YouSaid · the spoken record

Bill Spitz

lines on the record: 79
first: 2018-01-22
most recent: 2018-01-22
sittings or episodes: 1
sources: podcast

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“Spending rates, that's just not going to do it. Now, when I throw out numbers like that, people look at me very skeptically today because we're in this roaring bull market, and I certainly am not smart enough to figure out how long that'll go on. But anybody that does a disciplined job of trying to forecast longer-term returns finds it pretty hard to get anywhere close to historical return. If we're right about that, that we're in a world of much lower returns, then I think these other kinds of investments that were included in the endowment world will begin to matter again. And we're not going to see if we have 5% return on stocks, we're not going to have 15% returns on private equity. But historically, you've gotten a 300 or 400 basis point premium, and maybe we'll get that kind of premium again. And that's real money when you're talking about the level of returns we're at. So I think we're likely to be in a world sometime soon where the diversification helps, where some strategies like hedge funds begin to pay off again.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think a lot of people have declared the death of the endowment model, and I think it's premature to declare its demise. We've been in an extraordinary period, and we all realize that, but people sort of forget about it when they're doing the kind of analytical work you talk about. You've had this nine-year bull market and stocks and bonds, very low volatility. So I don't think we should extrapolate that period going forward. And my little firm that I help operate right now, we do a reasonably disciplined job of forecasting returns, and we use inputs from other firms like GMO and research affiliates. We have our own black Litterman model. So we crunch a lot of numbers. And where we end up is sort of a 10-year expected return on equities of five-ish, let's call it five and some change, a little more for international stocks. Bonds are sort of three-ish. So I think looking ahead, the simple 60-40 portfolio is going to give you middle single digit kind of returns. Endowment funds that have four and a half.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“So if we take all this together, you have what's been known as the endowment model for a long time, and it has to encompass all of these things. It has to encompass some value added. In the asset allocation structure and the manager selection and a rebalancing strategy, whatever it is. But over the last 10 years, as we all know, 60-40 has been just fine. Thank you very much. I don't know that many people who've earned the 60-40 return, but you could look backwards and say that worked. If you look out the next 10 years, how do you think about that battle between a multi-asset class diversified endowment model and just a simple low-cost 60-40?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's an interesting question. I think if I really knew the answer, I would have had a better track record than I did. I think it's a couple of things. I think you have to have some basic technical knowledge and you have to understand projected returns and correlations and risk and all those kinds of things to structure a portfolio properly. You have to have the courage to do non-conventional things, difficult things, ugly things. So I think there's some of that. And then I think it's just a high degree of intellectual curiosity and networking to look around and see opportunities that are out there and be willing to take advantage of them. And I don't know how you particularly organize to do that effectively, but somehow we seem to do some of that.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Structure, the capital structure. There are lots of levers that you can pull. And it's true of real estate, et cetera. Dave Swenson has said, and I agree with him, that the ultimate form of capitalism is private equity. And I really agree with that because you have a long time arising. You're not beholden to quarterly numbers. And you can do the right thing. And there are lots of levers you can pull. I found, at least with my own experience, that the best skill set that we could identify and capture was really in those non-traditional private kinds of markets.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“My experience was that we did not find a lot of skill, and perhaps it was our weakness as opposed to the market, but we did not find much skill that we could capture in the traditional asset classes, in the stock, in the big cap and bond arena in particular. We found more in the international markets, and maybe that was because those markets were less efficient at the time. Although when you look at the data today, there's still a much higher percentage of international equity managers that outperform the benchmark than US domestic managers. So where we really found the skill was in the private markets. And I think it makes sense. You hopefully capture that illiquidity premium I mentioned, but also seems to me that the actual, if there is skill, it actually has the biggest impact in the private markets because you think about it, you know, if you buy a stock, you buy the stock, you sell the stock, that's sort of all you can do. In a private equity example, you can change management, you can make acquisitions, you can reach”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“From an allocator perspective, skill is an interesting question because it does seem like the market for talent or perceived talent of managers is more efficient. So to give a fun, easy example, 15, 20 years ago, many people didn't know who Baupost or Seth Clarman was. He managed money for three families, and that was it. Today, that's more of an access question and you have to be a nonprofit pool. You have to be there at the right time. But more people understand that Seth and his team are a top-top investor. And you could ask tough questions like, do they have too much money and all that kind of thing? So where can skill from an allocator's perspective be applied?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“In many cases, to get access. So access is important. And it's not only true at the asset allocator level, it's obviously true at the underlying fund level. And every private equity manager I ever heard from talked about proprietary deal flow. But in reality, there are some funds that do have proprietary deal flow. Structural advantage was the first one. Access is the second one. And then there's this broad amalgamation of skill.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“It hasn't particularly shown itself recently, but you would think it would over time. So that's structural advantage. Another one, the second edge is access. And we all know that certain kinds of investors have access to certain kinds of investments that other people don't. It's just that simple. That's the structure of the world, particularly acute in, for example, venture capital, where if you're not in the right funds, you probably don't want to do venture capital investing. Having access is a key attribute. And I think the endowments have been very good over time at gaining access. And I think that's true for a couple of reasons. First, their long-term investors. They will be there over and over again and the general partners like that. They have reliable capital. They're knowledgeable people. They have really smart, well-educated staffs who can really ask the right questions. Third, some of them do co-investments, which some private equity firms like. For several reasons, I think the endowment funds have been really good. Investors in. They've taken advantage of their alumni.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“I recently wrote a paper for our clients where I talked about edges, and I'm not sure that I've seen any other papers about it. I identified sort of three categories. The first I called structural edges, and what I mean there is certain investors with long time horizons, and that should provide you with some value added. Theory at least, a lot of investors have shorter time horizons, so other things being equal, investments that require a long time horizon should be cheaper on average. So I think that creates potential return. And one example I use is timber, which we invested in at Vanderbilt. The funds we were in were 15-year funds, and no cash flow along the way. Very few investors can tolerate that sort of structure, in theory at least, that should make that asset class undervalued. Structural advantages, the first one, I'd also mention liquidity. Some people give up liquidity, and we all talk about an illiquidity premium in private equity and real estate and other things.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things you'd written that I loved, I recently had done an interview with two guys, Paul Johnson, Paul Sunken, who had written a book called Pitch the Perfect Investment. It was really for managers and what makes a great investment and how does that get presented. And they talked about the different kinds of called edge that a stock picker would have, information advantage, analytical advantage, execution or trading advantage. You layered onto that the different kinds of an edge that an allocator would have. I remember if you talk a little bit about what you see as what those edges are from an allocator's perspective.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“The thing I really enjoy doing about once a month I write a white paper for our clients on some investment topic or another, and I really enjoy that.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“I decided to retire because I'd been at Vanderbilt for twenty two years, and I found that every conversation was like deja vu all over again. And I don't mean to be cynical about that at all, but every manager that came in and talked about their proprietary deal flow, I was trying not to roll my eyes, and it's a pretty high-pressure world. Every quarter I return was widely reported and ranked against the 50 largest endowments. And you can imagine that when we didn't have a good quarter, I heard from a lot of people about it. So that was certainly a factor. And then the last thing, I did have a reasonably good track record while I was there. I decided after 22 years to declare victory. And I spent a year not doing a lot and then decided to re-engage with this firm that I'd helped create in 1994. I'm there pretty much every day that I'm in town, and I don't have any active client responsibility, but they dragged me along as an elder salesman, as some client meeting.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well first you have to identify opportunities and then I think you have to articulate the case very clearly and very powerfully. I'm not sure that's what I did, but in any case the board bought into it and it worked out very well. I will say that when I decided to retire from Vanderbilt, my successor came along and I believed he had to sort of build credibility over some period of time. So I'm not sure he had full discretion right away. I think they sort of dialed back to more control on the part of the board, so he had to earn his stripes as I did.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“And how much do you think that sequencing matters, you got the first one right? which gives you credibility the accidents come later if you think of the landscape today for a lot of CIOs you have a small pocket of people like David and Scott and Andy Golden that have been in their seats for a long time and probably have the discretion to do what they think and make mistakes. Then you have a large number of universities and foundations that are turning over CIOs. Yes. How does someone who's newer in the seat approach trying to be different?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“It does, and as I mentioned, Vanderbilt had been reasonably early investing in venture capital and some other non-traditional assets, although the weightings were quite small. So I think there was some proclivity to do that to begin with. And then as we had some successes, you know, it began to build on itself. At some point, I don't remember exactly when, the board gave me within broad bounds the ability to make investment decisions and pull the trigger. And so we did more of that along the way. You know, like everybody else, we had a few accidents along the way, but in general it worked out very well.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had to tiptoe my way into that, and so we did this first sort of non conventional deal, and it worked out very well. I think that that initial fun we did in the bankrupt bond space earned a 40 plus IRR, so that gave me a little bit of credibility.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“And today people talk about wanting to be contrarian. Everybody talks about wanting to do exactly that. How in the early years did you get the confidence of the board such that the governance structure allowed you to go ahead and pursue those investments?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we started investing in distress securities in 1987 or 88 when the first big LBOs blew up. And I can remember actually going to the investment committee at Vanderbilt. Later on, I got full discretion, so I could do what I wanted to do in the portfolio. But at that point, I had to go to the committee to get permission to do anything. And I went to them and I said, we should invest some money in this fund that's going to buy bonds of bankrupt companies. And you can imagine the look they gave me, but to their credit, they agreed to do it. And it turned out to be very successful. And that was one of the kind of first major lessons I learned there, which is the way to really make money in investment business is to buy unloved assets. And we repeated that strategy over and over again in different asset classes. We did it in real estate. We did it in bonds. We did it in the energy sector. We were in a fund that bought sort of mature fields from the major oil companies and packaged them together in a big company and took it public. If I look back on my career, sort of this.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I did some of it on my own, but also back in those days the CIOs of the major endowments used to talk pretty frequently, and were very collegial, so I used to talk to Dave Swenson and Scott Malpass and all the other CIOs of that era. And people were very generous at sharing their ideas and sharing their expertise. I think it was a collaborative effort. I also, I guess, either stupidly or intelligently had the courage to do some things that were a little bit out of the box.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“And how did that process take hold because in nineteen eighty five you couldn't read Dave Swenson's book that he wrote fifteen years later? So how did you learn where to go, how to structure a portfolio? And did you do it on your own? Who did you tap into?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Know that it wasn't. I was actually head of the New York Alumni Association, so I stayed fairly close to my alma mater, and they approached me and said, why don't you come down here and manage our endowment? I said, you know, don't be silly. I'm a Wall Street guy. I'm a money manager. And the more I thought about it, the more I thought it was a better use for my skills and also for family reasons, it would probably be a better lifestyle for me and my family. And I don't think I had all of the insights that I had today with respect to that job, but it turned out to be a great job for me. We were pretty creative in some of the investment categories we did, and I really enjoyed that. I mean, I knew a fair amount about stocks and bonds, but I didn't know anything about private equity and venture capital and all those things. It was a big learning curve for me.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I graduated from the University of Chicago. I went to work for Citigroup in the investment management area. I then worked for a couple of different firms. And I was a quantitative analyst. I was a portfolio manager. I was a traditional stock analyst and then a CIO of a small investment management firm here in New York that doesn't exist anymore. But after looking back on 10 years, I decided that I was really not a very good stock or bond picker and I wasn't passionate about that. I was really more passionate about sort of broad macro themes. And after thinking about it a bit, I came to the conclusion that being a manager of managers in an asset allocator was probably a better use of my skills. And I don't know how I arrived at that, but in retrospect it was the right decision.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“It wasn't quite the same sort of appealing career path that it is today. And it really wasn't a career path in the sense that today a lot of young people go directly to endowments and grow up in the endowment world. Back then, that didn't really happen. You know, Dave Swenson was an investment banker, and I was in money management firm here. Yeah, what was your parents?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“At that point, the compensation wasn't particularly appealing. And for those of us, as I did who came from Wall Street, you had to love your alma mater or want to be in the endowment world for some other reason.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Interesting, they were relatively small, the portfolios in general were relatively simplistic, although for reasons that I don't entirely understand, Vanderbilt was actually a pretty early player in the alternative space. So when I got there in 1985, we had a couple of percent in venture capital. We had some real estate exposure, traditional stocks and bonds. We had a large international exposure, which wasn't all that common at that point. So we were actually, you know, for a southern, not major Ivy League endowment, it was actually pretty aggressive. And I don't take credit for that. That's what I found when I got there. But in general, I think endowment portfolios were still relatively conservative and relatively simple in their structure. Now, Harvard had obviously evolved. Yale was beginning to evolve. Notre Dame and Duke and some others were starting down that path, but it was pretty early in general.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to start in your early days, looking back and you started managing Vanderbilt Endowment in 1985, which happens to be a banner year for those who really know, mostly because you started at Vanderbilt, and secondarily because it happens to be the same year Dave Swenson started at Yale. What was the landscape like for university investment offices in the early years?”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thanks for joining me. It's a pleasure, and I'm very honored to be here because I know many of your past guests, and it's quite a group of luminaries. So thank you very much.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's show is Bill Spitz. Bill was the longtime head of Vanderbilt University's endowment before retiring for the first time in 2007. He received numerous lifetime achievement awards for his work and is one of the legends in this business. After failing in that retirement, he joined Diversified Trust Company, which he co-founded in 1994 and today is a $6.5 billion wealth manager. Our conversation discusses managing an endowment in the early days, implementing unconventional investments, creating an edge as an allocator, selecting managers and conducting due diligence, exiting managers, the challenging current landscape, and working with families. Please enjoy my conversation with Bill Spitz. Thanks for joining me.”
2018-01-22 · Capital Allocators · Bill Spitz – Seasoned Commodore (Capital Allocators, EP.37) · IDENTIFIED FROM THE TRANSCRIPT · source