E322: How $70 Billion Gets Allocated During Market Chaos

0:00David Weisburd:So you're president of Investment Performance Services, which has roughly$70 billion in assets under advisement. When we last chatted, you mentioned that you guys are able to increase your returns while decreasing volatility. That caught me by surprise. How are you able to accomplish that?

0:18Jennifer Mink:So one of the things that we do for our clients is asset allocation modeling. So we are building portfolios for them to help them not only reach their investment goals, but to have ample liquidity to pay their ongoing benefits. So when we do that asset allocation modeling, a lot of times what we're able to do is take an asset class that maybe has a higher standard deviation. When we add that to the investment portfolio, it actually decreases the overall risk and volatility of the total portfolio. So we look at that as a true benefit to diversification.

0:52David Weisburd:Give me an example of that.

0:53Jennifer Mink:A good example would be alternative investments. So many clients have a lot of experience with public markets. But as we start looking at some more exotic asset classes, private asset classes like infrastructure, private equity, when we look at the standard deviation of some of those investments relative to, say, an investment-grade bond portfolio, when we add that to the portfolio, it actually decreases the overall volatility of the portfolio simply by having that lower correlation. That's a very important factor. So we try to educate our clients about that, about asset class correlation. And sometimes having more things in the portfolio is less risky than only having a few, what we would call safer, less volatile investments.

1:38David Weisburd:There's two different mistakes that investors oftentimes make. One is, I would just call it double diversification. So they diversify on both the fund level and on their portfolio level, where sometimes the best portfolios actually have spiky assets. So think of it as a venture fund that might return a 5, 7x, but once in a while might even lose a little money, might be a 0.8x. People are so focused on making sure that that fund is super diversified, where they really want to be diversified on a portfolio level. And then second mistake to your point is something could be risky on its own or something could even be crazy to put in a lot of money on its own.

2:19David Weisburd:But if you're hedging against it, which we'll talk about later, it's not actually as risky on a portfolio level, even though if you just invested into that one asset, you'd basically be a crazy person.

2:31Jennifer Mink:Some things on their own sound scary, especially if you're not familiar with it. One of the things that we're a huge advocate is education. So we We are trying to educate our clients on anything that we are recommending. So we're the investment professionals. They have different day jobs during the day. We're big in the tapped Hartley trade marketplace. So we really have a responsibility to educate them on kind of what it is that we're recommending and then illustrate how it impacts their portfolio in both the return and risk standpoint.

3:03David Weisburd:It's so underrated to understand and be rooted in a thesis. example I like to give is Bitcoin. Let's say you were lucky enough to invest at$10 a Bitcoin in 2011. That sounds great. But if you had no fundamental view on the Bitcoin, you might have sold at 70. You certainly would have sold at$150. And then today it's approaching$100 ,000. So knowing not only when to buy, which is kind of what all the media is about, and that's what Everyone wants to know, like, what should I buy? What should I buy? Understanding the fundamental thesis behind it helps you not only not sell early when it's down, you could revisit the thesis and ask yourself the fundamental question, is this noise in the market or has something fundamentally changed?

3:50Jennifer Mink:That's really, I think, where emotion comes into play. So if somebody is not understanding why they have an investment and kind of what the ups and downs may be through that investment cycle, there's a lot of emotion that comes in, certainly when assets are doing well, everybody's happy, they're making money. But certainly when there is a downturn, sometimes you can get some panic. So again, that's where the education comes into play. And also our partnership to be a good steward of capital of really trying to be contrarian and not selling when things are down and actually adding more money when things are down and doubling down on what we think is a good idea over the long term.

4:31David Weisburd:Is this something that you're messaging ahead of a downturn or is it possible to get people to act hyper rationally during a downturn?

4:42Jennifer Mink:It's trying to get ahead of it and then working through it. So I think a perfect example would be 2020. So that snapped back in the market that happened very, very quickly. So we had the whole world closed during the month of April. Our offices, like everybody else's office, was closed. I was still coming into the office every day. We still had portfolios to oversee and we had communication to get out. During that month, we were writing memos to clients, talking to them about adding more money to the equity market to try to rebalance because the dip was so severe. It was almost like 2008 going into 2009.

5:21Jennifer Mink:So 2008, we had a dip of in public markets, 40 percent within the first six months of 2009, the S &P was down another 26%. So you had to rebalance. You were out of compliance with your policy. And it's really trying to hold the feet to the fire to put money in when your emotions are telling you not to. So we were very proactive in 2020, in the second quarter, to rebalance specifically to equities. And then I think we all know how quickly that snapped back. It was a little of a surprise how quickly it did start to come back. But our clients that were proactive and took the recommendations, their portfolios performed the best that year.

6:03David Weisburd:What gets easier when you're investing$70 billion?

6:08Jennifer Mink:What gets easier? I think it's really about the structure of the company. So this year, 2026, IPS, we're actually celebrating the 40th anniversary of our firm. So over those four decades, we've had pretty steady growth over that time period. So with that growth comes structure. We have very disciplined procedures, especially when it comes to our research. We can apply that whether we're a$7 billion firm, a$70 billion firm, or$170 billion firm. What we look for and what we like in terms of managers and asset classes doesn't really depend on our size.

6:50David Weisburd:When you have$70 billion, what gets harder?

6:56Jennifer Mink:I would say managing the growth of the firm. We don't have specific mandates in terms of our size. So it's not like at the beginning of the year, we're setting a goal to go out and bring in X amount of assets or have X amount of clients. Our goal isn't to be the largest Tap Hartley Consulting Firm, we really want to be the best consulting firm. We work with almost 200 unions nationwide, and that is representing working men and women in all 50 states. So as we continue to grow, it's extremely important to us to hire people who are not only committed to our clients and our mission, but who are willing to show up every day to really get the job done.

7:42Jennifer Mink:And we've found that post-COVID, it's getting harder and harder to find people who are willing to do that.

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9:29Jennifer Mink:I talked to you earlier about our structure. I mean, that is our number one thing that clients hire us for. So a benefit fund is going to hire an investment consultant for access to investment ideas and to investment managers. We have a dedicated research team. So they are utilizing primarily databases for most of our public market investment managers, looking at the tenure and experience of not only the consultants at our firm, but within our research team, we have a pretty strong network that we use for public managers, but more for private managers. You know, a firm that's been in business for 40 years and overseeing 70 billion in assets, we have a very good reputation in the industry.

10:16Jennifer Mink:So a lot of times firms are calling us and it's our job to answer those calls. So I get probably two to three emails a day from investment managers who are curious about either our firm, a specific client, or they're just trying to raise money. And somehow we showed up on their radar. So we have some conversations with them. When you're doing about a thousand diligence meetings, averaging that over a three-year period, there's a lot of hustle involved with that.

10:49David Weisburd:How do you look at emerging managers? Is it a subset of the overall portfolio? Do you have a program or do you just track them until they they're on a third, fourth, fifth vintage?

11:00Jennifer Mink:We really track them. Being a steward of somebody else's capital and serving as a fiduciary, it's very difficult to say, OK, let me take somebody else's money and try this new idea with this team that's unproven and doesn't have a track record. If we see something we like or it could be an investment philosophy that's coming down from our investment committee that we want to start tracking and looking at. That's, you're exactly right. We're going to follow that manager through maybe one, two, three vintages of a fund. Typically by a fund four, we're going to be comfortable to start deploying assets.

11:38David Weisburd:What exactly are you looking for in the first three funds that makes you really excited when they come out for a fund four?

11:43Jennifer Mink:We want to look at the stability of the team in terms of capital calls. How much are they deploying, how quickly are we getting invested? What is the turnaround looking like? Are we getting distributions back? Are the returns looking kind of what we thought they were? Is the investment philosophy in line with what they said it was going to be? No big hiccups in terms of legal or regulatory issues, stability at the firm, no change in ownership, and just really looking for consistency. And if I had to pick one word to describe IPS, it would be consistent. We're consistent in our business. We've been doing this for 40 years.

12:22Jennifer Mink:This is the only thing we do. The only thing we do is investment consulting. We're dedicated to the Taft-Hartley marketplace. We've been very institutionally focused. We're just very consistent in what we're looking for. You mentioned earlier about three quarters of our managers beating their benchmarks. You know, that's not an easy thing to do. And we know this because we actually track it. So for all of our public fund managers, you know, not only do we evaluate the performance of investment managers, we actually evaluate the performance of ourselves and we do that through our research. So I mentioned earlier, we have the structure in place and we have this criteria that we apply to both public and private managers.

13:04Jennifer Mink:Well, how do we know that that is the right criteria and that we're screening for the right things? Well, we have to go back and then we have to do a look back and see how did those managers that that criteria led us to actually perform over different market cycles? So not only up markets, but we look at down markets and how did they perform in 2022? and then that's how we're getting that consistency ratio. That consistency ratio is telling us that what we're looking for in our screening is leading us to really top tier, best in class managers.

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17:05David Weisburd:See experian.com for details. Said another way, you're really over those three vintages. You have a chance to stress test that team. Talk to me about these foot faults or yellow or red flags. What don't you want to see that a manager would do in the first three vintages?

17:22Jennifer Mink:Within those first three vintages, you know, we're really looking for the consistency. So looking for that return, seeing if there's any turnover in the team. So a lot of times if a new team is getting started, is everybody sticking with it? Is anybody leaving? Any changes in fees? Are the fees consistent with what they were supposed to be? Are they meeting their hurdle rates? Are they meeting their benchmarks? So we're just really looking for what they said they were going to do and have they been able to do it? One of the things that we're faced with right now is just slow distributions coming out of private equity.

18:00Jennifer Mink:We do run private equity pacing analysis every year. Every client who has private equity, we're doing a model out in terms of where are we in distributions and capital calls. And when do we need to commit more money? The problem we're running into right now is as we're having the next vintage launch, we've not gotten enough money back in distributions, whether it's from that manager or other managers, to really start redeploying more capital into the space.

18:27David Weisburd:I have Alex Ambrose from Allocator Training Institute, and they had done some benchmarking. The original Yale model, there was roughly 24 % DPI per year. 2024 was 9%, 2025 was 9%. So the model as it's made to work is broken today.

18:44Jennifer Mink:That's what we're seeing. So last year, most of our searches were into infrastructure. So as I said, we were big in private equity in 21, 22, not as much in 23, 24. 24, we were doing a little bit more in private credit. And then last year, we were leaning very heavily into infrastructure.

19:07David Weisburd:One of the most underrated things in alternatives, I believe is this concept of structural alpha. It's become this buzzword. It means many different things. Sometimes it means tax. Sometimes it means literally a specific structure. One underutilized form of structural alpha is when managers create funds specifically for different types of LPs. I had the CIO of the doctor's company, T.C. Wilson, and he talked about how insurance companies need funds to have certain kind of structures. And if more people would structure those funds in that way, there would be a big pool of capital. Do you see the same thing in Taft-Hartley funds in that managers could, if managers went out of their way to structure their funds in certain ways, they could better partner with somebody like yourself?