Episode Transcript
[00:00:00] Speaker A: You can't be a rubber stamp when it comes to co investing. You have to have your own process and your own point of view to look at deals, vet deals and pick which deals you want to get additional exposure to. Specifically, we're tracking at a less than a 5% investment rate. Sree kind of gave that example of 120 deals we're tracking at less than 5%. So that gives you a sense as to how discerning we are and it really is a function of us doing our own diligence.
[00:00:29] Speaker B: Welcome to the Institutional Edge, a weekly podcast in partnership with Pensions Investments. I'm your host Angelo Calvello. In each 30 minute episode I interview asset owners, the investment professionals deploying capital who share insights on carefully curated topics. Occasionally we feature brilliant minds from outside of our industry driving the conversation forward. No fluff, no vendor pitches, no disguise marketing. Our goal is to challenge conventional thinking, elevate the conversation, and help you make smarter investment decisions, but always with a little edginess along the way.
Welcome to another episode in our Private Market series. Today we're exploring CO investments through a distinctive lens, the Iowa Public Employees Retirement System's approach to using CO investments not just for portfolio returns, but as a deliberate professional development strategy for the investment team. I expect their framework will influence how other asset owners think about CO investments in the future.
Joining me are aipers sri, and I'm not going to say his last name because he thinks he's Bono and Craig Payne. A quick bit of background. Sriram is the CIO at IPERS and is responsible for overseeing, it's hard to believe, about $47 billion in pension assets. He previously served as IPERS Chief Risk Officer and actually Since January of 2023 he has served as a Director at the University Minnesota Foundation's Investment Advisors. SRI previously led portfolio management at mcube Investment Technologies. He earned a bachelor's degree in mechanical Engineering from Pancheri University and a master's in industrial and Systems Engineering from Ohio University.
Joining us is sri's colleague Craig Payne, and I could pronounce that last name without any problem.
Craig is the Senior Investment Officer at iperse, focusing on private equity asset investments like fund commitments and co investments across real estate and private credit. Craig has spent a good portion of his career in the private markets, specifically in the CO investment space, including as Director of Private Investments at Olympus Ventures, an MD&IC member at BlackRock's Private Equity Partners. Craig holds a BA from McGill and an MBA from the University of Chicago. Sri and Craig, thanks for Joining me today.
[00:02:47] Speaker C: Thank you for having us.
[00:02:49] Speaker A: Thanks for having us.
[00:02:50] Speaker B: Do you really mean that, Sree? Come on, man.
[00:02:51] Speaker C: Yeah, usually I do.
[00:02:53] Speaker B: I know you do. And just a little background. Sree, you and I have been comparing notes for about 10 years and I've always appreciated your independent and original thinking and especially your disciplined approach to fiduciary responsibility. And today we finally have a chance to share our conversation with a broader audience. So let's start with a simple question. Sri to you. You've always told me your overall investment strategy rested on a core objective, accessing beta as cost effectively as possible at a high level. What does this mean and what is your strategy for achieving this objective across the portfolio?
[00:03:29] Speaker C: Yeah, so IPers is governed by an investment board. And the investment board's responsibility is to choose what the industry calls a strategic asset allocation. A strategic asset allocation is also the board's representation of the amount of risk that they want to take and the amount of returns that they want to yield while they're pursuing that risk.
Betas are essentially risk transfer mechanisms in the capital markets. And my thought has always been that betas need to be free. For asset owners such as ourselves, the pursuit of excess returns over and above these betas obviously do come with additional risk and costs. But betas by itself, for the amount of risk that we take, need to be very, very cost effective, if not at zero cost. And that's been something that I've dedicated about a decade here at IPers to kind of run through that process, make sure that the parts of the markets that reacts as beta, both public and private, are at the lowest cost possible. Obviously this works out very self servingly in my favor on public markets because it's kind of easy to get into equities and fixed income and public equities and public fixed income at a very, very low, if not negative cost. At times, private markets pose a unique challenge because it's almost impossible to access private market data all in one place, let's say a collective trust fund or something like that that asset owners can access, it's usually a consolidation of multiple private market partnerships, which all come with cost and which all have their own unique approach to private markets. So to be able to put this puzzle together on the 30% of the portfolio that we have in public or in private markets, be able to put it together at a very cost effective way to is perhaps a bit more difficult than doing the same thing in public markets.
[00:05:40] Speaker B: I would say more than just a bit more difficult.
I mean, and if I recall you've got about 17% in private equity, about 6 in private credit, you got about maybe 10 in private real assets. Am I close?
[00:05:57] Speaker C: Yeah, you're close enough. Numbers have changed a little bit given our challenges with, you know, core real estate in private real assets.
And also, you know, these, these percentages change quite rapidly sometimes because these percentages are not just a function of the assets that we've deployed in these asset classes, but also about what public markets are doing. So if you have a rip roaring rally, what we have in the public markets right now, especially equities, then these percentages tend to go smaller and smaller as a, as a percent of the portfolio. So roughly you're in the ballpark, about 16%, if I'm not mistaken, in private equity, probably far less than that in private credit. We are about 6% spot on. Private real assets, perhaps 6.5%.
[00:06:49] Speaker B: So go back to your objective of trying to access beta as cost effectively as possible. How do you do it in private markets? I mean, what's your solution here? To even try to come close to.
[00:07:02] Speaker C: That goal very slowly, deliberately, is my answer.
No, I think the search for partners, for asset owners like us, we are a staff of about eight or nine people, depending on how many people are sick on any given day. To be able to run a corpus of assets that's 48 or $50 billion, hopefully in the near future is going to be very, very difficult. To be able to do it all ourselves and do it internally, kind of embracing the Canadian model of direct investing or other large asset owners comes with its own set of challenges, not just in governance, but in terms of headcount and things of that nature. And we are a state entity, after all.
So one of the things that we've kind of relied on is to source partners who are perhaps launching new ideas, new products.
Also source partners who understand our view of how interests need to be aligned. And being able to lean in on these partnerships and have them manage bigger and bigger corpuses of assets for us and get that comfort is probably the first step in being able to reduce the cost of access of these private market betas. The other more important thing which I think you alluded to, which is probably what you want to talk about most, is co investments. Co investments have been around for a really long time, both in private equity and private credit. Now beginning to see a lot more flow in the private real assets as well.
Co investments at one point in time used to be the bone that gps throw to LPs in order to appreciate them for the amount of assets invested in a particular fund. But I think over the last few years we've started seeing this increased clamor or volume of co investments that are being consumed by LPs. And LPs also becoming investors who want another lever to control their private market portfolio. Because very simplistically, if I were offered a co investment in every deal that's across my private equity or private credit or private real asset book, then it's almost like me investing in everything that my GPS are investing in.
Now that could be both good and bad. The good part is it obviously reduces the amount of cost that we paid. So instead of paying it on 100% of all the assets that are invested with these GPS, we end up paying it on, let's say 80% of it. And the 20% of it is co investment. You cut down your cost by 20%.
Big numbers, right?
So that's a, that's the good thing. The bad thing is if you're going to be buying everything, then you essentially lose the ability to control your private market portfolio. And what I mean by that is I think looking at co investments as a lever to be able to adjust the portfolio in a way that helps you fulfill your end objectives of what you want from this portfolio is very, very important. Now, if 100 co investments are being offered to us and we choose 20 of them, let's assume that then the way we choose the 20, we could choose 20 co investments that are nowhere near, let's say, the IT sector, because we have an opinion that would require us that the private market managers are all too buoyant about the information technology space.
So we might want to reduce our exposure to that particular subsector of the markets. And if I start focusing on CO investments that are outside of that area, that gives me an additional lever. Not that we want to do that, but that's just an example.
I think the part about co investments reducing cost is well known. Investors have been doing this for decades now.
To be able to do the second part, which is trying to adjust your portfolio for the risks and mitigate some of these risks, is what I'm more interested in. I think it's more exciting to do that as an investor rather than to just be priceline negotiator, you know, at.
[00:11:14] Speaker B: Every time, and I'm assuming that Craig plays an integral role in this. I know you have other members on your team. He was kind enough to join us today. But Craig, is this something you're focusing on at IPers? You're doing this co investment work?
[00:11:27] Speaker A: Yeah. So I'm a relative newcomer to IPers, but you know, I've been in the private equity and co investment world for north of 20 years. So it's a space that I've spent a lot of time in. It's a space that's evolved a lot since I started back in the early 2000s. Used to be co invest, used to be somewhat of a cottage industry and now I would say it's very competitive and institutionalized compared to what it used to be like for a lot of the reasons that Sree mentioned. The one thing I will add as to why people do co invest, absolutely fee and carry drag improvement. That's important.
Being tactical with your asset allocation, being able to kind of get out of your J curves quickly if you have a view on certain markets and you feel like they've got a window of opportunity to be able to take advantage of that. But importantly is the fact that it really is an important tool for us as well to diligence our general partners.
The reality is that our LP exposure will always be the biggest part of our private equity book.
And so while co invests are very important economically, you want to be making really good decisions on the LP side as well outside of those co investments. And there's no better way to get to know a GP than to do deals alongside them. It's not sitting across a conference room table flipping pages on a book. You actually see how the rubber meets the road in terms of how they source deals, diligence and underwrite deals. And that's a really valuable tool that if you're not doing co investments, you.
[00:12:58] Speaker B: Don'T get to see, I understand the cost improvement or the you're reducing cost. You're doing diligence on your GPS by doing these co investments. But tell me the process you're using internally to do this diligence.
[00:13:13] Speaker A: Well, the way I always characterize it, you can't be a rubber stamp when it comes to co investing. You have to have your own process and your own point of view to look at deals, vet deals and pick which deals you want to get additional exposure to.
So specifically, we're tracking at a less than a 5% investment rate. SRI kind of gave that example of 120 deals we're tracking at less than 5%. So that gives you a sense as to how discerning we are. And it really is a function of us doing our own diligence.
So typically a general partner will present an opportunity to us. They'll have their own investment memo that they'll present to us. Often it's cleansed and shortened, abbreviated compared to what they're doing internally.
A financial model that also will be kind of simplified.
And our job is really to take that base level of information and to figure out what else we need to know and understand to make an educated, informed decision as to whether or not we want to co invest in a deal.
I always describe it as knowing what you don't know, because reality is we're always going to have an information disadvantage relative to our gp. So our job is to figure out why do you want to do the deal, what are the reasons for doing the deal, but also what you need to know about and be careful of specifically what risks are out there that could really impair your performance. And so that's where we spend a lot of time.
For us, it's capital preservation first.
How do you get your money back? And so that means that we need to go through the GPS materials, do our own reference calls, do our own primary research, talk to sell side equity analysts, talk to executives and other investors that we know in the space where that specific co invest sits to make sure that the GP has flagged for us all the key risks and that they've handicapped them appropriately. Often we'll pass on a deal not just because the GP hasn't identified a specific risk, but they just think about it differently than we do. They may not see as much risk in something as we do. So I'll give you an example. We spend a lot of time in infrastructure. We see a good amount of infrastructure co investments.
Obviously there's a big amount of spend going on on a number of different fronts.
On the core infrastructure front, you've got bridges and toll roads that are in significant disrepair here in the us.
So we do see a lot of investments that are tied to that space, which on the face of it can be interesting, but you really have to kind of peel the onion to understand what you're getting exposure to. So we will see opportunities with service providers to road resurfacers and construction companies as an example. So it's got an infrastructure tie to it.
We're a believer that our roads and bridges are significantly in disrepair here in the us and they need maintenance and upgrading. But a company that provides services to companies that actually do the construction and the resurfacing and things like that, they've got a different, you know, set of risks that you need to think about. They're more operating businesses, they've got inputs that they need to Buy that can have price fluctuations, you can have reoccurring, but not contractually recurring revenue. So you may see, you know, lumpiness in that company's revenue. So again, you really have to take what the GPs give you and have an independent view based on your own independent diligence as to, you know, whether the risk return is favorable.
[00:16:53] Speaker B: So when you go through this process, Craig, two things come to mind. One is, I assume you generate a report that's shared with the team. Your conclusion, a thumbs up, thumbs down.
[00:17:04] Speaker A: Right.
[00:17:05] Speaker B: And is that also iterative? I mean, you'll share it with the team and then you guys kick it around or is it just like you're done?
[00:17:13] Speaker A: Yeah, you're hitting on a really important point, which is process.
So one of the things that you'll hear from a lot of GPs is lots of LPs say they want to do co investment, but very few actually do it. And part of the reason is that a lot of them don't have the process that's needed to independently diligence something and to do it in a time sensitive way. Because GPs are often on the clock to get these deals done. So decision making is a big part of that process.
One of the things that we do is to have an iterative process.
So it does a couple of things. One, it helps us get to know faster because, you know, based on the stats I gave you, we're saying no 95% of the time.
And the last thing you want to do is to give a long no if you can avoid it. It's not good for us. You know, it's wasting our resources. It's not good for the GP because it's wasting their resources and time.
So having an iterative process where you're keeping everybody up to speed on the deal, you're getting their input as to the ongoing diligence and how we should be conducting our diligence, directing our diligence going forward, it's really important, helps us get to know faster and it also helps us hone in on the issues that really need attention. And the other piece of it is, you know, when you're talking to your ic, you know, we've got an IC that includes people with a number of different types of background. We've got a public equity person on our ic, we've got people with credit underwriting experience. Even though we're doing, you know, infra equity deals and having that diversity of background and expertise. When you're going around a table and making decisions and informing your diligence path it's really important so you don't have blinders on and you've got all of the best ideas on the table.
[00:18:56] Speaker B: Just something comes to mind just quickly if I may. You Talk about how GPs want an answer quickly, but it sounds like the process you've described is not something that's done quickly and I don't mean because you're busy with other things. This seems like it's a rather kind of prudential approach that takes time. How do you deal with that incongruity between GP expectations and your own fiduciary responsibility to vet this deal as best you can?
[00:19:24] Speaker C: Yeah, I think correctly, Saad, if I missed out on anything, but being able to say a quick no based on a test sheet is pretty easy and I think we as LPs owe to our GP partners. But if we are interested in the deal then our GPS know that it is going to take some time and if it's, there are, there are times when a deal does look good upfront that we'd be interested in and we want to diligence it. But you know, the GP might want an answer in a week and that's not, that's not something that we are able to do at this point in time. And it's perfectly okay saying no and walking away from those deals in spite of reminiscing about it. What I fear as somebody who's not on the front lines doing the work like Marcus, Pat and Craig and Sheldon and Fujar, is for me to let folks know that it's okay to be patient.
I don't think, and I'm also, I shouldn't be putting words into my board's mouth, but I feel like my board is quite patient as well in terms of how we've onboarded some of these internal investment ideas in the public markets. We were running a paper portfolio for about two and a half years before we went live with the strategy and so I think the board's used to our style. I think our gps are used to our style or if they are, they're slowly getting used to our style and it kind of is a bit self fulfilling. So they know that IPers where they're at right now are not going to be able to make a final IC determination, a particular coin rest deal in six days. And they're also not the kind that are going to give you a thumbs up just because it's coming from a GP where they've invested money.
And I think that message has gone across.
But Craig, did I miss on anything.
[00:21:23] Speaker A: No, totally agree. I mean my philosophy is you're much better off missing a good deal for the right reasons than doing a bad deal for the wrong reasons. It's a little, I don't mean to be flip about it, but there's lots of deals out there. As I kind of mentioned or talked about in our deal stats, there's going to be another deal. But you get a bad deal in your portfolio, it can be a drain on resources and it can hit return. So you want to be really thoughtful about it.
[00:21:50] Speaker B: And you found that the GPs are now starting to dance to this rhythm and if they're not, you just, it's a quick no. I guess if they tell you I need this in six days, you're killing the order. So I get that.
[00:22:03] Speaker A: Gps. Well, when they bring you a deal, or at least when you're kind of getting the co investment relationship up and going, they'll always ask, tell me about your process, tell me about your timelines. And the most important thing to do is just to be really clear, explicit about what your process looks like and how long it takes takes and how long you need.
And for the most part gps will respect that. It means that sometimes you're going to have to say no for timing reasons. And we just aren't going to compromise our co investment diligence process and decision making process to meet a timeline that's not right fit for us. But being clear and just being a good partner for the gps, GPS will respect you for that. They know you're not going to say yes every time, but you say no for the right reasons and you say it consistently, particularly when it's an unrealistic timeline.
[00:22:52] Speaker B: Sree, did you want to add something?
[00:22:54] Speaker C: No.
I think we've kind of talked about the idiosyncrasies of having a small team. But despite that wanting to do walk the walk along with the GP on a co investment evaluation.
[00:23:10] Speaker B: Okay, so let me ask you, Sree, to you, since you probably have more influence on human resources than Craig might have at the organization, there's this overall approach to kind of I'll say cost efficiency beta. And specifically for this conversation, the way you're approaching co investments, does it influence your hiring? I think the answer is yes because you hired Craig. But I want to hear it from you.
[00:23:39] Speaker C: Yeah, absolutely. Absolutely it does. And I think a lot of these lessons that I've learned over the last decade or two of being in this business is exactly that is to bring in people like Craig and the others that we've hired in the public market side, folks who have had experience deploying assets before. I think we might be late to the party in terms of how public funds or other asset owners are reskilling themselves to bring in practitioners of investments into the team, rather than practitioners of what I would call oversight managers. And I feel that a good mix of both is necessary for an asset owner. You need to know how to oversee a relationship both on the public market and the private market side, and what are the pitfalls and so on and so forth. But you also need people who've done what your GPS and your managers are doing for you, people who've done that before, because that gives you a certain unique skill set of being able to also evaluate your GPS with a completely different lens. Right. I'm not going to name names, but there are gps where you could ostensibly go through their co investment process and their underwriting process and you could be partners with them and then come out of it saying, I don't really want to be in this co investment deal. And by the way, I'm not sure if I want to re up on this GP next year. Right.
Or you could go through a process where it was a GP that you had doubts with and you only put a small amount of money to see how things work. And then you're going through this co investment process with them and then you're going, boy, these guys know what they're doing. Let's kind of triple up on these guys. Right?
[00:25:36] Speaker B: But Craig, going through this process, I mean, you use that word free. You just use that word process. How long does it. Does it take for you to perform diligence on one of those 5% that you really like? I mean, is that. And we know it's not six days, but is it six weeks or maybe.
[00:25:55] Speaker C: Before Craig kind of goes into the details of. All right, Craig, you're up. What it takes.
For me, it's very simple. Like when we had Todd Marcus do this and now Craig's come in. I'm just looking for a 50% efficiency gain now that I've added Craig into the team. And I feel like we are almost there. Not quite, but we're almost there in terms of our efficiency gain.
[00:26:20] Speaker B: Okay. Yeah, I think there was a pat on the back, Craig. I couldn't quite tell, but I think it was maybe a backhanded.
But no. Tell me about the timeline on some of these.
[00:26:31] Speaker A: Yeah, I mean, what we tell our GPS is that, you know, if we can't have three weeks to get to a binding commitment number or a binding commitment decision not to close and fund, but to make a decision, then we're just going to stand down because, you know, just based on experience and having done lots of deals in a bunch of different sectors over time, you know, that's, that's what we feel like is the minimum amount of time you need to do your diligence, reviewing all of the materials you're receiving from the gp, doing your own modeling and sensitivities, doing your own diligence work, doing your own market reviews, all of those things. You know, if you really, if you really can drop everything and focus on a deal for three weeks, it's possible some deals may be more complicated, in which case we'll say, you know what, it's not three weeks, it's gotta be five or something else. But that's typically how we work. But so much of it just comes down to the asset itself and the situation and how complex it is. You can have some deals that are pretty straightforward and you can have some that are just, you know, need more untangling to be able to know what you don't know and get comfortable with the risks.
[00:27:38] Speaker B: It's a cool point. And Sree, you were talking about how you like to hire practitioners, I'll call them people who have deployed the assets. Craig, I could see in your bio you were at blackrock, you must have been deploying some assets within that responsibility. You're on the IC. So were you coming across LPs to whom you approached about doing co investments that act the way you guys do?
[00:28:04] Speaker A: Yeah, there's definitely in the LP world.
So you'll interact with LPs when you're looking at deals. It's just, it happens organic.
There are a number of institutions out there that are very sophisticated co investors. They've done it a lot. They've got their own process, they've got great information resources, they're bright that can do deals in a quick timeline. We will also see situations where LPs may not be thinking as deeply about things. They may be more digesting information as opposed to proactively, you know, sourcing their own information and independent views. And you know, you just see that based on decision making timelines and, or you know, talking about, you know, comparing notes on a specific deal or a specific market and risks that you're, you're being thoughtful about. So it, it runs the gamut. There are definitely lots of sophisticated folks out there, but there are some folks that are not, they're just not as focused on digging as deeply as we are.
[00:29:07] Speaker B: So I'm gonna summarize this as best I can. Cause it's kind of my role as a moderator. It seems that your approach to co investments, it achieves multiple objectives. I mean, and Craig, you did a nice job talking about how you've getting rid of the fee and the carry drag. You're talking about sri and Craig about tactical asset allocation. You're making some decisions where you can kind of reallocate capital very specifically and then this tool to actually diligence G.
Because as you guys have talked about that, what really drove me to this was, okay, the process is really cool. But there's also this empowerment where sri, you and staff, you guys are empowered to make these individual discreet decisions. And in a healthy culture that leads to what I would call employee retention. In many ways. I agree. You know, you're empowering these people. It's a knowledge based culture and it's employee retention.
[00:30:10] Speaker C: So.
[00:30:10] Speaker B: And that's a challenge for public funds. I mean, let's be honest. I mean, you know, you guys aren't paying what they're paying at Bally Osny and at Citadel right now, so. And you're also in Des Moines. You know, it's. It's a challenge for some people. I see this when I'm working with Jim Dunn down at Wake Forest. It's the same thing getting people to come there. So you're building this culture, this knowledge based culture that you're able to attract people like Craig and others. And it's kind of a, yes, it benefits the portfolio, but it benefits the organization. That's how I see it.
[00:30:43] Speaker C: I fully agree.
Although I wouldn't go as far as to say that we don't get paid as much as the folks at Balyazny. I think we're striking distance.
[00:30:52] Speaker B: Okay, well, that's good to know.
Craig, anything you want to add to that? Maybe there's a discretionary bonus popping up or something.
[00:31:00] Speaker A: I don't know, man.
[00:31:01] Speaker C: No, no, no.
Let's not open that door. Okay?
Yeah, you're right. We're not even close to pay scales in the private industry.
I feel like for individuals, and this is not just my Miss Universe speech of why public markets or public funds pay a little less, but there is something to be said about being mission driven.
And I think people who've done what I would call the dark side of the business and the right side of the business, I used to be one of those as well.
To be able to manage money for clients and to be able to Manage money for an asset owner pool. These are two very, very different callings.
I think people who are walking into the role in an asset owner kind of place, they've already mentally made a little bit of that sacrifice in compensation.
So we'll have to. The public fund world would have to come up with something to kind of negate the amount of sacrifices that folks take when, when they come into the job. And I feel like as a leader of the investment team, it's my responsibility to empower people with decision making processes. That's something that's important not just in the private market side, but also in the public market side. You know, running a couple of internal programs immediately elevates the conversation level within your team from talking about which manager do you like and which manager you don't like and whose off site is better than the others.
It elevates the conversation to what is it that we're doing internally and looking at the external partners and go, boy, wish we could do this ourselves.
And a lot of these internal programs that we've had, which we are doing internally, which I've been a part of, thankfully for the last decade here at ipers, has only been because of empowerment. My cio, Carl, basically picked me up from, you know, my previous place of work and said, hey, what do you want to do? I've got $28 billion in assets and this is what I'm interested in doing. And for me it was like a kid at a candy store. And, you know, if I'm able to keep providing that to anybody else, that we end up hiring over here and I think that'll definitely help retention.
[00:33:25] Speaker A: Yeah, yeah. And if I could just add, I want to underscore a couple things. Number one, it's if you're an investor and you have an investor mentality and you really enjoy learning about lots of different industries and businesses that you may not have even known exist, this is a great place to be because just both the quantity and variety of deal flow that you see, the, you know, intelligent people you get to work with, both in house and in the GP community, it really is a lot of fun, which is one of the reasons I'm here. And then the other piece, just to emphasize sri's point is, you know, public service is an important thing for me personally and I think it's important for others that work here. So having been in places where raising capital is an important part of the process and the task, I can tell you, if you're an investor having to only worry about investing capital and managing capital. It's a pretty, it's a pretty fun place to be.
[00:34:23] Speaker B: Sree. I wanted to ask you something specifically, and this is something you and I have discussed. It's off topic, but you were building neural nets 10 years ago.
You've got a degree in engineering and math. I think you did your master's thesis, which I tried to read, on neural nets. Am I right? Am I getting the context right here?
[00:34:43] Speaker C: Okay, yes.
[00:34:44] Speaker B: So you were clearly early. Are you applying any of this today? And this is not about co investments. This is just me trying to catch up and see what the heck you've been doing. Are you doing anything with this?
[00:34:54] Speaker C: We do, we do a little bit. But you know, I've been.
The days of mine where I spend 40 hours a week doing just the fun stuff has unfortunately been long gone for some time.
There are other things that in spite of me trying to kick it down to Craig and others, you know, usually comes back and then I have to spend time. But yeah, we have been doing it like very simplistically. Yeah, it's neural networks and all of that and it's a fancy term and that's probably why I did that for my master's thesis as well.
But funnily enough, Craig probably doesn't even know about this. But ever since I've got here, there have been two big changes we've made in the public market side of the portfolio where we've kind of eliminated a lot of traditional long only managers, both in equities and fixed income. And the second part is starting our own internal, what I would call internal public market investing program. So we have a alternative risk premia program and we've been running an internal systematic model that does tactical asset allocation as well.
Not too much risk allocated to them, but enough risk that it keeps me up at night or keeps everybody up at night actually.
And both these aspects heavily lean on not just what I used to do in my master's thesis, but the decision to kind of let go of traditional asset managers prior to a lot of public funds doing that these days and go 100% passive or as close to 100% passive as possible in public markets.
I'm ashamed to say that I didn't do any upgrades from my graduate thesis. I used the exact same approach that I did back then and it gave us all enough confidence that we were able to break down manager's supposed alpha into just factor premia and say this manager is essentially just giving a static or maybe slightly dynamic factor premiers. And why Are we paying a carry for this and we should just do it ourselves? So, yeah, it has helped. There's another interesting project which we haven't yet presented to the board, or we haven't really followed it up very well over the last six months is we have a partnership with Iowa State University. They have a team there that does AI projects. And one of the things that we wanted to do without getting fully deep into this large language models and things like that is like, I have, like, just for fun, I read Investment manager contract from the 1970s because it's somewhere in our archive. And just to compare what used to be the terms back then, this is what's now. And some of the things that I see is extremely surprising.
So we've got this treasure trove of information. This is an organization that's existed since 1957. So I'm pretty sure there's a lot of material out here that can be learned from, which is private material for IPER staff on the investment side. So one of the projects that we did with the team at Iowa State was to take all of this material and set it up in house and have a LLM sit on top of it and create a chatbot to kind of ask questions. Hey, what's different between a contract with this manager in 1980 versus 2010? It's ostensibly a very, very small project compared to everybody else doing all kinds of stuff with LLMs. But, you know, it's a toe in and we are encouraged by the results and we want to do more such small projects in the future.
[00:38:42] Speaker B: Well, maybe we'll do another episode on that when you get farther along.
I'm glad to see that there's some continuity between your time at the Academy and what you're doing at ipers. I'm not surprised.
So let me conclude by asking you guys the question I ask everybody.
Worst pitch you ever heard. Greg, you want to take a swing at that one?
[00:39:02] Speaker A: Sure.
I had one, maybe the most memorable I remember probably almost 20 years ago now, we had a GP come in and pitch us on a fund. And it's a GP that subsequently became very successful. But they were kind of younger at the time, and it was the first time we were meeting them and they were asking us for money as LPs.
And the first question they asked us was for us to give them detail around our track record of performance.
So it was the first. The first time I'd ever had a GP quiz us and basically trying to put us through a filter, which in hindsight, I think is actually kind of a smart thing to do. I actually have respect for that in terms of building a strategic LP base. I just don't know if I'd do it on the first meeting.
[00:39:52] Speaker B: So that's. I get it.
[00:39:55] Speaker A: Yeah.
[00:39:56] Speaker C: Given. Given the theme is on private markets and co investments. A few years ago there was a.
One of our existing relationships also brought in a junior professional who I ended up, you know, I always like chatting with people who visit us and you know, leave the MDs and the CEOs out of it and just talk to the intern. And that's when you get the. That's when you get the true stories out of people.
And this person was probably like two, three years out of school working there. And I asked him a question about, hey, how come this private equity fund's got extremely low risk? And he goes, look at that, there's four data points. And I know exactly. He was very proud of us because they mark their books quarterly and they've got a three year track record and I know exactly how to calculate it. And he listed out those 12 numbers quickly on his Excel file and he calculated standard deviation and he annualized 12 data points. And he said that's why it's low risk. And I looked at it and. All right, I think you need to do some statistics as well, young man.
From then on, it's a story that we all use in the private market side. People always come to me and say private markets are low risk. I'm like, yeah, I know about that.
[00:41:18] Speaker A: Yeah.
[00:41:18] Speaker B: Well, that's great. Well, guys, this was great. I appreciate both of you, Hammond and Egan here with me and Sree. I'm not going to let you go yet. I mean, you can leave now, but. Well, don't leave now yet because we got to turn off the recording. But I'm going to stay on top of you and I'm going to keep enjoying my glass. I've been using it every night since you gave it to me, but no bourbon or whiskey. Mine is just basically, you know, a soft drink.
[00:41:42] Speaker C: All right.
[00:41:43] Speaker B: Exactly. Right. Well, and Craig, thanks for hopping in. I know it was kind of short notice, but you hit it out of the park.
[00:41:49] Speaker C: Thanks, Mandel.
[00:41:51] Speaker B: Thanks for listening. Be sure to visit PNI's website for outstanding content and to hear previous episodes of the show. You can also find us on p and I's YouTube channel. Links are in the show notes. If you have any questions or comments on the episode or have suggestions for future topics and guests, we'd to love, love to hear from you. My contact information is also in the show notes, and if you haven't already done so, we'd really appreciate an honest review on itunes. These reviews help us make sure we're delivering the content you need to be successful. To hear more insightful interviews with Allocators, be sure to subscribe to the show on the podcast app of your choice. Finally, a special thanks to the Northrup family for providing us with music from the Super Trio. We'll see you next time. Namaste.
[00:42:44] Speaker D: The information presented in this podcast is for educational and informational purposes only. The host, guest, and their affiliated organizations are not providing investment, legal, tax, or financial advice. All opinions expressed by the host and guest are solely their own and should not be construed as investment recommendations or advice. Investment strategies discussed may not be suitable for all investors as individual circumstances vary.
[00:43:01] Speaker C: Sam.
