Episode summary
Why “Low Risk” Portfolios Blow Up | Neuberger Berman CIO
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Jeff Blazek
Summary
Jeff Blazek argues that the right way to think about portfolio risk is not standard deviation but drawdown: how far an asset can fall, how long it can stay underwater, and whether an institution can still meet obligations during the recovery. He says large allocators and endowments need to simplify around growth versus defensiveness, then size portfolios to what they could survive in something like the GFC or the dot-com bust rather than rely on textbook volatility metrics.
He also makes the case that many investors overdid private markets in the last cycle. Venture capital and growth equity can deliver strong returns, but Jeff says the combination of late-cycle enthusiasm, long cash-return cycles, and denominator effects created liquidity stress and forced some endowments into secondary sales. By contrast, he favors a more balanced structure that keeps enough liquid public assets and cash-like reserves to rebalance when markets dislocate.
For an unconstrained portfolio, Jeff sketches an endowment-style mix anchored by equities, with meaningful private exposure, but also liquid uncorrelated diversifiers and T-bills or treasuries for flexibility. He says the current setup still favors risk assets, especially outside the U.S., while fixed income looks more useful as a funding source than a return engine. Across the discussion, he returns to quality, liquidity, and adaptability as the core principles of resilient investing.
Key takeaways
- Jeff Blazek says drawdown matters more than standard deviation because it captures whether a portfolio can survive real-world obligations and prolonged losses.
- He argues that endowments that pushed venture capital and growth equity too far in the last cycle ran into liquidity stress and denominator effects.
- Blazek prefers liquid, uncorrelated diversifiers and cash-like reserves because they let allocators rebalance during sharp selloffs.
- He says private credit can play a different role than traditional fixed income, but it should not be treated as a liquid asset.
- Blazek says investors should focus more on quality and growth than on cheap valuation alone, because high-quality businesses increasingly dominate the market.
Notable quotes
“if your portfolio were 100% invested in stocks could you sustain a 50% hit to your wealth and then survive if that lasted for three or four years”
“Low V can encourage excessive risk-taking, optionality, uh a lot of comfort until that V profile changes”
“So the the reason that this was such an attractive area was because endowments are seeking to maximize the returns”
“The challenge is that there's two elements to it. One, it is cyclical”
How the episode opens
Jeff, you're co-CIO of Newberger Berman's roughly $550 billion asset manager. You work both at a large asset manager as well as at an endowment. Tell me about the difference between working at these two organizations.
Yeah, there's a lot of differences in terms of the objectives as well as the scale of the assets that are that are being invested. And other experiences I've had too, I worked at Cambridge Associates, I worked at Texas Teachers. So, a lot of shapes and sizes of portfolios.
The first thing is the larger you are, uh, Texas Teachers for example, that's 120 billion when I was there. I think they're over 200 billion now. It's like driving an aircraft carrier in a creek.
The ability to fund niche managers or smaller strategies may be off the table in a lot of cases. And the way that you have to think about alpha and beta as building blocks. You just have to be very thoughtful and different.
Not only that, there's times where you can move markets if you're involved in commodities or a certain subasset class and fixed income. So when you trade and rebalance, it's very different at a Texas teachers or a large mega hundred billion dollar plan at an endowment or when I was at New York Presbyterian, which was only a few billion at the time. Now I think they're up to seven or eight billion.
It allows you to be more agile. You can fund smaller managers. You can do co-investments.
And the endowment model, I think, is really where this came from. It's like we have this this long-term orientation but a smaller pool of capital that can be more targeted, more concentrated, smaller managers and it allows you to I think therefore be more artistic.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- portfolio risk metrics
- drawdowns vs volatility
- liquidity and rebalancing
- public vs private markets
- behavioral risk
Companies and tickers mentioned
- Neuberger Berman
- AlphaSense
Watch the episode
Watch “Why “Low Risk” Portfolios Blow Up | Neuberger Berman CIO” 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.
