E137: Lessons from Managing $300 Billion Dollars w/ John Skjervem (CIO of URS)

1
00:00:00,080 --> 00:00:04,580
When we were last chatting that transparency
with a t, capital t, was actually negatively

2
00:00:04,639 --> 00:00:06,019
correlated with returns.

3
00:00:06,160 --> 00:00:08,000
Why is transparency a bad thing?

4
00:00:08,000 --> 00:00:13,904
Most public plans, red or blue state, have what
I call fishbowl governance structures where the

5
00:00:13,904 --> 00:00:16,385
board conducts its business in a public
meeting.

6
00:00:16,385 --> 00:00:17,684
These things turn into spectacles.

7
00:00:17,984 --> 00:00:24,945
Big auditorium, 50 people in the room, front
row is media, second row is lobbyists, third

8
00:00:24,945 --> 00:00:28,164
row is activists, fourth row is gadflies, fifth
row is crackpots.

9
00:00:28,489 --> 00:00:29,850
There was never a John Q.

10
00:00:29,850 --> 00:00:31,550
Public responsible taxpayer.

11
00:00:31,929 --> 00:00:33,469
That guy never showed up.

12
00:00:33,530 --> 00:00:36,090
Double click on your asset allocation strategy.

13
00:00:36,090 --> 00:00:38,909
So what are the buckets, and how do you
allocate today?

14
00:00:40,090 --> 00:00:44,954
Last time when we chatted, you mentioned that
Utah Retirement Systems has the best governance

15
00:00:45,015 --> 00:00:46,715
of any pension fund in America.

16
00:00:47,254 --> 00:00:48,054
Double click that.

17
00:00:48,054 --> 00:00:48,295
Yeah.

18
00:00:48,295 --> 00:00:50,234
That was a bold and brash statement.

19
00:00:50,854 --> 00:00:54,475
There's three components to that claim.

20
00:00:55,414 --> 00:00:59,100
The first is rare, but not totally unique.

21
00:00:59,100 --> 00:01:00,939
The second two are totally unique.

22
00:01:00,939 --> 00:01:10,000
So the first would be staff has full investment
discretion below asset allocation.

23
00:01:11,484 --> 00:01:17,084
So the board sets us at allocation, strategic
targets for the asset classes, and all

24
00:01:17,084 --> 00:01:20,064
implementation execution is delegated to staff.

25
00:01:22,364 --> 00:01:24,224
It's rare, but not totally unique.

26
00:01:24,709 --> 00:01:28,489
So as I mentioned, David, I'm an advisor to
Alaska Permanent Fund Corporation.

27
00:01:29,510 --> 00:01:34,569
The CIO there, Marcus, and the staff, they have
investment discretion, investment authority.

28
00:01:35,189 --> 00:01:40,564
There are a handful of programs throughout the
country where staff enjoys investment

29
00:01:40,704 --> 00:01:41,204
discretion.

30
00:01:41,424 --> 00:01:46,004
Contrast that to my time in Oregon, my
discretion, hundred billion dollar program.

31
00:01:47,584 --> 00:01:51,204
My authority as CIO was limited to $50,000,000.

32
00:01:53,140 --> 00:01:57,700
I'm not that great at math, but $50,000,000
divided by a hundred billion dollars is a

33
00:01:57,700 --> 00:01:59,400
decimal point with several zeros.

34
00:01:59,700 --> 00:02:04,340
My authority there on a discretionary basis was
quite constrained relative to the size of the

35
00:02:04,340 --> 00:02:04,739
program.

36
00:02:04,739 --> 00:02:11,175
What that means is in a program in which staff
does not enjoy authority and and discretion, it

37
00:02:11,175 --> 00:02:15,254
means all the all the recommendations have to
come before in front of the board.

38
00:02:15,254 --> 00:02:18,134
Are there any benefits to that, for the board?

39
00:02:18,134 --> 00:02:21,849
So, obviously, the trade off is that you kind
of have your hands tied.

40
00:02:21,849 --> 00:02:23,129
You can't move as quickly.

41
00:02:23,129 --> 00:02:29,129
But are there any governance benefits to
forcing people to go to the board with

42
00:02:29,129 --> 00:02:29,629
investments?

43
00:02:30,009 --> 00:02:39,425
No benefits and only disadvantages to that
structure.

44
00:02:40,604 --> 00:02:46,044
Disadvantages to the program, disadvantages to
the beneficiaries, potential benefits to the

45
00:02:46,044 --> 00:02:46,865
board members.

46
00:02:47,540 --> 00:02:56,099
But I would I would characterize it as a highly
suboptimal approach because as staff, you can

47
00:02:56,099 --> 00:03:04,545
work for weeks, months, quarters, potentially
years on a transaction, on a recommendation.

48
00:03:04,764 --> 00:03:12,444
You know, the gestation period on these things
can can really be measured in in years in some

49
00:03:12,444 --> 00:03:12,944
cases.

50
00:03:15,150 --> 00:03:24,909
And so it's a very asymmetric dynamic for a
board member when you have staff who are, if

51
00:03:24,909 --> 00:03:31,465
not expert, much more expert than their
counterparts on the board having spent, again,

52
00:03:31,465 --> 00:03:35,805
weeks, months, quarters, years of their life on
this on this transaction.

53
00:03:36,584 --> 00:03:41,144
And then a board member who maybe got off a red
eye and read the material on the way over in

54
00:03:41,144 --> 00:03:44,444
the morning, is forced to make a decision.

55
00:03:44,745 --> 00:03:49,520
It can be very discouraging for staff that not
only have they spent years working on

56
00:03:49,520 --> 00:03:55,280
investment that gets ultimately rejected by the
board, but also seems like it's somewhat of an

57
00:03:55,280 --> 00:03:56,400
arbitrary process.

58
00:03:56,400 --> 00:04:00,865
So very quickly, the staff could get
discouraged in terms of putting their best

59
00:04:00,865 --> 00:04:01,764
ideas forward.

60
00:04:01,825 --> 00:04:07,284
It can be demoralizing because, it can appear
capricious.

61
00:04:07,745 --> 00:04:12,965
For Utah Retirement Systems, URS, you also have
two other pillars to your governance.

62
00:04:14,240 --> 00:04:15,300
Walk me through those.

63
00:04:15,439 --> 00:04:25,279
The second pillar, which as far as I know is
unique, is that for all investment matters, our

64
00:04:25,279 --> 00:04:28,240
board when it comes to investment matters, the
doors are closed.

65
00:04:28,240 --> 00:04:31,095
There's, no public participation whatsoever.

66
00:04:32,834 --> 00:04:42,330
And that is what enables us to discharge our
duties, I think, in the most objective way on

67
00:04:42,330 --> 00:04:47,709
the merits of the investment, independent of
the personalities, independent of the politics.

68
00:04:49,850 --> 00:04:55,870
I would see I would say that is the number one
ingredient to our success is the opacity.

69
00:04:57,274 --> 00:04:58,414
There I said it.

70
00:04:58,474 --> 00:05:03,375
The opacity of our process is what enables us
to be objective.

71
00:05:04,794 --> 00:05:17,490
And in my experience, the transparency of other
programs is lauded, for all the wrong reasons

72
00:05:17,910 --> 00:05:28,964
because it opens the process up to all sorts of
actors and agents for whom the solvency of the

73
00:05:28,964 --> 00:05:32,824
program and the performance of the program is
not the objective function.

74
00:05:32,964 --> 00:05:38,824
When we were last chatting that transparency
with a t, capital t, was actually negatively

75
00:05:38,964 --> 00:05:40,345
correlated with returns.

76
00:05:40,639 --> 00:05:42,560
Why is transparency a bad thing?

77
00:05:42,560 --> 00:05:48,579
Your knee jerk or your intuitive response is
for a public pension plan that transparency

78
00:05:48,800 --> 00:05:49,620
would be good.

79
00:05:52,000 --> 00:05:53,220
It's actually not.

80
00:05:54,334 --> 00:05:56,675
Number one, it is not public money.

81
00:05:58,334 --> 00:06:05,854
So the most important misunderstanding is that
public pension funds are public money.

82
00:06:05,854 --> 00:06:07,235
They are not public money.

83
00:06:08,889 --> 00:06:17,050
The money started with taxpayers, went through
various municipalities, various instruments,

84
00:06:17,050 --> 00:06:18,509
and organs of the state.

85
00:06:19,290 --> 00:06:24,105
But by the time it gets to me, it's it's owned
by the beneficiaries.

86
00:06:24,725 --> 00:06:29,145
I'm a vested member of the Oregon Public
Employees Retirement Fund.

87
00:06:30,964 --> 00:06:32,105
That money's mine.

88
00:06:33,524 --> 00:06:34,904
It's not the state of Oregon's.

89
00:06:35,605 --> 00:06:41,470
Number two, I'm picking on Oregon just because
I know it well.

90
00:06:41,470 --> 00:06:49,650
But most most public plans, red or blue state,
have what I call fishbowl governance structures

91
00:06:50,589 --> 00:06:54,285
where the board conducts its business in a
public meeting.

92
00:06:56,345 --> 00:06:57,884
These things turn into spectacles.

93
00:06:59,785 --> 00:07:07,939
Big auditorium, 150 people in the room, front
rows, media, second rows lobbyists, third rows

94
00:07:08,480 --> 00:07:11,860
activists, fourth rows, Gad flies, fifth rows
crackpots.

95
00:07:12,720 --> 00:07:14,240
There was never John Q.

96
00:07:14,240 --> 00:07:16,100
Public responsible taxpayer.

97
00:07:16,480 --> 00:07:18,259
That guy never showed up.

98
00:07:18,560 --> 00:07:23,875
So here here's another way I talk about it is
Utah's opaque.

99
00:07:24,495 --> 00:07:25,714
Oregon is transparent.

100
00:07:26,894 --> 00:07:33,615
Utah is a superior program for many reasons,
but one of those reasons is because of the

101
00:07:33,615 --> 00:07:34,115
opacity.

102
00:07:35,120 --> 00:07:40,000
Because I don't have to make the argument to
you, David, that the elected officials on my

103
00:07:40,000 --> 00:07:45,519
board are more political or less political than
the elected officials in Oregon.

104
00:07:45,519 --> 00:07:46,980
I don't have to make that argument.

105
00:07:47,584 --> 00:07:50,464
They may be or they may not be.

106
00:07:50,464 --> 00:07:57,845
It's moot because there's nobody for our
elected officials to grandstand to.

107
00:07:58,064 --> 00:07:59,524
That is the key understanding.

108
00:08:00,680 --> 00:08:07,879
The key linkage is elected officials on the
board, public meeting, activist lobbyists show

109
00:08:07,879 --> 00:08:08,379
up.

110
00:08:09,000 --> 00:08:09,500
Boom.

111
00:08:09,560 --> 00:08:10,779
Now you've got grandstanding.

112
00:08:11,800 --> 00:08:21,354
Investment staff shows up every day putting
together a portfolio, evaluating investment

113
00:08:21,415 --> 00:08:24,154
strategies, and evaluating managers.

114
00:08:25,814 --> 00:08:30,800
Everything we do is to try and put together an
investment portfolio that can successfully

115
00:08:30,939 --> 00:08:33,919
defeas those liabilities over the next forty
years.

116
00:08:34,460 --> 00:08:43,995
We are truly long term investors, but we serve
boards that are often comprised with or by

117
00:08:43,995 --> 00:08:48,735
elected officials for whom the time horizon is
two years or four years.

118
00:08:49,434 --> 00:08:51,054
That is the fundamental mismatch.

119
00:08:52,315 --> 00:08:57,839
Their time horizon, their time horizon is two
to four years to be reelected or to move on to

120
00:08:57,839 --> 00:08:58,980
the next higher office.

121
00:08:59,279 --> 00:09:03,120
Our time horizon is forty years, boiling it all
down.

122
00:09:03,120 --> 00:09:04,579
That is the fundamental mismatch.

123
00:09:07,279 --> 00:09:14,625
And it it gets exacerbated by the fishbowl
structure that, you know, is the hyperactive

124
00:09:14,845 --> 00:09:17,665
third base coach waving in all these people.

125
00:09:18,524 --> 00:09:19,424
Come on in.

126
00:09:19,725 --> 00:09:20,684
Here's a mic.

127
00:09:20,684 --> 00:09:21,985
Say whatever you want.

128
00:09:22,285 --> 00:09:25,004
Again, it's it's not it's not who they are.

129
00:09:25,004 --> 00:09:26,205
It's what they represent.

130
00:09:26,205 --> 00:09:35,620
They represent constituents for whom an elected
official has to pay attention to in his or her

131
00:09:35,620 --> 00:09:37,700
time horizon, which is two to four years.

132
00:09:37,700 --> 00:09:41,080
That has nothing to do with my time horizon,
which is four years.

133
00:09:41,235 --> 00:09:42,855
That is the fundamental mismatch.

134
00:09:44,434 --> 00:09:47,495
So tell me about ERS's asset allocation.

135
00:09:47,794 --> 00:09:53,075
You know, I I know a lot about my peer programs
because I've well, I've been around.

136
00:09:53,075 --> 00:09:56,379
You know, I'm old, and I've been around been
around a while.

137
00:09:56,379 --> 00:10:01,019
I feel like I'm pretty fluent in what the
public fund landscape is like.

138
00:10:01,019 --> 00:10:06,139
And I would say our program is unique in that
it's it's probably the closest thing to an

139
00:10:06,139 --> 00:10:12,115
endowment in a public fund and that we have a
very high allocation to public markets.

140
00:10:13,695 --> 00:10:16,115
I'm sorry, very high allocation to private
markets.

141
00:10:18,014 --> 00:10:22,274
We have a very high proportion of direct
investment activities.

142
00:10:22,659 --> 00:10:28,100
What type of strategies or asset allocation
would endowment or a URS pursue that may be

143
00:10:28,100 --> 00:10:29,799
controversial to the public?

144
00:10:30,100 --> 00:10:34,500
Gets exposed in the fishbowl governance model
as people come in and rail against private

145
00:10:34,500 --> 00:10:39,464
equity or they come in and they rail against
hedge funds, you know, because of the fees or

146
00:10:39,464 --> 00:10:40,424
because of the building errors.

147
00:10:40,424 --> 00:10:44,904
And that, you know, that is across the board,
and that just reflects the lack of

148
00:10:44,904 --> 00:10:48,605
understanding of of the structures and the
asset classes.

149
00:10:48,745 --> 00:10:51,509
Double click on your asset allocation strategy.

150
00:10:51,509 --> 00:10:54,309
So what are the buckets, and how do you
allocate today?

151
00:10:54,309 --> 00:10:56,809
And how do you expect that to change over the
next couple years?

152
00:10:57,269 --> 00:10:59,850
Managing a venture capital firm is complex.

153
00:11:00,230 --> 00:11:03,210
Fundraising, reporting, compliance, it all adds
up.

154
00:11:03,365 --> 00:11:04,964
But what if there was a smarter way?

155
00:11:04,964 --> 00:11:09,065
Juniper Square is transforming the private
market's investing experience.

156
00:11:09,605 --> 00:11:15,365
More than 2,100 GPs trust Juniper Square's
connected software and services in order to

157
00:11:15,365 --> 00:11:20,750
raise capital more efficiently, reduce
operational risk, and deliver a world class LP

158
00:11:20,809 --> 00:11:21,309
experience.

159
00:11:21,850 --> 00:11:24,669
Want the freedom to focus on delivering
investor results?

160
00:11:25,129 --> 00:11:30,509
Visit junipersquare.com/vc to get in touch with
the Juniper Square team today.

161
00:11:30,649 --> 00:11:37,544
14% private equity where we are unique is that
a big part of that as much as 50% of that is

162
00:11:37,544 --> 00:11:38,044
venture.

163
00:11:38,424 --> 00:11:44,504
That's a legacy issue, a legacy issue in a good
way and that the program went into venture

164
00:11:44,504 --> 00:11:51,919
capital thirty years ago exclusively through
fund to funds and then, has been successful in

165
00:11:51,980 --> 00:11:58,620
converting those fund to fund exposures to
primary investments where most of the GPs

166
00:11:58,620 --> 00:11:59,660
honored the shelf space.

167
00:11:59,660 --> 00:12:05,294
We didn't have any dedicated staff until to
private equity until 2017.

168
00:12:06,235 --> 00:12:11,695
So it was all, delegated through fund of funds
and consultants.

169
00:12:11,834 --> 00:12:19,740
But once we started to bring those allocations
in house, we were very fortunate to have most

170
00:12:19,740 --> 00:12:23,980
of the GPs, save that shelf space for us.

171
00:12:23,980 --> 00:12:29,100
What was what was it, you know, historically
allocated to fund of funds was converted to

172
00:12:29,100 --> 00:12:30,080
primary exposures.

173
00:12:30,139 --> 00:12:35,134
And there were a couple exceptions, but like I
said, most of that shelf space was preserved.

174
00:12:35,195 --> 00:12:40,315
I know this comes off to you and your audience
as braggadocia, but just by virtue of being in

175
00:12:40,315 --> 00:12:46,860
the asset class for that long, we've got a
really impressive roster, in venture.

176
00:12:46,860 --> 00:12:52,779
Something that couldn't be replicated today
because, you know, the access issues that that

177
00:12:52,779 --> 00:12:54,540
you and your audience are familiar with.

178
00:12:54,540 --> 00:13:06,804
So, you know, 14% private equity, good part of
that venture, you know, fixed income at 20%,

179
00:13:07,664 --> 00:13:13,289
really plain vanilla by design deliberately
plain vanilla, you know, low thirties public

180
00:13:13,289 --> 00:13:19,070
markets, basically, you know, a global ag
orientation.

181
00:13:20,490 --> 00:13:23,950
Would love to say we had a home country bias
there, but but we don't.

182
00:13:25,575 --> 00:13:33,254
Real estate and, what we call EMIP energy
mining infrastructure are probably the two most

183
00:13:33,254 --> 00:13:33,754
unique.

184
00:13:35,095 --> 00:13:40,540
Real estate is unique in that we started
migrating to a direct program.

185
00:13:41,879 --> 00:13:45,660
And this is timely because the director of that
program, Devin Olson, just retired.

186
00:13:46,040 --> 00:13:50,460
We had his party last night after forty years,
four zero years in the chair.

187
00:13:51,074 --> 00:13:56,674
And he was really a pioneer and led and led the
migration to a direct program out of funds into

188
00:13:56,674 --> 00:13:57,475
direct program.

189
00:13:57,475 --> 00:14:02,694
Almost 50 of our staff is is real estate just
because, you know, we own the stuff directly.

190
00:14:03,279 --> 00:14:04,960
We don't do the asset management.

191
00:14:04,960 --> 00:14:08,419
I mean, we don't do the property management,
but we do most of the asset management.

192
00:14:08,960 --> 00:14:11,460
And so that that, you know, that's been
terrifically successful.

193
00:14:12,720 --> 00:14:14,580
We obviously save a lot of fees.

194
00:14:15,440 --> 00:14:21,545
And most of the attention on a direct model
starts particularly in, you know, in the press.

195
00:14:21,545 --> 00:14:25,225
And then interview like this, the focus is, oh,
you know, you save a lot of money.

196
00:14:25,225 --> 00:14:31,065
Well, that's true, but, I think what's less
appreciated and for me much more important is

197
00:14:31,065 --> 00:14:32,524
you control the holding period.

198
00:14:33,480 --> 00:14:39,399
And real estate assets are fantastic assets in
a defined benefit program because they're long

199
00:14:39,399 --> 00:14:39,899
duration.

200
00:14:40,279 --> 00:14:44,919
They have a big income component, and, of
course, they're indexed, to inflation depending

201
00:14:44,919 --> 00:14:45,799
on the property type.

202
00:14:45,799 --> 00:14:52,035
So it's it's really the ideal asset you wanna
own as long as you can in the DB fund versus,

203
00:14:52,575 --> 00:14:58,654
you know, a closed end fund model where you go
in at six and, you know, you come out at four

204
00:14:58,654 --> 00:15:01,394
and everybody high fives because you're
printing a big IRR.

205
00:15:01,950 --> 00:15:07,090
But then me, the CIO, I'm forced to reinvest in
a four, you know, four cap rate environment.

206
00:15:07,230 --> 00:15:12,769
It doesn't in other words, it's people are
looking good in terms of their investment

207
00:15:12,830 --> 00:15:19,375
performance, but it's not helping me in my
ultimate missing, which is to to fees

208
00:15:19,375 --> 00:15:21,315
liabilities across forty years.

209
00:15:22,014 --> 00:15:28,254
The other this energy mining infrastructure
portfolio, it's unique in that, it's got a big

210
00:15:28,254 --> 00:15:29,554
oil and gas exposure.

211
00:15:29,774 --> 00:15:31,315
Some of that is direct.

212
00:15:32,769 --> 00:15:39,250
Most of it is outside of a traditional fund
structure, and it has performed fabulously well

213
00:15:39,250 --> 00:15:44,070
and done exactly what it was supposed to do,
which was provide inflation protections.

214
00:15:44,290 --> 00:15:49,225
Utah Retirement Systems today, your job is to
manage more than $50,000,000,000.

215
00:15:50,164 --> 00:15:54,085
What are the advantages of having
$50,000,000,000, and what are the

216
00:15:54,085 --> 00:15:54,585
disadvantages?

217
00:15:55,125 --> 00:15:58,184
The financial services industry is evolving
rapidly.

218
00:15:58,620 --> 00:16:03,340
Reed Smith's team of over 200 financial
industry group lawyers helps clients navigate

219
00:16:03,340 --> 00:16:08,639
the complexities of the sector in an era marked
by technological advancements and AI.

220
00:16:09,100 --> 00:16:13,215
Reed Smith's lawyers have a deep understanding
of market dynamics, legal frameworks, and

221
00:16:13,215 --> 00:16:18,014
regulatory developments, and advise financial
institutions and technology companies on

222
00:16:18,014 --> 00:16:22,835
financing, lending, investment management,
restructuring, insolvency, and litigation.

223
00:16:25,029 --> 00:16:29,190
So it's a lot of money, and I don't wanna
dismiss that at all, but it's the smallest

224
00:16:29,190 --> 00:16:31,350
program that I've run-in the last twenty years.

225
00:16:31,350 --> 00:16:37,750
So, you know, I was CIO of the wealth business
at Northern Trust and even fifteen years ago or

226
00:16:37,750 --> 00:16:38,809
whenever that was.

227
00:16:40,554 --> 00:16:44,875
You know, it was a hundred and 80,000,000,000,
and then Oregon was when I left, it was a

228
00:16:44,875 --> 00:16:46,174
hundred and 11,000,000,000.

229
00:16:47,995 --> 00:16:52,654
So this is a much smaller program, and smaller
is better.

230
00:16:54,360 --> 00:17:02,039
And so the the access and the agility of being
small at a place or smaller at a place like

231
00:17:02,039 --> 00:17:07,424
Utah, those benefits way outweigh whatever
scale economies you're giving up on the public

232
00:17:07,424 --> 00:17:07,924
side.

233
00:17:09,424 --> 00:17:16,724
So it's it's definitely a trade off, but, I
would again, net net net, the the the access

234
00:17:17,904 --> 00:17:24,450
and agility in private markets that accrues to
being small is much more valuable in dollars

235
00:17:24,450 --> 00:17:29,909
and cents than the scale economies that you get
in public markets for being big.

236
00:17:30,849 --> 00:17:34,769
If you had your choice, what would be the ideal
check size that you would want to work with in

237
00:17:34,769 --> 00:17:35,775
the private markets?

238
00:17:36,255 --> 00:17:36,894
Oh, boy.

239
00:17:36,894 --> 00:17:41,535
You know, it depends if it's energy, if it's
venture, if it's private equity, it's very

240
00:17:41,535 --> 00:17:42,994
different in each of those.

241
00:17:43,934 --> 00:17:52,809
We're doing, you know, we've within the within
the energy portfolio, we have a carve out to

242
00:17:52,809 --> 00:17:54,509
what we call alternative energy.

243
00:17:55,450 --> 00:17:58,889
Basically, it it's it has, twofold purpose.

244
00:17:58,889 --> 00:18:09,744
Number one, to provide an explicit hedge to our
traditional oil and gas investments as when and

245
00:18:09,744 --> 00:18:11,125
as society decarbonizes.

246
00:18:11,505 --> 00:18:17,720
So it's an explicit hedge, but it's also
designed to participate in the energy

247
00:18:17,720 --> 00:18:18,220
transition.

248
00:18:18,279 --> 00:18:21,880
So we wanna play defense against our
traditional stuff, but we also wanna play

249
00:18:21,880 --> 00:18:26,140
offense and help facilitate, the energy
transition.

250
00:18:28,039 --> 00:18:35,015
And that portfolio is nascent, you know, maybe
third inning, but it has five direct

251
00:18:35,015 --> 00:18:36,555
investments in fusion.

252
00:18:37,095 --> 00:18:38,455
So it's really all over the map.

253
00:18:38,455 --> 00:18:39,115
You know?

254
00:18:39,815 --> 00:18:45,029
You're lucky to get into a top tier venture
capital and write a $10,000,000 check.

255
00:18:45,089 --> 00:18:52,049
We would rather be with the a team even if our
allocations are smaller than be with the b team

256
00:18:52,049 --> 00:18:54,690
and just and be able to write a bigger check.

257
00:18:54,690 --> 00:19:00,975
Outside of your work at ERS, you also have
several unpaid advisory or investment committee

258
00:19:01,914 --> 00:19:08,394
positions at Alaska Permanent Fund, at the
State Pension of Idaho, at I triple e, which is

259
00:19:08,394 --> 00:19:09,055
a foundation.

260
00:19:09,970 --> 00:19:14,769
Why take on these roles, and what benefits
accrue to you as being involved in these

261
00:19:14,769 --> 00:19:15,269
organizations?

262
00:19:16,130 --> 00:19:17,170
Thank you for listening.

263
00:19:17,170 --> 00:19:20,930
To join our community and to make sure you do
not miss any future episodes, please click the

264
00:19:20,930 --> 00:19:22,549
follow button above to subscribe.

265
00:19:23,545 --> 00:19:24,025
Oh, boy.

266
00:19:24,025 --> 00:19:24,765
Great question.

267
00:19:26,744 --> 00:19:32,184
Taking on the role of several of my peers, I'm
with several of my peers on those

268
00:19:32,184 --> 00:19:32,684
organizations.

269
00:19:32,825 --> 00:19:36,744
So, of course, that's fun because the
governance structure in those organizations is

270
00:19:36,744 --> 00:19:45,440
different, because the investment objectives
are different, because the the boards are

271
00:19:45,440 --> 00:19:51,134
populated with different types of people and
because my fellow advisers are different.

272
00:19:51,134 --> 00:19:58,494
I gain insight every single time I participate,
and that insight ultimately accrues to the URS

273
00:19:58,494 --> 00:20:07,309
beneficiaries, to the URS staff, to the URS
board by Shervin's got one more experience that

274
00:20:07,309 --> 00:20:11,970
taught him we ought to think about x and we
ought to try and void y.

275
00:20:12,910 --> 00:20:20,015
Professionally, it's been very rewarding, but I
absolutely believe have a complete clear

276
00:20:20,015 --> 00:20:26,035
conscience that it makes me a better CIO for
the taxpayers of Utah and for the beneficiaries

277
00:20:26,174 --> 00:20:26,835
of URS.

278
00:20:27,710 --> 00:20:31,869
And I'm I'm pretty vigilant in monitoring that.

279
00:20:31,869 --> 00:20:37,950
One of those roles, Alaska Permanent Fund, also
very unique governance structure, very cutting

280
00:20:37,950 --> 00:20:38,849
edge organization.

281
00:20:39,150 --> 00:20:42,544
What What do you see as some of the
similarities between Alaska Permanent Fund as

282
00:20:42,544 --> 00:20:44,085
well as Utah Retirement Systems?

283
00:20:44,304 --> 00:20:48,224
Alaska Permanent Fund is really important
because it's America's largest sovereign wealth

284
00:20:48,224 --> 00:20:48,724
fund.

285
00:20:49,825 --> 00:20:53,025
It's important for the country because it's
America's largest sovereign wealth fund.

286
00:20:53,025 --> 00:20:56,320
It's important for the state of Alaska,
obviously, because it's the biggest single

287
00:20:56,320 --> 00:21:00,340
asset biggest single financial asset of the
state.

288
00:21:00,559 --> 00:21:04,740
I'm really proud to serve there because it it
is such an important organization.

289
00:21:04,960 --> 00:21:06,580
It's such an important fund.

290
00:21:07,264 --> 00:21:11,204
The governance structure is quite different,
than ours.

291
00:21:11,424 --> 00:21:18,384
It is very much a and I and I don't use the
term fishbowl in a derogatory or pejorative,

292
00:21:18,384 --> 00:21:20,884
but it is very much a fishbowl governance
structure.

293
00:21:22,950 --> 00:21:28,250
It has no direct, elected officials, but there
are political appointees.

294
00:21:29,029 --> 00:21:32,789
So it's not then dissimilar to the majority of
its peers.

295
00:21:32,789 --> 00:21:38,615
So we we have those those governance dynamics,
where it's similar to URS.

296
00:21:39,315 --> 00:21:47,075
And I think key to APFC success over the years
has been the delegation of investment authority

297
00:21:47,075 --> 00:21:47,734
to staff.

298
00:21:48,690 --> 00:21:56,690
And it has been very gratifying for me, five
years into my service up there, that the the

299
00:21:56,690 --> 00:22:00,869
commitment to that delegated authority has
never wavered.

300
00:22:01,089 --> 00:22:09,694
It's what makes, the size, but also the
delegated authority is what makes APFC such

301
00:22:09,755 --> 00:22:11,134
such a potent investor.

302
00:22:11,194 --> 00:22:17,230
You mentioned when we were last talking that
74% of your staff was not working during the

303
00:22:17,230 --> 00:22:18,690
global financial crisis.

304
00:22:18,829 --> 00:22:23,630
What key insights did you gain from the global
financial crisis of two thousand eight?

305
00:22:23,630 --> 00:22:25,150
We have very little credit.

306
00:22:25,150 --> 00:22:30,174
That philosophy was validated by the GFC.

307
00:22:30,315 --> 00:22:39,275
So it reinforces my own philosophy, which again
is happily consistent with URS, which is we'd

308
00:22:39,275 --> 00:22:45,769
rather take our equity risk into equities,
especially and and and here's the I think this

309
00:22:45,769 --> 00:22:48,829
is an important distinction is it it also
depends on your program.

310
00:22:49,369 --> 00:22:56,509
If you're URS and you have access to, you know,
the A Team venture capital roster, why wouldn't

311
00:22:56,724 --> 00:22:59,865
why wouldn't you spend your equity risk there?

312
00:23:00,164 --> 00:23:04,484
Why would you spend it in where you can, you
know, get, you know, making the numbers up?

313
00:23:04,484 --> 00:23:11,400
But you can earn, you know, 25% as opposed to
stretching and fixed income into private

314
00:23:11,400 --> 00:23:18,359
credit, you know, to go from, you know,
whatever, mid single digits to low double

315
00:23:18,359 --> 00:23:18,859
digits.

316
00:23:19,079 --> 00:23:27,615
It's the I think the the translation is if if
you're like me, if you're a CIO, you think

317
00:23:27,615 --> 00:23:32,195
about it in risk budgeting terms, you don't
have an unlimited risk budget.

318
00:23:32,975 --> 00:23:36,275
You know, your board gives you a hundred points
of risk.

319
00:23:38,220 --> 00:23:44,299
Why am I gonna spend any of my budget on
private credit if I can if I've got a world

320
00:23:44,299 --> 00:23:46,400
class venture capital portfolio?

321
00:23:46,460 --> 00:23:48,559
That's where I'm gonna spend my risk budget.

322
00:23:49,755 --> 00:23:54,474
And I'm gonna design and manage my fixed income
for the sole and express purpose of hedging

323
00:23:54,474 --> 00:23:57,695
equity risk in a deflationary environment.

324
00:23:57,994 --> 00:24:03,630
What are some interesting structures or
interesting investments that you make that are

325
00:24:03,630 --> 00:24:07,490
maybe very risky but have very high returns
potential?

326
00:24:07,869 --> 00:24:10,430
Probably the best example would be our fusion
portfolio.

327
00:24:10,430 --> 00:24:12,849
We've got a portfolio of five fusion
investments.

328
00:24:13,470 --> 00:24:21,894
Those are very, probably binary, you know,
either a zero or a hundred x because fusion is

329
00:24:21,894 --> 00:24:22,875
the holy grail.

330
00:24:23,015 --> 00:24:31,880
You know, I'm much more bullish on vision
because I, you know, I think that is a a near a

331
00:24:31,880 --> 00:24:41,180
a much closer path to a clean energy
alternative, particularly with some strategies

332
00:24:41,320 --> 00:24:45,724
that are either at or near approval.

333
00:24:46,505 --> 00:24:55,065
Whereas, you know, fusion is still is still the
the hail Mary, holy grail.

334
00:24:55,065 --> 00:25:01,369
But, man, when it works and I don't know if
that's five years, ten years, thirty years, but

335
00:25:01,369 --> 00:25:06,429
when it works, it's it's a game changer of
gigantic magnitude.

336
00:25:07,369 --> 00:25:15,634
You know, it's it's not a lot of money, single
million check sizes, but the payoff is

337
00:25:16,095 --> 00:25:16,595
gigantic.

338
00:25:16,975 --> 00:25:22,654
Assume you have 20,000,000 in that category at
a hundred x's, $2,000,000,000, it it moves the

339
00:25:22,654 --> 00:25:24,174
needle for a $50,000,000,000 fund.

340
00:25:24,174 --> 00:25:29,440
It moves the needle, and it also protects
against, you know, the the couple billion

341
00:25:29,440 --> 00:25:33,779
dollars in conventional energy strategies that
will suffer in that environment.

342
00:25:34,160 --> 00:25:41,294
When you look at investing into something very
disruptive like nuclear fusion, Are you always

343
00:25:41,294 --> 00:25:45,774
looking to make a directional bet, or are you
sometimes picking this is the one company that

344
00:25:45,774 --> 00:25:48,355
I think is gonna be the one?

345
00:25:48,414 --> 00:25:49,134
Great question.

346
00:25:49,134 --> 00:25:50,894
We're not smart enough to know.

347
00:25:50,894 --> 00:25:53,634
So that's why I I described that portfolio.

348
00:25:53,774 --> 00:25:58,990
We we actually call it the Utah alternative
energy portfolio as, you know, very early

349
00:25:58,990 --> 00:26:07,970
innings in that we're we're deliberate in
getting as many, pieces out on the board

350
00:26:08,029 --> 00:26:10,065
because we we don't know.

351
00:26:10,065 --> 00:26:14,704
What do you want our listeners to know about
you, about ERS, or anything else you like to

352
00:26:14,704 --> 00:26:15,204
share?

353
00:26:15,424 --> 00:26:17,505
I tell people I'm the accidental CIO.

354
00:26:17,505 --> 00:26:23,429
I graduated from business school at Chicago and
beat a path to Santa Barbara, you know, because

355
00:26:23,429 --> 00:26:27,269
I wanted to surf before work and coach my kids
soccer games after work.

356
00:26:27,269 --> 00:26:28,149
I accomplished that.

357
00:26:28,149 --> 00:26:28,710
I did that.

358
00:26:28,710 --> 00:26:33,609
But then, you know, all these years later, I I
wound up as a CIO, institutional CIO.

359
00:26:33,669 --> 00:26:37,269
Oh, it's certainly a big time CIO, and really
appreciate you taking the time.

360
00:26:37,269 --> 00:26:38,347
And, look forward.

361
00:26:38,427 --> 00:26:39,307
Salt Lake is beautiful.

362
00:26:39,307 --> 00:26:42,427
Look forward to sitting down there or in New
York City very soon.

363
00:26:42,427 --> 00:26:42,667
Yeah.

364
00:26:42,667 --> 00:26:43,307
You bet.

365
00:26:43,307 --> 00:26:44,362
Thanks for having me.