Episode summary
The Illiquidity Premium Is Dead
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Larry Kochard
Summary
Larry Kochard argues that the core of durable endowment investing is not heroics in crises but preparation before them: clear governance, a disciplined investment policy, stakeholder buy-in, and a portfolio built to withstand behavioral mistakes. He says the investment committee should be part of the process, and the institution itself should be an asset rather than a liability when markets break down.
He describes Georgetown during the 2008 global financial crisis as relatively liquid, which allowed rebalancing into equities and avoided the forced selling that hurt many peers. The broader lesson, in his view, is to budget commitments carefully, preserve liquidity, and avoid stopping private commitments entirely, because some of the best vintage years for private funds often occur in downturns.
Kochard is skeptical that the old “illiquidity premium” still exists. He believes alpha is scarcer in efficient markets and now comes mainly from identifying real inefficiencies, backing skilled managers, and exploiting institutional edges such as relationships, access, and patient underwriting of people. He also argues that size often becomes a drag, that passive is a good default until real edge is developed, and that co-investing can improve fees, liquidity, and diligence.
Key takeaways
- Larry Kochard says the best endowment processes are built before a crisis, with governance and buy-in that reduce behavioral mistakes.
- He argues the old illiquidity premium is dead because too much capital has chased private assets.
- He says the best private vintages often happen in downturns, so endowments should keep committing rather than stop cold.
- Kochard believes manager selection is really people underwriting, and that people are upstream of everything.
- He says size is often the enemy of returns because larger firms drift into marginal deals and lose their edge.
- He recommends passive as the default until an institution has enough edge to be active in a sleeve.
Notable quotes
“The thing he impressed upon me was this notion of having the investment committee be part of the process”
“I do think the notion of fundamental investing as opposed to being tactical trying to be more of a trader. It's really important to me to out for that long-term approach to investing”
“Part of good risk management is you go into a downturn uh with a plan”
“I completely agree with you. First of all, it's what I've always told my team. The markets are have become increasingly efficient. Alpha is hard”
“I think so much of that has gone away. I'm just not a believer that there's going to be this beta to owning illquid assets”
How the episode opens
So Larry, you've had a storyried career to say the least. You were a CIO at McKenna, $25 billion asset manager. You're also CIO at University of Virginia in Georgetown where you were the first CIO. Really built that endowment strategy from scratch. Let's start there. Tell me about your experience at Georgetown.
It was the first time I was a CIO. So one of the first steps I took was to go out and do a survey of other successful longtime serving CIOS. A lot of people were very generous with their time.
I sat down with the likes of a David Swenson. I I sat down with Alice Handy who was the longtime CIO at the University of Virginia who really was for all intents and purposes a mentor to me. As a result of that, I came back and the first investment committee meeting I had with my invest um with the board, I I kind of had the results presented the results of the survey and really what I was looking to do was craft a new investment policy statement that would set the rules of the game.
how much risk we would take, what would the asset allocation look like, what would be the process?
What do those legendary CIOS tell you in terms of advice on how to build an endowment?
I'll pick out two of them. So, David Swanson again very generous with his time. The thing he impressed upon me was this notion of having the investment committee be part of the process.
So even though the investment office is driving the bus in terms of idea generation, in terms of the investments that they wanted to do, having the investment committee buy in to the investments produce this idea of sustainability, meaning you could sustain yourself through the long term because you any investment you make, it's not going to be a straight line from here to the finish line.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- endowment portfolio governance
- illiquidity discipline
- manager selection alpha
- rebalancing during crises
- portfolio sizing
Watch the episode
Watch “The Illiquidity Premium Is Dead” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
