Transcript
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Focused fund to fund strategy, and the other
one is just a pure US focused strategy.
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What have been some of the most valuable
lessons you've learned from your
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Alligator friends as it relates to Venture?
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If you're raising $50,000,000 like, what does
that look like?
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How many companies?
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What's your ownership target?
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What's your follow on?
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Or if you wanna raise, you know, $100,000,000 I
think there's a big leap in what you have to do
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as a VC to kind of get allocation to, when
you're writing a $250,000 check into a round is
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a lot different than when you want to write a
$1,000,000 or $2,000,000 lead check into a CPO.
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And so it takes a different skill set.
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You mentioned earlier that you have an
opportunistic bucket.
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And one of those opportunistic investments
you've made is into a helicopter lease fund.
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Tell me about what made you invest into a
helicopter lease fund.
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It's actually something that was born out of my
time at a family office prior to Loyola.
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So at this office, we had been kind of
investors in private credit for a number of
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years.
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I'd say they, you know, hat tip to them, they
were investing in private credit managers in
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kind of the early 2010, 2011.
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So spreads were nice and wide.
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You got after tax return, after tax yield was
attractive, I think, relative to public
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options.
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But as time went on and markets matured, and
this was still back in like 2018, but by then,
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you know, the private credit markets were a lot
bigger than they were 8 years prior, and
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spreads were fairly had narrowed, just were in
a low interest rate environment at the time.
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So there wasn't a ton of risk reward to be had
going after tax yield, after tax returns for
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the family.
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And so we set out to try to find an
alternative, and we came across this new fund
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that was looking to buy and lease helicopters,
and there were some interesting tax benefits to
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it that the family got on board with, and so we
ended up making a commitment.
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Fast forward, I come over to Loyola, and this
manager was looking to raise their second
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funds.
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We had carved out this opportunistic private
investment bucket to do interesting things that
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weren't necessarily a venture investment or
growth equity or buyout to kind of leverage
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just our sourcing network and do stuff that we
found can return something within our return
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thresholds, kind of mid to high net return
perspective, and, mid to high teen net returns,
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and, do so in kind of a differentiated fashion.
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So we, being the endowment, we don't have the
kind of tax implication as a family office, but
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we were able to kind of be comfortable with the
strategy here.
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And, we're able to make a commitment to the
second fund.
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Does it basically just come down to there's
just a limited supply of capital that's able to
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invest into something like a helicopter fund?
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So these very unusual or esoteric investments
have this embedded premium.
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Talk to me about that.
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This kind of goes into a lot of things that we
find interesting where there may be smaller
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market opportunities.
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And so you don't have a lot of maybe name brand
investment firms that are larger go after them
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because it just doesn't move the needle for
them.
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And I think in the aviation finance market,
there's a lot of what you call like kind of
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commercial aircraft leasing funds or railcar
leasing funds, and those are big markets.
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I think they're well understood, and the
returns are, I think, easy to kind of predict
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or expect because it's, again, the market is
very efficient in that matter.
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With helicopter leasing, one of the things that
we did a lot of work on was just the history
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and the why, right?
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If an esoteric market is so attractive from a
return perspective, why isn't there more
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capital?
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And in this case, I think a couple of things
was, historically what we learned is that there
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were some tougher stories and tougher outcomes
for different helicopter leasing companies that
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I think might have deterred a lot of investment
firms from taking a look.
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I think the, you know, the implication of owing
versus leasing aircraft, the economics of which
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was probably not widely well known.
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I think in this case, this manager would tell
you that leasing versus owning makes a ton of
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sense.
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And so there was, I think, just a lack of just
kind of fundamental knowledge of the market and
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just maybe if you did a quick Google search on
some of these legacy players that maybe went
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bankrupt or out of business, you say, I don't
want to spend time there.
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It seems like I might do that when I got
perfectly good, like midlife commercial jet
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that I can lease and have a little bit more
understanding of what the risk return is.
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So so I think that's kind of with this specific
asset class.
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The reason maybe kind of parlay that into your
point parallels to other asset classes a little
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more off the run.
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So there was a period of time in the space that
did not generate good returns.
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And those circumstances have changed such that
today, from a 1st principle basis, it makes
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sense here.
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You're getting essentially a free premium for
not additional risk.
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The free premium?
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Yeah.
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I don't know if that's it's always the case
here if I had a free premium, but but there's
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certainly, you know, some risk inherent to it.
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I mean, that's something that we get
comfortable with through our due diligence.
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And but, yeah, I think, you know, finding these
markets that are very overlooked and you're
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able to go in and be a institutional capital
provider is a nice place to be in.
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So we were happy to support this manager again.
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Walk me through your process for diligencing
these unique asset classes like helicopter
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leasing.
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So comes to your desk, how do you process an
incoming diligence?
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We have a small team, and I'd say we are very
big proponents of putting certain strategies
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into, like, the too hard to understand market,
where if we can't understand and confidently,
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you know, effectively communicate why a fund
performed the way it did to our board, our
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committee, or our stakeholders, we shouldn't be
doing it.
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And so when we look at something that's a
little bit more esoteric, like helicopter
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leasing, we make sure that is this something
that we could discuss with our stakeholders,
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our board, or committee to, you know, in a way
that they would understand exactly what the
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return profile is, the risk profile, how they
make money, etcetera.
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And with this one in particular, I think that
the best way to do it is, and what we did here
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is kind of frame the strategy or the asset
class in a way that's familiar to us.
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And then work with the manager to kind of tell
us where we're right.
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Tell us where we're wrong.
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Tell her where it's similar.
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Tell us where it's similar.
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Tell us where it's different.
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So with this leasing strategy, I say, I
understand how you know, I don't own
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apartments, but I've leased an apartment
before.
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I kinda understand how that process works.
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Like, walk me through how it's similar in terms
of just the structuring, the term of the lease,
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the pricing, how is it different, what sort of
insurances are you taking, things like that.
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And to kind of come out with, okay, this is
exactly how this market operates.
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And now I kind of understand it through a kind
of a lens of something I'm more familiar with
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and now can communicate it in a more effective
way.
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I should say that there are a lot of nuances to
this particular strategy that, I'd say I'm not
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not, gonna the manager is much more qualified
to to walk you through, but we really spent a
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lot of time with him and just, you know, just
asking a lot of what may be perceived as dumb
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questions.
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But it just I think that's one of my biggest
learnings in my career is ask those questions
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early because it helps really kind of set the
table and help you learn.
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And how many people in the space do you speak
to in order to underwrite what the manager is
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telling you and to get more comfort around the
strategy?
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We spoke to, with this one, a lot of references
that just, you know, we're familiar with
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leasing, maybe more other aircraft leasing
verticals, just trying to understand, partially
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back to what we said about just why or why not
helicopters, again, doing a lot of research
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into the history of the market, speaking with
folks that might have a little bit more
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knowledge.
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It's a lot harder to find those folks for a
helicopter leasing strategy than for a, you
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know, a venture fund, but but, you know,
hopefully, through our network, we were able to
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find the key people.
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I'd say, you know, also the benefit of, you
know, Loyola, we're not unique.
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We're not adding an investment committee, but
we have a lot of smart people that that kind of
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look at what we're investing in and and a
strong, you know, affiliation with the
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university and want us to do well.
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And so, you know, they have various backgrounds
spanning from private equity, venture capital,
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hedge funds, real estate.
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And so we show them something like this, and
they ask a lot of questions that maybe we
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didn't think of and have a different
perspective on it.
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You know, in one case, one of our IC members
had invested in a company that I believe had
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kind of business in the aftermarket helicopter
parts business.
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And so he just had a unique kind of insight
onto, hey, how is this manager valuing these
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helicopters?
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Like, what's their kind of terminal value
underwriting?
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Because eventually, you know, they're gonna
have to sell these things, and, you know, that
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price can vary based on x, y, z.
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And so, you know, that just kind of opens up,
you know, us for more questions, learning more,
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and stuff like that.
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So it's a really iterative process that we can
kind of get to our final answer.
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In venture, you have this paradox where the
best investments oftentimes don't have the
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support of the entire investment committee.
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There's disagreement around it.
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They end up, you know, returning 100x, a 1000x
in in some rare cases.
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Is there similar dynamic in other asset classes
where sometimes controversial ideas could lead
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to some of the best outcomes?
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Oh, yeah.
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No, I think so.
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I think, I mean, if you're investing in
something like venture from the perspective of
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a VC fund, I think finding things that are off
the run, not loved, kind of out of vote, like,
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it's that's how you generate the best returns
because you're coming into something that other
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investors have said, no, thank you.
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So maybe you're getting a better price.
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You know, you're a first mover into something,
and so that maybe gets more deals in that
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space.
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So I think that's pretty common.
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In public equity markets, too, I think having a
differentiated view on a stock or in credit
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markets on a bond, it creates kind of this
unique entry point that, you know, if you're
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right, you can earn an excess return, you know,
to different degrees.
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So I think definitely having a differentiated
due point, you know, is important.
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Having a differentiated due point amongst kind
of your investment committee, I think, is
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helpful for conversation.
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But obviously, at the end of the day, you want
everyone to kind of be on the same boat.
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It's never great to know that, you know, if
you're investing in a fund and there's
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dissension among the investment committee, but
they're making the investment anyways, like,
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that kind of opens up a whole swath of
questions you wanna ask about what their
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process is like, how do they construct a
portfolio.
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So I think it's yeah, having a, you know,
contrarian view is great, but obviously you
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want kind of everyone that you're investing in
the fund is to be going in the same boat or in
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the same direction.
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What are some of the characteristics that makes
the best investment committee member?
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Asking good questions, understanding of just
the portfolio, the strategy, our process is, is
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really important.
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Being helpful where you can.
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Pushing back where appropriate is important as
well.
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Yeah.
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Loyola, you have 1 point $2,000,000,000 under
management, and you have these ranges across
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your assets, meaning you could invest.
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It's not a fixed amount, but it's a range.
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How do you make the decision where the
incremental dollar goes, whether it's private
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equity or venture capital or private credit or
helicopter leases?
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Well, you know, I think we're pretty well
structured when it comes to deployment.
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I mean, we're since on the private equity side,
we're in the midst of growing that allocation.
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We have a unique position relative to some
other allocators where we can lean in and we
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want to add exposure.
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And, you know, I think there are some bandwidth
and capacity limits to, hey, can we do any
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venture funds?
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Like, I think that would be in a given year, I
think that would be a lot.
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So try to kind of have a good mix.
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I think in our private equity portfolio, we're
going to lean more on the buyout side, but
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definitely want to keep doing venture and so
kind of keep that balance.
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But, you know, within across the whole
portfolio, when we think about kind of the
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incremental dollar, I think we know exactly,
hey, this slight overweight that we have in
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public equities that can go help fund our
growth in the private equity side.
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Our hedge fund portfolio is fairly well built
out.
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If we wanna add something, that means something
has to come out and kind of manage the
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portfolio from there.
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And then this opportunistic bucket, as I said,
is kind of an area that we can, in a way, like
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scratch the niche that we're seeing.
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You know, it's an interesting opportunity
coming through our network that we feel offers
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a nice risk adjusted return for liquidity that
we're giving up.
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We want to be able to pursue it.
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You have a relatively new venture program.
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You started in 2022.
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Walk me through how you went about building
your venture capital investment.
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Lots of meetings.
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It's just, I, I, I've never been one to manage
my calendar well, but when it comes to venture,
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and we've decided to kind of focus in on the
earlier stage, and I can talk a little bit
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about that, about why as well, but there's a
lot of GPs out there, a lot of new GPs, a lot
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of existing GPs.
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So I have done a lot of meetings.
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I've gone to conferences where I can and just
network.
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And so that's kind of been the process so far.
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We did early on, we have 2 fund to fund,
venture fund to fund commitments.
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1 is a firm that one is focused on China VC,
but they also had a US focused fund to fund
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strategy, and the other one is just a pure US
focused strategy.
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So we lean on them to kind of help us maybe
craft our asset, you know, our venture
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strategy.
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And then as we're seeing things that we think
are interesting, maybe there's a shorter kind
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of fuse on the capital raise.
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We can reach out to these, you know, fund to
funds managers and be like, hey, can you give
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me, you know, 5 minutes on this GP versus that?
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And really, we should be focusing on 1 or the
other.
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You know, let us know.
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Or if both are kind of not interesting for
various reasons, we wanna know that too so we
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can kinda get to answers and refine our
pipeline as quickly as possible.
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The other piece too is my allocator network.
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Folks that have had more experience and time
investing in venture capital than me, I really
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try to pick their brain as much as I can on not
just like, you know, what are they investing
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in, but how are they evaluating managers.
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I think the way you look at a seed stage fund
that's raising $3,000,000,000 is different from
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a seed stage fund that's raising
$200,000,000,000 That's different from a series
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A and B fund that wants to raise anywhere from
100 to $300,000,000,000 So a lot of nuances
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come bad.
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And there's, you know, I think there's not one
perfect way to go about doing it.
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If you looked at our venture portfolio today,
you'd see funds kind of ranging from that,
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what, 70,000,000 up to 200, 250.
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00:14:03,674 --> 00:14:08,360
And so we've kind of played across just take
smaller ownership positions, we take bigger
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ownership position, what's their follow on
policy, their reserve ratio, all that stuff.
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And a lot of that, like, just kind of due
diligence questions and kind of understanding
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has just come from picking the brains of
allocator friends that, you know, I should say
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thank you now because it's been a big help
because it's helped us kind of get up to speed.
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It's been a steep learning curve.
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And so it's been just instrumental into our
venture portfolio development.
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What have been some of the most valuable
lessons you've learned from your allocator
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friends as it relates to venture?
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00:14:37,230 --> 00:14:43,789
With reventure, I think it's, again, coming
down to fund size and strategy and what was a,
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you know, looking at a GP's previous track
record, whatever that might be, whether it's
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angel investing or they've worked at a
different fund, and how to kind of frame that
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00:14:52,945 --> 00:14:56,304
into what they're doing prospectively with
their current funds.
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00:14:56,304 --> 00:15:01,809
And, we kind of talk a lot about, okay, if
you're raising $50,000,000 what does that look
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like?
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How many companies?
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What's your ownership target?
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What's your follow on?
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Or if you wanna raise $100,000,000 I think
there's a big leap in what you have to do as a
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VC to kind of get allocation to you know, when
you're writing a $250,000 check into a round,
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it's a lot different than when you want to
write a 1 to $2,000,000 lead check into a CPaa.
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And so it takes a different skill set, and
that's something that at first I didn't quite
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realize.
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And a lot of the emerging managers that we talk
about come from different backgrounds.
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And let's say they were working for a tech
company, you know, like making angel
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investments in friends and colleagues, like,
that is great, but how translatable is that to
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what they wanna do prospectively?
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You know, I think just just kind of figuring
out those nuances between, you know, does the
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VC kind of understand portfolio construction,
portfolio management, how does their strategy
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00:15:54,945 --> 00:15:58,519
scale has been, you know, been a big learning
for for us and something that we're just
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incorporating so much into our conversations
with new VCs.
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Let's move to hedge funds.
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Loyola has a pretty substantive hedge fund
portfolio.
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What do you look for in hedge fund managers?
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We have, you know, event driven managers.
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We have macro managers.
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You know, macro environment can be pretty
dynamic depending on, you know, your breadth of
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focus.
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00:16:15,945 --> 00:16:21,959
If you're looking at global markets or emerging
markets, belt markets, things like that, We
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have some smaller kind of event driven
strategies that I think are looking at
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different corporate events from a unique lens.
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00:16:29,319 --> 00:16:32,759
And so, yeah, so, like, we also have some
arbitrage plays and some relative value
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investments.
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So there's all these markets that I think are
good hunting grounds.
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What we've done over the past few years is
trade out of managers that are, call it, bigger
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00:16:44,004 --> 00:16:49,039
or long short generalist strategies where I'm
not seeing a ton of differentiation in the
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00:16:49,039 --> 00:16:49,539
returns.
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00:16:49,759 --> 00:16:53,279
They might have a little beta because they're
running lower net exposure, but really when you
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00:16:53,279 --> 00:16:57,839
do the analysis, you're seeing that there's not
a lot of excess return on on their invested
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00:16:57,839 --> 00:16:58,240
capital.
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00:16:58,240 --> 00:17:01,605
So really looking for folks doing kind of
unique things.
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00:17:01,845 --> 00:17:07,525
Given our public equity exposure being the
biggest allocation, we certainly look for
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00:17:07,525 --> 00:17:11,525
strategies that are going to provide some
diversification to that public equity beta that
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00:17:11,525 --> 00:17:12,005
we get.
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00:17:12,005 --> 00:17:15,765
So I'd say we wouldn't really consider
something that has a high beta, but a lot of
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00:17:15,765 --> 00:17:21,799
our managers today are call it a low beta, low
correlation, it's all like a beta sub 0.4,
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00:17:21,940 --> 00:17:22,579
which is great.
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00:17:22,579 --> 00:17:23,799
So it adds some diversification.
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We're not giving up a ton on the return side,
so that adds a lot of utility to the overall
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endowment portfolio.
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00:17:31,234 --> 00:17:34,674
And then, yeah, on the qualitative side, it's
it's same across, you know, every manager we
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00:17:34,674 --> 00:17:36,535
look at, but, like, strong alignment.
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00:17:36,595 --> 00:17:40,755
I mean, we need to see that there's you know,
we're all kind of working for the same goal,
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00:17:40,755 --> 00:17:43,650
which is the best risk adjusted return at the
end of the day.
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00:17:43,730 --> 00:17:44,609
And how are they getting there?
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00:17:44,609 --> 00:17:48,529
I mean, if it's a you gotta walk through the
process and walk through investment examples
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00:17:48,529 --> 00:17:52,769
and have to really determine if if this is
something that is repeatable, if it's, you
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00:17:52,769 --> 00:17:55,970
know, their discipline in their approach, which
can, you know, have many factors.
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00:17:55,970 --> 00:18:00,384
And obviously, focusing on the same market,
having a stable team is important.
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00:18:00,384 --> 00:18:02,545
So, you know, how repeatable is this process?
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00:18:02,545 --> 00:18:06,305
If they had success in the past, what's the
likelihood they can do it going forward?
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00:18:06,305 --> 00:18:08,384
So really kind of dig in on that that side too.
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00:18:08,384 --> 00:18:10,144
So it's, yeah, multifactor approach.
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A lot of things that we look for may be taken
into account.
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00:18:12,880 --> 00:18:16,659
Do you believe in the efficient market as it
relates to the public markets?
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00:18:16,799 --> 00:18:20,500
This is probably not the best answer, but I
think there's different degrees of efficiency.
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00:18:20,640 --> 00:18:26,515
I think that there's if you're looking at if
you're trying to invest in large and mega cap
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00:18:27,295 --> 00:18:30,575
US listed companies, that's gonna be tough.
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00:18:30,575 --> 00:18:35,134
If that's your bogey, it's gonna be a tough
bogey to beat because those companies are well
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00:18:35,134 --> 00:18:39,579
covered, not only by the sell side, but just
different publications, media, social media,
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00:18:39,579 --> 00:18:40,700
everyone kind of has a view.
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00:18:40,700 --> 00:18:44,880
And I think a lot of that information is is
priced in, you know, past and future.
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00:18:45,099 --> 00:18:49,339
As you go down market into the small and micro
cap space where you find things that aren't
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00:18:49,339 --> 00:18:52,559
well covered, then you see maybe more pockets
of inefficiency.
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00:18:52,779 --> 00:18:57,804
You can look outside of the US into emerging
markets that's or just international stocks
326
00:18:57,804 --> 00:19:01,664
because sometimes the street just doesn't know
how to cover those appropriately.
327
00:19:01,804 --> 00:19:01,964
Yeah.
328
00:19:01,964 --> 00:19:05,804
And it seems like the efficiency is correlated
with the amount of capital in it.
329
00:19:05,804 --> 00:19:07,964
You even see this in around the election.
330
00:19:07,964 --> 00:19:12,980
You see the betting markets and the less liquid
ones has seem to have a higher spread than than
331
00:19:12,980 --> 00:19:15,799
the more liquid ones, which which are much
tighter across platforms.
332
00:19:15,940 --> 00:19:16,420
For sure.
333
00:19:16,420 --> 00:19:16,900
Yeah.
334
00:19:16,900 --> 00:19:19,960
What do you wish you knew before starting at
Loyola's endowment?
335
00:19:20,180 --> 00:19:25,664
Honestly, I think it was been nice to maybe
have a few more reps with venture capital
336
00:19:25,664 --> 00:19:30,865
managers and a little more knowledge on the
venture capital market and its history.
337
00:19:30,865 --> 00:19:35,744
You know, it's it's funny because when we
started looking at venture, I sometimes felt
338
00:19:35,744 --> 00:19:37,700
like silly because there are certain firms.
339
00:19:37,700 --> 00:19:38,980
I just, I was like, who's that?
340
00:19:38,980 --> 00:19:43,940
Like they would name, you know, a well known VC
fund and I'd be like, oh, I've never, who are
341
00:19:43,940 --> 00:19:44,100
they?
342
00:19:44,100 --> 00:19:45,000
What do they do?
343
00:19:45,140 --> 00:19:48,600
And maybe the people I were talking to looked
at me like I was, who is this guy?
344
00:19:48,784 --> 00:19:52,144
So, you know, that, that was a bit of a
learning curve for us, you know, understanding
345
00:19:52,144 --> 00:19:55,904
some of the dynamics that go into portfolio
management and construction would have been
346
00:19:55,904 --> 00:19:56,404
helpful.
347
00:19:57,024 --> 00:20:02,704
I'd say that, but I also believe that the time
that we were investing in or starting to look
348
00:20:02,704 --> 00:20:03,365
at venture.
349
00:20:03,640 --> 00:20:08,440
So kind of started looking when I joined Loyola
in early 2021 and then kind of more earnestly
350
00:20:08,440 --> 00:20:13,880
in 2022, you could make a strong argument that
the market was fairly distorted at that point
351
00:20:13,880 --> 00:20:20,904
in time and our apprehension or maybe just our
patients are just soul playing our deployment,
352
00:20:21,365 --> 00:20:24,884
worked to our advantage because we didn't put a
lot of capital to work in those years.
353
00:20:24,884 --> 00:20:29,865
We've really, I think our commitment pacing has
picked up in 2023 and now in 2024.
354
00:20:30,005 --> 00:20:35,460
So knock on wood, we avoided some of the the
access and maybe, you know, avoided investing
355
00:20:35,460 --> 00:20:39,160
in managers that might not have a fund too or a
subsequent fund.
356
00:20:39,299 --> 00:20:44,580
So it'd be great to have maybe a more leg up on
on VC market history and underwriting, but
357
00:20:44,580 --> 00:20:45,880
maybe it worked for a benefit.
358
00:20:45,994 --> 00:20:51,035
I think the one pattern that I hear across
asset managers, especially the expert managers
359
00:20:51,035 --> 00:20:56,075
across multi assets, is whenever they enter
into a new market, they make sure to size their
360
00:20:56,075 --> 00:20:57,055
checks small.
361
00:20:57,355 --> 00:21:00,955
They know they're self aware enough to know
that they have ignorance in that space and that
362
00:21:00,955 --> 00:21:06,710
they're paying off their ignorance debt in the
first 2, 4, 5, 10 investments, you know,
363
00:21:06,710 --> 00:21:10,710
depending on how different of a market it is
from from asset asset.
364
00:21:10,710 --> 00:21:12,730
Well, Mike, I've really enjoyed our
conversation.
365
00:21:12,950 --> 00:21:14,817
Thanks and look forward to seeing you down
soon.
366
00:21:15,136 --> 00:21:15,696
Thanks so much.
367
00:21:15,696 --> 00:21:16,416
This is a lot of fun.
368
00:21:16,416 --> 00:21:17,297
Appreciate the time.
369
00:21:17,297 --> 00:21:18,277
Thank you, Mike.
