[REPLAY] Kim Lew – The Carnegie Way (Capital Allocators, EP.52)

Episode Summary

Executive Summary: Kim Liu traces her path from a Bronx/Harlem immigrant upbringing to CIO of Carnegie Corporation, highlighting how mentors, risk-taking, and institutional culture shaped her investing. She contrasts Ford’s siloed, traditional portfolio with Carnegie’s committee-driven endowment model, explains co-CIO governance, and argues that future outperformance will require more idiosyncratic, off-the-run investments, younger talent, and thoughtful adaptation of the endowment model.

Main Topics: Immigrant upbringing and family influence (Priority: 5/5): Kim describes her Chinese immigrant father, early family hardship, and the discipline, education focus, and ambition that shaped her outlook. Her parents' story underpins her work ethic and later mentoring philosophy. Education, early career, and public speaking challenge (Priority: 4/5): She discusses choosing Penn because it felt familiar, then moving to Chemical Bank and HBS. HBS was less about prestige and more about forcing herself to speak up and grow confidence. Ford Foundation as a training ground in risk-taking (Priority: 5/5): Kim explains how Betty Fagan hired her into tech/public equity investing and taught her to take calculated risks. Ford’s environment, manager sourcing, and portfolio structure gave her formative investing experience. Ford vs. Carnegie: two models of foundation investing (Priority: 5/5): She contrasts Ford’s siloed, traditional 70/30-style portfolio with Carnegie’s diversified endowment model and investment committee process. She sees both as successful but fundamentally different in governance and philosophy. The unusual co-CIO structure at Carnegie (Priority: 5/5): Kim and Meredith Jenkins were appointed co-CIOs, dividing asset classes, responsibilities, and committee relationships to make the arrangement work. The structure protected continuity and allowed both to develop broad leadership skills. Idiosyncratic investing, committee education, and portfolio evolution (Priority: 5/5): She argues Carnegie’s size and permanence favor small, odd, long-duration opportunities that big pools can’t pursue. Regular committee panels on broad themes help reinforce long-term thinking and expand opportunity sets. Succession, farm teams, and the future of the portfolio (Priority: 4/5): Kim worries about the aging of key managers and the need to build a farm team of emerging talent. She notes that portfolio construction and sourcing must evolve as returns compress and managers concentrate.

Key Arguments: Great investing requires taking risks, but the institution must be designed to analyze and absorb them; the team should spend substantial time identifying what can go wrong. The endowment model remains the right framework for Carnegie, but it must be adapted to its scale, lack of inflows, and ability to exploit small, inefficient opportunities. Committee education is an investing advantage: if stakeholders understand the strategy, the CIO can avoid benchmark hugging and instead pursue long-term, differentiated ideas. Co-CIO governance worked because responsibilities were divided cleanly, all committee interactions were shared, and the arrangement developed future-ready leaders. Outside roles such as school boards and nonprofit investment committees improve judgment by exposing a CIO to real operating constraints, liability matching, and stakeholder conflict. The biggest portfolio risk is succession: many managers are the same age/vintage, so Carnegie must either deepen conviction in new managers or accept larger resource allocation changes. As returns fall and payout obligations remain, alpha will need to come more from portfolio construction and from truly unusual investments rather than standard manager selection alone.

Data Points: Carnegie Corporation AUM: $3.5 billion - Kim is responsible for investment oversight of Carnegie Corporation's foundation assets. Ford Foundation internal management share: About one-third of the book - Kim says Ford managed a huge portion of the portfolio internally when she joined. Private equity allocation at Ford: 10% - Linda Strump believed private equity should be a small sleeve in a traditional portfolio. Duration at Ford Foundation: About 13 years - Kim notes she left Carnegie on the same date she had started at Ford 13 years earlier. Kim's time at Ford equity investing: About 6.5 to 7 years - She spent nearly seven years following technology stocks before moving to distributions and then private equity/venture. Distribution portfolio size: $1.9 billion - When she moved into the distribution portfolio, assets had grown rapidly due to stock distributions. Portion sold before maternity leave: $1.8 billion - Kim sold most of the distribution portfolio before the market fell apart and before taking leave. Approximate number of Carnegie relationships: About 120 - Kim estimates the portfolio has roughly 120 manager relationships across asset classes. Idiosyncratic sleeve size: 5% to 10% - She estimates off-the-run, idiosyncratic investments currently represent only a small portion of the portfolio. Portfolio payout rate: 5% - She references Carnegie's annual spending/payout rate as a key constraint on portfolio management. First venture fund check size: $5 million - Kim says first-time venture investments may start at this level. Example manager fund size in Peru: $20 million fund; Carnegie invested $2 million - Illustrates the kind of small, idiosyncratic opportunity Carnegie can access. Committee-failure rate for investments: One investment ever rejected - Kim says that in her time at Carnegie, only one investment did not pass investment committee.

Pivotal Quotes: "You only have to be right 51% of the time. And you can be great at this job." — Betty Fagan: Advice to Kim when she first joined Ford Foundation and was nervous about investing in technology stocks. "Proper planning prevents piss poor performance." — Kim Liu (attributing her father): Kim cites this as the key lesson from her parents that has stayed with her throughout her career. "We have to decide whether we want to be great." — Kim Liu: Her framing of risk-taking, portfolio evolution, and the discomfort required to outperform in investing and life.

Implications: For allocators, the lesson is that durable outperformance depends on culture, governance, and willingness to evolve. Institutions must build succession, educate stakeholders, and pursue differentiated, smaller, more complex opportunities as markets mature.