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Jennifer Heller

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68

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2017-05-17

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2017-05-17

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1. “I imagine that I will tell myself to appreciate the joy that exists in small moments, to cherish every moment I have with my children, to love the work that I do because it's time away for my kids, so it's not worth doing if I'm not loving it, and to just to live richly.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “What I know now that I wish I knew 10 years ago is the importance of Building quality into your life. I think I used to believe in multitasking. I used to believe that I wanted to have lots and lots of stuff in my life filling my time or I just did. Maybe I didn't want to, but I just, my life was full, but it was not particularly intentional. And with every year, I try to get more intentional about how I spend my time. I try to do less. My team would probably tell you I'm still not good enough about doing less, but it's something I'm actively working on. And I hope in another 10 years I will have just honed my life into a few things that I love and do really, really well. That's sort of what I'm aiming at.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “It actually happened earlier this year. I've been a big skier since I was three years old. I grew up in Colorado, and I had the opportunity to go to a place called Baldface Mountain and go backcountry skiing for the first time with a group of outstanding skiers. I had no business being there. These were skiers at all. There was some former Olympians. There were some current Olympians, lots of folks that had been on, you know, I was on a... Kind of a competitive ski team in high school, but these were serious competitors, and it was just so thrilling. It was thrilling”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “It's great, and it's just wonderful to read a bunch of them in sequence and understand the parallels between them and the differences. Beyond that, there's this book called Beyond the Beautiful Forevers that was written by an incredible journalist from the Washington Post who spent seven years living in a slum in India. And it's beautifully written and it doesn't trivialize poverty. And I didn't realize I was reading a nonfiction book until I was done with it. And I just think it's a remarkable feat.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Oh my goodness, I have so many. So one book that I well, I'm going to give you a couple answers. I can't give just one. I love reading the biographies of great entrepreneurs. So I've now made my way through Steve Jobs, Elon Musk. Maybe some would argue he's great, some wouldn't, but I think there's some pretty fabulous things about him. Jeff Bezos, you name it. Now I'm reading Phil Knight's book.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Waste of time. I think I've heard. We spent Mother's Day with Sidewalk Chalk, you know, just creating beauty in a little park by our house. And it was so joyful for both of us. And you're right, it isn't a waste of time because it's tremendous quality time with her. And it also engages another part of my brain. It's the wonderful thing about having kids is that they remind you that there's beauty in the world in ways that you forget to see every day. As I'm saying this, it isn't a waste of time at all. I also like watching billions, I guess. So maybe that's a... No, that's close.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “My favorite thing to do that is in some ways a complete waste of time is probably doing art with my daughter Kira. We actually spend Mother's Day. That's the sweetest.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Willing as I can to have conversations with young folks who are interested in this business while also being mindful of my time. It's always a balancing act.”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “And it turned out that there were a lot of people that felt like me at these meetings. And that group has now grown to healthily over 100 people. Initially, I really didn't want it to get that big, but I think the value of the group has changed and evolved over time. And what it is now is this wonderful group of people that exists across the nation in family offices, endowments, and foundations that know that they have this set that they can reach out to when they might have a question. And more than that, we host events once or twice a year. People develop subgroups of people that they really like, and it's just a way for them to connect with people. And I think the mentorship for me has existed beyond that much more on a personal level, both trying to mentor my team and also being reminded of the fact that the reason I ended up getting the job at the Sloan Foundation in the first place is because a mentor of mine from Stanford put in a good word for me. So I try to be as”

   2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “So in 2008, I emailed about 13 people, I think, and said, do you guys want to form sort of an informal network? I don't really know what this is going to turn into, but it could just be an email list. I knew it actually already existed at the C.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Well, I agree with you. I think one of the hardest things when I came into this role as CIO was feeling all of a sudden like a big portion of my peer group that I had known was relating to me a little bit differently and I couldn't ask some of the same questions I had. I think what initially happened for me in this space was I came to work at the Sloan Foundation. I'm relatively shy and I would show up at annual meetings and sort of beelign to the food table and then not really know who to talk to. And I hated the cocktail hour. I found it very stressful. But every once in a while I'd meet one or two people that were pretty fabulous and maybe also they didn't love the cocktail hour either and we'd end up getting into a pretty deep conversation at these meetings. And little by little I was collecting business cards of people that I really admired and liked and wanted to develop deeper relationships with. And I said, you know, maybe there's room for all of us to kind of get together and have some sort of an informal community.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Well, but it's got to kind of takes it to the next level, and everything he does, he's very deliberate about everything he does, and he keeps me on my game. So even when it came to getting this job, he said, you know, what are you going to do to really stand out? And he's always asking me that and sort of asking me how I can up my game and keeping me honest. And I really appreciated that. And I think the fact that he is in this business and he's built his business from scratch gives me a little bit of perspective on what it means to build a fund and the time horizon you need to give managers. They've done great over a long period of time, but it's never easy, you know, those first couple years when you just don't know if your business is going to be there over time. So seeing him manage through that, I think quite elegantly has given me some perspective and patience.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Well, this is maybe not the answer you want, but we try not to talk about work that much. I think we recognize that our worlds are very closely intertwined. And there's a little bit of a danger, I think, to making that too much a part of our dynamic. You know, Scott and I have, we've been together 17 years. We're hitting on our tenure anniversary this year of marriage. So we've grown up together in many ways. But while our dinner table conversation doesn't focus on the investments in our portfolio, and in fact, Scott won't even tell me how they're doing usually until year end, even though I have edited a letter or two for him. It's always with the numbers blocked out. I do think we've been helpful to each other in terms of thinking about various challenges that might have come up for each of us. And Scott in particular is he always keeps me really focused. He's incredibly disciplined. We have very different personalities. Not saying that I'm not disciplined as...”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Stakes where people are willing to say that they feel uncomfortable about the way decisions are being made. And that's something that I fight for as a CIO every day, and I don't always get it right, but I think it's allowed for a lot of innovation and process improvement. And the same has been true with our investment committee, where we were really struggling to find the right way to communicate with them. Because a lot of investment committees, I think we have a very small and very smart investment committee. It's four people now. It will never get bigger than that. These are folks with a lot of wisdom to share, but a lot of investment committees at organizations like ours frankly exist to rubber stamp ideas. And it's very easy to get into that model because you meet with them quarterly and you're meeting with your team weekly, and it's hard to find the right balance. But we wanted to be able to use that, you know, to use our investment committee for their wisdom. And we realized we needed to engage them early in our process as opposed to labor.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Said, you know, I don't like this. I feel like I'm fighting for an idea that I don't fully believe in yet because we have right now more opportunities than capital in this, you know, in our private equity asset class. And it doesn't feel intellectually honest because I haven't totally bought into this idea. And then we stopped, and this was in the middle of our team meeting, and we said, okay, well, how can we, what do we need to do to make our process better in this moment so that you don't feel that way? And we decided that we were going to set up a separate meeting kind of not talk about it anymore where everyone on the team, we have a framework that we use essentially grades every opportunity according to this framework, not so that we can stick with these grades, but because it forces a really intellectually honest discussion around all the managers in the portfolio, and it forces everyone on the team to have a voice and to have an opinion, but it has to be deliberate, and it has to be minute to minute. And you need to have a team where people are willing to step up and say they've made mistakes.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “I think we are constantly trying to iterate. And I shared with you an article that I had written a while ago, which actually in sharing with you, I realized I hadn't read it for a couple of years now, and it was titled Using Design Thinking to Inform the Investment Process. And what does that actually mean? Design thinking is an alternative to the scientific method, which is really based on iterative learning. And it's based on sort of open-minded problem solving, which means you need to create a culture where that's allowed. And it's easier said than done, actually. I think it's very easy for people to get either very stuck in a process or very stuck in their own minds. And this is something it's one of the main reasons that I keep the team really small here because we need to have complete trust amongst each other. We need to have the ability to say, in fact, this happened at a meeting last week. One of my team members”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “There's an interesting parallel when you're talking about a manager, in this case, who has position sizing issues. At some point in time, they could grow and learn just as you're talking about the lessons that you learn and growing and learning in your process. How do you go about within your organization trying to improve how you learn, how you improve your process, how you make better decisions going forward?”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “But he had completely off the reservation when it came to sizing his portfolio. And it should have been a red flag. And I think it was just concentrated as better. I really want to sort of push the envelope here because I don't think at my last organization we didn't take enough concentration and that was a really big problem. And I think it led this person to not be able to manage the risk in their portfolio properly. And in hindsight, it was a very obvious thing. I think, especially when you're dealing with young managers, they need to put risk first. And I don't think it sounds sexier to just say, I'm going to put the pedal to the metal in terms of wanting to earn the highest returns. So that's something that we try to probe for.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “Putting a finger up in the air and has more of a fly by the seat of their pants, I guess, approach to managing money. But I also think that, and this is sort of relating back to a very specific mistake that I made. Credits actually that he or she purchased”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “That's a great question, and I think it can be really hard to do. I think a lot of it is just spending time with the manager and the team and asking, you know, I mean, really, really diving into, especially if it's a younger manager, how do you think about construction your portfolio? Let's run some scenarios by you. This is what's happening in the markets right now. And sometimes you can use history. Let's talk exactly about what you did then or what you would do and really see how much they've thought through those decision points. It's much easier, of course, if a manager has a track record and you can look at their exposure management. You can look at the companies that they bought, at their position sizing and understand how much thought was put into all of those decisions and walk them back through time and say, you know, when you moved X or Y one way or another, why were you doing it? And I think you do it enough and you get a sense for who's deliberate in their actions and for who's kind of”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Super sexy when you first look at them, but the person that's running the strategy has a huge amount of judgment. They understand what they know and what they don't know. They understand what they're good at. They hire appropriately for that. They understand risk. And that's not stuff that is super fun to talk about all the time. But I think it can often make for the best long-term investments.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Not just from an investment perspective, but from an estate planning perspective, it has some wonderful benefits. You know, when I was at the Saloon Foundation, we wanted current income. That was fabulous for us. When you're paying out 5% every year and you don't have money coming in the top, current income strategies are a wonderful, wonderful thing. So it's just, you have to reframe everything you do. Maybe it's reframing at the margin, but I wish I had had that religion sooner because I think I would have just asked better questions initially. So that's been a big learning. And finally, I think on the manager selection side, a big learning for me has been that passion has to be married with judgment. It sounds really obvious, but I was very, very sucked in by passionate managers when I joined here. And passion and smarts, that was kind of what I was looking for, you know, just that brilliant person that is so committed to what they're doing. It's not enough. And I think some of the strategies I've come to appreciate the most aren't necessarily”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Again, it's back to this idea, and maybe I seem obsessed with this, but I've gotten religion over the past couple years. It's a different animal to manage money for taxable investors. And I think what we share with an endowment, and I have lots of great friends in the endowment world, I love that world. And our investment committee has endowment folks on it. It's a small committee, but we share the longtime horizon. We share the focus or the bias towards investing in people who do deep fundamental research, who are heavily aligned with us in terms of being heavily invested in their own strategies. But because we pay taxes, we have to think even longer term than an endowment, I would say. We have to be even more conscious of turnover both at the fund level and at our portfolio level. And it also means there's some opportunities for us. There's some strategies that just make, we really love private equity as an asset class here. It's a wonderful asset for families. Also, it's a wonderful asset.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Oh, I've made a lot of mistakes, but I think. Some of my standout mistakes won one standout mistake that I made, which I've learned a lot from, was wearing my endowment hat into an office where I'm managing money for families.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “You talk about making mistakes really hard to learn if you just kind of get everything right all the time, and especially as you came over here, you're in, as you said, in the chief investment officer seat for the first time. What are some of the mistakes generally that you made and how did you learn from them?”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “You could get to know them and believe that they do. And for other folks, it's simply that they got tired of fundraising and they're probably going to go back in some form or another after giving up because it's really hard. You know, I think it's really hard to find a business. And for some folks, it can be boring too. You know, they want to do deals. And while you can have a buy and build strategy where you are doing deals, it's a little less frenetic than the typical private equity fund. And it takes a certain constitution to be able to do that. I do think we're finding that we've actually seen this a couple of times now. We've met some really interesting folks. We've encouraged them to stay outside of the fund model and try to find a way to partner with us to just build and hold something long term. But we aren't necessarily enough capital for them maybe. In some cases we are, but in some cases they want to raise a bigger pool of capital and they have a hard time finding other folks that are willing to commit for that long and they end up going back to the traditional fund model because”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “We have looked at a number of these opportunities. We've looked at a lot more than we've said yes to, which is somewhat disappointing and frustrating to me right now. But a lot of the challenge has been what you just framed, which is understanding, first of all, the right way to compensate people when they're buying an asset and never selling it. So do you pay them a percent of carry your profits on sort of the asset value that they're building of the firm? How can you get comfortable with that? What does it look like in the out year is and what does that mean for the partnership and what you're sharing with them? But I think another challenge is just finding folks where you really have the confidence that they have the longevity to do what they say they're going to do. If someone comes out of a private equity fund and says, oh, I'm so sick of that model, I hate raising funds every three years. I just want to find a great business and hold it forever. Well, do they have any credibility doing that? I think for some...”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “We actually are seeing more interesting opportunities than we have capital for on the private side because we are just starting to see a lot of interesting stuff pop up on the really small end of the market. So we just anchored a really small healthcare fund. It's someone's first time fund, but he has experiences as an investor and operator. And I'm amazed at the value that he's finding in that space. But it's because he's so far below the institutional, the typical institutional mark of 5 to 10 million in EBITDA and up. I mean, he's really, it's a micro strategy. So that's kind of fun. I'm excited about some more long lived opportunities that we're pursuing to buy and hold businesses for the long term. I think there's some structural challenges in the space, but it's such a wonderful opportunity for families to be able to compound their capital outside of the fund.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Tell you that there's over 10,000 hedge funds, I think, now, and that's a marked difference from 10 or 15 years ago. I think alpha is never going to be as high on a repeatable basis as it probably was in 2001. But we still believe in active management very much. I just think, again, it has to meet this hurdle of what we can get passively. So we think there's room for both in the portfolio.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “So we actually model out a break-even alpha for every active manager we invest in on the long only side to understand what we have to believe they have to earn to be able to put them in the portfolio. And we use passive indices in the portfolio and we acknowledge that when I think about active and passive investing and the team and I have done a lot of work on this, I think we're at a cyclical low for active management. And if you, and that you can actually look back to the 70s and see these cycles of alpha. I think a bunch of banks have done research on this. Often the negative alpha periods tend to be in momentum and growth periods when markets are kind of screaming upwards, which is what we've been in for the past number of years. But I also think that there's some structural challenges, you know, whether it's, I know it was a while ago, but there's some reasons I think it matter today, whether it's Reg FD passing in 2000 or the democratization of information or the fact that there's just more smart money in the space. And there's a number of statistics you could look at.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “Interesting, we just had a big discussion about two of our families about this. We view passive investing. I have a very healthy respect for it, and we view it as essentially our break-even. So it's the hurdle for anything we do, and I'm specifically talking about, let's focus on long-only investing first, because I think in long-only investing, any retail investor knows that there is this tax efficient, cheap way for them to invest their money. And that is a market cap-weighted index. And that's a very sensible option for a lot of people. I don't think there's anything wrong with that. And I think that has to be the benchmark for institutional investors as well when they think about managing money. But especially when they're taxable, because tax efficiency creates, you know, an additional $150 to $200 basis point annual hurdle for every active manager in the portfolio. That's what you can lose through turnover. And it can get worse than that. It can also be better than that depending on the manager's strategy.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Private equity funds. If you can raise a fund, you know you've got 10 years or so to figure it out. I just think it's a lot harder on the public side.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “Check on the private side. On the public side when someone's new, it's a bit of a struggle because often that person hasn't been a trigger puller. So you're trying to make a bet on whether they can transition from being an analyst to being a portfolio manager. And often I think the individual isn't aware of how hard that is. And I can even say that coming from the Sloan Foundation to Brandywine, I went from being a director where there was a CIO sitting on top and vetting all my decisions to being the person vetting decisions. And the weight that I bear because of that is remarkably different. And it took me a number of years to figure it out. I'm still figuring it out, quite honestly. And it can be very distracting if you're not careful. So understanding how to lead an organization, build a portfolio, manage risk on the public side where you have the pressures of the market weighing on you day to day. I think, and you also don't have locked up capital, which”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “I think there is, I mean, the work that we do, while there is an overarching process to everything that we do, I think we're always trying to gather as much information from as many places as possible when we invest in newer managers. And we're often cobbling together some sort of a track record, which can be different and more challenging, I think, sometimes on, I would say it's more challenging actually on the public side. Usually if we're investing in a new private equity fund, there's often a strong pattern or record of operating history and often they've been investing themselves in five, six, ten deals. So you have the ability to, and also the, I don't know, I found there's just a higher level of transparency often on the private side where managers can really, really dive in and tell you exactly how they were adding value at companies. You can talk to the CEOs of the companies often because they're small businesses and they're willing to spend time with you. So I think it's easier to reference.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “If you're investing at Fund 5 or 6 when there's a really stable business, often the life cycle on the strategy is just shorter. I think on the public side, it's a mixed bag. Hedge funds fail, so you need to be really careful when you're investing early. I've made some mistakes in that regard. Investing early with folks where just frankly, they're LPs didn't have the same time horizon that we did when thinking about giving managers the ability to figure themselves out, and that creates huge business instability. And I think for the manager forces them to think short-term, because whether they want to or not, they're managing to quarterly returns. So I think it's very strategy dependent. And one of my learnings has been if we're going to invest with a smaller, newer fund on the long only side, that we really need to make sure that there's not an asset liability mismatch, that we know who the other partners are, and that we really understand that the manager has the fortitude to stick with what they know.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “I would say in some ways the opposite is true. We do. We have some managers in our portfolio for sure that have been in existence a really long time. Interestingly, in some cases, we put those managers in business, in one case over 20 years ago, we put a manager in business and it's still the largest part of our global equity portfolio. But in some ways, and this might relate back to your beliefs from being a protege, I think that there can be less business risk earlier in a fund's life. Now, it really depends on the strategy. I think that can be really true in private equity where we tend to want to invest, well, we love investing with folks that don't ever want to sell, and we could have another conversation about that. It's hard to find those folks. Within the fund model, we like to be there for at least three funds, and we'd prefer to be there for five, six, seven funds. It's much easier to do that if you invest in funds when they're small, when the alignment is high, when they can buy businesses more cheaply.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “Yeah, because all of a sudden you're locking in realized gains, and especially if you've had a manager in a portfolio for a long time, our average hold for a manager is over 11 years. We try to keep our turnover very low. And I think that gives us some really the ability to form partnerships really with managers. But we also recognize when we're going in that the cost of that decision is going to get higher and higher with every year that we're invested because hopefully the manager compounds makes a lot of money for us. But then to move on to something else, there's a tax cost to that beyond a reputational cost.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “With what they're trying to achieve. And then we back that up with looking at what we call their quality of returns. So rather than just saying have they performed well, it's trying to really disaggregate their returns and understand how they've made money, has that changed over time, is the way they're making money, does it marry with what they say their process is and what they say they're doing? And do we think that it's repeatable? You know, there are point-in-time strategies we tend to be less drawn to those than strategies that we think are durable over multi decades, hopefully, understanding that organizations change. But I think that marries with another core reality that we have is that we are managing taxable money, and that means that the cost of wrong decisions is really high. If we redeem from a manager, we're often reinvesting a $75 or $80. So that means that the next manager has to be that much better.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “Sure. So, you know, we have a framework that we use that actually permeates everything we do in many respects that where we really focus first on what a manager's process is, what their strategy is, and then what their team and culture is. And those are really, you know, in many ways, sort of, there's a lot of touchy, feely qualitative stuff going on in there, trying to figure out whether a manager has a competitive advantage in what they do relative to what is often a very efficient market. That's a piece of it. And then thinking about the complexity of what they do. Is it something that we can really understand? Is it something that they understand? It's shocking. I think sometimes managers use a lot of jargon when they talk about what they do. And when you ask really basic questions, even they have a hard time explaining it sometimes. And then understanding whether they've built a firm and a team that marries with their process. So there's no one right way to build a firm or a team or a culture even, but it really has to”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “So I think they're slightly different per pool, but the overarching framework is that everything we do is with an incredibly long-term time horizon, so we're not thinking about monthly volatility, for example, or even quarterly returns when we're investing in a manager.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “To in a way that makes sense and offer our families kind of a sample asset allocation that makes sense for a very long-term investor and different family members are going to have higher or lower risk tolerances. Our trust company in Delaware spends a lot of time working with our families on that, but we also encourage, and I think our families naturally think about themselves in aggregate. So when you roll all their assets together, what does it sort of look like? Does it make sense? Are the right assets sitting at the right level? I don't know if I really answered your question there. Yeah, no, that's a good question.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “And then on the investment side, for the most part, we manage our assets through pooling. And that again means that everyone's getting access to the same opportunities, and it allows my team and I to spend all of our time focusing on optimizing these pools. It doesn't mean that families don't have some assets sitting outside of the pools because that's the nature of families. There's always going to be stuff that they have that is unique to them, but we're spending a lot of our time and energy on thinking about the best way to invest a global equity portfolio broadly for taxable investors or a, we'll call it a hedge fund portfolio. I know that's a silly thing because hedge funds aren't really an asset class, but a diversifying portfolio in the marketable space. The best way to create a private equity program for families. So it simplifies my life. I don't have to find a manager and say, no, which family does this fit with? It's just, let's find the best managers we can and put them together.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Well, I think some of the thinking was done for me before I got here. So to just give a little bit of background on how we're structured, we manage money for a handful of families. A smaller group of them own the management company and are still the bulk of the assets. So in many ways, we feel more like a single family office. And what the families have in common, they all have a very, very long time horizon. They're all able to take a high degree of liquidity risk, take a 10 or 20-year view or even longer in many cases when they think about the markets. And I think we sort of view ourselves as having a fiduciary and an investment challenge that need to be married together. So the reason that Brandy Wine started is a trust company, and it was a very deliberate action by the four founding families 25 years ago, is they thought it would be the best way to manage their assets long term to ensure that they had a multi-generational approach to managing their wealth.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “It was a great sign. It seemed like a leap. So that was the first thing was understanding that I was walking towards something that scared me, which I think is something you always have to do in your life, even though it never feels particularly good in the moment. And then I got to know a lot more about the organization and the governance and the families and just the investment opportunity here. And it was like, this is a no-brainer. I mean, it's one of these once-in-a-lifetime opportunities to build something at a place that has this incredible track record in history.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “I found myself I was getting a couple of calls from recruiters after a couple years and at some point I started picking up the phone and I started listening to what they had to say and occasionally when opportunity sounded interesting and there were a few things I looked at over the years I found myself interviewing and taking myself relatively far down certain processes and I was a little concerned with why I was doing that and I called a mentor of mine from graduate school and I said can I talk to you about this you know I And I sat with that for another year or two, and when I got the call about Brandywine, it scared the heck out of me. It really”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “And, you know, Bill gave me the freedom to do that. So I ended up getting to spend some time looking at the structured credit market and mortgage-backed securities and all the things that had blown up all of a sudden became incredible opportunities for investment. So that was the investment side. And in terms of other roles, I think as a group having some fresh blood allowed us to build more process, we hired our first associate. So that was really an early experience for me in managing someone very bright who was a little bit younger than I was, but not that much younger. So that was a piece of it too.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “It was a very small team, remains a small team. But when I started, it was me, Bill, and Joe Borer. So there were three of us managing the portfolio. I was one of two directors and had the least experience by far. Both Bill and Joe had been working together for a long time, both very experienced investors. I came in right out of business school, and I think they were willing to take a chance on me because it seems like I've top ticked a lot of places I've worked. I went there just before the global financial crisis. It ended up being this incredibly exciting period there because I got to be the new opportunities person by default. We were all generalists, but Bill and Joe had built this portfolio and then had to see it through a period of crisis, which they did remarkably well. But I had the benefit of, and I mean, everything we did was team-based. But the fact that I hadn't been there when the investments are made, I think just allowed me to kind of step out and troll around for new stuff.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Any type of discussion on investing. And I think it was a powerful way to, he would always tell me that he enjoyed mentoring more than managing, but I think that's what he needed to do. And it's a statement that everyone that's left the Sloan Foundation has ended up in really interesting spots, I think, because of Bill's teaching.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Well, for anyone that's listening that knows Bill, he is honest maybe to a fault. He has one of the most active minds I've ever seen. He never stops thinking. He never stops questioning. He viewed himself as the chief cynic and could get to the heart of what mattered in like thirty seconds or less. He's deeply passionate about investing and he's deeply passionate about the institution he worked for. He really built that endowment for 16 years. I hope I have that time period right, Bill, if you're listening to this. And he's someone that taught me by doing and by acting. You know, he wouldn't, he wasn't one to sort of sit down and have lengthy conversations with me about the meaning of life. He would show me how to invest just by being actively engaged in every aspect of our portfolio, asking really hard questions of me and of our managers and just being up for”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “With Bill Peterson, who is amazing, and to this day is one of the best mentors I've ever had and remains a very close friend.”

    2017-05-17 · Capital Allocators · Jennifer Heller – Thinking it Through (Capital Allocators, EP.07) · IDENTIFIED FROM THE TRANSCRIPT · source