a, well, given that you are overweight that and given that there's no way that you are interested in at least in kind of correcting that quickly, then why don't you be very deliberate and intentional about how you offset that. And so the conversations now are much more about which do you dislike least in terms of holding the smallest amount of that underweight.

• 36:13Ted Seides?

  So that's been the gift that keeps on giving.

• 36:15Speaker 04

  Yeah. No, yeah, hurt me. You know, it's like, we're really overweight and that's part of why we've done better than we would have otherwise. It's still, you know, since 2009, the frustration has still been that not just zero return. To diversification, there's been a cost to diversification, but there's also been a cost to hard work.

• 36:35Ted Seides?

  That's the P500, right?

• 36:39Speaker 04

  Just show up, you know, the Woody Allen approach to investing.

• 36:43Ted Seides?

  Twenty years now that's worked. Well, let's walk through each asset class briefly. I'd love to hear your take and your particular spin on each. So US equities, it's only 10%.

• 36:53Speaker 04

  Right.

• 36:54Ted Seides?

  Presumably that's not indexed.

• 36:56Speaker 04

  It's the opposite indexed, yeah.

• 36:58Ted Seides?

  So how have you approached, Trev, when you only have that much exposure to the US, what are you trying to accomplish and then how do you go about doing it?

• 37:05Speaker 04

  Well, it's quite different from what you might expect. So one of the things I should have said about a core belief and a tenet here, I'm going to steal a phrase that one of our managers uses, that it's one team, one dream. So our whole decision process is structured in the hopes of moving closer and closer to that nirvana. Nirvana would be if every single investment truly competed against every other single investment. And by the way, what we never really fully answered, the asset allocation process today is really bottom up and it's kind of like, we like this manager, we like that manager, we think it makes sense to have this much money with that one and that, you know, with that one. And when we aggregate that all up, is that a tolerable position?

• 37:50Speaker 04

  You know, we're not fully there yet, but we're not, we don't articulate it that way. We think the construct is still helpful as a, just a, almost a trail markers, but more often than not, if there's a manager that we like, but it would put us over the kind of allocation, that's when we talk to the board about changing the allocation.

• 38:12Ted Seides?

  Do you change the allocation or will you just port over the exposure, which is another viable, so if you had a framework of an asset allocation and you had too much in US equity, you could either short out or swap it into developed market equities?

• 38:26Speaker 04

  We do a little bit of that, but it's, the first instance, it's more like, well, that 10% domestic equity is an arbitrary number. Do we really think it's much better than 9% or 11%? Well, it depends how you make it up. So that gets us back to the one team, one dream. We try really hard to not think about these things as silos or, you know, make them justify themselves relative to just themselves. So within domestic equity, we've got 40% of that 10%. Your listeners can do the math, that's about four points with just one manager. If you were running a domestic equity portfolio, if you were compensated on just how domestic equity

• 39:11Speaker 04

  did, you would never take that much tracking risk. But everyone who works here is just thinking about the overarching bottom line. I guess your bottom line should be underpinning. Your bottom line should be on the bottom, not on the top. And, you know, we want to kind of partner with great people and then we figure out which bucket makes the most sense.

• 39:33Ted Seides?

  So what type of manager, are they in a particular sector? Are they a broad US equity manager that just happens to have a lot of conviction?

• 39:40Speaker 04

  No, wait for it. These guys, you know, who many of our closest friends invest with them, do biotech stocks, fallen angel biotech stocks. So you're not just concentrating, you're concentrating on, you know, a sector that can be quite volatile, that is pretty distinctive. And by the way, we got some exposure in that area and other parts of the, you know, portfolio there as well, in the independent return and even in the venture space. You know, but I think most institutions are much more prone to over diversification, or its cousin de-worsification, as Pierre Lynch would say, than they are the opposite issue.

• 40:25Speaker 04

  And that's where a lot of this, again, all is of peace. If you've built up confidence in yourself, your own team, but also you've inspired kind of confidence from the governance structure.

• 40:39Ted Seides?

  You can do those things.

• 40:39Speaker 04

  You can do those things and you feel like, well, if I do have an advantage that others don't have, which is the possibility for lessened agency issue drag, the fact that others don't live with us day to day, and so we can do things, you know, they might be concerned that we'd be doing things that they wouldn't like, but when you build the confidence, then you can say, well, look, you know that we have this 4% position. I bet you that in the next 10 years, there'll be a time when we stand up and do that attribution I was talking about, we have to say, and a large share of it was due to, you know, this outside position, oh, well, you know, remember all the good that did up to that point.

• 41:27Ted Seides?

  We're going to take a quick break in the action to tell you about Brookfield. Brookfield invests in the thing behind the thing behind the next big thing. Their focus across infrastructure, energy, real estate, private equity, and credit is helping to build the backbone of the global economy. Brookfield combines deep operational expertise with disciplined, long-term investing, uncovering value, and partnering alongside clients to shape tomorrow's economy today. Invest in the businesses that shape tomorrow. Learn how you can own what's next at Brookfield.com/own.

• 42:04Speaker 02

  This is not an offer to sell or investment advice. Investing involves risk, including the loss of capital.

• 42:10Ted Seides?

  And now, back to the show.

• 42:13Ted Seides?

  Do you envision, as this rolls out five or 10 years from now, the portfolio could be mostly bottom-up?

• 42:21Speaker 04

  Yeah, I mean, I think there's at least one peer that describes it exactly that way. I'm not sure that I'm willing to give up this framework, admittedly heuristic framework. I think it serves useful purposes beyond the actual decision of how much money to give each manager. One of our strengths, again, is that we've got a great set of bosses or partners. I prefer to think of them, but they're managing partners. They can fire me, I can't fire them. And these are people who come with a lot of experience in investing, but most of them

• 43:02Speaker 04

  come with experience investing in one particular area, as opposed to, say, the fund-to-fund framework. And this is just one example of why I like still the top-down terminology. And so if you come and you're used to investing in buyouts, liquid buyouts, you might look and say, you know, you're less familiar with real estate, and you say, boy, that real estate performance has not been nearly as good as buyouts. You know, why are we doing any of that? And if you have the language of, you know, portfolio theory, you can explain, well, because it still plays a role.

• 43:45Ted Seides?

  And it's cyclical.

• 43:47Speaker 04

  Yeah. And it's, it's, it's time will come, but, but remember that ex ante, you know, we, we did not think it was going to be competing against any one particular category. It's whether or not the thing is a whole.

• 44:02Ted Seides?

  Right. Where's a pure bottom up model? You can see how you can get into those natural habitats of people's knowledge experience space. Yeah.

• 44:09Speaker 04

  Yeah.

• 44:10Ted Seides?

  Let's turn a little bit to independent return. I know that's an area where you started off many years ago at Yale, focusing when, at least in the hedge fund area, absolute return at Yale, there were, I remember you had a sheet of paper that listed all the hedge funds. I think it might've been two sides, maybe one and a half.

• 44:28Speaker 04

  The, the ones in the world, not just.

• 44:29Ted Seides?

  In the world.

• 44:30Speaker 04

  In the world.

• 44:30Ted Seides?

  Yeah.

• 44:31Speaker 04

  Yeah.

• 44:31Ted Seides?

  Quite a bit different today. So how, how are you thinking about it in your portfolio?

• 44:35Speaker 04

  How do we think about the role or?

• 44:37Ted Seides?

  The role and the area, fees, all the, all the relevant issues.

• 44:43Speaker 04

  Yeah. You know, if we were condemned to produce the median return of the hedge fund space, there's, I don't think we'd have any allocation. So it's a little bit of the act of confidence, some might say arrogance, that, you know, our opinion of the asset class is quite different, if you want to call it mass class. Opinion of, you know, the, that collection of managers is quite different from the opinion of our 15 or so relationships that we have there.

• 45:20Ted Seides?

  So 15 relationships and it's 25% of the pool. So if you start doing the math, that's a lot of money with each manager.

• 45:29Speaker 04

  On average.

• 45:30Ted Seides?

  Yeah.

• 45:30Speaker 04

  It's a barbell approach like a lot of things that we do here. You know, some are very big numbers and some are much smaller.

• 45:39Ted Seides?

  And the ones that are big, have they, those tended to be really long relationships?

• 45:44Speaker 04

  Yeah, we don't step up and say, here, here's 4% of the endowment. We've never met you before, but you seem like a nice chap, so, nice gal. You know, that's, yeah, so, in part because a lot of them have grown to that size the old fashioned way, you know, they've, they've earned it.

• 46:02Ted Seides?

  They have.

• 46:02Speaker 04

  You know, many of these go back, you know, the, the relationship predates my coming to Princeton. You know, there's folks I've done business with for.

• 46:10Ted Seides?

  So a lot of those firms, both through organic compounding and then some of them through, through growth and, and acquiring assets are much, much bigger today than they were 10 years ago. Certainly 20, but it's really the last, say, 15 years where there's been a tremendous amount of growth. How do you think about that whole notion of balancing, size is the enemy of performance? As these guys grow, can they extract that much return in dollars from the markets? And, and at what point in time do you say, huh, boy, they're awfully big? You know, we probably wouldn't give money to that fund if we hadn't had money with them for a long time to get to this point.

• 46:48Speaker 04

  Yeah, so you'll hear me talk a lot about vectors, things that push a decision one way or the other. And obviously, there are a lot of things that would make, should make one skeptical about ballooning assets. You know, on the other hand, the world's a lot more complicated and there are certain strategies where the size actually helps. Now, those strategies bring with them a different kind of risk and a different kind of calculus. You know, there are some who have been very successful at keeping a war chest through long periods of time, so that when there's a highly motivated seller who really needs help with a problem, the fund can step forward and, you know, write a billion dollar check.

• 47:33Speaker 04

  So whether or not that's a approach that is attractive.

• 47:39Speaker 04

  Depends upon some implicit calculations that you're making. The drag of that dry powder.

• 47:45Ted Seides?

  And how often are they going to get a chance to play?

• 47:48Speaker 04

  And how big is it going to be?

• 47:49Ted Seides?

  Right.

• 47:50Speaker 04

  And even if it's not dry powder per se, it's not amazingly great investments while they're wading.

• 47:57Ted Seides?

  Sure.

• 47:57Speaker 04

  Right, so this is where you get to the, there are several different ways that the cat can be skinned, several different ways that we're interested in backing, but those ways have to make sense when viewed as a whole, you know, with everything else that's going on.

• 48:17Ted Seides?

  Yeah.

• 48:18Speaker 04

  You know, so you, some firms scale a lot better than other firms, and I think it's one of the key challenges of investing is how does a firm develop, how does it grow? Right, because it's not just asset size, it's evolution of strategy. And there's a natural tension, you know, there's a lot to be said for sticking with your knitting and doing the thing that got you there, but it turns out that the world may not reward that the same way. And so it isn't a question of are you evolving, is, the question is are you evolving smartly?

• 48:53Ted Seides?

  Yeah.

• 48:54Speaker 04

  In a way that, you know, inspires that confidence.

• 48:57Ted Seides?

  And on the private equity side, you know, let's talk a little bit about the buyout portion of the equation. Rates have been low, it's given buyout firms a chance to have cheap leverage for a long time, returns have been great. On the hedge fund world, for the last 10 years, the returns haven't been great. Now you're seeing particularly, probably starting with the later movers, the public pensions, a lot of fee scrutiny. And it makes sense, right? Returns are mid-teens, you can extract more in fees than, when they're mid-single digits. Private equity world, people are starting to wake up to, huh, that's a deal fee, and that's a monitoring fee, and that's an exit fee, and oh, there's a management fee. But the returns have still been high enough that the capital is still strong.

• 49:41Ted Seides?

  What's happening now in the sort of GPLP relationship with private equity firms? And, and what are the types of firms that you embrace as you look forward for the next 10 years?

• 49:52Speaker 04

  On the specific point about fees, we believe it's important to optimize fees, not minimize fees.

• 49:56Ted Seides?

  Sure.

• 49:57Speaker 04

  And we want to make sure that the firms actually have, you know, revenues to the principles that are enough to make them silly rich without.

• 50:08Speaker 04

  Having to find some other way to justify themselves like garnering assets beyond the point of being able to execute their strategy where it no longer makes sense as a whole, what they're trying to do. So, we're a little bit less hawkish on some of these things than others are. But, you know, we still care a lot. And there's this idea that even the low end of the fee scale only makes sense if the firm is really capable of returning excess return, right? It's like, if they're not capable of that, then the chances are you could cut the fees,

• 50:51Speaker 04

  you know, by a very nice haircut and it still wouldn't make sense. You know, one of the things that I think we found useful is to kind of reframe some of the ways others talk about this and talk not so much about alignment of interest, although that's important, but it feels like there should be a better word than interest. That feels like there's a contractual element of it. And I've been test driving this phrasing of alignment of appetites. I want to make sure that the natural inclination, the appetite of the managers fits well with our own appetites. And, you know, so we're looking for managers who are competitive folks, but they're competing

• 51:32Speaker 04

  on producing the best possible returns, subject to making themselves, as I said, silly rich, as opposed to just trying to make themselves as rich as possible, subject to producing good enough returns that that, that that happens. And if you can, you know, find folks who are motivated that way naturally, not by contract, then you can start talking about some contractual things that do help to align the interests at that point over the horizon of the contract. You can agree that base level fees really should not be the source of major wealth.

• 52:12Speaker 04

  We should understand what the compensation market is, the labor market is, to get a talented person and tell them that you're going to be unleashed in this wonderful place that's going to, you're going to get to do what you think makes sense and create a lot of value and be proud of that value created. How much do you have to pay that person to show up to work each day, given that if things do break the way they would expect them to, then they will get that lucre raining down on them.

• 52:41Ted Seides?

  Yeah, sure.

• 52:42Speaker 04

  So on the fee side, you know, you mentioned these kind of layering and opacity of where money's going. You know, again, it's a kind of, does this system make sense? We certainly want to have disclosure, but we need to understand it to make sense. If a firm is providing a lot of value creation services to a company that would otherwise have to be shopped out, well, let's see, does that compensation make sense? You know, in some cases it does, in some cases it's, oh, you want a fee for selling a company, you know, because you minimally used an investment banker? I don't know.

• 53:26Speaker 04

  You're already getting your incentive fee slice of that. That feels a little funnier, right? As opposed to, oh, you did this consulting study that said, you know, here's who your customer should be.

• 53:38Ted Seides?

  Let's talk a little bit about your team here. Where have you found the people on your team and how are they structured?

• 53:46Speaker 04

  I tend to find them under their desks and...

• 53:48Ted Seides?

  That's most days.

• 53:50Speaker 04

  Yeah, yeah, yeah. You know, definitely blessed by having a lot of great colleagues. And where we found them is not necessarily where we think we'll be finding them going forward. Another core belief was that we'd do a whole lot better by growing our own talent, but when you're... At certain stages, you can't wait. You can't plant the vines and wait for the grapes and then age the... You know, so if you look at people who are here, you know, we're marked by some pretty long tenured people. And some of those longest tenured senior people were lateral or lateral-ish hires. But where we think the future of Princo is, is mostly, if not entirely, on our grower own.

• 54:32Speaker 04

  And so we're hiring one to three or maybe more kids out of college, primarily Princeton, where we have some unfair recruiting advantages. And, you know, it's exciting to see them develop. It's another form of compensation. And what we're really looking for are first principle thinkers as opposed to learn a recipe and just use that recipe, which is one of the reasons why it's often difficult to bring the lateral hire in because they've got a certain way of doing it. And it's, it's hard to know just through any kind of recruiting engagement whether or not they will be the type that will adapt to a somewhat different set of circumstances

• 55:16Speaker 04

  when appropriate, because all the stories are talking about what they've done in the past, you know, all made sense then, but we don't know if they'll make sense going forward.

• 55:26Ted Seides?

  And then with, with this one firm, one goal, does that filter through to how you organize responsibilities of the people on team as well?

• 55:34Speaker 04

  Yeah. So at the senior level, we've divvied up the asset categories so that there's someone who feels ownership that helps avoid cracks that stuff may fall through. Yet, everything's a gang tackle. And I'll explain that in a second. I'll say at the junior level, we've experimented lots of different ways, and they tend to change depending upon who the athletes are, of giving people broad exposures, not necessarily always cross-sectionally, sometimes it's serially over time, to...

• 56:11Speaker 04

  Try and give them the ability to compare and contrast ways of thinking, to make their lives more interesting. It helps recruit people when they feel that they're at less risk of being pigeonholed into something. But the gang tackling, you know, for the major decisions, we had one this morning. It's all hands on deck. It's all 16 investment professionals sitting around the table. Everyone's gotten a packet for what we're calling the bull bear session. We've assigned not just proponents, but some people to play devil's advocate. And they go at it and kind of present opening arguments as to, you know, here's why we should and here's why we shouldn't do it. By the way, everyone who walks in the room, the first thing they do is they get a ballot and they have to say what their

• 56:52Speaker 04

  vote is going into the meeting. And then at the end of the meeting, they write down what their vote is. And then that piece of paper is set aside and then we all show our votes simultaneously through a set of hand signals. And then there's a super secret, not necessarily stable algorithm, that's in my head as to how those votes get counted. So, you know, making the, we have a summer intern here who is in her second day and she voted. It turns out that her vote doesn't have quite the same weight, you know, as

• 57:27Ted Seides?

  As yours, perhaps.

• 57:28Speaker 04

  Well, maybe as much as mine, but not as much as, you know, my colleague, John Erickson, who's been here for 19 years. And so, you know, that's that kind of one team, one dream gang tackle, you know, to process information efficiently. It's not everything we're doing is all the time, everyone involved. So you have to create a deal team. And that gets constructed. There are certain tendencies of people who do more work in a category. There'll be mostly representation of that, but there'll be someone else who is getting a visit into that world.

• 58:03Ted Seides?

  That, that process, that kind of bull bear process.

• 58:09Ted Seides?

  How long ago did you start thinking, hey, this might be a great way for us to enhance how we make decisions?

• 58:15Speaker 04

  Yeah, so that's is directly connected to the GFC or the global freaking crisis, as we like to call it. And the warning is it's a process of that rotating sign devil's advocate, sounds a whole lot better than it actually is. We still haven't cracked the code as to how they're really implemented. But the reason I say it came out of the GFC is because when the dust hadn't settled by yet, but when I was emotionally capable of inward reflection on, I remember this plane ride, I said, well, let's think about the 10 worst decisions, investment decisions, that you, Andy, or Princo has made. And let's see if there's anything that we can figure out.

• 59:00Speaker 04

  And I was very careful to say, as always, to differentiate between bad decision and bad result. And what I only got to about number seven or eight, when I realized that more than half of them shared this characteristic of there was some kind of political element that, and I want to be careful what that word means, some kind of element in decision process that can be traced back to the old style where I was always the last line of defense. I still am, but I played the kind of skeptic, you know, I'm going to argue against you proponents.

• 59:39Speaker 04

  And I realized is that it was easy in that framework for there to be these kind of said political or maybe it's emotional elements, to push back three times in a row on someone's idea creates a risk that they're going to get frustration that is incommensurate with the lack of quality of idea. So you begin to say, well.

• 1:00:04Ted Seides?

  That's balancing your judgment against being supportive.

• 1:00:06Speaker 04

  Yeah, you know, all right. I think this is probably a B plus, A minus. You know, if it's a B minus, forget, we're not going to do it. But, you know, it's a B plus, well, maybe it's an A minus. Okay, you know, I could be wrong.

• 1:00:19Ted Seides?

  Right.

• 1:00:20Speaker 04

  And it worked the other way as well. You know, I wanted to do something my colleagues would say. Gee, we think it's kind of like an A minus and when they say that they mean they think it's a B minus. And I would say, oh, these people, we are agreeing that there's this hair on this thing, there's this risk on this thing, but they're just too risk averse. So to make that, it depersonalizes, to say that you're playing an assigned role, let's see how strong your argument can be, you colleagues, and take a little bit of the power dynamic out of it. You know, at the end of the day, I'm still counting the votes, so, you know, I'm still that last line of defense, but, you know, it's definitely more helpful.

• 1:01:00Speaker 04

  As I said, it sounds like a great idea, when I've ever told, he said, oh, yeah, it's just really hard to figure out how to execute it. You get these discussions that are orthogonal. Someone, you know, says, I believe A, and someone else says, I believe nine. Like, okay, you know, I don't know how to weigh that.

• 1:01:19Ted Seides?

  You're supposed to say bingo.

• 1:01:20Speaker 04

  Yeah, right. Yeah, A nine. You know, so it's kind of always what level does the debate take place?

• 1:01:28Ted Seides?

  How have, there's been this explosion of data, usage of data, financial markets, companies, everything. How have you used data increasingly, or have you used data increasingly in your process?

• 1:01:44Speaker 04

  There's a lot of information that's a whole lot easier to get, and so it means that you can kind of test the stories, that the arguments that managers put force forth, because they no longer have the same kind or degree of information asymmetry that they used to have, or at least you can hone in on the edges that they do have in terms of just having more information. You know, but I think it's not as important to the way we think about investing, the long-term horizon, investing in people. You know, the issue is that, I say this as a recovering quant, you know, you can't drive the ship.

• 1:02:26Speaker 04

  If the ship is to build a roster of managers, you can't get enough data to base a decision without... You know, running afoul of a key premise, which is that the engine that produced that is stable, right? And that nothing's changed. Clearly not. Right. So, you know, it's something you throw into the mix, but if you think about how these judgments have got made in a qualitatively focused, quantitatively facile group like ours, you know, it's, it's more of almost a Bayesian calculation, like, you know, here's my, you know, I believe this thing with this much probability, this much certainty, and

• 1:03:09Speaker 04

  this new bit of information comes in, how much does that change it? I mean, I can't tell you the number of times when, you know, again, just to kind of noodle on something, I'll say to a relatively new colleague, you know, can you just regress, do a little regression on, on this information, or help me think about it? And they'll come back and they'll say, well, that was a complete waste of time, you know, it didn't come close to a significant. Yeah. I don't care, I need to see the number, right? Because the significance, what I care about isn't the significance of that independent of other analyses, including these qualitative ones, I just want to throw it into the mix, you know, I want to, right?

• 1:03:50Speaker 04

  And so I think there's still this judgment thing, which goes beyond just cerebral stuff, there's a kind of emotional assessment being made as well, that I don't say in a denigrating fashion, I believe that there's information. I, I think investing is a science craft and an art, and the important thing is to, A, be willing to use all three pathways, but B, make sure you know which pathway you're using at the time. Like, it's, you know, there's this art to it, but you should really be very explicit declaring, this is an, an art judgment, not a scientific judgment, and I get frustrated

• 1:04:32Speaker 04

  when people try and torture some scientific judgment to just justify their gut feeling. So are there opportunities in the market that you're particularly excited about today? I think there's probably two ways of answering that. You know, normally that question is, I should be able to tell you, oh, we really like timber or apartments in Brazil, or something, you know, some asset based thing. Again, our business is really about finding great people and partnering with them. We believe that who matters a whole lot more than. When you invest and may even matter more than what they actually do. That they're just some, some horses you want to hitch your wagon to.

• 1:05:13Speaker 04

  And, you know, some of the growing concerns of other customers in the hedge fund world create some opportunities. We were becoming a whole lot more attractive as people who are going to do the intense qualitative work. You know, managers often have to choose between smart clients and rich clients and rich clients are a lot easier to deal with. You know, until they're not, you know, so I think there's some, some firms that we're pretty excited about and I'm not going to tell you about it because I don't want to create competition. I also don't want to let my other son know that this is my favorite son. Of course. You know, I think that it's a time again where it may be better prospects a little

• 1:05:57Speaker 04

  bit more off the beaten path. I've felt that for a while now, but. 20 years? Yeah. You know, but, but certainly in 09, you didn't have to queue. Right, sure. That's when it was really good to be rich.

• 1:06:14Speaker 04

  And, and how about risks that you're concerned about in the markets? Yeah, in the markets, you know, there's the, the obvious one and this will make this very dated. You know, I assume that people will be listening to this podcast 30 years from now to. Probably a safe assumption. Yeah. Or as many people will be listening to it 30 years from now as tomorrow.

• 1:06:37Speaker 04

  You know, but wow, it feels like there's a lot of potential volatility in fundamentals in the world and that's, doesn't really seem to be in a lot of prices. Yep. Prices make more sense if you just simply in kind of your base case assumption, right? Interest rates are so low, so. Therefore, asset prices are high. Yeah. Sure. You know, that again, cross sectionally makes sense, but seriously, shouldn't there be some premium for? The world waking up to some kind of shock. It seems that all the time, people always feel that this is the most risky time, but you'll, you'll find someone who will say that.

• 1:07:20Ted Seides?

  Yeah.

• 1:07:20Speaker 04

  Right? I'm not saying it's the most risky time, but I'm willing to say, oh, okay, there's some, definitely, there's visible some risks that usually aren't visible. And I think that may be because they're usually not as prominent, as likely to.

• 1:07:34Ted Seides?

  And, and do you do anything about that in managing the portfolio?

• 1:07:38Speaker 04

  As you know, we're pretty circumspect about top down stuff. You know, even if you're really good, since you're not making a lot of bets, you know, it's pretty easy to come up short, so to speak.

• 1:07:49Ted Seides?

  Yeah.

• 1:07:49Speaker 04

  You know, that being said, we have some outsized exposures to things compared to most investors. And in some of those areas, one can imagine that it's particularly risky. So we, we actually have had, unusual for us, hedge. We've got, if you were to dig deep enough, you'd say, oh, I bet you they've got a lot of investment in China. Yeah, we do. And so maybe we want to take that R and B exposure down a little bit because that's something you could imagine having, you know, a real break.

• 1:08:21Ted Seides?

  Well, let's turn to some closing questions.

• 1:08:24Speaker 04

  Of me or of you?

• 1:08:26Ted Seides?

  Yeah. Well.

• 1:08:27Speaker 04

  Where'd you get that shirt?

• 1:08:28Ted Seides?

  Golf course, I think. All right. What advice would you give your children early in their career? In fact, your kids are coming up to that point.

• 1:08:37Speaker 04

  My kids are certainly, one is in well past first inning. So I'm going to answer without the presumption that their career is investing. If you want, I can return to that. There's a cliche about following your passion. I feel that it's true, except for I want to modify that and say, follow your like. The problem with telling someone, follow your passion, is it presupposes that they know what passion is. And, you know, it's almost like. A dating situation is like saying, well, you should go out with the person that's going to be your spouse. Right? Like, well, I don't know that yet. Right?

• 1:09:21Speaker 04

  And I don't want to have to figure it out before I go out. And that's right, you should iterate on it. So I think you should, you know, really go down paths that have a real natural attraction to you. And, you know, not try and plan too far in advance. You heard my story. And I think it actually was a source of strength when I finally did get interested in investing. Having done things that I had liked along the way had at least two advantages. One is I learned a lot about a lot of different things that I might not have otherwise learned if I had followed a straight and narrow. But the also, the other issue is it enabled me to develop an ego that was, in the early

• 1:10:06Speaker 04

  years, quite detached from investing. So when I first got involved in investing, I could think of myself not as a person who's destined to be an investor. I could think of myself as a guy who was a guy, as a human being, who happened to be doing investing now. And that meant that there was a bunch of emotional concerns that weren't necessarily there. If I ended up not doing well on that, well, you know, I'd already not done well in, you know, another career. It wouldn't have been new to me.

• 1:10:41Speaker 04

  You know, and I think that was an unfair advantage. It's frankly an advantage I don't have anymore because, you know, now my ego's pretty tied up in being an investor. Sure. A global financier. Indeed. What is your favorite thing to do that is a complete waste of time? I, there's a particular solitaire game called Spider Solitaire that is a guilty pleasure because every time I'm doing it, I'm thinking, oh, my God, I don't know.

• 1:11:10Speaker 04

  There's no justification for this. And unlike the classic Klondike solid or whatever it's called, this one has a little bit more skill to it, a little bit. I would choose that over some other activities because there's, you know, like, I could say, I like stand-up paddle boarding, but that's not a waste of time. That is making me healthier, you know.

• 1:11:32Ted Seides?

  Yeah, you are a stand-up guy.

• 1:11:34Speaker 04

  I am a stand-up guy, yeah.

• 1:11:36Ted Seides?

  What phrase that your mother or father repeated to you over and over again most stuck with you?

• 1:11:42Speaker 04

  You know, my parents would say, whatever you do, do well. Right? And that unfortunately stuck with me because, again, it raises the stakes. And also, it turns out that not everything worth doing is worth doing really well. There's something, you know, you kind of want to spend your effort budget wisely. Some things were good enough. It's actually good enough. So, you know, that probably stuck with me.

• 1:12:10Ted Seides?

  What was your favorite sports moment as a participant or a fan?

• 1:12:14Speaker 04

  You know, I, no one ever has mistaken me for an athlete.

• 1:12:18Ted Seides?

  I remember that.

• 1:12:19Speaker 04

  Yeah.

• 1:12:19Ted Seides?

  Softball team, yeah.

• 1:12:20Speaker 04

  Yeah, but I went, I went to an extremely small school, high school. And so I was able to compete in varsity sports, you know.

• 1:12:30Ted Seides?

  Where'd you grow up?

• 1:12:31Speaker 04

  I grew up near here, near New Brunswick. I went to a very small private school where I wrestled and was also, there was a sport that no one knew about that only like a few schools in New Jersey played called lacrosse.

• 1:12:44Ted Seides?

  Yeah, I remember those days.

• 1:12:45Speaker 04

  And, you know, it was like anybody, literally anybody that would show up, like, we need you on the field. I have some memories on that that were pretty fun. I think I learned a lot about what it's like to actually be the weak player on the field and learn about teamwork in a different way. That, you know, there were times that even though I was likely to drop the ball or pass to me, it still made sense to pass it to me. And that, that helps. But I think there's been some, some Princeton basketball moments that have been pretty good. There's recently one that's pretty good. Yeah. Back in the day, there were some Duke basketball moments when I was a

• 1:13:27Speaker 04

  Alum there, there's still full court pass that kid Christian Leitner called.

• 1:13:32Ted Seides?

  Thirty for thirty.

• 1:13:33Speaker 04

  Yeah.

• 1:13:34Ted Seides?

  I hate Christian Leitner or something like that.

• 1:13:36Speaker 04

  Yeah, that's.

• 1:13:37Ted Seides?

  That was my year.

• 1:13:38Speaker 04

  That was pretty good.

• 1:13:39Ted Seides?

  What's your favorite book?

• 1:13:41Speaker 04

  My favorite book of all time? Well, you know me, it's the good book, is that? No. Sorry to offend. I think it's Richard Dawkins, The Selfish Gene Concept. So that thought of instead of thinking about genes as the way entities reproduce, as the way organisms reproduce, if you think about organisms as the survival mechanism for genes, that was a moment that blew my mind.

• 1:14:10Ted Seides?

  Yeah, yeah. So what profession other than investing would you like to attempt?

• 1:14:17Speaker 04

  Yeah, I mean, I do have dreams of getting back on the professional shark wrestling circuit.

• 1:14:22Ted Seides?

  Short, a very short-lived career that was.

• 1:14:25Speaker 04

  Yeah. Yeah. I am hoping that there is a way that I can exploit the lessons I've learned that don't relate so much to investing, but relate to organizations and in particular, what it feels like to be the leader of an organization, meaning I don't want to pretend I'm qualified to give any advice on leadership, but I am, I do have one set of experiences about what it's like to be a leader and, you know, how to think about how you ask for help, when you ask for help, you know?

• 1:15:07Speaker 04

  When it's an okay sign, when you're feeling a little overwhelmed and when it's a sign that, you know, it's not, how to kind of more quickly get the confidence to defy.

• 1:15:22Speaker 04

  You know, some pressure and how to quickly get the confidence to go in the same direction as the pressure is pushing you because you don't have to prove that you can stand up to the pressure.

• 1:15:33Ted Seides?

  Yeah, and those would be great lessons to impart when you get the time.

• 1:15:37Speaker 04

  Yeah, so to be some kind of coach or have a fantasy about being a really good board member to help a CEO who, you know, doesn't have that experience.

• 1:15:46Ted Seides?

  Yeah, sure. What do you know about life today that you wish you knew 10 years ago?

• 1:15:53Speaker 04

  On the eve of the crisis.

• 1:15:54Ted Seides?

  It does happen to be 10 years ago.

• 1:15:58Speaker 04

  I wish I knew for sure that Princeton would survive my misjudgments. It's hard to articulate. I think you get you get much more comfortable with the idea that there are multiple solutions. So when you're pressuring yourself to come up with the right way to fix something, one over time gets more comfortable realizing that you don't have to land on the perfect solution. You don't have to worry about the choice that seems to be the best choice not being the best choice. You know, kind of just moving forward can be better, you know, don't let the perfect be the enemy of the good, you know?

• 1:16:42Speaker 04

  But I think the real kick in life is you feel like there's lessons that you learn over and over again, but they're a little bit different. It's kind of like Bob Dylan singing one of his old songs again. It's a little bit different. You know, listen to Jerry Garcia, you know, at age 50 versus, you know, 25. There's so much more there, even though it's the same lyrics.

• 1:17:09Ted Seides?

  Yeah.

• 1:17:10Speaker 04

  Same guitar riffs.

• 1:17:12Ted Seides?

  All right.

• 1:17:13Speaker 04

  I am intentionally trying to make this podcast stand out from some of the other ones.

• 1:17:17Ted Seides?

  And you're doing it.

• 1:17:18Speaker 04

  Yeah.

• 1:17:19Ted Seides?

  We're sitting down, so we're not really standing up, but that's okay. It's it's your waning days. You are 98 years old, sitting in a rocking chair.

• 1:17:29Speaker 04

  Rosebud.

• 1:17:30Ted Seides?

  That's what you love to do. What advice would you give yourself today?

• 1:17:34Speaker 04

  I would say that my advice would be that you should do 50 pushups every day for the next 40 years.

• 1:17:43Speaker 04

  And if you do that, you'll make it to 98. You may make it to 98 other ways. But I mean, the idea of, first of all, you say 98 as if it's a good thing.

• 1:17:55Speaker 04

  Like enough already.

• 1:17:59Speaker 04

  Yeah. What advice, you know, enjoy your grandchildren. I don't have grandchildren now, but that's.

• 1:18:07Ted Seides?

  Andy, thanks so much for taking the time. Really enjoyed the conversation.

• 1:18:10Speaker 04

  Thank you. All right. Peace.

• 1:18:14Ted Seides?

  Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings and sign up for premium content, including podcast transcripts, my investment portfolio and a lot more. Have a good one and see you next time.