E302: Legendary CIO Larry Kochard On Where Alpha is Today

19:34David Weisburd:For example, a lot of people today are bearish on large buyouts. I think that's probably a rational thing. There's so much capital. There's no DPI. But a lot of people are not bullish enough on lower middle market PE. Why? Because it's hard. It takes a lot of effort. You need to meet the managers. It's not sexy. These funds, almost by definition, no one's heard of because they're in the lower middle market. They don't have this marketing budget. So I think about it from, I discount the IQ of the manager and I even discount the layer of the manager because typically the manager will outperform the asset by a couple hundred basis points.

20:11David Weisburd:And I think about more the asset and the sub-asset and why are people bearish and why are people bullish on that specific asset class?

20:18Larry Kochard:I think that's great. I mean, another, I think, impediment to long-term success is so many of those lower middle market buyout funds. You know, they start the first fund, you know, it's even pre-fund. They're, you know, they're doing their fundless sponsor. They're raising money deal by deal. They then may scrape together some LPs for a fund that's$100 million. Then maybe it's a few hundred million dollars. But the challenge is ultimately a lot of people aspire then to be managing$2 billion,$3 billion. 10 billion. And what the challenge is, they go from being an exceptional investor to being an exceptional manager of an investment firm.

21:00Larry Kochard:And those firms that just scale, they might have had an edge when they're managing a couple hundred million dollars and doing smaller deals, but it just becomes so much more competitive and they lose their edge when they go up market. Success often breeds this sense that they can discontinue to scale. And oftentimes, the scaling, there's problems related to just trying to deploy a much larger pool of capital, but also some of the problems are related to the fact that there are significant dis-economies of scale in managing investment firms. The larger you get doesn't necessarily mean produce better returns because It's just harder.

21:42Larry Kochard:I think smaller firms, smaller number of people is just easier. So I think that's also a detractor that you'll see.

21:52David Weisburd:You oftentimes hear size is the enemy of returns. The way that plays out is you have a very disciplined$300 million fund. Now they're a billion dollars. That incremental deal where I don't really think we may or may not want to do it with a$300 million fund, hard no. With a billion dollar fund, well, on a subconscious level, well, we have to do it because we have a billion dollar fund. We have to do these marginal deals.

22:13Larry Kochard:One of the challenges is a certain amount of growth is inevitable. And you have a team, you want to keep the team. And the way you keep the team is you have to offer them more opportunity. But the challenge is balancing that sort of trade-off between keeping a team intact while not getting too big is oftentimes too difficult for a manager and they opt for just being too big. Now, with that said, there's some firms that will defy that logic. There are firms on the public side, there are firms on the private side, that they're so extraordinary that they've been able to either just develop just because of the way they manage the firm or the fact that they're just that extraordinary that they can overcome the difficulties of size.

23:03Larry Kochard:I've seen that in both public and private investing.

23:07David Weisburd:As a CIO at McKenna, at University of Virginia, at Georgetown, did you have a framework for figuring out how big a manager should be and how to tell when they're getting over their skis?

23:19Larry Kochard:It's a framework, but again, I've been historically at least, for better or for worse, I'm not someone that just believes in a complete black and white formula that you get above a certain size and you're just gone. And I know some people that do that. And there is a certain beauty in that that discipline. But I do think you need to look for exceptions. I also think, though, that what you want to be cognizant of is there are multiple factors that can lead to success and failure. And the failure might not be just bad failure. It could be just mediocrity. And some of it is one of them is size, but some of them is just incentive alignment, alignment between the LP and the GP.

24:05Larry Kochard:What is their ability to manage a team? There are a handful of firms that are just exceptional at hiring, developing, keeping, incentivizing, rewarding people the right way and keeping them together such that they can get bigger. And there are other firms that just become a mess. And one of the things that we look for also is firms that offer multiple products. You start off of whether you're a buyout firm that gets bigger and then you start offering different buyout strategies. Maybe you start offering a smaller strategy like you were originally, and then a European strategy, an Asia strategy.

24:46Larry Kochard:You then maybe start doing a credit fund. And so it tells like that, characteristics that change beyond just the size that are also something that are red flags for me. So it's almost, again, this mosaic approach as opposed to just one thing being the death knell. There's certain things that, you know, obviously you can't live with. Any sense that they are bad actors and they're not good partners, you're gone. But are the other things, or if it's just size, you may give them a pass if they're good at managing the team, they're good at managing a bigger portfolio. as long as they've stuck to one strategy, they've kept the team together, the people that you like, they reward people the right way.

25:37Larry Kochard:So there's an incentive alignment between them and you as an LP.

25:42David Weisburd:It's kind of like what got them there won't get them to the next phase. In the beginning, you're underwriting them as investor and then later on as a firm builder. Doesn't mean that they can't do both, but it's a different skillset. It's like that Dodgers pitcher, Tani. Amazing pitcher and amazing batter, but literally once in a generation talent, somebody that can do both.

26:01Larry Kochard:Yeah. So you're not going to underwrite that day one. And that's part of what we're doing. We're underwriting people. Ultimately, whether it's people on your own team or the people that you're partnering with at all these funds, is that assessment of people, what makes them special, what gives them a right to win is what we're constantly doing and constantly pressure testing that. What are we getting wrong? Constantly re-underwriting those people, their process, their approach. And so just because someone's done well, doesn't mean they'll continue to do well. But you look at Warren Buffett. Warren Buffett's a great example.

26:42Larry Kochard:Someone that, managing way more money. Obviously, his returns in later years weren't as good as they were early years, but still this is exceptional talent from a temperament standpoint in particular that overcomes some of the other limitations to the size.

27:00David Weisburd:And this re-underwriting of people, you could think of that as the alpha in being an LP and the beta. Everybody can more or less tell whether someone was a good manager, especially now with AI. At some point, a high school student will put it in and say, is this a top quartile manager? It'll be very easy. That's going to be very quickly commoditized. What's hard is all things being said, yes, they'd be a great manager, but now with all these different factors, different market environments, different team, different fund sizes, different strategies, will they continue to be? How do we underwrite the future?

27:29David Weisburd:That's where the alpha is. Well said. Tell me about structural alpha. How much was structural alpha part of your investment philosophy?

27:37Larry Kochard:It was probably different definitions of structural alpha, but I would say just what the framework that we discussed really is structural alpha. is trying to identify why someone has a right to win. What is their edge? What is the inefficiency they're exploiting? Has it become commoditized? Is there been so much, again, getting back to your comment before, supply and demand of capital for a strategy, for a sector, trying to make sure that you stick to those areas where there is more likely to be this intersection of skill and edge or skill and inefficiency. That to me is the definition of structural alpha.

28:16Larry Kochard:I guess the one area that historically people said is structural alpha is this illiquidity premium. I think that existed years ago. If you go back to even David Swenson's pioneering portfolio management is, so many of the things that he was focused on is this notion of being unconventional. So if you're unconventional, you're by definition is structural alpha. But I think so much of that has gone away. I'm just not a believer that there's going to be this beta to owning illiquid assets because there's just so much capital chasing all those illiquid assets. And so the structural alpha is less about illiquidity and really more about this identifying find this intersection between skill slash edge and inefficiency.

29:07Larry Kochard:And some of those inefficiencies get harder, but some I do think persist just because they're so much harder to invest in.

29:18David Weisburd:Reflecting back on your UVA and Georgetown days, you etched in stone the six investment principles. What is the most important investment principle for creating a sustainable investment program?

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30:48Larry Kochard:I'll go through all six, but I'd say the last principle I have in the list is people matter. And something I've already mentioned today is this notion of, you know, we're in the business of underwriting people. What makes people special? What makes people you think are going to not necessarily do the right thing on behalf of you as an investor or a limited partner? So constantly underwriting people and then constantly underwriting what is the edge? What is the edge of the institution? Because we didn't really spend a lot of time with that. We talked about what is the edge of the manager? Why possibly could a manager that has generated alpha and large cap public equity, which everyone is trying to do the same thing and it's very competitive, why is that person going to possibly continue to have that edge, which has existed over an extended period of time?

31:41Larry Kochard:Why will that continue in the future? So that notion of underwriting people, understanding edge, and how the fact that that edge could change over time, I think are the two most important. But then getting back to edge is this notion of being introspective. You as an allocator, as an asset owner, don't need to do everything. You don't necessarily have to be good at everything. I've never invested with, speaking of Stanley Druckenmiller, I've never invested with macro hedge funds. And he's obviously, if you look at his historical track record, it's exceptional. But I've never felt that I had any edge at either accessing someone like Stanley Druckenmiller or be able to identify the next Stanley Druckenmiller.

32:33Larry Kochard:And so trying to make sure you focus on where you have your own edge of your network, the institutions network, and where you have areas where you think you have no edge. Maybe you could get better. Maybe you add someone to the team that can do it. But even if you add someone to the team, ultimately you as a CIO have to have conviction because if someone is getting you outside of your comfort zone because they have a track record and a history of doing it, and then all of a sudden it doesn't work out short term, as a CIO, you might be prone to the behavioral mistake of pulling the plug at just the wrong time.

33:15David Weisburd:It goes back to this, not understanding the thesis. Yes, exactly. Double click on the edge of an institution. What are some common edges that an institutional investor may have in the market?

33:26Larry Kochard:And this relates to what we talked about early in terms of being embedded in an institution and really enjoying the fact that you have a board or investment committee or both who have experience in the corporate world, investment banking, hedge funds, private equity. And these are individuals that have clearly signaled they will do anything to help you. They want you to succeed, of trying to leverage them. And so each institution has a different composition of that board. And then even beyond that, the alumni network of an institution. And each institution has a slightly different sort of edge.

34:08Larry Kochard:You want to think of UVA going way back in time before I was even there, they had a very large allocation to hedge funds. There was a large number of graduates that went into the hedge fund world. A lot of them were a tiger. And that tiger cub portfolio really paid dividends over decades for UVA. So that was part of my network then, since I was part of that. And so leaning on that versus we had certainly some very strong venture relationships, but unlike a Stanford that was right off of Sand Hill Road, which is really still the epicenter of the venture world, it wasn't as good as another institution.

34:57Larry Kochard:We still had strong relationships that were built up over time, but understanding those relationships that you either have developed yourself or just have acquired as for being part of that organization is really, really helpful.

35:15David Weisburd:Playing to your strengths. I'm so curious, if you're at UVA, you have access to these Tiger Cubs in the hedge fund world, or if you're at Stanford Endowment, you have access to these top quartile venture programs. Is that kind of where you start with the program? If you're starting it from scratch, you build around your strengths, and then you're like, oh crap, I'm like over allocated in venture. How do I defend the rest of my portfolio against this alpha?

35:37Larry Kochard:It's a really good question. I'd say what you don't want to do is to get so oversized in anything just because it does supply to your strength because you then end up with these other problems. It's just like too much of anything that's good for you can also be bad for you. You can actually have negative health consequences from drinking. Everyone should hydrate. But if you drink a lot of water or too much water, it could also be bad. You also want to have this sense of play to the strength, but also know their limits to something. So because of illiquidity. So let's say you just had 70 % of the portfolio in venture.

36:19Larry Kochard:That's not going to work well over a long period of time just because you have these bursts of the IPO market being open. So you can get liquidity then. But there are long time periods where you're not going to have any liquidity. So that's not going to be good. But what I would say is you end up figuring out what is the most you can handle from a risk standpoint, from an asset allocation standpoint, and still meeting the long-term objectives of the institution. So having, say, over-allocation to that relative to other institutions. But then the rest of the portfolio, it might take you a time to build that out.

36:59Larry Kochard:And a good default option is just being passive. If you were just starting from scratch, play to the strength of the institution. Where are the relationships that you can leverage day one? But then the rest of the portfolio, until you develop those level of expertise, let's say you build out a venture portfolio and that was your edge. Then over time, you developed hedge funds. You developed other private strategies. You develop a public equity portfolio. You can always be passive and just be passive until you build up that level of capability that is going to be sustainable over time. But just understand that as opposed to just saying, oh, I have to have exposure to all these active asset classes or even private asset classes, even before I feel I have any kind of edge.

37:51David Weisburd:This is such an underrated point. I had the CIO of North Dakota Land Trust, Frank McHale. And the way that he builds out every asset class is he finds an index of that asset class. And then he sells that index into a manager. So if he was to go and buy a large buyout, he would find an index approach to that. And as he finds a manager that he believes could actually deliver alpha, he sells from that and puts it in that manager. And the reason it's so underrated is behaviorally, it's so important not to have a pressure to act when investing.

38:25Larry Kochard:Very well said. I think that's brilliant.

38:28David Weisburd:And when you're starting out as CIO, I'm sure there are certain asset classes that you weren't an expert in. How many managers did you have to meet with before you were ready to make the first investment?

38:37Larry Kochard:Fantastic question. I would say that is very underrated. When I look back on my career, if I would have any sort of lesson learned, it would be to approach what we just talked about, whether it's being passive until you're active, approach that even slower than what I did in the past. It takes many reps to develop a sense of pattern recognition to really understand who's good and who's not. And it takes years. Now, it could be that you have a team that already possesses some of that and you develop conviction in their ability to do that. But even then, that's a learning experience of understanding who you have on the team.

39:25Larry Kochard:So it's hard for me to give you a precise number of years or meetings, but I would say it's longer than most people appreciate.

39:35David Weisburd:And 30 managers de-risks a lot of it, 300, another sense of it. And then at the margins, the downside becomes less and less, the more managers. The odds of making a huge mistake are largely mitigated by number of meetings.

39:49Larry Kochard:And Warren Buffett always talks about this notion of waiting for the fat pitch. And although there's rarely this pure no-brainer fat pitch, because there always are shades of gray that there's always something that you can come up with that you could dislike about investment, but you don't want to make that paralyzed to make decisions. But I do think there, this sense of patience and this notion that you as an allocator should make very, very few decisions over a period of time, should become, even if you have plenty of liquidity to do it, and even if you're fully invested in an approach similar to what we just talked about, where the default option is passive, of set this guideline of being very slow in terms of the number of decisions that you make, I think is really helpful.

40:44Larry Kochard:One natural way of doing that is by just having a smaller team. So when I think of a typical team size at large endowments could be anywhere from say 10, 20, maybe 30 people, depends, they could be even bigger if they're doing, but is trying to keep that number of people, the team size smaller is going to make you less likely to make decisions. And I think that will just naturally force you to be longer term, force you to make things more slowly, have an inventory of things that you might do. But I do think there is an advantage of being slow in terms of the number of decisions you make in a period of time.

41:32David Weisburd:How do you marry the strategy of going slow or going where the opportunities really are with managing the board and the stakeholders and the messaging?

41:42Larry Kochard:Whether it's going slow or whatever that criteria is, you have to impress upon people the reason that you're doing that and what you're trying to prevent or what you're trying to guard against. And then you communicate that rationale. The logic to that is also it'll make you less prone to chasing fads. But I think most people will get that if they keep on hearing that story over and over and over again. The hard part is just the sense of patience, the sense of FOMO, the idea of just doing things. People like to be doing things. And again, there's this notion of if you have a team, they want to be making changes themselves, as opposed to moving very slowly.

42:36Larry Kochard:But doing that in a way where it still is a fun, intellectually stimulating place to work, I think is interesting. I mean, one idea, most endowments, it's essentially manager of managers. We're hiring managers. As you said, there could be certain sleeves where we have passive allocation as a toehold, but it's for the most part hiring investment managers and with a different range of number of manager relationships. I do think doing direct investing as co-investing, where you're investing alongside of public and private managers, having that on the periphery of having a concentrated portfolio of number of managers and doing a lot of co-investing around the edges keeps people engaged and gets them closer to the underlying portfolio companies, which is, I mean, at the end of the day, that's the edge.

43:36Larry Kochard:of how well are those portfolio companies actually doing and why do they have a right to win? And not that you're necessarily going to be making, doing the level of research and sourcing that managers would be doing, but leveraging up some of those decisions, it reduces the fee load, but it creates more liquidity, gives you more direct control over the sale of certain investments. And it keeps the team very engaged in the process without then having to make a bunch of manager hire and fire decisions over a period of time. I think that's actually a useful addition.

44:16David Weisburd:At Professor Steve Kaplan, he quantified that 220 is 600 basis points per year. So if you could average down that co-investment, if you have a fee structure low, you start with a margin of error is another way to put it. And then on top of that, you're partnering with your GPs. that also is a great way to diligence the GP. Like how are they thinking on specific investments?

44:35Larry Kochard:Completely great. You're doing ongoing due diligence and you're getting closer to the portfolio companies, which is what is ultimately going to cause the alpha and your cutting fees.

44:46David Weisburd:It reminds me of a Peter Drucker quote, which is when CEOs get bored, they start doing M &A. They start acquiring companies.

44:53Larry Kochard:It's a good analog to that. That's a really good comparison.

44:58David Weisburd:So you're known for your real estate portfolios and specifically about your focus on the risk of inflation. Tell me about that.

45:07Larry Kochard:So I'll tweak this question a bit. And this is what I would say is actually an even bigger career lesson learned. If you go back in time, whether it's me or whether it's other CIOs, you look at a portfolio, what are you trying to achieve? and you have this mix of public and private, and you have this mix across cash-flowing, fixed-income type assets, and then riskier equities. And you're trying to create this portfolio balance. And you're trying to create this balance between deflation and inflation as two broad risks that are facing you as a portfolio manager. And so you think of equities as providing growth in the portfolio over a longer period of time, fixed income protecting against deflation and real assets broadly as protecting against inflation.

46:00Larry Kochard:And it's a nice story. It holds together really nicely. And a lot of asset owners have some degree of justifying their asset allocation using that type of argument. What I've drawn the conclusion of after many years is, A, and this is nothing new, that during inflationary times, equities tend to go do badly initially, only because what typically happens is the central banks tend to tighten into that, which causes a problem with stock prices. So that's partly why they initially will sell off, in addition to the fact that there's some economic costs associated with inflation. But over a long period of time, equities are a real asset.

46:50Larry Kochard:To the extent that companies have pricing power, they can pass along cost increases, and it's a real asset, as opposed to fixed income. Anything where the cash flows are fixed, that does worse in an inflationary environment. Anything that the cash flows can go up with inflation is essentially still a real asset. So over a long period of time, I have a bias to more just equities as opposed to real assets in the portfolio, because so much of the way or the way people or allocators implement real assets is through private real assets. And my observation over extended vintages is that private real assets, almost not all the time, but a vast majority of the time, underperform private equity, buyout, growth equity, and venture.

47:44Larry Kochard:And so I'd much rather use my private, again, to the extent that there's a budget that you have, there's a constraint in terms of how illiquid you can get. I'd rather use that private illiquidity budget with buyout, growth equity and venture than I would private real assets. And the exception being, when I've gone back and looked at this, there are occasionally vintage years where, so for example, real estate will have an exceptional period. Just right after the GFC, there was a great vintage year for real estate. And it's the times of distress. So real estate can be really interesting during times of extreme dislocation.

48:30Larry Kochard:Just like anything that is more distressed oriented is attractive during those periods of times. But I would, as opposed to just trying to target an allocation to that, I'd much rather be doing private investing broadly, where the default option is private equity being buyout growth venture. and then save for special periods where you're going to be doing something that could compete with those in particular in those vintage years that's going to be more as a real asset. So what that again argues for is having more of this generalist. You're not always just always committing to real estate. You're just waiting for that fat pitch.

49:11Larry Kochard:And that fat pitch is going to be very episodic as opposed to just being always on. So that's how my view has evolved over time.

49:21David Weisburd:And for that, you need liquidity. You can't hit the fat pitch without liquidity.

49:26Larry Kochard:Yeah. And you need to have liquidity and you need to have that sense of, is it going to compete with what else I can do privately? So that's my sort of long-winded view of getting a much smaller to no allocation that's private, except for episodically, opportunistically, that is a real asset.

49:51David Weisburd:And Professor Steve Kaplan, who we talked about earlier, he has compelling evidence for non-taxable investors. They shouldn't really have almost anything in infrastructure and real estate because those just don't outperform over the long term. Yeah.

50:04Larry Kochard:And there are other strategies like that, too. I mean, there is a difference between taxable and non-taxable investors. There are certain strategies for a non-taxable investor that are at the margin. you could argue that's one of the reasons you're doing it because you have an edge from a tax standpoint, but you also don't want to make sure that you want to make sure that the tax reason is not driving the bus.

50:27David Weisburd:Perhaps a dumb question, but when you have individuals, they're able to borrow against their personal stock portfolios at a very low rate and endowments, which seem to be the greatest counterparties you can have in terms of a creditor, they don't seem to really borrow against their illiquid part of the book, even to any degree. Why do you think that hasn't become a thing where there's products that allow endowments to borrow against the liquid portfolio?

50:53Larry Kochard:It's a great question. I mean, I would say a couple of comments. One is at least, I mean, certainly not the venture in growth, but certainly the buyout, there's already leverage. And so that would just be leverage upon leverage. So that would be one thought. You already see a little of that. So to the extent that, you know, whether it's the GFC, whether it's other times where endowments have gotten too illiquid. There have been times where the university either has or could serve as a backstop because so many of these elite universities have very strong balance sheets.

51:23David Weisburd:So they could do that in times of stress.

51:26Larry Kochard:You could almost argue, as opposed to borrowing against the private portfolio, there's some element of that, of using derivatives and futures for a rebalancing approach. So there's ways of rebalancing that you get it through futures exposure, which is essentially implicit leverage. So you're doing that. And then the third comment is you already have a little leverage embedded in the system. Just the way that you do private equity, there's unfunded commitment. That is an implicit liability also. And so you already have a little leverage. So you just have to be careful.

52:04David Weisburd:You've been in around the endowment model for decades. There's now also this TPA, the total portfolio approach model. What's your sense for the future of endowment investing? What's the model going to look like? The total portfolio approach, there are a number of endowments that they don't call it that,

52:22Larry Kochard:but they do a version of that already. They're not bucketing a target allocation to buy out, target allocation to venture, target allocation to this and that across the portfolio. And they're thinking of it more as, okay, what is my beta to public equity, which is the way I've approached it, which is, you know, it can do a total portfolio approach. The endowment model, which, you know, has different elements. It's to some extent embedded in some of the things that we talked about, whether it's being long-term, focusing on illiquidity, focusing on your edge, focusing on inefficiencies, being able to be unconventional and contrarian, playing to the strength of the organization, because you have these alumni that are really willing and able to help you, which does give you an edge in access.

53:06Larry Kochard:That's all elements of the endowment approach. I'd say a couple tweaks is one is endowments historically have been very benchmark, less benchmark sensitive than say pensions. Pensions run at a certain tracking error and the way they think of risk is not just absolute level of drawdown, but also how much they're deviating from their benchmark in terms of return. They're so much more benchmark sensitive and aware than endowments have historically been. It does appear that in light of the fact that there's been this enormous gain in the public markets over the last few years driven by mega cap stocks, which has caused private investments to lag, that there are a number of endowments that have been lagging public benchmarks, which I think is causing a rethink in terms of being more benchmark aware that's more similar to pensions.

54:06Larry Kochard:I don't think that's going to lead to big changes, but I do notice there's more of a discussion about that among CIOs. I'd see where you're seeing, you're probably going to see differences, is one is endowments have just gotten much less liquid. It's less about unfunded commitment problems that they had during the GFC, and really more related to the fact that private investments across the board, bio growth venture, have just not generated the liquidity that they have historically. And there've just been longer holding periods. So even good companies in portfolios, managers have been reluctant to liquidate those, either sell them or do an IPO.

54:50Larry Kochard:and these companies don't need to be able to go, don't need to go public. And so companies are staying private for longer. And I think that's caused people to just reassess the speed with which they're committing to private investments. So they've just gotten less liquid. So people are using the secondary market. There is a fairly liquid, especially on the buyout side, secondary market. So people are tapping into that more. And so I think there's a greater appreciation of illiquidity. I think there is a growing awareness to the fact that, yes, illiquid investments, because of differentiated access to good funds, that's still going to be an edge for a lot of the larger endowments.

55:32Larry Kochard:But I think there's less of this sort of risk premium that's going to be generated because of the fact that they're just illiquid, this illiquidity risk premium. So I think there's going to be greater appreciation of illiquidity. Another example is for years on hedge funds, there'd be different share classes that you can invest in in hedge funds, quarterly, annual, three-year lockup. And so many endowments would just go automatically into the longer term lockup to get lower fees. I think people realize that the cost of going to the shorter lockup is less than the cost that you're getting from going into those longer share class.

56:13Larry Kochard:It's just a renewed appreciation of liquidity risk, if you will. Finally, what I talked about, this mixing, I'd say there's a lot of co-investing. There are a lot of institutions that may be almost akin to what some family offices are doing, which is fewer manager relationships a lot more in the way of direct and co-investing around the periphery. I think there are more institutions that are doing that. I don't think you're going to see the repeat of Harvard management from years ago, which was not entirely, but a large percentage of the portfolio in internally managed funds. But it's going to be more of this investing alongside of managers.

56:56Larry Kochard:I think that will be a greater part of what endowments will be doing.

57:01David Weisburd:If you look at this endowment versus TPA approach, they both have strengths. If you got rid of the labels, they probably both have wisdom that you can integrate into just best practice. Agreed. Completely agree. If you go back to 1986, when you were just starting out at Goldman Sachs, I'm not trying to age you, but what would one piece of advice would you give a younger Larry that would have either accelerated your career or helped you avoid costly mistakes?

57:23Larry Kochard:I'm going to double down on it again is it's all about the people. Is, you know, one of the things that, you know, mistakes that have been made over the years is not thoroughly assessing quality of people. You know, whether it's in personal friends or whether it's, you know, investments is just making sure that there's no stone unturned and you're not done with that reassessment forever. You're just constantly doing that. As long as you have a relationship with that person, you need to constantly re-underwrite that and people change. So that combined with people, meaning people in the positive sense, one of the things, going back to Goldman Sachs in 1986, that I think was exceptional, still a partnership, exceptional people, and was the ability for them to work as a team.

58:20Larry Kochard:and the collaboration of Goldman. I think Goldman still has exceptional people, but I just, speaking from that point in time, is the ability and the importance of collaboration and how well, what that meant to your success. You were being rewarded as much on how you collaborated as well as how much money you made for the firm. That sense about quality of people and ability to collaborate partner is to me the thing that is most important. You know, when I grew up, I was a math science guy. I ended up getting a PhD in economics. It was very mathematical. And as I've gotten older, what I feel like is the most valuable is the relationship side, the people, understanding people, what makes them tick?

59:17Larry Kochard:Are you aligned? Do you trust them? Both sort of understanding that downside as well as the upside. What makes them special? Why are they one in a million? Why are they potentially a unicorn? And then that ability to work together with them and with your team and building a group of people that have that. To me, it's all about the people. And that's why to me, that is the most important of all my core principles. That's the most important. And that's the most important thing that's going to determine success and failure.

59:47David Weisburd:People are upstream of everything, whether it's people on your team, whether it's the GPs you invest in. If you make those decisions correctly, even if you make them for the wrong reasons, hypothetically, they'll lead you to the right decisions. If you think about leadership, it's this vague overused term. Leadership is really selecting the right team and leading them together to the right answer.

1:00:08Larry Kochard:Well said. Very well said.

1:00:10David Weisburd:Larry, this has been an absolute masterclass. I've been really excited to jump on a podcast. Thanks so much for jumping on. Looking forward to continuing this conversation live.

1:00:16Larry Kochard:Thank you so much. It was great meeting you. I really enjoyed this.

1:00:20David Weisburd:That's it for today's episode of How to Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find it valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.