CIO Greatest Hits: Multi-Family Offices – Stan Miranda (Partners Capital)
Summary
Investment Philosophy: Partners Capital was founded to provide a transparent, independent investment management service, focusing on diversification and avoiding conflicts of interest often seen in private banks.
Growth Strategy: The firm scaled from a $7.7 million capital base to managing $45 billion by focusing on a diversified asset class approach, including hedge funds and municipal bonds, and leveraging relationships with institutional clients.
Endowment Model: The investment strategy is based on the endowment model, emphasizing high static risk, multi-asset class diversification, and selecting concentrated, entrepreneurial asset managers with significant personal investment in their funds.
Manager Selection: The firm employs a rigorous manager selection process, focusing on experience (reps), quantitative analysis, and psychometrics to ensure alignment with their investment philosophy.
Risk Management: A key evolution in their strategy is a sophisticated risk management approach, using a risk dashboard to monitor and adjust exposures across various factors and asset classes.
Innovative Asset Classes: Partners Capital has explored alternative investments such as litigation financing and royalties, while being cautious with commodities and crypto, focusing instead on blockchain venture capital.
Internal vs. External Management: While maintaining a no-conflict policy, the firm engages in co-investing and selectively manages direct investments when external solutions are insufficient.
Succession Planning: The firm emphasizes a partnership model to ensure smooth succession, with a focus on embedding capabilities deeply within the organization to mitigate the impact of leadership changes.
Transcript
[Music] Hello, I'm Ted Sides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation through conversations with the leaders in the money game. We learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com. >> All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is forformational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast. With eight years and over 500 podcasts under my belt, I'm often asked to recommend my favorite episode. But I can't really answer that question. I feel like I have 500 children and don't think I've disowned a single one. So when asked, I usually offer up a great recent episode to get a listener started. Finding the best episodes in a big library of content isn't easy, so we thought we'd help. Each summer going forward, we're going to share our best. Over 7 weeks, we'll replay conversations curated from our favorites and yours, excluding those from the last 12 months. Our 2025 summer series focuses on CIOS. We're blessed to have an incredible library of long shelf life content, and we just couldn't pick seven. Instead, we'll share a dozen gems canvasing every type of institutional asset owner. This week's summer series is a multifamily office twofer with Stan Miranda, co-founder and chairman emeritus of Partners Capital and Jenny Heler from Brandywine. Both firms started as multif family offices that have evolved in different ways. Partners Capital has grown and scaled as a leading OCIO, while Brandywine has remained a boutique with a fixed set of family clients. Before we get to the interview, a quick announcement. We've set new dates for our capital allocators university for investor relations and business development professionals. Those dates are December 3rd and 4th in New York City. Later in the year is just a better time of year for this gathering. It's post AGM season. When travel starts to wind down, it's right before the holiday crunch time and it's a great time for capital raisers to reflect on their previous year and plan for the year ahead. December 3rd and 4th in New York City. Cau for IRBD is a closed dooror gathering for capital raisers to connect with peers, learn from allocators and other experts, and really share in best practices with each other. You can learn more at capitaloc.com/un university. Thanks so much for spreading the word about Capital Allocators University for investor relations and business development professionals. Please enjoy my conversations with Stan Miranda from 2023 and Jenny Heler from episode 7 back in 2017 and a follow-up in 2021. Stan, great to see you. Thank you, Ted. Why don't you take me back to the founding of Partners? >> Okay, this is right after the tech bubble burst. I'm sitting in my kitchen, as the story goes, with my next door neighbor, Paul Dmitri. We have both been private equity investors. Paul started Invest Corp in Europe and I was working for Evolution Global Partners, which is a Kleiner Perkins spin out. As the tech bubble burst, our balance sheets reflected that because we were very concentrated in guess what? private equity, the asset class that could never go down, just went down a lot, especially if we had tech oriented investments. So in our minds, we were embracing diversification as a solution to that problem. And in the weeks prior to that, we had been meeting with various private banks, mostly the Goldman Sachs, City Banks, UBS of this world. And it was just shocking what we learned. I mean number one were just the conflicts the number of Goldman products or City Bank products. It was just astounding and if they did have third party managers there were generally no benchmarks and if you did find a benchmark it was the wrong benchmark. So you had not only conflict of interest issues but transparency issues but we couldn't get to the cost in many cases of the assets. When we went through the managers performance we realized that most of the the managers had no alpha. So, why would we ever hire a private bank? And we thought about where do we find the solution? And it just didn't exist. And we're both very entrepreneurial and we thought we should just start this. We should build something that's completely independent, uses proper analysis and honesty in evaluating performance and is totally transparent with the costs and the performance with the client. So we called it the island of integrity in the investment management world. So it was sort of a wakeup call for us that we needed something so desperately and it didn't exist and so we thought we'd create it and with my strategy consultant business school hat on I thought what we need is the equivalent of Michael Porter's book on corporate strategy but for the institutional investment world. What is that? This is no joke. It was sitting on the kitchen table. It was called pioneering portfolio management. So we read the book and felt it would be the cookbook that would get us started. The end of the story around the founding is that I had a set of friends that had the exact same problem and they were mostly private equity GPS. So before evolution global partners I was at Bane building their private equity consulting practice which meant we did due diligence on mostly buyouts and then we did all the postacquisition operating value added work. I knew European private equity world cold. So it was the premier and CBC's and BC partners but also Blackstone and Bank Capital. These were all clients and friends and classmates and there were 43 of them to be precise on April 1st, 2002 that signed up recognizing that Stan and Paul knew very little about anything other than maybe private equity, but they trusted us to figure it out. >> What was the capital base you started with? >> $7.7 million. You can do the math on 43 clients. They weren't giving us their whole balance sheets at that point in time. >> So, how did you take that initial highlevel idea and dive in and start to learn how you were going to go about implementing the strategy? >> One of the things I learned at Evolution Global Partners was to take things slow because we took it really fast there. The backers were Bonderman and Culture of TPG and buyers and Schline of Kleiner Perkins. And then there was a Bane investment with John Dano and they were just pushing us so hard. We hired 35 expensive people overnight. Built these two offices that never spoke together. It was not a good way to build a business. So I took it really slow. We started with three employees with one in Boston and two in London. We just chose the very next asset class and it was right on the back of the tech bubble. Nobody wanted any more equity exposure. So what did the doctor order? absolute return hedge funds. We just started studying the hedge fund space. It was very much the market neutral end. So equity market neutral strategies, merger arb, fixed income arbit and we just found and we got access to just through relationships things like tutor and caxton. And so we were off to the races. We just went to the next asset class and the next asset class and the next asset class. pulled out a blank sheet of paper, reminded ourselves what the Swson book said, but really pulled out a blank sheet of paper and said, "How do we invest in municipal bonds? What's the right way? Should it be high yield?" You know, what duration, you know, just every single aspect of every asset class? We just started from scratch and analyze it very deeply. on each of those. How did you go through the process of blank sheet of paper asset class that a lot of other people understand and know about but you don't yet and you need to learn and get up to speed. >> We believed in something we called steal from the best but it was also more euphemistically called triangulation. So we just talked to a lot of people and that was only confirmatory or it was something that would narrow down the universe. So we literally had a database where we had number of hits on this particular fund. But that just got us down to the six or so final candidates for any particular strategy. But also it had to be rooted in some deep insights about each asset class and it always started there not with the managers. That was another topic we picked up with friends at McKenzie investment office at Yale and at Stanford endowments family offices and we talked to them you know what do you avoid in this asset class? what do you focus on in this asset class? But in the end, it was our datadriven analysis. We hired whatever we needed as time went on, rooted in investment decisionm, but we weren't necessarily hiring the person exactly in that lane of the asset class. >> How did you go from the initial seven and change million learning these different asset classes to beginning to scale into what became an OCIO business? So we had to get $25 million in year one or something called US blue sky laws would have made our legal bills just astronomical. We hit 25 million at the end of the year just by adding the two asset classes absolute return and and municipal bonds for the US taxpayers. Then in year two, we'd hired people like Will Fox, who's still running North America with us today, and we said, "We're not paying ourselves anything. If we don't get to $100 million, recognizing that break even was probably $300 million. If we didn't have the momentum, we weren't going to carry on." But in that second year, 2003, we actually got institutional clients. They were the institutions that knew about the Yale model, the endowment model, but they were a little bit rebels. There weren't the traditional people who worried about what somebody else was going to think and so they were going to hire the new guys on the block. Goneville and Keys College Cambridge hired us in that year. We hit the $100 million target with a mix of high net worth individuals, private equity GPS mainly and smaller institutions. And then the next year, Will Fox and I said the same thing. We hired John Collis who's just retired after 20 years. We ran Europe and we started adding clients in the institutional market mostly in Europe at that point. We hit 400 million in 2004. We were calibrating how much we grew by and in 2005 we hit 1.5 billion. A lot of institutions, a lot of private equity GPS and we shot and we got our Excel turned into more institutional technology and so forth. The next year was three billion and we capped ourselves about one and a half billion a year until the global financial crisis. But even in that year we added one and a half and we lost one and a half. So we flatlined then and then since then carried on growing. We let off the 1.5 billion limit and it's now today at about 45 billion a year that we net. >> How did you figure out what product you were going to offer in that initial very fast growth those first couple years? >> It was always the endowment model. We were always going to have all asset classes. It's just that most of our clients were overweight private equities. That was low on the list initially, but we had the full endowment model by 2003. We only started investing in private debt in 2009, but that was asset class after the initial set. But we had hedge funds, fixed income, liquid credit, private equity, including venture and property. That was our lineup in the end of 2003, beginning of 2004. Every client has their own reason for being, their own set of values, their own goals. How did you scale trying to do this for lots and lots of clients? >> First of all, you're right that almost all our clients want something highly customized. And the primary reason that would make sense is that they had a very different risk profile or they had particular biases against their current balance sheet of property and private equity and so they'd have a different allocation. But in the end, the private equity GPS ended up doing something that looked a lot like the endowment model and of course the institutions did. Even the customization is generally about asset allocation, not about which asset classes are included. Almost all asset classes are included in almost all client portfolios, even the private equity GPS today. So the customization came down to really sizing of managers or simple allocation decisions whether it's 8% private debt versus 10% private debt >> when you initially sought out to say we're going to replicate or triangulate on the L model. What did that mean to you and what you were delivering for your clients >> after 19 years at Bane? you just had an appreciation for the fact that there was a best way of doing almost anything. I'm an academic purist and our mission is to take the most advanced proven institutional investment approach to our clients. The endowment model in our definition and may not be your definition may not even be David Swenson's definition but it had three pillars. Number one, high static risk. So static means no market timing and that was definitely David Swinson platform but also the high meant it's long-term money you can take the volatility. Secondly, multi-asset class diversification with a bias towards illquid assets but not necessarily defining them as illquid but just you can take higher risk, you can take the illquidity, let's go for it. So that was certainly the second pillar and something we definitely copied of the Yale model was that you don't give money to the big retail publicly listed asset managers that are in the business of turning out 40 new funds every year. you went with the concentrated specialist entrepreneurial owner operated asset managers who had the bulk of their balance sheet in their own funds. So the skin was in the game and so those were the three platforms that we followed and that was enough work really the focus in the early years was just being a deep expert on every asset class. We always had a benchmark that we wanted to beat for every asset class. So in hedge funds, it was Blackstone's BAM outfit. Their performance was ahead of everyone else's. We just had to make sure that we could beat them on each asset class. >> When you applied this concept of there's a best way of doing things to manager selection in addition to those couple of criteria you mentioned, how did you go about the process for manager selection, different asset classes? >> Really three things. Number one is a Malcolm Gladwell phenomenon that the team has to have had a lot of reps. It's really important and it's really hard in asset management because of the time frames. Secondly, it was narrowing down your field of investment choices through quantitative techniques mainly beta and factor analysis, multiple regression, which goes way back in my history. It's in my blood. And then thirdly, very importantly is knowing the psychology of a great asset manager. So is psychometrics basically on the reps. I always think who do you want doing heart surgery on you? You want somebody who's done a lot of them, right? And so it's the same in the asset management world. If we've got a client, some big institution, first question they should ask us, who's making these decisions on asset managers and how many experiences do they actually have and how are you capturing that inside your organization so one individual gets the benefit of another individual's reps. The most important thing is not just how many mistakes you've made, but did you stop, analyze it, codify it, and teach it? Did you educate your team about why that was a bad idea? Why you succeeded with certain managers? >> What are some of those mistakes that you made that you've tried to transfer onto the team? >> Commodities is a great one. Okay, as we say today, it's a graveyard of failed investment decisions because almost every strategy that we were looking at had commodities in there and they're active commodities, not passive commodities because you learn about commodities, there's no yield, there's no income. So over time they actually go down because of economies of scale. It turns out in commodities to know enough about what you're investing in you have to specialize. So you just do energy commodities and you are whipsawed all over the place. So it's up 80 down 60. You have to own four or five of them but they go out of business after 3 years. That was a big learning. So we don't do commodities today. That's a whole asset class learning and there's more specific learning about individual managers in every asset class. >> How about some of those other ones? >> We started life with equities actually saying this is too hard. We're just going to go with Mr. Vanguard. That's the best way. Nine basis points. We know what's going to happen here. But then we thought, wait a minute, this is 30% of our clients portfolios. We're not generating alpha for. We got to crack this. So we started with the private equity approach to public equity investing as you'd expect us to because that's deep fundamental analysis and that's the only possible explanation for how you could have security selection alpha. That worked actually from about 2005 to about 2009 when it stopped working because growth was introduced and the value factor killed the private equity style managers. I'm not naming managers that we necessarily invested in, but that was the SPOS and the CVNs and value acts. That was a bad factor trade. We migrated into the growth sector and we believed in the extreme focus in biotech or China or emerging technology because these were deep experts. It's inefficient. What do we learn there? We learned that there's a lot of risk other than equity beta in these portfolios. Okay, China there's geopolitical risk and biotech there's basic regulatory risk, small company size risk, unprofitable or profit tomorrow company risk and all of those are risks that you're going to get paid for, but you're way ahead of your budget when the market goes down. You give so much back. So anyway, public equities, we're learning from individual managers through time how difficult that really is today. >> How about venture capital managers? >> The learning there is more about the asset class than the individual managers because of the Kleiner Perkins Association that we believe what everybody else believed which was if you weren't in the top eight 10 managers, you just didn't go there. And you needed the early stage. the early stage was really where all the real returns were back in the early 2000s. We couldn't get access to them. So, we did some alternative things like the Tiger Globals of this world, but we didn't have much early stage at all. And that did really well thanks to the tech bubble that we rode. But today, you don't get early stage from those managers because it's a tiny percentage of their overall book. They're getting the early stage somewhere in their house, not necessarily in your portfolio, but they're accessing the best early stage. So, they have proprietary insights and access to the late stage. So, you want to invest in their late stage and we do, but we don't get any of the early stage venture capital. And it's our assertion that's a much higher return because it's higher risk. But you want it. There's lots of data that you pick the right time frame. Late stage is the same as early stage returns. But if you're adjust for tech bubbles, tech bubbles included in both the beginning and the end. The early stage is where you definitely are generating superior returns. So you want some of that and it's uncorrelated to late stage and equities. But how do you access it? Emerging managers. As it turns out, the second tier isn't necessarily any worse than the emerging managers. And the emerging managers are small enough where they can make the small investments in 50 different deals and they benefit from the home run, if you will, of early stage venture because their mind is totally focused on the unicorn. The total adjustable market has to be big enough that that company can realistically become a unicorn. And if that's your lens, that's a great investable emerging early stage manager model. How do you reconcile the difference between the belief that emerging managers in venture capital are the way to go with what you originally said of the importance of reps? >> We almost never invest in early stage manager without reps. So they've almost always come from another place and our classic example is HIG. We love this manager. There are a lot of spinouts which got superb training and not all of them have been terribly successful but many have and that's a classic example of what we love doing. >> So reps being the first of those three pillars and walk through the second third. >> The second is we've got this funnel we've got access across the globe to all these managers. But guess what? Our funnel is really, really wide. And we narrow down the funnel with this triangulation approach. But more importantly, just quantitative statistics. And what what thoughtful investors have realized is that you're not just being paid for equity beta. There's credit buried in there. There's inflation beta in there. There's certain aspects of sectors. There's factors. There's so many things in there. So take picking public equities as the most obvious example. We run massive regressions against their historical performance and we attribute that performance to certain factors that we can replicate and we create the multiffactor replication benchmark and if they didn't beat that by a significant amount, they don't get through. That knocks out 95% of the equity managers over a five-year period minimum. And then we have to stop and do all kinds of thinking about whether they did pass that test. can they continue doing it? And by the way, there are some managers that didn't pass the test and we didn't invest with them because they didn't meet the alpha test that we just talked about, but we thought they would based on changes in a team and so forth. And so we went into that firm having not passed the quantitative historical test, but they definitely passed the reputational test and just certain team changes made us think that they were going to be a success. So that's a quantitative screen that saves us in every asset class. We even apply it to private equity. The multiffactor what we call beta replication tool. So you have reps, you have your quantitative filter. >> We got the psychometrics. The short hand is the best investors are square pegs. Okay. And that there's lots of exceptions in the investment world. There's lots of investment rules that have exceptions. We see that more often than not that they're not balanced individuals. They're workaholics. They're highly ambitious, energetic people, but they're highly analytical, high integrity, very trustful people. And so there's more than just the lack of balance. They're forces of nature really. They identify a goal in terms of what they want to achieve in terms of performance or where they see the insights and they're just going to walk through walls to get to that other side of the wall. How do you tease out positive psychometric elements in your diligence process? >> We send more senior people in that have seen this across a number of different reps, if you will, in the first instance. Some people you see the real person very soon, but not always. And so I'd say number of hours with them and it's at least the fourth or fifth meeting. We do on average 300 to 500 hours of due diligence on the average private equity fund for example. So later in the due diligence, we learn that. but also from references. We do a ton of reference that typically 20 references. So, ideally with people that know them very well and will be honest with us about them. >> As the years have gone on, 20 years plus since David wrote Pioneering Portfolio Management, how have you evolved how you've thought about the endowment model? >> So, number one is risk. You think about the result of an endowment model. You end up with, pick a number, 60, 200 managers, okay? And you think you understand from their exposure reports what you own, but you don't know what you own just from their exposure reports. So, you have to go really deep in knowing what you own. We understand the underlying stocks that most of the portfolios have. We get all that data and then we run it through our factor models to know where we've got over and underweights because one manager may be doing the same thing as four other managers and all of a sudden we've got tons of exposure to clinical trials risk. Okay, that's the single biggest change in the endowment model is the risk management. And that's what risk management means to us. We show our clients what we call the risk dashboard which has over 16 different metrics including the value and quality and momentum factors as well as liquidity factors, currency. You have to understand all of this because odds are when you got an overweight that was unintentional, it goes against you. And when it goes for you, you call it alpha and you don't pay attention to it. But you should you should pay huge attention to any source of alpha. it's probably beta. >> When you do that quantitative assessment to figure out what you own underneath, how does that then impact the way you construct your portfolios? >> The main impact is that we will counterbalance certain overweights that we don't want as intentional overweight. So we have to have enough liquidity in the portfolio where we can use ETFs or index funds or futures that we can offset those. That's the primary implication. But there's a positive implication of having so much data on what we own. You can actually then fine-tune your allocation to different SKUs. So if you think structured credit at this point in time is cheap, we can do something with that. We'll find a manager and add to them or whatever it takes. >> How do you balance the notion of static risk with the concept that there may be something like structured credit that you think is an opportunity? So we break our tactical asset allocation model into three layers. We call layer one is just absolute risk. So we convert all those different betas and factors into one measure. We call it ENIB equivalent net equity beta. It's equity like risk. And we set the target say at 75 for a given endowment. And then when markets move it to 73 we rebalance up. Markets move to 77 we move it down. So we never time markets on level one. Level two, we have 13 asset classes or seven beaches, whichever way you want to look at it. And we've got targets for each one of those. Markets move those. Or we have valuation views on level two. Say one of the 13 asset classes, emerging market equities. If we think that's gotten cheap, we'll do something there. That's also very difficult to do. So we don't do a lot of it. The third level is subasset class tactical nodes. So those are where our managers are giving some us some insights. So we railways that was one of our recent ones. We had as a unsuccessful one community banks going into 2023. Okay. Anyway, that's our level three tactical moves and those tend to generate at least enough alpha to pay for our fees if not a little more. >> So we're all paying fees to active managers and sometimes you're buying the package that they're delivering. Once you start disagregating this composition of returns and understanding what the alpha is, what the beta is, how do you then go about applying what you've learned to the implementation of your investments in a manager when it relates to fees or structure? >> If it's a manager with very constrained capacity, we have no influence over that manager. Over time, it's getting better mainly just through relationships. We're we're working hard to actually add value to them. even though they've got limited capacity, we're competing with all their other LPs and we will do things like educate them about the energy transition. We'll talk to them about the best incentive programs we've ever seen for hedge funds or how big an average compliance team is. So, we're always trying to add value to those individual managers. But in the case of a lot of the private equity, private debt managers, especially if they're fund two or three, we're allocating so much capital to them that we can talk about separately managed accounts. we can negotiate terms. We're always trying to make sure we're only paying performance fees on the alpha, not the beta. And so those sorts of negotiations do take place. >> What else have you done in the more modern version of what you've applied to the original endowment model? >> I mentioned two. So the risk management and then the tactical asset allocation. The the third one is just focus on being a value added LP is very intense. We have actually a best demonstrated practices book. It's about 70 pages on postacquisition operating value added that we share with private equity managers. So that's a very meaningful part of it. On top of that, I'd say this focus on beta as a risk measure, not volatility is very important. A lot of people out there in our business think about the average endowment portfolio should have 10% standard deviation around its annual returns, 10% volatility budget, which makes no sense because what happens when markets go down, volatility goes up. All of a sudden, your portfolio is overrisisked. What do you do to derisk it? You sell right after the market got cheap. So, you're selling into lower prices. and the opposite when markets go up V goes down and you're buying at expensive prices. So that's another aspect of it. Are there some main changes? >> How have you thought about in the public markets? You said in the old days you thought maybe Mr. Vanguard was the right solution. Then it was such an important part of your portfolio. You started looking for active managers and now it's just increasingly hard with all these other factors to prove that you're adding value. What have you done about that? There's a portfolio construction solution. Turns out information ratio is probably the most important metric in liquid securities or asset classes. Okay. So, how much alpha do you expect is the numerator? How much volatility single standard deviation around that alpha do you expect in any one year? And if you think about that all the time and you're adding managers, theoretically what you do is you start with the highest information ratio manager. Allocate as much as you think you can based on that volatility. Maybe it's 6% of your total portfolio is a large allocation for us and then you add the next highest information ratio and then you look at what you own underneath that and you find oh we've got a lot of growth in there and you have to rebalance it. So that's the basic portfolio construction model for liquid securities. Credit's a little bit different because there's a lot of tactical asset allocation in there. So, we're always taking a view on the different subasset classes of credit. >> How have you thought about internal capabilities compared to giving money to external managers? >> Well, we started life, no conflicts here. So, there's a high bar on that. But we do have such strong relationships with liquid and illquid managers. So we do a lot of co-investing, private equity and private debt and property and the liquid illquid asset classes. We've always done co-investing. It's been very successful. Our targets today are about 20% in there. But about 7 years ago, we started co-investing in public equities. So with our longhold closest manager relationships, we just talked to them about those positions and said, "Do you care if we double up on them? We're not going to pay you any fees." And most of them said, "No, you're a big investor. Probably be helpful." So that's the closest we'd come to direct investing. The rule is that if we can't find it externally, we're allowed to do it internally. So we launched something on the back of COVID called the new world equity portfolio. The new world postco was one that was embracing technology, working from home, and you can imagine the sorts of things we invested in. They were both overcorrected companies like retail and airlines. We owned those and we owned the beneficiaries like Zoom. And so that was one that we just couldn't find anyone else doing. We did it. It worked. The logical lifespan came to an end and we stopped it. Right now we're looking at one in the energy transition space. It's all about owning brown to green. We cannot find anyone else doing it. I don't know if you've structured your team >> initially first 12 years we had all client-f facing people were also research people back to the kitchen table with Paul Demetri we wanted the person across the table from us to know what they were talking about okay about this hedge fund manager and so forth and so we kept that model as long as we possibly could but now with $50 billion of assets and 360 people it's not possible and so about six seven years ago we created the client client CIO. There are about 130 team members under the client CIO. Each client has the primary point person and they historically have probably worked on the research team doing asset manager research, but today that's all they do is construct portfolios and manage the risk of client portfolios. Then there's roughly 64 people that are dedicated to the research team. There's a central research team which does all the macro work under Cameron Mogadam. Then there are four groups of asset class teams. So equities, privates, private debt has its own team because the complexity is there. And then absolute return hedge funds and liquid credit. So those teams are roughly 12 15 people each. We believe in specialization. We don't believe in the generalist model. And so that's all they do is live and breathe their asset classes. I'd love to dive through some of your thoughts and lessons learned across asset classes and maybe start with private equity where you started in the business. How do you see the landscape today? >> So private equity turns out it's one of the asset classes where you can actually pencil out the expected return. You just pull out an Excel spreadsheet. You put in what you paid for it in terms of multiples on earnings and what you're likely to get for it when you sell it. You've got the debt, the cost of the debt, you got the two and 20 in terms of fees. Most important number of all, earnings growth. Put all those together, certain assumptions usually gets you to about 15% historically with nice growth of earnings and cheap interest rates. We just live around that model. We think about who can grow the earnings the most. What are they paying? What can they sell things for? And that has always pointed us in the direction of lower middle market buyouts and specialists, software specialists for example. And so we've always been focused on that. And we had the data to prove that it's harder to grow earnings in a big company than it is in a small company. The private equity owner can be a more value added owner. Then a huge Apollo Blackstone, even Bank Capital today and CBC, they're buying multi-billion dollar companies. is just harder to grow earnings. But then you look at the performance, you realize actually they haven't done any worse than the lower middle market. But if you break out the attribution of that performance, the average private equity firm over the last 10 years earned 15% net. 7 and a half% of that was from multiple expansion, which is basically referencing the public equity markets, multiples, and those companies get valued in line with those. And so they went up by 7.5% because of the last 10 years growth of the public equity markets on the back of the global financial crisis. The other 7 12% is rather pedestrian average earnings growth combined with some inflation in there. So there's no real value added from the average private equity firm even in the last 10 years if you adjust for the public equity multiples and the debt aspects of it. So if you leverage small cap public equities, we think you could have done better. Okay. But huge dispersion. So there are big exceptions in the mega cap, large cap, all the way down to the middle market who would violate that observation. >> So if you've grown your asset base and grown your allocations to these managers, how have you tackled the sweet spot of this middle market? >> So we're now in the fund number two and number three space. That's our sweet spot. We have great relationships with certain names and we get big allocations with them and they've gone up to five or six billion dollar funds but it's still working. We can call that middle market these days but the best solution is just know the middle market firms that are most likely to create spin-offs and watch and we have a relationships with the search firms and others. So we get usually early heads up on firms that are leaving. We'll typically meet the management team the first time. We pass in most cases, not in all cases. We've done some fund ones, but generally we say, "We're going to watch you. Please hold some space for us for fund two and we're in fund two." >> There's probably nothing that's changed more in these 20 years than hedge funds and your next asset class you tackled way back when. How are you investing in hedge funds today? >> So, first of all, we break them into two totally different groups. Hedged equities, anything with a B of more than 0.2 to the equity markets, we call it an equity manager. And frankly the learning is the same as in the long only equity space but we do have more alpha from the hedge equity managers. They just tend to be deeper more fundamental and and more specialists in a lot of cases. So our biotech managers are mostly equity long short. But in the absolute return space first of all more managers is better than few managers. There's a minimum where you debate whether it's 12 or 20. and you're all about diversifying your sources of alpha. So what we learned is you can create say with 20 managers with the right mix of strategies and a very consistent source of alpha call it 3 to 4% not big numbers with only 3% or even 2% alpha volatility. So information ratios of 1.2 and then what do you do with that information ratio? you leverage it. Okay, so that's how we invest in absolute return hedge funds. We create a very stable solid stream of alpha and then we leverage it. >> When you think about that area, the 12 to 20 managers as you define a manager can mean a lot of different things because so much of the assets have gone into these platform hedge funds that are effectively doing that aggregation diversification for you. So how have you balanced the ability to put capital in some of those strategies with say a millennium or a citadel an individual single strategy manager? >> We probably should have allocated to the citadels and millenniums. Okay. We should have we just always looked at the fees. We have an acronym for everything as you've highlighted. E-Rock is our excess returns on costs. The E-Rock is terrible. Another way to think about it is of the total gross alpha, how much do they keep? It's about 80%. We get 20% of the alpha. The alpha is huge. Absolutely huge. But we could never get comfortable with only getting 20%. So what do we do? We allocate it to their spin-offs and it's mostly Citadel spin-offs. They've done very well and they're closer to two and 20 and we get roughly 50% of the gross alpha and we diversify. they'll be specialists in consumer or specialist in tech and we have to create a diversified portfolio of those. >> So beyond the equity long short low beta absolute return maybe some credit there's this whole world of alternative alternatives. How have you thought about and participated in that? >> So we were early pioneers into that. You know what they say about pioneers. We started with insurance including life life settlements as well as catastrophe insurance. quickly went into litigation financing royalties both music and drug royalties and then one of our favorites is actually clinical trials and sports athlete financing. So that's the journey. Over about 10 years, we've been looking for this holy grail, which is high 12 15% type returns that are completely uncorrelated to financial markets. And all of those strategies I just mentioned are pretty much uncorrelated. The problem with them is that they have limited capacity. And soon as I start talking about them on a podcast, then all of a sudden the alpha goes away. But in most of those categories, it has gone away. unless they're in certain specialist areas. But it's been a good asset class. We can't take our allocation in client portfolios up above much more than five or 6% today. How about real estate? >> Real estate, first of all, stay away from the double promote. You don't pay a private equity firm to pay a private equity firm. Okay? So, we go with regional specialists generally and we build a national portfolio. Obviously, real estate has tax implications that make it hard to have a global portfolio. So our Europeans don't invest in US property, but frankly the US property market is a lot more alpharich than European and Asian property markets. So our US clients, a lot of them being taxpayers, benefit hugely from a diversified North American property portfolio. And then our European and Asian clients benefit from European and Asian diversified portfolios that are pulling together regional and sector specialists. So then in terms of office and industrial and residential and hospitality that's where you can almost time markets not quite when you're allocating for the next three to four years deployment you may still want to be in all. So we do use generalists in some cases regional but lately last six seven years we have invested almost entirely in industrial so a lot of logistics and that's been a big success. >> How about real assets? >> We've moved away from them. Early on we invested in oil and gas just seemed it was a great landscape for real specialists. People talk about reps. These are great opportunities for reps, but the commodity prices take you out. And all our due diligence had us being convinced by these managers saying that they hedge the commodity risk. They don't. The risk has just taken out too many resource companies. So, not just oil and gas, but mining. It's a pretty difficult area to invest in unless you really take a 20-year time frame and you live with this massive cyclicality. So we do not do anything in traditional resource areas. We are primarily focused on the energy transition and those are effectively real assets in many cases. >> So with a lot of this idea of taking on a new asset class, having a clean sheet of paper in the last couple years, there have been some opportunities to do that. There's the crypto and the blockchain world. There certainly all the developments in AI and would love to hear your thoughts as you've mapped out and looked at these areas what you found >> on AI it's too early first high level question is how is it going to affect institutional investing asset allocation the timing of various moves but then how it's going to affect basic fundamental research at the asset manager level so we don't have an answer to that and frankly it's too early to tell right now but we will be in front of that when it happens on crypto. We have studied it and we have come to a decision not to invest other than in blockchain venture capital. The simple explanation is that it's like gold. It has no income. It has a market because people buy it. Okay? So quoting Jacob Rothschild, when the central banks are buying gold, you buy gold ideally before they start buying. But so crypto is the same. It has its pricing set by the scale of purchases and that is driven by a lot of momentum and psychological factors. If you look at the value of Bitcoin, it bears no resemblance to any value proposition or utility that Bitcoin has. Okay, Bitcoin has utility, especially in just moving currencies across capital borders. There's a real value to that. I'm not sure it's legal in many cases, but there's a value to that. It's not $40,000 a coin. That's clearly speculation driven. And we'll invest in cryptocurrencies when they reflect their utility or their cheap relative to their utility. >> What's different today managing $50 billion at partners than at different stages along the way with smaller asset sizes? By far the biggest difference is our relationship with the asset managers. We're just always the top of their table and so we get every question answered. We get more transparency than the average investor and we can come up with creative new ideas with them. The managers are getting bigger, but some of them are getting bigger and developing their capabilities even faster and we want to grow with those. and we're going to do that if we're close to them and we're contributing to their own capability improvements. >> I'd love to hear what you've learned about succession of asset management firms. You've certainly seen a lot of it in the managers in your portfolio. You've undertaken aspects of it with some retirements as you mentioned. >> It's difficult but not as difficult as you think. We always assume there's so much more to that one individual that when they leave it will be a disaster. It generally doesn't end up that way. Does succession work in all cases in terms of just the politics and no casualties in terms of the partner group? No. But asset management firms, if they're good ones, they've really embedded their capabilities so deep in the organization that no one or two people really are that important, especially in the bigger institutional portfolios. If it's a team of six, succession is vitally important. And so you've got to really focus on that. But it's extremely difficult. >> How have you gone about it at partners? >> First of all, we were a partnership. So it wasn't a single person running the investment decision. So it's not Andreas Halverson at Viking. It was Dan Miranda who built a partnership and initially three partners and now 19 partners and all the partners were involved in many different specific aspects of the investment process. So no one person really mattered that much. But when I gave up the CIO role, Colin Pan was already doing it. So I think succession in all companies, not just investment companies, is about giving the job to the individual before they take it on. And then it just happens more naturally. And you always expect as the founder or whatever, some big fanfare, but it's always just a little tiny applause when the transition actually takes place. >> Where do you think Partners goes from here? I do think we end up doing some more direct investing. We see a thousand managers a year in any one asset class. We just know so much about each asset manager. Most of us just sit there and persspire over all the opportunities we're seeing that aren't being exploited. So when I said the rule is we can only exploit those opportunities that haven't already been exploited by amazing people outside Partners Capital, there are a lot. And so I think we're going to cross that boundary at some time very delicately. We don't want to break the rule that created us of no conflicts, but I think there's some opportunities our clients should benefit from where they could see much lower fees and a lot more alpha if we integrate forward into asset management. >> And how about partners as a business 3, five, 10 years down the road? privately owned, management run, outsourced CIO, continuing to be one of the most highly respected in terms of thought leadership in investment management. >> Great. Well, Stan, I want to turn to a couple closing questions before I let you go. What's your favorite hobby or activity outside of work and family? >> Okay. So, outside family, family is definitely first protocol outside of work. Every moment of free time is spent in sports basically. And I do triathlon. So mostly just the individual running, swimming, and cycling a lot. But I collect sports. You name the sport. The only one I don't do is golf because it would take too much time and it would take out all the other sports. But I do ice hockey, kaying, every racket sport you can think of. I just love sports. It may be the competitor in me, but it can't be because I'm not that good at any of them. It turns out focus matters. I may be a good skier. That's about the closest one. But I am a master of none. >> What's your biggest investment pet peeve? >> Clearly people who mistake alpha for beta and we do it all the time. Oh, we just did fantastically well in those biotech firms, it's got to be beta. How about your biggest personal pet peeve? >> Okay, I have a lot of those. I was asking my wife, for example, she said, "Well, plastic bottles, brown shoes." Entitlement is probably the one because people that are entitled, you don't succeed with them. I think you succeed with people who have a basic philosophy that hard work earns you the right to whatever you have, whatever you experience. So I believe in hard work and focused efforts to get ahead. >> What investment mistake have you made that you'd never make again? >> I think invest in catastrophe insurance. Okay. So you always said we're long global warming. That's what catastrophe insurance is. But global warming has always been ahead of pricing. So that was a painful experience. >> Which two people have had the biggest impact on your professional life. >> Number one was my second family. I was very close to Dr. Tom Elias in Fresno, California where I grew up and his wife who is my denmother in Cub Scouts. And I spent so much time with them because their son was my best friend. Dr. Lizen was a leading cardiologist and he was my role model. The impact he had on me was to be calm and thoughtful. My family was full of drama. And so it must be the Portuguese DNA or whatever it is. But he gave me a sense of perspective and calm that compared to my siblings is distinctive. I think most of my work colleagues would say really I haven't noticed but they have to understand what it could have been. And then secondly is a gentleman named Archie Norman. He's a serial CEO and chairman. He was the CEO of Asda Turned around Asda Energist ITV and he's currently the chairman of Marks and Spencer and I worked with him when he was at HSDA when I was strategy consultant. And he has two unique characteristics as a leader. And one is that he just doesn't like doing anything ordinary, anything normal. He just strives to do things that surprise people out of the ordinary. And he taught me to always be brutally honest and face into the unvarnished truth. I'm the chairman of the board of partners Capital. You don't go into the board meeting to convince them that our investment performance is great. You find the area that's not great. You spend all the time on that and you're honest about it and you focus them on it and you face into the unvarnished truth. That's what Archie taught me which I think is incredibly valuable. >> What teaching from your parents has most stayed with you? >> Okay, so 1972 I'm thinking about university and there's the financial crash, the markets crash. My father happens to be a stock broker. Okay, this was a bad period for him. He sat down with me and he just said, "Well, first of all, that college fund, not so big anymore, but secondly, if you do anything in life or in university, have a skill that people will pay for and you will land on your feet." And that just always stuck with me. And so my first degree was in business and accounting, so took care of it. I think that's wonderful advice for anyone early in life. >> Stan, last one. What life lesson have you learned that you wish you knew a lot earlier in life? >> Keep your loved ones close to you. That sounds so obvious, but in a global world where we have the ability to send our children anywhere or they have the ability to go anywhere and your friends have the same freedom. We all end up all over the world. And I'm at that stage where I'm trying to gather them back into one place and in some ways wishing I didn't have the truly global experience I had because I'm just living on planes going visiting children and family and friends. But so the advice I give to young parents in particular is don't let your kids go to university abroad. Keep them home. You'll never regret it. >> Stan, thanks so much for sharing your wisdom and experience. >> I've loved it, Ted. Thank you very much. Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one, and see you next time.
CIO Greatest Hits: Multi-Family Offices – Stan Miranda (Partners Capital)
Summary
Transcript
[Music] Hello, I'm Ted Sides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation through conversations with the leaders in the money game. We learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com. >> All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is forformational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast. With eight years and over 500 podcasts under my belt, I'm often asked to recommend my favorite episode. But I can't really answer that question. I feel like I have 500 children and don't think I've disowned a single one. So when asked, I usually offer up a great recent episode to get a listener started. Finding the best episodes in a big library of content isn't easy, so we thought we'd help. Each summer going forward, we're going to share our best. Over 7 weeks, we'll replay conversations curated from our favorites and yours, excluding those from the last 12 months. Our 2025 summer series focuses on CIOS. We're blessed to have an incredible library of long shelf life content, and we just couldn't pick seven. Instead, we'll share a dozen gems canvasing every type of institutional asset owner. This week's summer series is a multifamily office twofer with Stan Miranda, co-founder and chairman emeritus of Partners Capital and Jenny Heler from Brandywine. Both firms started as multif family offices that have evolved in different ways. Partners Capital has grown and scaled as a leading OCIO, while Brandywine has remained a boutique with a fixed set of family clients. Before we get to the interview, a quick announcement. We've set new dates for our capital allocators university for investor relations and business development professionals. Those dates are December 3rd and 4th in New York City. Later in the year is just a better time of year for this gathering. It's post AGM season. When travel starts to wind down, it's right before the holiday crunch time and it's a great time for capital raisers to reflect on their previous year and plan for the year ahead. December 3rd and 4th in New York City. Cau for IRBD is a closed dooror gathering for capital raisers to connect with peers, learn from allocators and other experts, and really share in best practices with each other. You can learn more at capitaloc.com/un university. Thanks so much for spreading the word about Capital Allocators University for investor relations and business development professionals. Please enjoy my conversations with Stan Miranda from 2023 and Jenny Heler from episode 7 back in 2017 and a follow-up in 2021. Stan, great to see you. Thank you, Ted. Why don't you take me back to the founding of Partners? >> Okay, this is right after the tech bubble burst. I'm sitting in my kitchen, as the story goes, with my next door neighbor, Paul Dmitri. We have both been private equity investors. Paul started Invest Corp in Europe and I was working for Evolution Global Partners, which is a Kleiner Perkins spin out. As the tech bubble burst, our balance sheets reflected that because we were very concentrated in guess what? private equity, the asset class that could never go down, just went down a lot, especially if we had tech oriented investments. So in our minds, we were embracing diversification as a solution to that problem. And in the weeks prior to that, we had been meeting with various private banks, mostly the Goldman Sachs, City Banks, UBS of this world. And it was just shocking what we learned. I mean number one were just the conflicts the number of Goldman products or City Bank products. It was just astounding and if they did have third party managers there were generally no benchmarks and if you did find a benchmark it was the wrong benchmark. So you had not only conflict of interest issues but transparency issues but we couldn't get to the cost in many cases of the assets. When we went through the managers performance we realized that most of the the managers had no alpha. So, why would we ever hire a private bank? And we thought about where do we find the solution? And it just didn't exist. And we're both very entrepreneurial and we thought we should just start this. We should build something that's completely independent, uses proper analysis and honesty in evaluating performance and is totally transparent with the costs and the performance with the client. So we called it the island of integrity in the investment management world. So it was sort of a wakeup call for us that we needed something so desperately and it didn't exist and so we thought we'd create it and with my strategy consultant business school hat on I thought what we need is the equivalent of Michael Porter's book on corporate strategy but for the institutional investment world. What is that? This is no joke. It was sitting on the kitchen table. It was called pioneering portfolio management. So we read the book and felt it would be the cookbook that would get us started. The end of the story around the founding is that I had a set of friends that had the exact same problem and they were mostly private equity GPS. So before evolution global partners I was at Bane building their private equity consulting practice which meant we did due diligence on mostly buyouts and then we did all the postacquisition operating value added work. I knew European private equity world cold. So it was the premier and CBC's and BC partners but also Blackstone and Bank Capital. These were all clients and friends and classmates and there were 43 of them to be precise on April 1st, 2002 that signed up recognizing that Stan and Paul knew very little about anything other than maybe private equity, but they trusted us to figure it out. >> What was the capital base you started with? >> $7.7 million. You can do the math on 43 clients. They weren't giving us their whole balance sheets at that point in time. >> So, how did you take that initial highlevel idea and dive in and start to learn how you were going to go about implementing the strategy? >> One of the things I learned at Evolution Global Partners was to take things slow because we took it really fast there. The backers were Bonderman and Culture of TPG and buyers and Schline of Kleiner Perkins. And then there was a Bane investment with John Dano and they were just pushing us so hard. We hired 35 expensive people overnight. Built these two offices that never spoke together. It was not a good way to build a business. So I took it really slow. We started with three employees with one in Boston and two in London. We just chose the very next asset class and it was right on the back of the tech bubble. Nobody wanted any more equity exposure. So what did the doctor order? absolute return hedge funds. We just started studying the hedge fund space. It was very much the market neutral end. So equity market neutral strategies, merger arb, fixed income arbit and we just found and we got access to just through relationships things like tutor and caxton. And so we were off to the races. We just went to the next asset class and the next asset class and the next asset class. pulled out a blank sheet of paper, reminded ourselves what the Swson book said, but really pulled out a blank sheet of paper and said, "How do we invest in municipal bonds? What's the right way? Should it be high yield?" You know, what duration, you know, just every single aspect of every asset class? We just started from scratch and analyze it very deeply. on each of those. How did you go through the process of blank sheet of paper asset class that a lot of other people understand and know about but you don't yet and you need to learn and get up to speed. >> We believed in something we called steal from the best but it was also more euphemistically called triangulation. So we just talked to a lot of people and that was only confirmatory or it was something that would narrow down the universe. So we literally had a database where we had number of hits on this particular fund. But that just got us down to the six or so final candidates for any particular strategy. But also it had to be rooted in some deep insights about each asset class and it always started there not with the managers. That was another topic we picked up with friends at McKenzie investment office at Yale and at Stanford endowments family offices and we talked to them you know what do you avoid in this asset class? what do you focus on in this asset class? But in the end, it was our datadriven analysis. We hired whatever we needed as time went on, rooted in investment decisionm, but we weren't necessarily hiring the person exactly in that lane of the asset class. >> How did you go from the initial seven and change million learning these different asset classes to beginning to scale into what became an OCIO business? So we had to get $25 million in year one or something called US blue sky laws would have made our legal bills just astronomical. We hit 25 million at the end of the year just by adding the two asset classes absolute return and and municipal bonds for the US taxpayers. Then in year two, we'd hired people like Will Fox, who's still running North America with us today, and we said, "We're not paying ourselves anything. If we don't get to $100 million, recognizing that break even was probably $300 million. If we didn't have the momentum, we weren't going to carry on." But in that second year, 2003, we actually got institutional clients. They were the institutions that knew about the Yale model, the endowment model, but they were a little bit rebels. There weren't the traditional people who worried about what somebody else was going to think and so they were going to hire the new guys on the block. Goneville and Keys College Cambridge hired us in that year. We hit the $100 million target with a mix of high net worth individuals, private equity GPS mainly and smaller institutions. And then the next year, Will Fox and I said the same thing. We hired John Collis who's just retired after 20 years. We ran Europe and we started adding clients in the institutional market mostly in Europe at that point. We hit 400 million in 2004. We were calibrating how much we grew by and in 2005 we hit 1.5 billion. A lot of institutions, a lot of private equity GPS and we shot and we got our Excel turned into more institutional technology and so forth. The next year was three billion and we capped ourselves about one and a half billion a year until the global financial crisis. But even in that year we added one and a half and we lost one and a half. So we flatlined then and then since then carried on growing. We let off the 1.5 billion limit and it's now today at about 45 billion a year that we net. >> How did you figure out what product you were going to offer in that initial very fast growth those first couple years? >> It was always the endowment model. We were always going to have all asset classes. It's just that most of our clients were overweight private equities. That was low on the list initially, but we had the full endowment model by 2003. We only started investing in private debt in 2009, but that was asset class after the initial set. But we had hedge funds, fixed income, liquid credit, private equity, including venture and property. That was our lineup in the end of 2003, beginning of 2004. Every client has their own reason for being, their own set of values, their own goals. How did you scale trying to do this for lots and lots of clients? >> First of all, you're right that almost all our clients want something highly customized. And the primary reason that would make sense is that they had a very different risk profile or they had particular biases against their current balance sheet of property and private equity and so they'd have a different allocation. But in the end, the private equity GPS ended up doing something that looked a lot like the endowment model and of course the institutions did. Even the customization is generally about asset allocation, not about which asset classes are included. Almost all asset classes are included in almost all client portfolios, even the private equity GPS today. So the customization came down to really sizing of managers or simple allocation decisions whether it's 8% private debt versus 10% private debt >> when you initially sought out to say we're going to replicate or triangulate on the L model. What did that mean to you and what you were delivering for your clients >> after 19 years at Bane? you just had an appreciation for the fact that there was a best way of doing almost anything. I'm an academic purist and our mission is to take the most advanced proven institutional investment approach to our clients. The endowment model in our definition and may not be your definition may not even be David Swenson's definition but it had three pillars. Number one, high static risk. So static means no market timing and that was definitely David Swinson platform but also the high meant it's long-term money you can take the volatility. Secondly, multi-asset class diversification with a bias towards illquid assets but not necessarily defining them as illquid but just you can take higher risk, you can take the illquidity, let's go for it. So that was certainly the second pillar and something we definitely copied of the Yale model was that you don't give money to the big retail publicly listed asset managers that are in the business of turning out 40 new funds every year. you went with the concentrated specialist entrepreneurial owner operated asset managers who had the bulk of their balance sheet in their own funds. So the skin was in the game and so those were the three platforms that we followed and that was enough work really the focus in the early years was just being a deep expert on every asset class. We always had a benchmark that we wanted to beat for every asset class. So in hedge funds, it was Blackstone's BAM outfit. Their performance was ahead of everyone else's. We just had to make sure that we could beat them on each asset class. >> When you applied this concept of there's a best way of doing things to manager selection in addition to those couple of criteria you mentioned, how did you go about the process for manager selection, different asset classes? >> Really three things. Number one is a Malcolm Gladwell phenomenon that the team has to have had a lot of reps. It's really important and it's really hard in asset management because of the time frames. Secondly, it was narrowing down your field of investment choices through quantitative techniques mainly beta and factor analysis, multiple regression, which goes way back in my history. It's in my blood. And then thirdly, very importantly is knowing the psychology of a great asset manager. So is psychometrics basically on the reps. I always think who do you want doing heart surgery on you? You want somebody who's done a lot of them, right? And so it's the same in the asset management world. If we've got a client, some big institution, first question they should ask us, who's making these decisions on asset managers and how many experiences do they actually have and how are you capturing that inside your organization so one individual gets the benefit of another individual's reps. The most important thing is not just how many mistakes you've made, but did you stop, analyze it, codify it, and teach it? Did you educate your team about why that was a bad idea? Why you succeeded with certain managers? >> What are some of those mistakes that you made that you've tried to transfer onto the team? >> Commodities is a great one. Okay, as we say today, it's a graveyard of failed investment decisions because almost every strategy that we were looking at had commodities in there and they're active commodities, not passive commodities because you learn about commodities, there's no yield, there's no income. So over time they actually go down because of economies of scale. It turns out in commodities to know enough about what you're investing in you have to specialize. So you just do energy commodities and you are whipsawed all over the place. So it's up 80 down 60. You have to own four or five of them but they go out of business after 3 years. That was a big learning. So we don't do commodities today. That's a whole asset class learning and there's more specific learning about individual managers in every asset class. >> How about some of those other ones? >> We started life with equities actually saying this is too hard. We're just going to go with Mr. Vanguard. That's the best way. Nine basis points. We know what's going to happen here. But then we thought, wait a minute, this is 30% of our clients portfolios. We're not generating alpha for. We got to crack this. So we started with the private equity approach to public equity investing as you'd expect us to because that's deep fundamental analysis and that's the only possible explanation for how you could have security selection alpha. That worked actually from about 2005 to about 2009 when it stopped working because growth was introduced and the value factor killed the private equity style managers. I'm not naming managers that we necessarily invested in, but that was the SPOS and the CVNs and value acts. That was a bad factor trade. We migrated into the growth sector and we believed in the extreme focus in biotech or China or emerging technology because these were deep experts. It's inefficient. What do we learn there? We learned that there's a lot of risk other than equity beta in these portfolios. Okay, China there's geopolitical risk and biotech there's basic regulatory risk, small company size risk, unprofitable or profit tomorrow company risk and all of those are risks that you're going to get paid for, but you're way ahead of your budget when the market goes down. You give so much back. So anyway, public equities, we're learning from individual managers through time how difficult that really is today. >> How about venture capital managers? >> The learning there is more about the asset class than the individual managers because of the Kleiner Perkins Association that we believe what everybody else believed which was if you weren't in the top eight 10 managers, you just didn't go there. And you needed the early stage. the early stage was really where all the real returns were back in the early 2000s. We couldn't get access to them. So, we did some alternative things like the Tiger Globals of this world, but we didn't have much early stage at all. And that did really well thanks to the tech bubble that we rode. But today, you don't get early stage from those managers because it's a tiny percentage of their overall book. They're getting the early stage somewhere in their house, not necessarily in your portfolio, but they're accessing the best early stage. So, they have proprietary insights and access to the late stage. So, you want to invest in their late stage and we do, but we don't get any of the early stage venture capital. And it's our assertion that's a much higher return because it's higher risk. But you want it. There's lots of data that you pick the right time frame. Late stage is the same as early stage returns. But if you're adjust for tech bubbles, tech bubbles included in both the beginning and the end. The early stage is where you definitely are generating superior returns. So you want some of that and it's uncorrelated to late stage and equities. But how do you access it? Emerging managers. As it turns out, the second tier isn't necessarily any worse than the emerging managers. And the emerging managers are small enough where they can make the small investments in 50 different deals and they benefit from the home run, if you will, of early stage venture because their mind is totally focused on the unicorn. The total adjustable market has to be big enough that that company can realistically become a unicorn. And if that's your lens, that's a great investable emerging early stage manager model. How do you reconcile the difference between the belief that emerging managers in venture capital are the way to go with what you originally said of the importance of reps? >> We almost never invest in early stage manager without reps. So they've almost always come from another place and our classic example is HIG. We love this manager. There are a lot of spinouts which got superb training and not all of them have been terribly successful but many have and that's a classic example of what we love doing. >> So reps being the first of those three pillars and walk through the second third. >> The second is we've got this funnel we've got access across the globe to all these managers. But guess what? Our funnel is really, really wide. And we narrow down the funnel with this triangulation approach. But more importantly, just quantitative statistics. And what what thoughtful investors have realized is that you're not just being paid for equity beta. There's credit buried in there. There's inflation beta in there. There's certain aspects of sectors. There's factors. There's so many things in there. So take picking public equities as the most obvious example. We run massive regressions against their historical performance and we attribute that performance to certain factors that we can replicate and we create the multiffactor replication benchmark and if they didn't beat that by a significant amount, they don't get through. That knocks out 95% of the equity managers over a five-year period minimum. And then we have to stop and do all kinds of thinking about whether they did pass that test. can they continue doing it? And by the way, there are some managers that didn't pass the test and we didn't invest with them because they didn't meet the alpha test that we just talked about, but we thought they would based on changes in a team and so forth. And so we went into that firm having not passed the quantitative historical test, but they definitely passed the reputational test and just certain team changes made us think that they were going to be a success. So that's a quantitative screen that saves us in every asset class. We even apply it to private equity. The multiffactor what we call beta replication tool. So you have reps, you have your quantitative filter. >> We got the psychometrics. The short hand is the best investors are square pegs. Okay. And that there's lots of exceptions in the investment world. There's lots of investment rules that have exceptions. We see that more often than not that they're not balanced individuals. They're workaholics. They're highly ambitious, energetic people, but they're highly analytical, high integrity, very trustful people. And so there's more than just the lack of balance. They're forces of nature really. They identify a goal in terms of what they want to achieve in terms of performance or where they see the insights and they're just going to walk through walls to get to that other side of the wall. How do you tease out positive psychometric elements in your diligence process? >> We send more senior people in that have seen this across a number of different reps, if you will, in the first instance. Some people you see the real person very soon, but not always. And so I'd say number of hours with them and it's at least the fourth or fifth meeting. We do on average 300 to 500 hours of due diligence on the average private equity fund for example. So later in the due diligence, we learn that. but also from references. We do a ton of reference that typically 20 references. So, ideally with people that know them very well and will be honest with us about them. >> As the years have gone on, 20 years plus since David wrote Pioneering Portfolio Management, how have you evolved how you've thought about the endowment model? >> So, number one is risk. You think about the result of an endowment model. You end up with, pick a number, 60, 200 managers, okay? And you think you understand from their exposure reports what you own, but you don't know what you own just from their exposure reports. So, you have to go really deep in knowing what you own. We understand the underlying stocks that most of the portfolios have. We get all that data and then we run it through our factor models to know where we've got over and underweights because one manager may be doing the same thing as four other managers and all of a sudden we've got tons of exposure to clinical trials risk. Okay, that's the single biggest change in the endowment model is the risk management. And that's what risk management means to us. We show our clients what we call the risk dashboard which has over 16 different metrics including the value and quality and momentum factors as well as liquidity factors, currency. You have to understand all of this because odds are when you got an overweight that was unintentional, it goes against you. And when it goes for you, you call it alpha and you don't pay attention to it. But you should you should pay huge attention to any source of alpha. it's probably beta. >> When you do that quantitative assessment to figure out what you own underneath, how does that then impact the way you construct your portfolios? >> The main impact is that we will counterbalance certain overweights that we don't want as intentional overweight. So we have to have enough liquidity in the portfolio where we can use ETFs or index funds or futures that we can offset those. That's the primary implication. But there's a positive implication of having so much data on what we own. You can actually then fine-tune your allocation to different SKUs. So if you think structured credit at this point in time is cheap, we can do something with that. We'll find a manager and add to them or whatever it takes. >> How do you balance the notion of static risk with the concept that there may be something like structured credit that you think is an opportunity? So we break our tactical asset allocation model into three layers. We call layer one is just absolute risk. So we convert all those different betas and factors into one measure. We call it ENIB equivalent net equity beta. It's equity like risk. And we set the target say at 75 for a given endowment. And then when markets move it to 73 we rebalance up. Markets move to 77 we move it down. So we never time markets on level one. Level two, we have 13 asset classes or seven beaches, whichever way you want to look at it. And we've got targets for each one of those. Markets move those. Or we have valuation views on level two. Say one of the 13 asset classes, emerging market equities. If we think that's gotten cheap, we'll do something there. That's also very difficult to do. So we don't do a lot of it. The third level is subasset class tactical nodes. So those are where our managers are giving some us some insights. So we railways that was one of our recent ones. We had as a unsuccessful one community banks going into 2023. Okay. Anyway, that's our level three tactical moves and those tend to generate at least enough alpha to pay for our fees if not a little more. >> So we're all paying fees to active managers and sometimes you're buying the package that they're delivering. Once you start disagregating this composition of returns and understanding what the alpha is, what the beta is, how do you then go about applying what you've learned to the implementation of your investments in a manager when it relates to fees or structure? >> If it's a manager with very constrained capacity, we have no influence over that manager. Over time, it's getting better mainly just through relationships. We're we're working hard to actually add value to them. even though they've got limited capacity, we're competing with all their other LPs and we will do things like educate them about the energy transition. We'll talk to them about the best incentive programs we've ever seen for hedge funds or how big an average compliance team is. So, we're always trying to add value to those individual managers. But in the case of a lot of the private equity, private debt managers, especially if they're fund two or three, we're allocating so much capital to them that we can talk about separately managed accounts. we can negotiate terms. We're always trying to make sure we're only paying performance fees on the alpha, not the beta. And so those sorts of negotiations do take place. >> What else have you done in the more modern version of what you've applied to the original endowment model? >> I mentioned two. So the risk management and then the tactical asset allocation. The the third one is just focus on being a value added LP is very intense. We have actually a best demonstrated practices book. It's about 70 pages on postacquisition operating value added that we share with private equity managers. So that's a very meaningful part of it. On top of that, I'd say this focus on beta as a risk measure, not volatility is very important. A lot of people out there in our business think about the average endowment portfolio should have 10% standard deviation around its annual returns, 10% volatility budget, which makes no sense because what happens when markets go down, volatility goes up. All of a sudden, your portfolio is overrisisked. What do you do to derisk it? You sell right after the market got cheap. So, you're selling into lower prices. and the opposite when markets go up V goes down and you're buying at expensive prices. So that's another aspect of it. Are there some main changes? >> How have you thought about in the public markets? You said in the old days you thought maybe Mr. Vanguard was the right solution. Then it was such an important part of your portfolio. You started looking for active managers and now it's just increasingly hard with all these other factors to prove that you're adding value. What have you done about that? There's a portfolio construction solution. Turns out information ratio is probably the most important metric in liquid securities or asset classes. Okay. So, how much alpha do you expect is the numerator? How much volatility single standard deviation around that alpha do you expect in any one year? And if you think about that all the time and you're adding managers, theoretically what you do is you start with the highest information ratio manager. Allocate as much as you think you can based on that volatility. Maybe it's 6% of your total portfolio is a large allocation for us and then you add the next highest information ratio and then you look at what you own underneath that and you find oh we've got a lot of growth in there and you have to rebalance it. So that's the basic portfolio construction model for liquid securities. Credit's a little bit different because there's a lot of tactical asset allocation in there. So, we're always taking a view on the different subasset classes of credit. >> How have you thought about internal capabilities compared to giving money to external managers? >> Well, we started life, no conflicts here. So, there's a high bar on that. But we do have such strong relationships with liquid and illquid managers. So we do a lot of co-investing, private equity and private debt and property and the liquid illquid asset classes. We've always done co-investing. It's been very successful. Our targets today are about 20% in there. But about 7 years ago, we started co-investing in public equities. So with our longhold closest manager relationships, we just talked to them about those positions and said, "Do you care if we double up on them? We're not going to pay you any fees." And most of them said, "No, you're a big investor. Probably be helpful." So that's the closest we'd come to direct investing. The rule is that if we can't find it externally, we're allowed to do it internally. So we launched something on the back of COVID called the new world equity portfolio. The new world postco was one that was embracing technology, working from home, and you can imagine the sorts of things we invested in. They were both overcorrected companies like retail and airlines. We owned those and we owned the beneficiaries like Zoom. And so that was one that we just couldn't find anyone else doing. We did it. It worked. The logical lifespan came to an end and we stopped it. Right now we're looking at one in the energy transition space. It's all about owning brown to green. We cannot find anyone else doing it. I don't know if you've structured your team >> initially first 12 years we had all client-f facing people were also research people back to the kitchen table with Paul Demetri we wanted the person across the table from us to know what they were talking about okay about this hedge fund manager and so forth and so we kept that model as long as we possibly could but now with $50 billion of assets and 360 people it's not possible and so about six seven years ago we created the client client CIO. There are about 130 team members under the client CIO. Each client has the primary point person and they historically have probably worked on the research team doing asset manager research, but today that's all they do is construct portfolios and manage the risk of client portfolios. Then there's roughly 64 people that are dedicated to the research team. There's a central research team which does all the macro work under Cameron Mogadam. Then there are four groups of asset class teams. So equities, privates, private debt has its own team because the complexity is there. And then absolute return hedge funds and liquid credit. So those teams are roughly 12 15 people each. We believe in specialization. We don't believe in the generalist model. And so that's all they do is live and breathe their asset classes. I'd love to dive through some of your thoughts and lessons learned across asset classes and maybe start with private equity where you started in the business. How do you see the landscape today? >> So private equity turns out it's one of the asset classes where you can actually pencil out the expected return. You just pull out an Excel spreadsheet. You put in what you paid for it in terms of multiples on earnings and what you're likely to get for it when you sell it. You've got the debt, the cost of the debt, you got the two and 20 in terms of fees. Most important number of all, earnings growth. Put all those together, certain assumptions usually gets you to about 15% historically with nice growth of earnings and cheap interest rates. We just live around that model. We think about who can grow the earnings the most. What are they paying? What can they sell things for? And that has always pointed us in the direction of lower middle market buyouts and specialists, software specialists for example. And so we've always been focused on that. And we had the data to prove that it's harder to grow earnings in a big company than it is in a small company. The private equity owner can be a more value added owner. Then a huge Apollo Blackstone, even Bank Capital today and CBC, they're buying multi-billion dollar companies. is just harder to grow earnings. But then you look at the performance, you realize actually they haven't done any worse than the lower middle market. But if you break out the attribution of that performance, the average private equity firm over the last 10 years earned 15% net. 7 and a half% of that was from multiple expansion, which is basically referencing the public equity markets, multiples, and those companies get valued in line with those. And so they went up by 7.5% because of the last 10 years growth of the public equity markets on the back of the global financial crisis. The other 7 12% is rather pedestrian average earnings growth combined with some inflation in there. So there's no real value added from the average private equity firm even in the last 10 years if you adjust for the public equity multiples and the debt aspects of it. So if you leverage small cap public equities, we think you could have done better. Okay. But huge dispersion. So there are big exceptions in the mega cap, large cap, all the way down to the middle market who would violate that observation. >> So if you've grown your asset base and grown your allocations to these managers, how have you tackled the sweet spot of this middle market? >> So we're now in the fund number two and number three space. That's our sweet spot. We have great relationships with certain names and we get big allocations with them and they've gone up to five or six billion dollar funds but it's still working. We can call that middle market these days but the best solution is just know the middle market firms that are most likely to create spin-offs and watch and we have a relationships with the search firms and others. So we get usually early heads up on firms that are leaving. We'll typically meet the management team the first time. We pass in most cases, not in all cases. We've done some fund ones, but generally we say, "We're going to watch you. Please hold some space for us for fund two and we're in fund two." >> There's probably nothing that's changed more in these 20 years than hedge funds and your next asset class you tackled way back when. How are you investing in hedge funds today? >> So, first of all, we break them into two totally different groups. Hedged equities, anything with a B of more than 0.2 to the equity markets, we call it an equity manager. And frankly the learning is the same as in the long only equity space but we do have more alpha from the hedge equity managers. They just tend to be deeper more fundamental and and more specialists in a lot of cases. So our biotech managers are mostly equity long short. But in the absolute return space first of all more managers is better than few managers. There's a minimum where you debate whether it's 12 or 20. and you're all about diversifying your sources of alpha. So what we learned is you can create say with 20 managers with the right mix of strategies and a very consistent source of alpha call it 3 to 4% not big numbers with only 3% or even 2% alpha volatility. So information ratios of 1.2 and then what do you do with that information ratio? you leverage it. Okay, so that's how we invest in absolute return hedge funds. We create a very stable solid stream of alpha and then we leverage it. >> When you think about that area, the 12 to 20 managers as you define a manager can mean a lot of different things because so much of the assets have gone into these platform hedge funds that are effectively doing that aggregation diversification for you. So how have you balanced the ability to put capital in some of those strategies with say a millennium or a citadel an individual single strategy manager? >> We probably should have allocated to the citadels and millenniums. Okay. We should have we just always looked at the fees. We have an acronym for everything as you've highlighted. E-Rock is our excess returns on costs. The E-Rock is terrible. Another way to think about it is of the total gross alpha, how much do they keep? It's about 80%. We get 20% of the alpha. The alpha is huge. Absolutely huge. But we could never get comfortable with only getting 20%. So what do we do? We allocate it to their spin-offs and it's mostly Citadel spin-offs. They've done very well and they're closer to two and 20 and we get roughly 50% of the gross alpha and we diversify. they'll be specialists in consumer or specialist in tech and we have to create a diversified portfolio of those. >> So beyond the equity long short low beta absolute return maybe some credit there's this whole world of alternative alternatives. How have you thought about and participated in that? >> So we were early pioneers into that. You know what they say about pioneers. We started with insurance including life life settlements as well as catastrophe insurance. quickly went into litigation financing royalties both music and drug royalties and then one of our favorites is actually clinical trials and sports athlete financing. So that's the journey. Over about 10 years, we've been looking for this holy grail, which is high 12 15% type returns that are completely uncorrelated to financial markets. And all of those strategies I just mentioned are pretty much uncorrelated. The problem with them is that they have limited capacity. And soon as I start talking about them on a podcast, then all of a sudden the alpha goes away. But in most of those categories, it has gone away. unless they're in certain specialist areas. But it's been a good asset class. We can't take our allocation in client portfolios up above much more than five or 6% today. How about real estate? >> Real estate, first of all, stay away from the double promote. You don't pay a private equity firm to pay a private equity firm. Okay? So, we go with regional specialists generally and we build a national portfolio. Obviously, real estate has tax implications that make it hard to have a global portfolio. So our Europeans don't invest in US property, but frankly the US property market is a lot more alpharich than European and Asian property markets. So our US clients, a lot of them being taxpayers, benefit hugely from a diversified North American property portfolio. And then our European and Asian clients benefit from European and Asian diversified portfolios that are pulling together regional and sector specialists. So then in terms of office and industrial and residential and hospitality that's where you can almost time markets not quite when you're allocating for the next three to four years deployment you may still want to be in all. So we do use generalists in some cases regional but lately last six seven years we have invested almost entirely in industrial so a lot of logistics and that's been a big success. >> How about real assets? >> We've moved away from them. Early on we invested in oil and gas just seemed it was a great landscape for real specialists. People talk about reps. These are great opportunities for reps, but the commodity prices take you out. And all our due diligence had us being convinced by these managers saying that they hedge the commodity risk. They don't. The risk has just taken out too many resource companies. So, not just oil and gas, but mining. It's a pretty difficult area to invest in unless you really take a 20-year time frame and you live with this massive cyclicality. So we do not do anything in traditional resource areas. We are primarily focused on the energy transition and those are effectively real assets in many cases. >> So with a lot of this idea of taking on a new asset class, having a clean sheet of paper in the last couple years, there have been some opportunities to do that. There's the crypto and the blockchain world. There certainly all the developments in AI and would love to hear your thoughts as you've mapped out and looked at these areas what you found >> on AI it's too early first high level question is how is it going to affect institutional investing asset allocation the timing of various moves but then how it's going to affect basic fundamental research at the asset manager level so we don't have an answer to that and frankly it's too early to tell right now but we will be in front of that when it happens on crypto. We have studied it and we have come to a decision not to invest other than in blockchain venture capital. The simple explanation is that it's like gold. It has no income. It has a market because people buy it. Okay? So quoting Jacob Rothschild, when the central banks are buying gold, you buy gold ideally before they start buying. But so crypto is the same. It has its pricing set by the scale of purchases and that is driven by a lot of momentum and psychological factors. If you look at the value of Bitcoin, it bears no resemblance to any value proposition or utility that Bitcoin has. Okay, Bitcoin has utility, especially in just moving currencies across capital borders. There's a real value to that. I'm not sure it's legal in many cases, but there's a value to that. It's not $40,000 a coin. That's clearly speculation driven. And we'll invest in cryptocurrencies when they reflect their utility or their cheap relative to their utility. >> What's different today managing $50 billion at partners than at different stages along the way with smaller asset sizes? By far the biggest difference is our relationship with the asset managers. We're just always the top of their table and so we get every question answered. We get more transparency than the average investor and we can come up with creative new ideas with them. The managers are getting bigger, but some of them are getting bigger and developing their capabilities even faster and we want to grow with those. and we're going to do that if we're close to them and we're contributing to their own capability improvements. >> I'd love to hear what you've learned about succession of asset management firms. You've certainly seen a lot of it in the managers in your portfolio. You've undertaken aspects of it with some retirements as you mentioned. >> It's difficult but not as difficult as you think. We always assume there's so much more to that one individual that when they leave it will be a disaster. It generally doesn't end up that way. Does succession work in all cases in terms of just the politics and no casualties in terms of the partner group? No. But asset management firms, if they're good ones, they've really embedded their capabilities so deep in the organization that no one or two people really are that important, especially in the bigger institutional portfolios. If it's a team of six, succession is vitally important. And so you've got to really focus on that. But it's extremely difficult. >> How have you gone about it at partners? >> First of all, we were a partnership. So it wasn't a single person running the investment decision. So it's not Andreas Halverson at Viking. It was Dan Miranda who built a partnership and initially three partners and now 19 partners and all the partners were involved in many different specific aspects of the investment process. So no one person really mattered that much. But when I gave up the CIO role, Colin Pan was already doing it. So I think succession in all companies, not just investment companies, is about giving the job to the individual before they take it on. And then it just happens more naturally. And you always expect as the founder or whatever, some big fanfare, but it's always just a little tiny applause when the transition actually takes place. >> Where do you think Partners goes from here? I do think we end up doing some more direct investing. We see a thousand managers a year in any one asset class. We just know so much about each asset manager. Most of us just sit there and persspire over all the opportunities we're seeing that aren't being exploited. So when I said the rule is we can only exploit those opportunities that haven't already been exploited by amazing people outside Partners Capital, there are a lot. And so I think we're going to cross that boundary at some time very delicately. We don't want to break the rule that created us of no conflicts, but I think there's some opportunities our clients should benefit from where they could see much lower fees and a lot more alpha if we integrate forward into asset management. >> And how about partners as a business 3, five, 10 years down the road? privately owned, management run, outsourced CIO, continuing to be one of the most highly respected in terms of thought leadership in investment management. >> Great. Well, Stan, I want to turn to a couple closing questions before I let you go. What's your favorite hobby or activity outside of work and family? >> Okay. So, outside family, family is definitely first protocol outside of work. Every moment of free time is spent in sports basically. And I do triathlon. So mostly just the individual running, swimming, and cycling a lot. But I collect sports. You name the sport. The only one I don't do is golf because it would take too much time and it would take out all the other sports. But I do ice hockey, kaying, every racket sport you can think of. I just love sports. It may be the competitor in me, but it can't be because I'm not that good at any of them. It turns out focus matters. I may be a good skier. That's about the closest one. But I am a master of none. >> What's your biggest investment pet peeve? >> Clearly people who mistake alpha for beta and we do it all the time. Oh, we just did fantastically well in those biotech firms, it's got to be beta. How about your biggest personal pet peeve? >> Okay, I have a lot of those. I was asking my wife, for example, she said, "Well, plastic bottles, brown shoes." Entitlement is probably the one because people that are entitled, you don't succeed with them. I think you succeed with people who have a basic philosophy that hard work earns you the right to whatever you have, whatever you experience. So I believe in hard work and focused efforts to get ahead. >> What investment mistake have you made that you'd never make again? >> I think invest in catastrophe insurance. Okay. So you always said we're long global warming. That's what catastrophe insurance is. But global warming has always been ahead of pricing. So that was a painful experience. >> Which two people have had the biggest impact on your professional life. >> Number one was my second family. I was very close to Dr. Tom Elias in Fresno, California where I grew up and his wife who is my denmother in Cub Scouts. And I spent so much time with them because their son was my best friend. Dr. Lizen was a leading cardiologist and he was my role model. The impact he had on me was to be calm and thoughtful. My family was full of drama. And so it must be the Portuguese DNA or whatever it is. But he gave me a sense of perspective and calm that compared to my siblings is distinctive. I think most of my work colleagues would say really I haven't noticed but they have to understand what it could have been. And then secondly is a gentleman named Archie Norman. He's a serial CEO and chairman. He was the CEO of Asda Turned around Asda Energist ITV and he's currently the chairman of Marks and Spencer and I worked with him when he was at HSDA when I was strategy consultant. And he has two unique characteristics as a leader. And one is that he just doesn't like doing anything ordinary, anything normal. He just strives to do things that surprise people out of the ordinary. And he taught me to always be brutally honest and face into the unvarnished truth. I'm the chairman of the board of partners Capital. You don't go into the board meeting to convince them that our investment performance is great. You find the area that's not great. You spend all the time on that and you're honest about it and you focus them on it and you face into the unvarnished truth. That's what Archie taught me which I think is incredibly valuable. >> What teaching from your parents has most stayed with you? >> Okay, so 1972 I'm thinking about university and there's the financial crash, the markets crash. My father happens to be a stock broker. Okay, this was a bad period for him. He sat down with me and he just said, "Well, first of all, that college fund, not so big anymore, but secondly, if you do anything in life or in university, have a skill that people will pay for and you will land on your feet." And that just always stuck with me. And so my first degree was in business and accounting, so took care of it. I think that's wonderful advice for anyone early in life. >> Stan, last one. What life lesson have you learned that you wish you knew a lot earlier in life? >> Keep your loved ones close to you. That sounds so obvious, but in a global world where we have the ability to send our children anywhere or they have the ability to go anywhere and your friends have the same freedom. We all end up all over the world. And I'm at that stage where I'm trying to gather them back into one place and in some ways wishing I didn't have the truly global experience I had because I'm just living on planes going visiting children and family and friends. But so the advice I give to young parents in particular is don't let your kids go to university abroad. Keep them home. You'll never regret it. >> Stan, thanks so much for sharing your wisdom and experience. >> I've loved it, Ted. Thank you very much. Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one, and see you next time.