Friends Reunion – Five Allocators Riff on Investing (Capital Allocators, EP.215)

Episode Summary

Executive Summary: A roundtable of longtime investment professionals discussed crypto, private equity, hedge funds, long/short investing, ESG, diversity, and manager selection. The core theme was nuance: favoring specialized, high-conviction partners, robust underwriting, and operational readiness over broad asset-class labels or trend chasing. They repeatedly stressed fiduciary discipline, partnership, and adaptability in volatile markets.

Main Topics: Crypto and blockchain as technology vs. investment: The group distinguished between blockchain’s utility and crypto’s speculative pricing. They were broadly agnostic on Bitcoin as an investment, but constructive on the underlying technology, infrastructure, and security opportunities. Private equity and private credit nuance: They argued private markets remain compelling when focused on smaller, specialized managers, growth equity, senior secured private credit, and multiple arbitrage. They were skeptical of oversized, fee-heavy platforms and broad buyout exposure at current valuations. Long/short equity and market structure: The speakers defended long/short as a still-relevant, inefficient area, especially outside the U.S. They emphasized manager skill, flexibility, liquidity structure, and the ability to capitalize on drawdowns. Fiduciary underwriting and manager selection: A major thread was that allocators must be able to explain and defend each decision. They prefer thought partners who are intellectually honest, operationally strong, and able to fit within an institutional due diligence framework. ESG, climate, and greenwashing: The group said ESG has moved from exclusionary SRI to a more practical sustainability lens. They described meaningful due diligence on manager practices and criticized glossy ESG marketing without substance. Diversity and talent pipelines: Meredith Jenkins described a shift from excuses about the pipeline to active conversations about how to build it. The group stressed that diversity improves decision-making and requires long-term engagement, especially in VC and other scalable areas. Career influences and partnership: The closing round identified formative mentors and partners such as David Swenson, a father, Goldman partners, and co-founders. The discussion highlighted how great investing is built on relationships, collaboration, and complementary styles.

Key Arguments: Crypto should be evaluated for utility and infrastructure, not just price; Bitcoin remains hard to underwrite fundamentally. Blockchain/DeFi may be revolutionary for settlement, trading, and communication, even if token prices are hard to justify. Private equity is more attractive than public markets when liquidity is not needed, but only if one focuses on smaller, aligned managers with strong hit rates. Large private-market platforms can create conflicts because they optimize for asset gathering and management-company economics rather than investment performance. Long/short remains compelling because market inefficiencies persist, especially in Europe and Asia, and skilled managers can exploit dislocations quickly. COVID demonstrated that fast dislocations reward disciplined, liquid, well-underwritten strategies; it also increased opportunities for sidecars and one-off deals. ESG is now less about negative screens and more about sustainability, business-model quality, and meaningful manager engagement. Diversity efforts are improving, but the industry needs pipelines, not just allocations to diverse-owned funds; VC is a more natural area for scalable progress. Operational risk can make an otherwise good idea unsuitable for clients, even if the team is talented. Investing decisions should be made as partners, with honest feedback and improvement rather than blacklists or box-checking.

Data Points: Length of investing dinner group: about 20 years - The four friends said they had met regularly to discuss investing since around 2001. Years Casey and Ted knew each other: 25+ years - They traced their relationship back to Yale in the mid-1990s. Years Ted and Meredith knew each other: 28 years - They noted they started at Goldman Sachs in 1992 and had known each other since business school/work. Long/short hedge fund managers in portfolio: 6 to 8 - Meredith described a concentrated roster of long/short equity managers. Firm size: a little over $20 billion - The discussion referenced the allocator firm’s scale and ability to write meaningful checks. Typical check size: $50 million - They noted this as a flexible size across client portfolios. Yale endowment size when one speaker left: over $40 billion - Used to illustrate the compounding effect on endowment assets over time. Yale endowment size earlier: $4 billion to $7 billion - Historical reference to growth during the speaker’s tenure and thereafter. Diversified allocation in private equity: growth equity over buyouts - They said they had shifted toward growth equity because buyout valuations and leverage looked excessive. Carbon credits: one of our best investments - Brett cited California carbon credits as a profitable esoteric investment. Fossil-fuel investing: significantly less - They said ESG concerns and underwriting difficulty had reduced fossil-fuel exposure. Women in private equity senior roles: less than 10% - Used to highlight the gap between population/education and industry representation. Women in the educated population: about 50% - Used to argue that talent exists and the industry underrepresents it. COVID market drawdown: down 20% - Referenced as a period when shorting and liquidity mattered sharply. Quarterly returns cited for endowments: 30% to 50% - Illustrated how large asset bases magnify performance impacts. Teen gaming policy in China: 1.5 hours per day, 3 days a week - John used this to contrast China’s strategic policy discipline with U.S. laissez-faire attitudes. Ages/tenure examples: one speaker had a hip replacement; another had an MRI in an ankle - Light banter underscored aging, but not core investment content. Venezuela fund example: tripled money in a year and a half - Mentioned as an example of a high-risk, high-reward opportunity with geopolitical complications.

Pivotal Quotes: "We don't want to put our head in the sand because people are actually using it to actually transact." — Brett Barth: On blockchain/crypto: acknowledge utility while remaining skeptical of token valuation. "It's not just being in a hedge fund, but it's special purpose vehicles, sidecars, and other things that were created." — Casey Whalen / group discussion: On the 2020 dislocation and how managers and allocators moved quickly to capitalize on opportunities. "There are no such things as good deals with bad partners, and it's all about partnership." — Brett Barth: Closing reflections on how allocator/manager relationships and trust shape successful investing.

Implications: Listeners should expect less focus on broad asset labels and more on manager quality, structure, liquidity, and governance. The discussion suggests future alpha will come from niche opportunities, disciplined underwriting, and technology/operations awareness—not consensus trades.