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Capital Allocators Podcast: Interview with Scott Malpass
In the previous Wisdom of Good Allocators, we introduced a few times Ted Seides’ Capital Allocators Podcast (http://capitalallocatorspodcast.com/) to you. It is one of the best ways to learn the great mindsets of good allocators, including University of Virginia’s Larry Kochard (he is leaving C’ville at the end of this year to pursue other opportunities) and Brandywine’s Jennifer Heller as well as a great long-term investor in Asia, Overlook’s Richard Lawrence. (another favorite interview of mine is Chatri Sityodtong).
Scott Malpass's interview is one of the most popular interviews in Ted's library. Malpass is Vice President and CIO of Notre Dame University, which manages $12 billion endowment. Scott is one of the longest-serving CIO of university endowments. He assumed the role in 1989, 4 years after Yale’s David Swensen, at the age of 26. He has been CIO for almost 30 years. The size of the endowment grew from $425 mm to $12 bn.
Over the last 17 years through 2016 (Notre Dame’s record is available only from 2000), this South Bend, Indiana-based Catholic university’s endowment generated almost 400% return, or 9.9% p.a. Although it underperformed Yale, its performance is quite impressive. As Malpass discussed in the interview, he was lucky to gain supports from other allocators and investment professionals at his early days. In 90s, Notre Dame started investing in venture capital firms, including Sequoia and has been a continuous supporter of the industry (Notre Dame is today one of the largest LPs of Sequoia). His 20-plus years of sponsorship for Silicon Valley, during both good and bad times, is the foundation of the relationship. Rome cannot be built in a day. Asset allocators of Notre Dame is similar but different from Yale. As Notre Dame changed the classification of Public Equity (which now includes Equity Long/Short), it is tricky to track the endowment’s Absolute Return allocation, but Notre Dame kept higher allocation to Absolute Return for the last 10 years.
Malpass repeatedly talks about the risk of short-termism in the industry (at the same time, he seems to believe that irrational, short-term investors create opportunities for the endowment). He also emphasizes that it is impossible to make judgement on managers for one or two years of performance. Also, it is important to have both qualitative and quantitative skills to identify good managers.
Malpass believes that the endowment approach is not for everyone. Only 50-60 investors can truly become allocators. Hope Star Magnolia is one of them.
Thank you, Ted, for another great interview.
Source: Yale, Notre Dame; since 2000