CIO Greatest Hits: Public Pensions – Ash Williams (Florida SBA)

27:28And he did that later in life. And in retrospect, that's what Fertree was for me because I'd always been in big organizations. I'd worked for state government in Florida. I'd worked for the SBA. I'd had legions of people and analysts and levels of folks at my – at least that I could access. And Schroeder's big global company, resources all over everywhere. And when we completed the cleanup of their acquisition here in the U .S., which was the old Wertheim Investment Partnership, and got that on a completely clean control footing and rebuilt the professional staff, et cetera, it was integrated into Schroeder's Global Investment Management out of London.

28:09So the good news was I had fulfilled my mission. The bad news was there was no longer a need for a CEO of asset management in the U .S. So the options were really three. A, stay in New York at a lesser rank, which if you've been the sheriff who cleaned out the saloon, that could be a dangerous role without a gun. Two, go to London and assume some role in the headquarters down in the city. Three, if you want to continue being a country head for asset management, the immediate option was Kuala Lumpur. And so while that decision process was going on, I was sort of thinking, well, obviously there are other options in the world.

28:55And a gentleman named Jeff Tannenbaum cold called me. Jeff founded Fertree Partners and is a very gifted guy. He had worked for Jerry Kohlberg as Jerry's analyst when Jerry left KKR. And he had started a fund about five years prior, which had earned net returns of around 25 percent annualized over that time. Very unique business model, combining sort of private equity and public markets and activism in a constructive way. He had gotten just big enough. He had around $400 million in assets, including some very silk -stocking founding investors. He was looking for somebody to be between him and potential clients and existing clients so that he could focus on the portfolio and somebody else could do the other.

29:41And he got some advice from a fellow named Steve Berger. Steve, years ago, ran hedge funds for Cambridge Associates. I think he was the first hedge fund guy there. And Steve told Jeff, Jeff, you're a young man. Let me give you some advice. Whoever you want to be your ambassador to your investors and potential investors needs to be an older person relative to you. Doesn't mean they're an old person. Just means they're older and have enough gray hair and they have some independent reputation on the street. because most IOR people walk into a room with a PM, carrying a bunch of books, introduce the PM, and then sit there and take notes and then do follow -up.

30:22That's not what you need. You need somebody that's capable of knowing this book inside and out, presenting it, answering questions, understanding the client's needs, and having the credibility that they're perfectly happy talking to that individual. So you need somebody who's been around. And, of course, Jeff was no fool. He was a value guy. And his immediate reaction was, do you know what somebody like that's going to cost? I don't like that idea. So Jeff got my name from somewhere and called me. And I said, you know, that actually could work. It might be very interesting. It was a real shift.

31:00So here I had the shock of going from a place that literally at tea time every day we had people who served tea and cakes to at Fir Tree, if you need a legal pad, I think there's an office supply store down the street. Go get one. You want some coffee? Go make it. A pencil? Fine. I think I might have one. You can go sharpen it and use it but give it back. You know, that kind of thing. So it was a completely different environment in that regard, but it was a scrappy, creative place. We built an unbelievable business. We had a great team. Our clients were the best of the best in the family offices, university endowments, and all kinds of folks.

31:41How long did you stay for a trip? Nine years. And then what happened? Well, what happened then was when I left the state board in 96, it was in very good shape. And in the ensuing dozen or so years, there were a couple of changes in leadership and there were some changes in attitudes. And what happened that led to my coming back to Florida was in the fourth quarter of 2007, the ranks of the SBA over the years that I had been gone, the headcount had stayed, was actually down a little bit. The assets under management had grown very substantially. The number of investment mandates they were managing had quadrupled.

32:23The budget had remained flat. Something's not right with that. Somebody's not putting on the right number of coats of paint to make the car look good and be durable. And sure enough, a young portfolio manager who had more or less sole responsibility for about a $30 -plus billion cash pool that the state board ran for local governments bought some securities that were asset -backed paper that were legally not suitable. Let me guess, AAA? Of course. Supervisory chain had been winnowed down to being non -existent. There was no money being spent on training. There was very little participation in industry thought leadership getting out and building the brand like the conversation we're having today.

33:09And so that news hit Bloomberg. These securities were downgraded and became illiquid. There was a lead Bloomberg story on it that, with the luck of no one lucky, hit the Bloomberg wire during, coincidentally, the day that the Florida Finance Officers Association was meeting, I think, in Orlando. So I'm picturing all of these local government types who all have their money in the SBA's local government pool standing around at a reception saying, do you believe that? What are you going to do, Ted? Well, I think I'm just going to redeem. Well, Ted, if you're redeeming, we're redeeming too. And guess what?

33:49In about 48 hours, the cash pool of the SBA, which is, like I said, about a $34 billion pool, received redemptions for something on the order of 80 % of its assets. I don't think there's a financial institution in the world that could survive that. And in reality, the proportion of the illiquid assets was tiny. It was less than 3%. It was not life -threatening. it was not really even material to the size of that pool, given a normal liquidity environment. But when you get a panic like that, no theater has exits big enough to handle a stampede like that. So it created a huge problem. It was front page of the Journal and the Times at the time.

34:34It led to major political issues. I had been working in Manhattan and living in Connecticut for 12 years. My wife and I had a third child while we were in Connecticut. She was at about age seven or eight when this was going on. And we thought, you know, the first two girls came out beautifully. We think part of it was because they grew up in a humble place called Tallahassee, Florida, that's very family -oriented, and you don't have anywhere near the level of, what would you say, sharp elbows and perhaps situational ethics that you have in big cities. And so we thought, you know, it might be time to go back and we could do some good things and fix what used to have our fingerprints all over it.

35:19So when you show up in this seat now, it's 2008. You know you have problems. How do you start? It was way better than anybody thought. And I had a huge head start for several reasons. First of all, many of the people who were in positions of responsibility at a senior level were people I had hired at a junior level years before. So I knew these people. It's not like I'd never seen them before and I didn't have any judgment on who they were or what their competence or trustworthiness was. Quite the opposite. The problem that was the blowup was not a failed pension portfolio. It wasn't even in the pension.

35:56It was a cash pool. It was completely independent. It had nothing to do with the pension. But the other advantage I had was by the last week in October, the financial markets were way closer to a bottom than they were anything else. So my view was this is an ideal time to come in because the buildings burned to the foundation. It's going to be essentially up from here. And I always steal this quote from Britt Harris. I always give him credit for it. the major advantage we had was being long -term oriented liquid and unlevered so we had the ability to look at opportunities and be a solution provider to others who run a jam so there were lots of very prestigious institutions endowments and what have you who were longer illiquid investments and particularly those subject to capital calls than they realized they were.

36:56And they got in a liquidity pinch in late 08, early 09, and were quietly doing secondary offerings to raise cash. So we picked off a number of those at very advantageous prices and a number of things like that. We're going to take a quick break in the action to tell you about SRS Aquium. Want to make sure your M &A processes aren't stuck in the past? partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches.

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38:30It's sort of like eating an elephant. You do it a little bit at a time. And I think the way to do it is like any super complex task, you divide it into units that are manageable and divisible. And then you assemble them so that each has its own infrastructure and its own intellectual feeds for ideas and oversight and everything else. And if you build a team right, you just go from there. And it's simpler than it sounds. So let's start with the team. You touched on when you left after years of toiling away and making great progress. You at the top were getting paid $140 ,000 a year. How do you start with building a team or keeping the people that you have in place when compensation clearly isn't the driver?

39:21Well, the first thing you do is you fix the compensation. The problem is in the public sector, that's sort of like saying, well, all you need to do is have peace in the Middle East. People have been trying that for a long time, and it's hard, which is why it doesn't exist. But in our situation, we had historically had less turnover than one would imagine because a lot of people were in their jobs not the way people are in jobs in New York or Los Angeles where there are a million alternative employers right around the corner. And if you're unhappy at point A, you cross the street and go to point B and take another job.

40:00up. If you're a portfolio manager in Tallassee, Florida, there aren't a lot of other options than the SBA. So most people were there for some combination of having family there, enjoying the lifestyle, enjoying the reality that you could live in a very peaceful place, travel to New York pretty regularly, have New York come to you and the rest of the world come to you pretty regularly. The parade of talent we get in and out of our building is absolutely amazing and very refreshing. People were there for non -economic reasons. The problem is that's sort of like the line from the old Marilyn Monroe movie about relying on the kindness of strangers.

40:41It's just not a reliable way to run a railroad. When I got back, there was a lot of talk about dramatically increasing the compensation of the position for the executive director, and they added the term and CIO to give it a little more specificity. And at the end of the day, what was done was about half of what was said. But the direction was good. And I think the reasons that it came out that way were very appropriate, which is to say the state had just been dealt the worst financial blow in its modern history and was completely broke. And the idea of making some massive pay move for somebody in a job like mine when all the beneficiaries are in a terrible position.

41:26Believe me, I got it. I was fine with that. And I was interested in the service anyway. And it was still a significant shift from where it had been before. And the commitment was given, look, we understand this needs to be addressed and we want you to work on it. So go do it. And that was the beginning of a six -year effort that I undertook where we figured out how to completely change our compensation culture and design a comp scheme from the ground up that was legitimate, market -driven, created great alignment, included an element of base and incentive compensation that was very specifically tied to achievement, bounded to avoid unnecessary incentivization of risk, et cetera.

42:15We spent six years and working through our advisory council, got an actual plan document written, had, I want to say, between 15 and 20 public meetings on this thing over all that time. It's been in place and operating now for going on five years, and it is a life changer. Let's dive into the investment side and start with your thoughts on asset allocation. I guess our view is that what is practical and has been proven to work for us, I can't speak for others, over time has been to have a thoughtful allocation process that you revisit annually at a sort of a high level just to validate your asset class return assumptions and make sure it's still reasonable.

43:02Then about every three to five years do a much deeper dive on how you're approaching it. But what we found is setting an allocation that's a rational allocation to begin with, given your liabilities and your liquidity needs and your governance environment, and then sticking to it over time will work. What was tried in the 80s and to a degree in the 90s that failed miserably was the idea of making active judgments and jiggling around the tactical asset allocation, as people now call it. Just a bad idea. So where do you end up across the assets you invest in? We end up with a pretty heavy equity beta that we will always have.

43:47But as long as you are truly a long -term investor and one of the powers of defined benefit plans is risk pooling, which means you're always investing as a perpetuity over a very long horizon. You're not constrained by the mortality curve of risk that individuals can tolerate. That's important because over the long periods of time, equities by definition are going to be the higher returning asset class relative to fixed income. And then when you have what I would call equity -like risk assets, private equity, venture capital, etc., then those are complementary as well and will tend to be a little more pro -cyclical in a lot of ways.

44:32And then we have another sleeve in which we put more opportunistic things that might be transient opportunities that come and go. So we wouldn't have a permanent allocation to those. High yield debt would be an example. There are times when high yield is compelling. There are times when not so much. So let's go there when the spreads are attractive and leave when they're not. And we'll get paid for renting our capital for that period of time. so that at the high level is the way we do things and to the extent we can find ways to win on a relative basis by playing by a different set of rules we'll take that opportunity every chance we get what are those set of rules that are different how you're playing the game so what do we have to offer well first of all we have scale in our favor secondly we have the ability to manage money ourselves we've got a lot of investment professionals our team is over 200 people, investment professionals, 50 plus, and a lot of people with deep experience.

45:33And we are running active and passive fixed income. And in equity investing, we do passive investing and factor investing. We're not saying we can necessarily say what the factors are or what the mix of the factors ought to be in any given month. But we are really, really good at replicating indices dead accurately, and then through a combination of SEC lending and playing the names that the index providers signal in advance are going to be added to or taken out of the index, doing those two things will get you enough marginal revenue that you can beat the index pretty consistently in a passive fund.

46:18Well, that kind of tastes great less filling, isn't it? So what we've figured out how to do, and I give our global equity team credit for this. It wasn't me, was buy from some of the factor investing firms. Instead of buying their services in a traditional asset management relationship, do the equivalent of buying the recipe. Don't buy the cake. Buy the recipe. Go bake the cake yourself. And you can bake as many cakes as you want from that recipe without paying any more money. That's powerful. So we do that. One of the great powers we bring is our low -cost operating environment. We have been the lowest cost provider for three or four of the last five or six years per CEM.

47:04Our costs on average are about half those of our peers. And does that mostly come from that internal management piece? That's a big part of it. And the other thing is scale. Better team, better terms, better fees, very powerful. I think those are the main things. So when you go through the global equity piece, you mentioned the sort of passive or passive plus and factors. How do you decide how much should be internal and how much is external? Well, it's pretty easy. So that's not a complicated thing. What we do is we think, first of all, how much should be active and passive. We're really good at the passive part.

47:42And you can do that in scale for – if you look at the – what the compensation packages cost for our traders who execute this, even though I think we pay them in a manner that they're happy and motivated and it's reasonable and competitive, that compared to management fees on a similar amount of money, it's practically free. in which case you've got a huge advantage. And then you do the active in the parts of the market where you're going to get paid for spending the money and taking the extra risk, which is generally going to be as you move out of the U .S. into non -U .S. equities, and the further afield you go into emerging markets and eventually into frontier markets, then the attractiveness of active versus passive becomes compellingly active.

48:28Are you restrained on your travel budget? There's several areas of natural friction with public pension funds because in a political environment where optics are everything, the truth of it is most legislative bodies these days are under term limits. So somebody's got two or three two -year terms to make their bones and move on to the next highest office. You can't raise money constantly and move on and keep your name in the press to get free media without regular sound bites. And if you can make a soundbite by grousing about something that some public employee did that the average taxpayer might take out of context and see as an affront, you're going to do it.

49:10That's just the reality. That is it. So in a lot of places, there are travel restrictions, et cetera. What does that derive from? The same thing on what they pay people and how they're resourced. Key thing there is governance. If you did an analysis of pension funds, I'll bet if you looked at pension funds and answered the question, are you under the state legislature for your budget or are you under some separate body of trustees? If you're under a state legislative body, any politically derived body, chances are you're going to be suppressed for compensation, for resources, including travel, training, materials, systems, risk controls, everything.

49:55Everything you need. You're just not going to have the money because it's not like you're dealing with a board of directors of fill in the blank, Goldman Sachs or an organization like that that values excellence and is willing to pay for it. And in our case, our budget is under our trustees, and we're self -funded. We operate as a fee on assets, and the fee on assets, although it's ridiculously low, the assets are so big that we just need the trustees to authorize every year what we need, and we have developed a lot of credibility. I think what the whole thing comes down to is public pension funds because they're big pots of money that are in a position to be diverted for bad things.

50:38There's plenty of U .S. history, whether you look at the coin scam that happened in Ohio some years ago or the pay -for -play scams that have happened in other jurisdictions or all kinds of irregularities over the years. Those kinds of things earn funds a bad reputation and put them in a weak position. But if you have in the environment you operate in, the jurisdiction you've operated in, if you have earned trust and credibility through consistently telling the truth, delivering the results you're supposed to deliver. And unlike most other parts of state government, we can tell anybody on a given day out to two decimal points what our performance is and what our benchmark is and what the difference is between the two.

51:22And we have audited financial numbers every year that are part of the state's financial statements. So there's no ambiguity about whether the schools got better or got worse with us. With us, it's did you beat the benchmark or not? And if the answer is not, and it's persistently so, you have an issue. If the answer is yes, you did, and it's by a lot, and it's very consistent, and it's also very strong relative to your peers, people like that. My sense is in humankind, just like all animals, we've all read the stories about how the weak animal in the litter is likely to be pecked to death by its own siblings or parents or something.

52:03People are the same way. If you show evidence of weakness, you will be set upon and eliminated. And if you show signs of strength, persistent signs of strength, and a willingness to be a voice of wisdom and a steady hand, and you have the advantage of having done that for years and years and years and knowing generations of people in leadership in whatever area you're from, which is an advantage I have, it's very helpful. You mentioned this consistency in so much of investing. You can have the right process that works over time, but in shorter term periods, you might not have the right outcome.

52:41How have you navigated that inevitable times when maybe this pocket or that pocket underperforms because you're being very transparent about what the benchmarks are, when you have so many people with a shorter term focus and a political mindset that want to point fingers? Well, the good news is to the extent there have been downed drafts. Fourth quarter of 2018, great example. That was a miserable period in global equities, and we took a beating like everybody else did. But in a time like that, then people understand. I mean, everybody has a portfolio, and these are people who are smart enough to say, yeah, I took a beating too.

53:18You know, you can run, but you can't hide. We can do well relative to benchmark, but doing well in an absolute sense is very different from doing well relative to a benchmark. So I think we're good on that. And I think we message things, too, that diversification is our friend. And we've put a lot of thought into doing things that are helpful when the equity wins are negative. Or we had a spirited discussion several years ago. We had a member of our advisory council who, when we did our little annual checkup on our asset class return expectations, he said, wait a minute. You're expecting an intermediate term return on fixed income of negative 3%.

53:59Well, as fiduciaries, we shouldn't own bonds. We need to eliminate the asset class. You can't knowingly lose money. And we said, that's not how this works. It's not each ingredient. It's not every egg and cup of sugar and bit of flour. It's the entire totality of the recipe that makes the cake. And here's what the fixed income is for. It's not to get the marginal negative 3%. It's there because if the bottom falls out of the equity market, there will be a flight to safety, which will be fixed income. That will be the liquid asset that will be appreciated at the time, and you can rebalance into equities while they're down and make benefit payments out of liquid assets that are appreciated.

54:42We have negative cash flow to the tune of $700 million or thereabouts a month. So the explanation I gave to try and make it accessible was, listen, if you've ever been on a private airplane or a boat, a yacht, space is precious. And tying up a lot of space with life rafts and parachutes is just intrusive. It's no fun. But believe me, if that craft ever gets in trouble and you need the parachute or the life raft, it's going to be the best use of space you could ever conceive of. And you're going to be grateful that you took advantage of it. that's why the fixed income needs to be there. When you turn to these opportunistic strategies, you started by saying, okay, you want to be tried and true to your asset allocation, but then you've got these opportunistic strategies that will flex.

55:30How do you go about that piece of the puzzle? Well, we are not in a position to do transactions directly other than our real estate area. And I don't think we ever will be. That's the province of the Canadian model, and you're just never going to see that here. But what we can do is partner with people who have deep and broad capability, and then if, and this sounds easier than it is, we don't have many of these things, but if you can create a structure through mutual agreement and a deep partnership that creates great alignment of risk and reward that's shared, You can do things that are highly unusual.

56:13And I think in times like this where assets broadly are highly appreciated, having investments where you really understand where the cash flows come from, what the quality of those counterparties is, why those cash flows should be resistant to broad market dislocation, that's golden. What are some examples of some of those today? Well, the real estate is a lot of it. We're renovating a building just down the street from here right now at 155th Avenue, where we bought a 120 -year -old building some years ago. We've had some sort of routine tenants in there, and we had a music company in there. And their lease has run out.

57:00We're redoing the building, and we've pre -leased it. This is all public information. It's been in the press, so it's not out of school. pre -leased it to MasterCard in a long lease with good provisions from our perspective. And it'll be MasterCard's tech department. And this is in the area of Manhattan around 20th Street that's as hot as a pistol right now in terms of where young people want to be. It's the same region where Google is. There's a lot going on down there. And a building like that, If I've got somebody like MasterCard and a 15 -year lease, frankly, if the equity market falls off the end of the planet tomorrow, people are still going to use their MasterCard.

57:41And MasterCard is still going to need a tech backbone to run their system and maintain their security. So that's a good thing. Single asset in the scheme of $200 billion can't possibly amount to much. So how do you monitor so many different – your portfolio is transparent. You can go on, you can go and look at the annual report. And there's just lots of managers there. Well, there are a lot of managers, but there's concentration among them. We have a lot of managers wearing a lot of products with them. That comes back to something else that's a fundamental. The most important thing, I think, and I sound like I'm quoting Howard Marks.

58:21You know, he wrote the book, The Most Important Thing, and every single thing in that book, and there are like 30 of them. You can make an argument, it's the most important thing. And that's the whole point. It's all important. And any one of these things can blow your legs off if you're not careful. But I think there's no substitute for character. And if you can find relationships in life with people who are competent, honest, and therefore trustworthy, as simple as those three characteristics sound, as frequently as people always say the most important thing is character and that's why you should partner with us, We've both been around long enough to know the vast majority of people in a situation of real stress can't necessarily be counted on.

59:08And if you've ever been through a real jam with a partner and worked it out in a way that reflected honesty and empathy and integrity and just humanity, that's a gift. you reward that by doing more with them. As you look at the program today, what are your kind of key initiatives to continue to evolve what you're doing on the investment side? I think we have a true learning culture. I think the team we have in place is an extraordinary team. We've turned over fully half of our top management over the 10 years plus that I've been back. Every one of our asset class heads is super solid and capable and young enough that they've got plenty of runway in front of them, and they've all built deep teams.

59:58And again, this fits into what I was saying earlier about compensation. If you're going to keep capable people who are young enough to go anywhere they want to go in the country, you've got to give them a reason to feel valued and motivated. So we offer a work culture that's a very flat culture. They'll have direct access, no matter how junior they are, to everybody on the team, up to and including me. and that's motivating because most big asset management firms can't offer that. Second, we compensate people in reasonable ways, in positive ways. And third, because of our size, you can come to work for us and on any given day you might have, like recently we've had Q Song Lee in to visit us.

1:00:46We've had David Solomon twice in the past couple of months, new CEO of Goldman Sachs. Larry Fink comes to see us. We've had people from all over the world make the trek to Tallahassee because they're good relationships of ours. And, you know, we reciprocate and help them here whenever we can. One of the things you think about in these plans is the concept of governance. And we've talked a lot about how you've worked with the trustees. The other side of that is the whole issue of like proxy voting. I remember reading in your report that you filled out last year 11 ,000 proxies. My hand was so sore after that.

1:01:24That's a mind -boggling number to me to begin with. How is that staffed? And then how do you think about that sort of governance standards when it applies to so many different situations? So the answer to that is reflective of so much of what we do. We accept the value of voting the proxy and valuing the vote. We actually financed a study at Harvard Law School a few years ago called Valuing the Vote that quantified the value of fiduciary participation in the proxy process and ensuring that companies did the things they should to enhance shareholder value. In fact, back in the 1980s, Florida was one of the founding members of the Council of Institutional Investors.

1:02:08So Florida has a high profile in governance circles. And much the way we've done other things have figured out ways to automate proxy voting processes and use a limited staff internally that's levered through using third -party service providers as extension of staff to do exactly the kind of monumental job you just sketched out. The idea that you could vote proxies in, I don't know, 50 or 70 different countries that number in the tens of thousands, it's mind -boggling. But on any given thing, no, we actually know these things. And if somebody calls and says, what about Airbnb? We had one of the earliest things that came up with the new governor.

1:02:55I first met with him in December of 2018 after he was elected in 17. he asked me if we were aware of Airbnb and had Airbnb had issues involving the boycott, divest, and sanction Israel movement. And I said, as a matter of fact, we're very familiar with that. And we've been in contact with Airbnb already. Here are the issues. Here's how our process works. Happy to work with you on it. He was stunned. Do you actually knew about that? One little company that's not even publicly traded. Roll the clock forward. We engaged Airbnb. They have done a 180 on the policy that they were pursuing in the disputed territories.

1:03:34It was announced publicly about two weeks ago. The governor and cabinet of Florida are doing the first cabinet meeting ever in Israel, I think later this month. And one of the items on the agenda is going to be this Airbnb thing. So I'll be in Tallahassee on a satellite connection, a video connection to the rest of the group that will be in Israel, Cinderella, scrubbing the floors of the castle while everybody else is at the ball. But anyway, we'll talk about that. And the Israeli government is keenly aware of this and very appreciative of the outcome. So once again, you do well by doing good.

1:04:14I want to turn to your thoughts on private equity and hedge funds. Private equity is an important component and has been for a long time of what you're doing. How do you think about it in the context of portfolio and how do you decide who you're going to partner with? Well, we've done an awful lot in the private equity space over the past five or ten years to sort of refine the portfolio. And what I mean when I say that is rather than putting a whole lot of money with big U .S. mega LBO -centric funds that have lots of products that cover the world, we think we've been smarter to really dig deeper and understand where the persistent ability to add value is in organizations.

1:05:06and how has their focus remained? How's their asset growth been? Have they just gotten geometrically bigger because they could and proliferated products or have they stayed focused? And we've sort of tried to concentrate relationships with the best players. So if we were in three funds in a given space, now we're more likely to be in one, maybe two. We've also taken up more specialty relationships of various kinds, funds that distinguish themselves by a very strict focus, by capsized geography, industry, region, things of that nature or some crosscut of those sorts of screens. we've also made an effort to be more international in our private equity through actually partnering with people who have a european focus for example or likewise asia where that gets more problematic is when you get particularly in asia where you're dealing with china india southeast asia differences in law differences in culture a whole lot of things make that infinitely more complicated.

1:06:22So we're in early days there, but we've done some things that I think are fairly innovative where we've partnered with a private equity fund of funds that we're well aligned with and have good co -investment relationships with. And they in turn have found tremendous GPs for us and it's worked out beautifully. And we've done similar things in the venture space. At your size, I imagine you're one of the few people in this ecosystem that has the possibility of being somewhat of a price maker in some of these relationships. Now, at the same time, there's so much aggregate demand for private equity.

1:06:59It's not clear that that would be the case. Where do you come out across your portfolio on just finding the funds you like and other people like them and accepting the price compared to doing something off market? There are definitely times when something is a scarce commodity that's always oversubscribed and getting any allocation to it is a good allocation. And in those cases, you take the terms. And frankly, the reason you don't feel bad about that is net of whatever the terms are, the performance is so good. That's why there's a line out the door. That's a high -class problem. I always tell people the fees should not be your first focus.

1:07:33The net result should be. And if the net risk -adjusted result is tantalizing, go for it. If the result is mediocre and the fees are cheap, is that appealing? The analogy I like to give people is, listen, I'm very picky about food and drink. And if I go to a restaurant and the food's not very good, I don't care what it costs. I'm not going back, period. And then how does that break out across your portfolio? If you were breaking out the – take the private equity relationships as a whole, what percentage of them do you think are kind of market terms best in breed managers? And what percentage of them do you think because of your size, they may also be your perception best in breed.

1:08:14but you're able to get better terms? I don't have an exact answer for that, but I think the majority of them we would have some superiority in terms. And the reason I think that's a pretty safe statement is there are some things that are required under Florida law that are inconsistent with most GPs' documents. So for example, one thing we can't do is indemnify people. Any GP agreement will have an indemnification provision. And if we can say, look, it's Florida a law. And most MFN provisions, most favored nation provisions and partnerships will have some sort of provision about applying to similarly situated investors.

1:08:52And if we can say, okay, we're a state fund. This is a function of state law. If you have other state funds with other state laws, you're going to have to accommodate them otherwise as well, because they just can't give you money otherwise. And how about hedge funds? I know hedge funds or absolute return are not a line item, but if you do go through manager by manager, there are a number of them in the opportunistic bucket. How do you view those strategies? Well, I think a lot of those strategies have not distinguished themselves of late. And the common reason that's given is this strong equity tailwind and you can't keep up, et cetera, et cetera.

1:09:26I suspect hedge funds will venerate themselves when the market cycle fulfills itself. That said, there are a lot of them that have disappointed in the interim. And we've made changes in our lineup. And we're constantly searching for folks that are doing things that are different. When you have a market headwind like that, particularly say in long short equity, which is sort of commonly known, to what extent do you look at an individual manager that you thought deserved a place in the portfolio, hadn't delivered for a while, and you're replacing them with another who maybe has delivered? And how do you make that determination?

1:10:09Well, first of all, we're patient. I mean, chasing performance is the bane of any successful investment existence. So we tend to be very patient. We tend to listen to people. We've been through iterations with firms where they've had an overseas office and a New York office, and they've decided to close one or the other. They've moved people around. We tend to be patient through things like that. Could be they come up with a structure as a gesture of good faith after a period of sort of being undersatisfying to their investors that is attractive. And if we still have confidence in the group, we might take advantage of something like that.

1:10:46Sometimes there'll be a unilateral offer to change the terms to our advantage as an acknowledgement of, look, we've disappointed ourselves. We know we've disappointed you. And we want to reflect good faith, so we're lowering your fees, or we're going to do this or that or the other. So we tend to be patient with things like that. And I wouldn't say that if we pull out of any given fund, we're automatically going to repurpose that capital into another fund sequentially. It could be that we'll repurpose that capital into something altogether different that may be a different investment format. With all the people on your team, particularly people focused on external managers, How do you ultimately make your investment decisions?

1:11:25Well, most of them are made pretty much at the asset class level. We make broad decisions in terms of characteristics that we like, areas that we want to emphasize at a given point in time. And then the different asset classes all have depth and existing manager basis. And we do annual work plans where we take the time at the asset class level to really think through what does our current pipeline look like vis -a -vis the portfolio today? How do we envision the portfolio evolving as we go through this pipeline over the next 12 months? What resources are we going to need? What capital flows are there?

1:12:10What are going to be the flows in and the flows out? We're a mature plan. So our private equity program is largely self -funding. Strategic is largely self -funding. And at the manager level, a CIO, do you make the ultimate decision? I sign all the documents and nothing gets done without my okay. And if we have an objection to something, and there have been things that I've held up before, our process is such that the checks and balances are constant and they're both internal and external. And the transparency is very high. So we have simultaneous compliance, participation, and oversight. We have an internal investment memo that's written at the inception of an idea, say to propose the Harvest Volatility Fund or something like that.

1:12:52We'd have an initial write -up on why this strategy makes sense and the principles are good people and we think it would complement our portfolio. And on the basis of that, and I've got to sign that, we go forward with due diligence with some rough idea of what we might put into it, pending the diligence and negotiation of terms. and then if it comes out the back end, and it could be a year later, with an investment memo that's the actual memo authorizing the completion of the docs and then the next thing is the docs themselves. All along the way, there are going to be business points that are going to come up.

1:13:26There are going to be terms that are going to come up. There will be scaling issues, constraints, all that kind of thing. And once in a while, you will have a barrier in the form of could be you've gotten some intelligence somewhere or somebody does something that was inappropriate. I mean, I remember a case years ago where we were looking at a fund and an item appeared. And I think it was the New York Post on a Monday morning where somebody who was a principal of a fund had had a fit at a social event out on Long Island over the weekend. And the behavior, we just thought, you know, if that's what's under this individual, life's too short.

1:14:06All right, Ash, I want to leave a little time for some closing questions. I'm going to get you out of here. What's your favorite hobby or activity outside of work and family? Well, I don't have a single thing. I would say if I looked at where most of my time goes, it involves food and wine. I cook a lot. I have all my life. I collect wine. I love to entertain. My wife and I love to entertain. and I like to play with an idea for a themed dinner for a long time and put it together and figure out the execution and match the wines and get a nice group of folks together and do that. You can't live where we live and not do a little hunting and fishing.

1:14:42I also like live music and enjoy the fine arts, and with the university right in our backyard and all the trips I take to major cities, there's ample opportunity to indulge those tastes. And lastly, I have a motorcycle. And I love riding out in the country in the quiet of a weekend morning. Nothing better. What's your biggest pet peeve? I think the thing that bothers me the most right now is I think social media is creating a generation of people who are grossly under -informed and very subject to manipulation. Nobody seems to read newspapers anymore, really understand issues in real time. and I read a lot of newspapers.

1:15:24I read a lot of books. I read things like The Economist and other barons and stuff that comes out weekly. And if you read enough and you understand the nuances, you really understand the world around you. And the number of people I know, and I see this in my own kids, whose idea of understanding the news is whatever their Facebook feed tells them, that's scary. How about your biggest investment pet peeve? I think the thing there would be constant barrage of inquiries and pushes we get from people who've obviously taken no time to know who we are, what we do, what we're interested in, what we've signaled we're not interested in.

1:16:03Think about the message that gives a potential investor. You are out here recruiting for business and you're either so, shall we say, unmotivated, that's more charitable than saying lazy or your research skills are so poor that you're writing me a letter or an email saying, Dear Ms. Williams, or you're proposing something that we just don't do and would never do. And we've all spoken about it publicly. Why on earth would we do business with you? Just do your job, will you? What have you learned recently that's most struck you? I don't know that I could point to a single thing. Maybe it's just the more I learn about the whole cyber risk area, that is truly terrifying.

1:16:52And I don't know that we've got our arms around that as a country. I don't know that we can. What teaching from your parents has most stayed with you? There are several things I think of that I can hear my father and mother saying. Two from my father, one from my mother. My dad used to always say to me when I was yammering on about one thing or another, the empty vessel makes the most noise. Very true. How many times have you met somebody and they're just off into the acronyms and, you know, basically singing their own tune over and over and over again? And you just think everything you're saying is based on a phony premise.

1:17:29You should listen to this. I said, just no. It was just wrong. Cut it out. So that would be one. And another one would be, which I think was attributable to Roosevelt, walk softly and carry a big stick. And there's a lot to be said for that. And particularly if you have an institution like ours, there are times when you get into some sort of potential conflict. And I'll never forget one time somebody was threatening to sue me and sue us. And I said, you know, if you've got a minute. We were in our offices and tell us. If you've got a minute, we can walk around the corner. I'll show you a row of offices with our lawyers in them who work for salary.

1:18:07And frankly, we can tie you up for the next 15 years if you'd like. And the incremental cost to us is nothing. And by the way, I could also show you the list of outside firms we have in New York and other places who would be happy to make your life miserable if we'd like them to. So if you really want to go there, you can. But I don't think that's a great opener for you. I think we need a peaceful resolution. And I can remember my mother saying, know thyself. Great advice. All right. Last one. What life lesson have you learned that you wish you knew a lot earlier in your life? How much I don't know.

1:18:44And the more you know about the world, and I consider myself a lifelong learner, and I'm interested in just about everything. I'm always asking why and how does that work and what's the history and how that policy get the way it is, all that sort of stuff. And the more that you do, the more you realize you don't know. And when you're young, think about it. Anybody who's ever been a parent knows nobody knows more about the world than a 16 or 17 -year -old kid. They know everything. And if you try and tell them anything, you're just – no, you're wrong. So that's pretty important. Ash, thanks so much.

1:19:19Fascinating. Thank you. Thanks for listening to the show. To learn more, hop on our website at capitalallocators .com, where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one, and see you next time.