A Capital Allocator’s Matrix: Idea vs Manager

I recently spoke to the CIO of endowment who’s performance during his tenure has been stellar, despite him managing a relatively large amount of capital.

I was trying to understand how he thought about allocating to new managers versus old, and he gave us a really useful framework that I thought I’d share:

His analysis was as follows:

(1) He’s comfortable backing old managers with old ideas. If he feels like he’s under allocated to a specific asset class, he’ll go find an established manager in the space, with a strong track record, and subscribe to the already proven firm.

(2) He gets most excited about new ideas brought to him by managers he’s already underwritten, and whom he already trusts. In this case, if he likes the idea, he knows he’ll be backing a team that has a track record of executing.

(3) In order to see new ideas, he sometimes has to back new managers to get access to them. New managers are often most likely to come up with new ideas because they need to be creative to get more capital, and because they don’t have a lot of the friction a traditional firm might face by adding a new idea.

(4) And he doesn’t like touching “new managers, with old ideas.” His take: why back someone in a space I’m already allocated to, who’s unproven (if I can just back people already doing it, who are proven).

Nothing mind-blowing here, but I thought it was a super helpful framework and I shared it internally, so thought I’d share broadly.

[5'9", ~170 lbs, male, New York, NY]. I blog about investing. And usually about things I’ve learned the hard way. Opinions are my own, not CoVenture’s

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