Episode summary
Why this $26B CIO Outperforms His Peers
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Mark Steed
Summary
Mark Steed argues that super forecasting is not a side tool at AZ Public Safety Personnel Retirement System, but the operating system for investing $26 billion. Every recommendation starts with an explicit probability, a success definition, and a time horizon, and the team tracks itself with Brier scores so calibration matters as much as being right. He says the process has made intellectual humility contagious, reduced big mistakes, and changed committee culture from debate-as-combat to a more objective search for the best answer.
He also makes the case that portfolio construction should be simpler and more flexible than traditional asset-class silos. Since becoming CIO in 2019, he has reduced about 10 asset classes into three broad buckets: capital appreciation, contractual income, and diversifying strategies. That framework is designed around the real liability—paying first responders—while making the portfolio easier for members to understand and more competitive for capital. Mark Steed says the goal is long-term, risk-adjusted performance, not beating the S&P 500 every year.
He expects co-investments to play a larger role, especially when they come from trusted sector specialists and can capture fee savings and structural alpha. He is also more skeptical than before of manager certainty, saying many GPs are overconfident and should be forced to define success in probabilistic terms. Across AI, homebuilders, and private markets, his message is the same: admit uncertainty, use base rates, and only then size the bet.
Key takeaways
- Mark Steed says every investment decision at PSPRS is framed as a probabilistic forecast, with Brier scores used to measure calibration and accuracy.
- He simplified roughly 10 asset classes into three buckets—capital appreciation, contractual income, and diversifying strategies—to increase flexibility and competition for capital.
- Steed says the S&P 500 is the unavoidable benchmark for a public pension, so the real test is long-term risk-adjusted returns across full cycles.
- He expects co-investments to grow from about 5% of the portfolio because they can reduce fees and add 300 to 400 basis points of return versus fund structures.
- Steed has become more skeptical of GP certainty and now assumes many managers need to prove they are calibrated, not just persuasive.
Notable quotes
“Every investment decision requires like a very explicit probabilistic forecast”
“So the discipline isn't just about, you know, being right. It's about being calibrated”
“First of all, intellectual humility just becomes absolutely contagious”
“I think making the buckets wider increases competition among investment ideas”
“I think what everybody has to do right now is just reduce their certainty in whatever they're doing”
How the episode opens
How does super forecasting play into how you manage $26 billion today?
This is a great question and I love that we're starting with uh Dr. Phil Tatlock. So Phil Tatlock spent decades proving that like most experts are terrible forecasters.
Not because they're like dumb like in any way. It's just that they're like most of us overconfident and like they don't keep score. So and I know this firsthand but back in 2010 Dr.
Tetlock organized a team to compete in what was really a four a four-year forecasting competition for the Department of Defense and I was on that team. So I was a guinea pig and over like the subsequent four years which I think went from 2010 to about 2014 grinding through geopolitical questions with like real scoring I learned what we call calibration and what calibration thinking actually feels like. So he eventually published his findings in the book super forecasting which became a bestseller on Amazon probably around 2016 or 2017 and I basically brought that methodology back to my investment team.
So what does that mean for us right now? Every investment decision requires like a very explicit probabilistic forecast. And let me explain what that means.
It's not like I think this fund looks good, but it's I believe there's a 55% chance for example this say manager will outperform the MSCI healthcare index by 400 basis points over the next 5 years or five years from the close of the fund. So it's specific. You have to have a probability forecast.
You have to have a clear definition of success and a time horizon and a confidence level. So the discipline isn't just about, you know, being right. It's about being calibrated.
So when you say you're 90% confident, are you 90% right?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- super forecasting
- probabilistic portfolio management
- intellectual humility calibration
- portfolio bucket allocation
- co-investments structural alpha
Watch the episode
Watch “Why this $26B CIO Outperforms His Peers” 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.
