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Letitia Johnson

lines on the record: 77
first: 2024-04-29
most recent: 2024-04-29
sittings or episodes: 1
sources: podcast

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“More pivotal points of my career have been things that have felt incredibly stretched and behind, in a sense, including when I went to Yale or when I started at Cambridge or started at Emerson. The thing that I would want to just whisper in my ear is that feeling of being behind is you growing. You can stress out a little bit less about that. It's okay.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Simon has just been extremely helpful in terms of day-to-day tactics, team management, thinking about overall portfolio strategy, just helpful in a wide variety of ways. But I would say the number one thing is I'm sure that the committee spent time assessing me behind closed doors, and I'm sure they still do, but I never felt that. I always felt very supported. And I can't tell you how important that is for a new CIO. Feeling like the committee has your back and that you have the runway to actually figure out what you want to do is incredibly helpful. And again, is analogous to what we were just talking about with managers. This is the entire investment world. You need to feel like as long as you are highly motivated, smart, doing all of the hard work and have generally a good idea of what to do, the ability to just do it is incredibly important and remarkably rare.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, so my entire committee has been unbelievably amazing and supportive. And we've had committee members come and go since I started, and that includes everyone. But two of my committee members that have been extremely influential and just a huge piece of what we've been able to build in Amherst so far are Simon Krinstey, my investment committee chair, who is the best investment committee chair of all time. And Ben Gomez, who is president of Pilot House, a family office here in Boston. And they have been both extremely supportive. And the committee just in general has given me amazing bandwidth and space to try and figure out a great solution for Amherst, build this team in this process. And they've been extremely influential in terms of the solution that we arrived at. They've just helped me a tremendous amount in this journey.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“My biggest pet peeve is I really like it when people are direct. Don't beat around the bush. So when people beat around the bush, I'm not into it.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is random, but when I was a kid, I was somewhat ambidextrous, and my parents nudged me to be right-handed, but they didn't notice that I was brushing my teeth left-handed. So I still brush my teeth left-handed.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Into unbelievably beautiful nature and have a mission, which is catching the fish. And by the way, it's catch and release.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“I have already talked about traveling and reading novels, which is what I do all the time. I love fly fishing. That's something I don't do it very often when I get to do it. It is absolutely amazing. And my husband and I do it together. And I'm basically obsessed. And it's an amazing way to get outside.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we are trying to do is invest with a collection of great people and then some of them will do really well. I think there are some really interesting pockets of the world. I am excited for the opportunity set for our more flexible capital managers. I think this is a very interesting time for that because the world is changing. And it does feel like that could be a great opportunity for them. And some of them have done very well recently. So we're excited for that. I think biotech is a really interesting place to be investing in the public markets right now. But generally, what I'm really excited to watch is to see which of our managers are really going to capitalize in the next two years. I'm also really excited to hopefully continue to get some next generation managers into the portfolio.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great because there's basically no leakage between the work and the decision. So that's good. The challenge is that there's much less coverage. You're going to have a five or ten stock portfolio. And in those situations, there's stuff comes in with the firm risk. So we learn a lot from our managers that have structured that well, and you can learn a lot from managers that haven't structured that well to the extent that you have decision making that is farther away from the work. you need to make sure that you pay people in the right way. You need to send people on the right way. And you need to make sure you have a culture of communication that gets the appropriate work to the appropriate person so that they can make the right decision. These are just two examples of the sorts of things that we learn, but we learn that in space across the portfolio all the time.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Risk. You also need to make sure you are hiring the right people and getting rid of the people that don't fit within that. So there are all these really interesting things like if that's what you want to do, you need to make sure that the entire thing fits. On the flip side, if you haven't eat what you kill framework, you also need to make sure that the whole thing fits there. The other really interesting thing to think about is team departures in that context matter in a different way. Also, interestingly, spinouts from those are more or less interesting. There are all of these really interesting things that I feel like managers aren't explicitly saying this to us. We can just observe it and we learn it from them over time. The other really interesting one, and this is somewhat related to the team stuff, but we think a lot about how close investment decisions are to the work itself. So the extreme of this, of course, is the analyst that is a portfolio manager.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thing that we talk about a lot, and this is more relevant on the public portfolio than the private portfolio generally, but it actually can be somewhat relevant to venture. But we tend to have more team-oriented firms on the public side. One of the things that we're constantly in learning mode on and thinking about is the dynamic between having teams that are more team-oriented versus teams that are more what you kill oriented, what works and doesn't work in both of those frameworks. And it's interesting because it matters in a number of small and big ways. So if you're going to have a more team-oriented framework, you need to make sure, obviously, that you pay people in an appropriate way that encourages teamwork over individual decision making and individual performance. But you have to make sure that you have a setup that adequately protects from the whole free rider.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“I learn so many small lessons from my managers every single day. And they're mostly around how to build high performing investment organizations. Because we have a wide variety of different strategies in the portfolio. And one of the most fun parts is being able to see how an organizational design or the way that you think about pain and promoting people translate or doesn't translate from one organization to the next. There are so many different ways to set it up extremely well. So I feel like I'm just learning all the time from my managers on how one process or one investment philosophy does or does not port onto different things. I will also say one of the really fun parts about this job is that you are constantly in learning mode from your managers on things that are relevant to us, specifically in terms of how we do our job.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a low turnover of our ideas, but we do spend a lot of time talking to new managers. It's interesting because I was trying to think about how much time do we spend with current managers versus prospective managers. And it's actually somewhat hard to differentiate between the two because anytime I sit down with a manager and I'm talking to them about some space or given asset or industry or whatever it is, you're learning about your current managers because they invest there as well. I do think it is fair to say, though, that for this approach, it's not a sourcing-oriented approach, 100%, obviously, because we just don't do that much. It's more of a keep the bar incredibly high and very occasionally something will clear that bar.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Pierre Median, which I actually think are very good benchmarks, and it's what our board and committee cares about and it's what I care about. But we don't look like those at all from day to day. There's just such a long feedback loop between the decisions we make and when they bear fruit. And then secondly, when those actually translate into how we do versus our objectives.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“One thing I would say is that the ability to cross compare is hard. It's something that we're learning about every day. And I would say that the main thing that we work on there is just it gets much easier the better you know what it is you own and your managers. So it's very hard to compare two things that you don't know very well that are very different. It's a lot easier to compare two things that you know extremely well that are very different. So that's one thing, the ability to compare. And then the second thing, which is just to take it much higher level, is one of the fundamental challenges of just investing in general, which is figuring out if you're doing a good job. When you have a more traditional policy portfolio framework, there's a very clear benchmark for that. There are frameworks for doing performance attribution and things like that. For us, our benchmarks are much longer term than that. And they're the 70, 30 and the”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“To actually just do what they think is right based on their wealth of knowledge and experience and all of the work that they have done is incredibly important. And that is so much about partnership and the LP base giving them the freedom to do that. And that's as much about me as it is about them. They need to have the ability to reflect, evolve, and problem solve. That's important. And then we need to have the patience and support and the ability to give them the space to do that.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Goes back to what I was just saying, it's like the stages of grief from the outside looking in. We really have no idea. And sometimes it looks obvious, but it's not. Nothing is actually going wrong. This is just the markets sending us false signals. That's it many times. We want to have very productive and engaged partnerships with these managers, but every manager is different in terms of the way they engage with LPs. And we take a flexible view there. We will meet managers where they are in terms of their preference on that. What you don't hear me saying is they have to call me monthly or they come and see me every quarter or whatever. There's nothing like that. It's more like I want to hear that you're acknowledging that there is something going on. You are letting us know at some point that this is what's happening and you are dealing with and being thoughtful about that. The other thing that I think it is important to note here is the ability for managers”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is a great example of it, is when you go through a tough period. Of course, there's the relationship with you. How are they managing their team through this period? When you go through that kind of a time, you learn a lot by observing how a manager evolves their business, their team, and of course their investment approach over time.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“I will say on this I am definitely a real believer in the importance of that initial decision and the quality of the people that you are partnering with cannot be overstated. Our job in terms of looking from the outside in is so hard. It's very hard to know what is going on. As long as I've made the right decision on who to partner with, they are the ones who are going to tell me that I trust them to tell me what's happening and to make it right. And if I haven't made that right decision on the initials who I'm partnering with, that's not on me. But if you set it up right in that way, it's this beautiful thing. You're on this journey with them together.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Look at managers that have done really well over long periods of time. Some of the best performing ones are ones that had absolutely awful periods because those awful periods catalyzed an incredible renewal of the organization. And if you can stick with managers through that, it's so extremely powerful because first of all, access, of course, in our world is very, very hard. Having a reputation for sticking with somebody and sticking with a manager that will probably have access issues long term, it can be very powerful. Second of all, you see them go through a period of stress. You get to know them deeply. You're a conviction in them, Bill. And then you're there for this whole other, the compounding of the capital, the compounding of the relationship. It's an amazing journey to be on with them. Of course, not everyone is going to make it, but our experience has been it is well worth sticking around. The other thing.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Making sure as part of that underwriting if and when, and it's not if, it's when, when the manager does badly, how are we going to be comfortable? And what setup do we have to have to make sure we can support the manager through that period? So for sure, we've just had a really interesting market environment. We have some managers that didn't do well through that environment and we're very supportive of them and we're seeing how that goes. If you say, I'm going to be a great partner to somebody, that means you are a great partner through, I mean, this is so corny, but it's through thick and through thin. I mean, the whole point is to support them as they're trying to figure out what's going wrong. It takes time to fully acknowledge that something is going wrong. Then it takes time to diagnose it. Then it takes time to figure out what you're going to do to fix it. And then it takes time to actually fix it. The whole thing takes time. That's fine. That's what it is. One of the more interesting parts about our portfolio when you”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, first of all, I will say I started five years ago, and maybe this is just a really good example of the long-term nature of the way that we do things. I've exited nothing that we have put in. It's way too early to do that, in my opinion. Something very dramatic would have had to happen and nothing, thankfully, knock on what very dramatic has happened. The full exits of things, sometimes it's very, very obvious. There's one of the co-portfolio managers can leave. major organizational changes are very obvious triggers. One thing that is not an obvious trigger for us is not doing well. So of course there are things that we have put in the portfolio that haven't done well. That's the nature of this business, but we take this idea of long-term partnership incredibly seriously. And whenever we underwrite anything, the 10-year thesis is no joke. We are going through.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Alongside the changes that can come from success and then succession that maybe doesn't work to go back to the original analogy, I'd love to ask you about trimming the weeds. And so what about those mistakes that's in the portfolio? That's an example of something that didn't work out.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“To the extent that we can find it without lowering the return threshold. I think we are going to perpetually be on the hunt for that, but we're thrilled with a manager that we found there. And it's been a terrific underwriting process, and we're thrilled to be investing there. Another more recent ad has been a biome. So we have some biomanagers, but it's a small part of the portfolio. We have some great partners there, but adding one or two more, I think makes a ton of sense. And we found one that we're really excited to partner with. That won't always be the new things that get in. One of the very natural things that happens in a portfolio like this is you have a lot of capital with managers that you trust a lot, have long relationships with, but go through succession issues. So we need to make sure, especially for parts of the portfolio where we've had these power alleys, we want to continue to actively invest in those. I think of it as an asset, and we want to make sure we keep that alive. Some of our managers might not make the succession jump. We want to make sure.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“This will not always be the case, but the last two have been what I would say are building out difference in the portfolio. So I mentioned that the shape of the portfolio informs the pipeline. Just as an example, we did a bunch of work on private credit a year and change ago. Just didn't get there, but we wanted to pressure test that part of the portfolio. In the meantime, we've been doing a lot of work on trying to find relatively liquid managers that bring difference to the portfolio, but also produce a high return, which is very hard to find. So we have been looking, and we found one. So that's just an example of we were on the hunt for something like that because as just articulated, we have a fairly lengthy portfolio, especially in the risk profile of our private portfolio. So we need to make sure that we can get difference into the bubble portfolio.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you go back, say two years ago, the last time you had a new manager enter the portfolio, I'm curious what the path was like in that research process from the idea through your diligence and then entering the portfolio.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“While the committee has been amazing, and I will say it has been a journey that we have absolutely been on together. So it didn't happen immediately. I do think that this is an approach that was largely happening already. There is an element here where having a history of success doing this is extremely important and Amherst has that. So that's amazing. And having a committee that works together with the investment team and builds conviction alongside us and in some cases, I have committee members that had conviction around this approach way before I did. So they have helped me. They're amazingly supportive and it's terrific. I make the joke that when I was at Cambridge, I loved my committees, but I would go to committee meetles and feel like I had to strap on the body armor to go into battle. And now the committee is like a board of advisors. And I feel like we're all very, very focused on the best solution for Amherst and they are extremely supportive in how we're going to about doing that.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Into competition per capital within a liquids because we are basically at the max that we can be in terms of unfunded capital. So there's a lot of discussion around should I invest incrementally more money in this venture manager, this growth manager or buyout manager, bringing defense in or lower returning assets into the private portfolio is basically impossible for us because of the return threshold is so high because the relationships are so good. So you could get a sense for it. There's a competition for illiquid capital and then on the liquid side we're really trying to get as much difference in as we can while not lowering the threshold on returns.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“One way to think about it is what is our ultimate goal here? Amherst 10, 20, and 30 year return has been about 10% compound annualized over that period of time. I will be thrilled if we can do that. So there are a bunch of things in the investment world that we can't do as a result of that goal. And we also know that the preponderance of the portfolio has to be invested in stuff that returns at least that, if not higher. We're going to be wrong on some things. Also, we have to hold some cash because of the way the portfolio is structured. We have to hold some more defensive stuff to get through a crisis, as I talked about before in the stress test modeling. It's not like I'm saying, do I want to invest in stocks or bonds? Because mostly I want to invest in stocks. The portfolio has a relatively stable balance between stuff that's there for a relatively defensive purposes and the stuff that is playing offense. A lot of the conversation comes”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“You mentioned the importance of competition for capital. I'm really curious how do you assess the relative merits of two things that aren't the same in terms of maybe the risk profile or the return profile?”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Get those interesting kinds of investments through more generalist broad managers because we want to keep the manager concentration so high.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“We want to have as much difference as we can so that we see a lot of interesting things, an important result of that is that you tend to invest with generalists because we do not know what the market is going to look like in 10 years. We need these people to be building investment processes and have diverse enough interest that they can thrive across a number of different market environments. So we have a lot of generalists in the portfolio. We also specifically have several partners that are completely agnostic with respect to sector security asset types. So these are sort of our absolute return managers. And we see a lot of interesting things pop up into their portfolio. So I think the short answer to your question is hopefully we see really interesting things in our portfolio. If we don't and we hear enough going on that this is an interesting space to be, we will take a look. Doing very nichey things is generally not something that we're doing. We're trying to.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's hard. Our approach is not quite that. A Nirvana for us is when our current portfolio produces our next portfolio. So we have amazing managers spinning out or our managers are calling us and saying you better talk to this person. I know them from when I was just starting out in this business and I think they're amazing. You should invest with them. So we spend a lot of time developing those relationships so that we can get that call. A corollary to that is we try to be as smart as our portfolio. This all works extremely well if we have a really high quality portfolio that produces a really high quality portfolio and that gives us ideas on where to invest. What that means is the pressure is on to keep the portfolios high quality as possible and to try and make sure within the parameters that we have set, which is super long-term partnerships with amazing people that are trying to build amazing firms.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“We definitely do rely on our managers to help us understand whether or not their portfolios should be trimmed or added to. The other thing is we have to source money from the portfolio. So that is a way that we try to be counter-cyclical in the way that we source funds.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“We could offset that to some degree by gaining conviction over time. I think it's fair to say that there will be times when we're riding momentum waves. Venture is incredibly cyclical. There are going to be times when our venture NAV really spikes and we just had that and then it's going to come back down. I am in absolutely no position to trade our venture NAV. No one is. So that's not what I'm going to do. I'm going to be a through cycle investor and support terrific managers over time. I also want to be partnered with people where this idea of mean reversion and performance.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, it is definitely the case that especially on that early journey, as a manager does well, they get bigger. And in the public markets context, you hear that and you think that sounds very momentum-y, which is what you just said, Ted. I think that's a fair analogy, but it's not quite the way I think about it. If you start overall with this concept that you want to have a fairly concentrated portfolio and you want conviction to play a role in position sizing, it is very hard to get to conviction immediately in a manager. You get to know people better over time that conviction builds over time. They get more experience over time. It is also a very nice natural offset to what we know in investing, which is the fact that things get harder as you go. So wouldn't it be nice if we had a process where”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over time, when you have low turnover and you're allowing the managers to compound, you can imagine position sizes getting bigger, the types of positions those managers have being a little bit momentum driven. And I'm curious how you think about the way the composition of the portfolio changes when you're structuring it this way.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“And whatever it, let's talk to all of our managers about how they think about these things. It helps us develop a deeper understanding of how our managers think. It helps us develop a deeper understanding of how the portfolio is going to behave. And we can much better do this cross-evaluation of where should we be putting incremental capital and how do we compare our managers.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Would say in terms of the loop back to decision making, obviously we don't have full control over the look through. That's mostly a result of the decisions that we've made with the managers and then what the managers are doing themselves. What I will say is that it really helps us develop a deep understanding of the portfolio and how it behaves over time. The look-through exposures change, but for a portfolio like ours, it actually doesn't change that much. It's extremely helpful when it comes to comparing managers to managers, just as an example, we'll spend time understanding how all of our different managers across public equities, growth equity, buyouts, some of our absolute return or more distressed oriented managers, how they're thinking about payments companies. We'll do that project. We can see those companies in our look through exposure. We know what manager they're coming from. Oh, this is very interesting. We have visa mastercard strike.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Less than cash flow that I can get to meet my cash needs during stress. In a nice way, those two things do line up. But I think it's important to acknowledge that the way that many of these endowments are invested, the private portfolios themselves aren't marked to market. There's a lot of noise in terms of the actual mark on these portfolios that would cause you to make some weird decisions around asset allocation if that's the way you're mostly managing the portfolio, like this notion of beta. basically becomes completely useless when you have privates. It's not helpful. So that's not the way we do it. We think about manager quality. We think about liquidity and managing through a crisis. And then the final piece, which I haven't mentioned yet, is we do position level look through across the entire portfolio. We know how much we have in the portfolio by stage of investment in terms of early stage companies all the way through to publics, geographic sector. There are all sorts of ways you can cut the portfolio and look at it.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's the thing, there's always the risk that it will dry up, and that's why you run the stress test on the portfolio. That's why we hold 4-5% of our portfolios in cash. That's a really important feature. But through this entire time period, our portfolio has been cash flow positive. And I think that's a function of incredibly high quality managers that have continued to push capital back to us. I mentioned all of this because the key risk in all of these endowment portfolios, no matter what your investment framework is, is getting through periods of extreme stress. There are other risks, of course, but that is a key one. So we spend a tremendous amount of time stressing the portfolio and figuring out what we would do in those situations. You need stuff in the portfolio that you can use as sources of funds during that period of time. What you don't hear me saying is I need to make sure to protect the downside in terms of a mark-to-market on the value of the portfolio. That matters to some degree, but it matters a lot.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“amount, and oh, by the way, that's what gets me into trouble in times of crisis. The private NAV doesn't get me into trouble in times of crisis. It doesn't matter. The time that it matters is when it flows through to spending. But for Amherst, that is extremely lagged. That takes years to flow through to spending.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Most private commitment modeling, there is a cell in which you input your private target. That's very, very typical. It really should matter what the rest of my portfolio looks like. So that's goal number one. Goal number two is build me a model where I don't feel better when my private portfolio is cut in half. I want to feel bad when that happens. And also the flip side of that, where we don't get punished when our private portfolio doubles. And then the other important piece is I need my private portfolio to produce its proportionate amount of cash. So we source spending every year. If I have half the portfolio coming in privates, it had better produce half of my cash needs. So those were the key tenets. I have no control over private marks. The one thing that I do have control over is my commitment.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Focus on uncalled capital spending on the liability side and then cash, risk, and liquidity on the public side. So the source of funds and the uses of funds, what this approach explicitly does is it ignores private NAV. Our unfunded, just as an example today, is 12% to support a 50% NAV. It's extremely low. We have a very mature private portfolio. We're not trying to grow our private portfolio. We're just trying to continue to invest with our great managers.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. Okay. There is, of course, risk at the individual manager level that generally I think of it as having to do with the risk that your conviction and a manager might fade over time. And that we obviously spend a tremendous amount of time on. That's one of the main motions, figuring out, do we really like this manager? I mentioned before, can we have a 10-year thesis on the manager? Can the conviction grow over time? There are all sorts of elements of the diligence process, mostly around the quality of the people and using our network to assess the quality of the people and the firm that they are trying to build that get us comfortable with the manager risk piece. So that's one thing. The second thing, especially for our portfolio, is liquidity. We spend a lot of time on liquidity. And the important thing there is understanding the shape of your liability profile and the shape of the asset profile that can support that.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Diversification across the total portfolio in another way without moving away from what I see as a real power alley in the portfolio. So concentration is a key feature of the approach, especially on the manager side. But the approach in and of itself is not saying, oh, you should now go out and build a really, really high venture capital allocation within the portfolio. The approach is more play to your strengths and have the flexibility across the entire portfolio to make sure you have some amazing relationships and are meeting the high real return goals for the portfolio.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Starting to think about it, half of our portfolio is public, half is private. Of the private portfolio, we have a lot in venture and growth. And venture and growth is a real power alley for us. The quality of our relationships there is unbelievable. We learned a tremendous amount from those managers. And just as an aside, I think the ability to learn from high quality managers is an absolute superpower in these portfolios. So we have this power alley that's a big allocation for us. Basically, I think what this flexible approach allows you to do is it allows you to be okay with that and to lean into that power alley as long as you can create some difference in the portfolio at the total portfolio level. A really interesting example of this is a lot of people look at a large venture growth allocation within privates and are like, man, you should diversify your private allocation. And I think that's one way to look at it. Or I could make sure I'm getting to.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Private credit to speak up. We don't have any global emerging markets managers. There are all sorts of things that we don't have. The shape of the portfolio informs the pipeline, so we'll always be looking at stuff that we don't have as a way of pressure testing, is this the actual right solution? But there is nothing that is forcing us to actually do anything specifically. With the idea being we want to be able to look at an opportunity and make the decision and a very important aspect of that is that the manager decision is as important, if not more important, than the opportunity set that they are operating in. We do maybe went to two new managers a year. Some years we will do. None we did none in 2023. So it's a very low turnover, long-term relationship-based approach. One of the other main aspects of disapproach is that these portfolios end up developing power alleys.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“Small to large in the portfolio that happens as the managers prove out, you make a tremendous amount of money on that ride. And then as managers reach our top 10, they're managers that we trust a ton. They're managers that have produced a tremendous amount of value for the portfolio. And then they become sources of capital because we need to spend just as a reminder. Fortify percent from the portfolio every year. So that's the shape. A few other things to say in this kind of a framework, one of the central tenets is we are trying to really understand what it is we're investing in and make a decision about whether or not we want to be invested there. There's nowhere that we have to be. So there are no buckets that we have to fill. There's nothing saying you must be in European public equities or emerging markets equities or real estate. We have some very meaningful holes in the portfolio when you look at us compared to peers, one of which is real estate. We have very little.”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source
“We are trying to do is have a collection of relationships, partnerships in the portfolio where we have a tremendous amount of conviction in these managers. The conviction grows over time, which, by the way, is a huge thing and is not always the way the endowment world thinks about things. We need to have at least a 10-year thesis. If we are going to do this bottom-up competition for capital across the entire portfolio framework without the quote-unquote rules of an asset allocation policy, my view is that we need to have a very concentrated portfolio so that we can understand the portfolio deeply. So we have less than 40 managers in the portfolio. Half of our assets are in our top 10 managers. And the general framework is you've initiate a relationship. If the relationship works well over time, you let that manager get big over time. So there's this journey from”
2024-04-29 · Capital Allocators · Letitia Johnson - Concentrated and Long-Term at Amherst College (EP.382) · IDENTIFIED FROM THE TRANSCRIPT · source