E156: Inside the Mind of a $1.7B Endowment CIO w/Jim Bethea
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What are the pros and cons of managing a $1.7 billion endowment with a small team?
What are the pros and cons of managing $1.7 billion? The pros is that we're small enough that we can do small and interesting funds. So flexibility is the biggest pro that a small fund has. We're also generalists. So everyone has a view of all asset classes and it sets the team up to be specialists in any asset class if they want. want to go on from here. And it's also easier to transition to a CIO role. From a con perspective, a small team, we have limited resources. So we can't always do everything that we would like just from a financial standpoint, but also investments too. It's a limited bandwidth that we have. And being a generalist is also a con. We can't get as deep as specialists can, but you're a mile wide and an inch deep rather than a mile deep and an inch wide. And
How does the University of Iowa pick which investment opportunities to pursue?
One of the challenges that your endowment has and a lot of endowments have is picking its shots, picking which opportunities to even diligence, let alone invest to double click on and to diligence. I think it starts with, is there an interest in it? And so you look and see, is this interesting? Do we think we have some edge to this or can we even understand it? There's a lot of really cool investments that you could do that you have no idea at the end of the day what those funds are doing. And so if you can't understand what they're doing or explain them to somebody that maybe isn't an investment professional, maybe it's just a little bit too niche-y for what we want to do. And a really quick way to figure out if something's interesting or not is returns. If it doesn't hit the return threshold that we need, we're not going to spend any time there.
Essentially, if what you're saying is true, but it doesn't even hit our return threshold, it doesn't really matter.
How do small teams gain expertise in new asset classes?
I'll use Farmland as an example because we're in Iowa. Farmland's great investment potentially. It's very diversifying, but single-digit IRRs just are not interesting to us. As generalist investors, you have this interesting problem of you can invest in anything. How do you choose a new asset class to get up to speed to? The first thing we'll do is the team will talk to each other and see who do we know that's in this asset class. And then we'll reach out to those folks and ask them, you know, what do you like about the asset class? What do you dislike about the asset class? Who's smart in the asset class from a GP community or maybe even other LPs? And what's really good about the LP community is we're all trying to learn from each other. nobody's really gonna say like, hey, this is something really niche-y for us and we're not gonna talk to you about it. I think it's kind of the opposite.
If you express to somebody, we think you're an expert in this asset class, teach us, that kind of feeds into their ego and they really wanna help us get up to speed. And we've done that in some private credit spaces where people will tell us, hey, this is a great asset class. Here's why we invest in it. And that might not be why we as an endowment would invest in a pension fund, invest differently than an endowment, even if we're investing in the same thing. Obviously, everybody wants returns, but stability of returns might be more interesting for a pension fund where we need to hit high returns. And maybe that stability isn't as important to us because you get stability elsewhere.
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Chapters
10 chapters
1
What are the pros and cons of managing a $1.7 billion endowment with a small team?
0:45–1:35
2
How does the University of Iowa pick which investment opportunities to pursue?
1:35–2:31
3
How do small teams gain expertise in new asset classes?
2:31–5:24
4
What role does information sharing and networking play among institutional investors?
5:24–10:30
5
What are best practices for governance in endowment investment committees?
10:30–15:23
6
Should investment committees be involved in manager selection decisions?
15:23–22:40
7
How do incentives affect behavior of committee members and investment staff?
22:40–30:28
8
How should investment committees focus on top versus bottom performing funds?
30:28–36:03
9
What are the risks and benefits of portfolio concentration versus diversification?
36:03–43:15
10
How effective is diversification across asset classes in achieving returns and managing risk?
43:15–1:11:46
Speakers
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