Rebuilding the NYU Endowment – Michelle Knudsen (EP.513)

Michelle Knudsen is Chief Investment Officer of NYU, where she oversees the university's $8 billion endowment. Michelle joined NYU two years ago, after fourteen years as an allocator at Partners Capital and the Mellon Foundation, with a mandate to build a best-in-class endowment from a clean sheet of paper. Our conversation traces Michelle's lessons learned working at Goldman Sachs, a growing OCIO, and a foundation that shaped her investment philosophy and views on portfolio construction, risk management, and manager selection. We then turn to the transformation of NYU's investment office from the ground up across governance, portfolio strategy, investment process, and the team. Along the way, we discuss manager selection, emerging managers, venture capital, hedge funds, AI, stress tests, and what it takes to build an enduring investment organization. Any leader should see for themselves the benefits of elite coaching. Try ALEX: tryalex.admiredleadership.com http://tryalex.admiredleadership.com/. Learn more about our Strategic Investments: OWL. https://www.oldwell-labs.com/ted 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 https://thepodcastconsultant.com/⁠ https://thepodcastconsultant.com/)

• 0:00Speaker 00

  We've walked a little bit of the middle ground between a more traditional asset allocation and a total portfolio approach. At the core of our asset allocation, we've tried to hone in on what are the different types of assets and the different roles that we want our assets to play in the portfolio. To put some quick numbers around it, NYU's portfolio today is about $8 billion. We've turned over a little more than a third of it in the last two years. We've re-underwritten another third of it. There's another piece of it. We're still figuring out what we're going to do longer term.

• 0:41Speaker 00

  The profile of the portfolio from a return perspective and from a risk perspective is different. We've moved away from this homogenous, bottom-up, fundamental approach to mixing in some quant exposure, some macro on the hedge fund side or RV strategies. We've brought in venture capital. We've brought in emerging managers. In the two years that I've been at NYU, we've backed a Fund I, a new launch hedge fund,

• 1:19Speaker 00

  a couple Fund II's, started looking at how do we build relationships with not just the current generation of great managers, but also the next generation of great managers.

• 1:38Speaker 01

  I'm Ted Seides, and this is Capital Allocators. My guest on today's show is Michelle Knudsen, the Chief Investment Officer at NYU, where she oversees the university's $8 billion endowment. Michelle joined NYU two years ago after 14 years as an allocator at Partners Capital and the Mellon Foundation with a mandate to build a best-in-class endowment from a clean sheet of paper. Our conversation traces Michelle's lessons learned working at Goldman Sachs, a growing OCIO, and a foundation that shaped her investment philosophy and views on portfolio construction, risk management, and manager selection.

• 2:21Speaker 01

  We then turn to the transformation of NYU's investment office from the ground up, across governance, portfolio strategy, investment process, and the team. Along the way, we discuss manager selection, emerging managers, venture capital, hedge funds, AI, stress tests, and what it takes to build an enduring investment organization. Before we get going, we're hiring at Capital Allocators. Two roles that will shape our next chapter. They're two of the best jobs in the business, at least in my opinion, that'll help us bring together our community of allocators and managers to compound knowledge and relationships.

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  organizations and 301 managers who've shared over 125,000 one-on-one contacts. If either sounds like you, email us at [email protected] with your answers to three questions. One, how did you find the podcast? Two, what was your most recent project using AI? And three, how are you connected to someone on our team? Full descriptions of the role are available at capitalallocators.com. And thanks for spreading the word about our two new roles at Capital Allocators. Capital Allocators is brought to you by AlphaSense.

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  markets, connecting independent research and data into the tools and AI platforms you use every day, so insights are easier to spot and act on. Morningstar, nothing in your way. Visit morningstar.com/gameon to learn more. Capital Allocators is also brought to you by Juniper Square, the operations partner trusted by the leading private market GPs. One theme that keeps coming up on the show is GPs that build the strongest and most durable relationships with LPs are the ones that have both strong returns and strong operations. AI raises the stakes on operations, and having Juniper Square as your operations partner

• 7:25Speaker 01

  helps ensure your data is organized, accurate, and accessible, so you can unlock operational alpha. That's why thousands of GPs trust Juniper Square. Learn more at junipersquare.com/capitalallocators. Please enjoy my conversation with Michelle Nudson.

• 7:47Speaker 01

  Michelle, thanks so much for joining me.

• 7:48Speaker 00

  Thank you for having me. I've been looking forward to this.

• 7:51Speaker 01

  Why don't you take me back to the start of your career? Walk me through the core steps that lead you where you are today.

• 7:58Speaker 00

  I did not set out to become an investor. I thought I was going to go into public policy. My parents moved to Washington DC when I was in high school. I was fascinated by policy and government. My whole college career was internships on Capitol Hill, political science major. The fall of my senior year, I got a call from Goldman Sachs. They had an open slot in their San Francisco office for the following fall. Did I want to come interview? I remember sitting there on the phone thinking, I've never taken a class in finance, but why not? I had a good appreciation for the role that markets play in the global economy.

• 8:43Speaker 00

  As somebody interested in policy, that was important. I crammed for the interview. I talked to all of my friends who had done banking internships or sales and trading internships the summer before. Long story short, I got the job. I graduated in 2008 into the financial crisis with a job at Goldman Sachs. I don't think anything has shaped how I think about portfolio management, or how I manage stakeholders, or how I manage my career quite like starting out in the middle of a financial crisis. I learned a lot in the two years I spent at Goldman.

• 9:25Speaker 01

  What did you take away from those two years that have carried through?

• 9:28Speaker 00

  The biggest thing is you always have to be prepared for the bad-case scenario. You don't have to like the bad-case scenario. You do have to think about what it could look like and have at least the outline of a plan for what you'll do in that situation. A lot of that comes down to communication and expectation setting. When I think about working with our investment committee, being able to articulate what could go wrong, and what is our plan for how we manage through that? Do we have the necessary pieces in place to get through it? Is a critical part of all of the work we do, whether that's at the asset allocation,

• 10:13Speaker 00

  underwriting individual investments, or when we think about themes in the portfolio. It all comes back to, I've seen this go wrong. And I've seen people who managed through that well because they were able to take a step back, go back to the process, even if they'd never seen this particular scenario before. And you saw the people who didn't have a plan. Making decisions on the fly when the information around you is changing quickly is hard.

• 10:43Speaker 01

  Were there other key lessons you remember from that time?

• 10:47Speaker 00

  Using your network was a critical component of making those good decisions. One of the things I appreciated at Goldman was you had so many smart people focusing on different things in different parts of the firm. They were all happy to talk to their colleagues, even if you were in a completely different group and you'd never met them. Being able to leverage those different information sources to pull together a better picture of what was going on, instead of just focusing on your small microcosm, was an important lesson, especially as I went to smaller organizations where you didn't have that built into the firm. Cultivating that network more broadly across the investment industry and beyond that

• 11:31Speaker 00

  is important for having those information sources in good times and in bad. I spent the two years at Goldman trying to figure out what I wanted to do longer term. Did I want to go back to policy? Did I want to stay in finance? I honed in on two things. One, I was fascinated by the markets and I wanted to learn more. The second piece was I didn't feel like I had a good understanding of how to underwrite an investment. I ended up taking a role at Partners Capital, which was a relatively small, they called themselves an institutional investment office at the time. OCIO wasn't a term yet.

• 12:11Speaker 00

  And I moved to Boston, started a role where I spent half of my time managing client portfolios, half of my time doing manager research. It was a great blend of thinking about how to build a portfolio for different clients' objectives. That could be high net worth individuals, it could be foundations and endowments, large pools of capital, it could be more medium pools of capital. And then thinking about the bottom up piece, how do you underwrite an investment? What are the criteria that you apply there?

• 12:42Speaker 01

  You alluded to three aspects of being the investment committee, constructing a portfolio and manager selection. Would love you to take me through each of those three components across these different client types that you worked with.

• 12:55Speaker 00

  On the private client side, most of the clients at Partners Capital were private equity GPs, which was an interesting subset of clients because they were highly sophisticated investors, but spent most of their time on a particular lane of the investment world. Our job at Partners started out with most of those clients as complementing the big private equity portfolios that they had through their day job. There were a few different pieces that came into play. One was what are the return expectations of the client? If you're competing, especially in the mid 2010s with private equity returns, what is

• 13:39Speaker 00

  the expectation of the client around the amount of risk that they're willing to take, the amount of illiquidity that they're willing to stomach? What is a return that they're going to be happy with versus what is a return that they're going to be disappointed with? Getting that right across all the different buckets of clients was important. Having this subset of private equity clients in particular was challenging in the best possible way where we had to be an advisor to a thoughtful individual who was generating massive returns investing. Another piece was taxes. We talk a lot at NYU about net of fees investing.

• 14:21Speaker 00

  It's a whole nother ballgame when you have to think about net of tax investing. That was something that we got better and better at in the time I was at Partners because we started to drill down into what is the real return that our clients are left with at the end of the day. That was obviously easier when it came to those foundation and endowment clients at Partners where you didn't have the tax piece. You did often have investment committees that had different views of what a good return looked like. We found that the risk appetite of those investment committees, when you're serving

• 14:58Speaker 00

  as a fiduciary for an institution, was lower than for many of our private equity GPs. That was something that filtered through to the portfolios, how we thought about volatility tolerance, drawdown tolerance. If your portfolio is driving a spend level, you're more sensitive to a December 31 mark that is substantially below where it was the year before. Thinking about the stability of returns and the stability of the capital base for those clients was an even more important factor. The manager selection side of it, we were trying to build relationships with best-in-class investment managers.

• 15:40Speaker 00

  In theory, that could serve both pools of capital. It came down to identifying the edge that a manager had, focusing on the role that they play in the portfolio. They could play a different role in the two portfolios. We had to have a clear view of how we expected the managers to perform in different environments so that we could underwrite the likely interplay between different line items.

• 16:08Speaker 01

  In your nine years at Partners, that organization grew a lot and continues to. What changed in both your role and the investing as an organization grows and scales?

• 16:21Speaker 00

  When I started at Partners, it was about $6 billion in assets under management. When I left, a little less than a decade later, it was $30 billion. It had gone from about 60 people globally to close to 300. I evolved from an analyst to, at the end, managing our absolute return and credit portfolios and running a New York office, which didn't exist when I started at Partners. A big part of the reason for those changes in my career was as Partners grew and evolved, there was a wide open field for anybody at the firm who was willing to put their hand up and say, I want to work on X. I was not shy.

• 17:06Speaker 00

  That led to spending time on new managers. When I joined Partners, we rarely underwrote emerging managers. The view was our job is to take investment risk. You're also taking on a business risk when you underwrite a new manager. As the capital base grew, we realized that we had to get good at underwriting emerging talent because our existing managers were capacity constrained. We needed to have just as good, if not better, investment opportunities to put new capital to work in. That was a big part of the move to New York.

• 17:47Speaker 00

  The thesis when we opened the New York office was we are going to need to spend a lot of time on the ground with these emerging managers, and there was a heavy concentration of them in New York City. The threshold can't be, is this worth me getting on a plane and flying down from Boston? It needs to be, yes, I can go downtown or across the street and spend hours, multiple days, getting to know our potential investment partners. That was one big change. There was another change, which is as I became more senior at the firm, I was spending more and more time thinking about how Partners as an organization could be value-added

• 18:28Speaker 00

  to our clients, how we could continue to maintain a level of return that was attractive. In the later years of my time at Partners, we put in place the bones of what became Partners' Separately Managed Account Platform. We started thinking about co-invest portfolios. A lot of those initiatives were designed with the goal of creating value for our clients that they couldn't get either doing it by themselves or from your typical RIA.

• 19:06Speaker 01

  After nearly a decade, great success, a lot of growth, how do you go from serving lots of clients to just one?

• 19:15Speaker 00

  When you're serving multiple clients, you have to make compromises on the portfolio because you can't underwrite 25 different great portfolios. You need economies of scale. I wanted the opportunity to build the best portfolio that I could come up with. Mellon offered me that. Mellon was in a moment of transition.

• 19:42Speaker 00

  And wanted to build a best-in-class portfolio with a blank sheet of paper. There was an existing portfolio there. The chief investment officer, Scott Taylor, had a view that the liquid side of the portfolio needed to be able to drive returns in an environment where someday the party was going to stop or slow down, at least, in private equity. Private equity had been what was driving Mellon's returns for years at that point. It was this amazing, idiosyncratic opportunity to not just go from multiple clients to one

• 20:21Speaker 00

  client, but to go to a very specific client that had this need to transform.

• 20:28Speaker 01

  What would you say translated over from the best of what you saw at Partners into the Mellon Foundation?

• 20:36Speaker 00

  Partners needed to constantly think differently so that they could drive value for their clients. That was a very powerful mindset when it came to the endowment and foundation world, where you have a lot of smart people whose jobs are really stable. When you're at an OCIO or a for-profit asset management firm, you have no right to exist. We constantly had to think about what our portfolio construction looked like, what our returns net of fees, because we had another layer of fees that an OCIO layers on.

• 21:14Speaker 00

  That translated well into coming up with this best-in-class portfolio that was supposed to drive returns. The individual managers and the network from backing emerging managers at Partners, from doing deep manager diligence, all translated nicely. Partners had a data-driven approach to research and diligence. That served me well at the Mellon Foundation, once I had to, with a lot less resources, go through an underwriting process in fairly short order for a number of different managers.

• 21:51Speaker 01

  How did you navigate the order of magnitude, less resources, at the Foundation than you had had at Partners?

• 21:59Speaker 00

  In some ways, it was freeing because I could do it myself. In other ways, it required building that network of individuals outside the foundation that I could trade ideas with, debate something with. It was one of the areas where being in New York was a huge benefit because there's a fantastic community of investors here, whether they are other LPs or managers or other members of the finance community. It was easy to find individuals who were experts in the areas that I was trying to get to know better.

• 22:40Speaker 00

  Whether I called somebody that I had worked with at Goldman, who was working on a Muni desk now, because I was trying to get deeper into treasury functions for fixed income RV strategies, and he connected me with somebody at Goldman's desk that could help me understand it better. It was about finding those connections and that information outside the foundation.

• 23:05Speaker 01

  After a couple of years at Mellon, how did you find your way to NYU?

• 23:09Speaker 00

  I didn't go to NYU. I'm not even a New Yorker by birth. I got a call about NYU. It was hard not to be interested after living in New York for several years, because NYU is such a massive institution that permeates the city. I started to do my homework. What I found was that NYU was an even more widespread institution than I realized. It was on a great trajectory. It was growing. When I combined that with the opportunity to take what at the time was a little over a $6 billion portfolio, take a blank sheet of paper approach to how to build it out

• 23:54Speaker 00

  to be a best-in-class investment office, it seemed like such a fantastic opportunity to deploy all of the learning that I had gathered in my time at Partners and Goldman and Mellon into building a best-in-class investment office.

• 24:09Speaker 01

  What did you find when you got there?

• 24:12Speaker 00

  The endowment has been around for a while, although it's much younger than most of our peers. When I got there, the university leadership gave me a mandate to change how the portfolio was being run. While the pool of capital at $6.5 billion was sizable, it's relatively small compared to the scale of NYU. Up until 2010, it was a sub-$2 billion pool of capital. A lot of that growth had come several years before I got there. The university leadership was ready to look to the next level, which required more growth from the endowment. The portfolio, as it stood at that point, was more conservatively positioned.

• 24:57Speaker 00

  All of the investment decisions were run through the investment committee. The portfolio was all flavors of bottom-up, fundamental, mostly US-based corporate securities, mostly equity, some credit. Because of the conservative mandate that preceded me, there was a big focus on managing volatility. When I came in with this mandate that was growth-oriented, we had to rethink that construct across the board. Everything from the governance structure to how we thought about asset allocation,

• 25:41Speaker 00

  to the types of investment managers that made up the portfolio. The team, to underwrite all of that, it was all a blank sheet of paper.

• 25:51Speaker 01

  In your early days, how did you earn the trust of the committee or the board so that you could start to create a plan of action?

• 26:00Speaker 00

  It started with a plan of action on how to create a plan of action. The committee and the team wanted to know that there was a plan. I over-prepared for every conversation. I tried to absorb as much information as I could so that in every conversation, I was going in with a clear set of questions for an investment committee member or an official at the university to come up with the medium-term plan. We hustled. I got in the weeds with the team. Within three months, we had a new governance structure.

• 26:45Speaker 00

  We had a new asset allocation framework. We had started triaging and re-underwriting every line item in the portfolio. When the committee and the team saw how much we could do in a short period of time, that gave them a lot of confidence in the medium-term plan.

• 27:08Speaker 01

  Let's walk through each of those. What was the governance structure that you created?

• 27:13Speaker 00

  It was important to me that we be able to leverage the strengths of the investment committee. NYU has a powerhouse investment committee. That meant making sure that we were engaging on oversight, the risk level of the portfolio, and big themes. I also wanted to make sure that decisions were being made at the level where those who had the most information could actually do their jobs. We shifted to a structure where the investment committee is heavily involved in setting the direction for the endowment, the risk levels, frameworks for things like standing

• 27:55Speaker 00

  up a co-investment portfolio or doing secondary sales. When it comes to manager selection, we rely on the expertise of the team, who have spent their careers getting to know the managers, understanding the landscape.

• 28:15Speaker 00

  The manager selection decisions rest with the team up until a certain point. Once you have a manager that's a certain size, that becomes a significant nexus of risk for the endowment. We set that level at 3%. We said above that level, we want the committee's buy-in on the manager allocation. The committee was somewhat relieved to have their focus on the big, important topics that are going to drive the future of the endowment, while leaving some of the decisions on managers and day-to-day risk management to the endowment experts in the investment office.

• 28:58Speaker 01

  Have you run into situations where the arbitrary 3% threshold leads to some interesting conversations when you're at 2.7, 2.8, 2.9?

• 29:09Speaker 00

  No, I am a conservative person when it comes to those discussions. If we're starting to get close, we take it to the investment committee. That also works because we have an investment committee that has been supportive. Nobody's scared to take it to the investment committee. This is a good thing when we go to the investment committee. We've done it a small handful of times since I got here. The committee's unsurprisingly asked good questions, then deferred to the judgment of the team.

• 29:40Speaker 01

  What are the types of questions they've asked?

• 29:42Speaker 00

  Everything from understanding how a more heavily levered manager factors into leverage levels across the portfolio, to why this manager at this size versus this other manager at a different size, pressure testing more the thinking of the role that the manager plays in the portfolio versus the individual manager decision.

• 30:08Speaker 01

  When it comes to asset allocation and portfolio construction, how have you set up that framework to get at your growth objectives?

• 30:16Speaker 00

  We've walked a little bit of the middle ground between a more traditional asset allocation and a total portfolio approach. At the core of our asset allocation, we've tried to hone in on what are the different types of assets and the different roles that we want our assets to play in the portfolio, grouping those together, which is where the somewhat of an asset allocation framework comes in to play. But then creating a list of criteria for every single investment in the portfolio on how it fits into that bucket. What that's meant for us is we have an equity part of the portfolio, which has a private equity component and a public equity component.

• 30:59Speaker 00

  We have a liquidity and cash component to the portfolio, and we have absolute return and opportunistic. We have a small allocation to real assets, although I would say that is a heavily debated topic of whether that deserves its own allocation. The idea stems from my view, my team generally shares this, that the most reliable source of return over the long term is equity market exposure. If we are going to generate a return that is going to fulfill the university's objectives of spend plus preserving purchasing power, anything we invest in needs to be competing

• 31:42Speaker 00

  with that long-term equity market return. There are lots of reasons to move away from equity market returns. We've got to be really clear on what those reasons are for each part of the portfolio.

• 31:55Speaker 01

  How does that break down into either asset class buckets or risk exposures?

• 32:02Speaker 00

  The asset class buckets that we have today, on the equity side, between public and private, hits about 65% of the portfolio. Our absolute return and opportunistic bucket, we're building, but is expected to be about 25% of the portfolio, then a relatively small allocation across cash, fixed income, and real estate.

• 32:24Speaker 01

  What have you tried to do similarly from what you saw in the past, and what have you tried to do differently?

• 32:30Speaker 00

  On the similarity side, there's a lot that we've retained in terms of what creates an edge for a given manager. How do we think about correlations across different asset types and return streams? Those are all commonplace assumptions. The thing that we try to do differently is trying to pressure test for ourselves why a certain opportunity set exists, how we think that opportunity set is best accessed. Everything from why active management in this market versus passive, to why does this

• 33:14Speaker 00

  royalty stream exist and how do you capitalize it? Is that an interesting opportunity for us? We've tried to take each one of those from a top-down perspective of why is there a return here and why should it persist? Also, from the bottom-up side of let's put together the mechanics of how this works, how we access it, and whether that's an interesting investment.

• 33:40Speaker 01

  What are some of the areas you've leaned into that are a little different from your peers?

• 33:45Speaker 00

  One is on the hedge fund side, where when I was at the Mellon Foundation, we were relatively early to underwriting hedge fund strategies that are more trading oriented, that run higher levels of leverage, where you don't have necessarily a single persistent source of return. It's much more down to technology or manager skill or some insight into the data. We leaned in heavily there. That absolute return and opportunistic bucket that I described, almost all of that right now is in those strategies. We're able to do that because we've built a team that has a lot of expertise in those strategies.

• 34:29Speaker 00

  We can underwrite the different types of risks effectively. The other thing we've done that's different is a function of the structure of the portfolio at NYU, where we have liquidity. When I got to NYU, less than 15% of the endowment was in private assets. Our team has the view that there is still a lot of value to be had over the long term in private markets. Maybe not every private market. We want to be more discerning there, but we have the ability, and we have been growing that portfolio substantially over the last few years, when many of our peers have been pulling back their allocations.

• 35:09Speaker 01

  I'd love to ask you on each of those. On the hedge fund side, how do you think about the potential for contagion risks and these leveraged strategies across different platforms?

• 35:18Speaker 00

  We think about it a lot. When things really get tough, correlations tend towards one. There's a lot of common investor risk. That's something that we model in stress tests. That's where the risk management of our individual managers becomes important, and we try to understand the gap risk in a portfolio. We're looking at that separately from our day-to-day expectations of how the returns are going to correlate, because if we only look at those stress scenarios, we won't take enough risk on the day-to-day. This goes back to the 2008 crisis discussion. I don't have to like the downside scenario, but I have to be able to live with it.

• 36:01Speaker 00

  When we think about sizing these higher-octane hedge fund strategies in the portfolio, we size the total portfolio so that if we get that bad-case scenario across all of our managers at the same time, we can live with it.

• 36:16Speaker 01

  Having liquidity, lots of options. Have you decided how to deploy that scarce asset?

• 36:23Speaker 00

  We have done a lot in a short period of time. There was very little venture in the NYU portfolio when I got here. I thought that was an opportunity set that was critical for the university's endowment to have exposure to if we were looking for growth over the long term. I joined NYU in 2024 when the early years of AI were kicking off. We wanted to make sure that exposure was coming into the portfolio. Our investment committee and our team have been great at leveraging relationships from our prior experiences to build relationships with some of the best venture managers in the world.

• 37:08Speaker 00

  That's been one area of focus. The other piece is, we do consider the concentration of the public markets when we think about the build-out of a buyout portfolio, because that buyout portfolio can essentially provide us with diversification in our overall equity bucket, particularly in the lower mid-market that are going to be complementary to what we have in our venture portfolio and in our public equity portfolio.

• 37:39Speaker 01

  Venture has a long duration to get paid, so is your thinking of ramping into that. There's a bunch of late-stage companies that have continued to grow to the sky. How did you think about deploying across the potential range of opportunities?

• 37:56Speaker 00

  We set out to build a balanced portfolio, where we wanted to have allocations everywhere from early incubator stage of venture capital, straight through to pre-IPO, now IPO-ing, companies that have been growing massively. We did that by looking at who we thought the best-in-class players were across the spectrum, and also being pragmatic about how we can build more concentrated relationships with a few players, that early pre-seed side of things.

• 38:37Speaker 00

  When it comes to the mid to late stages of venture, we've been trying to build relationships with a combination of some of the large multi-stage firms, also some of the smaller boutique firms that can offer exposure to not just those going-to-the-moon huge companies, also some of the smaller companies that have great prospects ahead of them, either on a standalone basis or as potential acquisition targets for those large companies.

• 39:10Speaker 01

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• 39:52Speaker 01

  the front, middle, and back office with one set of data and powerful AI agents that automate away operational drudgery, so your talent can shift from managing old technology to materializing new ideas. RidgeLine helps asset and wealth managers understand and improve their firm's growth trajectory. To see how your firm compares to 16,000 of your peers, visit ridgeline.ai/trajectory. If you file Form ADV, your firm is already there. Then talk to RidgeLine about how you can do more with the team you already have. In some of the areas you're diving into, venture, private equity, notoriously competitive

• 40:33Speaker 01

  for the best managers, how do you position NYU, you being new in this seat for a long standing institution, as a desirable LP?

• 40:43Speaker 00

  Two pieces, the institution and then the team. On the institution side, NYU positions itself. It's the largest private university in the US. We have 60,000 students, 700,000 living alumni. Most of the GPs and managers that we talk to have a family member who went to NYU. Were treated at NYU Langone Medical Center. The reach of the university is massive. That's appealing for a lot of our partners, especially when you combine that with the specific role of the endowment, which is to provide accessibility to that institution through financial aid. That's a compelling motivator for our managers.

• 41:28Speaker 00

  That's great in theory. Then there's the reality of the day-to-day. That's where the team comes into play. Our team leans in to building active partnerships with our managers. That can look like helping secure a room for a recruiting event that they're doing at NYU, or debating what the appropriate pricing model is for a product that we're not even invested in. We want to be the partner of choice because managers find it valuable to have conversations with us. One of the best compliments I got from a manager was they said, when something's

• 42:11Speaker 00

  up, we like to call you first because we know that you'll answer the phone in a timely manner. By the time we hang up, we'll be well-prepared for all of the client calls to come. That's the type of value add that we want to be able to provide to our partners and helps the reputation of the team and the university going forward.

• 42:38Speaker 01

  What areas are you most excited about?

• 42:41Speaker 00

  The public markets are an interesting opportunity set right now, where we've seen a bit of a bifurcation between a lot of people moving to passive investment, a huge rise in systematic or quantitatively focused strategies, a big retail component, then a cohort of investment managers who are often focused on a long-term time horizon. There is an opportunity to be somewhere in the middle, to be aware of the short-term movements and maybe trading around some of those short-term movements.

• 43:26Speaker 00

  There's so much volatility in the market today with an eye towards that medium to long-term potential of the individual companies. We're looking at that with asset managers who can be more nimble, which means they have to be size constrained. That's been a big area of focus for us over the last couple of years. There's a huge amount of noise in the market today. When we think about our time horizon for NYU, which is very long-term, we have the opportunity to see through some of the short-term volatility and take on some of those longer-term opportunities.

• 44:06Speaker 01

  What is your particular lens on manager selection?

• 44:10Speaker 00

  We're very data-driven. That's across every single asset class. Different asset classes have different types of data. They have different availability of data. Whenever we're looking at a manager, I want to see all of the concrete information we can find that either refutes or supports the case that we're making for how we expect that manager to behave going forward. We mix that with a forward-looking perspective. A lot of that data analysis is backwards-looking. From all of those conversations we have with the managers, with their teams, we want

• 44:48Speaker 00

  to be able to aggregate the backwards-looking information with the forwards-looking qualitative and make sure we're coming up with the same story.

• 44:59Speaker 01

  What's an example of blending those two?

• 45:02Speaker 00

  One of the managers that we were looking at recently is a growth-oriented equity-long-short fund. This person spun out of similar strategy shop and has a vision for the fund going forward that is punchier than his prior organization at a smaller scale. We had the track record from his prior seat where we could look at what his portfolio actually did, what was in there, what drove returns, whether it was changing around exposures or individual security selection.

• 45:42Speaker 00

  We had some interesting conversations with him around where the track record supported his vision going forward and where it didn't. That was a great opportunity for us to have a data set that is not totally relevant, but is a real picture into how he invests. It led to some really good conversations. In general, that's how we think about any backwards-looking data is it should be the impetus to ask questions, but not the basis on which we should make decisions.

• 46:16Speaker 01

  If data combined with forward-looking is that first key aspect of your manager selection, what are the other ones?

• 46:23Speaker 00

  The opportunity set is critical. We spend more time on that than I have in some of my prior roles, partly because at the size endowment we have, we don't have to do anything. Thinking about what is the opportunity set in growth equity long-short, or venture capital, or royalties, or asset-backed finance, we can figure out why an opportunity set exists and then make sure the managers are positioned to take advantage of that. Some of that also comes down to the structure that the manager is offering the investment in, where we've seen a lot of mismatches in recent years between an opportunity set,

• 47:07Speaker 00

  maybe the duration of that opportunity set, and the structure that a manager is offering. We've tried to make sure that the opportunity set that we are trying to access is what we're actually getting exposure to in the fund we're investing in.

• 47:21Speaker 01

  How do you go about underwriting the people?

• 47:24Speaker 00

  We spend a lot of time with them. It depends a lot on the type of organization. We will partner with large investment management firms. We'll also partner with teams that are a couple individuals. When it's a couple individuals figuring out who's in charge and how they think is a lot easier. When we get to some of those larger firms, we're spending a lot more of our time trying to understand decision-making structures than the mindset of those different decision-makers.

• 48:04Speaker 00

  It's a more complicated puzzle, but in some ways, it can also be more stable because the impact of one person is usually, not always, buffered by the scale of the organization. We will spend as much time with our investment managers as we can, as long as we're continuing to ask questions that get us more information. We're never looking to spend time with somebody for the sake of it. I've met with PMs or CIOs of our managers at diners in small towns because they happen to be on vacation there. A lot of the managers in our portfolio have my cellphone number because if they need

• 48:49Speaker 00

  to talk, we're here. We want to get to know how they think, when they think, when their thinking's changing. We try to make ourselves available to each of them.

• 49:01Speaker 01

  What type of manager do you gravitate to like a moth to a flame?

• 49:06Speaker 00

  I love process. A manager who can describe for me how they think about the world and how that translates into a portfolio, I'll listen to it all day. The thing I've learned over time, though, is process doesn't necessarily yield returns.

• 49:26Speaker 00

  I can temper my desire to go straight to the process. That's an important piece of the puzzle that gets discounted in some parts of endowment portfolios, where there's a huge focus on the individual securities or the individual companies, thinking about how that builds up into a total portfolio and then a line item return is critical.

• 49:51Speaker 01

  As you look at the portfolio you've built, what does it look like today? And how different is it from when you stepped into the seat?

• 49:59Speaker 00

  To put some quick numbers around it, NYU's portfolio today is about $8 billion. We've turned over a little more than a third of it in the last two years. We've re-underwritten another third of it. There's another piece of it. We're still figuring out what we're going to do longer term. The profile of the portfolio from a return perspective and from a risk perspective is different. We've moved away from this homogeneous, bottom-up, fundamental approach to mixing in some quant

• 50:40Speaker 00

  exposure, some macro on the hedge fund side or RV strategies. We've brought in venture capital. We've brought in emerging managers. In the two years that I've been at NYU, we've backed a Fund I, a new launch hedge fund, a couple Fund II's, started looking at how do we build relationships with not just the current generation of great managers, but also the next generation of great managers.

• 51:12Speaker 01

  How have you thought about building this ship on a sea of the market environment that is so different, more volatile geopolitical issues, economic issues at the same time that the sea is moving underneath your rudder?

• 51:32Speaker 00

  We have a huge advantage in the longevity of NYU's endowment. We can build with that medium to long-term North Star while being cognizant of what's going on around us. When it comes to the asset allocation or the opportunity sets that we're underwriting, most of that is designed with the idea that you're going to have these periods of volatility or macroeconomic change. We're just starting in it. It's somewhat built into the thought process and it doesn't have a huge impact on the goal.

• 52:14Speaker 00

  What it does change is it gives me a little bit more preference for flexibility and liquidity. Some of that has to do with the volatility of the landscape. Some of it has to do with figuring out how the end of the zero interest rate environment flows through to different asset classes. That's more of a regime shift rather than temporary volatility. We're trying to focus more on some of those strategic changes, what that means for our

• 52:49Speaker 00

  go-forward allocations, trying to crowd out some of the noise of volatility or this small concentrated group of stocks is driving public market returns for this six months, trying to make sure that what we're focusing on is our true objective of delivering spend plus inflation for the endowment than the long-term growth of the portfolio.

• 53:18Speaker 01

  From your formative experience at Goldman, you talked about trying to understand what the downside could look like and that you could tolerate it. How have you thought about in the context of your portfolio today?

• 53:28Speaker 00

  We do a lot of stress testing. This goes back to the time that I've spent working with hedge funds for so long, where I think it's hard to understand the downside until you're staring at the numbers on a piece of paper. We do this with our investment committee as well, where we play it through. If this is our portfolio, and not just our portfolio today, but the portfolio that we expect to have two years, three years, four years from now, if that's the portfolio we start from and this shock event happens, what does the portfolio look like? What do we rebalance? How do we react? What happens if that's a multi-year period? What are the areas of sensitivity?

• 54:13Speaker 00

  What are the vulnerabilities that we have as a university endowment, as a large pool of capital, where we don't have control over the day-to-day exposures of our portfolio? Most of our exposures, we have control of maybe on a month-to-month or quarter-to-quarter basis, some of it's completely illiquid. How do we react? How do we fund our liabilities? How do we make sure that the portfolio at the end of these shock scenarios is still a robust enough portfolio to serve the university longer term?

• 54:49Speaker 01

  I'd love to hear how you've built out your team to be able to do this in a competitive environment where there are other pools of capital that have been doing this and pursuing it for much longer.

• 55:02Speaker 00

  This is probably one of the things that I'm most proud of over the last couple of years. The quality of our team is fantastic. When I got to NYU, there was a small team that was already there that did a thoughtful job of managing the portfolio through the CIO transition. They got me up to speed. I started having conversations with them around how we were going to manage the portfolio going forward. It helped me identify some of the critical areas where we needed expertise. We started out on the private market side. We hired an MD who had a lot of experience building a portfolio.

• 55:45Speaker 00

  We also supplemented that with two analyst hires right off the bat because we were trying to do a lot, as well as some of the ops and admin hires to help build it out. Over the next couple of years, we added a managing director on the absolute return side. We added, most recently, an investment director. We've added a few more analysts and the team today is 12 across the investment team and the operations team. 10 of the 12 are new since June of 2024. It's been a huge lift to bring the team on board. We've tried to use some of the challenges of bringing 10 people from different institutions

• 56:30Speaker 00

  in addition to the team members who've been there for 10-plus years in some cases to our advantage, learning from the best of each of those institutions that we've come from, where we weren't satisfied with what we've seen building our own way.

• 56:49Speaker 01

  How did you navigate this group coming together for the first time, who all have priors about how they go about research, what types of things they like, how they think about decisions?

• 57:00Speaker 00

  There were a couple threads that each person coming in had in common that really helped. The first one was this commitment to continuous improvement. We've done a couple of team conversations on values and it's a theme that comes up over and over again. It was something that I was looking for as we were hiring. When you find individuals who value continuous improvement, there's a learning mindset and an openness, is there a way to do this differently or better? And think intellectually honestly about whether my prior is the right answer or just what I know.

• 57:44Speaker 00

  That drove a lot of good conversations on the team, helped us build some process that we've adopted now as our own as a group. The other piece is the hustle factor. Everybody we brought onto the team, the team members who were there before, everybody's trying to get as much done as possible.

• 58:11Speaker 00

  To serve the portfolio and to serve the office. We have a strong in-office culture, so people got to know each other. People could sit in a room, hash it out. We've created all of these forums for discussion and communication. That's how you get past that hump of different expectations or assumptions coming in. Everybody's been intentional and deliberate about it. It's worked really well.

• 58:36Speaker 01

  What are some of the things you've added to your investment process from what you had seen before from some of the other people on the team?

• 58:43Speaker 00

  Everywhere that I had worked in the past, there was two main parts of the investment process. There's a piece really early on when you're trying to figure out if you want to make an investment. Then the deal team or the manager coverage team goes away and does their research. Usually they come back at the end. They present what they want to do to the team. We've changed that where the big conversation isn't at the end. It's about 70% of the way through the research process, where the deal team has gone away. They've done a lot of work. They've probably decided this is something that they think they want to do, subject to the rest of diligence.

• 59:24Speaker 00

  That's where we want the benefit of the team's power to question some of the assumptions, to find additional questions that we need to get answered and do more work without people getting defensive. That was a big shift that worked well for us. On the investment committee side, we've pulled forward where we discuss any manager names with the investment committee. We have the decision-making authority at the manager level. We don't want to lose the committee's wealth of knowledge of individual managers or strategies. What we've done is we've pulled their opportunity to input

• 1:00:09Speaker 00

  to the beginning of the research process. In each of our committee meetings, we put forward a long list pipeline. What I tell the committee is, most of these things are going to fall away. As we're going through figuring out what we spend time on, what we're doing diligence on, I want to know now at the beginning where you might have connectivity that can help us, where you have references that can help us, where you might have concerns that we should make sure we're keeping in mind as we're going through our diligence and lining up our questions. Too often, we wait until the last minute to get information that could have changed the outcome had we gotten it earlier.

• 1:00:50Speaker 01

  What's an example on the team building side and communications of one of the forums you put in place so that the team could get comfortable sharing ideas with each other?

• 1:01:00Speaker 00

  We do two weekly team meetings. One of them is designed to be more logistics focused so that we can make sure that important information is getting out to the whole team. The other one is research focused, where team members can come, bring a topic, and it can be a big topic, GP-led secondaries, or it can be a specific manager topic, the fees or the structure for this investment we're looking at. We have the time block. We never give it up. If we don't have a topic to talk about, we use it to go through the macro environment.

• 1:01:41Speaker 00

  It creates this mechanism for people to sit and think about what's interesting that's going on in the world today, share that with their colleagues, because we're all taking in different information. The power of the team is in pulling that all together. You can send around notes or you can upload your views into our research management system. But what we want is the discussion and debate in the room. Doing that in the office, in person, every week, I think is critical for that muscle of challenging ideas and collaborating.

• 1:02:21Speaker 01

  Alongside of what you've done the last two years, AI has also come onto the scene. And as a new leader in this organization, curious how you've tried to adopt AI.

• 1:02:31Speaker 00

  I would rank ourselves pretty well on being proactive about it. We sit at the middle of a ton of different information that comes in different forms, at different cadences, to different members of our team. It's always been a challenge to aggregate that all effectively. AI can help us with that. Whether it's using Claude or Gemini to take raw notes, put them into something that is a format we can all consume, or using granola or Whisperflow to capture thoughts,

• 1:03:13Speaker 00

  record them for writing for other members of the team, trying to use these tools to do a better, more efficient job of aggregating this information. One of the big projects that we're starting to undertake is all of the audited financial statements that we get for our managers. We read them, looking for specific pieces of information. They're also interesting time series of data. Trying to use some of these tools to create a better picture over time of how individual funds have evolved and changed has been a really interesting project. That's something that we might have had a member of the team

• 1:03:58Speaker 00

  work on, on a one-off basis in the past. Now, we can do it more effectively across multiple funds and see how things are changing. We have a lot of work to do still on using AI effectively. So far, it's been a helpful tool, especially for a growing team that's trying to do a lot of ones.

• 1:04:17Speaker 01

  What's in the plan for the next two years?

• 1:04:20Speaker 00

  So many things. We are still restructuring the portfolio. We have the foundation laid. We've made great investments. There is a big chunk of our absolute return portfolio and our public equity portfolio. We're still moving in the direction of being more diversified, more open to new strategies. We're also looking at different mechanisms for how we structure the portfolio. We stood up a co-investment portfolio earlier this year. We're crawling with it right now. Over the next two years, I'd like to walk. I don't know if we'll get to run, but we'd like to walk with it.

• 1:05:03Speaker 00

  We're also building out features of some of our risk management. A lot of what we're doing right now is important at the portfolio level, creating much more nuanced management at the subset. For example, for that equity sleeve or for that absolute return sleeve is going to continue to evolve so that we can manage our investments better going forward.

• 1:05:29Speaker 01

  What are the biggest risks you have your eye on?

• 1:05:33Speaker 00

  There is a very aggressive fundraising cycle in private markets that persists. One of the things that I worry a lot about is that fear of missing out will propel us to invest in more of it than we should. We've been doing a lot of work on our commitment pacing models, trying to hone in on what the critical questions are for each of the different subsectors that we're investing in to make sure that we're not committing procyclically. When I look across the public markets,

• 1:06:14Speaker 00

  the risks are that we're underappreciating the impact of private markets and of AI over the medium to long term. There's obviously been some big devaluations in public markets today. Unclear where the babies have been thrown out with the bathwater or where people haven't even realized that there are changes coming. We're trying to look at what our public markets exposure is, how that factor exposure changes in a different environment, what we can do to make the portfolio more robust,

• 1:06:58Speaker 00

  regardless of what those outcomes end up being.

• 1:07:01Speaker 01

  What's different from what you expected from being in the CIO seat than what you thought coming in?

• 1:07:07Speaker 00

  The biggest surprise was how much there was to do. I knew there was going to be a lot to do. I was excited about the blank sheet of paper. There was so much more. It was a good surprise. In addition to redoing the governance structure and restructuring the portfolio, we built out a whole new tech stack in the investment office. We're trying to button up a lot of different facets all at once. That's probably one of the things that's hardest for me is trying to pace myself. We're certainly trying to get as much of it done as possible, as quickly as possible.

• 1:07:43Speaker 01

  Michelle, I want to make sure I get a chance to ask you a couple of fun closing questions. Before we get to the closing questions, I want to tell you about one of our strategic investments. We've made a few, and each are working on a product or service we think will be valuable to our community. One is Oldwell Labs, or OWL. OWL is the very best software I've seen for allocators to find and track managers. And I've seen a lot of them. Trust me, it'll be worth the look. There's a link in the show notes so you can learn more. And here are those closing questions. What was your first paid job and what did you learn from it?

• 1:08:18Speaker 00

  Other than babysitting, which I did a lot of, my first paid job was when I was 16. I was a page in the US Senate. If you ever watch C-SPAN, you'll see these teenagers sitting on the floor of the Senate. Their job is to run bills around the Capitol. This has probably changed in the last couple decades because everything's probably done electronically now. It was an amazing opportunity to get a glimpse into how different people's lived experiences shape their views. When I was 16, my frame of reference was pretty narrow. All of a sudden, I was surrounded by people from all over the country, from different backgrounds, whether they were urban

• 1:09:03Speaker 00

  or rural or corporate experiences or military experiences. You could have all these smart people who came to different conclusions when presented with the same information because of the experiences that they've lived through.

• 1:09:19Speaker 01

  Which two people have had the biggest impact on your professional life?

• 1:09:23Speaker 00

  The first one I have to go with is my parents. I'll treat them as one because they act like a unit. When I was 16, right around this time where I decided that I was going to go into policy and politics, they sat me down and they said, great, you also need to understand how a stock works. They bought me books. I didn't have much of an interest in the markets at that time. They were adamant that understanding investing was an important life skill. The second person is Will Fox, who was the managing partner in the US at Partners Capital when I joined after Goldman. Will taught me a lot of what I know about managing portfolios

• 1:10:07Speaker 00

  and investing, also running a business. When I went to Will and said, I want to understand how partners works as a business, he gave me that opportunity to understand how the finances worked. He both gave me a lot of confidence to keep doing what I was doing, pushed me really hard to be better, never minced words on what needed work. That shaped both my time at Mellon and then at NYU, to the extent that when I initially started interviewing at NYU, one of my first calls was to Will to get his thoughts and hash through what it might look like.

• 1:10:46Speaker 01

  What's your biggest pet peeve?

• 1:10:48Speaker 00

  Moaning or complaining without taking responsibility for fixing the problem. There are a lot of things that we can fix in the world. Having a lack of proactive approach to getting something fixed doesn't sit well with me. When we've built out the team at NYU, that's been a critical piece of the character of the people that we've added in here is it's not, oh, we have this problem. It's here's a problem. Here's what I think we should do about it.

• 1:11:19Speaker 01

  What's the best advice you've ever received?

• 1:11:22Speaker 00

  When I was interviewing at NYU, I met with a couple of the board members. The advice they gave me was, remember that you're only ever as happy as your least happy child. I go back to that a lot on a couple of different levels. The first one being, our work is important, but we're all human. We all have lives at home that drive how we show up at work every day. Understanding for myself, for my team, for my investment managers, what is going on in the rest of their lives is critical. The other piece of it is I deliberately set

• 1:12:06Speaker 00

  aside time to think about the metaphorical unhappy child in the portfolio, in my team. I want to focus on what that component is and how I can make it better. The difference is, of course, it's not actually my child. Sometimes the decision is, this is not my problem. For the most part, across the portfolio and the team, everything is my problem. I want to make sure that I'm getting ahead of what those concerns might be, actively addressing them.

• 1:12:45Speaker 01

  Michelle, last one. What life lesson have you learned that you wish you knew a lot earlier in life?

• 1:12:49Speaker 00

  My dad used to say, there are good decisions and bad decisions, and there are good outcomes and bad outcomes. A good outcome doesn't mean you made a good decision, and a bad outcome doesn't mean you made a bad decision. You can focus on making a good decision, then what you should do is drive all of your energy into creating a good outcome. At some point, the decision doesn't matter anymore. It's the circumstances you're left with. I think about that a lot with our portfolio, where too often investors put all this work into making the decision, then they sit back and they say, I'm done. The

• 1:13:29Speaker 00

  decision to say no, or to exit, or to not re-up is just as important as that initial decision. Along the way, we need to be good partners to our investment managers. We need to be gathering all of that information. We need to be proactive about forcing a good outcome. If we stop at the decision, we've abdicated our responsibility.

• 1:13:54Speaker 01

  Michelle, thanks so much for sharing this interesting rebuild here in the midst of.

• 1:13:59Speaker 00

  Thank you very much, Ted.

• 1:14:00Speaker 01

  Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time.

• 1:14:16Speaker 02

  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.