How To Make 65% on $10 Billion

When partners and friends do well, it’s cause for celebration.?

WashU endowment’s recent investment performance (65% return on $10B) is incredible, but doesn’t surprise me. It felt like a foregone conclusion based on our work with them (they’re Permanent Equity's largest investor).

Here's the scoop: https://www.pionline.com/endowments-and-foundations/washington-university-records-blistering-65-fiscal-year-return

Let me give you some thoughts as someone who knows them well and went through their investment process.

In 2017, Adam Kurkiewicz reached out after reading something I had written about long-term investing. We had a nice chat and I remember his subsequent handwritten note. Embarrassingly, I didn’t think that university endowments would have any interest in investing with a group like us and I didn’t ping Adam when we decided to raise our first fund.

When we announced our first fundraise, Adam reached back out. Our CFO Tim Hanson and I grabbed lunch with him and a colleague.?

Immediately, we could tell something was different about them. They were genuinely curious, kind, and creative. They talked about high conviction, high concentration, long-term investing all over the world and of every stripe. And, they asked great questions without assumption.

Tim and I agreed that they’d be fun to work with, but realized the odds of partnership were outrageously small. They were doing deals in Africa and Asia and the Middle East. What are the odds that a ragtag bunch of SMB buyers 90 minutes down I-70 would fit?

Plus, we don’t talk like, act like, or work like traditional PE. Our structure (3 decade lock on capital, unique fee model), lack of Ivy League pedigree, and non-traditional backgrounds repelled most institutional investors who wanted to pattern match previous successes.?

Two months later we got an invitation to meet more of the team. In fact, I think their whole team showed up. It was more than slightly intimidating, but immediately WashU's CIO Scott Wilson put us at ease.?

Scott came off as unimposing and humble, genuinely interested in us as people first. But he was direct and without a hint of flattery.?

It was clear that he was highly focused on the truth — Who were we? What were we trying to achieve? How were decisions made??What circumstances created the opportunity we were pursuing? Were those circumstances durable? Was our process repeatable? How was the team constructed? How were decisions made? What happened after a mistake?

As we answered, he pushed back, but in a way that didn’t feel like an accusation. Like the initial conversations with Adam and Mike D., Scott's questions came from a place of curiosity, not judgement and without a hint of condescension.

The other thing that struck us was the lack of politics or tension. We had been in enough of these situations to know that the norm is a dominating CIO surrounded by a deferential staff. But Scott and Andrew set a tone of debate, as well as intellectual honesty and safety.

Coming out of that meeting, WashU indicated they’d like to do more work… and my goodness did they. They visited our office numerous times, talked with every team member, and scrutinized the obvious stuff, but mostly focused on process, opportunity set, motivation, and decision-making.

Unlike other LPs where it felt like they kept their decision-making as secret as the selection of the next Pope, WashU was transparent about concerns and clear on where they stood in the process. The value of that for a GP is huge, helping us plan and construct the fund.

Then we got the call that they’d like to seriously discuss investing in our next fund. WashU asked for no control, painlessly discussed fees, and were incredibly thoughtful towards helping with deal documents. It was all about trust. They even encouraged us to push the boundaries and of course be held accountable for results.

And once committed, they asked how they could help and meant it. They opened up their Rolodex and made numerous intros, helped us navigate other LP concerns, and became a reference check with prospective investors.

Then COVID hit. I expected our relationship to be tested, as all meaningful ones are, but not this quickly. I remember texting Scott concerned. The public markets were going nuts. Our portcos were struggling and we were facing tough decisions.

Within 5 mins, Scott called me. I distinctly remember his calmness, and greatly appreciated his encouragement and generosity. We leisurely talked through my concerns and he pledged to do whatever it would take to help us through any difficulty, even with our previous investments.?

It’s difficult to overstate how meaningful that conversation was. It allowed me/us to know that we were protected and exclusively focus on what mattered long-term. And while it turns out we ended up fine and most of our fears never came to pass, it showed WashU’s true colors. Since then, our admiration has only continued to grow.?

Anytime we need something, they’re immediately there to help, from advice to connections to help sourcing talent. They stay up to speed on our deal pipeline, often sending encouragement and relevant lessons learned.

How do I think one generates a 65% one-year return on almost $10B??

By assembling a smart, kind, low-ego team, focused on first principles, and unafraid to look stupid.?Let them search for people doing weird stuff and once found, diligence the heck out of the opportunity.

And once committed, be outrageously supportive, helpful, and long-term oriented. Ask for referrals. Treat those referrals well. Be highly responsive. Cultivate a meaningful relationship that transcends work.?

And when the fecal matter hits the rotary impeller, be a rock.