Episode summary
S4 | Episode 1: Rejecting the Cult of Equities in Utah's Sovereign Wealth Fund with Peter Madsen
Capital Decanted
· · 55 min · Hosts: Capital Decanted · Guests: Peter Madsen
Summary
Peter Madsen argues that Utah’s $5 billion school and institutional trust fund should not be run like a conventional equity-heavy permanent fund. He says the portfolio must protect the corpus, avoid large drawdowns, and still target a CPI-plus-5 type outcome by mixing growth, real assets, income, and defensive strategies. That framework, he says, is designed to produce stable distributions rather than chase peer rankings or maximize equity beta.
He traces that philosophy to earlier roles in venture capital, consultant-style manager research, and hedge fund investing, where he learned both the limits of venture power laws and the value of strategies that can add return in down markets. At SITFO, he says the team uses a broad grid, factor analysis, and a rules-based co-investment process to place managers where they best help the total portfolio. He also says the team increasingly uses AI to widen the funnel and score opportunities more objectively.
Madsen says SITFO’s governance and land-based cash flows make the mandate unusually flexible: monthly inflows help fund quarterly payouts, and the current portfolio is roughly 45% growth, 15% real assets, 40% income, and 10% defensive. He sees Utah’s Silicon Slopes ecosystem as a useful advantage, especially for early-stage venture sourcing and co-investment.
Key takeaways
- Madsen says SITFO is built to protect the corpus, so it avoids heavy equity beta that could create a 35% plus drawdown.
- He targets a portfolio outcome around CPI plus 5 using growth, real assets, income, and defensive sleeves rather than a traditional stock-bond mix.
- The portfolio is roughly 45% growth, 15% real assets, 40% income, and 10% defensive, with growth and income often overweighted.
- He says trend and global macro were major contributors in 2022, helping SITFO finish about minus 1% versus roughly minus 17% for a 70/30 portfolio.
- Madsen says AI is being used to widen the manager funnel and create more objective screening criteria, especially in private equity.
- He says Utah’s venture ecosystem lets SITFO access small, early-stage managers and co-invest systematically, even if marquee firms are hard to access.
Notable quotes
“we can't breach that corpus if you will and having a lot of equity risk or a lot of equity beta that's how you get to that 35 plus percent draw down”
“I'm not part of the cult of equity and or talk about equities as a little bit of a Ponzi scheme”
“if you can get a bogus CPI plus 5, can you get that return in something that has downside protection”
“our defensive portfolio, the trend and macro managers are combined contributing about 15% to the portfolio”
How the episode opens
We can't breach that corpus if you will and having a lot of equity risk or a lot of equity beta that's how you get to that 35 plus percent draw down and I think it's just being a little bit skeptical more so than actually being in venture and taking a disliking but I like to say that you heartly ingest that I'm not part of the cult of equity and or talk about equities as a little bit of a Ponzi scheme as you have to believe that someone's going to pay a higher price for the exact same thing that yesterday you valued at a certain price and how much changed in a day but someone's going to pay more for it etc. So, I like to kind of create some controversy by using terms and phrases like that. But I do think that my time spent at Cube and the breadth of strategies that we covered, there are a lot of markets and opportunities to generate returns that are equity-like.
If you zoom out to the very long run, if you can get a bogus CPI plus 5, can you get that return in something that has downside protection or something that has a zeroish correlation or even a negative correlation? And the answer is yes. And so why wouldn't you use your portfolio math and build a portfolio that includes those strategies in a meaningful way?
We're trying to balance that out. Welcome to Capital Decanted. Here we say goodbye to tired market takes and superficial sound bites to dive beneath the surface of capital allocation.
This show attempts to challenge conventional wisdom and likely some of your own assumptions as we explore the nuances that can change how we understand an issue and its practical implications.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- equities risk management
- sovereign wealth fund
- drawdown risk
- alpha generation
- venture ecosystem
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Capital Decanted, this episode and its artwork belong to John Bowman. Octagon is not affiliated with the show; this page is an independent summary.
