David Weisburd

And it's not just ego.

They want to make their own mark on their portfolio.

The incentives are so misaligned because if they start with a lower mark for the entire portfolio and they're getting a percentage of the upside, they're actually almost incentivized to sell at a discount.

So there's almost a volatility of the strategy, if not literally in the portfolio, but from having this illiquid investment on the books, there's many different things that could happen to it that could hurt the overall portfolio.

That's right.

So continuing with this unconstrained portfolio, let's say it came with $10 billion cash, so either a new endowment or a high net worth individual getting a very large liquidity.

How would you practically go implementing this 80-20 portfolio?

To play devil's advocate, isn't that a principal agent thing in that if the expected value every day in the market is 0.1%, you want to be invested in the market?

Yes, to your point, it might go down 20% the day after, but on average, it's going to go up 0.1% and being invested overall is smarter than not.

There's a behavioral aspect too.

If you're literally starting a family office or an endowment, you don't want the institutional baggage of being too much in privates and being maybe 40 to 50% privates early on, you catch a bad year.

And now you're like, we don't do privates.

there's these downstream behavioral consequences to being overweighted versus if you're 30 to 35%, it dips by 10%.

There's not this institutional baggage that develops internally.

We're still humans.

Tactically, when you have this $10 billion and you want to enter the market sequentially, are you literally keeping these in treasuries or is it a hyper-diversified portfolio?

What's the best practice when it comes to having money that's on the sideline that's not yet deployed optimally?

Double click on that.

Purely simplistically, it seems like money in treasuries is lost returns.

Why is that not true?