YouSaid · the spoken record

Larry Kochard

lines on the record: 89
first: 2017-06-12
most recent: 2017-06-12
sittings or episodes: 1
sources: podcast

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“But we do seem to be expanding at an ever faster pace with technology. And so having an appreciation for that, wishing that I could see when I'm 115 what exactly that world ended up looking like, but knowing that that's going to have an immense impact. And so that's one of the reasons we spend so much time on technology. So that's one. The second piece of advice, which is advice that again, I would give someone younger, is this notion of constantly travel. I try to do as much as I can, but I think the more you travel, whatever your field, there's things you learn and experience that you can't learn just sitting and reading. So the more you travel, I think your life is fuller, it makes you more creative. You see things that you wouldn't otherwise see. So I would think that 115-year-old version of me would tell me to travel even more.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's fast forward, that's a long time in the future since I'm way, away from 115 years old. I really do. I mean, this is, again, I'm not going to say anything that others have not said.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. There are probably so many things that I could fill up this whole notebook. I'd say at the top of the list, one observation I gave you, which is this Think there are so many investors that they're simplistic. Answer is if you love something, let's do more of it. Concentrate. And we're attracted to concentrated managers, but they have some liquidity, is really seeing firsthand this notion that concentration works, but concentration and this trade off between concentration and liquidity. So when something is less liquid, I concentrate less. And that's something without experiencing sort of the repercussions of that. I've come at that kind of the hard way.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, hands down, I would just teach. So I love being in the classroom. I often thought it'd be fun to be a high school math teacher because I feel it's oftentimes a way it's taught is not how I would teach it. And that's something I think I helped my kids with. But when I do find the time to get in the classroom, it's just time just passes. You're getting this kind of special zone. The book, The Rise of Superman, this concept of the state of flow. I know it's not like doing extreme sports, but you get that same sense where it's hard to describe that sense that you get in when you're in the front of a classroom.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things they were very good at, they're very both very disciplined. And I would say sort of the discipline hard work being focused on the long term without coming up with a single phrase other than eat your vegetables. And maybe that's a sign of discipline. I can't think about that. But they were, I'd say that discipline, hard work, kind of long-term focus is what they helped instill.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“We'll name our firstborn child after you, but they did not name it. He's named Gordon. He's not named Muki. So that's one. Second one is, again, I love Tennis. And when my daughter's team won the state championship.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“As a fan since I grew up in the New York area and I'm a struggling Mets, Jets, Knicks fan, I can barely remember when Joe Namath and the Jets won, but I still have a vivid memory of when the Mets won and when Mookie Wilson had that slow ground ball to first base to build Buckner. And it went between his legs. I remember I was watching that in Greenwich Village with at that time my fianc ⁇, who's now my wife and her sister and her husband. And I remember them saying that Mookie, if you get a hit.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“I love tennis. And I used to be at okay tennis player. And as I've gotten older, my body's gotten more decrepit. I play substantially less tennis, but I still love to get out there. And all my kids play and I love to get out and play with them. But I love to watch tennis. I love to watch it live. I love to, if I just go want to relax at home in the evening, I will turn it to the tennis channel and just watch a tennis match. And I take a lot of joy of just watching tennis. I've enjoyed watching my kids play tennis. And I know it's a way of passing time. I love the sport. UVA tennis. We just won our third national championship in a row. We've won four the last five years. It's been one of the treats of being associated with UVA. But I would say that would be...”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you have interesting dynamics in terms of just fatigue about Japan, and then couple that with our interest in friendly activism, where there are managers that I think can take advantage of an interesting environment where there seems to be a greater awareness today that managing companies for the benefit of shareholders as opposed to broadly defined stakeholders, which is really everyone in Japanese society, is more acceptable. And there are more people that would be amenable to doing that. And so you have a very large market with companies that are very well run but haven't always been run producing high ROEs for shareholders. Strikes me as an interesting arena, but again, it's kind of the intersection of a manager as well as an environment that could take a long time to play out.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of course we did. So, no, it's never easy to spot themes. What I'm always trying to get people to be, as opposed to the top most top down theme, which is just equities versus bonds, which we're not going to do, is something that has a little that is not quite as discussed might have some legs, but could take years to play out. And again, one of the small themes in our portfolio, just to give you an example, is what's going on in Japan where you've had this situation where the equity market is underperformed since its peak in the late 80s is underperformed really every other geography. A lot of managers have just given up on Japan. Managers, there are very few managers left that have just been in Japan for the entire time.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a tougher one only because I think themes are harder to come up with in this environment. Getting back to one of my earlier points, which is there's so many people looking for themes.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“You've talked a little bit in your writings about the expression of them within the portfolio. I'm really curious of how you come up with a theme, how you implement, and then how you make the decision and size themes”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are fewer competitors that are doing single name shorts. So there's things that could be setting up for an attractive run. But if I had a hundred percent allocation of lungsdored equity, that wouldn't happen.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're constantly weeding it out. We're constantly looking for some of the characteristics we talked about before that would cause me to want to move away from manager or maybe hire a new manager that has better fundamental characteristics. But if I were worried that if I went 100% long short equity, I would have more worry that all of a sudden people would go, why do you have 100% in long short equity? Your peers have 10% in long short equity. I would be more fearful that we would dial that back at just the wrong time versus right now where we've had a debate, should we actually do more, knowing that now it is probably one of the least loved strategies and there's evidence that it's becoming easier to short.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's a great analogy. I mean, that would be a great example right now because long short equity is, as we've discussed, it's an area near and dear to your heart as well as mine. It's a strategy that has not done as well recently. I think I still not think, but I still have conviction. I think what people have missed is that the big value on the short side is very episodic. It's not just month in or year in and year out. It's going to happen. It happened in the early 2000s. It happened in the later 2000s. And it's been more challenging recently because the market's just been going up. But there are going to be opportunities. I look at it on a sort of risk adjusted alpha basis. They're still doing fine. But if that were too big, so I still have conviction. Conviction of the managers.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“How you'll be evaluated is both absolute and relative. So at some point in time, if you were only great at long short equity and you had 100% of the endowment in long short equity, it might meet the risk and return objectives for the university, but it would look so different from your peers that at some point in time that would cause a problem to stay that course.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Everything about what I've tried to develop a culture is that it's played our strength. If we're good at something, let's do more of it. If we're really bad at something, let's either not do it or try to figure out what we can do to get better, but not just force an allocation so we can look just like our peers.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“When I think of the risk at the underlying level, we ascribe a higher risk rating to privates than we do publics for the most part, certainly more than long short equity, which has a beta closer to 0.4. And so we have a, you know, again, we try to target a beta that's just under 0.7 beta to global public equity. Our large peers are anywhere from, say, 0.75, 0.8. And so there's an acknowledgement, but I don't want that to drive, because if we started doing that, that would be a problem. We also understand that we have more and long short equity than our peers, but we don't want that say, well, maybe we should have less. Or we have less in for years we've had less in real estate. Well, we don't want that to drive. Well, let's do more real estate, even if we don't think that's something that plays to our strength.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Less frequent manner. So looking at annual performance, although again, inevitably people will do that. It's harder to do. So we really encourage people to look three, five, ten, twenty years. That's A. But we do that. There's an acknowledgement and an understanding that the risk embedded in our portfolio is a little lower than what some of the largest of our large peers have invested. And you mentioned Yale. I know they have less in cash and bonds than we have. We've been running. I try to run between 8% and 12% in cash and low duration treasuries, and it's been closer to the high end of that range. It's now kind of in the middle of the range, but that's still higher than what Yale and some of our other larger peers have. They have more in privates. And when we think of, because again,”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“We look at it, but I don't want it to drive any decisions. So, you know, every year when we review our fiscal year end performance and look at how do we do relative benchmark, what were some of the reasons it outperformed relative benchmark, and then how do we do relative to our peers? And we classify peers as endowments exceeding $2 billion in size. And last year, I think it was $36 or $37 institutions. The board has been, I think, understands in constituents understand because we tell them this all the time, that it's hard to look, even though people still do, look at it over a one-year period. Such a big chunk of our portfolio now, about 32%, and then even more so of our peer portfolio, are in privates, where the marks come in a”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So one of the other lenses we talked about in terms of the ability of the institution to stay the course is relative performance. So if you look at, or how much do you look at your structure 60, 30, 10, versus some of your peers? You know, at Yale, which is probably closer to a 90-10 structure. Does the deviation just from having more of equity”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Private equity, which is a mix of buyout, growth equity, and venture capital, has come down from over the last, say, six years from low twenties down to sixteen percent. Given the pace at which we've invested, it'll probably come down to the smidge more. Public equity has gone up from about 20% to closer to 27 percent. And then long short equity is really more or less stayed about the same. And that's been more manager specific than anything. And then ultimately a lot of those allocations are very manager specific.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“And there's the way, you know, there's a fairly simplistic way that we have that embedded in our investment policy statement. It's a minimum of 20% that we have access to within three months, a minimum of 30% over a year, and a maximum unfunded commitments to private whatever of 25% of the total pool. And those are all constraints that we have to live with. And subject to that, we can do whatever we have this kind of notion of finding the best ideas such that when you put that all together, we maintain a comparable level of risk on a market risk and liquidity risk and live within that. And so hence, over time, but it's also like moving a battleship because we do have a lot in private investments. We do have a lot in relatively less liquid hedge funds, even our long only public.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“I feel comfortable with in terms of minimum level of liquidity that will enable me to meet the capital calls from our private managers, meet the payout to the university, and just also rebalance”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's a sign that you have a sense of humor that you think you can be that accurate. So it's really, but it does set a level that you know that if you have 60%, 60, 30, 10 versus 90, 10, 0, it'd be very different. And it's a level of risk that I feel over a long period of time and the ultimate test is, is it a level such that if we, you know, the market does draw down and get another 50%, which we've seen two of those over the last two decades, will we rebalance or are we going to be permanently scarred? If you're at, say, 90, 10, you're more likely to be permanently scarred with that rebalance. I feel it's a level that our institution can live with and feel comfortable with. I then have separately a liquidity risk. So in a sense, it sets a market risk budget. I then have a liquidity risk budget that”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes. You can just look at a history. And again, we also know that there's this false, one of my, it's not one of my top five core tenets, but it's a side tenet which is getting back to sort of quant versus qual is a lot of quantitative analyses, I think, give people false sense of precision. And we provide a lot of quantitative statistics about our portfolio, but I also I'm a firm believer that a lot of mistakes are made when you kind of take it to the nearest hundredth decimal point and just”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Driven by how much you think you might lose in a bad environment. And so that gives us a policy portfolio, which right now is 60% public equity, 30% public bonds, 10%, public real estate, all global. And that's a level of drawdown risk that we re-underwrite every year that the university is comfortable, would be comfortable with.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, when I start at the framework level and then move to what it currently looks like, so the framework level is, as opposed to having targeted allocations to what I call different strategies, public equity versus private equity, hedge funds. What I do is I have a level of market risk. draw down rest that I feel comfortable.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So when you roll up all of these processes, so much of what we've talked about and this really great stuff is on the individual manager level, what is your asset allocation look like across the entire portfolio for Virginia?”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the way they view the world. Because if everyone is always in complete unison in terms of, oh, yes, that's a great idea, or yes, no, that's a bad idea. And everyone just shaking their heads to everything you discuss, you're just going to be making awful decisions. So having that diversity of thought, which I'd say is a subset of diversification, I think is really healthy.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“But when things are illiquid, I size them smaller. And so I believe in more diversification. So you have to have the humility to know that some of these very illiquid, whether it's private equity funds, whether it's underlying co-investments that we're going to do as part of investing in private equity funds, you just have to know that you don't want any one of those bets knowing that you can't reverse those because you're going to be making mistakes. And then the last thing of diversification is just it's more diversity than diversification is having a team that is very diversified in terms of their backgrounds.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just can't get any more allocated. So that's diversification. The other thing I would say on diversification is you have to have the humility to know that you are going to make mistakes. And it gets back to kind of the first point, is never let, even though people always say, well, if you like something, this go big, go be bold. But never be very mindful that you're also going to make mistakes and never let an individual mistake just constantly drag you down for a long period of time as opposed to something that's once and done you learn from it and you move on. You know you're going to have mistakes. And then there's a relationship on that front with liquidity and diversification. I'm a much bigger fan in less diversification when things are very liquid. Change your mind. You can change your mind.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that gets to the second question. You could almost argue that since we're attracted to these managers that have anywhere from 10 to 30 securities, some of those are quality companies that you might hold forever. Wouldn't it be nice if you could just own a portfolio like that? Well, the problem we can't do that with a manager, well, then why don't you just do it directly? And then we get back to the circular argument we talked about before where the problems related to us doing it internally. It just becomes a challenge. So yes and no, given our implementation, the way we can implement, I think it's probably a reasonable amount of diversification because for us a large allocation to an individual manager is going to be several hundred million dollars. It's hard to get much more allocated to the managers for whom most people are closed.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“A large position for us is going to be in the order of at the underlying company level, 100, maybe 200 basis points. And so that's it. So there's a lot of diversification there. And it's”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, diversification is, I think you can go in many different directions on that front. I mean, the most straightforward one is kind of going back to modern portfolio theory is that, you know, you can diversify away a lot of risks. And we do. So you could almost, and we talked about this earlier, you could almost argue if you go down to the security level given the fact that we're investing with managers that are capacity constrained, we can only get so much invest with them, and then they buy individual companies or securities, that at the security or individual asset level, we have a lot of diversification.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Get letters, you're going to try to Hamilton, you're not going to be able to interview people that knew him, but you're looking at correspondence, you're looking at a lot of circumstantial evidence with people that exist today as opposed to 200 years ago, you can talk to a lot of people and see, and you're trying to get the truest picture of what they're like in terms of how they treat other people, how they would treat you as a partner, how they treat people that will work for them, how they treat people that they're going to invest in, and try to get as much of that in terms of the quality from an ethics standpoint and then try to get as much of the quality from an intelligence, investor intelligence standpoint. It's just a lot of legwork. But it's something that I think we do well, but I feel that you can never put.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Part of what we try to do is to, I would almost equate it to the job that either a journalist or historian did when they're trying to capture what is true and what is fiction and what is just it could be good PR, it could be bad PR, and try to tease out fact from fiction from really noisy stories that you get. We try to go out and do a lot of reference checking on people. And you're rarely going to get something that's 100% in terms of glowing or 100% negative. It's going to be this middle ground that's noisy. And so it's not unlike what an historian is trying to do by doing a biography on Hamilton. You're going to try to.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“As well as the hiring front internally, but a lot of effort goes into that. And if there's anything that I think we do well but can continue to improve upon, it's that because I think that ultimately is going to be the biggest determinant of our success.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Defined internal and external. Internal, external. You go back in my history and again, going back, I was a math science guy, and then I got a PhD in economics. You're very mathematical. And the more experience I've had and the longer I've been around, you just realize it's all about the quality of the people. You try to improve your odds of success by, again, also getting back to one of the first points of having incentive structures that create more of an alignment of interest between managers we're investing with and our outcomes. They're investing in companies and them shaping alignment of interest with their underlying companies and outcomes. But ultimately, it's the quality of people. And we'll certainly make mistakes both on the hiring front and managers.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“And private's harder to time because right now multiples have been increasing across really every private, just about every private strategy. And they're increasing because there's so much dried powder out there and people are just putting it to work and paying more and more and more. But when you commit today, if I were committing to a private buyout manager today, they may not deploy the capital for four years. Right. So it's a harder one to time. And there's also this wider dispersion of outcomes such that if you're invested in a really truly a good, great private manager, even though top down wise, the universe universe of companies that they're potentially could buy are expensive, they generally can distinguish themselves. And so it's harder to do at that kind of top-down asset class level.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question. I would say we do a little of that, but the problem you've run into is everything is more or less at the asset class level, whether it's public private. Well, they're both pretty expensive.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“And do you also apply that to the asset class level? And now the old Brinson study that 90% return driven by asset allocation. And if you do, when do price does price get extreme enough that it makes sense to take action?”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have still like don't have any of those characteristics we talked about in the prior point about some of these long-term relationships they've still stayed at a good size but it just turns out whatever their maybe it's region their style is out of favor and they've underperformed making sure you have the discipline to give them more money right and so that's part of what we're doing or what we're saying with price matters example with that is We had funded a really strong credit manager that's a little more liquid, more of a traditional high yield manager over a year ago when credit spreads had widened out and then just they know that we're using them as kind of as a discipline that we're going to add when spreads are wide and take money off the table. So we recently took some money off the table there.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where this comes into play is getting back to how we allocate to different managers is making sure you have the discipline that when someone has been doing well and part of the reason they've done well is because and again a lot of these managers are low turnover is their portfolio has just gotten pricier and pricier and pricier it could very well be that they've done well because they happen to be in companies that are just growing their earnings faster and the company is still on a valuation metric or about the same or maybe a little priceier. But sometimes it's just that the market starts paying more and more and more for the same earning stream is making sure you have the discipline to take, you may still like the manager, but making sure you have the discipline to rebalance. Take some money away from that manager. Making sure that kind of the flip side, if you have managers that actually”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“The third quarter pistol is an interesting one that we put there. I mean, again, everyone says this, so these are not, I haven't unique core principles. Price matters. And so one easy way to express that is to say people will say, well, we're value investors, very overused term. Well, what does that mean? Well, modern finance would say value is sort of.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“and recovering losses. Yeah, no, it's tough. We try to constantly reassess what we've done well and not done well on that front. But I think we're in constant learning mode.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because I agree with that. Behaviorally, we know that when performance is weak, that's when you get maximum scrutiny. Right. And it also, to your point, tends to show the warts if there are real problems but the assets they own may not know that And that's really tough when you're in the situation where you've decided for all the right reasons that we need to exit and find a better long-term solution. But in that moment, you still might be better off hanging around for a little bit and recovering losses. It's just a super, super tough decision-making process at that time.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's where it becomes a little more difficult in practice. There could be a situation where just bad luck that that concentrated portfolio produces a sort of an outlier negative return realization. But it could very well be that it's also correlated with other negative signs of the manager in terms of size, in terms of motivation, in terms of maybe they've increased their fees because they could they've worsened the liquidity terms because they could. So there's oftentimes a correlation. And so trying to separate those out becomes very difficult.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“In academics whether it's now investing, they just want to be a winner. It doesn't matter how much money they have. But as something impacted that level of competitiveness, that sort of 24-7 notion of the amount of effort you have to put in to be a winner in a very competitive investing environment, is that still there. So making sure you have that, making sure that the team, if the team is very important to the process, some managers, it's more important than others, making sure the team is stable. Does the team constantly turn over and that's a problem? Or is the team constantly turning over? It's not a problem because actually it's all about the one individual manager. So look at some of those characteristics. That's in theory what we'd like to do. Again, the question is there's usually a correlation between bad performance and something else going awry.”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source
“You always have to look for, especially when you're with concentrated managers at extremes, does the extreme success or extreme failure change them as a person, as a manager? Meaning if they get extreme success, do they then start becoming reckless? If they've had extreme failure, do they learn from that or do they just say it's hard for me to manage risk anymore? And so that's one thing you do look for with those volatile strategies. Then what we'd like to do in theory is look for other characteristics as opposed to performance of, as the manager gotten too big, as the manager lost their focus. They've made a lot of money and money is ultimately the sole motivator. It becomes other things they just want to win. Most of the people that we all invest with are super competitive, whether it's in sports, whether it's in what's”
2017-06-12 · Capital Allocators · Larry Kochard – Endowment Professor (Capital Allocators, EP.11) · IDENTIFIED FROM THE TRANSCRIPT · source