E147: Inside the Mind of a $2.4 Billion Investor w/Charlotte Zhang
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What is the financial mandate of the Inatai Foundation?
What is the financial mandate for the Inatai Foundation? What are you trying to achieve through your portfolio? We are simply trying to generate the most attractive risk-adjusted returns. And that is the reason why we actually have so few constraints. We invest globally. We don't have any asset allocation targets. And truly, it is about trying to capture those things that I had chatted about before, innovation and market inefficiencies, as we believe that that tends to generate alpha over the long run. When you joined Inatai Foundation, you were tasked with building a $2.4 billion privates program. How did you go about doing this? We don't have an asset allocation target. And I tried to begin by aligning with the team on what do we actually fundamentally want to have exposure to. For us, that answer was we want exceptional returns that are generated from global innovation as well as market inefficiencies.
This naturally pointed us in the direction of you're probably going to invest more in venture and buyout, although we do have some select real assets exposure as well. And then also having a bias for specialists. We then went on to leverage our networks and I developed a forward calendar of essentially wishlist GPs that we'd like to do further diligence with. I also created a commitment budget to coordinate all of our sizing and pacing decisions. Very curious. You said you went about building a wishlist of GPs that you'd like to access. How did you go about building that wishlist? We started off by focusing on thematic areas that we felt tied to that innovation or market inefficiency. With innovation, we felt that there was a lot of density of talent in China, as well as an incredibly large market opportunity. Another example would be for market inefficiencies. We all know that lower mid-market businesses tend to have a lot more sub-optimized functions, and there would be
opportunities to create value add by professionalizing these businesses and then became another subset of GPs that we added to the wishlist target. And let's say now you've double clicked, you want to do lower middle market PE. How do you go about executing that strategy? They're the four Ps, people, philosophy, process, and performance. It starts with having a stable, very experienced team of high caliber people with the right background of skills, expertise, and relationships to really execute on their strategy. You also want a culture that values dissenting opinions as opposed to groupthink and and then embraces humility, especially in admitting to and learning from mistakes. The investment philosophy should be focused. It should demonstrate some sort of nuanced or differentiated understanding of the market dynamics that actually create the opportunities they're trying to pursue. And then the characteristics that qualify for a down the fairway deal.
And then when you think about, right, how do you execute on the philosophy, there then needs to be a consistently applied investment process. This spans from, you know, how do they source? What do they dig into during diligence? How are the decisions made? How do they approach value add initiatives? And then their discipline in doing buy, hold, sell analyses to determine when is actually the appropriate time to exit an investment. And finally, performance is the output of cogency amongst the first three factors. The track record should outperform relevant benchmarks across market cycles and then demonstrate both resilience as well as ability to adapt and react to changing environments. Performance, of course, shouldn't be driven by a couple of deals to the point where it's really hard to differentiate whether it was manager skill or luck.
You sometimes take years to invest into a manager and you're meeting with the manager multiple times and you're tracking them. What exactly are you trying to ascertain from spending years on investment decision? You have to spend sufficient time seeing where the rubber actually meets the road. In other words, it's developing context on the exceptionality of the people and then monitoring the consistency of their executional progress relative to what they articulated is their investment philosophy and process. It takes time for me to landscape comparable strategies.
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Chapters
3 chaptersSpeakers
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