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Karl Scheer

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2018-10-29
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2018-10-29
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  1. “Venture's been such a big driver of returns for a lot of those peers. So how do you think about either explaining your investment approach or just accepting that there's a piece that certain pools of capital have access to that you don't?”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “The best venture capital firms, I think there's such serial correlation, there's such performance persistence, which I think is natural if you think about the advantages to a venture capital firm of having taken Google Public and having connections with the founders and so forth. Not any specific venture cap, I don't mean to mention that the specific firm, but I think that that reflects incredibly well on up-and-coming entrepreneurs, and they want to be able to meet with the famous entrepreneurs and they want to meet with the folks who. And so I think there's a very valuable momentum that accrues to venture capital firms and thus there's only maybe a dozen. I'm not exactly sure what the number is, but you kind of know when you see them. And if you can't be in those groups, then it's a very difficult place to make money. And it takes a huge, huge amount of time for a tiny little team sitting in Cincinnati, Ohio. None of us went to Stanford, GSB, so it didn't make any sense for us to spend time on that area. Probably waste money, certainly waste time.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “One key takeaway from my time in venture capital world is if you can't be with the best manager, don't do it. Not don't spend much time on it or try to find a fancy way to do it. Don't do it at all. Don't bother.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Look more or less like what you would think of an endowment portfolio. It had, let's just call it rough numbers, half global equity, a quarter alternatives and a quarter fixed income. And so that's very rough numbers, but it was a relatively safe portfolio going into the crisis, and it survived very, very well. If I recall correctly, we were down somewhere in the range of 12, 13, 14 for the crisis, which compared to many portfolios was a big success.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “Take off our riskiest asset categories, take off our high yield muni bonds, take off a few other things. We were doing, and focus on the core of our portfolio. Make sure that none of our cash was at risk, you know, kind of batten down the hatches, but don't make any huge asset allocation changes, don't make any huge manager changes outside of those kind of incremental. When did that portfolio?”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “He was running the portfolio and the two of us in a mason were executing on his strategy. We spoke every day. It was fairly seamless and traveling we often traveled together, so it was not that different maybe than if he had been in the office with us. In fact, I'm not even sure you would characterize it. It wasn't that meaningful of a difference. It got different when he left in August of 2008. All of a sudden things were importantly different and my colleague and I there, Tim Kavanaugh, who's still running it, were suddenly in the driver's seat. And I think that we handled that transition very well. It was obviously an extremely exciting time to be in investment world. Just a couple weeks before Lehman went banko and we had some initiatives in the portfolio. We basically said no move is a good move right now. Hold still.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “What was there was an outsourced CIO, a very brilliant man, a mathematician, who was the CIO but lived in New York, and he, as a mathematician and math professor, felt like bond math was the big shortcoming that I hadn't studied bonmath. I didn't have an MBA or PhD or anything, and that was something that he meant to resolve. So for six months, I sat at my desk in Mason, Ohio and did problem sets, did math problem sets on math, reproduced duration calculations, modified duration calculations and so forth. It was not something I think I was very excited about at the time. It has been incredibly valuable intuitively understand how that affects the whole panoply of investment assets.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Along the lines of continuing the work I'd done with private equity, and I wanted to try to expand and improve and gain new experiences by starting with the whole institutional portfolio, asset allocation and implementation within each asset category.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “Well, interestingly, the team was undergoing some progression. Susan went on maternity leave for a few months. We had a couple folks move over to our secondary team, which was experiencing some really nice growth. And so the team shrank. So the folks there got, again, sort of more and more responsibility just by dint of things needed to get done. And after a couple years of doing that and learning a ton, my wife said, hey, we have to move back to Midwest now. This just isn't what we want out of life. And so let's move back to Midwest. searched around Cincinnati, Ohio, where I was born where she's from, and found a family office that was kind of on the upswing, was developing a very institutional approach to investing, had a very sizable pool of capital, and moved back to join them as one of three investment professionals running this kind of endowment-like portfolio. Again, there was a decision point there where there were some other things that I could have done in Cincinnati that would have been more”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Well, I formerly joined Pantheon, but for some folks there, I think there was a level of distrust. Like I came from Mother Rassell, and they didn't know exactly how to deal with me. Was I a spy? I was very close friends with the CFO of Russell at the time. So I think there was a level of distrust, but over time, I think I integrated myself well with the team, and they were ultimately welcoming. I did a fair amount of quantitative analysis and due diligence at our office in San Francisco with a handful of on sites and also helped monitor annual meetings. So I wasn't making final decisions or anything, but the people I reported to were Susan Long McAndrews and Gary Hyatt. And they believe that the youngest persons should talk first, right? After a meeting, ask the youngest, newest person what his or her opinion is, and you start to train people to have good opinions and so forth. And that was an extremely valuable lesson, both because it trained me to try to think of how do you characterize this within our portfolio, but also how do you run a team. So that was a great lesson.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “At Russell a couple years and then Russell acquired a group called Pantheon Ventures, a fund of funds down in San Francisco, and I shipped off down to San Francisco with my pregnant wife and giant coon hound and big truck, which, by the way, doesn't work very well in San Francisco, and joined Pantheon amazing firm, really intelligent people, learned a lot about the nuts and bolts, the nitty gritty of due diligence for partnerships, for private funds is a great experience.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “I learned that people were very excited about alternatives were not super confident in their ability to execute. Again, it was 2002, so for some of these groups, it was quite a new experience. And I also learned that, well, what I thought I already knew, which was that the most impressive, exciting returns were often available in private structures. And many folks thought that, but weren't exactly sure how to access them.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Probably caused several dozen in Japan, a couple dozen in France, and maybe sixty in the US. And across a range of asset owner types from endowments to”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Well, there was the basic check the box. I need four numbers or whatever. But I also tried to build relationships, tried to understand what people were doing more deeply than that. And I don't know, maybe one out of six or one out of eight conversations actually ended up being fruitful and interesting and I got more out of it than just my five numbers than I need to write down on the page. How many outbound calls”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “And Hal and I worked on some special projects together, including I spent about whatever it was, two or three months doing their survey of alternative investments. So I called all the CIOs in America and a bunch in Japan and France staying up all night and speaking bad French and no Japanese whatsoever and learned a lot about what CIOs were doing at the time, which ended up being very valuable. What questions were you asking? Along the lines of what is your current allocation to privates, to hedge funds and so forth, do you plan to increase, decrease? Do you plan on changing your strategy at all? Kind of normal questions around what are their plans. This was early 2000s. Was it to check the boxes?”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “So after spending a while at this venture capital firm, I looked around the world and said, what would be a plausible next step that would make sense? I thought the three alternatives were stay in venture capital world, move closer to companies, actually join a startup, or move farther away from companies and invest across different venture capital funds and then probably also buy out funds into stress funds and so forth. And I took that role. I thought it would be more interesting to apply what I'd learned at the partnership across a bunch of different funds and indirectly join Frank Russell and worked with the CFO there. He's an amazing person called Hal Strong, a great mentor of mine.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “If I recall correctly, he said if you can be here Monday morning and dressed in a tie, you can have this internship. I think it was like Saturday night. So it was a kind of a heavy lift to get out there. But theme number one, try to seize those opportunities when they come up. So went out and was in this two-week internship that turned into a two-month internship that turned into two years. And all of the lower level people except me left for various reasons. And so it was like six partners and me. And they didn't talk to each other about what I was working on. And so I ended up working on some incredible, fantastic stuff, stuff I had no business working on, term sheets and some analysis. It was an amazing experience. And also good hundred hour week type experience because there are six partners in one analyst. There's a lot to do.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “Post college didn't come out of college with a job partially deliberately, although looking back now, I think that may have been a mistake. But in any case, I have had the great pleasure of learning about a lot of things from a bunch of different types of roles. The one thing I learned there is that I don't leave until all the bikes are done. And if that's the case, if I'm going to work really hard at something, it might as well be something lucrative that has a big impact on the world, right? So had a close friend who was working at a venture capital firm in Seattle and after four or five months, whatever at the bike shop, he invited me out for an internship at this venture capital firm. This was kind of late 90s, so it was a very exciting time to be engaged in that kind of activity.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “Sure, sure. So I think that just like everybody else, I have a bizarre story for how I became the CIO at the University of Cincinnati. I started as a bicycle mechanic. Oh, yeah, that's the normal pass. Yeah, so I started out as a bike mechanic living with my brother in Madison, Wisconsin.”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “My guest on today's show is Carl Scheer, the chief investment officer of the University of Cincinnati's billion-dollar endowment. Before taking the helm at Cincinnati in 2011, Carl Corran a family office and spent eight years in the venture capital industry. Our conversation covers Carl's background, running a family office in the teeth of the global financial crisis, high functioning governance, avoiding the worst managers, taking the hard road, conducting due diligence with popular managers, and without checklists, and picking your spots. Please enjoy my conversation with Carl Scheer. Carl”

    2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source