Transcript: Jim Dunn – Verger Capital (EP.24) · All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of the firms they

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Transcript: Jim Dunn – Verger Capital (EP.24) Published Date: September 4, 2017 Length: 1 hr 3 min Web page: capitalallocatorspodcast.com/jimdunn Jim Dunn is the CEO and CIO of Verger Capital Management, an Outsourced CIO business whose anchor client is Wake Forest University. Prior to forming Verger, he served as CIO of Wake Forest for five years. That transition from a sole client to an OCIO business is a fascinating part of our conversation. Before joining Wake, Jim traveled the world as CIO of Wilshire Associates, where among other things he experienced the best story of a manager getting their foot in the door that I’ve ever heard. He got his start in the business trading death spiral convertible bonds at a now defunct hedge fund and got introduced to manager selection at Investorforce.

Our conversation starts with Jim’s career path, and covers a full range issues in allocating capital. We discuss defining risk tolerance, a factor-based approach to asset allocation, separating talent from luck in manager selection, the politics of endowment management, challenges using internal management, and culture. If you listen carefully, you’ll hear a few one-liners. Jim is chock full of gems and life lessons.

Topics: Risk Tolerance, Factor Investing, Talent, Manager Selection, Governance, Culture

Edited by: Tim H Cole

mailto:[email protected]

http://capitalallocatorspodcast.com/2017/09/04/jimdunn/

Capital Allocators Podcast EP.40 Jim Dunn

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Ted Seides: Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocations. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting CapitalAllocatorsPodcast.com.

My guest on today's show is Jim Dunn, the CEO and chief investment officer of Verger Capital Management an outsource CIO business who's anchor client is Wake Forest University. Prior to forming Verger, he served as chief investment officer of Wake Forest for five years. That transitioned from a sole client to an OCIO business is a fascinating part of our conversation. Before joining Wake, Jim travelled the world as Chief Investment Officer of Wilshire Associates, where among other things he experienced the best story of a manager getting their foot in the door that I've ever heard. He got his start in the business trading death spiral convertible bonds at a now defunct hedge fund and got introduced to manager selection while at Investor Force. Our conversation starts with Jim's career path and covers a full range of issues in allocating capital. We discussed defining risk tolerance, factor based approach to asset allocation, separating talent from luck in manager selection, the politics of endowment management, challenges using internal management, and culture. If you listen carefully, you'll hear a few one liners. Jim is chock full of gems and life lessons. I hope you enjoy the show and if you do, please don't do anything this week. You've worked hard to help me build this podcast audience and I'm very grateful. Take your time to get back into the grind after what I hope was an enjoyable and relaxing summer. Please enjoy my conversation with Jim Dunn.

Ted: 00:02:12 Jim, great to see you, man. You're nervous apparently.

Jim: It's a privilege to be here, part of this auspicious set that I’m being part of now.

Ted: 00:02:20 I know you're from Philadelphia. We have talked about the pathetic nature of Philadelphia sports for a long time, so how does one grow up with such great sports teams and evolve to, you know, the last place Phillies.

Jim: It’s called Grit, right? I think I’m making my children; it's really unfair to them, face many years of therapy ahead of them. It's like child abuse, making them Philadelphia sports fans living in LA, living in North Carolina. But um, it's great. It's something, you know, it's that hard scrabbled nature of being a Philadelphian.

Ted: 00:03:02 Why don't we start by just kind of going through your background and how you got to the seat you're in today.


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Jim: You, I think I have a privilege of being at a university of dominance and then we had a chance to do something pretty unique with Verger of spinning it out. It wasn't our idea. It was the university’s idea and the concept really was driven by Wake Forest thinking about and having a really hard conversation with itself saying, look, we charge $65,000 to go to Wake Forest and this school is built on teachers and preachers and middle class kids from North Carolina and they can't afford to go here anymore. And the school looks a lot different and it's not different bad. It's just different than it was 25 years ago.

Ted: 00:03:45 In what way?

Jim: To kind of students that go there. It’s now, a top 25 university with big time athletics. It's not middle class kids from North Carolina. They can go to Duke. It’s got a larger endowment. They can go to Chapel Hill for 15,000. And even though they love the small classroom size and love the university, they can't afford it. So how do you get those kids to come back?

But you know, higher ed has been challenged since Socrates, right? It's not anything new, but at certain point there's elasticity that you can't keep charging $65,000. So instead of cutting, which is hard to do it in university, you've got tenure and other issues you think about what can you do to be innovative? And we were tapped as one of those ways to be innovative and the university said, look, what would it take to do this? And I gave them 10 things thinking that they would do none of those 10 things.

Ted: 00:04:30 What’s the kind of typical list of things you needed to convert?

Jim: I think one of them was thinking about an independent board. You really couldn't make this the Wake Forest investment committee because they have their own needs and issues. You have an independent board. You had to give the team equity. They had to have some motivation to stay and make this happen.

You had to be diluted as you bought in new investors on their private equity portfolio that you've built over the last 10 years. Those were some of the big items and there were some smaller issues, but I think I was the proverbial dog that caught the car. I didn’t know what to do with it now. Now that they agreed on all ten…they hit my bid and this I was out to raise capital. I had this great position, I had to travel and raise money.

Ted: 00:04:50 As you went from Wake to Verger, your outsource CIO, could you talk a little bit about what worked? What surprised you positively? What surprised you negatively?

Jim: I think it's like chewing glass Ted. It's really an entrepreneur opportunity, but within a university you still have minutes and you


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still have boards and you still have constituents that want to do it the Robert's Rule way and, and that was surprising to me, you know, I kind of want to set up and do this entrepreneurial and do it the way we going to do it and that was not the case, which is totally understandable, but it was difficult to get through that.

The other thing, I didn't really understand what sort of the, the need to go to every constituent. So every board member had to understand why we're doing this and buy into the model as well as the reason to do this. Then you go down and OK, everyone in accounting, do they understand why they're doing this? Everyone in HR, do they understand why they're doing this? You know, that piece of it was really important. And then the other piece of it, how do you name it? So Demon Deacon Management was the first name and we, I went around to all these other outsourcers, Chris Bitman at Perella and Alice Handy and Spider and asked “what'd you guys do wrong?’ What would you do differently? And one of them said; just don't name it, Wake Forest Asset Management. And I went to NC State, Libby George, who had money with UNC and she said, the only problem with UNC managing our money is every quarter I get a statement from UNC with their logo on it.

I have to hand that to my trustees at NC State, and they hate that. So then we were trying to find a name that would work within the framework of Wake Forest. And we tried to find, you know, Magnolia trees …Magnolia Capital…taken. We've got a chapel spire, Chapel Capital…..taken. We couldn't find a name that fit. So the biggest challenge was naming the baby. So we, um, have a great friend, Charlie Ruffle. Charlie and I were sitting on a bus at two in the morning after a conference. We’re going back to the hotel and you know, he's very erudite. And he said, hey, you know, have you thought about this Somerset Maugham story? And I remember Somerset Maugham from my eighth grade or ninth grade English, but I didn't think I knew the Pearl, not The Verger.

And he said, there's a story called The Verger. I said, well, let me look it up. So I read the story and basically the story is about a deacon and Anglican Church. So demon deacons we’re the deacons…it’s starting to make sense. So I read the story, it’s a very short story, but it basically talks about this guy's named Albert. Albert goes to work one day and finds out there is a new Vicar, and as he can't read he can't work there anymore. But he's wanted to be the vicar for 25 years. So he decides that he's going to not try to learn to read. He's going to go home and tell his wife for 25 years of being the vicar. Everyone loves them and he's been a deacon. Everyone loves him. He's going to be fired. So to get his strength up, to tell the wife this, he wants a cigarette, not a big smoker and wants a cigarette.

And we're in Winston Salem, North Carolina, the home of Reynolds Tobacco. So now it's really starting to click. So he gets a


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cigarette, tells his wife, but he decides that trying to find a cigarette was difficult. He's going to open tobacco shop. It's his new business, and the tobacco shop opens. It becomes wildly successful. After a couple years goes to the bank and the banker says, you’re our biggest customer. You're the richest guy in the bank, but all your money's in cash. Wouldn’t you prefer to invest it wisely? He says sure and they hand him a stack of docs and he said, I'll be back tomorrow, and the banker says, why not start now? Albert said I can't read. And the banker sort of looks at him incredulously and says, “Albert, imagine what you could do if you could read”, Albert looks and him and says, “If I could read, I'd be the deacon”.

So it has a story. Connection to tobacco, the church, investing wisely and most importantly, Ted, there's no other Verger Capital. We're the only one. So that was the hardest part of creating Verger….naming the baby and now it’s as an entrepreneur raising money. So going from Wilshire, previously I was a CEO Wilshire Funds Management, which was about $56 billion of institutional capital. But I was traveling…during my last year I was 220 days on the road. So I miss a lot of broken hearts, broken legs and first kisses and ballgames and decided that I didn't want to do that anymore. You know, in 2008… we were down 13 % in our larger portfolios and I still had Jamie Dimon call me at home wanting his Lehman Brothers & Bear Stearns, seed fund money back. I still had to go, you know, apologize in person to the Saudi family.

I had to go to file LBIE bankruptcy on the Portable Alpha Swaps in person. It wasn't a fun period, but just prior to that I had career in Philadelphia as a sort of convertible Reg D trader at a little boutique firm in Philadelphia, putting the death in Death Spirals. But it was a great place to learn the business, you know, it was a great place to took to learn this. And we started. It was really around helping biotech companies raise capital, right, go and raise 25, you don't need 300, do 25 and do it through a convertible. And then it became pets.com and other folks were doing and it just wasn't, wasn't sustainable, but it was a great place to learn the business, both how to go and see companies and also how to trade convertible bonds. So it was fun.

Ted: 00:10:17 So how did you go from issuing convertibles to a broader seat and big mandate like Wilshire?

Jim: Yeah, totally by accident. So, you know, Villanova, Philadelphia Convertibles and then we started a hedge fund. We had one great year and then one terrible year returned all the capital and my two partners close the doors and took them all again and start over again. And I said, that's not what I wanted to do…. I wanted to go to Grad school and I had one child at the time and I got an offer to go be the hedge fund research person for Investor Force. They really didn't have anybody knew anything about hedge funds. So here I am, this


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guy who started a hedge fund and closed one and new convertibles. I was a pretty unique commodity, but I was, you know, 27 years old, 26 years old. So I was tapped to sort of help Ronald as part of the Investor Force opportunity and you got exposure to a lot of different asset classes. And the cool thing about that position for me was I was on both sides. I was on the investor side trying to sell Calpers and AP3 and sovereign wealth funds Temasek this, this platform. But I was also trying to deal with Arden, K2 and Lazard trying to help them raise capital and get on the platform. So I had both the buy-side and sell-side and I was talking to both sides. So that was a unique opportunity to see who's out there, who's doing what. I had all the data at my fingertips, not only who was using it, what they were doing with it, but also the returns and the stats and so on. And so it was a pretty interesting perspective and then, you know, Investor Force was sold and I was asked to go to Wilshire and run the hedge fund business. It was nascent, they had no hedge fund business and they wanted to create one.

So Larry Avanzo brought me out and we went from a zero to a billion in one year. We had a one year isn't, this is in 2002, so we had one big client, Daiwa Sumitomo and went and raised money from institutions all over the southeast, you know, the Asia, Middle East. And I found myself and KL, Manaos , Oman and Kuwait. And it was a great, interesting thing. And then we raised a bunch of money and we did really well the first year and the CIO of Wilshire had this great opportunity to go to Blackrock and run their defined benefit program. So they did a search and didn't like any of the candidates, and they said, how about you, “you want to try this”? I said, well, let's try it. So let’s see how it goes.

And it was a great run. I got to learn a lot about managed research, asset allocation, portfolio construction, but again I was on both sides, I had the largest Calpers and clients on that side, but I also had the consultants and I had the money managers trying to get access to us. So it was really interesting to think about how that big pool of capital came together. But it was also interesting for me to think about how managers got their foot in the door. I have a great story where, as CIO, your role's pretty ceremonial, right? You're, you're basically trying to put fires out and, and you know, deal with people less about asset allocation. You've got portfolio managers do that and analysts. But everyone wanted to see you because you were the CIO. And um, I didn't really see managers.

I would see the large ones. I saw the Ray Dalio’s and the Dan Loeb's, but I didn't see most managers. And I had a woman send me an email saying I need to see you. And she was a hedge fund in the UK. And I said, look, I don't, “I don't see managers, your analyst is this person, go see them”. And she kept being very persistent. I want to see them. So one day after blowing her off, I got a box with one red


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stiletto in it, Louis Vuitton red shoe. The note says I got my foot in the door, can I come get my shoe? And I thought, that's pretty interesting. That's pretty funny. And I said, well, I let her sweat for a while. And I thought how much this shoe costs. “Let's, let's have her in”. But in Wilshire there are two floors and there's an elevator, but there’s also a staircase. So if there is a woman with one shoe make her walk the staircase, she came up limped in, got her shoe, we had a good meeting, we didn't allocate to her. It was a great, great marketing story that I tell all the time.

Ted: 00:12:28 That's fantastic. And so how long were you in the seat at Wilshire?

Jim: I was there for five years. So in 2009 I joined Wake Forest.

Ted: 00:13:10 And when you got to Wake, how did you start this process?

Jim: So there's a pool capital, about 700 million.

Ted: 00:14:00 You have a mantra for Verger, which I think was the same at Wake Forest to protect, perform, and provide. I think I got that in the right order.

Jim: There's a lot in there. And some of it you could say, boy, protect and perform in investing doesn't necessarily go together. There's a cost of one to the other.

Ted: 00:14:39 Are those three together? Are they prioritized?

Jim: They are other prioritized and they're in that order. So it's our responsibility. I think every endowment has this responsibility to protect the Corpus, to protect the endowment, you know, its $700 mio and it’s now a billion dollars and it was here in 1930. I don't want to be the guy that screws it up, you know. I think what I learned at university is that everything done at the university has done in perpetuity. That's a unique framework that you have to think about every building, every policy, every statue, you know… it matters. And someone's going to remember 50 years ago that you didn't call a time out during this game or you said this or that, and we want to make sure that everything we do is, is in that framework. So we think about those things and that long-term view is really important.

So protect the endowment is first and foremost is our number one responsibility, but you got to perform over spending and inflation. And inflation really kills an endowment because of healthcare costs. The average age of a professor is, you know, not 40, its closer to 60. So healthcare is a big deal and they and they work forever because they can. So you think about those issues, financial aid is a really important thing, but the only thing that goes up every year is tuition. So as tuition goes, so does the need for financial aid, you've got to be able to meet that need. So performing is really important. And then


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the provide part is more important… think universities after the crisis - because you had a lot of schools that basically were illiquid because they had hedge funds that locked up on them, and private equity didn't have the money to pay their distribution, so the universities were stuck and now some of them went and borrowed money and some of them didn't make the payout, cut their payout back, but Wake Forest couldn't do that, so that protect, perform provide is in that order and I think we really try to focus on that mantra across the board with all of our prospects, is that you've got to want that.

You’ve got to want to be able to invest that way. If you want to be the number one endowment in the ACC, we're not for you, but if you really want to focus on protect, perform, provide, then we have a unique opportunity.

Ted: 00:16:31 How did you start thinking about that challenge of $700,000,000? You can theory do anything with it.

Jim: Yeah, I think they were long and loud when I got there and they had a CIO who is very well known, Lou Morell, sort of a great investor on the sector long analysis, and did a lot of work on mutual funds and was basically buying and selling ETFs pretty effectively. But when he was wrong, he was really wrong when he was right, he was really right. So the challenge is, I came back and looked at the portfolio and said, where are the issues here?

Let's start with sort of governance and the big picture, what does Wake need?... and that was the starting point. So I sat down with the trustees who hired me and said, hey, what are you willing to lose? That's the first question, and that was sort of interesting. They hadn't really thought about it that way and looking at Wake Forest again, they had lost to 28 percent in 2008 before I joined and I looked at that portfolio and said, well what did that mean? Like 28 percent? That's not too bad considering all the other schools that lost 29, 30, 31, you're actually in good company. What does that mean to Wake well, that meant that 10 years of fundraising got wiped out in four months, meant that the 14 kids couldn’t come back to college. So what can you lose? What are you willing to lose? And from a standpoint of the university, you've got to think about fundraising. You've got to think about the endowment, you've got to think about how you use this for Wake Forest… 85 % payout goes to financial aid. So really can you handle the volatility that you've put in this portfolio? So that was the first question. The second thing was what are the tools and team we have? Do we have people who actually can go out and find managers that have talent? And the reality was Wake had a pretty good team and they had good relationships with people like Bridgewater and other large asset managers, Elliot, Millennium, but they didn't have the whole picture. There was no private equity, there was no real assets or very little to speak of. They had done some fund to funds.


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So the real thing was to think about from a governance perspective. Let's take a step back. What are you comfortable doing Wake Forest investment committee, and when I started they were hiring, firing managers. They were meeting with managers, and I came in and said, look, the model of you coming together four times a year as trustees, getting sandwiches, picking managers, playing golf just doesn't work , and it’s going to get more and more difficult as the market changes, so let's just take that off the table. Let’s change the governance structure and delegate that to us and it was a great exercise we went through with the board and they had some trepidation about doing that. I gave them this book. I said let me show you how we looked at managers at Wilshire. So I gave him this big Wilshire book of 400 pages that had this strategy and this is the kind of book that you're typically hit with from a consultant, and it was a manager that was on the board of Nasdaq and he was doing this and that, had 8 bio and he's never been down, they just do split strike conversions. You know where this leads. So I gave him Bernie Madoff and they all say, let's hire this guy. And he's the one that you can’t do in your 30 minutes once a quarter. The work you need to do to get the right kind of managers in the portfolio. So let's take a step back. Let's look at the portfolio. Let's make sure everyone belongs. But think about asset allocation in a different fashion as well. Is it, you know, going and looking at large cap, core, large cap value and high yield. They're all correlated. You had all that and didn't work. So let's look at the world differently.

So we're trying to get them to think about what drives returns in this portfolio for, for the last 10 years it was all beta and that's OK. It’s just like cholesterol. There's good beta and bad beta, right? In 2008 it was bad beta. 8 of the last 10 years has been good beta. So we try to think about can we make this portfolio, using Naseem Taleb’s anti-fragile portfolio where we can handle shocks and get stronger for it. But the advantage we have at Wake Forest and every endowment has is time, and think about that as the driver of what you're trying to accomplish, not what's going to do every quarter, not bet the future of Wake Forest on the S&P500.

Ted: 00:20:51 So when you started with that core conversation of how much can you lose? And you had the frame of 2008, that doesn't incorporate time, right? That's one year, 28 % drawdown. Now it turned out if you rode that forward to 2009, you didn't know what happened at the time, but you get a lot of that back. So how did you conclude that portion of that conversation, of what was Wake willing to lose and over how much time?

Jim: Well, you don’t look at 2008 in that context and the endowment is not a series of one year returns as you know well. Well you go back and look at OK, 2008 and 2000 and 98 and 94. So what did you do in


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all these periods where you had these draw-downs? If you're down 20 % every five years, here's the math because you're spending $4 for $1, you bring in, you're not Yale and not getting hundred million dollar gifts, you're getting a million dollar gets. So you're spending $50,000,000 every year and you're bringing in 14. That's a great number. But it's not enough. If you have five, 20 % declines every five years. So do the Monte Carlo simulation. You say OK, just so you know, in 2150 that year you will be zero.

That's the math, that's easy. And that's OK. That will not be on your watch… this committee will not have that problem, but somebody will. So how do you protect the purchasing power of this endowment if you keep losing 20 % every five years? And that was the key. And I think now that the running endowments very contextual, it depends on the nature of the institution. It depends on the history, it's ambitions, it's financial resources. Wake is not Yale, not Harvard, it's not Georgetown, it's not Villanova, so they have to have their own mentality, their own, their own work and I think, you know, the big driver for a lot of endowments is politics. You look at Harvard, right? Jack Meyer was one of the top endowments in the country and then all of a sudden he wasn't and he was kicked out. I think you think about the Machiavellian politics are alive and well in three places, the Military, the Clergy and in Higher Ed. And Higher Ed teaches it. So if you can get away from the politics of the endowment about what you do with it and how you use it and really think about the purchasing power going forward. That drives a lot of that conversation. So it wasn't about 2008, it was about what do you spend, what do you bring in, and then how do you, how do you move this thing forward in a level that you're comfortable with and not having to bet on the S&P and get away from what Harvard and Duke do, because you're not Harvard and Duke. So stop thinking about that.

So the one of the first things we did was we changed the compensation program, you know. The CEO prior to me was basically paid on a peer group. You had to beat seven schools and I thought, we're not Vanderbilt, we're not Duke…Duke is 50 bio with 28 people; we’re Wake 700 mio and 6.

We don't have the same fundraising, the same responsibilities, and the same payout. So let's go back and think about what, what's really the, the, the target here and pay us over three years or five years and have clawbacks and have… what can you control? Larry Devanza at Wilshire told me every day you can control two things, fees and risk. You can't control return. So every committee that comes in and says we want an eight percent return is starting with the wrong output, focus on the inputs. So we got paid on sharp ratio for five years and that got us thinking about sort of what, what the focus for us was really about what we control is risk.


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Ted: 00:24:04 So that's a very different frame for the reasons you discussed than the Yale model or the typical endowment model, how did that translate into action? So you say, we understand risk, there's a certain amount of risk tolerance that we have at Wake. What do you then do in terms of framing the structure of the investment pool?

Jim: So that's a great question. So two things we did first, the first thing we did was I asked the committee when I started, how much are you paying fees? And nobody knew. So went and looked at every manager and said here's what we pay in fees to each manager, and there was some of them are very big, but some of them are doing really, really well, but incentive fees were big. I have no problem paying incentives for doing a good job. So we looked at that and said, OK, who are we paying money to? That's the first thing. That fee part of it. The second part is where we are the returns coming from within these managers. So we sort of did what we call reverse optimization, ran all every manager through this factor analysis and said, OK, what's driving the return is it momentum, is that growth, is it value, is it spread or illiquidity, duration, and you find interesting things.

Your real estate managers… spread and duration. You wouldn't think that, that's a fixed income concept, but spread duration, cap rates and you know how long the rents are. We like student housing because you can change it every year. Do you want a long-term lease based on cap rates of four, probably not? So there was a view from us that we wanted to focus on what were the drivers of returns in the portfolio and let's try to build it from that perspective. And I think if you look at the Harvard and Yale model, they're very different, right? There's one internal, one external, that’s changing with Narv, but we use the Yale model, we were more like the Yale model from the perspective of we had in our portfolio some very good managers that gave us exposure to multiple factors and that was a great place to start. So then we reversed optimized. What do you need help build around that?

So we started with the managers first and then build that asset allocation around it and I think that was the key for us was that we had these great relationships and that's the value of a university. You can get these relationships and we were paying 75 basis points from these managers that now charged 3 and 25, but we've been there for 15 years and we've got capacity... that's built around those assets. So I think the first thing was let's try to get exposure to the factors that we want to get. So the model says think about traditional mean variance optimization, right? The problem with modern portfolio theory, it's not very modern. That's true, right? What’s the biggest innovation in asset management ETFs index, right? There hasn't been a whole lot of innovation, but you think about it, you go and say, OK, we're going to use the last 25 years of returns and correlations and


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we'll put that into a machine and we're going to pretend that the next 10 years look like in the last 10 years.

And then the second thing we're gonna do is we're gonna constrain it, because all the money ii going into private equity. So all of a sudden you've taken all the value out of the model. We took a different approach which was basically take the managers or one of the factors that drive their return and optimize the factors. Unconstrain it. So the model wants growth, go get it, but you can get growth - active, passive, private, public, non-US, US.

Ted: 00:26:28 So this, this question of optimizing factors, and weighing factors comes up, right? You have this Asness or not debate of whether you can time factors ie Smart Beta, the factors themselves are similar group of factors. How do you model what the factors are and then how do you create a framework for Wake that says these are the exposures we want to these factors.

Jim: It's blurry lines. It's not much better than what you have now. So I think you still have the proxy, the factors, right? So you can do certain things worth value. You can look at different, different proxies. But the, I think the big key is that the value of it is not constraining it and I will tell you that the last couple years for us has been a challenge because the model says it wants growth. So you look at GDP growth and say where do you want it? You're not buying in the US because there's no growth in the US. You're buying 2% growth versus investing in China, Russia, and then for us China, Russia, we can't do it because we believe in the rule of law. So we're not gonna invest in those areas in a big way. So we end up finding are we're doing more emerging markets and frontier markets and it's worked fine recently, but for the last eight years …if you weren’t in the S&P, you weren't doing well.

So I think, you know, the factor model is a blurry line. We end up finding our portfolios look a lot different, but our returns look very much the same.

Ted: 00:27:55 So can you dive in a little bit to what the model is? So is this, you have a set of factors, growth, value, momentum, quality, whatever those factors may be, and are you running those factors against historical returns to those factors, to try to try to estimate what you did based on history, what those expected returns might be going forward.

Jim: You still use multivariate regression, you just really don't constrain them. So you still take a look and say, OK, what were the returns post 2008 and going forward and you look at also the volatility of those factors as well. So you still had use of the same tools, you just don't run it against asset classes. So large cap, small cap, high yield, you run against these factors instead.


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Ted: 00:28:37 And what's the data then if it's not an asset class as they can't be S&P 500 growth.

Jim: So here's what, here's where it breaks down. As you think about, let's just use Bridgewater for example. So Bridgewater has about eight factors that drive their return and you and you know what they are, they’re country, they’re currency, they’re momentum, duration spread and they can tell you. They have the sheet and we want, when we run our returns base analysis, we get very close to same answer that they get. So you get eight or nine factors exposures with Bridgewater. If you pick an activist manager, you get one, you get growth basically. Maybe a little momentum, but primarily you get growth, private equity you get growth. So what we find is that we want to get exposure to as many factors as we can.

So you take the managers and try to find out their factor and then you run those factors. So you may have five managers that have different factors, but we're not running them as hedge funds or large cap core, we’re running them just as the factors themselves. So once we get the factor exposure the model says we want 20 % growth. We then can get that across four or five different managers. What we end up doing to the model, the factor model was two things for us. One, it allows us to have a concentrated portfolio. We can get three managers, to give us 3 factors and that gives us all the factors which we want. The other thing it allows us to do is, and for us that’s good because we can write bigger checks and that helps us drive fees down and have better relationships.

We'd like to quote the great American philosopher Mike Tyson. Tyson said everyone has a strategy until you get hit in the mouth, so every endowment had a strategy in 2008 and 2002 and so on. So we have an overlay. So we look at all the factors and say where are we overexposed? To whoever, whatever managers that doing certain things. So he was our manager may or may not be in our portfolio, but we look at the portfolio and say, OK, I can't Singer not to do this, but I like the exposures. But if 3 managers are all doing the same trade, so historically, one example would be Lehman trade claims. Couple years ago, everyone was doing Lehman trade claims. It was a great trade. They went from 30 to 60, but the problem was they were all doing it at 10 % maximum allocation for their fund. Well, if we have three managers all doing that and they're big allocations for us, it's 15 per cent of our total allocation for our total pool, so we're uncomfortable with that so we can hedge out of European, a basket of European bank stocks because they're the other side of that trade. If they can't pay because they have the collateral, if they can't pay…It’s a dirty hedge though it's nothing is perfect. Also I don't have transparency that Singer does, I can't time it exactly, but I have this, this hedge on. It also can affect other things in the portfolio as well, so we can. We can take this overlay and say we're going to do a


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complete completion portfolio, but long and short we can have basically all of our managers going along. Let's take some S&P exposure off, or all our managers hate Brazil and Venezuela and Argentina. Let's put some exposure on, so that's really focused on not a bet on the market, but a bet on our portfolio. Looking at our mantra saying what are they doing? So again, going back to our model, really it's manager focused and I think our analogy has always been the Tiger Woods, Arnold Palmer analogy, right? So for the golfers in the world, you've got a golf bag which just irons nine through putter. You give that bag to Arnold Palmer, Wake Forest graduate or Webb Simpson, Wake Forest graduate, Bill Haas, Wake Forest graduate, you know how it goes, but if you get those irons, they'll go out and shoot a 80 or 75 or if you give a manager who has the ability to short, a wedge but add leverage…a driver, you find a good manager, they can do better if they had more tools. But if you still have a bad manager, he still gonna shoot a 120.

So you still have to find talent. But if you have talented managers, give them the tools to do what you want to do. So that's what we've been, we've been focused on is our model really around the factor model is to build around the managers that we have in our portfolio that can give us lots of exposure and then build around it and try to find other opportunities. And I think that's where our model is a little bit different because then we're not focused on the Fed. We're not focused on the S&P. We're not 70-30, we have less, you know, in Verger Capital Management in all our portfolios. We have less than 25 percent in long US equities.

Ted: 00:32:58 I want to get crystal clear on an understanding what this model looks like. So let's start with… you run this through your optimizer and you come up with a bunch of factors that add up to a hundred. You mentioned 20 % growth. What do the other buckets look like?

Jim: It's interesting because they, one of the big buckets that obviously we have as an endowment, we have the ability to take advantage of is illiquidity. Illiquidity is a big driver of return, at least in the model. So that you find that's the unique one that you have, right? Its private credit, private equity. It's some hedge funds. So I think that that was one of the things that's the blurriest. So thinking about the mathematics behind it, high r-squared hard to… apples to apples and implement, you know, I think one of the areas, for example right now, is spread is not a big play based on where spreads are. Right? So we're so tight in some areas that, you know, we don't, our model does not want a lot of exposure to spread.

I think you need to think about momentum. That's a part of the portfolio that this year has done well for us. So we can look at long short, we can look at. So what you've seen in our portfolios broadly has been a shift from long only to long-short, now we're probably early in that hopefully.


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Ted: 00:33:47 And that's not valuation based, that's based on like a momentum factor.

Jim: That's really interesting. Yeah. So you think about, and even the evaluation space, you know, the valuation, you know, growth versus value, for example, the model really likes value right now because growth has rallied so high, but we don't have a great expression of that in our portfolio right now. So there are things we can't get access to, but it's really an art. So the math comes out and says here's the, here's the model, here's the math, go get it. And the art is OK, how do you do that?

So you go back to growth, it's easy to buy the S&P ETF and we have some of those, but it's hard to say, OK, so private equity is growth too, levered equities. So how do you pick? And that's where our value comes potentially. Let's look at and say, OK, we're going to get access to these things the way we want to get them, where we think that there's opportunity and really focus back to that concept of risk and fees.

Ted: 00:34:55 Yeah. And so is the model then calibrated to risk

Jim: Ah, there's a vol target, but for the most part we’ll again go back to the model says this, and then you have to put the manager data back into it, right? Yeah, sure. So it's basically reverse, you know, we call it Griggs from wine reverse optimization and um, it's again, it's a blurry line, it's not, it's not perfect, but nor is modern portfolio theory and the efficient market.

Ted: 00:35:18 And then when the Cambridge associates of the world to come to you and say, well, here are the, here are the buckets. And of course those look like US equities, international equities, emerging market equities, hedge funds, private equity. After you run it through the model, do you end up looking roughly similar to other endowments?

Jim: Totally different, totally different. And then Ranch associate calls us and says, OK, give us the buckets as we don't look at the world that way. And they get very frustrated with us. So we try to break it into equity, credit, real assets, and then absolute return. And I think when you look at that portfolio, that way we can break it down into the traditional asset classes… with energy we can give them that number. But do you think about it, you go back and say how many endowments are no less than 20 percent in US equities.

There are very few that have that exposure. You know we have more emerging markets and frontier as a portfolio then we do there. I think we look at the alternative mixed group were in line. I think we're about third alternatives, probably lower than some of the Ivy League schools, but for the most part of a school of our size, we fall right in that sweet spot. Just the way we implement it is totally


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different. And again, the frustration I have is that we have this different view, a different portfolio, but we have similar returns.

Ted: 00:36:41 In certain environments. I mean there should be environments that come up where those return streams are going to look quite different.

Jim: Well, how we get there is a little bit different too. Right? So I think that what we find is that we have a lot less volatility. So you think about, and I don't know where their returns are going to come in this year, but they're still being calculated, but my impression is that West Coast, UCLA last year was up and down 4 and this year they're up 14, 10 percent over two years. We were up 1, you know, now we’ll be up 8, so 8 & a half. So we'll get the same number we’ll be 10, but we got there totally different, different ways. So I think from our standpoint we're OK with that because volatility matters to us because again, financial aid is what we use to pay and to go to one student this year and say, Hey, we've had a couple of bad years but we'll make it up in a couple of years, now and we're going to cut your payout from a $5,000 loan. And now it's a $1,000 loan that hurts.

Ted: 00:37:39 How dynamic does the, the asset allocation or the risk factor bouncing and the model shift around?

Jim: It's not very dynamic. Um, it's basically once a year and it's, I wouldn't say it's a long-term model, set it and forget it, but it's definitely, you know, one thing we look at, the risk model overlay on top of that, trying to understand the risks of the portfolio and where the manager risks are, is more active. That's sort of a quarterly, monthly, value look at. We have a tactical overlay which is the hedge and that's every day. So the real asset allocation work is done once a year.

Ted: 00:38:36 So let's get into the core part of what's going to drive it, which is the manager selection process. So let's just share with you how do you think about what you're looking for in the kind of manager in the portfolio. You started with a group of managers. So does it start with, hey, our model is telling us we liked value, now let's do a hunt for where we think value is most attractive in the world.

Jim: Yeah, I think it's a little more for us, a little bit different. I think, you know, our job is to basically separate talent from luck. So we want to find managers, basically we can do more than one thing with. So you find us more with multi-strategy managers or managers that have multiple products because if we're going to do all this work we do and background checks and all the stuff that we have to do for a $25,000,000 biotech long only manager, that's not a real good use of our time.

We have 13 people and it's really just not to for us, it only gives us one exposure in the model. So we find ourselves really trying to focus on trying to find managers that can do more than one thing for us. It


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could be a separate account, it could be an overlay, it could be other things, other products. But you find that with only 60 relationships, 65 relationships, we have managers that do a lot of different things for us. Another thing we try to do is also try to find the best idea counts. So we have a couple of separate accounts where we just give them a broad mandate and say, give us your best ideas. We're very fortunate, you know, we've got a west coast manager who I really like, Scott Minored at Guggenheim, that who I think is a bond savant and we've basically let him go and do what he wants to do.

So I think that's one of the things we try to focus on is separate talent from lock. I think the dirty secret, I think in endowment and asset management is that everyone focuses on their manager research process, asset allocation and portfolio construction. In my mind those are table stakes. The difference between Mercer and Wilshire is manager research. I don't think it's that valuable. Asset allocation for the most part uses the same modern portfolio theory and then portfolio construction. If you're small, you're, you're buying hedge funds off the rack, and you really can't do much. So we try to think about what we can do differently and I think from our perspective, trying to find managers who are early stage. So we are a day one investor. We've seeded managers in the past, tried to do things in separate accounts from portfolio construction. We actually own the assets and we can give them broad swath, you know, do anything you want in this portfolio and just give us the exposures and we have the position so we can run them through the model and then have that…we’ve never panicked.

But if you've got to panic, panic, and have the hedge. So we can, if we have a problem we can put more colour on and basically decay trades, take a manager out from an exposure perspective so we have the ability to go in if we don't like this exposure we’ll take it off, will hedge it out and get out when we get out. So I think that's the value of, of our manager research process. I think the other thing is for us at a university, there's certain managers we can't invest in. I think one of the areas that we've really struggled with is activism, there's value in activism. It's kinda hard to model for us, but there's value there. But you think about it from our perspective as an endowment. If you give an activist money and you know, we, we get our money from our donors and some of our donors sit on publicly traded companies and they’re CEOs and they gave us a million dollars for the endowment and all the sudden we take that money, give it to an activist manager who once that CEO fired, that's a bad day for me.

Ted: 00:41:09 Yeah.

Jim: So the politics are important. So we really don't look at activism that well, there are other areas, life settlements. It's really hard to explain to students and we kind of believe it's not our money. So we want to give the students the access. We have a very large intern program.


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We meet with students all the time and you know, the value is for us. We want to be proud of every manager in the portfolio. We don't want them to be on the Wall Street Journal.

Ted: 00:41:55 Let's dive into that. Just that question with life settlements. I got into an interesting conversation with a friend about it. Uh, that was a business that I always looked at and said, this reeks of Wall Street Journal front page. You just stole money from the family who passed away and a friend of mine who's in the business said that's just not how it works. Insurance companies collect some ungodly amount of money from unpaid life insurance claims when people die. And so all you're doing, you know, we know there's a pension crisis in the country. We know that people as they age are short of cash. All you're doing is providing them a lifeline. I don't know what the answer is. I haven't done the real work on it, but how do you think about that conversation with students? Right? So do you ignore it because you say, well, this, the headline just sounds too bad. Or if there's really something underneath that's a better story. Do you decide, hey, you know, the opportunity is interesting we should go through the effort to explain this the right way so that the student newspaper doesn't, you know, tell people were stealing money from, you know, aging people who are about to die.

Jim: I think, on the lifestyle settlement one, one's gotten better. So I agree with you, and it used to be viaticals and youth when we started looking at a couple of years ago, a decade ago, and it was hyde securities, h y, d, e, hope you die early. Right. That was the idea there. That's not the case anymore. To your point, you know the insurance companies, if you do the math, you wouldn't buy insurance, but you see the cataclysmic issue that happens. You want to have it, but the math doesn't work. You could do it on your own. You could basically create your own insurance product if were smart enough about it so you wouldn't buy insurance. If you had done the math, you wouldn't do it, but everyone does. So I think there is something about having this sort of disintermediation of taking care of that end of life and where we are now with the economy and so on. There are opportunities there, but I think it's really hard to go and say, I'm going to buy this from this person who's in hospice. That’s hard.

I think for a university it's, it's more difficult for things like divestment, of coal for example, so we've always said we want to be part of the solution, not the problem, so we want students to come in and proxy vote. We want to give them the opportunity to actually do the work. If you don't like what's going on with these stocks, don't do the work. You have a voice. If you divest, you don't have a voice. We have partnered with our sustainability office and we have a full time intern, Emily Clare who comes in and basically looks at our entire portfolio and says, let's look at our agricultural portfolio…do the workers have rights? That wasn't on our checklist of due diligence we


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started, so for us this is better due diligence. Go and check and see if they get breaks. Do they have good dorms? Do they have bathrooms in the fields? We want to own those farms and by the way, they happen to do better.

So the coal stuff, the divestment issues I do think can lead to a lot of endowments…they’ve been silent on some of these social issues on campus and they shouldn't have been. They have, they have a voice, they should say some things about what's going on in these places. One of the things we looked at, do our managers have gender equality policies. It's hard to invest in private equity when you ask that question, but it's something that you have to do because again, it's not our money and it doesn't mean we won't invest in someone who doesn't have a policy, but if there's two managers and they're equal and one does and one doesn't, we're going to hire the one with the gender equity policies.

Um, and then that leads us to women owned private equity, to Forerunner. Wow, a great investment. Kirsten Green, great investor, or Warby Parker, Dollar Shave Club…but that was led by looking at gender equity policies and try to find women owned investors. So I think that manager research process has been driven not only by what we think is the best way to drive alpha, but also what fits in the context of this endowment world where you have different constituents that have different issues.

Ted: 00:45:39 What are the issues involved with managing some of the money internally? It sounds like that's mostly in the kind of the hedging program of what you do.

Jim: I think it's a unique part. So when I got to Wake Forest in 2009, we had this sort of long beta portfolio and I went and said, OK, we went to hedge, so I call. I had just left Wilshire and had negotiated every new ISDA, because you had to. So I went to Soc Gen and Goldman Sachs and Morgan Stanley and said, look, I want a new ISDA. I just negotiated for Wilshire for four weeks. I want the same terms. And they laughed at me. You're not Wilshire anymore. You're, you're a hospital, you have a university with tuition, you're not gonna get the same terms. We'll, we'll let you post collateral everyday will post once a year and we'll do it in New York and you do it Greensborough. That's not gonna work. So, you know, we went back and we went to one of our partners and said, how do we do this, and a manager who we trusted said, here's how we do it, and we asked, can we help, can we, can we use your balance sheet, can we use your trading desk, can we use your collateral to manage this portfolio? And they said, sure, why not? Now that's become a big business for them.

They've got hundreds of billions of dollars. We were the first. So I think that was one of the ideas we went and said, how can we leverage these relationships we have with trustees, with, with


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managers. And I think that was a big driver for us is we couldn't build it internally. We don't have the ability.

Ted: 00:46:20 So even the hedging program, you're doing it alongside an external management.

Jim: We have someone in house who watches it every day, but um, you know, Christine is really talented but she doesn't know what's going on in spreads in, you know the, the volatility curve and the skew and spread and smile. So I think from her perspective she's learning a lot but, but we have someone we used to give us the trading, to use their desk and when they do it we do it cheaper. We do as part of their desk, now we have full discretion so we can give them ideas as well. But for us it's a nice way to be able to get access to this and do it in a very cost efficient manner and do it with a partner we really value.

Ted: 00:47:10 One of the things you mentioned, you’re talking about the OBIE example of being overly concentrated in an idea. My experience has been that when you have a large group of managers it's actually hard to get concentration and best ideas. So how have you gone about thinking about what's the appropriate size and in the instances where you're kind of overly diversified, because you are in all these different factors and you know, 55, 65 different managers? Do you look at co-invest? Do you try to find ways of getting at larger sizes of best ideas?

Jim: Yes, we have done co-invest, but it's hard for us. So we're not doing co-investment equity positions, we have one, but more likely we'll co-invest in a CLO or a CDO and we'll do it alongside the manager.

We've also done co-invest in things like agriculture. So we try to find things that for us, we loved distressed investors, not distressed assets, so we try to find investors who have issues and we can be that capital. So agriculture is a good one. We have owned an almond farm in Australia. Twenty five year investment, eight percent yield. We got a little bump and we bought at a discount, but who can own a 25 year investment? Very few investors. If we have the benefit of time, we can own anything.

Ted: 00:48:37 And how did that come up with that? Alongside of a manager.

Jim: We owned an agricultural manager with whom we had invested in fund one and fund two and we were focused on this Ag space. We had some one the staff that knew agriculture, had a degree in agricultural finance from Cornell and I said, let's go find some farms. And that's a good example of where we've done co investments.

We typically will not do a co-investment in an equity name because we don't, we can't do the work to go and be able to say we don't have 12 people to put on a stock and say go look at the balance sheet, go meet with a management team. That's not what we're going


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to do well on. So I think from our standpoint, we've done five or six co-investments. Yeah, I would say four of them have done very, very well. We've done a mining co investment this year. It was a double goldmine. So those were, those were examples of what we've done. I think it's something that we look to do, but we're not looking to do it to the lower fee structure or to get more exposure. We're looking to be opportunistic and we really look for the hairier the better, the more stressed, the better. We don't want distressed assets, distressed sellers, and a lot of them happened to be endowments.

Ted: 00:49:55 So this is your sourcing it through the manager from their effectively from their group of investors and one of those investors has a problem. So you're kind of providing that liquidity, right?

Jim: So the investor says, I need, this person wants to get out, are you interested in taking them out? Because we, we like you, we have a good relationship with you and they want to get out, we want to help them, but we can't, we can't do that because of our terms and our documents. We had a fund of fund when we started and they were, they were gated and they came to me and said, look we can't get you out. And I said, well I want to be in your credit fund. They said, we don't have a credit fund, so if you start one, I will fund it and you can put that money that you have in my other funds in the credit fund. And he's like, I can't…but on page 250 of your document it says that you can do that? I said, well that's interesting and credit seems to be a good place to be. So we, we did that and we got out a year later because it said we could do that. But it was a great way. Not only to get credit exposure for us, which we didn't have any, but also get out of the other three fries, the truth The real trade, was to get out of the BRIC fund and the other funds that we were gated in were then. By the way, if we're still getting those folks.

Ted: 00:50:33 How often do these opportunities come up, these sort of co-invest or secondary opportunities come up for you.

Jim: We get a lot of opportunities. We probably only do one a year, so we get quite a few offers. Some of them. The reality is, we're humble enough to know that if we get the call, we're not the first call. The manager needs to understand where we fall in the cap structure and understand where we fall on the call structure. If we get a call from a broker on this fund or a secondary or something like that, we know we're not the first call. I remember, Bruce Zimmerman called me and said, I'm selling this part of my portfolio ‘Utimco’ are you interested? I said, who'd you call first? And I said, why are you selling? I went, why do I want to own something you're selling Bruce? And he laughed. He said, you know, you're right. So I think that's the issue for us is that we know where we fit in the hierarchy and we have to be very careful who will do deals with.


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So I think from the standpoint of, I think in all these tilts for us, it's transactional, right? So when we get to transactional, we get worried, you know, I think when we look at the street and they want to do a deal with us, the first thing we question, the first question we ask is how are we gonna get screwed?

Ted: 00:52:01 Yeah. Tell us a little bit about your team and how you've organized it. It's not a large team and you're covering the world, you're looking in all kinds of different places. So how do you, how do you focus your team on whatever the right priority is at the time?

Jim: You know, I think one of the great benefits of what we've done, and you've done this too, is that you get to see a lot of entrepreneurs. At the end of the day, all these managers are entrepreneurs and they all have cultures and you know, the Bridgewater culture is different than the Bear Stearns culture and I've had the benefit of seeing all these cultures over my career and I'm now going to pick the one I want to build for the future, the one I want to work with.

So that's been an extraordinary envied position. But I think the, the philosophy culture we have is to hire extraordinary people, set ambitious goals focused on teamwork and put the portfolio first and I think about how we've done it, even the way we built our office. It's a trading floor. We all sit together and its collaborative. We don't have offices. There's no hierarchy. I think what we've tried to do is build up a team that can work together across multiple different factors, but I think when you look at a dominant, you're not usually worried about operations. You're not really worried about sales and marketing. And we've had to be, now that we're Verger, so we've had this approach that it's kind of a three legged stool. You've got to have operations work, you've got to have business development work and investor relations work and you have to have investments work. And the reality is you can have mediocre investments and still have a wildly successful business and you know, a lot of those guys who raised a ton of money with average returns. You can have the greatest investment returns in the world and not raise a dime, but if you have an operational mistake, game over.

Ted: 00:53:13 Yeah. So we have described that as like going to the dentist and once they tweak your gum, you're going to a different dentist.

Jim: Well, I think, you know, the reality is that the operational due diligence you do on yourself and you see, wow, we have a lot of issues that we have to work through. So we spent a lot of time working through that. I think what we've done is tried to focus on, we have some advantages in our culture. One is that we have equity to offer, which is a unique opportunity in the endowment space. The second thing is we had Winston Salem. That's not great for everybody, but you can't replicate the energy on a college campus. I went and moved from Santa Monica to Winston Salem and I had two young boys. To


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get in trouble in Santa Monica, its wrong place wrong time. To get in trouble, in Winston Salem, you've got to want to be in trouble. You've got to work at it. And I’ll know about it in 10 minutes. Raising kids in Winston Salem is a great place to be. So I think that's the value for us, so we try to recruit people that have young kids and like the culture, like the golf, like the university, like what we have to offer, like to go to football games and basketball games.

And I think that's really the value, I think I go back to, we use a construct at Verger, Simon Sinek. I follow Simon Sinek, ‘the golden circle’. We use it across everything, manager research and how we hire. So the construct at a high level is, it's sort of a concentric circles with a bullseye and the outside circle is kind of what you are. You know, I'm a Roman Catholic, I'm a Democrat and Republican. I'm a, I'm a Deac, really easy. Someone asks you what you are, you can get off the top of your head and then when you ask them how they get there or how they got there, it's usually hard work. No-one ever says luck by the way. It's always hard work and the right schools and so on, but you ask a hedge fund manager why they're hedge fund manager. You get a lot of blank stares. They're really good at saying I'm a value with the catalyst and I went to Penn or Yale or Harvard, but they're not really good at saying, why I'm a hedge fund manager and you have some honest ones who say it's where the money is. That's a good answer. It's not the right answer. So I think we try to find people that have our, our mould, which is sort of humble and hungry and you know, my why is really simple.

My parents didn't go to college. My grandparents were immigrants. I went to the school in the province of others. I went on a Pell grant, Stafford loan, an academic athletic scholarship. I get to help kids like me, middle class, lower middle class kids from great neighbourhoods, go to places like Wake Forest and that's a great day. I get to send the elevator back down every day, so my why is real easy. We try to get everyone on staff to have the same line and they have their own whys. They're different, but if you're coming to Verger to be a stepping stone for the next job, its probably not the right place for you. To build a team that’s been really focused on one, getting the right culture and two trying to find the right people on the bus and we now have 13 people. It's been a great opportunity for us to try to understand where we can find talent. We haven't been successful at Wake Forest, but we've been successful in places like Boston and New York and Philadelphia, bringing them in to Winston and I think what we've also been successful, we haven't had much turnover, so it's been a pretty nice start.

Ted: 00:56:40 Great. Well let's. Let's turn to some closing questions to ask.

Jim: This is where I'm nervous.


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Ted: 00:56:50 What was your favourite sports moment? Could be as a participant or a fan?

Jim: Well, I think, uh, that's a hard one too. I think my, I would like to say my boys sporting events is what I really would like to say. I really enjoy going to their events and they both play football, one at Williams College and one at the Christ School in Asheville and I spend pretty much every weekend in the fall at their games because I can. And I think, you know, I did play sports at Villanova and you know, what I learned from playing, being a goalkeeper at Villanova was that when you, when you, you're nothing to do with it as a goalkeeper when you lose, it's all your fault.

So I really can't point to those, but I think I would say, the event that I went to recently was the Villanova National Championship. It was kind of a lark, last minute, but we had an absolute blast and we saw, I thought we saw the best shot in college basketball with four seconds left and that four seconds later I saw the best shot in college basketball. But I think the funniest part of that story was that, um, you know, we, we partied way into the late night. I got on the first thing smoking next morning. I got upgraded because I travel a lot and I ran onto the, the plane, sat in my seat, first on the plane, Villanova Gear, head to toe and I'm going back to Charlotte. And I really hadn't thought much about it. And I'm sitting there; I'm still basking in the glory of the Villanova victory.

And the plane has started to fill up and they're all Chapel Hill fans because we're all going back to Charlotte and I'm in seat 1A. Everyone has to walk by me, and they were giving me a high five and congratulations. And some people are not. I got a couple of wax in the back of the head as they walked by, a couple of bags in my lap. But about halfway through the flight it backs up. And as a 13 year old girl who looks at me and looks at her mom looks at me and starts to cry. I mean uncontrolled, bawling. And I’m, you know, I have children, I understand and I'm a Philadelphia Fan. It's, you know, I understand I've been there, but at that moment the schadenfreude was… I just said, look, bad parenting sorry you don't get it back.

Ted: 00:57:35 But you didn't give up her seat for her. What phrase did your mother or father repeat you over and over again that most stuck with you?

Jim: That's another good story. I think there are moments in your life and as a parent you really think about this because you want to be, to make sure you provide these moments and they're good, not bad. But I remember a moment when my father gave me my priorities, which I still have my kids have as well. He said, son here, are your priorities, God, family, friends, school and sports. That's it…and in that order. And that stuck with me for a long time and my boys, if you stop him on the street and ask what their priorities are, they better say God, family, friends, school and sport. And that's just carried me through.


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Also, even when I think about at Verger and what we do at, at Wake Forest, you know, we try to have a place where family comes first. So there's no 9 to 5, there's no clock. PTO is very valuable and we'd try to go to kids games and understand that, you know, we all travel a lot, but family comes first.

Ted: 00:58:17 What profession other than investing would you like to attempt?

Jim: I'd like to be a pilot. You and I are similar ages and I kinda grew up with Tom Cruise and Top Gun, right? And I didn't want to be Tom Cruise but I wanted to be Ice-man or Viper. Right. I grew up in Pasadena, Maryland in the shadow of the Naval Academy and grew up in the Top Gun. And so now I'm thinking about it, my midlife crisis and I'm 44 years old, coming on to 50, I want to have my pilot's license…and we have an airport nearby. It's a little airstrip called Reynolds. And that's my goal. We've got couple of trustees that have planes too. That'd be kind of fun thing to do.

Ted: 00:59:48 Have you started?

Jim: I haven't yet just because my two boy’s football. I just have committed to that. But with one as a junior in college and one in late in high school, I'm going to do it before 50. I'll give you a ride.

Ted: 01:00:31 I will take you up on that as long as you have the lessons. Do you have a favourite book or recent book that you've read and enjoyed?

Jim: In my bag right now I have The Undoing Project by Michael Lewis, which I really enjoyed and it's become kind of a, if I pull it out it's all earmarked and lined in and I find it pretty interesting from an investment perspective as well about how they, how they look at the world.

But I think one of the books that I read recently was JD Vance's Hillbilly Elegy and being a lower middle class kid and my parents weren't addicted to drugs and we didn't live in Appalachia. But having grandparents that were immigrants and having parents that didn't go to college and living in Philadelphia, you know, it's a different upbringing and I found a lot of analogy to what he was doing, but a lot of it had to do with this hard work, the value of hard work and the value family. And I really enjoyed that book, you know, and I think people who read it were depressed about it and more about the current political environment and how Trump won the Appalachian vote. But I also think there's a lot to be said about kind of hard work and that value of not feeling sorry for yourself and not blaming the Government. And that comes through in that book.

Ted: 01:01:51 I’ve found over the course of my life, when you could look back at certain increments and say, boy, I wish I knew that, or I wonder what I'm going to know 5 or 10 years from now. What do you know today that you wish you knew 10 years ago?


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Jim: Don't fight the Fed is the first one. I'm a boy. I think the biggest issue for me again being parent is that it took me a while to figure out that my, my boys weren't me. They weren't like me and it took me a couple years later to figure out that that was a good thing and you know, I'm very proud of my boys and my wife and what they've been able accomplish because, you know, for many years I wasn't around. I was traveling, I was working long hours, I was really focused on my career and I missed out on a lot of stuff and uh, they turned out pretty good without my meddling and uh, now I'm trying to make sure I enjoy it and understand that I would have rather spent more time on the sidelines and less time in the office.

Ted: 01:02:45 It's your waning days, you know, 95 years old in a rocking chair with your grandkids watching football game or great grandkids maybe. What advice would you give yourself today?

Jim: That's a great question. I'm not going to live 95 by the way, just too many hard years in the 30s, but I'm when I'm 65, I think the advice that I would probably give to myself is, it goes back to that same, you know, be more present. I think the value of working in a university is you get to see a lot of other stuff. What Wake Forest does really well is the classics. And I've had that opportunity to sit in on classes in, for example, in divinity. And I took a class called God the New York Times. And basically our job was to find God in the New York Times and it was basically a class full of Baptist students as well. So here I'm the only Roman Catholic in this class. And uh, I learned a lot about being present in a different perspective. And I think that's one of the things that I didn't have until I came to Wake. And that's taught me to be a little more present and take advantage of when you know Maya Angelou was on campus and teaching for her death, seeing ballet and seeing dance opportunities, which I never would have done otherwise. So I think that's the big thing is you take advantage and be present when you have opportunities in front of you.

Ted: 01:03:20 Fantastic. Jim, thank you so much for your time. Really enjoyed it.

Jim: It was absolutely privileged. Thank you very much.

Ted: 01:03:40 Thanks for listening to this episode. I hope you found a nugget or two to take away and apply in your investing and your life. If you've liked what you've heard, please rate review on iTunes or Google play to help others find out about the show. Have a good one and see you next time.

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Transcript: Jim Dunn – Verger Capital (EP.24) · All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of the firms they