July 28, 2025 • 37 mins
In this episode, I spoke with Anurag Chandra, Chief Investment Officer of a single-family office and longtime trustee and former Investment Committee Chair of the San Jose Federated City Employees’ Retirement System (FSERS). Over the past decade, Anurag has helped transform FSERS from one of the worst-performing pension plans in the U.S. into a top-decile performer. He’s also an experienced operator, venture capitalist, and accidental allocator—with hard-won insight into everything from re-risking public portfolios to model delivery and tax-loss harvesting.
In our conversation, Anurag shared how EQ, team dynamics, and governance structure often outperform raw IQ in investing—and how he helped rebuild a $2.2B pension plan through careful governance reform, luck, and great timing. We also covered how he now applies those same principles at a nimble family office, blending institutional rigor with operational agility.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
So you have a bit of a contrarian belief inthat you believe that a person with 120 IQ with
a great network will beat a person with 160 IQwith no network.
Why is that?
That's a nice opening question.
And you remembered a couple of theconversations we had previously.
I didn't necessarily frame it that way thoughI'm happy to go there.
(00:20):
I think what I've said, I've got two boys whoare, I guess, young adults, one at the end of
his college tenure, the other just recentlygraduated.
And when they were younger, I used to joke, I'mlike, Look, I have no idea what I'm going to
get with my kids.
I hope their IQs are somewhere between aboveaverage and below genius because 90% of the
(00:40):
world's jobs can be done by people in thatrange.
Then it really matters if you have all theseother qualities outside of just raw
intelligence.
If we're going to use 120 as a proxy for justabove average and use 160 as a proxy for
genius, I suppose in this framework.
Look, I would love to have been a genius, whowouldn't?
(01:03):
But there is a bell curve distribution ofintelligence and often a lot of qualities that
are associated with it.
And I've had the good fortune of being around alot of exceptionally bright people who I'm glad
are solving really hard math problems, reallyhard physics problems, really hard biology
problems.
But I've noticed in my life, a career that nowspans twenty five years as a professional, that
(01:30):
the people who are resourceful tend tooutproduce the people who just have extreme raw
intelligence.
They're not mutually exclusive by the way.
I've just found it to exist more in spades withthe people who are smart.
I mean, they are above the average, but itforces them to be more resourceful or to have
(01:54):
EQ or to bring some other qualities to bear.
And then ultimately the reason why I believethat is, I've been a business professional.
I haven't been an academic.
I haven't been a research scientist.
And in business, I've always said the joy thatI get out of it is going home at night and
saying I did something with the team of peopleI couldn't have done myself.
(02:15):
And I think embodying that, you specificallyreferred to network.
I think that's the ability to be a part of ateam and leverage a team.
And I don't have any of the case studies handy,but I'm sure Harvard Business School does of
just the profound impact that companies withreally strong team cultures have been able to
engender.
(02:37):
It's interesting because a lot of people buildan ego around, I did this myself, I did X, Y,
Z.
You you gain more joy from doing it within ateam.
Unpack that for you.
What what is it about doing things with a teamthat makes it more enjoyable?
Haven't done anything that could be ascribed tome as success in air quotes has been done in a
(02:58):
team context or with a profound amount of luck.
Right?
I mean, starts with birth.
Don't think that Warren Buffett's Lucky SpermClub only applies to people who inherited a lot
of money.
I was fortunate to inherit a lot of otherthings, which gave me an unfair advantage in
life.
And so I think it starts from there.
(03:20):
I love team sports.
I'm a sports fan.
When you see that come to fruition, I don'tknow, it's a high.
I mean, you get tingles up and down your spine,the high fives on a Friday when you've closed a
deal.
In my background, I've been an operator, I'vebeen an investor and now I'm this accidental
allocator as well.
And I can't think of any milestone achievementthat I've had in any of those capacities where
(03:44):
it wasn't a full out team effort.
And, you build relationships, you sear yourrelationships in the cauldron of the ups and
downs.
And ultimately, life is also about therelationships you build.
So look, again, I have all the respect in theworld for the folks who their job is to go into
(04:06):
an office and then like just think really hard.
And these are the people who win Nobel Prizes,the people who often create patents, although
that can also be a team exercise that are worldchanging.
So I don't ever want to minimize that.
But you also have to understand, I live andwork in Silicon Valley and if I had a nickel
(04:29):
for every startup that pitched me that said,we've got one of the top five smartest CTOs in
Silicon Valley, the eye roll begins immediatelywith me because that's just such a minimal
ingredient in the overall success of a startup.
What does it mean to have high EQ in finance?
I don't think that, I think the high EQ isn'tnecessarily specific finance.
(04:53):
I can apply it to finance.
I think it's really important in any businessendeavor, one where you're making contact with
a customer or a client or a patient in the caseof doctors, right?
So I'll give you an example.
I was an attorney for all of eleven months.
I ran screaming from the profession, theproverbial round peg in a square hole.
(05:17):
My wife was an attorney for a lot longer thanme, worked at a big firm up here in Silicon
Valley and I have plenty of friends who areattorneys.
As I was leaving this large law firm, I spenttime with the managing partner for the Southern
California offices.
He was trying to convince me to stay, but oneof the things that ended up popping up as an
(05:37):
anecdote that he shared about having providedlike that He was a litigator, I was not, but he
provided the best legal defense for aparticular large client that we had out of the
Midwest that built airplanes.
He said, We lost.
It was a tough case, but I just did amazinglegal work.
(06:00):
However, I didn't handhold the client wellenough.
And so when we lost, they were really angrywith me and they held me personally accountable
for things that I think the cards were stackedagainst us from a fact pattern perspective.
And he said in another case, you know, he hadseven or eight litigation matters going on at
(06:21):
the same time, probably wasn't able to, if hewas being honest with himself, give a 100% to
each and every one of the cases.
And there was one in particular that he lost,but he'd done a really good job with the client
management.
And when it was all over, the clients wereappreciative.
They said, Tough outcome, but we know you triedyour best.
(06:43):
You are a lawyer.
We're gonna hire you again and again and again.
He's really trying to underscore the importanceof emotional intelligence, although we didn't
use that term so frequently back then.
And it really comes down to just relationshipbuilding and understanding that if you take the
time to bring people along with what you'redoing, it creates trust, which was ultimately
(07:08):
what Steve was talking about.
And it builds long term relationships wherepeople are going to want to keep coming back
and working with you.
And there's certainly elements of that infinance or investment banking because it's a
client driven business.
I live in the land of people exalting low EQ.
And I don't know, maybe because I live aroundand work around people like that so often, I'm
(07:32):
just a little bit of contrarian.
I kind of try and see where the pendulum isgoing and then it's my nature to be a little
contrarian to make sure we pull people back tosome sense of equipoise.
I never thought about it that way.
There is a huge bias towards IQ and almostirreverence towards EQ or almost like it's a
secondary skill or a lower class skill to begood with people and not not be good with maybe
(07:57):
a spreadsheet or numbers.
I agree with what you said.
I have the same observation that in community,I traffic professionally.
It's almost considered a lower tier skill.
And I think what I'm trying to establish is Idon't think it's a lower tier skill at all.
In that vein, I know you have an unbelievablenetwork, which is how I got in contact with
(08:22):
you, And you know quite a few Goldman partners.
What have Goldman partners told you about IQversus EQ when it came down to who became a
partner?
What I have been told is the folks who arebetter at the FaceTime game definitely did
better.
So there was a premium on, you know, if I couldbe in the office a hundred hours a week, but
(08:44):
someone else could be in there one hundred andten.
I knew one guy when emails were becomingprevalent, He would specifically, you know,
write a bunch of emails, you know, seven atnight, and then he would auto send them or
schedule them to be sent at like one or two orthree in the morning to make it seem like he
(09:04):
had been working all night.
So I think the grind, I think the ability todifferentiate yourself with your stamina.
And then I do think the client facing stuff.
I think when partners see in young associatesthe ability to cultivate clients and to manage
client relationships.
(09:25):
I think there's a huge premium on that.
I do know that there's a mythologizing like,oh, so and so is such a genius and blah blah
blah.
And the overuse of the word the genius word,which is not just specific to banking.
I mean, I think that word is generallyoverused.
There's a great podcast.
Am I allowed to talk about other podcasts onyour podcast?
Absolutely.
Absolutely.
And Barry Barry Weiss has a woman who's justwritten a book about, I think I don't know what
(09:48):
the title is, but it's essentially unpackinggenius, Part the part that are that's myth and
the part that is legit.
When it comes to banking, just like law, a lotof these professions, you know, the people who
are awarded are the ones who just want want itmore.
And this might come back full circle to ourconversation about the people who don't have
(10:09):
the luxury of pedigree where doors will just beopen for them a little bit more easily.
They value the opportunity more.
The bottom line to everything we've beendiscussing up to this point is I have just seen
people excel with qualities.
And again, you have to have some level ofintelligence, but let's just call it baseline.
(10:32):
And, you know, your audience can disagree withme as to what that baseline could be.
I'm just strongly in the camp that you don'thave to be wicked smart in the CPU between your
ears.
You have to be smart enough for, again, 98% ofthe world's jobs.
And then the other things matter more.
I grew up around people who were brilliant.
(10:55):
And so I thought that when you graduatedcollege and you got a job, you succeeded by
doing something that was pure intellect or apure academic skill better than the person next
to you.
And I didn't really value networking.
If anything, the opposite was modeled in myfamily, not with disdain or not intentionally.
(11:18):
I had a friend in high school, he used toreally annoy me.
He used to say, You know, it's who you know,not what you know.
And I used to think to myself candidly, Well,you have to say that.
You're smart, but you're not that smart.
And it turns out he was right and I was wrong.
It is who you know, not what you know.
And not exclusively.
I don't wanna turn that into some kind of ashibboleth.
(11:40):
So let's talk about your career as an assetallocator.
You've been ten years trustee at the San JoseFederated City Employment Retirement System.
Tell me about how the pension has evolvedduring that decade.
Oh, great question.
So yeah, I'm nine years, so almost ten.
(12:01):
A year into it, I was asked by the chairman ofthe board to chair the investment committee.
When I took over the IC, we were the secondworst performing pension plan in the country.
And three years later, we put up an annualnumber that was the second best in the country.
So within those three years, it was a prettybig turnaround.
But we stayed top decile for the entire timeperiod, which has been really rewarding and
(12:24):
gratifying.
If we talk about the San Jose pension system,we're gonna come back to the concept of team a
lot.
It's been a really strong team.
I've had some strong committee members over theyears, and then we were really fortunate to
hire this world class CIO who's done aremarkable remarkable job.
So you've gone from one of the worst performingto a perennial top decile, top 10% performing
(12:47):
pension funds.
How did you accomplish this dramaticturnaround?
Someone asked me this last week and I said, Oh,if I'm interviewing for a job, it's because,
you know, I'm so brilliant and the my fellowtrustees are brilliant and our c I actually do
think our CIO is brilliant.
He's got some really smart people on his staff,but maybe we can tie this to the first part of
the conversation.
(13:07):
It's a lot of blocking and tackling.
We did several things.
And the first thing we did was we cheated.
And I say that tongue in cheek.
We hired a consulting firm out of Canada tohelp us understand the best practices in the
Canadian pension system.
I consider the Canadians to be the goldstandard.
Now there's some things that Canadians dostructurally that we can't do, unfortunately,
(13:31):
at San Jose, or I might even say across Americawithin the pension systems.
A strong cultural difference and attitudetoward the way you remunerate CIOs and
investment staffs and even trustees.
And obviously we know when you're willing topay more, you're gonna get higher quality
talent San Jose could have had tons ofcandidates more qualified than me apply, but
(13:58):
it's essentially a volunteer role.
But there were a bunch of governance thingsthat we reviewed and adopted.
So without getting into gritty details, I wouldsay the key things that we focused on during
that turnaround period was our governancemodel, our approach to the investment policy
statement, the IPS.
(14:18):
We delegated manager selection to the CIO andstaff and took the trustees out of that
process.
One of the most, if not the most thoughtfulthing we did was a really exhaustive risk
analysis on the amount of volatility ourportfolio could bear.
We have capital inflows, but we also haveoutflows.
We have to pay pensioners their monthly checks.
(14:40):
And there would be nothing worse than takingdisproportionate risk in a way where in some
kind of a black swan event, we were unable tomake those payments that we had to go to our
plant sponsor, the city, and seek some kind ofhelp or assistance, which obviously is a
politically challenging thing to ask for.
So, we hired a risk consulting firm and theywere fantastic.
(15:03):
And we spent several months modeling.
We took all the worst drawdowns that have takenplace in The US capital markets back to the
great depression.
Then we did a bunch of stochastic modelingtrying to figure out what The next black swan
is not gonna look like the prior black swansand stochastic models don't predict exactly
what they look like, but this is science andart combined.
(15:25):
One of the things I did do is I did ask theplan sponsor, which is the city at joint
sessions and also when we at some of their openmeetings, I'd say, give us a sense of our
backstop.
The more backstop you're willing to give us,the more risk we can take.
Now we're an underfunded pension plan.
We had a big divot toward our unfundedliabilities, which we filled that divot quite a
(15:50):
bit and I'm proud of that, but we still have aways to go.
But the way to really decrease that gap throughinvestment returns is to take more risk.
But we know risk is cruel.
It can work on the upside, but it also works onthe downside.
It's not just a one way proposition.
It's hard to get politicians to commit to,yeah, we could raise taxes or we could float a
(16:10):
pension obligation bond, or we could go backand have tough negotiations with the unions.
So we kind of took the silence as our right togo and do this analysis on our own.
And what we learned after doing the work wasthat we could add 50% volatility to the
portfolio without injuring our ability to makethose important monthly payments.
(16:32):
And so we began a process of re risking theportfolio.
I have heard, and this is a podcast, reallywish I knew this to be factually correct.
We have our sister plan up in San Francisco andSan Jose.
My understanding is prior to the greatfinancial crisis, the two plans were roughly
the same size.
Coming out of the financial crisis to today,have two pension systems in San Jose, the
(16:56):
police and fire and the federated, and we shareone CIO and one investment staff.
So collectively, I aggregate the AUM, we'reabout, San Francisco's about three times as
large as we are today.
Because coming out of the great financialcrisis, they were in a more risk on.
I'm not saying they were cowboys, but they weremore risk on and we were risk off.
(17:17):
Our prior trustees and CIOs had gone into adefensive posture.
And it's a tricky thing to do to re risk aportfolio because, I mean, for the last ten
years, multiples have just seemed really high.
PEs have just seemed like, you always seem likeyou're buying into an overbought market, but we
began that process of buying in.
(17:37):
And then we got a little bit lucky too with ourtiming.
I don't ever wanna underestimate the importanceof luck.
When we decided to re risk was late twentynineteen, early twenty twenty.
And typically strategic asset allocations getset by April or May.
If there's a lot of conversation at boardmeetings, it could linger into June.
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But what happened in 2020 at the beginning, Q1,COVID?
And we had the steepest decline in the historyof US capital markets.
I mean, three weeks we had massive drawdown.
So our CIO called an emergency meeting andsaid, look, the investment committee was gonna
recommend this new asset allocation where we rerisk and go heavier into growth and risk
(18:22):
assets, but I wanna do it Now we have a thirty,forty, fifty year time horizon as a pension
plan.
We are not trying to get the bottom.
More of the bottom could fall out of thismarket, but there's sales right now at
Bloomingdale's and I wanna go shopping, heeffectively said.
And what I love about him doing that inparticular is, you know, his incentive
(18:44):
structure, he's not comped on on performance.
He's he's paid a straight salary, and a lot ofCIOs end up being a little bit more
bureaucratic bureaucratic and playing it safe.
And he had conviction.
He acted like a fiduciary.
I supported him.
I mean, we had conversations before theemergency meeting and our timing was
(19:04):
impeccable.
I mean, we rode a massive upside by the end ofthat fiscal year, and that allocation model,
which we've tweaked a little bit, has continuedto serve us well all the way to now.
You studied the Canadian pension plan system,and, like you mentioned, might not be
politically feasible to pay the same amountthat Ontario Teachers pays at San Jose FSERS,
(19:25):
but you double clicked on that governance andyou took governance away from the investment
committee in terms of management selection tothe CIO.
What does that mean?
Does that mean that the CIO presents assetallocation to the investment committee or what
does the investment committee do exactly?
Good question.
And the investment committee is an interlocutorbetween the board and the CIO at some level.
(19:52):
I think that's a good way to frame it.
The board ultimately votes on all of thesematters.
So the committee, we have delegated managerselection, but the things that are the province
of trustees are covered by all the trustees.
The committee is where we spend more timegetting into the details.
And then, you know, in concert with the CIOpresenting decisions, decision points to the
(20:17):
board.
I I I think this is right.
There can't be more than 20 municipal plansthat have delegated manager selection to the
the CIO and staff.
So he and his staff get together.
They have their own processes.
They do committee meeting of their owninternally.
I think all of the investment officers vote,and they try to make team oriented decisions.
(20:40):
The strategic asset allocation, that is thepurview of the board.
That's like one of the key fiduciary dutiesthat we have.
So we have consultants, we've got this greatCIO and investment staff.
They will start to gather capital marketsassumptions at the end of the year, into a new
year, and then present that to us relativelyearly in the year.
(21:03):
And we will use that information to makedeterminations on whether or not we wanna stay
the course or change our asset allocation.
So previously all that manager selection stuffwent through the committee and then ultimately
also went through the board.
It was just cumbersome.
There are a couple of problems with it.
(21:26):
It's not a nimble process, right?
And so you risk missing out on opportunitieswhen you're that slow.
And then the other thing is, just to be blunt,not a lot of trustees are qualified investments
and it can lead to a high degree ofvariability.
(21:46):
And so, you know, there could be an instance inwhich it's not appropriate for manager or
sorry, to delegate manager selection, but wethought it was in the best interest of the San
Jose plan and it's worked out really well.
And you were at FSERS before this change ingovernance model.
Did you find that there was like this reversionto least common denominator when it came to
(22:10):
manager selection, meaning you didn'tnecessarily find the best manager, you found
the one that nobody had an issue with?
Fortunately, that was not an issue because ourstaff is great at sourcing and doing their due
diligence.
Quite frankly, a lot of managers are willing towait.
They're used to the long diligence cycle andthen, Hey, we just finished our diligence and
(22:34):
we really like this and going to go promotethis to our board, but our next board meeting
isn't for ninety days, right?
So we meet monthly, but there's some systemsthat meet quarterly, right?
So people sort of got accustomed to that.
I think what I would highlight or double clickon is that, you know, over five years, ten
(22:56):
years, there may be some managers who closefaster than your process, who are really high
quality managers and you just miss out on them.
And, you know, incrementally that matters overtime in a portfolio because we expect our staff
to pick the best managers in each of the subasset classes that we have allocated.
(23:17):
Then the second thing is usually there arestronger voices on a board or an investment
committee, people who have real expertise in aparticular asset class that's being reviewed.
And there's a fair amount of deference that'sgiven to the CIO and his staff because they're
the professionals.
So these these trustee meetings weren'tnecessarily always that controversial.
(23:43):
They just weren't the best use of time.
Today, your full time job, you're CIO at afamily office.
You've been doing that nearly four years.
What lessons did you take from San Jose FSERSto that single family office, and what
corollaries do you see between those twodifferent types of asset allocators?
I really like that question.
(24:03):
I've thought a lot about that.
So, yeah, to to begin with, I brought a lot ofthe principles over.
This was also accidental.
I was on the advisory board of a company in the2000s and I stayed close to the founders.
They found out I had left my most recentventure firm.
I left in early twenty twenty two.
So one of the two co founders of this companysaid, Hey, you know, you can come use my WeWork
(24:26):
while you figure out your next thing.
By the way, we're selling our business.
I said, Wow, that's exciting.
And now they had William Blair, so they had atop notch bank doing the transaction.
But my friend just said, you know, hang around,I'm an operator at heart.
I don't understand all the deal terms and soit'd be great to have a second set of eyes and
you can work on whatever you wanna work on.
(24:48):
When it became clear that he was gonna sell thebusiness by the end of the year for a healthy
sum, I just kind of asked him what he was gonnado with his capital, his newfound wealth.
And he said that, you know, he had a plan to gostart some new companies.
He's an inveterate entrepreneur.
He's a builder.
He's an operator.
It's his joy.
(25:08):
It's his bliss.
And the rest he was gonna sort of give to awealth manager.
And I kind of my eyebrow raised on the wealthmanager piece.
I gave him all the pitfalls and just becareful.
He said, Well, what would you do?
And we were on a whiteboard.
We work in San Mateo and I just kind of startedsketching.
Whether you have $500,000 in the bank or youhave 50,000,000,000 or a 100,000,000,000 as an
(25:29):
institution or a large family office orsovereign, whatever, there's always two basic
questions, at least in my opinion, thateveryone needs to understand.
What is your time horizon?
I mean, if you wanna do something with themoney in five years, that's very different than
if you have a fifth year horizon.
And what's your risk profile?
And I've just talked about risk ad nauseamalready on this podcast.
(25:50):
Now, if you have $500,000 you're probably goingto Schwab money manager and they're gonna do a
bunch of check the box exercises.
When you're San Jose, you spend several monthsdoing a really sophisticated risk analysis.
But you have to have a sense of that.
And once you have those two things, I reallyfeel like you can or I can sketch out an asset
(26:13):
allocation for anybody.
Now for the person with $500,000 if youremember Crayola crayons, you've got like a box
of seven crayons and just one shade of blue,one shade of red, one shade of orange, I.
E.
ETFs is probably what I'm mostly gonna focus onfor you.
If you have a $100,000,000,000, you've got the120 Was it 128 crayons?
(26:37):
And you've got like seven shades of every colorand I'm helping you buy a company instead of
investing in a private equity fund.
Like, we can cut out the two and twenty at thatpoint.
There's a saying in family offices that onceyou've met a family office, you've met one
family office.
I think that's largely true.
Double click on tax harvesting.
I've talked to the CIO of AQR, the CIO ofParametric.
(26:58):
I've talked to Quantino.
Give me a lay of the land and who are yourfavorite?
Maybe you could define a little bit what taxloss harvesting is in its current version and,
you know, who are the service providers thatyou like?
The way, we're talking to some of the folks youjust mentioned because we do wanna look in tax
optimization, which I put as a broader bucketharvesting is something you can do within tax
(27:24):
optimization.
It's the low hanging fruit.
And right now we've been focused on the lowhanging fruit.
And tax loss harvesting is essentially, youknow, figuring out what your losses are gonna
be as you're rounding into the end of a taxyear, selling to capture those losses.
But because you don't wanna upset the assetallocations, you find a proxy in the market
(27:46):
that you invest in until you avoid the washsale rules and stuff like that.
And you can go back into underlying asset orsecurity that you sold.
We do that pretty extensively.
And since we're double clicking on it, whatmodel delivery essentially allows you to do is
there are many managers out there in publicassets who will sell you their model.
(28:10):
So instead of you investing with them in apooled fund structure, you go to the manager
and say, just sell me your model.
The TAMP we work with has a bunch of executiontraders.
Those traders will replicate.
So let's say I've got a mid cap strategy withmanager X.
They sell us the model.
We buy the exact same stock.
(28:30):
We sell it when they sell it.
I mean, they're the ones with the intellectualproperty.
And people have asked me, Well, why would amanager do that?
Because they don't have to hire any compliancepeople against it.
They don't have to do any marketing, right?
Think about it as a software business.
If I can get you to resell me, I'm gonna letyou keep some of the margin, right?
And you might say, well, why?
(28:51):
Now I have less revenue coming in, but my COGSgoes down dramatically.
So my net margin is higher.
So when you do model delivery, whatever we arewilling to pay the manager, and it's far less
than their management fee.
The temp we work with has specialized in this.
So they have 56, I don't even know how manyrelationships they have.
They have this great menu of managers who havedifferent strategies and different approaches.
(29:16):
So we selected the ones that worked for ourasset allocation.
And then because we own all the shares, all ofthe equities directly, so we don't have to deal
with taxation within the fund structure, We nowown the underlying shares so we can tax Lost
Harvest.
So we get the boast of bet the boast best ofboth worlds.
(29:39):
We have the underlying shares, but we havethese great managers who are the ones who are
actually directing the way that the theportfolio the complexion of the portfolio.
That's the level of sophistication we're atright now, but we are starting to talk to the
community of folks you just mentioned.
Is there an adverse selection that comes tothis model delivery and that the best models
(30:01):
aren't gonna be shared or are they somehowobfuscated?
That was a concern I had early on that it mightbe adverse selection, but the founder of the
firm who's actually on sabbatical now, youknow, he did Yeoman's work.
He had been an asset manager himself.
(30:21):
He had been doing model delivery at his fund.
So, you know what?
I don't know how to answer that because I thinkit's a valid question, but I mean, all I can
say is I'm really about the managers we'rewith.
And I mean, we see their track record.
I mean, and unlike, you know, in privateassets, you're mark to market every day.
(30:42):
One of the most unique combination of skills,you're an investor, allocator, as well as
operator, those are three rare cases to rareskills to have in one person.
How has having each of those skills made theother skills better?
I'm a big believer in synthesis.
(31:03):
And to be able to synthesize information, youhave to have different experiences by
definition.
Just within the allocator sleeve itself, It'seven been interesting to do you were just
asking me about family office versus pensionfund.
I really would love to create a platform thatcombine the best of of both.
(31:25):
I have found in my travels, and I'm newer tothe family office world, but I spend a bunch of
times with other families collaborating andunderstanding how they're thinking about their
investment portfolio and their programs.
There are some poorly run pensions, but I findthe best run pensions, and I enthusiastically
and full braggadocio put San Jose in thatbucket.
(31:46):
Have great process, great governance.
You you heard the approach that we took to ourIPS, our governance model, risk management, and
ultimately asset allocation.
I find that families tend to be a little bitmore disorganized when it comes to that stuff.
They don't even sometimes don't even ask thebasic questions of time horizon and risk
because those are involved intentionalquestions.
(32:09):
But what I love about family offices, many ofthe ones that I've worked with, is they can be
nimble and they can be more creative in the waythat they build their programs.
So if I could combine the creativity andnimbleness of a family office with some of the
governance structure and professionalism, Imean, more family offices should probably think
(32:29):
about having some kind of a board of trustees.
You know, that starts to get little scary forthem because it feels like authority is being
taken away from them.
But I think ultimately, you wanna have a familyoffice that's thriving and has some maybe
philanthropic goals or goals for futuregenerations, and you're looking out thirty,
forty, fifty years, there's a lot you can learnfrom the institutional model.
(32:51):
And then across all of them, I mean, when itcomes to evaluating managers, I've swam with
the sharks.
I guess I've been one of the sharks.
So it makes it a lot easier when you're an LPto how do I extend or end that metaphor, I to
prevent being chum in the water.
But I'll pull back up to 50,000 feet.
(33:12):
I I just think, you know, the more thingsyou're interested in, I mean, really widely.
I mean, I I I think it's great that my fatherwas into talking to us about poetry and nuclear
physics.
And the other thing is synthesizing data,right, or synthesizing information, you know,
going across disciplines to look and search foranswers.
Being a polymath myself, the two benefits I seefrom kind of cross functional experience, one
(33:38):
is skill development.
You have a specific skill that when layeredinto an entire new industry is extremely
lucrative.
Andreessen Horowitz has now done that withmedia, whereas if they just competed on media
or just venture capital, they wouldn't be aseffective if they did both as one.
The second thing is first principles thinking.
(33:59):
This is a bit of contrarian view, but firstprinciples thinking doesn't come from actually
having out of the box idea.
And in other words, the brain is a fullyencapsulated system, so you can't outthink
think your own brain.
What you can do is you could take a conceptfrom physics and bring it into investing, or
you take a concept from even poetry and bringit to marketing.
(34:24):
So you can actually bring cross functionalknowledge or information from what somebody
else has taught you, but you can't trulyoutthink your own brain.
So true first principles thinking comes frombeing able to apply information from different
domains.
I really like that.
(34:45):
I'm a disciple.
I I like the Weisberg principle.
We'll get right back to interview.
But first, we're looking for the next greatguest.
If you or someone you know is a capitalallocator and would make for a great guest,
please reach out to me directly atdavid@WeisbergCapital.com.
What would you like our audience to know aboutyou, about FSERS, or anything else you'd like
to share?
(35:05):
I always say that everyone's opinion, whetherthey realize it or not, falls on a spectrum of
weak to strong.
Weak is when you don't know much.
Strong is when you know a lot.
Right?
So if I'm talking about venture capital, I feellike if I have an opinion, it's a strong
opinion.
But I don't think people often have anappreciation for where they're on the spectrum
(35:26):
when they're contributing in a board capacityor in that kind of a leadership capacity.
I think the goal is to be warm porch.
I think the goal is to be as knowledgeable asyou possibly can be about the endeavor, whether
it's a nonprofit, social impact, or corporateboard or a pension board, but really trust the
(35:49):
CEO or CIO or the senior leadership and be, youknow, a sounding board for them, you know, help
them identify their top three, top five mostvexing problems, be a part of the problem
solving, be a resource wherever they need it,but be that warm porridge, right?
I mean, that's the goal to strive for.
And so if I wanted to leave the audience withanything, it's maybe to think about that a
(36:12):
little bit more and apply it in their ownprofessional lives.
I've also been on the receiving end ofdifficult boards.
I mean, it's a vital role done right.
Reminds me of Ray Dalio's principle atBridgewater is actually one of their most
important principles, which was thebelievability weighted index, and they had the
(36:34):
same principle, which is anybody could opine ona certain topic, but their believability was
proportional to their experience or knowledgein the space.
Obviously, they became the biggest hedge fundon the planet, so there's something to that
principle that that works.
Even better if we all have self awareness forour believability factor.
(36:56):
Well, Anurag, this has been a pleasure.
Thanks for jumping on and look forward tositting down live soon.
Yeah, absolutely.
Thanks so much, and I will be in New York soon,so hopefully we can have that coffee or beer.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episode's analytics.
(37:19):
Thank you for
your support.
So you have a bit of a contrarian belief inthat you believe that a person with 120 IQ with
a great network will beat a person with 160 IQwith no network.
Why is that?
That's a nice opening question.
And you remembered a couple of theconversations we had previously.
I didn't necessarily frame it that way thoughI'm happy to go there.
(00:20):
I think what I've said, I've got two boys whoare, I guess, young adults, one at the end of
his college tenure, the other just recentlygraduated.
And when they were younger, I used to joke, I'mlike, Look, I have no idea what I'm going to
get with my kids.
I hope their IQs are somewhere between aboveaverage and below genius because 90% of the
(00:40):
world's jobs can be done by people in thatrange.
Then it really matters if you have all theseother qualities outside of just raw
intelligence.
If we're going to use 120 as a proxy for justabove average and use 160 as a proxy for
genius, I suppose in this framework.
Look, I would love to have been a genius, whowouldn't?
(01:03):
But there is a bell curve distribution ofintelligence and often a lot of qualities that
are associated with it.
And I've had the good fortune of being around alot of exceptionally bright people who I'm glad
are solving really hard math problems, reallyhard physics problems, really hard biology
problems.
But I've noticed in my life, a career that nowspans twenty five years as a professional, that
(01:30):
the people who are resourceful tend tooutproduce the people who just have extreme raw
intelligence.
They're not mutually exclusive by the way.
I've just found it to exist more in spades withthe people who are smart.
I mean, they are above the average, but itforces them to be more resourceful or to have
(01:54):
EQ or to bring some other qualities to bear.
And then ultimately the reason why I believethat is, I've been a business professional.
I haven't been an academic.
I haven't been a research scientist.
And in business, I've always said the joy thatI get out of it is going home at night and
saying I did something with the team of peopleI couldn't have done myself.
(02:15):
And I think embodying that, you specificallyreferred to network.
I think that's the ability to be a part of ateam and leverage a team.
And I don't have any of the case studies handy,but I'm sure Harvard Business School does of
just the profound impact that companies withreally strong team cultures have been able to
engender.
(02:37):
It's interesting because a lot of people buildan ego around, I did this myself, I did X, Y,
Z.
You you gain more joy from doing it within ateam.
Unpack that for you.
What what is it about doing things with a teamthat makes it more enjoyable?
Haven't done anything that could be ascribed tome as success in air quotes has been done in a
(02:58):
team context or with a profound amount of luck.
Right?
I mean, starts with birth.
Don't think that Warren Buffett's Lucky SpermClub only applies to people who inherited a lot
of money.
I was fortunate to inherit a lot of otherthings, which gave me an unfair advantage in
life.
And so I think it starts from there.
(03:20):
I love team sports.
I'm a sports fan.
When you see that come to fruition, I don'tknow, it's a high.
I mean, you get tingles up and down your spine,the high fives on a Friday when you've closed a
deal.
In my background, I've been an operator, I'vebeen an investor and now I'm this accidental
allocator as well.
And I can't think of any milestone achievementthat I've had in any of those capacities where
(03:44):
it wasn't a full out team effort.
And, you build relationships, you sear yourrelationships in the cauldron of the ups and
downs.
And ultimately, life is also about therelationships you build.
So look, again, I have all the respect in theworld for the folks who their job is to go into
(04:06):
an office and then like just think really hard.
And these are the people who win Nobel Prizes,the people who often create patents, although
that can also be a team exercise that are worldchanging.
So I don't ever want to minimize that.
But you also have to understand, I live andwork in Silicon Valley and if I had a nickel
(04:29):
for every startup that pitched me that said,we've got one of the top five smartest CTOs in
Silicon Valley, the eye roll begins immediatelywith me because that's just such a minimal
ingredient in the overall success of a startup.
What does it mean to have high EQ in finance?
I don't think that, I think the high EQ isn'tnecessarily specific finance.
(04:53):
I can apply it to finance.
I think it's really important in any businessendeavor, one where you're making contact with
a customer or a client or a patient in the caseof doctors, right?
So I'll give you an example.
I was an attorney for all of eleven months.
I ran screaming from the profession, theproverbial round peg in a square hole.
(05:17):
My wife was an attorney for a lot longer thanme, worked at a big firm up here in Silicon
Valley and I have plenty of friends who areattorneys.
As I was leaving this large law firm, I spenttime with the managing partner for the Southern
California offices.
He was trying to convince me to stay, but oneof the things that ended up popping up as an
(05:37):
anecdote that he shared about having providedlike that He was a litigator, I was not, but he
provided the best legal defense for aparticular large client that we had out of the
Midwest that built airplanes.
He said, We lost.
It was a tough case, but I just did amazinglegal work.
(06:00):
However, I didn't handhold the client wellenough.
And so when we lost, they were really angrywith me and they held me personally accountable
for things that I think the cards were stackedagainst us from a fact pattern perspective.
And he said in another case, you know, he hadseven or eight litigation matters going on at
(06:21):
the same time, probably wasn't able to, if hewas being honest with himself, give a 100% to
each and every one of the cases.
And there was one in particular that he lost,but he'd done a really good job with the client
management.
And when it was all over, the clients wereappreciative.
They said, Tough outcome, but we know you triedyour best.
(06:43):
You are a lawyer.
We're gonna hire you again and again and again.
He's really trying to underscore the importanceof emotional intelligence, although we didn't
use that term so frequently back then.
And it really comes down to just relationshipbuilding and understanding that if you take the
time to bring people along with what you'redoing, it creates trust, which was ultimately
(07:08):
what Steve was talking about.
And it builds long term relationships wherepeople are going to want to keep coming back
and working with you.
And there's certainly elements of that infinance or investment banking because it's a
client driven business.
I live in the land of people exalting low EQ.
And I don't know, maybe because I live aroundand work around people like that so often, I'm
(07:32):
just a little bit of contrarian.
I kind of try and see where the pendulum isgoing and then it's my nature to be a little
contrarian to make sure we pull people back tosome sense of equipoise.
I never thought about it that way.
There is a huge bias towards IQ and almostirreverence towards EQ or almost like it's a
secondary skill or a lower class skill to begood with people and not not be good with maybe
(07:57):
a spreadsheet or numbers.
I agree with what you said.
I have the same observation that in community,I traffic professionally.
It's almost considered a lower tier skill.
And I think what I'm trying to establish is Idon't think it's a lower tier skill at all.
In that vein, I know you have an unbelievablenetwork, which is how I got in contact with
(08:22):
you, And you know quite a few Goldman partners.
What have Goldman partners told you about IQversus EQ when it came down to who became a
partner?
What I have been told is the folks who arebetter at the FaceTime game definitely did
better.
So there was a premium on, you know, if I couldbe in the office a hundred hours a week, but
(08:44):
someone else could be in there one hundred andten.
I knew one guy when emails were becomingprevalent, He would specifically, you know,
write a bunch of emails, you know, seven atnight, and then he would auto send them or
schedule them to be sent at like one or two orthree in the morning to make it seem like he
(09:04):
had been working all night.
So I think the grind, I think the ability todifferentiate yourself with your stamina.
And then I do think the client facing stuff.
I think when partners see in young associatesthe ability to cultivate clients and to manage
client relationships.
(09:25):
I think there's a huge premium on that.
I do know that there's a mythologizing like,oh, so and so is such a genius and blah blah
blah.
And the overuse of the word the genius word,which is not just specific to banking.
I mean, I think that word is generallyoverused.
There's a great podcast.
Am I allowed to talk about other podcasts onyour podcast?
Absolutely.
Absolutely.
And Barry Barry Weiss has a woman who's justwritten a book about, I think I don't know what
(09:48):
the title is, but it's essentially unpackinggenius, Part the part that are that's myth and
the part that is legit.
When it comes to banking, just like law, a lotof these professions, you know, the people who
are awarded are the ones who just want want itmore.
And this might come back full circle to ourconversation about the people who don't have
(10:09):
the luxury of pedigree where doors will just beopen for them a little bit more easily.
They value the opportunity more.
The bottom line to everything we've beendiscussing up to this point is I have just seen
people excel with qualities.
And again, you have to have some level ofintelligence, but let's just call it baseline.
(10:32):
And, you know, your audience can disagree withme as to what that baseline could be.
I'm just strongly in the camp that you don'thave to be wicked smart in the CPU between your
ears.
You have to be smart enough for, again, 98% ofthe world's jobs.
And then the other things matter more.
I grew up around people who were brilliant.
(10:55):
And so I thought that when you graduatedcollege and you got a job, you succeeded by
doing something that was pure intellect or apure academic skill better than the person next
to you.
And I didn't really value networking.
If anything, the opposite was modeled in myfamily, not with disdain or not intentionally.
(11:18):
I had a friend in high school, he used toreally annoy me.
He used to say, You know, it's who you know,not what you know.
And I used to think to myself candidly, Well,you have to say that.
You're smart, but you're not that smart.
And it turns out he was right and I was wrong.
It is who you know, not what you know.
And not exclusively.
I don't wanna turn that into some kind of ashibboleth.
(11:40):
So let's talk about your career as an assetallocator.
You've been ten years trustee at the San JoseFederated City Employment Retirement System.
Tell me about how the pension has evolvedduring that decade.
Oh, great question.
So yeah, I'm nine years, so almost ten.
(12:01):
A year into it, I was asked by the chairman ofthe board to chair the investment committee.
When I took over the IC, we were the secondworst performing pension plan in the country.
And three years later, we put up an annualnumber that was the second best in the country.
So within those three years, it was a prettybig turnaround.
But we stayed top decile for the entire timeperiod, which has been really rewarding and
(12:24):
gratifying.
If we talk about the San Jose pension system,we're gonna come back to the concept of team a
lot.
It's been a really strong team.
I've had some strong committee members over theyears, and then we were really fortunate to
hire this world class CIO who's done aremarkable remarkable job.
So you've gone from one of the worst performingto a perennial top decile, top 10% performing
(12:47):
pension funds.
How did you accomplish this dramaticturnaround?
Someone asked me this last week and I said, Oh,if I'm interviewing for a job, it's because,
you know, I'm so brilliant and the my fellowtrustees are brilliant and our c I actually do
think our CIO is brilliant.
He's got some really smart people on his staff,but maybe we can tie this to the first part of
the conversation.
(13:07):
It's a lot of blocking and tackling.
We did several things.
And the first thing we did was we cheated.
And I say that tongue in cheek.
We hired a consulting firm out of Canada tohelp us understand the best practices in the
Canadian pension system.
I consider the Canadians to be the goldstandard.
Now there's some things that Canadians dostructurally that we can't do, unfortunately,
(13:31):
at San Jose, or I might even say across Americawithin the pension systems.
A strong cultural difference and attitudetoward the way you remunerate CIOs and
investment staffs and even trustees.
And obviously we know when you're willing topay more, you're gonna get higher quality
talent San Jose could have had tons ofcandidates more qualified than me apply, but
(13:58):
it's essentially a volunteer role.
But there were a bunch of governance thingsthat we reviewed and adopted.
So without getting into gritty details, I wouldsay the key things that we focused on during
that turnaround period was our governancemodel, our approach to the investment policy
statement, the IPS.
(14:18):
We delegated manager selection to the CIO andstaff and took the trustees out of that
process.
One of the most, if not the most thoughtfulthing we did was a really exhaustive risk
analysis on the amount of volatility ourportfolio could bear.
We have capital inflows, but we also haveoutflows.
We have to pay pensioners their monthly checks.
(14:40):
And there would be nothing worse than takingdisproportionate risk in a way where in some
kind of a black swan event, we were unable tomake those payments that we had to go to our
plant sponsor, the city, and seek some kind ofhelp or assistance, which obviously is a
politically challenging thing to ask for.
So, we hired a risk consulting firm and theywere fantastic.
(15:03):
And we spent several months modeling.
We took all the worst drawdowns that have takenplace in The US capital markets back to the
great depression.
Then we did a bunch of stochastic modelingtrying to figure out what The next black swan
is not gonna look like the prior black swansand stochastic models don't predict exactly
what they look like, but this is science andart combined.
(15:25):
One of the things I did do is I did ask theplan sponsor, which is the city at joint
sessions and also when we at some of their openmeetings, I'd say, give us a sense of our
backstop.
The more backstop you're willing to give us,the more risk we can take.
Now we're an underfunded pension plan.
We had a big divot toward our unfundedliabilities, which we filled that divot quite a
(15:50):
bit and I'm proud of that, but we still have aways to go.
But the way to really decrease that gap throughinvestment returns is to take more risk.
But we know risk is cruel.
It can work on the upside, but it also works onthe downside.
It's not just a one way proposition.
It's hard to get politicians to commit to,yeah, we could raise taxes or we could float a
(16:10):
pension obligation bond, or we could go backand have tough negotiations with the unions.
So we kind of took the silence as our right togo and do this analysis on our own.
And what we learned after doing the work wasthat we could add 50% volatility to the
portfolio without injuring our ability to makethose important monthly payments.
(16:32):
And so we began a process of re risking theportfolio.
I have heard, and this is a podcast, reallywish I knew this to be factually correct.
We have our sister plan up in San Francisco andSan Jose.
My understanding is prior to the greatfinancial crisis, the two plans were roughly
the same size.
Coming out of the financial crisis to today,have two pension systems in San Jose, the
(16:56):
police and fire and the federated, and we shareone CIO and one investment staff.
So collectively, I aggregate the AUM, we'reabout, San Francisco's about three times as
large as we are today.
Because coming out of the great financialcrisis, they were in a more risk on.
I'm not saying they were cowboys, but they weremore risk on and we were risk off.
(17:17):
Our prior trustees and CIOs had gone into adefensive posture.
And it's a tricky thing to do to re risk aportfolio because, I mean, for the last ten
years, multiples have just seemed really high.
PEs have just seemed like, you always seem likeyou're buying into an overbought market, but we
began that process of buying in.
(17:37):
And then we got a little bit lucky too with ourtiming.
I don't ever wanna underestimate the importanceof luck.
When we decided to re risk was late twentynineteen, early twenty twenty.
And typically strategic asset allocations getset by April or May.
If there's a lot of conversation at boardmeetings, it could linger into June.
(18:00):
But what happened in 2020 at the beginning, Q1,COVID?
And we had the steepest decline in the historyof US capital markets.
I mean, three weeks we had massive drawdown.
So our CIO called an emergency meeting andsaid, look, the investment committee was gonna
recommend this new asset allocation where we rerisk and go heavier into growth and risk
(18:22):
assets, but I wanna do it Now we have a thirty,forty, fifty year time horizon as a pension
plan.
We are not trying to get the bottom.
More of the bottom could fall out of thismarket, but there's sales right now at
Bloomingdale's and I wanna go shopping, heeffectively said.
And what I love about him doing that inparticular is, you know, his incentive
(18:44):
structure, he's not comped on on performance.
He's he's paid a straight salary, and a lot ofCIOs end up being a little bit more
bureaucratic bureaucratic and playing it safe.
And he had conviction.
He acted like a fiduciary.
I supported him.
I mean, we had conversations before theemergency meeting and our timing was
(19:04):
impeccable.
I mean, we rode a massive upside by the end ofthat fiscal year, and that allocation model,
which we've tweaked a little bit, has continuedto serve us well all the way to now.
You studied the Canadian pension plan system,and, like you mentioned, might not be
politically feasible to pay the same amountthat Ontario Teachers pays at San Jose FSERS,
(19:25):
but you double clicked on that governance andyou took governance away from the investment
committee in terms of management selection tothe CIO.
What does that mean?
Does that mean that the CIO presents assetallocation to the investment committee or what
does the investment committee do exactly?
Good question.
And the investment committee is an interlocutorbetween the board and the CIO at some level.
(19:52):
I think that's a good way to frame it.
The board ultimately votes on all of thesematters.
So the committee, we have delegated managerselection, but the things that are the province
of trustees are covered by all the trustees.
The committee is where we spend more timegetting into the details.
And then, you know, in concert with the CIOpresenting decisions, decision points to the
(20:17):
board.
I I I think this is right.
There can't be more than 20 municipal plansthat have delegated manager selection to the
the CIO and staff.
So he and his staff get together.
They have their own processes.
They do committee meeting of their owninternally.
I think all of the investment officers vote,and they try to make team oriented decisions.
(20:40):
The strategic asset allocation, that is thepurview of the board.
That's like one of the key fiduciary dutiesthat we have.
So we have consultants, we've got this greatCIO and investment staff.
They will start to gather capital marketsassumptions at the end of the year, into a new
year, and then present that to us relativelyearly in the year.
(21:03):
And we will use that information to makedeterminations on whether or not we wanna stay
the course or change our asset allocation.
So previously all that manager selection stuffwent through the committee and then ultimately
also went through the board.
It was just cumbersome.
There are a couple of problems with it.
(21:26):
It's not a nimble process, right?
And so you risk missing out on opportunitieswhen you're that slow.
And then the other thing is, just to be blunt,not a lot of trustees are qualified investments
and it can lead to a high degree ofvariability.
(21:46):
And so, you know, there could be an instance inwhich it's not appropriate for manager or
sorry, to delegate manager selection, but wethought it was in the best interest of the San
Jose plan and it's worked out really well.
And you were at FSERS before this change ingovernance model.
Did you find that there was like this reversionto least common denominator when it came to
(22:10):
manager selection, meaning you didn'tnecessarily find the best manager, you found
the one that nobody had an issue with?
Fortunately, that was not an issue because ourstaff is great at sourcing and doing their due
diligence.
Quite frankly, a lot of managers are willing towait.
They're used to the long diligence cycle andthen, Hey, we just finished our diligence and
(22:34):
we really like this and going to go promotethis to our board, but our next board meeting
isn't for ninety days, right?
So we meet monthly, but there's some systemsthat meet quarterly, right?
So people sort of got accustomed to that.
I think what I would highlight or double clickon is that, you know, over five years, ten
(22:56):
years, there may be some managers who closefaster than your process, who are really high
quality managers and you just miss out on them.
And, you know, incrementally that matters overtime in a portfolio because we expect our staff
to pick the best managers in each of the subasset classes that we have allocated.
(23:17):
Then the second thing is usually there arestronger voices on a board or an investment
committee, people who have real expertise in aparticular asset class that's being reviewed.
And there's a fair amount of deference that'sgiven to the CIO and his staff because they're
the professionals.
So these these trustee meetings weren'tnecessarily always that controversial.
(23:43):
They just weren't the best use of time.
Today, your full time job, you're CIO at afamily office.
You've been doing that nearly four years.
What lessons did you take from San Jose FSERSto that single family office, and what
corollaries do you see between those twodifferent types of asset allocators?
I really like that question.
(24:03):
I've thought a lot about that.
So, yeah, to to begin with, I brought a lot ofthe principles over.
This was also accidental.
I was on the advisory board of a company in the2000s and I stayed close to the founders.
They found out I had left my most recentventure firm.
I left in early twenty twenty two.
So one of the two co founders of this companysaid, Hey, you know, you can come use my WeWork
(24:26):
while you figure out your next thing.
By the way, we're selling our business.
I said, Wow, that's exciting.
And now they had William Blair, so they had atop notch bank doing the transaction.
But my friend just said, you know, hang around,I'm an operator at heart.
I don't understand all the deal terms and soit'd be great to have a second set of eyes and
you can work on whatever you wanna work on.
(24:48):
When it became clear that he was gonna sell thebusiness by the end of the year for a healthy
sum, I just kind of asked him what he was gonnado with his capital, his newfound wealth.
And he said that, you know, he had a plan to gostart some new companies.
He's an inveterate entrepreneur.
He's a builder.
He's an operator.
It's his joy.
(25:08):
It's his bliss.
And the rest he was gonna sort of give to awealth manager.
And I kind of my eyebrow raised on the wealthmanager piece.
I gave him all the pitfalls and just becareful.
He said, Well, what would you do?
And we were on a whiteboard.
We work in San Mateo and I just kind of startedsketching.
Whether you have $500,000 in the bank or youhave 50,000,000,000 or a 100,000,000,000 as an
(25:29):
institution or a large family office orsovereign, whatever, there's always two basic
questions, at least in my opinion, thateveryone needs to understand.
What is your time horizon?
I mean, if you wanna do something with themoney in five years, that's very different than
if you have a fifth year horizon.
And what's your risk profile?
And I've just talked about risk ad nauseamalready on this podcast.
(25:50):
Now, if you have $500,000 you're probably goingto Schwab money manager and they're gonna do a
bunch of check the box exercises.
When you're San Jose, you spend several monthsdoing a really sophisticated risk analysis.
But you have to have a sense of that.
And once you have those two things, I reallyfeel like you can or I can sketch out an asset
(26:13):
allocation for anybody.
Now for the person with $500,000 if youremember Crayola crayons, you've got like a box
of seven crayons and just one shade of blue,one shade of red, one shade of orange, I.
E.
ETFs is probably what I'm mostly gonna focus onfor you.
If you have a $100,000,000,000, you've got the120 Was it 128 crayons?
(26:37):
And you've got like seven shades of every colorand I'm helping you buy a company instead of
investing in a private equity fund.
Like, we can cut out the two and twenty at thatpoint.
There's a saying in family offices that onceyou've met a family office, you've met one
family office.
I think that's largely true.
Double click on tax harvesting.
I've talked to the CIO of AQR, the CIO ofParametric.
(26:58):
I've talked to Quantino.
Give me a lay of the land and who are yourfavorite?
Maybe you could define a little bit what taxloss harvesting is in its current version and,
you know, who are the service providers thatyou like?
The way, we're talking to some of the folks youjust mentioned because we do wanna look in tax
optimization, which I put as a broader bucketharvesting is something you can do within tax
(27:24):
optimization.
It's the low hanging fruit.
And right now we've been focused on the lowhanging fruit.
And tax loss harvesting is essentially, youknow, figuring out what your losses are gonna
be as you're rounding into the end of a taxyear, selling to capture those losses.
But because you don't wanna upset the assetallocations, you find a proxy in the market
(27:46):
that you invest in until you avoid the washsale rules and stuff like that.
And you can go back into underlying asset orsecurity that you sold.
We do that pretty extensively.
And since we're double clicking on it, whatmodel delivery essentially allows you to do is
there are many managers out there in publicassets who will sell you their model.
(28:10):
So instead of you investing with them in apooled fund structure, you go to the manager
and say, just sell me your model.
The TAMP we work with has a bunch of executiontraders.
Those traders will replicate.
So let's say I've got a mid cap strategy withmanager X.
They sell us the model.
We buy the exact same stock.
(28:30):
We sell it when they sell it.
I mean, they're the ones with the intellectualproperty.
And people have asked me, Well, why would amanager do that?
Because they don't have to hire any compliancepeople against it.
They don't have to do any marketing, right?
Think about it as a software business.
If I can get you to resell me, I'm gonna letyou keep some of the margin, right?
And you might say, well, why?
(28:51):
Now I have less revenue coming in, but my COGSgoes down dramatically.
So my net margin is higher.
So when you do model delivery, whatever we arewilling to pay the manager, and it's far less
than their management fee.
The temp we work with has specialized in this.
So they have 56, I don't even know how manyrelationships they have.
They have this great menu of managers who havedifferent strategies and different approaches.
(29:16):
So we selected the ones that worked for ourasset allocation.
And then because we own all the shares, all ofthe equities directly, so we don't have to deal
with taxation within the fund structure, We nowown the underlying shares so we can tax Lost
Harvest.
So we get the boast of bet the boast best ofboth worlds.
(29:39):
We have the underlying shares, but we havethese great managers who are the ones who are
actually directing the way that the theportfolio the complexion of the portfolio.
That's the level of sophistication we're atright now, but we are starting to talk to the
community of folks you just mentioned.
Is there an adverse selection that comes tothis model delivery and that the best models
(30:01):
aren't gonna be shared or are they somehowobfuscated?
That was a concern I had early on that it mightbe adverse selection, but the founder of the
firm who's actually on sabbatical now, youknow, he did Yeoman's work.
He had been an asset manager himself.
(30:21):
He had been doing model delivery at his fund.
So, you know what?
I don't know how to answer that because I thinkit's a valid question, but I mean, all I can
say is I'm really about the managers we'rewith.
And I mean, we see their track record.
I mean, and unlike, you know, in privateassets, you're mark to market every day.
(30:42):
One of the most unique combination of skills,you're an investor, allocator, as well as
operator, those are three rare cases to rareskills to have in one person.
How has having each of those skills made theother skills better?
I'm a big believer in synthesis.
(31:03):
And to be able to synthesize information, youhave to have different experiences by
definition.
Just within the allocator sleeve itself, It'seven been interesting to do you were just
asking me about family office versus pensionfund.
I really would love to create a platform thatcombine the best of of both.
(31:25):
I have found in my travels, and I'm newer tothe family office world, but I spend a bunch of
times with other families collaborating andunderstanding how they're thinking about their
investment portfolio and their programs.
There are some poorly run pensions, but I findthe best run pensions, and I enthusiastically
and full braggadocio put San Jose in thatbucket.
(31:46):
Have great process, great governance.
You you heard the approach that we took to ourIPS, our governance model, risk management, and
ultimately asset allocation.
I find that families tend to be a little bitmore disorganized when it comes to that stuff.
They don't even sometimes don't even ask thebasic questions of time horizon and risk
because those are involved intentionalquestions.
(32:09):
But what I love about family offices, many ofthe ones that I've worked with, is they can be
nimble and they can be more creative in the waythat they build their programs.
So if I could combine the creativity andnimbleness of a family office with some of the
governance structure and professionalism, Imean, more family offices should probably think
(32:29):
about having some kind of a board of trustees.
You know, that starts to get little scary forthem because it feels like authority is being
taken away from them.
But I think ultimately, you wanna have a familyoffice that's thriving and has some maybe
philanthropic goals or goals for futuregenerations, and you're looking out thirty,
forty, fifty years, there's a lot you can learnfrom the institutional model.
(32:51):
And then across all of them, I mean, when itcomes to evaluating managers, I've swam with
the sharks.
I guess I've been one of the sharks.
So it makes it a lot easier when you're an LPto how do I extend or end that metaphor, I to
prevent being chum in the water.
But I'll pull back up to 50,000 feet.
(33:12):
I I just think, you know, the more thingsyou're interested in, I mean, really widely.
I mean, I I I think it's great that my fatherwas into talking to us about poetry and nuclear
physics.
And the other thing is synthesizing data,right, or synthesizing information, you know,
going across disciplines to look and search foranswers.
Being a polymath myself, the two benefits I seefrom kind of cross functional experience, one
(33:38):
is skill development.
You have a specific skill that when layeredinto an entire new industry is extremely
lucrative.
Andreessen Horowitz has now done that withmedia, whereas if they just competed on media
or just venture capital, they wouldn't be aseffective if they did both as one.
The second thing is first principles thinking.
(33:59):
This is a bit of contrarian view, but firstprinciples thinking doesn't come from actually
having out of the box idea.
And in other words, the brain is a fullyencapsulated system, so you can't outthink
think your own brain.
What you can do is you could take a conceptfrom physics and bring it into investing, or
you take a concept from even poetry and bringit to marketing.
(34:24):
So you can actually bring cross functionalknowledge or information from what somebody
else has taught you, but you can't trulyoutthink your own brain.
So true first principles thinking comes frombeing able to apply information from different
domains.
I really like that.
(34:45):
I'm a disciple.
I I like the Weisberg principle.
We'll get right back to interview.
But first, we're looking for the next greatguest.
If you or someone you know is a capitalallocator and would make for a great guest,
please reach out to me directly atdavid@WeisbergCapital.com.
What would you like our audience to know aboutyou, about FSERS, or anything else you'd like
to share?
(35:05):
I always say that everyone's opinion, whetherthey realize it or not, falls on a spectrum of
weak to strong.
Weak is when you don't know much.
Strong is when you know a lot.
Right?
So if I'm talking about venture capital, I feellike if I have an opinion, it's a strong
opinion.
But I don't think people often have anappreciation for where they're on the spectrum
(35:26):
when they're contributing in a board capacityor in that kind of a leadership capacity.
I think the goal is to be warm porch.
I think the goal is to be as knowledgeable asyou possibly can be about the endeavor, whether
it's a nonprofit, social impact, or corporateboard or a pension board, but really trust the
(35:49):
CEO or CIO or the senior leadership and be, youknow, a sounding board for them, you know, help
them identify their top three, top five mostvexing problems, be a part of the problem
solving, be a resource wherever they need it,but be that warm porridge, right?
I mean, that's the goal to strive for.
And so if I wanted to leave the audience withanything, it's maybe to think about that a
(36:12):
little bit more and apply it in their ownprofessional lives.
I've also been on the receiving end ofdifficult boards.
I mean, it's a vital role done right.
Reminds me of Ray Dalio's principle atBridgewater is actually one of their most
important principles, which was thebelievability weighted index, and they had the
(36:34):
same principle, which is anybody could opine ona certain topic, but their believability was
proportional to their experience or knowledgein the space.
Obviously, they became the biggest hedge fundon the planet, so there's something to that
principle that that works.
Even better if we all have self awareness forour believability factor.
(36:56):
Well, Anurag, this has been a pleasure.
Thanks for jumping on and look forward tositting down live soon.
Yeah, absolutely.
Thanks so much, and I will be in New York soon,so hopefully we can have that coffee or beer.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episode's analytics.
(37:19):
Thank you for
your support.
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