#98 Princeton’s Endowment Manager Andy Golden on Investing Today

What is discussed, and when

1. 0:00 – 5:00: Andy Golden, Princeton University Investment Company, Three Takeaways
2. 20:00 – 25:00: Three Takeaways
3. 25:00 – 30:00: Three Takeaways

Notable quotes from "#98 Princeton’s Endowment Manager Andy Golden on Investing Today"

• Welcome to the three takeaways podcast which features short memorable conversations with the world's best thinkers Business Leaders writers politicians scientists and other.

  about Three Takeaways · at 0:01

Who and what is mentioned in this episode?

People

• Lynn Tomman — Person · 2 mentions
• Andy Golden — Person · 1 mention · first at 0:29
  Tomman hi everyone it's Lyn toen welcome to another episode today I'm excited to be with Andy golden president of Princeton University investment company known as prco which…
• Paul Volcker — Person · 1 mention

Companies & orgs

• Three Takeaways — Company · 4 mentions · first at 0:01
• Princeton University Investment Company — Company · 1 mention · first at 0:31
  To another episode today I'm excited to be with Andy golden president of Princeton University investment company known as prco which manages Princeton's endowment prco is one…
• Berkshire Hathaway — Company · 1 mention

Concepts & topics

• Diversity, Equity, and Inclusion — Concept · 3 mentions

Full transcript with timestamps

0:01 welcome to the three takeaways podcast which features short memorable conversations with the world's best thinkers Business Leaders writers politicians scientists and other newsmakers each episode ends with the three key takeaways that person has learned over their lives and their careers and now your host and board member of schools at Harvard Princeton and Columbia Lyn tomman hi everyone it's Lyn toen welcome to another episode today I'm excited to be with Andy golden president of Princeton University investment company known as prco which manages Princeton's endowment prco is one of the highest performing endowments in the world last year it earned a return of nearly 50% I'm excited to learn Andy's Secret Sauce welcome Andy and thanks so much for our conversation today thank you it's a pleasure to be here I see your past guest is quite the arc and I'm sorry that your quality is about to take

1:01 a nose dive but no my best I don't think it's taking a nose dive Andy you're quite extraordinary you've been leading prco now for over 25 years you must love your job what's the best part of it well that's a great question I talk about there are four reasons why I love my job the first is that the intellectual challenge is really unmatched we're investing all over the world in all different kind asset categories our mission is forever so we have to push ourselves to think long term but we recognize the longterm comprises bunch of short terms and knowing when to pay attention to the shortterm even in the face of that long-term focus is another fascinating question it's just stimulating from a intellectual standpoint every day is different what is wonderful about exploring the huge intellectual space that we get to explore is we get to seek truth we're called an investment company but we're actually proud to be University

2:03 employees we're part of the university and so in some sense we are kind of the client and so we get to act as if it were our own money number one is the intellectual challenge but I mentioned the kind of seeking truth which flows into Point number two which is we're given all the tools that we need up and down the governance chain to really compete hard to try and be the best at what we do so there's a comp the release and then the third is pretty obvious that we're Mission driven I mean we're all here because we care about higher education with large and we care about a particular institution of higher education and so it's quite satisfying to know that our day they work ends up mattering in terms of you look at over that quarter Century the broaden access the greater diversity and inclusivity of our students the Excellence in research and I've lost track of the number of Nobel prizes that have been won during

3:03 my tenure here that's fantastic and now I will finally get to answer your question it is really cool that I get to show up at work every day in an office of 45 other people half of which are focused on the actual investment function and half in creating the conditions that allow us to do that through operations and technology and such but we're all motivated by those same things and I love my job because of the people the people at prco but also the people at the firms that we partner with where part of our secret sauce has been to really try and create deep meaningful Partnerships that are not about client vendor it's about how can we work together to make each other better and so that's the rewarding aspect perhaps above all the other ones the first three included how do you think about investing do you start with big themes or do you make a series of big bets sort of like George soros's

4:07 very famous $2 billion bet against the British pound a number of years ago how do you think about investing we start with reminding ourselves what our mission is and what our competitive positioning is what do we do better than other folks and where are we less advantaged that gets us to this model of fun to fun of creating a virtual Corporation by partnering with these external firms who specialize when you do that for a while you realize that maybe it's true in doubles for tennis certainly true in say marriage that who you partner with is the top 10 most important things and so it's bottom up looking for where there's great talent and then seeing if you aggregated a portfolio that was built entirely bottom up like that you went with some intuitions about how much to put where does that get you to a place where your risk and importantly your opportunity exposures are in a comfortable place if

5:09 you had asked me this question two decades ago I would have labored more the process of kind of thinking out a broad ass allocation plan that determined a lot of where we went looking for opportunities there's less white space today on the investment front than there was back then and therefore it's less about what new area with maybe one possible exception what new area you're going to explore and more about how do you keep your partnership roster fresh because firms and people go through their own Cycles now that being said we will give ourselves license to once in a while make a overlay bet and we've got one of those on now but the important aspect of that is it's only once in a while we only want to have a view when the situ situation is so blazingly obvious that even we can see that there's something a miss here and so the view that we have on right now the expression is that we're in an environment that is similar

6:12 to the bursting of the tech Bubble at the turn of the century more similar to that than other kinds of periods of Market turbulence that's significant because what it means is that this is likely to continue this turbulence this downward trend for not 6 months or 9 months like what it's been more recently this could be 2 and 1/2 years of Saw tooth and so what we've done is to not disturb the underlying portfolio as much because the way things are tied up we do have an overlay Market hedge on which is unusual for us George Soros did make a ton of money and that famous bed I think that if you explore the history of the Great macro investors that they tend to make a lot of money in these big fat pitch bets and then they do less well in between and so we're saying why should we compete in that less well in between period when our time is better spent in expanding our advantages in that bottom up in the

7:19 weeds partnership stuff you talked about Talent how do you evaluate talent managers and make investment decisions with great difficulty one of the reasons why this is so exciting of a job is it's hard and we don't always get it right what we're looking for starts out with the most important filter which may surprise listeners is most important filter is we're trying to understand the motivations what we say is we're looking for an alignment of appetites and I would love if that phrase got some currency I've got a trademark on it and it will be another revenue for the people talk about alignment of interests but to me interests are things that can be modified by contracts and by various systems we're looking at the core and saying what is this group trying to achieve how is it trying to achieve it so if you look at Investment Management firms all over the world you can break them out into two buckets the much

8:22 smaller bucket are people who are motivated to win you know sense by producing the best possible results to be the best performing manager within a given sector to frankly offer their sources of capital the best product out there subject to the constraint of making themselves silly rich people tend to get attracted to the investment world because they like money right to varying degrees so that's the small bucket the larger bucket are people who are thinking about how rich can I get what how do I maximize my own wealth or the wealth of the firm subject to producing good enough returns to allow that to happen and if you can assess what the real motivation is a lot of other problems down the road can't take care of them themselves although I should correct myself because appetites do evolve over time and that's if you caness right now what the appetites are then you have a leg up and continuing to

9:28 assess it down the road so I think probably the biggest surprise a lot of other things people won't be surprised by I mean one thing that goes without saying but probably should be said anyway is we've got to have a sense of ethics and that's kind of consumed in the appetite structure the toughest thing maybe to assess maybe the most important and that is what's the real culture of a firm one of the things I've learned over the years is there are a lot of things that are theoretically good or theoretically bad that become the opposite in the face of a great or a bad culture and culture trumps everything and part of when we say we're good partner is we want to be kind of flexible and not have a bunch of rules or checklist that people have to that they'll get screened by it's more we want to understand core set of principles behind those type of things and see if this collection that the firm

10:27 is offering is it coherent is it cohesive and does it conform to a reasonable set of principles as opposed to again some easily defined metric last three years performance it's a waste of time to consider that that's a very minor thing past performance does not predict the future someone's going to flip coins heads 50 times in a row how do I know if it's skill or look can you give some specific examples about what kind of advice that you give to your Partners there's micro and a macro I mean there's one that we like to talk about where we had noticed that a firm that we were day one investors in in China of all places has kind of reached the point about 10 years in where some of the founding Partners maybe aren't the right team to continue to the next phase and so we shared that hypothesis and said but this is such an important decision you shouldn't take our advice on you all should get an organizational

11:30 coach to really help you diagnosis but unfortunately there was no coach like that in China so we connected them with a coach that we've used very successfully elsewhere who's based in Boston and got the Boston Coach to help this China firm with the benefit of a local Professor kind of business professor who could act as cultural and literal translator in some cases that's can help firm starting up recruit people because we're happy to talk to Star candidates and say no we're committed to be with this firm so you may have an offer from a wellestablished firm but you also have an offer from this new firm and know that this new firm's got a lot of Runway so you're not taking the risk that you think you're taking certainly we can be helpful in introducing them to other likeminded clients because it's easier for a firm to move and build a business that exploits our time Horizon if other investors also have a similar long time

12:34 Horizon if you look around the landscape of institutional investors so many have structural impediments to having their true investment Horizon their true evaluation Horizon be anything close to what the theoretical best Horizon would be for them because if you're long-term oriented the problem is that so many mechanisms quarterly board meetings can get in the way most people think long term is 10 years we talk about the importance of Thinking Beyond the long term because okay so you have a great 10-year track record but then what and we would run the roster very differently we'd run every decision very differently if our Horizon was as short as 10 years because you think about that we've got few more than 65 relationships all over the world but every class has a top half and a bottom half theoretically it might make sense to shrink that down to 30 or so but what if that 30 that kind of concentration was

13:38 not giving you insight into a broad enough group such that if stuff happens in that life cycle right now you're left with a group of firms where they've either closed shop or things have evolved in way we need to kind of have rows of shark teeth in our manager roster in terms of generationally where firms are so that we avoid this risk of getting a very stale portfolio but again if I was just trying to make the best number for 10 years from now there are some things I wouldn't be spending time on right now because on that Horizon a higher better use of time would be the focus on a different subset and the subset that you're focusing on for that very long-term 25e Horizon is that early stage venture capital or what is it well it's early stage fir and it's across the board Venture is an interesting one because it does run on an accelerated life cycle in a lot of ways I wouldn't say it's a punan

14:41 revolution but we do have young people have an advantage sometimes from a lack of experience so they don't know what's not possible and veter capital can be should be needs to be is about finding great entrepreneurs and a disproportionate share of great entrepreneurs are young than other verticals of knowledge right or of activity and a venture firm needs to kind of refresh itself a little bit more frequently than say Berkshire hathway right was done pretty well with some steady hands for a very long period of time so it is true that inventure in early stages where we have a disproportionate number of managers that's also remember we can only deploy relatively small amounts of money so the math works that you need more of those managers in order to get results that will move the needle but we're looking for new Talent all the time across a portfolio whether that's stock picking firms that are traditional and just

15:39 investing long whether it's long and short whether it's folks focused on merger Arbitrage or distress security investing whether it's real estate across the entire portfolio the keeping the portfolio fresh is important and again speaks a little bit uh exploiting our advantage because since we've seen so many firms grow that knowledge can be most helpful to firms earlier on it sounds like your network is critical network is is everything the who is everything and this is where I should throw in the disclaimer of I have made a career out of taking credit for other people's work and that's people housed here in Princeton who work in the pranco team but it's also our manager roster without greatness there there's nothing we can do and so having the right network of people actually investing matters you earlier asked about what are we looking for we expect more than returns from our managers we expect a

16:35 lot of Intelligence on a lot of different issues so they're part of a broader intelligence Network which can be very helpful in assessing different firms different situations we're privileged to be in a place where we can aggregate a lot of that information and Analysis Andy given your very longterm Horizon what do you see ahead I've already telegraphed that I think we are just from the financial markets in what could be a big one people who live on the coast talk about hurricanes in different terms like this could be a really big hurricane because what's going on here is the possibility and if you've been around for a long time you have some humility about bility to predict anything but the possibility that we are going through some major changes in some super Cycles right and they all seem to be related for my entire career for most people's entire career we've been riding this kind of

17:33 One Direction of interest rates whether they've been going up and down in Little Bits or whatever but is from Paul vulker till recently it's just been you could bet it was more likely or not that interest rates five years from now we're going to be lower than interest rates today more often than not and that's important something like private Equity investing because that's going to inform the exit multiple and it's not that you would want to count on that happening but it's been this Tailwind that's made all of us look smarter than we are That Wall Street saying about confusing brains for a bull market so we've got that thing of interest rates which is not unrelated to not a lot of people around who've operated in anything other than very low inflation environments and that's not just investors that's company management and that's been helpful right in a lot of ways it's actually hurt some

18:26 investment strategies but still I think i' prefer to live in that environment low inflation and then we got globalization which really ramped up that's been different over the last 20 years than say the 20 before that but it really ramped up and it doesn't seem like a good bet that we're going to get more globalized in how we think about things so how do I think about that what can I control and what can I control right so what I can control is being with really smart Partners who do worry a lot about what could be different and so are not going to be overconfident in things like presumptions about exit valuations I think where this really has meet is to think about what kind of talent will do better in a different world or stay differently and maybe better is this learning thing who's going to be able to learn the most quickly in a discombobulating environment so how we invest is going back to the are we with

19:28 the right partners and if we are we have a good chance of doing really well and if we are and we don't do well I don't know what to do about so you got to focus on what you can control which is maybe that guessing and maybe tuning things but it's not trying to control the weather I don't think we have the technology for that yet how do you think about diversity equity and inclusion this is actually one of my favorite topics in part because kind of the scales fell from my eyes as to what a important opportunity this is so several times this conversation I've talked about like how we think we gain an advantage having diversity of thought applied to problems and diversity of thought is different from EEOC labels of diversity but they rhyme right and so there's been untapped or under tapped Talent pools out there was true with prco it's true with our managers and it's true in the invest business so

20:30 they've been under tapped which is well why wouldn't we want to try and tap them right because it's all about people and then as a bonus you get the synergies of having more different ways of thinking around the table so unlike ESG where I think there are times when the decision you're making is I'm going to do something even though it might hurt me economically this one is we're going to try and get better on this we've been getting somewhat better would maybe among the least bad not despite the economics but because of the economics we think we and our managers will first have an offensive advantage that they'll be able to just do better than the rest of the world and then hopefully work us to the place where it becomes like necessary defense if you don't have this then you you have a competitive disadvantage and again whether we're talking gender or race or ethnic group or sexual orientation or gender it's

21:26 like the more the merrier right and people probably listening to this but if they see a picture they can see that people who look like me meaning matina Idol handsome and meaning white men have had this kind of protectionism that has had the result of protectionism it means that they're there are people who have risen to a higher level than they would have if they had to really compete against the full tal pool and that's just not good so how do we think about it is we want to be part of the solution and we think that in majority of cases the is actually pretty easy that becomes a whole lot easier for a firm to hire someone from a underrepresented group if they already have someone from the under represented group so we have some big overarching plans and we have some ways to make that easier but a lot of it is just sitting down and engaging directly with folks what is the best investment

22:22 advice that you can offer to our listeners the best investment advice is BU low and sell high no look in all seriousness that means that you're buying when everyone else is selling and selling when everyone else is buying and so to really outperform you have to be both different from the market and right and that requires a certain kind of confidence and just today one of the interns asked when you look ater how do you differentiate between confidence and arrogance and so great question part of my investment advice would be we have systems set up here to try and mitigate that risk the structured debates that we have and the culture of being truthful and direct and challenging ideas we aspire to be an ideocracy the best ideas will rise to the top no matter where they come from and you essentially use a red team blue team approach yeah coming out of the global financial crisis when I was able to crawl out from under my

23:24 desk I start to jot down the what I thought were the worst decisions I had made as a leader of prco or that prco had made under my leadership and I began to see this theme of when you get a lot of like office politics involved I don't mean that as to who's the teacher's pet I just mean where considerations of well the advocate for this idea has we've shot down so many things we got to let this one in because otherwise they're going to be too discouraged or me saying yeah you know they don't want to do this so my colleagues don't want to do this but I know better because I'm more comfortable taking risk in part because of the seat I say that I don't have to worry about my career risk the way some of these UPC comers so that was silly when it was a hub and spokes decision process so what we've done is as you say red team blue team where we designate for these major decisions a set of bulls

24:11 and a set of bears and they kind of go through some structured arguments as to whether or not the thing before us is attractive and that's great for a couple of reasons one is it gives people license to express what they really think and two it forces people to express forcefully things that they don't think so that they develop a muscle of arguing against themselves like come into it thinking man I really want to be the bull but I got to be the bear well let me give it my best shot and then as I learn how to do that well I say well yeah boy nothing is as cleanly obvious as it feels like and so there's a kind of learning that goes along there andy before I ask for the three takeaways you'd like to leave the audience with is there anything else you'd like to mention that you have already talked about I've got a really great family and that's important well my great learnings when I turned 60 was

25:06 wow it feels like I've gotten to a comfortable place I only wish I could have been as comfortable 15 years ago so I'd like to mention to anyone who's listening to this who's 45 act like you're already 60 Andy what are the three takeaways you'd like to leave the audience with today we start to go down diversity this to me was a big aha cuz I described the network of Gap as being a problem so I actually have a solution for that right that's been working around here and that is to very explicitly in decisions about firms but certainly about recruiting is to disentangle our summary views between an evaluation and our confidence in that evaluation and this actually works even if you're not dealing with diversity but it's particularly helpful and I will admit up front that that concept of using these two Dimensions is a little bit of a heris meaning I'm kind of saying something that's not exactly true

26:08 those are two different dimensions but they're not orthogonal they're correlated and so it's a little bit harder to decouple them but pretend that you could decouple them what happens is it gives you this construct to say well I'm going to hire this person who's outside my typical network but I actually have an intuition that they're as good or better than anyone else I've ever hired but the issue is I have to admit that I'm less confident in that judgment because I don't have the multiple corroborating points from within my network and if you reflect on that that actually is a risk so that lower confidence is that you are taking on more risk and so step one is to admit that but step two is to recognize that you're getting a benefit from that so you've got higher return than you would if you stayed in your own network the higher return is that you're probably going to get great talent because your intuition

27:08 is not that poor but in addition to that you're going to get access to expand your network get access to an additional Network and you're going to be able to expand it the payback is shortterm I got the great person the long term is I've also expanded my network and so that's a key takeaway is if you're feeling a little deer in the headlights on how to EXP explore these unexplored areas there maybe some confidence that you can get by saying oh wait I need to fully account for the benefits by the way that's not saying that you're not getting the benefit of a great person that you wouldn't have otherwise have gotten which is a big deal because almost by definition top tier Talent is rare so there's that benefit as well but I'm saying you're getting like a twof for here interesting way to think about it and the other two takeaways so the other two involve really trying to think through on these Horizons things and

27:59 figuring out when you should pay attention to the short term and there the kind of takeaway is you should ask is it really different this time in terms of the magnitude of the shortterm the magnitude that should be attributed to this short-term data point what do I mean by that like at any given point in time there's something bad going on in the world and it can cause people to withdraw and become defensive in portfolio postures but the question is is already in the price and whether it's already in the price really depends upon how surprising this thing is and you can't both try and surf these cycles and keep a focus on the long term so that's that recurring theme and then this actually is the newest virus to capture my head and I had Co recently so this really is new is fascinating to reflect on the concept of when strengths get to and extreme such that they become weaknesses you think about Putin he had

29:02 the strength of being able to isolate himself and grab absolute power and that becomes a weakness because he's has no one saying you're wrong but I see it all the time among me and my colleagues that we kind of come to work we have a certain image of what we're good at and then we tend to recognize a situation of oh this speaks to my strength and my strength is distinctive so I'd better exploit it but actually that very phenomenon may cause you to misdiagnose the situation fortunately this is one of the benefits of cognitive diversity right we got some people around who are less good at that they're saying well wait a second isn't there another way to look at it like maybe the obvious answer isn't the right one so maybe we don't have to fire this person maybe we can get a coach right or something like that three takeaways I don't know those are three things that interest me at this moment Andy this has been great thank

29:57 you so much thank you if you enjoyed today's episode and would like to receive the show notes or get new Fresh weekly episodes be sure to sign up for our newsletter at 3 takeaway.com or follow us on Instagram Twitter and Facebook note that 3 takeaway.com is with the number three three is not spelled out see you soon at three takeaway.com

Questions about this episode

What is discussed in "#98 Princeton’s Endowment Manager Andy Golden on Investing Today"?

In order: 0:00 Andy Golden, Princeton University Investment Company, Three Takeaways; 20:00 Three Takeaways; 25:00 Three Takeaways.

What is mentioned in this 3 Takeaways episode?

7 people, works and ideas are mentioned, including Three Takeaways, Diversity, Equity, and Inclusion, Lynn Tomman, Andy Golden, Princeton University Investment Company, Berkshire Hathaway. Each one on this page links to its own page with every episode that mentions it.

How long is "#98 Princeton’s Endowment Manager Andy Golden on Investing Today"?

The episode runs 30 min; the transcript is about 5,164 words in 31 timestamped sections.

More from 3 Takeaways

• All analyzed episodes
• Books mentioned on 3 Takeaways
• People mentioned on 3 Takeaways
• Topics mentioned on 3 Takeaways