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David Druley

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74

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2019-08-19

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2019-08-19

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1

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1. “So when you're serving so many different types of pools, and now we have pensions and Dallas Foundations, high net worth, family offices If you were going to go out and pitch for a new business for a new client. What's the Cambridge Associates pitch?”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “So looking at our client retention, one of the things I'm proudest of is our client retention is $96, 97% invariably. We're doing a great job. Our average client's going to be with us 2025 years. And that's really meaningful to us because we want to help these clients do good in the world. We have so many great institutions that are doing great stuff or great families that are so philanthropic.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “The one point I'd come back around to on the pension thing is we focused on OCIO outsourcing. So that was where I thought we should focus the business because I thought that'd be the trend in the future, not just for E&F, but pensions. So circling around today, it's less being in the weeds going out and finding ideas or managing portfolios. It's about thinking about the institution as a whole. So thinking about how are we going to deliver top-notch returns and top-notch service and partnership to our clients, what resources do we need? How do we need to be structured? Where are we doing well? Where can we do better? And if you think about the metrics I look at today, it's still investment returns, and it's investment returns I still work with a handful of clients. It's still the investment returns for those, but it's the investment returns for our clients in aggregate, understanding what's going well and what's not. And it's also partnership.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “So you start running this pension practice. And again, you're now working with clients as their consultant or effectively they're outsourced investment engine. Today you sit as the CEO. What was that transition from investor to sort of the head of the business?”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “But also putting in place a risk management framework that was unique to pensions. So we had some pension business, but it wasn't a big business for us. And so I started to build that business and leadership at the time came to me around late 2008, early 2009, and said, David, we've never had practices. Everyone works on everything. But we'd like you to focus on the pension business. And we'd like for you to start the first practice at Cambridge. It was informal, but it was the pension practice. They said, tell us what resources you need, tell us what team members you need, and let's see what we can make out of that. If you flash forward to today, pensions are about 20% of our business. So we gain great traction, actually, in the pension community by bringing our alpha engine with a unique risk management platform that actually pertain to the pensions.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “So, from the day I started, it gave me a really global perspective. But from the day I started, I worked from clients from Geneva, Switzerland to New York to Texas. I worked with private clients. I worked with endowment and foundations. I worked with some of the most sophisticated family offices. So when I started, I was working on teams that were actually serving the clients. Over time, I started to see that there was a gap or a space where we could probably go out and build some business by combining what we do very well, which is manager selection, diversifying portfolios, investing across asset classes.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “When I say outsourced, that's either discretionary or non-discretionary, but it really doesn't change what we do. It doesn't change the fact that we're on the hook for the diligence, for saying what should go into the portfolio, for managing risk, for just day-to-day oversight. The only difference is non-discretionary outsourcing. There's a committee or a person who has veto power, who has the right to say that idea, I don't think it really should go in the portfolio, go do some more work and give us another idea, which doesn't happen very often.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Working with private clients for about 40 years, then started working with pensions a little bit later in the later and early 90s. And for the vast majority of that time, the business was traditional consulting. We'd do strategy. We'd give options. We'd partner with committees. But what happened in the late 90s and the early 2000s is people started to recognize, look, running money with four quarterly meetings and not having people like managing the portfolio daily, that's not going to work. This is too complicated. And I think the crises really highlight these things. The tech bubble bursting. And so our business started to morph to where people wanted to outsource the day-to-day due diligence of managers and oversight to Cambridge Associates. And that really started to take hold in the 90s, in the mid to late 90s. And by the time we got to 2005, over half of our business was outsourced.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “When I joined, it was a bit of an inflection point, I think. So Cambridge started out as an advisor, as a consultant, Jim Bailey, and Hunter Lewis, came out of Harvard, wanted to take what they learned. They thought the endowment offices weren't really implementing best practices, so went out and basically formed a business to serve Harvard and the Ivy Leagues and advised them. That was back in the mid-1970s. And so they started the core of their business was consulting, and they grew that business over time, working with more endowments and foundations, started working with private clients. And really, the private client thing some people would think, okay, that's kind of odd to shift from institutions to private client. But what happened is a lot of these really wealthy individuals that had family offices were sitting on the boards of the committees of our endowments and foundations. And they said, come on, Cambridge, you're helping my institution make a difference in the world. Why don't you help me? And so we did that.”

   2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Business. They wanted people that didn't mind traveling to Texas to work with the clients, and they also had longer range plans of open up Dallas office. So I went through the process, and at this time, the process at Cambridge Associates was 30-something interviews. So I'm like, okay, I don't know if this interview process is going to ever end. But what I did know is I really liked what I heard. What attracted me to Cambridge Associates was really three things. A great platform to invest institutional capital for clients that were making a difference in the world. What appeared at the time to be really nice colleagues. And the third thing was no conflict. I wasn't going to have to push product, which was very important to me. And to this day, we still have no product, which is still important to me and it's important to my colleagues.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “My last year while I was in school. And there was a gentleman there, Jim Hilly, who was the CIO. He's now the chief investment officer at TCU. And as it came to the end of my term there and I was looking for my next role, he and I were talking and he knew I didn't really want to work at teacher retirement system of Texas, didn't have really allowed the incentives and things I wanted. But we were talking about what I could do. And he said, David, what I think you should do is go talk to Cambridge Associates. I'm like, Jim, I have no idea who Cambridge Associates is. I have no idea what Cambridge Associates does. And he told me, and I said, well, that's great, Jim, but what in teacher retirement system, Texas teachers, use Cambridge? He goes, with a really good, but they charge premium fees. We can't get the state to approve it. And it just so happened that Cambridge was on campus, Bruce Myers and Craig White, two colleagues of mine, were on campus at Texas that year because we were building out our Texas.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Yeah, so in 01 after we started to get paid back for all our hard work on the value side of things and the clients were whole, I started thinking, I really want to go and do something bigger. And I didn't know exactly what bigger meant, but I knew it meant bigger than running private client money in Fort Worth in Texas. And so a friend of mine and I had been talking, and he suggested going back to grad school, getting my MBA would be a good idea. And so I went back to University of Texas in 01 and got my master's business. And from there, it was really interesting. I mean, I focused again on investments. I always knew I wanted to do something investments. I wasn't going to change that. Probably doing investment-related things until I'm not here anymore. But I really had the good fortune of meeting someone that changed my life. And it was, I did an internship at teacher retirement system of Texas. Worked there for...”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Value. Again, I don't know if my memory is correct, but positive and significantly positive. I think it was up two, three, four percent while the Nasdaq was down 3%. And I said, that's the end. That's the end of the bubble. And it ended up being pretty close within a week or two, probably the top of the Nasdaq, and started a pretty tremendous value rally at that point.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “The message was really consistently explaining what we were doing, what I was trying to achieve, why we thought these stocks would work out. And people inherently understand that buying cheap assets is better than buying expensive assets. You have to remind them the asset's cheap. Here's why it can stay cheap for a good while. And ultimately it comes down to confidence that I knew what I was doing. So a lot of that confidence is built over just relationships, trust, time. You talked about Julian melting down, and that's true. And I'll never forget the day that my memory may be a little bit off on this, but again, I'm a big basketball fan. And my wife and I used to go out to Vegas to go to the sports book the first weekend of the NCIA tournament just to watch all the games. It's a phenomenal event, really. And in 2000, they had the ticker going across the bottom of the screen, which kind of is reflective of the time that it was. And I'll never get looking up and seeing the Russell 2000.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “In 2000 and just flipping and going into the stocks that just ended up being carnage in 00 and 01. So it's really not my pain threshold or time horizon. It's the lesser of mine or the client. And this is something I kind of took over as.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “99 2000 these stocks were like generating negative returns while the dot coms, the technology, what was the nifty 50 of that day were generating positive returns. And it's almost like you got up every day wondering if your business was going to survive another day. The beauty of it is the clients that stayed and most of them did. And I learned how to really explain what I was doing at that time. The clients that stayed had a tremendous run in 2000 and 2001 when everyone else was taking the pain of a significant market decline. That said, I will say one of the main lessons I learned from that time is that your risk tolerance has to be the lesser of my risk tolerance in time horizon or the asset owners. Because what I found out at that time is we owned really cheap stocks. It really ended up paying off. But some clients could not handle being out of favor for two or three years and ended up firing me in 99.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Session in Texas. Basically, you had an oil decline. Real estate was crashing. At the time, I didn't know a lot of my friends were going into commercial banking. Didn't really know a path. I went to a small little regional brokerage firm down in Austin for three or four years. After that, I decided I wanted to go back to my hometown, Fort Worth, and start running money for friends, family, other private clients in the Fort Worth area. And basically set up a business where I ran value equities for private clients, which was a pretty interesting time to run value equities, especially in the late 90s. And it was really a period where the things I were doing, which was buying stocks ahead of eight, ten percent yields, buying energy stocks that were really depressed, that were trading under book value, buying stocks where you could rip the companies apart and get paid two or three times. It seemed like it was going to be pretty easy money, but as you came into 90s,”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “And David's take on co investments, long only managers, hedge funds, fixed income, innovation, and future opportunities and challenges for the business. Please enjoy my conversation with David Druley. David, thanks so much for joining me. Yeah, it's great to be here. Well, let's just start at the beginning and how you got started in this business in the first place. Yeah, it's kind of interesting. So when I was growing up, I was very analytical and very competitive. And in my own little world, I was really quite a basketball player. But as six foot person, basketball is not going to go on forever. So as I was thinking about my career, as I went to the University of Texas, I really wanted something that I could lean in on the analytical part of my brain, the things that I really enjoyed doing, but something where you still got to compete. And as I came to understand the investment world, I mean, you're competing for value ads. You're competing for alpha. It's a scarce resource. So it's really a way for me to redirect my competitive spirit in a way that was natural for my brain. How'd you get started? I was coming out of the University of Texas in the late 80s.”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “My guest on today's show is David Druley, the CEO of Cambridge Associates, a global investment firm that works with premier institutional investors and family offices to manage custom investment portfolios that aim to generate outperformance so they can maximize their impact on the world. David works with Cambridge's leaders to set and execute the firm's strategy, enhance its capabilities, and evolve its processes. He brings a quarter century of investment experience to the role, including a 16-year tenure at Cambridge. Our conversation covers David's path from value investing to Cambridge Associates, including a key early career lesson in calibrating risk tolerance. We discussed the history of Cambridge Associates, key characteristics of generating great investment returns, the manager selection process,”

    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

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    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

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    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

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    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source

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    2019-08-19 · Capital Allocators · David Druley – Structure into Action at Cambridge Associates (Capital Allocators, EP. 106) · IDENTIFIED FROM THE TRANSCRIPT · source