0:05

I've been. Thinking about the investment for

0:07

say bunk and what managers don't

0:10

see, they meet with allocators. It

0:12

happens hundreds of times a day

0:14

a money manager walked into the

0:17

office of Our Perspective investor. They've.

0:19

Never been more confident. A

0:22

long track record of success, stellar

0:24

short term results. An ideal strategy

0:26

for the times in a first

0:28

rate team to execute. But.

0:30

They never see it coming. Five.

0:33

Dreaded words go unstated as

0:35

the manager wonders why the

0:37

check never comes. It's. Not

0:39

you. It's. Me: New.

0:41

Investment relationships start when the

0:44

manager fits into the allocators

0:46

playbook. Not. The other way

0:48

around. Managers. Often only

0:50

see the game from their perspective.

0:53

What? Happens on the other side

0:55

of the field significantly influences the

0:57

likelihood of a new allocation. The.

1:00

Investment Office Playbook takes place

1:02

over four seasons. Governance.

1:04

Deployment optimization and

1:07

maturity. The. Seasons repeat

1:09

each time. A new see I owe

1:11

takes the help. Other. Rules

1:13

influencing investment activity include fun flows

1:15

to the investment office and the

1:18

see ios tenure in the see.

1:21

A chart mapping out the investment office

1:23

playbook under a new Ceo. Looks.

1:25

Like a bell curve. With. The

1:27

year on the X Axis and the

1:29

number of new investments made on the

1:31

Y Axis. With. Each stage

1:34

summarized as follows: One.

1:37

Governance. Cia. Oh comes

1:39

into a new pool of capital and

1:41

spent the first year to creating the

1:43

playbook for how they will operate and

1:45

invest. To. Deployment.

1:48

The. Investment Office selects it's roster of

1:51

managers and put money to work.

1:53

Three. Optimization. The.

1:56

Team Fine tunes the portfolio,

1:58

correcting mistakes and upgrading the

2:01

roster of managers. And

2:03

for maturity. The. Investment

2:06

Office patiently. Let's it's all

2:08

star managers com pounds capital.

2:10

And. He knew allocation must replace

2:13

an existing. Deployments

2:15

and early optimization seasons or

2:17

the golden period for managers

2:19

to approach an investment office.

2:22

In. The governance and maturity

2:24

stages. Managers rarely are invited

2:26

on the sealed. I'll.

2:28

Describe the playbook in some more detail.

2:31

Governance. It starts with

2:33

a new pool of capital. The.

2:35

Australian Superannuation Funds around twenty

2:38

five years old. The.

2:40

Chance of Coburg Initiative Investment

2:42

Organization is five a new

2:44

family offices launch every year.

2:47

Newly. Wealthy families are newly

2:49

created institutions. Hire a C

2:51

Io. Who. Spends the first year

2:53

to preparing the investment strategy. Is

2:56

period includes creating an investment policy

2:58

statement. Recruiting. A Team. And

3:01

determining how to allocate the capital.

3:03

Soon. New investments in science

3:06

occurred during this time. And.

3:08

Those that do arise from

3:10

high conviction, past relationships. No.

3:13

Matter how strong a managers credentials

3:15

may be, They're. Unlikely to

3:17

win a mandate from an investment

3:19

office during the governance stage. Deployment.

3:24

The. Next few years or the golden period

3:26

for a manager to earn an allocation.

3:29

After governance is complete, the Cia

3:31

oh spend two to four years

3:33

implementing the strategy. This

3:35

is the most exciting, an active

3:37

period for the newly constituted Investment

3:40

Office. Their. Eyes are

3:42

wide open to opportunities. And.

3:44

Great investment ideas in line with their

3:46

strategy. Will find a spot on the

3:49

roster. Optimization.

3:51

In. The next season the investment office

3:53

will work to improve the quality of

3:56

the portfolio. Money. Invested in

3:58

the deployment stage will come. Mistakes.

4:01

David. Morehead Chief Investment officer

4:03

Baylor University believes he only

4:06

got seventy percent of his

4:08

initial decisions correct. It.

4:10

Took him another two to four years

4:12

to rotate the remaining thirty percent

4:14

in Two Better ideas. That.

4:17

Thirty percent. Also will have about

4:19

seventy percent hit me. Sir.

4:21

David has a few more years of

4:24

making changes with the smaller proportion of

4:26

the endowment to get to a steady

4:28

state. The. Korean. When.

4:30

The optimization stages complete. The

4:33

investment team enters the mature

4:35

season. Around eight years into

4:37

their tenure, the Cia oh his, built

4:39

the portfolio that mostly let them sleep

4:42

at night. Any new

4:44

allocations to managers face severe

4:46

competition for capital. You. Managers

4:48

approaching the investment office? maybe?

4:50

Outstanding. But. They must replace

4:53

and existing player on the field

4:55

to find a place in the

4:57

Allocators roster. Many. Allocators pride

4:59

themselves on being long term

5:01

partners to their managers. Their.

5:04

Identity is tied to that

5:06

behavior. Which. Makes the hurdle

5:08

for a new manager to replace

5:10

an one much higher. That's.

5:12

A wonderful characteristic if you're a

5:14

manager in the portfolio. Not.

5:16

So much if you're on the outside looking

5:18

in. Part. Two

5:21

of the Investment Office Playbook. The.

5:23

Mature Season Ten list many years.

5:25

Theoretically, it should last as long

5:27

as the duration of the assets.

5:30

Endowments, foundations, and sovereign wealth

5:32

funds have perpetual time horizons.

5:35

That's a long time. But. That's

5:37

not what happens. The. Members

5:39

of the investment office do not

5:41

live forever. And. Their career path

5:43

rarely aligns with the playbook of

5:46

their investment office. On. A

5:48

martial pointed out on The Capital Our

5:50

Teachers Podcast that the investment seems that

5:52

gets an organization to the mature season.

5:55

May. Not be the right team to keep them

5:57

there. Similarly, cia

6:00

may look to play a different game

6:02

by taking on a new challenge at

6:04

a different organization. When a

6:06

new leader takes charge in the investment

6:08

office, Part 2 of the playbook begins

6:11

and repeats a similar arc to Part 1.

6:14

The bell curve in Part 2 looks just

6:16

like the one in Part 1 with a

6:18

few tweaks. Governance.

6:21

The new CIO refreshes the governance and

6:24

strategy in their image. This

6:26

process takes a similar one to two years

6:28

to the governance season in Part 1. Restructuring.

6:33

Over the next year or two, the CIO

6:36

may turn over the manager roster as they

6:38

make their mark on the portfolio. Optimization.

6:43

The CIO encounters mistakes in their

6:45

decisions and finds better opportunities than

6:47

they initially pursued, leading to

6:49

more turnover in the manager roster. And

6:52

4. Maturity. After

6:54

5 to 8 years, the investment office

6:56

once again enters the mature season. Part

7:00

2 is rarely the end of the game

7:02

either. In my podcast

7:04

conversation about Carnegie Corporation of New York,

7:07

Ellen Schumann, Kim Liu, Meredith

7:09

Jenkins, and Elisa Mall discuss

7:11

three transitions in leadership at

7:13

Carnegie and three at other

7:16

institutions where they took the helm

7:18

after leaving Carnegie. Each

7:20

instance had unique features, yet

7:22

each also fit into the investment

7:24

office playbook. Deepening

7:26

the playbook. The shape of the curve.

7:30

The flow of funds to an investment

7:32

office influences the pace of investment allocations

7:34

during each season. Investment

7:37

offices receiving inflows, like those

7:39

overseeing multifamily offices or sovereign

7:41

wealth funds, may have

7:43

a continuing need for deployment through

7:45

the optimization and mature phases. Offices

7:49

with steady outflows, like foundations

7:51

and legacy single-family offices, may

7:54

have a shorter deployment phase and

7:56

even more intense competition for capital.

8:00

like OCIOs or fundafunds are one

8:02

step control

8:06

over funds flowing in or out

8:08

of their portfolios. Another

8:10

winning strategy investment

8:12

office duration. The

8:15

tenure of a CIO is

8:17

correlated with investment success. League

8:19

tables of allocators, however annoying and

8:21

irrelevant they may be, almost

8:24

always show that investment offices

8:26

with the longest standing CIOs

8:28

delivered the best performance over

8:30

the long term. Yale,

8:32

MIT and Princeton all had one

8:34

thing in common, long-serving

8:37

leadership. The investment

8:39

office playbook explains this dynamic.

8:42

If it takes five day years

8:44

for a CIO to reach optimization

8:46

and maturity then any organization whose

8:48

CIO leaves before that time never

8:51

gets a chance to pursue continuous

8:53

improvement from an optimized portfolio. It's

8:56

rare to see a sophisticated co-investment

8:58

program, direct management of

9:00

select assets or niche

9:02

and tactical opportunities implemented by an

9:05

investment office that hasn't reached the

9:07

mature season. I joined the

9:09

Yale investments office seven years after

9:12

David Swenson became chief investment officer.

9:14

He had built a roster of incredible

9:16

managers from top to bottom. It

9:19

was a perfect time for me

9:21

to learn the ropes and work

9:23

on adding value through direct investments,

9:25

secondaries and one-off opportunistic strategies. But

9:28

it was not a time for the active

9:30

pursuit of new manager relationships. I can

9:33

only imagine the incremental improvements David

9:36

made over the quarter century after

9:38

I left, each widening

9:40

Yale's advantage over its peers.

9:43

It's not you, it's me. For

9:46

a manager seeking a new allocation, it's

9:48

usually not about you. Managers

9:51

who learn the playbook of the investment

9:53

office are best prepared to understand when

9:55

the time is right to maximize their

9:58

chances of making the allocators roster.