E302: Legendary CIO Larry Kochard On Where Alpha is Today
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What insights does Larry Kochard share about his experience as a CIO?
So Larry, you've had a storied career, to say the least. You were a CIO at McKenna, $25 billion asset manager. You're also a CIO at University of Virginia and Georgetown, where you were the first CIO, really built that endowment strategy from scratch. Let's start there. Tell me about your experience at Georgetown.
It was the first time I was a CIO. So one of the first steps I took was to go out and do a survey of other successful, long-time serving CIOs. A lot of people were very generous with their time. I sat down with the likes of David Swenson. I sat down with Alice Handy, who was the longtime CIO at the University of Virginia, who really was, for all intents and purposes, a mentor to me. As a result of that, I came back And the first investment committee meeting I had with the board, I kind of had the results, presented the results of the survey. And really what I was looking to do was craft a new investment policy statement that would set the rules of the game, how much risk we would take, what would the asset allocation look like, what would be the process.
What do those legendary CIOs tell you in terms of advice on how to build an endowment?
pick out two of them. So David Swenson, again, very generous with his time. The thing he impressed upon me was this notion of having the investment committee be part of the process. So even though the investment office is driving the bus in terms of idea generation, in terms of the investments that they wanted to do, having the investment committee buy in to the investments produce this idea of sustainability, meaning you could sustain yourself through the long term. Because any investment you make, it's not going to be a straight line from here to the finish line. You're going to have ups and downs. And making sure that the investment committee really was bought into the process And the logic behind why you made certain investments was really helpful to me.
Alice Handy really impressed upon me the notion of becoming very embedded into the institution, being close to the senior leaders of the institution, the president, the provost, the CFO. But then also on the academic side, as well as alumni groups, as well as students. And so that was really instrumental to me because she impressed this notion of what makes those jobs so special is the fact that you're part of this academic community and making sure that you're not isolated from the community and thoroughly embedded in the community will, again, make it easier to ride the ups and downs of the market over the long term.
I often think about this rootedness in terms of investing. A lot of people invested in Bitcoin at $50 and then when it went up to $100, they sold because they didn't have a fundamental thesis on how big Bitcoin could be and what was really driving that. They were more speculators than investors. Similarly here, you chose to have a rooted thesis with the stakeholders. Why was that so important and what were the downstream consequences of that?
First of all, to get back to your point, I do think the notion of fundamental investing as opposed to being tactical, trying to be more of a trader, it's really important to me to opt for that long-term approach to investing. If you do adopt this long-term approach to investing, it's really important to, again, have the buy-in from all the constituents because there are going to be times when that long-term approach is not going to work. And making sure that you have the personal fortitude. There's a long literature of behavioral finance that talks about why people fail in their own portfolios. But then you kind of layer in the notion that you're investing on behalf of an institution and making sure that that institution is an asset as opposed to a liability, which could make you even more prone to behavioral mistakes is really a significant, you know, it was a significant epiphany for me of understanding that.
Last time we chatted, you said that you were very focused on making sure that the programs that you built were sustainable.
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Chapters
8 chapters
1
What insights does Larry Kochard share about his experience as a CIO?
0:00–6:14
2
How can governance and stakeholder buy-in reduce behavioral mistakes in investing?
6:14–12:20
3
What strategies does Larry recommend for maintaining liquidity during market stress?
12:20–17:57
4
Why is rebalancing important in investment portfolios, especially during downturns?
17:57–23:53
5
What does Larry mean by 'sustainable alpha' in endowment investing?
23:53–28:40
6
How should endowments prepare for market crises according to Larry?
28:40–34:37
7
What are the emerging trends in endowment investing that Larry discusses?
34:37–40:28
8
What final advice does Larry give for future investment success?
40:28–59:59
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