Capital Allocators – Inside the Institutional Investment Industry

Scott Malpass is the esteemed Vice President and CIO of Notre Dame, where he oversees the University’s $12 billion endowment. Scott earned his B.A. and M.B.A. degrees at Notre Dame, and returned to South Bend at the ripe age of 26 following a brief stint on Wall Street. His track record for almost 30 years, as defined by both performance and impact, place him indisputably in rare company at the very top of the field.

Among his many accolades, Scott received Institutional Investor’s Endowment Manager of the Year award, NACUBO’s Rodney H. Adams Award, and CIO Magazine’s Lifetime Achievement Award. He has taught students at Notre Dame since 1995 and among other directorships and advisory councils, he serves on the Boards of the Vatican Bank, Vanguard, and TIFF, and previously served on the Investment Advisory Committee for Major League Baseball.

In 2014, Scott became part of the founding group for Catholic Investment Services, Inc., a not-for-profit offering top tier investment solutions to Catholic organizations nationally.

Our conversation is a full-blown master class on endowment management, including the benefits of a long tenured team, asset allocation frameworks, passive management, preparing for dislocations, the state of venture capital, sourcing, monitoring and exiting managers, incremental process improvements, professional and personal development, and education and alignment across constituencies. It’s hard not to be in awe of Scott’s combination of humility, experience, and success.

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Show Notes

3:26 – How Scott got started at Notre Dame

6:22 – Why tenure of the staff is so long on Scott’s team

8:26 – How did he handle bad hires among such a tight knit team

9:37 – Committee makeup

11:18 – How the continuity and depth of institutional knowledge allowed them to make better decisions

12:51 – Their first single asset real estate investment

14:21 – What is the best use of time for the investment team, managing a direct investment or researching new managers

15:07 – Core investment beliefs from Scott’s past that drive the portfolio

17:28 – Core investment beliefs that drive the portfolio today

20:43 – How does Scott think about portfolio construction techniques

22:49 – Factors they like to tilt towards

23:36 – Any concerns about the focus on active managers in a world that is moving towards passive

26:02 – How much of the US investing market should be indexed-based

27:37 – The baseline that Scott has to consider when making investment decisions

29:43 – Their focus on emerging and middle markets, particularly Europe

34:01 – Pricing in the venture capital markets today

36:31 – Implications of all of this new money moving into private market investing

37:40 – Do private equity owners make better decisions for businesses

39:52 – Scott’s manager selection process

41:44 – How much time does Scott spend with managers before making a decision to invest with them

43:14 – Jim Dunn podcast episode

44:04 – What has Scott learned about the behaviors of making that final decision on a manager

45:39 – Mistakes that Scott has learned from and corrected over the years

49:36 – Creative ways to monitor managers in the portfolio

52:08 – Scott sharing how special the managers in the portfolio are to them

54:49 – How would Scott think about an investment portfolio of $1,000,000,000 of cash

56:57 – Benefits and drawbacks of direct vs co-investments

59:43 – Biggest current subject of debate on an investment topic in the office

1:01:47 – Lessons from their annual offsite meetings

1:04:31 – Biggest concerns about the markets today and over the next 10 years

1:07:52 – Closing Questions

Matthew Granade is Chief Market Intelligence Officer at Point72 and the Managing Partner of Point72 Ventures. Matthew oversees all proprietary research and data efforts at the firm, manages several of the internal systematic strategies, leads early stage venture investing, and recently launched Hyperscale, a new strategy that invests in AI-driven startups and connects them with operating companies to build model-driven businesses. Before joining Point72, Matthew started his investment career at Bridgewater and later was a co-founder of Domino Data Lab, a business that develops systems-of-record for enterprise data science teams across industries. Our conversation covers Matthew’s work optimizing the research process at Bridgewater, creating Domino Data, and leaving the company to join Point72. We turn to his tackling research and data science at Point72, blending the power of computers and humans, and overseeing Point72 ventures and Hyperscale.

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Michael Schwimer is the CEO of Big League Advance, a company that makes investments in Minor League baseball players in exchange for an agreed-upon percentage of their future earnings. Before founding BLA, Michael was a professional baseball player, working his way through the minors and reaching the majors as a pitcher for the Philadelphia Phillies. A shoulder injury left him pondering what to do next, which led to the creation of BLA.

Our conversation discusses Michael’s career as a player, the difficult life of Minor Leaguers, and his mission to improve their fortunes. We discuss his passion for statistics, application of Sabremetrics, and development of a team of All-Stars in the game of sports analytics. We close with a look into the future of BLA and Michael’s prediction for this year’s World Series Champion. Whether his bet proves right or wrong, Michael’s rationale exemplifies second order thinking through the lens of data analytics that is never far from his mind.

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Morgan Housel is a partner at Collaborative Fund and one of my favorite writers about investing. Morgan recently released his first book, The Psychology of Money, and I’ll go on record and predict it will be a best-seller in short order. Our conversation starts with Morgan’s non-traditional education, his path to writing, and his process for writing each week. We then turn to the book and discuss some anecdotes about luck and risk, greed, compounding, patience, and tail events. We close with two of Morgan’s personal stories – one about his own investing and the other, which seems inconceivable as you listen, about his lifelong challenge with stuttering.

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My friend Brian Portnoy recently put together a Zoom call where he and Jonathan Novy interviewed Annie Duke about decision making in the crisis.

Brian was a long-time fund investor and has authored two books in the field of behavioral finance. He and I discussed his second book, The Geometry of Wealth, on Episode 57 that follows on the feed. He is currently a financial wellness consultant for advisors, corporations, and industry associations.

Jonathan is a financial advisor at Ritholtz Wealth Management, a prominent and fast-growing RIA.

And Annie is a regular on the show. She’s a poker legend, decision-making theorist and best selling author. And, she’s releasing a new book later this year entitled How To Decide, but that’s subject matter for another show down the road

What follows is the segment of their call pertaining to the crisis. They discuss the difference between complicated and complex decisions, the tradeoff between time and certainty when making decisions, the process of preparing clients to make good investment decisions today, and decision-making education for children.

Please enjoy Brian and Jonathan’s conversation with Annie Duke.

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