Speaker 1Capital Allocators is brought to you by AlphaSense. Here's something for you. Most AI tools today are very good at sounding right. But can you actually trace it back to a filing, transcript, or specific passage that drove the answer? Or are you just trusting the confidence of the output? For allocators, that's not a minor concern. A missed filing, incorrect source, or context that gets lost somewhere in a retrieval chain aren't edge cases. They're how decisions go wrong. AlphaSense is the AI platform built specifically for this. They own the content. Over 500 million curated documents from broker research and expert transcripts to filings and earnings calls. And they own the retrieval layer on top of it. That means every answer can link back. Back to an exact, verifiable source. Because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. See it for yourself. Try a free trial at alpha-sense.com slash capital. That's alpha-sense.com with a hyphen in the middle slash capital. Capital Allocators is also brought to you by Morningstar. In a sea of data, you need to know. What you can trust. Morningstar's data, analytics, and research helps bring clarity across public and private markets. Connecting independent research and data into the tools and AI platforms you use every day. So insights are easier to spot and act on. Morningstar. Nothing in your way. Visit morningstar.com slash game on to learn more. Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting capitalallocatorspodcast.com. My guest on today's show is Colette Chilton. The chief investment officer of Williams College, where she's overseen its $3 billion portfolio since 2006. Colette is nothing short of a legend in the business. She sat in a CIO seat since the early 1990s at the helm of public pension mass prim and corporate pension lucent before joining Williams. Institutional investor bestowed its Lifetime Achievement Award on Colette in 2019, and Barron's named her one of. the 100 Most Influential Women in Finance in 2020. Our conversation covers Colette's career path and lessons learned before joining Williams. We then turn to her arrival at Williams in 2006 to a phone, a computer, and a legacy portfolio. Williams' governance structure leveraging alumni advisors, asset allocation, manager selection, manager monitoring, hedge funds, venture capital, and navigating around. with our popular managers. Please enjoy my conversation with Colette Chilton. Colette, thank you so much for doing this.
Speaker 2Thank you for asking me.
Speaker 1You've been at this in the seat for a long time. And I mean, I guess it makes sense to go back and ask how you first got interested in investing.
Speaker 2It was purely out of necessity. I was working in investment banking. I was nine months and two weeks. Pregnant with my second daughter. And this was during the banking crisis in 1993. And the bank eliminated the group I was in. And I was the first person they walked into HR because I literally was almost 10 months pregnant. And I needed to have a job. We needed both of us to be working. And so I went around and looked for a job before my daughter was born. And then as soon as possible after my daughter was born. And a guy who I had done some transactions with, a lawyer, was the general counsel for the state treasurer who at that time was the sole trustee in Massachusetts. And the guy who was the state treasurer was a Republican who had come in after Bob Crane, who was a famous sole trustee and Democrat treasurer in Massachusetts. And there were all kinds of things that had been alleged to have been going on. So they were being investigated by everybody you could imagine. And so this guy I knew said, I know you don't know anything about investing, but this will be a great experience. You'll learn so much. You'll learn so much because it's bad here. And so that was, there used to be two pension funds in Massachusetts that was called Masters. And so I went to work at Masters knowing nothing. And I remember going to my first meeting in New York with this guy. And he said, so you know the difference between growth and value, right? And I'm like, I don't know what any of this is. So that is, it was purely out of necessity. I needed a job. And he offered me a job. And I worked at the state pension fund for five years. And it was amazing.
Speaker 1You spent that time at the state pension fund. And then you spent a long time at the corporate pension fund at Lucent. What are the key lessons and differences you saw in those types of pools of capital?
Speaker 2Well, some of it's all the same, right? Across the three different public corporate pension funds and endowment. You know, we're looking for good managers and trying to find them. And the difference is that those pools of capital, you have liabilities and you have retirees that you are supporting. Whereas at Williams, we support over 50% of the operating budget. So it's incredibly important. But there, there are like people I knew who retired and were relying on what we did every day. And that was amazing. You know, you really felt the importance of what you did. And the other difference at the state pension fund is you get paid nothing. So it really is. It's public service. You're doing it for the greater good. I love that part of it. But you also have to worry about your name showing up in the paper every single day of your job. And so when I left there, that was like what we celebrated at my going away party is that they never got me. You know, you're just, you're just collateral damage for them going after the state treasurer. And it's like, oh, if we can embarrass that person, it might embarrass the state treasurer. And it's very tempting when you're not making much and people are, they're offering you things. And a lot of people in public funds get in trouble for that reason. And it's not a very glamorous part of this world. And people are really, they're mission focused. The people who do those jobs, you've interviewed some of them, like my friend, Chris Ailman, and it's an amazing bunch of people. Anyway, so that's different from the other two.
Speaker 1So if you go back to that time, what was the most outlandish thing you were offered?
Speaker 2So the pension funds up here are terribly underfunded and mismanaged. Each city and town has its own pension fund. And so the state one started doing well. And so then the towns could invest with the state. So there was actually a client facing part of it. And the guy who did the client stuff was offered a car by a manager. And he said that it was okay to take it because they had the name of the firm on the side of the car. So it wasn't actually that they were giving him a car. It was like they were giving him a pen or some other kind of swag because it had their name on it. So it was a joke in the office. As long as it has the firm's name on it, it doesn't matter what they give you. And there were certainly people who took full advantage of that opportunity.
Speaker 1Which firm was it that branded cars?
Speaker 2There are a lot of big firms in Boston. It was a long enough time ago.
Speaker 1You think we could say, all right.
Speaker 2They're still in business. I'll tell you that much.
Speaker 1So okay, well, we'll keep the name quiet for now. And maybe we'll share it with our premium members at the end of the recording.
Speaker 2Yeah, exactly. Exactly.
Speaker 1What was the impetus for moving then onto Lucent?
Speaker 2I'm from the Bay Area. And we had two little girls. And I was desperate to live closer to my parents to have more help. You know, both of us working full time and two little girls. So I started looking for something in San Francisco. And there was a guy at Goldman back in the day named Tom Healy who ran something called the Pension Services Group. And he covered pension funds very effectively. And he invited me to lunch one day. And he said, oh, I know you're looking for something. I have a pen. I have the perfect job for you. There's this company that's spinning out of AT&T called Lucent. And I'm like, where is it? And he said, it's in New Jersey. Tom, New Jersey is not San Francisco. And so he kind of reeled me in. Goldman had done the IPO when Lucent spun out of AT&T. And he was very close to the treasurer. And it was just an amazing opportunity despite not being in the Bay Area. They had $75 billion. And it was like the last piece of the spin-out from AT&T. And the treasurer was a 40-year-old woman. So in the AT&T world, that's unheard of. And she was amazing. And she convinced me to take this job. And literally nobody knew anything about what I was doing. And they're like, here's a phone and a cube and $75 billion. Go at it. It just felt like the opportunity of a lifetime. And how could I pass it up?
Speaker 1What did the portfolio look like with your phone and $75 billion?
Speaker 2Well, it was hard to figure that out because AT&T was still managing the money for Lucent. So it took a while for us to make that transfer. And AT&T was one of the first corporate pension funds to invest in venture capital and private equity. So, you know, it started off in family offices and endowments and foundations. And then there were a small group of corporate pension funds like AT&T and GM and GE, and they were early to those asset classes. So we actually had a great venture and private equity portfolio. And so that was the illiquid part, which was a nightmare to separate because we had to go through each agreement and negotiate with the GP when we were splitting it apart. And Lucent was bigger than AT&T. And so we were also negotiating with our largest client because AT&T bought more Lucent equipment than anybody else. It was just an interesting time, but a great, a great portfolio. We were incredibly lucky to get started with that.
Speaker 1How impactful could that have been in size, you know, relative to $75 billion of assets?
Speaker 2Well, part of this $75 billion was the defined contribution plan, which we invested in the separately managed accounts of the defined benefit plan. So the defined benefit plan was probably $50 billion. But I don't remember the numbers because it's been a long time, but it was, there was a lot of venture and private equity. The returns on the portfolio had been very good. So I started there in 1998. We're getting a lot of distributions off of our venture portfolio. I used to make the joke that Lucent was really a pension fund with a little bit of technology on the side, which is what drove the earnings of the company for that whole time. But nobody thought that joke was funny except for me, but it was actually pretty close to the truth.
Speaker 1How did that influence how you invested the capital?
Speaker 2Well, we had. Liabilities. Liabilities. And so despite those liabilities, we still had a lot of equity in our portfolio. The pension fund had two underlying groups of employees, one occupational, one management, and they both at different points in time were well overfunded their assets to their liabilities, which is unusual for corporate pension funds. So we actually suggested to the board of the company that they basically immunize the portfolio and lock in. After I left, one of them was in process when I was leaving and the other one I think got done after I left, but it didn't happen before various market corrections. But you actually have a number that you have to meet. It's different from an endowment or a foundation.
Speaker 1How long were you at Lucent?
Speaker 2About eight or nine years. Okay. When I started at Lucent, there were 150,000 employees. And when I left, there were 8,000 employees. Wow. It was quite a ride. So I was working at Lucent. I was living in Boston, we had moved, we had opened an office in Boston and it was easier to hire people for that kind of work in Boston than in suburban New Jersey. And so my family, we all moved back to Boston rather than being in New Jersey. And Alcatel had announced a merger with Lucent, but it hadn't closed yet. And somebody from the Williams Investment Committee called me and said, hey, we're going to start up an investment office. And how would you, like to talk to us about it? He said, would you think about coming and starting the investment office at Williams? You've, you know, you started an investment operation at Lucent, obviously on a much bigger scale. You know, you have the playbook, you can do this. And I said, no, no, no, no, this is my team. I hired all these people. There were 25 of us and, you know, you don't walk away from your team and back and forth. And he finally said, you know, colleges don't get taken over. So this is actually a more stable job. And I'm like, it's not a takeover. It's a merger. Blah, blah, blah. Anyway, so then I started meeting some of the Williams people and I got completely sucked in after having said no to the initial phone call. The last person who I met in the process was the guy who was the president at the time, Morty Shapiro, who's now at Northwestern. And he's just an amazing guy and salesperson. I expected New England, liberal arts college, bow tie, not at all. Hilarious, cracking jokes, swearing, funny. Just wonderful guy. And he was the closer, I guess, because after that, I think that's when I said yes.
Speaker 1So. Yeah. So what did it look like when you arrived?
Speaker 2It was like the phone and the cube again. There was like nothing. And so part of the plan was to set the office up in Boston, but there was nothing. So I had to go work in Williamstown for the first six months, which was great, except that I had to leave my family every Monday morning and come back on Thursday night. But Williamstown, it's amazing. And the portfolio was incredible because the way that the college invested the money is they had committees of alumni volunteers all in the investment business. There are a lot of Williams people in the investment business, and they got Williams into funds that they liked. And so it started off with Joe Rice at CDNR and a couple other people of his era, and they would sit around at the old Williams Club in New York and decide what to invest in. So they started off in stocks and bonds. And then one of the guys up here in Boston, Alan Fulkerson, who knew something about venture, said, you know, let's try a little venture. And so we did a little venture. And so this was like, I don't know, in the 70s or something. So we ended up with this incredible venture and private equity portfolio. Joe Rice's good friend was John Canning. So we were in like the earliest CDNR and Madison Dearborn funds. And that was true, like across the board in every asset class. Just like something special because of those incredible alumni volunteers who put the
Speaker 1portfolio together. It was just you and a bunch of great managers. So how did you think about what you wanted to put together?
Speaker 2So there's the structure of the portfolio and the structure of the team, right? And you kind of have to do all of that at the same time. And so the first person I hired was a guy who I had worked with at the state and Lucent, who came to be our CFO. And so that was a critical hire. His name's Brad Wakeman. Amazing. He's, you know, still here. He's our CFO, COO today. And he just like brought order from chaos. And so, and we had worked together for a long time. So we kind of knew like what we needed to do and how to chop the wood. And then we built the team out from there. And then we had an analyst at Cambridge who covered Williams, who was a Williams alum. And we hired her as our first analyst. And she's now a managing director. Abigail Watley. So, and then I hired my assistant, Christine Corrigan, who's still here today. So that was kind of the core at the beginning. And then as far as the portfolio, we probably had too many managers. You know, the problem with having committees put portfolios together is they love putting stuff in, but they really don't like taking stuff out. And it's hard to agree on what to stop doing. And so, and there wasn't really what I would call a policy portfolio. You know, I came from this world in the corporate pension fund and public pension fund, where we have a policy portfolio and you manage to a target and you have ranges around a target. And that was important. And liquidity was important and organizing things in that way, which hadn't really been the way it was done. And so fortunately we had one manager who was sort of like a balanced manager. And it was a significant part of the, of endowment when I started.
Speaker 1What's significant just to calibrate?
Speaker 2Well, it was more than 30%. In one manager? Yeah. Okay. So I started in 2006. So we had that manager in the portfolio when we went into the financial crisis. And it was the only separately managed account we had. And it was basically large cap S&P 500 stocks. So it was amazing because we're sending money to the college, like eight out of 12 months. And I'm barely have figured out where my office is, let alone the portfolio. And we have this incredible liquidity gift that we didn't even know was going to be important. And so that helped us get through the last financial crisis. And we had these amazing managers. And the other thing that was really fortuitous is the people who were on the investment committee and our advisory committees had all been involved for a long time. So there was this huge sense of stability. It's like, we're going to be okay. Don't worry about it. We got this, which is- Which is nice when you're new in a job and you go into a situation like that.
Speaker 1The governance structure always comes up as something that's a challenge. You have the committee and then you have these advisory committees by asset class or category. How do you work with them?
Speaker 2So that structure was in place before we had the investment office. And so that's how they invested the portfolios. They'd have a marketable committee picking long equity managers. And they had a committee called the Special Strategies Committee, which was the inception of the hedge funds. And amazing people. So the chair of that committee was Bill Simon. He's famous for almost being the Republican governor of California. He's a wonderful person and a dear friend. So he chaired that. And then people on the committee were like Andreas Halverson and Paul Singer and just very successful investors who like to get together and argue about what to put into the portfolio. So we kept that structure in place, but those committees became advisory and they didn't actually vote on anything. But they helped us with the portfolio. And then the investment committee is the fiduciary it's a standing committee of the board and they actually vote on hiring managers and that kind of thing. And so one of my jobs at the beginning was to make that all work. And honestly, that is one of the most fun parts of my job. It's like I have 24 bosses. I love all of them. They all help us in different ways. And I tell people that that's the secret sauce of the Williams Investment Program is we have these alums who are on these committees and they love helping us and they don't have an axe to grind. They're not trying to sell us something or it's like you can call them and say, what do you think about this manager? And you get sort of a thumbs up, thumbs down, unbiased. They love Williams. They want it to go well and us have good performance. And so it's really incredible. I mean, other people call me from time to time at similarly successful. And I tell people, you know, I love it. And it's super helpful when you have a small team and you're covering the world.
Speaker 1So take me back, say, 10 years. You get out of the crisis, you have the liquidity to match, and now you can put in place the policy portfolio that you think makes sense. What did that look like and what does it look like today?
Speaker 2Well, I wish it were as you described, Ted, that we got through the crisis and then we got to get started. But we were actually. We were actually doing all of that starting in 2006 through the crisis and coming out the other side. It wasn't like they said, okay, just like hang out here and wait for this to be over. So we're in the crisis. We had just set up our investment office. We had just moved the files from Williamstown to Boston. And I don't know if it was the weekend of Lehman or Bear Stearns. It was one of those weekends. And we're in the office looking for our contracts to see what we can do in this situation. With all of these managers. And we had some contracts. So it was an interesting time when you're, you know, it's a new office and you have longstanding relationships and you're trying to figure out what is going on here while the world's coming apart all around you. But coming out of that, what did we do? We really didn't do much differently. We had sort of core fixed income going into the crisis because of the crisis. And we were able to do a lot of things. And we were able to do that because of this manager who was kind of a balanced fund. So that was helpful. And we had added to that fixed income going into the crisis. Because you look at how much we support at Williams and it was like, wow, we might want to have some fixed income in here. So that was helpful. And then we also had put in some credit, non-investment grade credit in the portfolio, not because we had any view on the market, but just had added that going into before the crisis. And that all produced a lot of money. So we had a lot of money. And we had a lot of money. And we performed like equities during the crisis. And so that was helpful. But then coming out of the crisis, it wasn't like we took this most liquid part of the portfolio and went crazy with it. We just, like we have the whole time, just tried to find very, very good managers and not too many of them. When I started, the pool was 1.5 billion and now it's 3 billion over 14 years. And we've tried to keep the number of managers the same as when I started. That was sort of our
Speaker 1philosophy. How many managers is that today across the portfolio?
Speaker 2It's just over 60. So when I started, if you went through the portfolio and you said, you know, this private equity fund we've already passed on, so it's not active. But if you counted the active relationships, we're kind of at the same number as we were then.
Speaker 1Yeah. So walk me through real quick what the kind of asset allocation structure looks like today.
Speaker 2Well, it's mostly equity. It's almost all equity. We no longer have the fixed income that we had back then. We still have, some credit, but it's just all forms of equity. We have almost 40% of our portfolio in hedge funds and that is partly driven by just the hedge funds that we have. So it's kind of a bottom-up fundamental. We have great managers and they happen to be global long short or what we call absolute return managers. The private part of the portfolio is about a third of the portfolio, I want to say. And then we have, what we call global long equity. So we have frictional cash. We don't have, you know, fixed income or cash. We really need the equity to grow the assets to support the college.
Speaker 1You know, that hedge fund portfolio, let's just start there, is quite a bit bigger than your peers. And yet for the decade where hedge funds have been under the microscope, to say the least, your returns have been right up there with the best. And so I'm curious how you've gone about that. I mean, you mentioned we have great managers. Everyone likes to think they have great managers.
Speaker 2Well, it's not like we said, okay, let's have 40%. And go fill the bucket. It's, you know, we have these amazing managers and do we want to have a little bit more or a little bit less of that? We're not very tactical and we don't make a lot of changes in our policy portfolio. We look at it every year and review it with the committee. Maybe like a one or 2% change. It's kind of at the margin. You know, all of our value add is in manager selection. It's not in calling the market or anything like that. When we do the attribution work, it's all manager selection.
Speaker 1How many different managers do you have across that 40% in hedge funds?
Speaker 2Maybe 10 or 15.
Speaker 1Walk through what that process is like when you do make a change.
Speaker 2Putting a manager in or taking a manager out?
Speaker 1Oh, it could be both. Two different decisions.
Speaker 2It takes us about a year between the time we meet someone and recommend putting them into the portfolio. So we're pretty careful. Like I said, we really try to manage the number of relationships in the portfolio in part because we don't want to have a lot of people in the portfolio. We don't want to have a lot of people in the portfolio. We don't want to dilute away returns by having too many managers and in part because we're just this lean, mean team here of not a lot of people covering a lot of the world. So we've gone back and run the numbers and it's about a year from, you know, I meet you and by the time we do all the work and we meet you a few times and make a decision about investing and then bring a recommendation to the investment committee. It's pretty slow.
Speaker 1Outside of the basics of, you know, you want to get to know the people and the strategy and how they go about it. What do you think are the most important aspects of a manager you're trying to tease out in the ones that do make it to their portfolio versus the ones that might be close but don't?
Speaker 2I mean, there are a lot of good investors in the world, right? And we don't need to be invested with all of them, but the ones that we have need to be really good. So that's how we kind of think about it. We do lots and lots and lots of meetings. We track the number of meetings. We do like five. A hundred meetings a year between our current and potential managers. And we only will add a small handful of new managers every year. So part of it's just meeting so many different people that you start recognizing things. And I've been doing this for a long time. So you start recognizing things and you also remember where people came from and what they used to do and when they changed the name of their firm so people wouldn't know what they were doing and that kind of stuff. So that's definitely helpful. It's years and years of experience. But some of it's art and some of it's science. You know, there's a lot of what my team calls desk work that you can do and that might tell you part of the story, but it's really meeting people and does their strategy make sense for what they're saying they're doing and for their assets under management. And we've done a lot of investing with first-time funds or a day one investor, about a third of our portfolio. When I went back and looked, it's, you know, we were in fund one or invested with somebody who started. So a lot of times track record isn't really available or the most important thing.
Speaker 1So what is the most important
Speaker 2thing? Somebody who's honest, somebody who you can trust, somebody who you're not going to lose sleep at night. What's important for us is understanding what our managers do and being able to explain it to the investment committee. So I've always sort of felt like if I can't explain to these guys what we're doing and why something went wrong, then I shouldn't be in this job. So as a result, we don't have a lot of black box, macro, quant kind of stuff in our portfolio. A lot of fundamental bottom up kind of managers where you can understand most of what they're
Speaker 1doing. What are your conversations like with the kind of longstanding managers in your portfolio on a routine basis? What are you trying to dig into to learn about?
Speaker 2Well, if you ask my team, they would answer that one way. If you ask me, I would answer it in a different way. So I've done one manager meeting during COVID. I was in San Francisco a couple weeks ago. And I met with one of our managers out there. And we spent more time talking about everything but the portfolio. And this manager, they're fabulous investors. They're not crushing it right now. But I didn't really want to go talk to them like, can we go position by position? Can you tell me why this isn't working and why this is working? And we talked about a lot of stuff. We talked about the election and COVID and their lives and what's been going on. And I feel like I walked away from that knowing a lot more about how they're thinking about things without having talked about the positions.
Speaker 1And your team?
Speaker 2That would be very different. They want to have the notes in front of them and their iPad and taking notes and asking position by position. And that's appropriate. I'm responsible for nothing and everything. And if we had performance that wasn't great, it's my responsibility. But the people on my team are the ones who do all of the work to get us there.
Speaker 1If you're having a meeting one-on-one, you can cover certain problems. Personal things that might not get covered as much in a meeting with, say, three or four of you. Managers have a limited amount of time they spend with each client. So how do you think about what are you trying to tease out and when over time in one of these relationships?
Speaker 2Well, I would say we're very respectful of our manager's time. We like to see each manager at least once a year, if not twice. And many of the managers we have in our portfolio, we've had for 20 years or something like that. Our practice is to see them at least once a year. My team definitely does that. And they're in touch with them much more by phone and that kind of thing. But we try to be LPs or clients who are not kind of overstaying our welcome. And I think that's worked out well for us because then when we are looking at a new firm or trying to get into a fund and they're doing their due diligence on us, I think that's what they hear about us is that we're not taking too much of their time. I meet every manager before we hire somebody. And then once they're in the portfolio, they're in the portfolio. And then once they're in the portfolio, I travel about 50% of the time in normal times. And so I see a lot of people along the way. Obviously, the most important relationships and the trickiest relationship. But it's not like I parachute in when somebody's having performance difficulty and bring the hammer down. That's not how we do things. And I would say I probably do the least amount of talking when I go to meetings with my team. And it's their relationship. And they know these guys the best. And then I'll hear them say something. And ask a question. And it's not a gotcha culture in our office. It's really like trying to understand what they're doing. And is this what we hired them for?
Speaker 1Do you see any commonalities in that group of managers of either the way they invest or the size of the balance sheet that they're using or their exposures that have been more conducive to success than others?
Speaker 2So the legacy of our portfolio was Andreas Halverson was part of the committee that started this portfolio. And there are a lot of people that are in the portfolio that are a lot of Williams people who have worked at Tiger or Tiger family firms. And so what that means for our portfolio today is there's kind of this fundamental bottom up kind of investing style. We have managers who were not part of Tiger. But there's definitely coming into Williams and never having invested in a hedge fund. I learned a lot from those people. And the culture of Williams is one of incredible. Accomplishment and success and incredible modesty and humility. And people really helped me when I got started. So when I look at our list of global long short, they're doing all different things and some move their exposures around and some do privates and some are incredible at shorting. And, you know, we have a small number and they all do different things. So we don't need to have three firms all doing the same thing in a much bigger portfolio.
Speaker 1So when you turn over to the absolute return side of it. Did Paul Singer serve the same purpose you mentioned earlier that Andreas did on the long short?
Speaker 2I mean, did he influence what was in the portfolio? Yeah. There are a lot of good stories about what happened in those committee meetings back in the day.
Speaker 1Care to share any one particular good one?
Speaker 2That was before my time. There was so much debate that I think the outcome was really good. There was no sort of polite, oh, yeah, I agree with you. Yeah, I think that's good too. So, I mean, Paul was an incredible committee member. He was an incredible member and served for a long time. And he's not an alum. He has two sons who went to Williams, which is how he got involved and was an incredible non-alum volunteer.
Speaker 1You mentioned earlier that you had a terrific group of venture capital managers from when you showed up. It's still a small percentage of your portfolio, both on an absolute basis and relative to some of your endowment foundation peers. I'm curious how you've thought about, you know, clearly an asset class that's done extraordinarily well with the managers you've had. And I'm curious, whether or not you'd grow it. And if so, how?
Speaker 2So, our target allocation is 6%. Our current allocation is like three times that. We haven't done anything differently. We have the same managers and we commit the same amount of capital when a fund is raised. So, we have terrific managers and we look forward to them taking advantage of the IPO market and doing direct listings and returning capital to us. That's not a secret. Anyway, so between that, and the private equity, it's 20 some odd percent of the portfolio. The allocation to venture and private equity haven't changed since I started with the college. And it really goes back to this need for liquidity because we support so much of the operating budget. So, we spend a lot of time looking at liquidity and unfunded commitments and how we compare to peer institutions and how much they have in unfunded commitments and illiquid investments. So, we are slightly less than the schools that have the best. 10-year returns, but not very different. And we haven't really moved off of those targets because we have to be careful about our liquidity. And we look at our unfunded commitment level moving around and what that means. And we didn't get upside down in the last financial crisis and have to borrow because we couldn't get money in our portfolio. And that's just really important to Williams. The endowment is here to support the college. The endowment is not just here to be a pool of capital to invest.
Speaker 1Let me make sure I understand this. You have a 6% target that's grown to 18.
Speaker 2Well, call it 16.
Speaker 116. Was that a recent phenomenon in the last couple of years with extraordinary performance, or is that just something that's evolved over time and you haven't changed the allocation target?
Speaker 2It's all performance driven. So, we had some core relationships when I got here that we've been with for a very, very long time that have been great. And then we've added a few names in our portfolio, but not a lot. And mostly first-time funds in different parts of the world, or here. But we haven't really added much as far as relationships. But when the funds do well, it grows. I mean, we saw the same thing with our private equity portfolio where our target's 9%, and it was well above that when buyouts were doing well. And now it's venture's turn. The good thing is we have all these people on our committee who have seen it before, as have I and my team. So, it's like this too shall pass.
Speaker 1Well, there's a couple of ways that shall pass, right? One is you get the distributions and it comes down. The other is less exciting. Yes. How have you thought about managing around those allocations when they move away from
Speaker 2longer-term targets? We definitely talk about should we move the target as the actual has moved? But then it becomes tempting to add more relationships and make bigger commitments. And then you've gone from the current target to a bigger target. So, we just stay the course and it's bigger than the target. But as you said, it will come back down hopefully for a good reason and not because valuation has dropped precipitously. So, we're lucky to be in these amazing partnerships and we really value them. And our private portfolios have done really well over long periods of time. And we don't try and reinvent it all the time. Our venture portfolio is kind of barbell between these very long-standing relationships and then some new stuff. And that's been good to us because what was new 10 years ago now is very established and very successful.
Speaker 1What have you found in the newer stuff that has worked and hasn't?
Speaker 2I mean, listen, we all make mistakes. You haven't asked me that yet, but happy to talk about it. Hiring mistakes, mistakes in the portfolio. I mean, you can't have one of these jobs without having a whole, you know, we could just talk about mistakes. So, which wouldn't be, it wouldn't be a lot of fun, but- Let's have at it.
Speaker 1No, no, I think it's great. Talk about the mistake that you learned the most from.
Speaker 2Well, one of the mistakes was, you know, you have someone who you think is a good advisor and they, say something to you like, run, don't walk to this manager. And you do. And that is not necessarily a good thing to do. I mentioned earlier that we have sort of a slow, careful process for adding new managers and getting to know them. And sometimes when you move too fast and you don't do everything that you normally would because of not having the time to do that. And that doesn't necessarily end up well. So do you have
Speaker 1a particular story in mind
Speaker 2about that? I have a specific manager in mind.
Speaker 1So what was it that you missed that you think you would have gotten with more time?
Speaker 2Well, you know, sometimes a lot of the best managers don't give you a lot of transparency on the way in. And it's a little bit of a trust me. And sometimes you just have to go with that. And you do as much reference checking and talking to people who are investors and people who know that person or know the firm as you can. But there's a little bit of a sometimes you just have to step off the clip and hope for the best. And most of the time that's worked out for us. And sometimes it just doesn't. And so some of it's unknowable ahead of time. But if you are investing, by definition, you're taking risk. And so if you don't take risk, you're not going to have return.
Speaker 1In tennis lingo, that's to some extent an unforced error. How about forced errors?
Speaker 2For me personally, it's all your friends are doing it. And you say, this doesn't feel right to me. But all the cool kids are doing this. So we're going to do this. And that's never a good strategy. And there are some big things that have blown up that we haven't been in. And there have been things that we would prefer to not have been invested in. It's funny because in pension fund law, there's some protection for investing in something that everybody else is in. Here, it's not like that. Like if I said the reason we invested in Ted's firm is because all these really smart people were in it. And even though we couldn't really get there, they're in it. That's not a good answer.
Speaker 1How do you balance that with the reality that your venture capital portfolio, your hedge fund portfolio, generally speaking, these so-called great managers that everybody loves, there are a lot of other great investors alongside of you. So it's not necessarily the case that in a lot of the managers that drive your returns, there isn't a good crowd alongside of you.
Speaker 2We're definitely careful about who we invest alongside because that can drive the outcome, right? But you can be in things with other good investors and have a bad outcome. So we were in a hedge fund, kind of forgotten about this, but you're making me like think of all these bad things. We were in a hedge fund where the guy at like five o'clock on New Year's Eve day announced that he was turning the hedge fund from a hedge fund into a publicly listed security that was a holding company for all these underlying investments. We had all been trying to redeem and he wouldn't let us redeem. And he said, you have complete liquidity. It's a security. But he was the majority owner of the security. So the only liquidity came from him. And that was a long drawn out, really bad, expensive legal fees experience. And we were alongside some great investors, but there were also some large investors with just a different motivation and they were kind of driving what was happening there.
Speaker 1So what is it in your thought process? That drives that situation where all the cool kids are there, but there's something telling you not to go with them.
Speaker 2I mean, part of it's for me personally, it's instinct. And if you don't feel 100% comfortable with a person, like even if all those people are doing it, or if you just don't get it, you know, sometimes people say, oh, you know, he's doing blah, blah, blah, or she's doing blah, blah, blah. And if I don't get it, then we shouldn't do it. And there are definitely other people are in and have done fabulously well with, and we're not in it in part because of that kind of experience. Or, you know, I've experienced this before in a different flavor, a different version. And sometimes it's like, I'm glad we didn't do it. And sometimes I'm really sad that we didn't do it.
Speaker 1What's evolved in your process and thinking kind of over your time from when you first got to Williams to today?
Speaker 2You know, I think I'm a lot more comfortable. Taking risk. I mentioned that a third of our managers are first time fund or day one investor. And if you asked me in 2006, when I first got here, I would be like, there's no way we're doing that. And now I'm a lot more comfortable with that risk and can see, you know, 10 years from now, why you want to be with that person today. And it doesn't always work out, but I'm much more comfortable with that kind of risk and meeting somebody and having a few meetings with them and understanding what they're doing. And yeah, let's take that risk. And sometimes it makes my team crazy, I think, because, you know, I'm ready to step off that cliff before they are. But that's probably for me personally, that's probably the biggest
Speaker 1difference. The whole world of technology keeps innovating in a lot of different ways. And in some ways, asset management is a late mover. I'm curious, like how you thought about innovation in your process when so much of it is built on long-term relationships with great managers stay the
Speaker 2course? Well, if we're like the thought leaders on innovation, we did one thing that was innovative, I thought, and saved us a lot of money and headaches is we moved away from a custodian and hired an administrator, which at the time we did it, nobody had done that in the endowment world. And not very many people have done it since then. But we got so crazy about not being able to understand what our managers were doing for 20 or 30 days after the end of the month. And so we went with an administrator. And it's made a huge difference in how we look at the portfolio and can manage the portfolio and understand what our managers are doing. It's sort of like the plumbing underneath it all. We just tried to simplify. It's less expensive. I don't think that's what you're asking about, but it was something that made a big difference for us and our team and where we spend our time. So when you think about how you allocate your time and how important that is, because you never have enough of it, but I don't know if we're like the bleeding edge of innovation with regard to how we look for a manager or analyze a manager. I know that people
Speaker 1on your team teach this winter study every year at Williams. What does that curriculum look like?
Speaker 2Oh my God. That is like one of the best parts of the year is winter study. And it's really sad because we're not doing winter study this year. We are doing something called the winter experience, but winter study is a month of the year at Williams that students can take one course and they're encouraged to take something that's not related to their major. Yeah. I think it's all pass fail. So people take knitting and winemaking and cartoons and stuff like that. And so we started teaching winter study eight or 10 years ago and we started off bringing two or three students to Boston and having them work in our office five days a week. Then we realized that we could have more students involved if we did it on campus. So we do it on campus and we basically do endowment management. We do endowment management. We do endowment management 101. They read David Swenson's book. They learn what an asset class is. Somebody different from the team is there every day talking about this is what a hedge fund is. This is what private equity is. Our provost, who's fantastic, comes in and talks about the finances of the college and how the endowment supports it. When you think that the majority of kids at Williams are on financial aid, so they leave at the end of that month of January understanding why what we do is so important to what they're able to do at Williams. And it's just fun. It's fun to get to be with these students, both in our summer programs and winter study and our full-time analysts. We have a huge alumni base for Williams. It's close to a hundred kids who have worked in our various programs and they're all out in the world doing different stuff. A lot of them in the investment world, which is great coming out of a small liberal arts school that doesn't have anything business or accounting or anything like that. But these kids come out and they learn how to think critically and write and make an argument and put a mosaic of things together. And that's what investing is, right? So I keep telling these guys, you are the most well-suited for investing or investment management. You don't need to go to Wharton or someplace like that. You guys have got it all going on here. So anyway, winter study is really fun. It's really cold and dark in Williamstown in January. And the other thing that we've done that's been a great success is we've brought some of our managers to Williamstown. And they talk about what they do and they'll talk about a stock. And the students will get some materials ahead of time and they'll have to talk about would they invest or would they short,
Speaker 1whatever. Fantastic. All right, Colette, let's turn to a couple of closing questions and we'll go on with it. What's your favorite hobby or activity outside of work and family?
Speaker 2I would say the one thing that I really do pretty religiously now is make sure I get exercise.
Speaker 1Any favorite form?
Speaker 2Hiking, running. My husband and I work with a trainer together and we love it so much that we bought our own sled and we have a bunch of, we have medicine ball and a bunch of other stuff and we keep it in the trunk of the car. So when we were in Williamstown working out there for the summer, we would like drive around to different parts of campus and do our workout and people would go by and laugh at us. And it's great. It's great. It's something we can do together. It's a lot of fun. So that's, I would say that's not really a hobby, but it's something I like to do.
Speaker 1What's your most important daily habit?
Speaker 2You know, I would say the exercise. These jobs are great and they're a lot of fun, but they're super stressful regardless of what's going on in the market, going up or down or sideways or things going on with your team or, I mean, this has been such a difficult time for colleges, you know, closing. Do we reopen? Williams reopened and has had great success with that, but there's just, you know, it's stressful. And so staying healthy and mentally, you know, on it keeps you calm and that's better for you. Everybody on the team and at the school.
Speaker 1What's your biggest pet peeve?
Speaker 2I would say my biggest pet peeve is people who lack humility. And that's both in the investment business and in life more broadly. I didn't grow up thinking I was going to be in the investment business. I wasn't, you know, I didn't have my little stock portfolio as a teenager. I kind of landed here out of necessity and it's been incredible. I love it, but I'm also very humble about it and think, how did I get so lucky? You know, I get to go to China, I get to India and meet all these people and support an amazing college. And I'm very proud of all of that and feel extremely humble about the whole thing. And you meet a lot of people in our business who are not that way. And so I would say that is definitely my pet peeve.
Speaker 1What teaching from your parents has most stayed with you?
Speaker 2I was with my family recently in California and we were coincidentally talking about stuff that we learned from our parents that's really been impactful on us. And one of the things that I think is most important is to be positive. And it was something that my parents both were and my siblings are. And it's just, you know, life is so much better if you're positive. You know, bad things happen, but you know, it was kind of like always, you'll get through this. It's not really Pollyanna-ish, but you know, the sun will come up tomorrow. There's another day. And in what we do, that's incredibly helpful because there's always something bad happening in our portfolio. Like, why do managers do what they do? And you kind of just like, you know what, it's okay. We're through this. And so being positive, that was like an incredible gift from my parents.
Speaker 1All right. Last one and we'll turn to a couple. couple extras for the premium members. What life lesson have you learned that you wish you knew a lot earlier in life?
Speaker 2I think it's sort of tied to what we were just talking about, which was when something bad happens, it's going to be okay. You're going to get through it. And when I was younger, it would just be so upsetting. And, you know, you kind of get caught up in the drama of it being upsetting. And I think, I wish I'd learned much younger that it's like, you know, it's okay. It's all going to be good. This isn't going so well right now, but it's all going to be fine. And I wish I, when I was 40, that I had the confidence and the understanding of that. But I don't know how you get that life lesson any earlier than learning it over time.
Speaker 1Colette, this has been great. Thank you so much.
Speaker 2Thank you, Ted. This has been so fun. So much less scary than I thought it was going to be.
Speaker 1All right. Let's continue on with it. Just a few more here. What advice do you give early career professionals?
Speaker 2My usual response to that, which my husband tells me is like super basic, and I can't say this anymore, is work hard, check your work, do a good job. I think that's profound, but that's for like right out of school. And we've had a lot of students working with us. So I know that that is not necessarily what students do when they get out of college, especially checking your work. And it's just like not that sexy, deep. That's like stage one advice. That's like, okay, you're your first year out of college. Just do a good job. Work hard. Check your work. Don't let your boss find mistakes in your work. I mean, it's going to happen, but you know. And then later on, I think, and I don't know when the transition from stage one to stage two is, figure out what's the what for of what you're doing. You could be really good at spreadsheets if you're working in our office and you don't understand how important we are to Williams. And why what we're doing matters so much and how that can influence your work. Figuring that out when you're still in your twenties would be incredible and make your job become a career instead of getting stuck on a job.
Speaker 1What kind of conversations are you having with your peers these days?
Speaker 2Frequent. Well, you know, it's funny. One of the things I really miss about not traveling is seeing all my friends. Because as you mentioned earlier, these investments with other good investors and you become friends with them over time. And when you travel, you know, oh, I'm going to this annual meeting. I'm going to see so-and-so or we're all going to China at the same time or, and I really miss that. And so when COVID started, a lot of people made more of a concerted effort to like regularly check in on the phone, not on Zoom. When I'm talking to my friends, it's sort of a reality check of we're going to get through this and, you know, what are you seeing or hearing? Or doing? And it's kind of talking to each other about this actually isn't that different from pre-COVID or, I mean, it's easier to say that now than in late March and early April, at which point we were all talking about liquidity and is your line of credit going to be there if you need it and that kind of stuff. But it's, it's more just reassuring each other.
Speaker 1What's your favorite book?
Speaker 2I keep track of the books that I've read in this app called Goodreads, which I love because I can never remember what I've read. So I can go back in there and say, oh, I loved that book. So the book that I've, I've been reading a lot during COVID and one book I read recently that I absolutely loved is a book called Circe. It's about one of the Greek gods who is a woman who is kind of thrown out and she goes and lives on an island with her son. And it's just fascinating. It's all about mythology and the gods. And that was a fantastic book. And I started thinking about, you know, I've read a lot of other books that I like and they mostly have women protagonists and they also are all sort of succeeding against the odds. I don't know why that resonates with me, but apparently it does.
Speaker 1I'd have a reason or two.
Speaker 2So, but that is just a fantastic book. It's fiction. It's written by a woman who's a historian and I can't remember her name right now. It was like one of those books where you're at work or you're working at home and you just want to finish working so that you can go sit down and read your book.
Speaker 1All right. Well, I'm going to ask you one more. We touched on this in some ways earlier, but what's the biggest mistake you've made? Could be investing, could be life. And what did you learn from it?
Speaker 2I don't know. There's so many mistakes. There's so many mistakes in hiring, in the portfolio, and just like raising kids. I don't know. I feel like I've been so lucky in so many ways. You know, I think one of the greatest determinants of how your life is, is who you're married to. And I feel very lucky to have my husband. And of course we've made mistakes as parents. And I don't know. It's hard for me to single out just one because, Ted, there are so many. And I'm not dodging. I'm really not dodging your question. It's just like, oh, there's so many. All right.
Speaker 1Let's leave it at that, Colette. It was so much fun. Thanks again. Okay.
Speaker 2Thank you. Thanks for
Speaker 1listening to this episode. I hope you found a nugget or two to take away and apply in your investing and your life. If you'd like what you heard, please tell a friend and maybe even write a review on iTunes. You'll help others discover the show. And I thank you for it. Have a good one and see you next time.
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