Blackstone's King of Hedge Funds on Alt Investing Right Now
2Digest
This podcast features an interview with Joe Dowling, former head of Brown University's endowment, on the complexities of managing university endowments and alternative investments. Dowling highlights the differences between managing university endowments and other institutional funds, emphasizing the long-term horizon and the ability to invest in illiquid assets. He discusses the impact of potential tax increases on endowment strategies, necessitating a more tax-conscious approach and a focus on private markets. The conversation delves into the due diligence process for selecting alternative investment managers, particularly multi-strategy hedge funds, stressing the importance of deep market research, identifying uncorrelated returns, and leveraging scale and expertise. Dowling analyzes the rise of multi-strategy hedge funds, highlighting the role of technology, risk management, and talent in their success. He also offers advice for aspiring professionals in the field, emphasizing the importance of curiosity, deep expertise, and a passion for learning.
Outlines
University Endowments, Alternative Investing, and Market Volatility
The podcast introduces the changing landscape of university endowments and alternative investing, setting the stage for an interview with Joe Dowling who discusses the challenges and opportunities in this space, particularly concerning potential tax increases and market volatility.
Managing Endowments and Alternative Investments: A Conversation with Joe Dowling
Joe Dowling discusses the unique aspects of managing university endowments compared to other institutional funds, the impact of potential endowment taxes, and the current state of alternative investing, including private equity and multi-strategy hedge funds. He emphasizes long-term thinking, diversification, and risk management.
Due Diligence and Alpha Generation in Alternative Investments
Dowling details the rigorous due diligence process for selecting alternative investment managers, focusing on deep market research, identifying uncorrelated returns, and the challenges of competing with established firms.
Multi-Strategy Hedge Funds: Growth, Challenges, and Future Trends
The discussion shifts to multi-strategy hedge funds, exploring their rise, the challenges for new entrants, and the key factors differentiating top-tier firms, including technology, risk management, and talent.
Keywords
Alternative Investing
Investment strategies beyond traditional stocks and bonds, including private equity, hedge funds, real estate, and commodities; higher returns but often illiquid and higher risk.
Endowment Model
Long-term investment strategy used by university endowments, focusing on illiquidity premium and alternative assets; facing challenges due to market volatility and potential tax increases.
Multi-Strategy Hedge Funds
Hedge funds using diverse strategies across asset classes; aim for consistent, uncorrelated returns; success depends on technology, risk management, and talent.
Illiquidity Premium
Higher expected return for illiquid assets, compensating investors for difficulty in quick buying/selling; key component of endowment model.
Due Diligence
The process of assessing the quality and suitability of an investment opportunity, including thorough research and risk assessment.
University Endowments
Large investment pools managed by universities to fund operations and future initiatives.
Private Equity
Investment in private companies, often involving long-term commitments and illiquidity.
Risk Management
Strategies and processes used to identify, assess, and mitigate potential risks in investments.
Tax Implications
The potential impact of taxes on investment strategies and returns.
Long-Term Investing
Investment approach focused on long-term growth and returns, rather than short-term gains.
Q&A
What are the key differences between managing a university endowment and other large institutional funds?
University endowments have long-term horizons and a captive LP, allowing for illiquid, alpha-generating investments; other funds face shorter-term pressures and withdrawal demands.
How is the potential increase in endowment taxes impacting investment strategies?
Proposed tax increases necessitate a more tax-conscious approach, potentially leading to higher return targets and a continued focus on private markets to offset the tax burden.
What is the due diligence process for selecting multi-strategy hedge fund managers?
Due diligence focuses on the quality of returns, diversification, manager tenure, and robust risk management systems; deep market research is crucial.
What are the key innovations driving the success of top-tier multi-strategy hedge funds?
Top firms leverage advanced technology (quantitative strategies and AI), deep talent pools, and a culture of continuous innovation.
What advice would you give to someone aspiring to work in endowment or hedge fund management?
Cultivate intense curiosity, develop deep expertise, and strive for excellence; consistent high performance and a passion for learning are crucial.
Show Notes
Everyone knows by now that college endowment funds have gone big on alternative investing, pouring billions of dollars into private equity and hedge funds. But that investing model now seems to be under pressure and there are reports that Ivy League institutions like Yale and Harvard are looking to unload some of their more illiquid investments. So why did colleges get into alts in the first place? And how do they select which funds to invest in? In this episode, we speak with Joe Dowling, the former head of Brown University's endowment. Joe is now global head of multi-asset investing at Blackstone, one of the biggest institutional investors around. He talks about the rise of alts, how college funds got so invested, the pressures they're facing right now, and the boom in multi-strats.
Read more: Harvard in Talks to Sell $1 Billion of Private Equity Stakes
Blackstone’s King of Hedge Funds Shakes Up Its Lagging Business
Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots
See omnystudio.com/listener for privacy information.
Table of contents
United States
