E424: 32-Year Notre Dame CIO on Sequoia, Venture Capital & Concentration

25:56And it was just a common sense of fulfillment. And we had fun doing it. That's a good one. And there's a few others, but that's kind of unique. There's not many like that. Outside of investing and putting capital into subsequent funds, which obviously is very critical, how can LPs be better partners to GPs? And how could GPs be better partners to LPs? Sometimes GPs can underestimate the complexity of the LP's portfolio and decision-making. Institutions sometimes have a lot of hoops to jump through in investment committee meetings, and their fund is only one part of the overall equation for an LP.

26:34It can be a small part even, but it's only one part. LPs also have to consider liquidity. Most of their LPs, venture funds, are spending institutions. They spend 4 % to 5 % a year. So the liquidity requirements, the pacing of commitments is important. Over time, how much are they committing and when? The vintage year thing and then stacking those with all your other partners. So LPs have a number of other governance structures. It's not just about one manager in isolation or one LP in isolation. They have to understand that LPs have a variety of challenges they're dealing with. And I think as a GP now, it's easy to underestimate the amount of time it takes on the non-investment work, the capital formation, the compliance, the staff office, the audits, all that, and the operations.

27:24That's a lot of time. And probably as an LP, we didn't appreciate how much of our GPs are spending on that, too, especially early on. When you're on both sides of the table, you do learn different things about each other that are helpful to the relationship over time. You developed a reputation at Notre Dame for not having sharp elbows. What does that mean exactly? And how did that turn into an edge as an investor? It wasn't really in our culture to have sharp elbows. I mean, we always thought the best in people. We weren't naive, but we thought the best of people. We wanted to get to know them.

28:02We felt if we treated people well and were consistent in our relationship, they would treat us well. We would get more and more allocation. We certainly were not afraid to speak up for ourselves. But we also, look, at the end of the day, we don't run those firms. So they're going to decide allocations. They're going to decide to make those kind of decisions. But I found it more helpful to really build relationships, try to really get to know people, make our case, and then make our asks. and then trust them to do the right thing. And honestly, our best partners always did the right thing. I was never ever surprised.

28:36I was usually pleasantly surprised. But I was never negatively surprised. I always thought it was a fair decision and I could trust them. And trust is really important, right, in any relationship. Some of the Ivy League schools had sharper elbows. They always put it out for themselves in some ways. We just had a broader sense of the world and humanity and our place in the world. I think it just came from our religious heritage, if you will. It's a different mindset. Whatever religion you are, it's just a different mindset. And that was our founding. So we just thought differently about things like that.

29:10It wasn't fun for me to have sharp elbows. I could do it if I had to, but that wasn't the first thing I thought of. Reminds me a little bit of David Swenson's strategy, which is somewhat paradoxical. He wanted to do the right thing for Yale. He wanted to do the right thing for other LPs. and he also wanted to do the right thing for the GPs. And you might think, well, how is that? How could you do the right thing for all the parties? But if you structure things in such a way, it could actually be a win-win-win for all parties. We certainly tried to find the optimal balance of that. I'm sure we missed some opportunities, good and bad.

29:47But if we missed enough of the bad ones and got enough of the good ones, we were going to have a pretty nice portfolio. That was something I would preach to my team. Let's make sure we avoid the really bad ones, The ones that blow up, they do not fit our criteria. We might miss a good one here and there, but that's okay. We're not going to get everybody. But we got our share. We definitely got our share. Oftentimes, the Notre Dame endowment was early in a manager, and you provided that signal that GPs so desperately needed. And you chose not to hammer people on the terms. Why? We would talk about terms, but we weren't overly obsessed with changing them just for our benefit.

30:25We had a broader sense of the partnership, their challenges. We just want something fair that we thought was fair. We had no problem paying up for excellence. I did not mind paying premium carries over certain IRR thresholds, if you will. I'm happy to pay up for excellence as long as there's a balanced, the terms are balanced in that sense. We would actually encourage that sometimes. Rather than go to just a flat, let's say, 30 % on a private fund, we'd say, why don't you start at 20 and go to 30 or maybe higher than 30 if you're earning over 4 or 5x of the fund? I'm happy to pay people more for that kind of work.

30:58Buried by firm and situation, but we very much talk about terms, but we were just more balanced about it and not trying to get every penny. And I think we just felt if this was a long-term relationship, we would say what we thought was important and they would take care of us over time. And they did. And they treated their LPs very well. Reflecting back on premium carry, obviously at the time you had no issues paying it. But looking back, did those investments end up on net basis in a better situation than the non-premium carry? And in retrospect, was that maybe the wrong decision with a perfect hindsight?

31:36side? The ones we did premium carry for did very well. It wasn't everybody, right? But the ones we had, we selected did extremely well. So that worked out very well for us. No question. And rather than negotiating fees in a lot of these situations, you negotiated capacity, right? Tell me about that. As we moved along, especially in some of our public portfolios, actually public equities, we were very pleased to see sort of a younger generation of emerging talent coming in the stock picking world kind of globally in different niches, different subsectors or different niches. But the only way they were going to be successful, David, was if they stayed small.

32:17They couldn't raise billions and billions. They had to stay relatively small. And we were happy to fund them early with the understanding that they would grow at a more measured pace, mostly organically, and that if they ever did raise money, we would have certain capacity rights. And in some cases, they had to get our approval. We didn't always ask for that. It wasn't always necessary. Sometimes they didn't want to do that. That's fine. But we did get a little more aggressive in that with some of these public managers because it's a lot harder game. It's tough. We all know how hard it is to beat the market consistently over time, the stock market.

32:51So, yeah, we did. we did negotiate some capacity rights that if they ultimately were going to raise money, we would have the right to take whatever, 50 % of the new money they raised or 25 % or something like that. Again, a very bad situation. And it helped them understand how being smaller to medium size was better for them too, long term. And those worked out pretty well overall. Not every one was super successful, but overall, they worked out pretty well. They stayed small and nimble. They had good returns. We got good public exposure. That approach was very successful for us. Is there an economic rationale for staying small?

33:34In other words, there's more durability in that kind of business, or is it purely doing right for investors? I just think if I read a book someday on the 10 most important investment principles and what ruins a firm size is number one. Absolutely no question. They just get too big for their strategy. They get sloppy. They get greedy. They'll start living off management fee. The incentives are not aligned. I mean, I watched this movie play out over time. When I first started, all the management fees were budget-based. They would show you the budget. They set the management fee based on the budget.

34:12And the only way they really made money was through incentive comp, through the carry. And that was pretty standard in the business. And then you started getting these large buyout funds, raising billions of dollars, charging higher management fees. And, you know, that changed the game a bit. And then that became more common. But to this day, we did a lot of venture. We did a lot of lower middle market, a lot of micro cap PE. And now at Grafton, we're doing the same thing, the same areas. And the management fees are still with those firms are pretty much budget based. They're not making profit on the management fees.

34:46the ones we're working with. They might have a little bit here and there. They might be putting money away for the future or whatever, and there's nothing wrong with that. But they're not getting rich off management fees, the people I work with. That's changed a lot, obviously. As private markets have exploded and institutions want to put more money in privates, it's just the capital flows, the growth in assets under management and private equity funds has just absolutely exploded. I don't have the numbers in front of me, But I think late 80s, the entire amount of money raised in private equity vehicles was just a few billion dollars globally.

35:23Now it's hundreds of billions every year. It's completely changed. So it's important to sort of pick and choose what's important and what we believe will add value over the long term. Actually, one saw a graphic on management fees and venture specifically, and the small funds had two and a half percent. And then the very large funds had two and a half percent. Everybody in the middle was like 2%, and some were like 1.5 % with concessions. Meaning either management fees were literally just to keep the lights on. They just couldn't be negotiated because it was existential. Or management fees were just, we have such a market position, you want to get into these top quartile funds, so you're going to pay the 2.5%.

36:02It was kind of like almost a form of carry. Yeah, exactly. I observed that as well. Support for today's episode comes from Square, the all-in-one way for business owners to take payments, book appointments, man's staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out us fast, receipts are instant, and sometimes I even get loyalty rewards automatically.

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37:38I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out as fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square, they just feel more put together. Experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups and everything stays synced in real time. You could track sales, manage inventory, book appointments, and see reports instantly.

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39:34Tell me about how you went about building out your strategy at the investment office. We needed to change the whole approach, honestly. And thank God I had the strong investment committee chairs we talked about earlier and Bob and Jay. I basically laid out a blueprint for what I thought was going to be critical. And it started very simple. I needed more of a budget to hire talent and build a team and for travel. I remember that the budget for the office then was so small, I could barely even travel much, much less hire talented investment professionals. I was very fortunate the board really helped kind of educate the administration, if you will, more about how this has to work, what we need to do here.

40:19And people bought into that. We never really had any resistance. The expenses were paid out of the endowment income, like a mutual fund as well. And so that helped. It didn't put a lot of pressure on the operating budget of the university because it was paid for out of the down and pool, which is standard procedure. And so we just over time were able to build that. So for me, it was basics. I'm getting a team to help me. Having enough money to do the research, traveled to New York, San Francisco, London a few times, eventually China. Started going to China a lot. Well, we started in the early 90s, but really picked that up in the late 90s.

40:57Yeah, so that was critical. And then over time, just getting, okay, when I first started, David, we didn't have that many managers, but they all came through campus at least once a year to present to the committee. Well, that was a waste of time. There was no reason to do that. That was my job. I mean, I wanted the committee to focus on other things, higher level things, and they got it. Luckily, they said, you're right, you do that. The chairman of the committee used to deliver the performance report at committee meetings as opposed to the CIO. And I said, Bob, I can do that. He goes, yeah, you should do that.

41:32I mean, they were just very happy to just let me do it. I just needed to ask them or tell them or say, this should be something I should do. They never said, oh, no, I got to do this. They never said that. They knew. They just wanted to make sure. I was young. They wanted to make sure I was ready, that I had the credibility, that they wanted me to succeed, so they didn't want to do everything too quickly. But as soon as I would bring something up, they'd say, yeah, that's something you should do. You and the team should do that. And so just over time, we evolved to where we had the delegation of authority and investment authority to run with everything, report appropriately back in line with common standards of large investors.

42:12But the staff was really running things. Eventually, I would say the two things the investment committee really focused on, which they should, was risk and liquidity. What kind of risk are we taking and what kind of liquidity do we have? Especially in the time of emergencies, which we had, by the way, in the global financial crisis, right? Ultimately, everybody survived, partly because everybody got bailed out. If that hadn't happened, who knows what would happen. But that did reinforce the importance of liquidity for spending institutions who are spending 45 % a year. And the operations depend on it.

42:50I kind of remember when I started in 1988, endowment spending as a percent of the total budget was probably under 10%, probably like 5%. And now it's probably close to 40, mid-30s at least. That's a big difference. In some ways, it's really good. But in some ways, it's a challenge, right? Because markets are variable. So you have to build in protection. You have to build in cushions. You know, you can't overspend. This is a lot of decisions to be made. And the committee had, those are the things I wanted the committee spending time on, not evaluating some stock manager. Never building anything about, you know.

43:29So we got to a good point. But those were basic fundamental things that I had to work on over time. And we got it all done without any angst, really. which is very unusual. You were 26 when you became a CIO. In hindsight, was it crazy for them to make you a CIO at that age? At that time, no. Today it would be. We had such a basic portfolio. I had an MBA. I'd been on Wall Street a couple of years with the Irving Trust Company. I had done work with some pension funds and their allocations at Irving. So I had just enough experience to deal with the kind of portfolio we had at the time. And then with their leadership and support and confidence, I grew from their support over time.

44:15And I did a lot of benchmarking. One nice trait is I had been a science major. I was a biology major. I graduated biology degree and then went to business school. So I knew I didn't know a lot of things. I was not a know-it-all. I knew what I didn't know. I was not afraid to ask people stuff. because I wanted to get it right. It was my school, my alma mater. I was newer. I wanted to get it right. So I didn't mind asking questions. I didn't mind going visiting other schools. People like Cambridge Associates were very prominent working with endowments, particularly the big endowments at the time.

44:48They had great data on how schools were investing and asset allocation and all that, NACUBO, all those resources. And I really dug into those and was really trying to learn what was happening out there and why. I was very, intellectually, I just knew that there was a lot I didn't know. And I had to learn this on the job. But I had the support of the institution, the long-term support to do this and do it right. And that's the difference. You don't always get that. We made a lot of changes early. But I did it at a pace that they could stay with me. I communicated well, maybe over-communicated sometimes.

45:25But I felt that was really important. to gaining their confidence in what we're doing. So it was a lot of work, but it was fun. I knew we were all in it together, which is, again, very unusual. We were very lucky. Fast forward to today, you started Grafton Street Partners. Tell me about Grafton. So when I stepped into my role in Notre Dame, now we're in COVID, which I don't recommend doing that, but that's how it worked. And about a year and a half later, I got approached by a couple large family groups that I've known over the years, and they wondered if I would have any interest in helping them with their investments, and I thought it was very interesting.

46:05I ultimately decided, well, let's actually raise a small fund, all equity, public and private, half managers, half directs, and really build some long-term compounding vehicle and long equities. Using my Rolodex of relationships, plus my two very talented investment partners, and Andrew and Steven, who I taught at Notre Dame and who are two of the best students I ever had. I taught over a thousand students. They were my first two phone calls. So you can tell how highly I thought of them. And I knew Andrew Tarneski had more of a background in the private side. Steve Sandtrack had more background.

46:40He had some private background, but more on the public side. He ultimately ended up at Viking and then Tiger Global. And he's a terrific stock analyst. We have an in-house stock portfolio that's absolutely killed the market over the last four and a half years. Very concentrated, but some very long-term companies. I knew I couldn't do this alone. I'd rather raise a fund than just do it for one or two families. And so we ended up just reaching out to a number of high-net-worth people that I knew and they knew and family groups. And to this day, all of our clients except for one are family office groups.

47:15And like you said, we're about a billion three now. We almost doubled their money in the four and a half years, four years we've been in existence. But I love the vehicle. I love the long-term nature of it. I love the compounding. I love the public and private aspects. So you have liquidity, you can reinvest realizations back into the market, back into new deals. And it's achieving what I'd hoped it would achieve. It's just a great kind of high teams net returner for somebody who wants a long-term aspect of a portfolio. And not a hedge funds, It's a pretty much long only great people in stocks in the public markets and the private markets who are really skilled and talented at what they do.

47:58That's how it started and we're having a great time. I love investing. That's why I was even intrigued to begin with. I just love investing and I love doing with really great people as I did at Notre Dame. And now I have the same dynamic here at Draft. And by the way of all of our investment team I taught at Notre Dame except for one. So I've known these young people, a lot of their adult lives, and I've seen them as students. I've seen their values and their integrity and their work ethic. That's a real advantage. So I've been able to continue a lot of the same things I did at Notre Dame here at Grafton.

48:31We don't have some of the institutional requirements I had at Notre Dame, right, as an officer of the school and very involved in a number of initiatives, a lot of initiatives. So it's a little more focused on investing, which is nice. At this point in my career, it's something I'm really enjoying. I'm so curious with your experience. How did you build out the private books? What were your first principles? We knew that we were only going to do venture capital in its various stages and micro cap PE, buy and build stuff, lower middle market. I never did the big buyout funds. Never did. And this was both Notre Dame and Grafton?

49:05And Grafton, both. Although at Grafton, because we're smaller, we actually do much smaller opportunities and more real micro caps, real buy and build stuff, putting much smaller dollars to work. Just something a billion dollar fund can do that a$25 billion fund just can't do. Plus, Andrew and Steven have a lot of direct investing experience. At Notre Dame, we were institutions hire managers. We're doing that plus direct investing. And we've been able to add a lot of value in that as well. I think I have good judgment on people and opportunities. And I read the memos. I meet with the founders. but they're doing the deal execution and the due diligence on those.

49:42So it's a nice synergy. And then the managers, that's where I have most of the expertise and where I spend a lot of my time is developing manager relationships, meeting with new managers, potentially new managers, emerging talent. I love meeting with emerging talent. So it's a nice combination of skills that's come together to form a really good long-term compounding vehicle. How did you go about building out your venture strategy? I started with a couple of names that I've known over the years, worked with over the years, three or four names there. And then we started meeting with a lot of new emerging talent in the venture space.

50:17So we have a number of seed funds where we really like the principals. In some cases, this might be their first institutional fund, but they have a deal record. They've done one-offs here and there. Some of them worked at other large firms and then now are on their own. So they had to have some deal experience, some record of some sort. But in some cases, their first really broader institutional fund. And we have a number of those. So it's a combination of that. And then for the rest of the private book is, like I said, the lower middle market, micro cap PE, and then the direct stuff we're doing.

50:55That's about half and half. What's the hardest thing about building out a venture book? When we started in 22, of course, that was a different time. And as you have an evergreen fund, it's a new fund. So you're getting in and making commitments. There's no realizations for a while, right? So you're going through the J curve. You're not getting a lot of value yet. Luckily, public markets did exceptionally well in 23, 24, 25. So we rode that heavily. And that's why we've generated almost a 20 % return combined over that period. And now we are starting to get a lot more markups, new rounds of financing in our private book.

51:35The manager portfolios are starting to mature now. It just takes time. People who do private investing know. And we were a real startup. I mean, this was a real startup. So now we're at a point where we're getting a little more equilibrium between the two, public and private, and getting more contribution to privates and eventually more liquidity. We've had a couple IPOs recently. We've had some nice markups. We think there'll be a lot more realizations over the next 12 to 18 months. And then we'll plow that back into new opportunities in the fund. So it's starting to get a little more of a steady state equilibrium in terms of the cycle, which will be helpful.

52:13How did you think about your deployment schedule, whether it's private equity or a venture? It was more opportunistic. We had a group of firms we wanted to work with as they were raising money. We invested. We didn't feel any need to do anything. We didn't feel a need to do this quickly or all at once or anything like that. We were taking a long view. We had a target list of groups. We were meeting some new people, people like Dave Thomas at Riverspan Partners. Came out of Golden Gate, lower middle market industrial. I knew Dave from Notre Dame. I had actually worked at Notre Dame. I had invested with him at Golden Gate, so I knew the kind of person he was and the skill he had.

52:53Now he's raising his own thing. smaller at the first funds, like$300 million. They've done four deals so far. They're doing really well. That's the kind of firm we like. Real strong principles, great integrity, long-term view, good values. We have a real deep expertise in some sector. They're hard to find, but we don't need very many. We're just a handful of those, and we're going to earn some pretty good returns for our clients. So it was opportunistic, and then just kind of leaning on some people that I've known, my network, and then also adding new or emerging talent as it's evolved. It goes back to this information asymmetry.

53:31The best venture return, some of the best returning funds were not actually funds, was David Sachs' angel portfolio, Marc Andreessen's angel portfolio. And the reason for that is they knew these people personally. This was not them hiring managers to go find the next slew of talent. Marc Andreessen knew these people. He had work with these people. And that information asymmetry you mentioned with your students, it's just such an underrated thing. When you know the person, you know exactly how they're going to act. I couldn't have said it better. That's exactly right. You had to play your strengths.

54:01And that's just something I know this network of people that I was involved with at the school and they're extremely talented. And I met a lot of others, other places as well over almost 40 years now, I guess, 38 years. And so it's nice to be able to continue to work with a lot of those people. It's a lot of fun for me. And you mentioned you weren't too concerned with getting into too many funds. Obviously at Notre Dame, you had certain constraints in terms of number of funds yet to be diversified to a certain extent. I've had people from formerly Ivy League endowments talking about there's just too much diversification from LPs today, that you don't need 50 funds with 20 positions and over a thousand positions.

54:48Where do you stand in terms of diversification and how necessary is it? And is it overblown today? I do agree with that sentiment. I think the big endowments had way too many managers, too many buckets, in some ways too risk averse, that some ways they should be leaning in more and taken more volatility, they also raised a ton of money. And so that gives you a cash flow. I mean, cash is fungible, right? I mean, it gives you a cash flow that a lot of institutions don't have. So I do think that people have too many managers, still do. Generally, it's got a little better at some of the big endowments, but if I had to do it over, I would try to be a little more concentrated.

55:31It's hard. Incentives are to have more managers, more diversification. kind of CYA a little bit. We got a lot of diversification, a lot of equity beta, but we have done a lot of different styles, you know, and it worked. But I mean, Grafton, I don't have that same dynamic, right? So we're much more concentrated. We're going to have more volatility, but I'm just really looking more at the end game here. How much, what can I do for my clients over a 10 year period? The interim doesn't bother me as much and it doesn't bothered them that they know what they invested in. And we're not spending. We're reinvesting realizations back in the fund.

56:09There's a three-year lot they can ask for liquidity after the three years at a certain pace so they can get liquidity. That's no problem. But we're not spending like an endowment every year. So we have learned from that in this format and been more concentrated. And we're not doing real estate. We're not doing private credit. We're not doing any of them, fixed income. We're not trying to diversify that way. It's not an endowment model. It's purely equities, long equities, about 60 % private, 40 % public. What learnings have you brought from the LP position into what it takes to be a great GP? As an LP, you don't fully have a window into how much energy goes into the business part of the GP and on all the compliance, the back office, capital formation, communications.

56:58with your LP. There's a lot to that. I mean, just writing letters. And that's a lot of time. Most letters are terrible, by the way, right? So if you want to have something that people are going to read, you want to give a lot of thought to it. And I think we've done a nice job with that. We're doing semi-annual letters. So twice a year, we do a longer one. And then the intermediate, the two other quarters, we do something a little more streamlined. But we try to make those two bigger ones really interesting and more meaningful and more content that can be useful to people. But that takes time.

57:25My partners and I do that. All three of us are involved. That's a fair amount of time, which probably as an LP, you don't think about as much. You get the letters. You kind of assume there's some template. Some junior analyst fills in most of it. And then the principals add a nice intro and closing or something. And that's probably not what's true. But now I know how hard that is. So, yeah, you learn a lot about the time involved in those kind of activities that you didn't maybe focus on as an LP. As an LP, you're thinking about them mostly about their investment selections and what they're doing with their companies.

58:00And you're forgetting they're spending a lot of time on all that other stuff too. Do you have this theory of mind of the LP, of the customer, on a deeper level than probably 99.9 % of GPs? What are you able to understand about LPs that most GPs are not able to understand? I know that LPs, we were talking a little bit earlier about all the challenges they have and some of the unique dynamics they have institutionally. And so I'm aware of that, right? I'm aware of they have boards. I'm aware they have a governance structure. They have liquidity needs. They compete with each other. They won't say that, but they do.

58:37Returns. So I'm just aware of the cultures of those places and how they think about stock. We haven't presented to a lot of institutions because of the time involved. We really want to invest. Family office groups are better at making decisions faster. we found. I just can't do 10 meetings with one potential LP and then three investment committee meetings. It's just not of interest to me. We didn't start the firm to do that. We've done some and we'll continue to do some. And we'd like to have more institutions, maybe more midsize, smaller institutions. But yeah, they have a process that a lot of it's just, they got to check a lot of boxes.

59:17And I get it. I get it. I was in that seat. So I do appreciate what they have to go through, and it's not easy. But a lot of them aren't very good at following up. They're just kind of sometimes arrogant about treating GPs professionally. I would never do that. But I guess to answer your question, just being more aware of all the challenges they have and being understanding of a lot of that. Sometimes even if the behavior is the same, understanding what's causing it could make it easier. And when I've advised some funds that are raising from institutional investors, I was like a senior advisor.

59:56And so I would tell them, these are some things you're going to run into. Don't let it deter you too much. Stay positive. Just work with it. It's going to take time. That's just the nature of it. And just be available to them. And over time, that works. I have used that experience more to advise people raising funds as our senior advisor, if you will. more than a Grafton, I guess. And the flip side of that is once they're in, they're in. A lot of these institutions are in for three, four funds. So it might be painful on the front end, but it's long-term capital. If you do well, they're typically going to stay with you, 100%.

1:00:38Looking back at your career, what decision or decisions are you most proud of? I am most proud of building really a first-class organization for Notre Dame with a lot of talent. Something that reflects the school and its values and its ambitions. I was proud of the team culture we had, the impact we had on students and faculty, particularly like financial aid. We grew the financial aid endowments tremendously. And we weren't even meeting full need when I first came back to be CIO. we were not meeting full need. And now we have some of the most attractive financial aid packages in the country. We're below a certain household income.

1:01:21There's no, you don't pay anything. And the loan component has come way down. I think we're at a point now where our average student has less than 10 % of the cost of debt, even lower than 85 % as debt. That's way, I mean, I financed over half my expenses is another day with long-term debt, your student debt. So our kids are not leaving with a lot of debt, very little debt. Most have none. That's a big change. So I'm very proud of that. Now they're getting more of a kickstart when they go out there. They're not writing checks every quarter of the student loan funds that they have to pay back. I think having some skin in the game is good, but I think too heavy a burden is tough.

1:02:05You got five, seven, 10 years there where it just makes it tough if you're writing those kind of big student loan debt checks. I had that, but I didn't mind it. I did it because you just do it. But it sure feels nice to be able to have kids start off in a little better financial position than we had back 30, 40 years ago. So those are the things I'm really proud of. What's your biggest regret or the biggest mistake that you made as CIO? As a younger CIO, you focus on returns a lot more than you do risk. and I think the telecom bust and bubble in 99-2000, I learned a lot about risk. We did really well through there, but it was volatile.

1:02:49We had a fiscal 2000, which was June to June, we had about a 62 % return. I think it was the highest in the country at the time. And then the next two years, we were down seven and then six, I think, seven or eight. So the pattern was a little volatile. The combination of three years was really good, but it did occur to me that when the NASDAQ was at those levels, I might have put a little hedge on. We might have sort of obvious today, right? But I wasn't thinking about that as much. So I learned from that. Luckily, it was not a painful lesson because we did well, but I did feel we could have done some things that could have added more value than we did.

1:03:34A little more attention to the risk and liquidity. I learned throughout my career, particularly those middle years, that I now focus on a lot more. So that was probably just, it wasn't a big mistake because nothing would happen. I did learn a lot from that. And the global financial crisis, too, in some ways, just how much capital can you really lock up? I mean, we have the private book, plus public managers have lockups, hedge funds have lockups. All of a sudden, now you've got a lot more of your fund locked up than you thought. And you're marking things way down. And so when it comes time to spend, where are you going to get the money from?

1:04:11So just being more conscious of that and having a liquidity policy that makes sure the institution is never at risk that way. Just tightening that up. I think we did a good job of that, but it's something we had to learn. Nothing happened. We had no problems, but it was a good learning at the time. What about the speed of your decisions? Did they become slower or faster throughout your career? Faster. Much faster. Yeah. As we got confidence and experience and delegation of authority, we didn't have a bureaucracy. We had to be weighed down, but we can make very quick decisions. Ultimately, if I needed to make something really quick that normally would have required some sort of review, I could call the chair of the committee and he had the authority to give me permission on just about anything.

1:04:58If I really had to do it like right away, if there was an opportunity that came up or just something, Maybe we heard about something late and we had a chance to get in a fund, but we had to tell them like the next week and maybe it was a bigger number. You know, it varied by situation, but we set it up that ultimately the chair and I could make those decisions if we had to. And then we could report back to the committee appropriately. And we didn't have to use that very often. I had most of the authority to do what I needed to do. But you have to be quick sometimes. You just have to. That's the markets.

1:05:31That's life. I mean, you can't take months to review something and then get back to them. I mean, so it got a lot quicker, a lot faster. To be honest, I thought you were going to say slower because there's value in seeing more cars and getting to know a manager more over time. Well, we got better at it. Yeah, we already got better evaluating the managers. We asked better questions. We were more efficient on our time and how we used their time. The quality of the review was just better and better. So, yeah, no, it definitely was quicker. is that just good advice for somebody building their career as investor as to go slower in the beginning and as you get better to increase your speed we all learn our jobs better over time right i mean i was at 32 years i was a much better cio at the end than i was at the beginning i had good instincts but you just get better you recognize patterns quicker these patterns of excellence in people that may come from my science training by the way that might have been And where I added value, the team even being the sole sort of science, having been a science major, I recognized systems and patterns maybe faster and saw things in people that led to excellence over time.

1:06:43It wasn't just the numbers or I really could see that. So I think over time we got better, not just me, but the whole team got better recognizing patterns of excellence in people and what was the perfect template for us with the manager. We just got better at that. And we could make better decisions that way, faster decisions. And we got to more people. We could interview more firms, meet more people. We weren't bogged down as long as some of these decisions. We had, honestly, in a typical year, we would have interviews with 500 or 600 investment firms. And maybe include that, might include some current partners, but we've had a lot of people all over the world.

1:07:21So we had a big network. And you had to make a lot of decisions quickly. Is it true? A lot of LPs will say that there's a huge incentive to meet a manager once, but who we have a second meeting with is very selective. That's fair. And I don't think that's all bad. You get more reps that way. I know I took a lot of meetings early on. I probably wouldn't have taken 15 years later. But those reps were good because you also had to understand bad patterns. You know, what's not good. I remember meeting with the CFO of Enron when they were raising those private partnerships. Before we knew about the fraud, they were still riding high.

1:08:01The CFO came out to Notre Dame campus, met with me and some of my team. They were raising those private funds. And I asked a very simple question. I said, how do you determine a CFO what goes on the balance sheet of the company and what goes in the funds? And he pulled out the pitch book, literally, and had a line on it. The board of directors has waived all conflict of interest policies. It was in the pitch book. And I'm like, this is a problem. I've never seen that one. So, yeah, I mean, some things stand out pretty bad quickly. And then probably 30 days later, they got indicted. That's an unusual situation, obviously.

1:08:38What do you hope 50 years from now people will remember about your career? That I helped build Notre Dame into a world-class institution. I did it while teaching and supporting students. Like I said, I taught over a thousand students. I've helped hundreds of them with job advice, networking. I still hear from students and former students all the time through LinkedIn and emails, just asking, hey, I got 10 minutes. Will you spend a few minutes with me? I'm looking at this. I always do. I don't think I've ever said no to any of those. I always try to make time. It may take me a few weeks to get to them, but I'll get there.

1:09:13That was part of my vocation. And honestly, was giving back and helping the school and helping these students. We've all been young people. We've all been 20s and late teens. And we know how helpful it is when somebody takes an interest and really gives us good advice and is available as a sounding board to us as we move along. You can't have enough people like that in your life, mentors and people who are interested in helping you. That's a wonderful thing to have. And I think as a young person, knowing that and taking advantage of that is a real advantage. And I'm happy to do that. So that ethos and those kinds of things are really what I hope people remember.

1:09:50Scott, I think this has been a three or four year process to get you on the podcast. So it's really great to have you on. Thanks so much for sharing your wisdom and looking forward to doing this in person soon. Thank you, Dave. I really enjoyed it. Thanks so much for having me.