What qualities do endowments look for in emerging managers?

Here you can enjoy the transcript of a conversation about emerging managers and allocators between Rob Vinall and three allocators.

This transcript is part of a series of transcripts of the talks at the RV Capital Meeting 2020. Before the RV Capital meeting takes place again in March 2022 we want to make these great and relevant conversations also available in form of a transcript.


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Here you can find the transcript of the video:

Rob’s Introduction

[00:00:15] Robert Vinall: Today’s panel discussion is about endowments and what they look for in an investment manager. I’m going to introduce you guys very shortly, but we’ll start with just a couple of organizational things. So there’s one group of people left I still have to thank for this weekend which is my family. Marian over there, Tommy who may not be in the room, and Olivia; so it’s a family, everyone chips in and helps out, so thank you guys for helping.

My elder daughter Emily is at school in France this year so she couldn’t make it, but I’m sure she’ll be back next year. Then also to Tilman, who I think has done a great job on the audiovisual. I’ve received very positive feedback from people on YouTube and stuff that it was much better this year, so thank you for that. On that same note, on the last discussion, a few people did say that at times it was a little bit quiet so I’d much rather hear in the middle, if someone is holding the microphone too far away or anything, just feel free to say, immediately it’s not impolite. We want to make sure that everyone can hear. And then one final admin point, next year, this event is going to be on the 16th and 17th of January, so please save the dates and I hope as many of you as possible can make it. It’s been really a great group and I’ve really enjoyed the weekend.

Okay, we get to the final session of the day, and I’ve got three panelists. All three new ones compared to prior years. And I’m going to ask you each of you to maybe quickly introduce yourselves and your organization. Nick maybe I can ask you to start if that’s okay.

Introducing Nicholas Csicsko and Trinity Wall Street

[00:01:58] Nicholas Csicsko: Hi, I’m Nick Csicsko. I work with an organization called Trinity Wall Street. Trinity Wall Street is a church founded in Manhattan in 1697 and in 1705 the Queen of England gifted to Trinity 215 acres, it’ll get faster, I promise. Today we retain 15 acres of land in Manhattan, mostly commercial real estate. We monetized a portion of that in 2015, brought on the team to manage a diversified part of the portfolio, and that’s what we are. Philanthropically, because it’s a wealthy church, it focuses on New York City primarily with an emphasis on housing and homelessness, and social justice.

[00:02:35] Robert Vinall: That’s wonderful. Keep the microphone because we also want to hear a little bit about yourself. I know your background is very unconventional, you’re a musician. Feel free to take your time just to say a few words about that.

[00:02:48] Nicholas Csicsko: I came to this role a little differently. I studied music all through school and when I was finishing my doctorate at the Juilliard School, a conservatory for music in Manhattan. I was studying composing and I decided I wanted a different path. And it just so happened that I convinced the endowment at Juilliard to let me be their intern and that’s what started this. To use the terminology of the week, that’s where I got the bug. I had symptoms before and then it became very clear.

[00:03:22] Robert Vinall: You still have a very strong connection to the music world through Emi your partner who was here last year, maybe a quick plug for Emi and her music?

[00:03:28] Nicholas Csicsko: Yes! If anybody would like to check out some really cool music that we put out on our record label you can check out Emi Ferguson, EMI Ferguson. And we have a Bach album out, as of last year, and then the year before there was taking old French songs and popifying them. So hopefully post-genre is the category we’re going for but there’s a heavy emphasis on the classical.

[00:03:50] Robert Vinall: We hope you bring me back next year. She was here last year.

[00:03:54] Nicholas Csicsko: We’ll get some hits today and maybe we can use that. Thank you for the plug.

[00:04:00] Robert Vinall: Great.

Matthew Libel from Global Endowment shares his background

[00:04:02] Robert Vinall: Matt would you like to say a few words about Global Endowment and then introduce yourself?

[00:04:05] Matthew Libel: Hi everyone. Matt Libel here from Charlotte, North Carolina, and I’m a member of the team at Global Endowment Management. We manage capital on behalf of about three dozen primarily US-based universities and foundations. And so we’re serving as their investment office, what a lot of people would refer to as an outsourced chief investment officer.

[00:04:32] Robert Vinall: You have a fascinating background yourself because I think you started on the endowment side, you dipped into the stock-picking side with Pat Dorsey and then came back to the endowment. So you’ve kind of straddled both those worlds. So maybe say a few words about that.

[00:04:45] Matthew Libel: So my first job out of school was actually with Global Endowment Management, and the sort of appeal of that role to me was, I really didn’t know where I thought I might fit into the investing world. I was fascinated by the idea of doing it, but got the opportunity to join, what’s a really great team there and after two and a half years I jumped at the opportunity to try my hand at direct investing, and sort of figured out that I liked the idea of evaluating businesses and becoming a part-owner in those businesses and so I spent almost four years working with Pat Dorsey in Chicago at Dorsey Asset Management. And then more recently, jumped at the opportunity to come back to GEM and be a part of that team again.

[00:05:30] Robert Vinall: It was a topic with Nate, that a lot of people are passionate about stock picking but working in an endowment, in particular, the mission element of that is also an important one.

[00:05:40] Matthew Libel: It was an amazing opportunity to work with the set of clients we have. Also, I think it’s sort of an underrated opportunity for young people that may have this sort of concept of what investing is, to actually get to spend time with world-class investors across a lot of disciplines. So that was sort of invaluable for me as a 22-year-old to get to travel around the world and ask questions to people like Rob. Not everyone gets to do that.

[00:06:12] Robert Vinall: That’s great. So, Johan, I’ll pass you the microphone shortly, but feel free to keep holding it there. So Johan, I only met you this weekend. I think we had a little bit of email contact and telephone calls beforehand, but you’re a very, very rare species that’s why I’m very happy you accepted my invitation to join this panel. So you’re actually working with a European endowment. So maybe you can introduce the Novo Foundation to everyone and then talk a bit about yourself as well.

The Novo Nordisk Foundation

[00:06:40] Johan Brønnum-Schou: Thank you. I work for Novo Holding. We are the QC investment company of the Novo Nordisk Foundation which is a Danish Foundation. We have our heritage from Novo Nordisk, the company and then we own 25% of that. The company you mentioned was one of your mistakes. So we come from that company, still only at 25% of the company, and over time we of course receive dividends from that company so now we’ve built an investable pool of money, that’s the area I work with. We have a strategy where 50% of the money is actively invested in Life Science coming from Harrison Life Science but the other 50% are in financial investments which are more like in broader asset classes, inequity, credit, and bonds, where it’s very much focused on the manager size.

We also do a fair amount of direct investments and also it’s both the managers doing an APC on credit and it’s mostly an approach where we are very much looking for managers with a very fundamental approach, a very long-term very, concentrated, and a strong alignment of interest from managers. We have to earn all the money and invest alongside. So not much different from what we heard from MIT. We’re very focused on what’s going on underlying and trying to underwrite underlying companies and trying to be a good partner for the managers.

I’ve been with the company for 11 years now, so a long time. And when I started, we were two guys on the team, now we are four or five. And we’re growing a lot in assets mostly because of the dividends we receive from Novo Nordisk over time but also, we made a little bit of a churn on the way. Over time, we have to build a portfolio of trying to build these long-term relationships and we’ve done this. We’ve been with some of the managers for almost 10, 11 years, and it’s also fun going around and meeting, talking to other interesting investors. That’s the fun part, and talking about companies, I like that as well.

[00:08:45] Robert Vinall: Were you always at Novo or were you at other stations beforehand?

[00:08:48] Johan Brønnum-Schou: Before Novo, I was actually in a startup firm, in a hedge fund for a few years. And that was also quite interesting. During the financial crisis, you learned a lot. I think Nate also talked about some of the valuable learning from hedge funds and mistakes there and what worked and what didn’t work in investments so those were quite interesting times. And one learning I had was also trying to keep things quite simple, and basically long-only, non-leveraged investments with a long-term focus. It’s probably a smarter way to invest long-term than trying a lot of other things. Before that, I was in some private banking work with high net worth individuals also for fund selection, asset allocation. And before that, I was in Copenhagen Business School, financing.

[00:09:47] Robert Vinall: I have to say Novo doubled over the time I held it so although was a mistake, there are definitely worse ones out there.

[00:09:52] Johan Brønnum-Schou: You’re right about the pricing.

[00:09:58] Robert Vinall: I enjoyed the association with the people there, they were really great people. And the business has continued to do very well since I sold so, I really have no complaints about that company and it’s clearly served your endowment very well.

Mental models for looking for managers

[00:10:10] Robert Vinall: So maybe as well just before we go to Q&A, I’m sure a question everyone wants to ask in any case, is, what your mental model is in terms of what you look for in managers? Maybe you could just say a few words about that and then we go to Q&A from the audience.

[00:10:30] Nicholas Csicsko: Like Nate and I mean, most people, idealize looking just for finding the best in breed or the best in class are the best athletes. I think the one nuance, for the group that I work with for Trinity, is given that we’re a smaller team, we’re generalists.

[00:10:50] Robert Vinall: How big is the team?

[00:10:52] Nicholas Csicsko: On the investment side, three senior, two analysts, and on the real estate side two people. And so the endowment is split roughly half and half of the assets so it’s, it’s a little bit of a scramble. And so, there’s always looking for the best athletes, but I don’t know if we have the same capacity to scout around the world in the same way, so it’s aspirational to get there.

[00:11:20] Robert Vinall: I’m a fan of small teams.

[00:11:25] Matthew Libel: At Global Endowment, you’re going to hear a lot of the same themes that have come up throughout the weekend. Were ultimately also sort of very bottom-up focused and one of the things that we really focus on is trying to identify people that have selected into a strategy that really fits all aspects of their life, I guess, and so I think it takes a very different person to run a long-short portfolio that has maybe 50 positions in total, than someone that’s doing something like Andreas, who we just heard from, with six positions. And so you really need someone that has a different mindset and focus and so we spend a lot of time on that aspect.

[00:12:13] Johan Brønnum-Schou: What we focus on, I think I mentioned a little bit but one thing is, of course, there’s a lot of smart people out there and what we focus on is who people really are. We don’t want to change anybody. We want to find people who do what fits them very well, so we never change any manager. So when we really want to do something, we all have different biases and styles and ways to do it but they are all kind of fundamental based and they all have a drive and who have a really great passion for investment. That’s one of the important things we really look for.

And so of course, also other things are also important, as you all know, but we never compromise on any of our ethical standards. That’s also very, very important, I think. And you want to feel that they are passionate and still have a strong drive of wanting to deliver at the same time. That’s some of the things we’re really trying to, do that involve different things but I think we’re trying to assess this with both the existing manager and the new manager we’re looking for and the new relationship we’re trying to build.

[00:13:16] Robert Vinall: Great. Thank you.

[00:13:18] Robert Vinall: So, let me now pass over the microphone and hopefully there are lots of questions from the audience.

With how many emerging markets does an endowment work with?

[00:13:38] Question: I would like to understand how many emerging managers you work with, and what is the typical process of engagement with each of them? How do you seed them, if you continue adding if you put a lot first? I would like to understand this.

[00:14:00] Matthew Libel: Global Endowment does invest with emerging managers, similar to what you’ve heard from Nate this morning. There’s not an explicit mandate to do it but we find it to be sort of a very valuable part of our process. I work on the public investing team. We do work across teams but most of my focus is there. We have a little over 30 managers that we’re invested with across the public. And depending on how you define emerging, they’re a subset of that. They would be in the minority, but it’s something we’re always looking to do and really I think even if we didn’t explicitly invest with emerging managers, it would make a lot of a lot of sense to spend time with those people as they mature through their careers. It’s very rare that we’ll invest with someone that we haven’t spent multiple years getting to know and engaging with. It’s core to what we do, to spend time with people throughout their investment life.

[00:15:10] Johan Brønnum-Schou: We have quite a concentrated portfolio. I think we have 10 or 11 manager relationships on the equity side and a few on the credit side, maybe five. So it’s concentrated, but we also spend time meeting emerging managers and try to get to know everybody basically and follow them for years. We also have seeded managers and we’re in the process of seeding another one. So we have done that now. I believe we will have seeded three managers over time and most of them have had somewhat experience from previous times, had some kind of track record. We’ve also seeded some with no track record, you can say in terms of a return track record. But then had we sometimes started up with them in a way where we have kind of re-underwritten the deals with them so we had that on our own balance sheet for a period of time and really done the deals together to get to know them and then we kind of winded on a few deals and it worked fine. And we really got a great impression about their process and their analytical skills and got to know them even better, which is important. We’ve kind of branched into doing it in terms of a mandate with them as a managed account.

So that’s one thing we have done, that’s a credit investment. But on the equity side, we are also meeting many new managers. And I think it’s important to, if you can, be confident, to get in early and you can maybe get a special deal. We’re looking at it but it’s an evolving process. We don’t have emerging manager programs per se but definitely something we’re considering increasingly looking at, if we find a challenge, to get in early.

[00:16:48] Nicholas Csicsko: Given the size of our staff, we’re trying to. We have a random number which is 40, and that’s the number of relationships were shooting for across public, private, credit, and equity. And that’s an arbitrary number, but the concept is that we need to understand our partners, and we need to understand them, such that we can support them when things go wrong. And so, in the broader institutional investor world, for lots of reasons I’m happy to rant about, basically we all know that we should buy low and sell high, but there’s a pervasive behavior of basically selling low and buying high. And so you’d wonder why I’m talking about emerging managers but what I’m saying is that, when you start with say, I only have a few slots for lack of a better word, and it’s not because they’re going to be varying sizes of commitment, but at the same time a relationship is a relationship. And you can back someone whether they’re 1% of your portfolio basis points or 10%.

So, the weight of that is there. And so, like Matt, I think like everyone, we really want to spend time with these individuals to get to know them. And so there’s no blanket statement about we do or do not do emerging managers. We’ve been there day one, we’ve invested in people later on in their investment track or career. But I do often struggle with this concept of track record and I know it’s very important, I’m not diminishing it but just because you have something attributable to someone or not attributable; talking to them spending time with them, and understanding them, should have more weight in my opinion, because we have all these people to spend time with numbers and a lot of times, what a three-year track record tells you whether you can invest, which is kind of a consultant for three-year track and now we can go. I mean, how is enough data points tell you anything? Maybe that is combined with getting to know the person and understanding how the investments worked out. But these blanket rules are just dangerous. And so I’ll stop ranting but I think everyone should be open.

[00:18:50] Robert Vinall: That was awesome, Thank you.

I just realized we don’t have anyone in the hot seat, checking out the internet for questions. So Dennis, just because you’re closest there, do you mind taking a seat and if you see anything interesting coming through wave to me and I’ll give you a few minutes to collect your thoughts and I might come back to you a bit later. It’s dangerous where you stand at this meeting. There’s another question here at the front.

Factors behind the construction of a portfolio

[00:19:15] Question: This is more about portfolios and not the emerging managers. What Nate said to me really resonated and I’ve read this about MIT and some others. Just putting together really good managers into a portfolio and then monitoring the exposures but it sounds like you guys are on the public side. How do you think about that in terms of, you want to find best in breed, you’ve got to assemble a portfolio, how much attention do you pay to an overall benchmark? How much do you get away from that or try not to think about it or give you allow yourselves freedom? I guess as you construct this portfolio of really good managers, if that makes sense.

[00:19:54] Matthew Libel: At Global Endowment, we very much ascribe to, sort of all of the sourcing and selection is done bottom-up, but then there are top-down guardrails that we use, basically to try to put ourselves in the best position to deliver the returns necessary to support our clients. For the equity exposure, which is the sort of dominant exposure at Global Endowment, we use acqwi as sort of a starting point for where those guardrails are. But if you think about it at the country level, we’ve had as much as sort of a low double-digit swing away at a country level. So if you think the US is 55%, we’ve had points been below 45% there.

We’re willing to tolerate fairly wide swings if we think that’s where we’re identifying opportunities at any given time. But that’s probably the part of the process that’s most collaborative across the firm. And so there’s constant conversations going on between our team with our CIO, and even with our managers and understanding. So, since we’re very bottom-up and if we end up with a large overweight, an example from this year would have been in the UK. That’s very interesting to try and understand and talk about why people that can invest globally have decided to gravitate there. And so that’s another opportunity for us to learn and understand.

[00:21:30] Nicholas Csicsko: I think it’s really hard because there’s the idealized portfolio, what you do with your own money, and then there’s the institutionalized portfolio. Not to keep picking on Nate but since he’s the topic of the day in my mind, I don’t obviously work at MIT, but in a lot of ways, they have a very much idealized set up such that their governance allows the investment professionals to do, in my opinion, what I think they want to do. And a lot of institutions actually have a little bit of a different dynamic, whereby you are constantly reporting to an ever-evolving and changing board.

And not that MIT doesn’t have a board or that they’re not engaged; it’s just that level, the degrees of freedom come with building a track record, and establishing trust. And so with that comes I think the freedom to take risks and against a benchmark or what you’ll be judged against over time. And it’s an interesting feedback loop because you need to get to that escape velocity to actually be able to take the risks you want to take and actually tilt in directions or have the portfolio you would want to have your own money. So, that’s just one extra thought.

[00:22:38] Robert Vinall: I think that’s great. That’s great credit to Seth I mean it’s not because they have a particular governance structure at MIT it’s because he’s built that culture of trust, to the board, with his employees and he’s kind of earned that freedom as opposed to it being somehow structured into the endowment.

[00:22:58] Johan Brønnum-Schou: A thread to your point, I think we were lucky in the beginning actually, in our company that we were not very institutionalized. So we could actually kind of build a strategy that was more like how you would want to invest your own money to a degree. We had this fundamental, very concentrated approach. That’s probably more difficult if you came from a larger pension fund as risk manager and track manager and that stuff so we. So we’ve been lucky in that way to be able to go and invest with people in a concentrated way, which we believe in the long-term, is the best way to invest.

To the question about the portfolio construction; we spend a lot of time and that was also one of the things when I joined the company that I really liked. We could do everything, for example, in managed accounts, most of it or 99% of what we have on the equity side and we really see through how each portfolio looks. It’s a lot of time and that’s why we don’t have too many managers. We want to be extremely accurate, have a high active share or something that doesn’t look like the benchmark; we spend a lot of time on that. So that’s part of the process really, not just try to look different from building different but building a portfolio that has a chance of outperforming

And of course we also need to look at diversification. But our portfolio starts bottom-up and sometimes we end up with some biases, but still we spend a lot of time constructing the portfolios with very different benchmarks or just by the benchmark, that’s for free. So we spent time looking through all our positions.

What extent are they relying on external consultants?

[00:24:25] Robert Vinall: I think, Dennis you got a question from the internet.

[00:24:28] Dennis Hong: Gentlemen, we have a question from the internet, and I also have a question myself, if it’s okay. That’s the question from the internet is, I’m curious to what extent do you rely on external consultants in manager selection and due diligence.

[00:24:50] Johan Brønnum-Schou: None at all.

[00:24:55] Matthew Libel: Same, none.

[00:24:57] Nicholas Csicsko: Same. Not to disparage consultants or governance, but if you don’t trust your team, I don’t understand. It’s just an extra, it’s a safety blanket, and in some cases, it can make a lot of sense if it’s an area you’re not comfortable with, adding a consultant could be a wonderful concept as you build that competency or comfort. But the concept of always having a consultant to verify what your team’s work is doing, means you should probably just have a different team or a different governance structure or trust.

So back to where I just was, is how you get to that trust because that extra layer is just more opinions, and you’re solving for all the equations. Instead of solving for what you want, you’re solving for what you can get through the consultant, what you can get through the board. And then your whole lens and aperture of how you invest gets affected by what I can actually get done, because you are trying to take your portfolio from point A to point B with that constraint.

[00:25:52] Johan Brønnum-Schou: Just add to that, I don’t think we are very aligned with the consultant general because they probably want to find some managers where they can invest a lot of money and sell to a lot of different investors. And you probably want investors as well but you’re very bad at selling their product, so don’t get too many investors which limits the AUM. So I don’t think we are aligned. We look for the same opportunities anyway.

Heuristics and mental models used in portfolio construction

[00:26:22] Robert Vinall: Dennis I appreciate your chutzpah so go for it.

[00:26:26] Dennis Hong: I’m curious just while we have you up here, just some perspective on portfolio construction at the institutional investor level. Do you have heuristics or mental models? I think I’m a stock picker. I run a very concentrated fund and I’m always trying to learn from other sophisticated investors about how they think about sizing and portfolio construction and particularly because sizing and manager is very unique and there are all different types of styles and underlying portfolio construction, just curious if you have any mental models or heuristics?

[00:27:02] Johan Brønnum-Schou: I don’t think we have any kind of sophisticated models for that. As I have mentioned before, each of our managers doesn’t have to be diversified. We have a diversified pool by putting these idiosyncratic portfolios together, that’s it. Of course we look through are there any major positions and then we’ll have two scales, so we have some risk limits but I think they’re very simple like maximum five to 10% in one position or something like that, very simple rules. And we also of course look into the benchmark, are we completely 45% in IT, or 30% in Asia? We will probably adjust some but that’s it, I would say. We very much believe that the portfolio should be driven from the bottom up for the best opportunities. So there’s no kind of special model, but I think the way we do it, that’s simple.

[00:27:55] Matthew Libel: One comment I would make on portfolio construction and specifically on concentration. I think it’s something that actually gets confused a bit within the world of value investing that we all work within. I sometimes scratch my head a little bit when people say a core part of their strategy is concentration. I think concentration, in the perfect world, is more of an output than an input. And the reason why I think a lot of great investors end up being concentrated is that it’s really hard to find good ideas. In a perfect world, if everyone could have 100 or 1000 positions and all of them compound and nicely, smooth out the returns; that would ultimately be better but reality sort of constraints that. And so I think that’s an important point. There are some strategies that are more suited to running in a more diversified way and so at the end of the day, we don’t hunt specifically for concentration. If someone can run a strategy with 25 stocks and deliver good outcomes, that’s great also.

[00:29:11] Robert Vinall: It has to fit the personality of the manager, a point you made as well.

[00:29:15] Nicholas Csicsko: I would just add that a lot of institutions, by the scale of their assets, can’t be as concentrated as they’d like. And so it creates a different model and a different level of complexity because if you want to have these really bespoke, unique, great managers, they often are capacity constrained and so you end up having a proliferation of line items which makes it harder to do the job.

[00:29:44] Robert Vinall: I noticed it’s 12 o’clock but we were a little bit late starting so I might let it overrun about 10 minutes if that’s okay everybody?

Selling and reducing managers that no longer fit the portfolio

[00:29:51] Question: For buying a stock, and generally stocks do not have feelings, you can sell them very easily, it’s generally when I spend time on them before I’m planning to buy them. I always think of when you try to sell, how difficult it would be because the more you know the more you kind of fall in love with the stock, like it’s doing very nice thing for the world and so on and so forth.

And I think for managers, it is going to be much more difficult because there are feelings involved, you spent a lot of time knowing them, tell us a bit about how you make the sell or reduce decision on a manager. How does that happen and how do you tell them? Like if you don’t completely want to sell them, just reduce because you have too much in IT and so on and so forth. How would that conversation go and how would you make sure that they understand that you’re not getting rid of them in two years, but basically just reducing because it doesn’t fit your portfolio. Thank you.

[00:30:48] Nicholas Csicsko: Oh man, have to start this one. I think it’s really hard because you’re further away from the portfolio than the manager and so when things aren’t going well; it’s your job always to be in as well equipped as possible to understand what’s going on and the positions. But when things don’t go well, there’s a natural tendency to want to sell, back to my selling low and buying high, and then you trade out of that and you go by the manager it’s just done well. So if there’s mean reversion, if that’s the type of thing that could happen in a strategy, you want to always consider that. So ignore figuring out the right time to buy and sell a manager if you’re going to be in that game.

But in terms of figuring out when you should move on if assuming you made the right decision and that this is a really thoughtful investor, it’s either going to be something on the business side, where they’ve allowed themselves to grow out of their wheelhouse or can no longer invest the way they used to, maybe they’re getting distracted because they have a lot of commas next to their name and maybe they’re just proliferating products. But that conversation on trimming and adding, as long as you have a good relationship, it shouldn’t be too difficult. And then sometimes there are portfolio considerations. So we’re growing our private portfolio because we’re a new institution, and over time that will be fed out of the public equity portfolio.

Fortunately we’re generalists so we get to look at it and compare and contrast, but it’s never easy, and you’re further away from the action, if you will and so you want to really understand what you invested in. You invested in a person to invest on your behalf. And so you’re underwriting that person and how they behave and then hopefully you support how they think, but if you disagree on a position or the outcome of an investment, it shouldn’t necessarily be the thing that’s the end all be all. But if there are clear signs that they’re not doing their work, or they’re distracted, then I think it might be time to move on.

[00:32:42] Matthew Libel: That’s definitely one of the hard parts of the job. Managers definitely have feelings, we have feelings. And so I think it’s part of the reason why the preliminary process before we make an investment is so long. Oftentimes that we really need to build a high degree of confidence that this is a decision that we want to make for at least a long enough period of time that we’ve seen investments that are made, play out on a time horizon that’s appropriate, because it’s really only at that point that you can begin. There are some signposts that you’re looking at more frequently, like some of the things that Nick just talked about, but really on the underlying investment level you need a significant amount of time.

And then when we do get in situations where we need to make those hard decisions to either reduce a position or to exit a manager, I think the most important thing there is just being very clear in the communication, both internally within our team and then externally. Internally, I think one of the things that we try to do to avoid the sort of emotions that come into the very difficult decision is trying to just lay out all the facts, and so we’ll have both had dozens of interactions by that point. With managers typically, we can look at all the things they’ve told us over time, we can look at how the underlying companies are performing and how things are playing out there. We try to be very objective in thinking about what’s occurred there and then when we go to have the conversation with the manager if the decision is to reduce or to exit we can lay that information out there in a very clear way. And that’s typically helpful. It doesn’t make it easier but it’s usually better.

[00:34:40] Johan Brønnum-Schou: It’s definitely difficult also because, you talked about yesterday, with management there’s a likeable factor. And that also goes with many things. I think most of the managers, we kind of like them as a person always. So that does make it more difficult. I think it’s different when sometimes you have a good argument for reducing. Let’s say we need money for something else, for grant-giving or other big investments, we have good argument for reducing. But in terms of exiting a manager completely who you actually liked as a person, that’s difficult and we have to be very patient in general and give people a long time to show themselves.

But we have fired managers and now I’m thinking back, what’s been the reason? Every time it’s that we actually go quite deep on some of their individual investment decisions all the time and we say the way they have underwritten, their competence and analysis they have done is not good enough. And we’ve done that. We see all time it has really been down to this comedy behind, that doesn’t make sense during the process. Of course it’s hard to tell them we don’t think you’re doing a good job investment-wise and we’ve made a mistake upfront. But that’s what we look it at day to day and it’s a hard process but that’s what we’re focused on. It’s not just your underlying positions and your underlying analysis, it’s the quality of that that’s not as expected, basically not making it easier for them.

Managing a company versus managing investments

[00:36:04] Robert Vinall: Maybe one of you can answer this, just in the interest of time, but is it ever the case, the initial decision is made based on investing in a particular manager, and his or her ability, but over time the organization grows so large that actually, the original decision is no longer valid because it’s effectively someone else managing a portfolio, is that something that comes up?

[00:36:25] Nicholas Csicsko: Do you mean someone else managing the institution’s portfolio or the manager’s portfolio?

[00:36:27] Robert Vinall: Yes so effectively they become a manager of a company as opposed to an investment manager. Matt why don’t you go for it?

[00:36:45] Matthew Libel: We’ve certainly encountered that in some cases and I think it goes back a little bit to the underlying strategy. We spend a lot of time, especially with emerging managers, trying to understand where they think the firm is headed, because I think one underappreciated aspect of starting an investment organization, even if you’re a single person managing it, you are managing a business, as well as an investment portfolio. And so people that move on to hire a team, especially as teams grow larger, if you have five or six analysts working for you, it’s hard to imagine how you could really have direct relationships with every analyst on everything they’re working on.

And so you really have to transition into more of a role of where you’re a manager of those people and calibrating your decisions based off of what they’re doing. So I think we’ve done a pretty good job of avoiding making decisions where we’re invested with someone because we think they’re the person that’s the key driver of all the analysis and then they’ve gotten hired onto the team. But we have run into issues where we’re firms evolve and change in terms of how they’re structured and how they work and that can be problematic.

Steps for emerging managers to maximize their success

[00:38:07] Robert Vinall: Okay, I think there was a question at the back there.

[00:38:08] Question: Thanks for taking my question, Rob. My question is, for potential emerging managers in the world, what are some things; tangible steps that they can do ahead of time to maximize their chance of success?

[00:38:28] Nicholas Csicsko: Be yourself and get lucky. Seriously, whether people find you, if you’re that emerging manager or not, is, as far as I can tell, wildly random unless you start to cater yourself to all the needs of the people you know that are investing, and then there’s a whole other group that wants something else and then pretty soon you’ve built something that’s not yours. And so, I hate to say if you build it they will come. But sometimes that’s true and sometimes it’s not true. But if that’s the case and you built the business right, you probably made a lot of money, just not as much money as you would have made if you had institutional clients, alongside. Anybody has any more brilliant?

[00:39:10] Matthew Libel: I agree, in a lot of ways. I think the point around having a vision for what you’re trying to build is important. But I don’t think a vision needs to be all constraining in terms of the way you invest or the way you manage your business. It’s important. And I think we’ve heard from a lot of people today, if you look at them through their investment careers, they’ve really sort of wildly evolved in a lot of ways, and structuring your vision in a way that still allows you to do that is important. We’re oftentimes looking for emerging managers, that even if they don’t have a track record of doing that in their investment portfolio, can show ways they’ve evolved and figured out ways to solve problems in other parts of their life. And so much as you can demonstrate a track record of doing that outside of investing, I think that’s an interesting thing, maybe to try and highlight.

[00:40:13] Johan Brønnum-Schou: All managers, they evolve. The new managers, when they started their company maybe some go from being involved in let’s say more diversified, let’s say they become more concentrated at times. They also get more confident. In the beginning, they cater a lot to their investors. They kind of want to accommodate all that they are saying and then they are confident to do their own thing. That’s an evolving process. But I think you have to be very transparent about that process. That’s how we’ve evolved and that’s how it is. We make such and such mistakes and that’s a normal thing, just starting early and making mistakes.

[00:40:58] Nicholas Csicsko: I’m sorry to do this because I know everyone wants to ski, but I think that one of the things we’ve stopped doing is assuming and hoping that our established managers, so people with experience themselves, continue to grow and learn and evolve. And it’s kind of funny. We just assume early-stage manager, you pay your tuition and that may be the wrong mental framework. The conversation should often be more about how has manager X, Y and Z improved over the last decade we’ve partnered with them. And it may not be visible but hopefully, you can at least find some signs.

[00:41:33] Johan Brønnum-Schou: You want them to evolve or they’re not going to stay relevant. They have to change to some degree, the circle of competence, the diversification, evolving and learning, and is passionate about and motivated for learning all the time. I think that’s an important thing to focus on.

[00:41:50] Robert Vinall: I think the question was what to do before kind of starting and I would say from an investing side, the most important thing to do is manage your own money. That’s the only way to learn about investing, it’s to actually invest. So if you’re working at a company which forbids that, and I know a lot of funds do, you really need to change firms.

And in terms of building the business side, I think the most important advice is just to give yourself a really long runway. If you’re starting out as an unknown quantity as I did, no one is going to invest with you, probably in the first couple years of whatever but over time, word gets out and so I probably didn’t have a whole lot of people reaching out to me in the first five years but at some point, people did start reaching out to me. So you just need to give yourself time. It’s not something that can be done in the first, sort of, six months.

[00:42:38] Matthew Libel: Consistently writing is also very helpful because that’s something where you’re really cementing your thoughts and sharing them with people outside. I know most people write investment letters. I don’t think you need to write them monthly or weekly, like we see some people, earlier on you’re probably are not going to have original insights that frequently but whether it’s annually or semiannually or quarterly, that’s a great way to show people you’re learning and investing.

[00:43:12] Question: Those are all amazing. Thank you very much.

Thank you note

[00:43:14] Robert Vinall: Great. Well, I think it’s quarter past now so unless there’s a really burning question in the room, I think it might be time to thank the panelists. Thank you all for coming and I hope to see you next year.


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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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