YouSaid · the spoken record

David Salem

lines on the record: 85
first: 2017-05-23
most recent: 2017-05-23
sittings or episodes: 1
sources: podcast

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“Really want to focus on that. So there's an example of where I think you could prudently allocate capital to somebody whose interests are dominantly psychological and not financial. And that's why, and it's not explicit in the framework, but it's sort of between the lines, this four-part framework that I employ. But if you said to me, David, gun to your head, what is the single most essential attribute? And particularly as you look over the arc of somebody's life, whether they're a 28-year-old newbie to the business or they're 58 or 88, and you're thinking about allocating some of your precious capital to them, it would be to say, if I go back through the arc of their life, whether it's 28 years or 88 years,”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Patrick, honestly, I wish it were that easy, and maybe it is, and maybe I'm trying to make complex that which is really simple. But I actually think that's a misguided focus. And the reason why is something we've already alluded to, that imagine an instance where you're allocating money to a manager and you think they have a lot of skin in the game, but kind of maybe secretively, and this might be ethically off-putting and a disqualifying attribute, but they've actually pledged the GP interest in question to a charity of their choice. And you don't even know it. So they're not actually working for their own pecuniary benefit. Maybe they're taking a modest salary and they have modest living standards. They're just doing it for the intrinsic gratification. And yet they're coming to work every day, maniacally focused on generating the best possible risk-adjusted return without the pecuniary incentive that might cause you to say,”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“That David Swenson for years said this is a calling. A profession, and we don't need to pay people, certainly here at Yale, extraordinary sums to magnetize the talent we need at the university to deploy our endowment effectively. and he was unarguably correct about that. Did a great interview with Ted Side, who I've known for years. And you've done other interviews in your series with people who've talked about incentives and fees. And it's a combination of art and science. And I think it would be a big mistake to think that an allocator could come up with a template and apply it universally to all managers in all asset classes. That's not feasible.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Invested alongside our capital. He has a lot of pecuniary incentives to deploy the capital effectively. More importantly, in my mind, he has psychological incentives to continue to do what he's always done throughout his career, which is try to pursue investment excellence. He's self-effacing and modest enough. But contractual arrangements where the manager can rightfully look themselves in the mirror and say, heads I win and tails I don't lose are increasingly on the wane as they should be. But I'm not sure that you actually need the pecuniary incentive that some people that have benefited from those incentives over the last 30 years would claim that you need to have in order to elicit best efforts. If I can just say as a sidebar, and it's interesting and ties back to what we talked about with the Yale model and the endowment model and certainly what Jack tried to do at Harvard. But my only, and it's not even a criticism, it's an observation.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“And some other institutions whose capital allocation processes we very much respect. It's just a flat fee. There's a hundred different ways you could dial in an incentive fee. He's global money management that happens to be focused on Japanese stocks today. You could have a Japanese specific benchmark with a carry and a hurdle and all that stuff. Just keep it simple. Why would you do that? Because Andrew has almost his entire net worth, as so does his partner John Buford, also came out of Southeastern.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“No, you're exactly right. And I don't think there's an ideal. And there's not an ideal because humans differ. There are people that are passionate about careers in finance for reasons that have very little, if nothing to do with the potential financial reward. They find it intrinsically interesting. They find the intangible rewards. They get to meet interesting people. As I like to say, for most of my career, I've gotten paid to do what I would otherwise do in my spare time. And that's a pretty good gig. I could point to specific people that after getting to know them really well and getting down to brass tacks on fees and so-called incentives, they've looked at me or I've looked at them and said, what are just like flat 1%? Would that work for you? Yeah, that would work for me. I'll name one name, Andrew McDermott, who's a guy that we helped move from Southeastern Asset Management in Tennessee, now has his own shop out in California, manages money for Windhorse.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“We've already been talking about an insensitivity to external changes in the external environment. My writing is in a different context with respect to asset allocation call that the fallacy of composition. A manager comes in and you say, well, this is all very fine and well, but give me a sense of how carefully you've studied what other actors are doing, how much other capital is being applied in a similar fashion, and how much money might potentially be applied over time horizons germane to our employment of you. That's what you're seeking by making a presentation to me. How much capital could potentially flow in and what would that do to returns? And it becomes pretty immediately obvious whether a money manager seeking to get magnetized capital from somebody in a capital allocator like me has thought rigorously and carefully and thoughtfully about that or not. And if they haven't, it's game over. The conversation can usefully end.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“They have to be relevant too. I mean, a speeding ticket, I'm not sure, qualifies. But in this day and age, of course, you can go to the internet and find out a lot of things about a lot of people. So lapses like that. So if we move from sort of obvious disqualifying attributes to unfavorable ones, I mean, the one that's universally applicable is when you ask somebody, well, okay, so you think you have an opportunity here, you think you've attracted the right team, you've built the right culture, and you've got a well-defined process or so you think, well, learn that as the conversation and the due diligence process unfolds. But as we're focused on unfavorable attributes, how big could the asset base be to which you would profitably apply this and an unwillingness to specify those kind of limits is often reason enough to terminate a conversation quite quickly? So that's an unfavorable attribute among many others. I think, again, along the lines of what”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“This is very much the exception that proves the rule because I'd rather be peppering you with questions rather than having you pepper me with questions and going on etching. So I'll stop right there and answering the question.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's an opportunity, I'm not saying that I have such worldly wisdom to impart to anybody, but you won't know that unless you ask, right? Assuming it's the first meeting. Again, I think you get the point. So you've got to go at it indirectly. That's why my very first conversation with David Swenson was so inspiring and memorable because he said, I have to tell you, I don't know anything about investing. And then he proceeded to pepper me for the two hours of our first lunch together with a hundred different questions. And then the next time we got together, it was a hundred other questions. And it just went on for years and years. And every now and then I try to sneak a question. Practice what I preach, right? So in conversations, this is”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I actually think that's also a great question. I think you have to do it indirectly, actually. And it ties back to something we talked about a little bit earlier. So let's just say that you're a money manager and you come into my office in Boston and you email me three weeks ahead of time. I'm going to be in Boston three weeks from Tuesday. I want to come by. This is what we're doing. And I say, fine, you have 90 minutes. And you walk in and you go through your pitch book if I let you do that, which I would seldom let that happen for a full 90 minutes. But let's just say hypothetically that you come in and you leave 90 minutes later and you never ask a single question of me or the people of my partner sitting around me because it's not just me at the table. It's just all about you, you, you and your firm. I can assure you, at the end of those 90 minutes, the probabilities are very high that that's the last meeting we'll ever take. And it's because you've displayed a shocking and off-putting lack of interest in learning even over those 90 minutes.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“That form of insecurity that causes them to say, you know, we've got a big AUM, even though the processes that we dialed in that enabled us to magnetize all this capital are increasingly obsolete. We're going to just forge ahead because the fees are so generous and it Susan satisfies my ego. And it's very difficult. And I've made major mistakes in trying to read human character, in trying to get this right over the years. It's a very imperfect art.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“On a different asset class or indeed a multiplicity of asset classes. So it's personality and culture. And getting back to the main thread, which is ego and insecurity, you want to make sure that they're not so riddled with insecurity, particularly the insecurity, Patrick, to be really blunt and frank, that says my definition of human happiness, I don't mean mine, David's, but a money manager I might be evaluating, their definition of happiness is how much do they have by way of material goods and possessions? Where are they on the Forbes 400 list? How many people are licking their boots because they're writing out large checks to philanthropies? I'm a huge proponent of philanthropy and charity. I think you know that from my career trajectory. But people that engage in it merely because they get their boots licked and they get lauded publicly. And maybe we can talk a little bit later about the privilege I had of working with Chuck Feeney, who did a lot of his giving anonymously. But I think you get the point, which is that...”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“As a shareholder, you don't want them to ride it down to zero. You want them to return the capital to you or adapt the business model. And it's extremely difficult, I believe, for outside investors in publicly traded companies in particular, particularly after Reg FD and the profound changes that its enactment by Congress has affected in our business over the last dozen years or so, 15 years since it was enacted. It's changed everything about the communications between the management of a public company and all of its outside constituencies. So if you're going to focus on where a company is going, maybe you want to focus more on the personalities and the culture. That's true for evaluating whether you want to put money into a single for-profit company as an equity investor, and I believe it's emphatically true in deciding whether to allocate capital to a money manager, whether it's an equity manager or a manager focused on.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Money managers themselves, present company included, can pick for profit companies in which you want to be an equity investor over the long term because you cannot know ex ante the date on which the process they employ today when you allocate money to them will become obsolete. So what you ought to assure yourself is that the human beings you're dealing with treat money management as a profession, not a business where their ethical responsibility is to the client to deploy capital well even if it means returning the capital and saying you know our process no longer works we're either going to adapt it or we're going to return the capital to you because there must be other places you can deploy it now why does that apply to investing in a company because what if a company's business model is increasingly obsolete”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Starting point to an answer to that is a great question differently than I did when my career began. So I have been evaluating money management talent for, we'll say three decades. So I have met with quite a few money managers. And when I say I'm doing it differently now than I did years ago, it's because the pendulum is swinging more and more and more in the direction and focusing on the person and the culture and not the processes and not the actual approach. Now I'm privileged and fortunate to be part of a team. I have partners. I had a staff at TIFF when I was doing it as well. So I'm not a sole figure reaching these decisions on my own. And maybe other members of our team are digging more deeply than I'm inclined to at this point in my career into the process. But the reason I'm focused much more on personality and culture, and this is true not only in looking at money managers, but it's a deeply held belief I have about how”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, the single best tell in my judgment, and I'm not saying that I'm completely free of this defect myself, but is to engage in a gratuitous and proactive offering up of thoughts, observations, and connections that the speaker, the person whose insecurities you're trying to gauge, is providing to you in an effort to impress. Because that's also synonymous with insecurity. And I like to actually, rather than focus on the negative examples like Bernie Madoff, where we could talk, I had a brief but really, really telling encounter with Lance Armstrong, which I'm happy to talk about insecurity, which many people say he had gigantic ego, but I would say he's probably the most insecure person I've ever met personally and spent any amount of time with. It was just one evening, but I'm happy to talk about it.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to do with your capital because their insecurity causes them to maybe chase a rising market or to do something otherwise foolish with your capital.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“An excessive ego that's synonymous with excessive insecurity. And the insecurity could eventually manifest itself. If I said to you quick, Patrick, name me in the annals of modern finance, let's say the last 30 years, who's on your top three list of the most insecure characters you've ever read about in the newspaper or ever met? I said, well, Bernie Madoff has got to be in the top three. I mean, how could he possibly have done what he'd done unless he was wildly insecure human being? And so as with much of what we do in evaluating managers, you build up a reservoir of experience and pattern recognition when you sit down with somebody and you try to determine, are they excessively insecure? Are they insecure in a way that's going to cause them to depart from their process or to do something? I'm not saying it's going to be a made-off-like crime, but it may be the crime with a small C and in air quotes of departing from what they said they would.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of ego. Maybe they're not graceful in the way I just described, but they don't have that kind of self-confidence of saying, I'm willing to be wrong and alone. Where it gets taken to excess is if it's a manifestation of deeply rooted insecurities that are inevitably going to cause the manager, maybe it's a firm that they're running, that maybe it's one that they founded, and the capital that they've been entrusted by their clients to head in the wrong direction. So I do look for one of the negative screens, and as you know, my framework, not only for evaluating money management talent, but for evaluating just about anything in life, whether it's a political candidate, whether it's the chair of the Federal Reserve, whether it's an athlete, whether it's a potential spouse, it doesn't matter. It's a four-part framework. And it starts with disqualifying attributes and the moose to unfavorable, and then moves to favorable. So a disqualifying attribute is...”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question. Can we do a quick sidebar in terminology here? Of course. What exactly is ego? To me, ego is, in my own lexicon, which is... Maybe not everyone's ego equals insecurity. So if we think about a spectrum of the most egoistical people we can possibly imagine, including the current occupant and the Obel Office at one extreme, to its opposite polar opposite, which is somebody who displays, moves through life with extraordinary grace at all times, particularly grace under pressure, which is something we can come back to. It's a spectrum. And so the question then is if you're trying to identify people not only who you think have an edge, but who you want to partner with long term, you're going to deploy capital by entrusting some of it to them. Then the question is where along that spectrum do you want them to be? You don't want to give money to people that, as we said a few minutes ago, are going to be most comfortable and have a tendency to just stick with the herd because it's not a way to get superior returns. If you want average return, that's perfectly fine. That mindset. And so it could be somebody who's tolerably...”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Like to be President of the United States, well, everyone would know about it. So it was and remains interesting to pose this question. Typically, if I don't furnish it in advance, people will. And somewhere between five and 50 seconds, and they'll come up with an answer. I did have one person that I posed a question to on stage. I remember it was at the Boston Public Library, a pretty large audience. And the answer came back instantaneously. I mean, I'm not sure I even got the question out. And he said, I'd put a bullet through bin Laden's head. And I thought, well, that might get known publicly. But I guess you could pull that off privately. And of course, bin Laden was still alive at the time. Then the SEAL team went in. Now we know who claims to have put the bullet through bin Laden's head. But there have been some really interesting solving cure for cancer and that kind of thing.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Mount Everest question is the one you just alluded to, and I'll just outline what that was. It came to my mind right around the time that that terrible accident occurred on Everest that Krakower ended up writing about and into thin air. And I asked myself the question, why would these people risk going up Everest? And would they, in fact, particularly the very wealthy ones? I don't mean the Sherpas, but the paying customers, would they go to the top of Everest with all the risk that entails if the universe had a law that said that when they got back down from the summit of Everest, they could never talk about it? So it would remain confidential and secretive forever. So the question became for me, my so-called Mount Everest question was, Patrick, if you could accomplish just one feat F-E-A-T in your lifetime, subject to the condition that no one would ever know about it, what would it be? And now, of course, certain feats or accomplishments don't satisfy the condition.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the endowment model in twenty seventeen. And I see it the saddest expression of it for me is in very substantial taxable portfolios where for whatever reasons, families of very substantial wealth have gone ahead and mimicked the strategies and tactics that have been employed successfully at places like Yale, taking what had been originally the Yale model, what became the endowment model and applying it to substantial taxable private fortunes. And it's a big, big mistake, principally because of the interposition of taxes between the cup and the lip, so to speak.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“After 30 years of really hard work. And of course the returns have been very pleasing too. Now part of your question was how is the so-called endowment model, which is really an adaptation of the Yale model, how has it become overused? And I've already telegraphed my answer to that question. It's that people have tried to mimic the strategies and the tactics as opposed to the underlying mindset in philosophy. The polar opposite of a willingness to be wrong and alone. Is a proclivity or a tendency to just chase recent returns and put money where others have put it and continue to put it because it's comfortable.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Be willing to deploy capital in a manner that could cause you, in hindsight, to be deemed wrong and alone. You need to be persuasive. And I don't mean persuasive in a kind of a Trump-like way, where you just, you're a braggart and you're boastful and there's real no substance, there's no fundamental solid foundation of what you're saying. But I mean to over time develop that reservoir of confidence and goodwill. In David's case with the members of the investment committee of Yale and ultimately the governing board of the university and Jack's case similarly with the board of Harvard Management Company. But I could go right around the country mentally what Scott Malpass has done at Notre Dame in probably the second longest serving CIO in the educational arena. He started at Notre Dame, as you probably know, in 1987. How can we quantify the reservoir of confidence and goodwill and trust that Scott has been able to build within the Notre Dame community?”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“That you hadn't asked the question. But I would say in our business, in money management, there's really no question that's offliments. Personal questions aside, of course. But as to how markets operate, as to how managers deploy capital. So it was that sort of fundamental personal attribute. And it was coupled with something that I thought about a lot back in the day, and I think about even more today. It's a very obvious point, but I think it beers mentioned an emphasis, which is that to get the degrees of freedom that any CIO is capable and has accomplished as David, and there are many others that come to mind, including Jack Meyer himself, to get the degrees of freedom to deploy capital really effectively, in other words, to get the discretion.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“At that. And that's very uncommon attribute. So, as I said, even in the book review in 2000, and I would repeat it in 2017, people that just go ahead and try to mimic the strategies and tactics that David has employed at Yale and that others that he's trained have employed, they missed the point because you have to have a mindset that says, I am willing to be wrong and alone. Now, wrong could be in the context of making an asset allocation or a strategic or tactical decision that the market doesn't reward. But ex ante wrong could also be you're in a board meeting, you're in an investment committee meeting, you're in any setting, and you ask a question because you sincerely want to know the answer. And maybe the answer that comes back to you is in some ways, I'll put this in air quotes, although this is just an audio recording, it's embarrassing to you.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“On first principles, what actually makes a money manager a money management firm, an asset class, an economy, a way of structuring economic life, what makes it tick? David is a serious, rigorous thinker about those things and a really stern questioner of the people that would deploy capital for Yale. He was an extraordinarily helpful member of the Board of TIF in its early years and even in later years, not only in introducing us to money managers that he deemed choice worthy, but in just asking the right questions at the right time, in a way that, frankly, was not always pleasant. So most people like to move through life without the degree of kind of discomfort and unpleasantness that, and this is not in any way a pejorator. When I say unpleasant, I mean, it tends to be unpleasant and uncomfortable for people to ask really tough questions of other human beings. And David is extraordinarily good.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Five minutes previously. And he said, You know something. I don't know an effing thing about investing. And in that instant, I said to myself, this guy's going to be incredibly successful. Somehow, someway, because he has the self-effacing character and modesty to say what he just said to me after meeting only knowing me for five minutes. And indeed, what he's done in the 31 years since then proves the point. So it's a mindset that is inclined to really push in a very rigorous way.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“My answer to your question is not focus so much on the fact, as I said earlier, that he came to Yale in 85 and dialed down the exposure to bonds, dialed up the exposure to equity and equity substitutes where the substitutes would include the sort of absolute return-oriented hedge funds. It was the person. It was the man, if you will. Emerson famously, or memorably said that every great institution is the length and shadow of one man. In 2017, we would say one person to make it gender neutral inappropriately. But David has a very distinctive personality. It's not everyone's cup of tea. It's not always pleasant. And as I said, and I actually had the privilege of writing a review for Barrons of David's first book, Pioneering Portfolio Management, when it was published in 2000. And I highlighted in that my very first conversation with him, which again was shortly after he joined the Yale Endowment in 1985, when he looked across the table, we had met.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“That a law firm in New York City says to a, you know, a private foundation, you may not own anything other than an investment grade bond. Imagine, by the way, the arbitrage opportunities that would be created if when something slipped from investment grade just below it, all of these institutions had to disgorge those bonds. In fact, that was the case when I got into this business years ago. So it created enormous opportunities for people like David Swenson to go ahead and say let's do some distressed and maybe high-yield investments. Farallon is a conspicuous example of a firm that David helped support that became fabulously successful by arbitraging some of these artificial barriers to the free movement of capital.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Others as well. And it led to much more diverse policy portfolios than had been the case, certainly at the enactment of ERIS in 1974, certainly when I joined the industry a bit later, and certainly as the 1990s unfolded. By the end of the 1990s and well into the noughts, you started to see the development and the popularization of policy portfolios having seven, eight, nine, ten different asset classes, with strategies and tactics being employed that were literally deemed, I'll say illegal. It sounds like too strong a term. But you had lawyers when I first got into the business who said institutions, I remember very well a private foundation based in North Carolina had a white shoe law firm here in New York City that gave them a legal opinion and said you may not buy anything less than investment-grade bonds. Now imagine in 2017, Patrick.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“Lines of credit to build a kind of internal portable alpha engine within the Harvard Management Company with unbelievably low financing costs, principally because the institutions, the intermediaries from whom he was borrowing the money weren't focused on, well, what is the overall risk the endowment is incurring? They knew that maybe J.P. Morgan knew that they had $2 billion lent to Harvard, but they weren't all that concerned that City had also lent him $5 billion over here. And Deutsche Bank had lent him $3 billion over here. Pretty soon it added up to real money. So Jack built something that was very, very different from what David had. And therefore, what Harvard and Yale were doing, and I'm just using them as conspicuous examples because there were other leading endowments and foundations. It wasn't just the educational endowments, but some of the very well managed private foundations were doing the same thing. And of course, it got popularized by some of the leading investment consulting firms, Cambridge Associates most visibly.”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source
“David came to Yale in 85, as we've said, at a time when the nominal interest rate was still high, but where he thought it did not make sense for a perpetual life charity like Yale to have as heavy a waiting to fixed income as Yale and other endowments had traditionally had. So he started to dial down the bond exposure, dial up equity and equity substitutes, and in the process it opened his eyes and the endowment to more illiquid forms of investing, which made perfect sense from both a theoretical and practical perspective as long as you have a good sense of what your liquidity needs will be, not only under normal conditions, but under worst case conditions. What Jack did at Harvard was quite different. Jack, I think, quite brilliantly, analyzed the overall situation and realized in important respects, Harvard University, at least then, had the highest credit rating in the world. It wasn't just AAA. It was like quadruple A. Because he could get...”
2017-05-23 · Invest Like the Best · David Salem - The Art of Asset Allocation - [Invest Like the Best, EP.38] · IDENTIFIED FROM THE TRANSCRIPT · source