Bloomberg Wealth: Rockefeller's Paula Volent

Well I think institutions need to be very prudent focusing on liquidity dry powder. It's a time to protect capital and not just shoot the lights out. To get some great return there are going to be some great opportunities that come for this. But you have to be patient and you also have to think creatively. Paul Allen took a different path. Learn the art of investing. I was an artist and a scientist not a finance person. The lens career began in art conservation working at institutions across the country including the L.A. County Museum of Art and the National Gallery of Art in Washington. I was running my own business and I realized I needed to know a little bit about finance because I was working with very expensive works of art for Lent. Attended Yale School of Management where she met David Swensen the legendary investor managing Yale's endowment. He eventually hired her. David Lipton my resumé. There was no finance at all. And little by little I became incorporated into the investment office for years at Yale led to Bowdoin College where in two decades she grew the size of the school's endowment from four hundred and sixty five million dollars to three billion dollars for the last 10 years. Valeant outperformed the investment returns of every single Ivy League school. I'm very proud of the fact that both could stay mean blind and that we could enlarge the financial aid so students that could never dream of coming to a school like Boden could come because of the endowment growth. Last summer Valeant left BOWDEN for Rockefeller University one of the world's most successful research institutions. I was thinking you know sometimes you need to be reported. I've been here a long time and it is the spirit of the Rockefeller is that there there's art. This beautiful gardens. It's a place to contemplate and to do things thinking. So as we talk the markets are in a bit of a freefall. Some might say it's a bear market correction. But whatever you call it it seems to be something different than we've seen the last couple of years. So. Are you very worried that this is the beginning of a path towards a recession. Yes absolutely. I think it's interesting because I was reflecting on this the other day that whenever I start a new job it's right before a big financial crisis. I started at Yale Investments office right during their Russian Bond Defaults and Long-Term Capital. I started at Boden. My previous job in July 2000 right before the dot com crash. And I just started nine months ago at Rockefeller. So I think there's a pattern here. I originally thought it was going to be short term because of the whole Covid and the supply chain issues and all of that. But then you have Ukraine you have the Fed you have inflation which I thought was temporary. But now I think it's very much a long term thing. And I do think we're in a bear market which makes me manage a portfolio very differently than if we were in the bear and in the bull market. We could have you know anyone can make money on that. But this is going to be a harder time to generate returns for Rockefeller. So for Rockefeller and many other nonprofit organizations they had a spectacular year last year. They had no returns of 40 50 60 percent annualized rates of return. Do you think some of those returns are gonna be coming back because now some of the great venture funds they were in are now going to have lower valuations. Yeah I definitely I think last year at Boden when I left in June and the fiscal year return was 59 percent. You had Washington University which was in the 60s. These were once in a lifetime returns. A lot of it was driven by venture capital some venture capital on a dollar weighted basis were up over 100 percent over the 12 months ending in June. I don't think that's repeatable. It was an incredible piece that you know period of time. I do. I just had an investment committee for Rockefeller University this week. One of the questions was what are the real marks on these private investments. As you know private investments are lagged and valuations. And I think it's going to be this gradual write down of these assets. I do think I still believe in alternative markets. And I think there's going to be two problems for endowments. One a lot of endowments use smoothing rule for their spending. They use a 12 quarter moving average. Well you're having all these great quarters. And so if you use that take 5 percent of a 12 quarter moving average you're going to be overspending. The other problem is going to be asset allocation as the public market goes down and the private alternative assets aren't marked to market. You're going to be way overweight in your private. And that brings up liquidity issues as well. And so right now I think institutions need to be very prudent focusing on liquidity dry powder. It's the time to protect capital not to shoot the lights out to get some great return. Right now we're in. You know I do think we're going into a recession and that's a totally different playbook. So let's have some optimistic news. Anything good about the economy you can think of. Yeah. Now I believe in American into the entrepreneurship and the creativity of America. I think that there is some wonderful creativity that you have young people who are concerned about the environment and they're working on different things. I do think that eventually I believe in capital markets and I believe in equities for the long run. And I do believe that there are going to be some things that way overseas. No way ever shoot in. There are going to be opportunities for skilled investors. I also think that you know as Warren Buffett said you know when the tide goes down you see who has bathing suits on. I think we're going to see a lot of that. But there are going to be some great opportunities that come for this. But you have to be patient and you also have to think creatively I think. So when you were looking at an investment are you saying to yourself I looking for the best manager I can find and I will hire that manager and if he or she is good I stay with them forever. But if they're not good I will get rid of them. How long do you give somebody before they aren't. Well we do lots of due diligence. And so it's sort of akin to what I did in conservation where you do a lot of testing and work before you actually have the bravery of taking that drawing and sticking in a bath of water. You do a lot of testing. You also have a backup plan for something that goes wrong. I feel like the due diligence process of getting to know the manager of looking at the sector of doing comparison of running. Analytics on the pattern of returns is something that can take a long time and but once we're in I am hoping that we're going to be loyal and for a long time. However if I've made a mistake and things change it could be a change in the team or it could be some really underperformance that I don't understand or that is unexpected. I want to always have the opportunity to change my mind. I do think that David realized that there were broad areas where you could find great opportunities to generate some attractive returns that were not traditional. College endowments have changed a lot since 16 38. That's when an English minister in America named John Harvard died and left his library of 400 volumes and a sum of seven hundred and seventy nine pounds to a college established by the Massachusetts Bay Colony. In return the grateful columnist called the College Harvard. Fast forward to 1985. The college's known as the Ivy League led higher education when it came to endowments. But some would argue their investing styles really weren't that sophisticated at Yale. David Swenson inherited a billion dollar portfolio that was 40 percent invested in bonds and more than half in U.S. stocks over the next 35 years. Swenson transformed the ways colleges invested their money by focusing on reallocating assets into non-traditional asset classes. And Yale's endowment grew from one billion dollars to 32 billion dollars even as it was making regular disbursements that allowed Yale to transform its campus. Swenson died in May of 2021 at the age of 67. But his legacy remains. Universities across the board have replaced dependence on stocks and bonds and moved into alternatives across all endowments and 2021. Only eleven percent of holdings were in fixed income and 33 percent were in global public equities. The rest of the portfolios were focused on alternatives private equity and venture capital with 27 percent marketable alternatives 17 percent and real assets 10 percent. It's a mix that the endowment chiefs of the mid 20th century wouldn't have recognized. David Sweat's who was given the job of running Yale's endowment I think when he was 31 years old and he apparently managed to produce outsized returns for Yale. And maybe. But forty seven billion dollars of returns overall. So it's fairly spectacular track record. And you got a chance to work with him. All right. I did. And you also at Boden when you were managing the endowment of Boden which we'll talk about in a moment. You had a chairman of your investment committee named Stan Druckenmiller also a pretty famous investor. So what was it like learning from David Swenson. I'm learning a bit from Stan Druckenmiller. They're both for me amazing teachers mentors and good friends. David loved to teach and he would no question was too silly. And also if there was an acronym and you didn't know what it was he wanted you to ask the questions. We also worked really hard. It was like working on an investment bank. You know even though we were at a university we did a lot of due diligence. We traveled. We wrote these big books for the investment committee. And he was really amazing. And then he was long range. He thought really long term. Then I came to work with you know I had Stan. And Stan is one of the most talented investors in the world. And he's a very short term ism. You know he's a macro trader. So the funny thing with Stan he could give you a great idea. And then the next day you're like oh I don't think this is working because I sold out yesterday. So he's in and out whereas David was really long thinking. And the combination of that for me was the basis of I think a lot of my success in the investment world. So let me ask you before we go back to your background in the last 10 years at BOWDEN you outperformed as I understand it the investment returns of every single Ivy League university for that period of time including Yale. So what did David Swensen say to you when you outperformed him. Well I was remember he first of all we gave him an honorary degree to thank him for training me and all that. And he was very proud of that. Also one time and before that one time he was in my office and he was looking over an analysts thing and my performance. And he's like you're outperforming you. And David was very competitive. But I showed you earlier. He wrote me the most beautiful letter with a quote from Leonardo Poor as the student that does not outperform you know outperform the master. And David was very gracious. He was very proud of that. You know he also was very competitive. So he wanted his Yale club the surreal puppies whatever they were out there. But he was very proud of me. And he was just a wonderful friend. And I miss him. So let's talk about your background. Where did you grow up. I grew up. I was born in Worcester Massachusetts. And I grew up in a very middle class lower middle class family. My father had severe dyslexia. So we only went to the third grade in school. My mother was a housewife. She never went to college. And when I started I went to a public high school. And then I started at Emerson College in Boston because some friends of mine one of my friends parents convinced me that I should go to college. My parents really didn't think about college. And I ended up transferring to a state school the university New Hampshire where I got my undergrad degree in can art history with a minor in chemistry because I had discovered art history. I'm art conservation which I later pursue. You had intended it for graduate college to be an art conservator. I did. So what happened. I went I I studied paper conservation restoring prints and drawings. I worked at the New York Historical Society for a while there. I then went to work at the Palace of Fine Arts in their conservation lab. And then I went to Los Angeles where I worked at the L.A. County Museum. I did study. I did scientific work at the Getty. And then I set up my own conservation studio where I worked with contemporary artists like Sam at Shea St. Francis. And I was running my own business and I realized I needed to know a little bit about finance because I was working with very expensive works of art. I was running a studio and so I started taking a couple business classes at UCLA. And through that I got introduced to Yale School of Management and ended. And I but I got into Yale School of Management at the same time. I got offered a fellowship at the National Gallery of Art where you and I both serve the Weiser Fellow and I worked in the paper conservation lab there combining paper and paintings techniques for conservation on contemporary works of art. So you did that for a while. Then you went to Yale School of Management. I did. And I had to take baby math before I went there because I was an artist and a scientist not a finance person. My husband and I had been trying to have a child and it was kind of works. It wasn't happening. So he said OK well let's go let's move to New Haven. And of course that was instant. And my. I was born after my first semester so I took a break and while when my daughter was probably 2 months old I went to David Swenson and knocked on the door and said Hi. I want to learn about endowment because I'm going to work in a museum. And this is about David. David looked at my resumé. There was no finance at all. And he took me in and I started filing and helping organize things. And little by little I got projects to do. I remember he had me do a big research on soft dollars. That was one project I worked on. And little by little I became incorporated into the investment office. So you went to work with David on his book Portfolio Manager Pioneering Portfolio Management Game a classic in the area. So one day it was over and you finished writing the book with him helping him write the book. What happened after the book published by the Free Press. He asked me to stay on and I came on the team and I worked in various places. I worked on equities. I worked on stock lending. I worked on bond issuance. And that was in 2000 1999 2000. And that's like right when the dot com and we were doing lots of tech investing lots of venture investing. We're trying to lock in our returns. It was a really interesting time and I was fortunate to stay there. So when the BOWDEN opportunity come along. So the BOWDEN opportunity came along because Ellen Shuman who was previously at the Carnegie Corporation she was a BOWDEN grad but she mentioned to me that the BOWDEN had never had a chief and never had an investment office. They just had the CFO doing it. And they used Cambridge and they were starting to think about bringing in someone to manage the endowment. And so she told me about it. My parents lived in Maine. I loved Maine. So I interviewed for the position. And I was I came in as associate treasurer and I reported to the treasurer. Stan was the committee chair. And little by little you know I sort of rose up the ladder. So when you joined BOWDEN its endowment was what size. Four hundred and sixty five million. And when I joined and then it went down because of the dot.com crisis. And when you left what was the size of it. It was three billion. And that's after spending. I mean one of the things I didn't say about David is David was really about the mission. He could have worked anywhere and made so much money. But he Yale was in his blood and he cared so much about making money for financial aid. BOWDEN I'm very proud of the fact that both could stay need blind and that we could enlarge the financial aid. So students that could never dream of coming to a school like Boden could come because of the endowment growth. People get caught up in a lot of these really quick moneymaking things and all that. I think in the long run for as a person who has an investment portfolio or a retirement fund they should be thinking in the long run. Now somebody is watching this and says Paul Allen is a role model for me. She came from a modest background. Got her degrees worked with some famous people. Now she's running the investment endowment for Rockefeller University. I want to be like her. What does a person need to do with you. What do you recommend that somebody do to be prepared to have the kind of job. Well I think a lot of times it's serendipity and being open to something that comes along like for instance knocking. I was pretty brave to knock on David Swanson's door. I didn't really know who he was at that time but I wanted to learn. I think a lot of times it's taking a chance. But did art conservation help you in any way to be a better investor. And should a lot of good investors learn how to be an art conservator or as well or not. I think in concert in conservation and art history at a liberal arts I think differently than a lot of people that have just done finance. And also I think I mentioned one of the things is to do conservation. You have to really do a lot of work pre work before you actually do a treatment. And so a lot of that pre work is very similar to what I do and due diligence for investments you know lots of testing lots of thinking about what could go wrong. Lots of research. You know when I was the art historian that was in the old days before the Internet. But you'd sit in the stacks and you'd pull one thing and a bibliography on this. And you heard it like a mosaic theory push put all these things together. I feel like I do that in my due diligence. And I think it's I think differently than a lot of my peers. So let's talk about one area where some people say there's a bubble and that's an area you might know pretty well called art. As we're talking you've been some big art auctions in New York where staggering prices were paid. I think almost two hundred million dollars for one Andy Warhol painting. Do you think there's a bubble in the art market. I do think there's a bubble somewhere in the art market. But I believe that a lot of people are trying to put their money in hard assets that can appreciate over time although maybe the Warhol you know these are one of a kind works you know pieces historic pieces of art. I think there's definitely a bubble and FTSE which are a new thing in the art world. I think maybe a few of them will be very valuable but I think a lot of it is speculation. I do think I collect art myself and I collect art that I love that I want to see on my wall. And some of it is very valuable. But I do I appreciate artists. I think art is a very important part of my life. But I do think some of the prices that are doing there are people who have a lot of money on the side and are trying to put it somewhere other than the market. So let's talk about the best investment advice you've ever received from anybody either. David Swenson or or Stan Druckenmiller or anybody. What's the best investment advice you've ever received was to admit mistakes. That's one. And also to be brave I think like after March 20 20 when you saw the downturn then I wanted to make sure that after that managers were putting risk back on. And I think you can't you know you have to be brave. And I think. And then from stand the risk management is something that is really key to how I think about management. Now you've seen investors who are professional and non-professional over the years. What do you think the most common mistake is that investors make. Yeah I think right now there's so much fast needs like getting news from all over the world some of the different and all that. And I think there needs to be patience. And also people like the mean stocks and some of those things people get caught up in a lot of these really quick moneymaking things and all that. I think in the long run for as a person who has an investment portfolio or a retirement fund they should be thinking in the long run and they should have mutual funds mostly for you know I say don't do what we do endowments at home because you can't do some of the things that we do. Well let's suppose you're at a cocktail party in New York or Maine or wherever it might be. And somebody has told you manage the endowment for the Rockefeller University. They say to you well I have an extra hundred thousand dollars. What should I do with it. What do you tell the average person who for one hundred thousand dollars might be a fair bit for average person. What do you tell them to do with their money. Well right now I would say I think you need to wait a little bit. Don't dive right there in the market. But I would say do a diversified portfolio. You need to think about what your cash flow is going to be like at Rockefeller. The first thing I do every Monday is look at our cash flow meets capital calls spending all that. I want to see what the cash is. So I would think you'd need to look at your liquidity needs and then you need to invest mostly in mutual funds for smaller investments because you can't get into some of the funds that we're in. And then also you know different sectors can be very interesting but a lot of index you know S&P 500 to make you sleep well at night. Not so well this time but are you an investor in crypto currencies or what do you think of the whole crypto world. Yeah I do think the crypto world is something that's going to stick with us since developing. I think that the block chain is you know it's sort of like when we thought computers you know what's we you know the first days of the computer you thought only scientists would use it. And I do think it's an asset class. We are doing gaming and we're also learning about the metaverse which I think you know some people think it's silly but we're doing a lot of work on that and we've made small investments in that to learn about it. So if you look back on your career what would you say is the greatest piece of luck you had. Because luck was just serendipity. All the great opportunities I've had whether it be working at Bowdoin College in the museum to you know meeting David Swanson. There's a lot of parts in my life that I think were just serendipity. So I'm happy for that. I think one of the best investments I ever made was my beautiful house in Maine which I love which Maine is in my mind blood. It's great.

Channel: David Rubenstein

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Id: 8RuoMx5cRZY

Length: 23min 56sec (1436 seconds)

Published: Wed Jun 29 2022