MOI Global - Daniel Vasquez on Allocating Private and Institutional Capital
The discussion highlights the challenges large firms face, such as becoming too big and complacent, which can hinder performance and returns. This is contrasted with smaller managers who often outperform due to their nimbleness and lower transaction costs. The speaker emphasizes the importance of relationships and understanding institutional governance structures for smaller managers to break through. They suggest that smaller managers should focus on building relationships with institutional investors and understanding their governance structures to make an impression. The speaker also notes that politics can play a role in decision-making, especially in state pensions, and advises managers to do their homework on the plans they target. They stress the importance of knowing the plan's governance structure, funded ratio, and past investment decisions to gain attention. The speaker advises emerging managers to plan for 18 to 36 months to establish relationships with trustees, who are often jaded by constant pitches.
Key Points:
- Large firms can become complacent, affecting performance.
- Smaller managers often outperform due to agility and lower costs.
- Building relationships with institutional investors is crucial.
- Understanding governance structures helps in making an impression.
- Emerging managers should plan for 18-36 months to build trust.
Details:
1. 📉 The Challenges of Overgrown Firms
- Overgrown firms, like Berkshire, face performance and return issues due to their size, which can lead to reduced efficiency and adaptability.
- Institutional imperatives often hinder operational efficiency as firms grow larger, necessitating a more agile management approach.
- Leadership must be critical and incisive with managers to avoid complacency, ensuring that performance metrics are aligned with strategic goals.
- Firing managers who cut corners was a necessary strategy in large Wall Street firms to maintain integrity and performance standards.
- Big firms may rely on their size and history rather than current performance, which can lead to a decline in competitiveness and innovation.
- Managing trillions of dollars and numerous funds can lead to complacency, highlighting the need for continuous performance evaluation and accountability measures.
2. 🌟 Small Managers: Agile and Effective
2.1. Advantages of Small Managers
2.2. Challenges Faced by Small Managers
3. 👥 Navigating Institutional Relationships
3.1. Roles and Influences in Institutional Relationships
3.2. Case Studies and Examples
4. 🔍 Decoding Governance and Funding
- Public pension plans must disclose their governance structures and funding sources on their websites, which is mandated due to their public nature, ensuring transparency and accountability.
- These plans are primarily funded through a mix of employee contributions and public taxes, with some relying exclusively on employee contributions, highlighting the importance of understanding different funding models.
- Investment managers aiming to engage with public pension plans as General Partners (GPs) need a thorough understanding of these plans' governance structures to effectively align investment strategies and meet fiduciary responsibilities.
5. 📊 Mastering the Art of Diligence
- A deep understanding of the governance structure and funded ratio over time is crucial for capturing investment committee attention.
- Analyzing investment committee decisions across economic cycles offers valuable insights into strategic approaches.
- Demonstrating knowledge of historical actions and their outcomes enhances credibility with trustees.
- Managers should thoroughly engage with publicly available information, such as investment committee meetings, to demonstrate preparedness.
- Achieving good returns and maintaining a track record of integrity are essential for gaining trust from investment committees.
- Emerging managers must plan for a long-term relationship-building process, typically taking 18 to 36 months for credibility with trustees.
- Experienced trustees, often skeptical due to frequent pitches, require well-prepared and insightful engagements.
- Including specific case studies or examples of successful investment strategies can further illustrate these points.