E304: Neuberger Berman Co-CIO on Mistakes Smart Investors Make
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What insights does Jeff Blazek share about working in large asset management versus endowments?
Jeff, you're co-CIO of Neuberger Berman's roughly $550 billion asset manager. You work both at a large asset manager as well as at an endowment. Tell me about the difference between working at these two organizations.
Yeah, there's a lot of differences in terms of the objectives as well as the scale of the assets that are being invested. And other experiences I've had, too, I worked at Cambridge Associates. I worked at Texas Teachers. So a lot of shapes and sizes of portfolios. The first thing is the larger you are, Texas Teachers, for example, that's $120 billion when I was there. I think they're over $200 billion now. It's like driving an aircraft carrier in a creek. The ability to fund niche managers or smaller strategies may be off the table in a lot of cases. And the way that you have to think about alpha and beta is building blocks. You just have to be very thoughtful and different. Not only that, there's times where you can move markets if you're involved in commodities or a certain sub asset class and fixed income.
So when you trade and rebalance, it's very different at a Texas teachers or a large mega hundred billion dollar plan at an endowment or when I was at New York Presbyterian, which was only a few billion at the time. Now that I think they're up to seven or eight billion. It allows you to be more agile. You can fund smaller managers. You can do co-investments. And the endowment model, I think, is really where this came from. It's like we have this long-term orientation, but a smaller pool of capital that can be more targeted, more concentrated, smaller managers. And it allows you to, I think, therefore be more artistic. So the art and the science, you can say, I'm just looking for high returns. If you're a very large $100 billion plus plan, you have to be more targeted and more quantified.
So you worked under a previous guest, Britt Harris, who is the CEO and I believe CIO and CEO of Texas Teachers and also UTemco. What was it like working with Britt?
The thing I'll say about Britt is he had a knack for taking complex investment concepts and distilling them in a way that you could understand and process and to simplify the role in portfolio. And it allowed us to evaluate asset classes and managers in a way to say, does this add value to the portfolio, the competition of capital? And again, the simplification does not mean that we didn't understand the nuances. There's a lot of complexity when you do due diligence and bring a strategy into the fold. But Britt had this very good way of marrying the role in the portfolio with the overall return risk objective and diversification. His whiteboarding sessions where he would take hundreds of investments and boil them down and just help me cluster them together.
This is, they serve role A, B, and C. How much do we want to weight them? What do they do for each other? He just had this very good way of simplifying things and then being able to deliver that messaging to the governance to get it approved.
For those that can't whiteboard 100 investments, what are ways that they should formulate their portfolio? What are some good first principles for building an endowment-like portfolio?
To put it in first principles, I think to give a shout out to Total Portfolio Approach, TPA, what I love about TPA is that it defines very simplistically two different roles in the portfolio, growth and defensiveness. And that is the overarching goal. barometer of when you have a 70-30 portfolio, 70% equities, 30% bonds, or you have a 90-10 portfolio, 90% equities, 10% bonds. Those are different risk profiles, but those are building blocks that you can understand. And by the way, if you don't have any edge, you don't have any ability to select managers or sub-strategies, and you need to have a passive vanguard approach to investments, that is on the table for you to define and benchmark the success.
So as a first principle, what I would say is it is important to just determine your risk profile, appetite, measure it basically in passive equity bond blends, size it appropriately, look at history.
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Chapters
5 chapters
1
What insights does Jeff Blazek share about working in large asset management versus endowments?
0:00–4:02
2
What is the importance of drawdown compared to standard deviation in portfolio management?
4:02–7:25
3
How should investors assess their risk tolerance and drawdown capacity?
7:25–11:39
4
What first principles should guide building an endowment-like portfolio?
11:39–44:06
5
What mistakes do allocators commonly make when investing in venture capital and private equity?
44:06–46:11
Speakers
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