The summary of ‘Investing in the Lives of Others with Verger Capital’

00:00:00

In this segment of the podcast, host Robert Morier introduces the Dakota Live Podcast and its goal to provide insights into the investment sales ecosystem by featuring key industry players like Chief Investment Officers and research professionals. He welcomes Taylor Jackson, Investment Director at Verger Capital Management, who is visiting Philadelphia for the first time. Taylor shares his experiences of the city, including visiting historical sites. Taylor’s responsibilities at Verger Capital involve sourcing, due diligence, and monitoring investment managers, along with participating in asset allocation and portfolio construction. Verger Capital, an adviser offering CIO services to nonprofit institutions, has a mission of investing in lives to improve them. Additionally, Taylor’s background, education, and previous work are highlighted, followed by his reflections on his career path influenced by his father’s role as a financial adviser.

00:05:00

In this part of the video, the speaker recounts his journey into the financial services field, starting in Middle School and continuing through high school, driven by his father’s influence. He passed the Series 7 exam before his senior year, providing an advantage as he graduated in 2009 during a financial crisis. He stresses the importance of networking and utilizing available resources, learning this lesson the hard way from his initial challenging job at Bank of America Merrill Lynch, where he handled many dissatisfied client calls. His subsequent roles at Credit Suisse as a Credit Risk Analyst and then at the North Carolina Department of State Treasurer as an Investment Analyst in Private Equity, provided him with valuable experiences and skills. The speaker highlights his continuous career growth fostered by a strong professional network and supportive working environments.

00:10:00

In this segment, the speaker discusses their approach to private equity investments while managing a state’s portfolio, emphasizing the need for a balanced strategy that meets the investment objectives and required distributions for retirees. There was a relatively small allocation to private investments, mainly mid-market buyout managers focused on operational improvements.

The speaker then explains the guiding principles at Verger Capital: protect, perform, and provide. These principles drive their portfolio strategy by protecting assets, maintaining purchasing power through performance, and providing predictable distributions to support the missions of their nonprofit clients.

Verger Capital, which spun out from Wake Forest University’s investment office in 2014, manages about $2.6 billion for 10 nonprofit clients with a team of 15 employees. They employ a generalist model in their investment team, allowing flexibility and comprehensive understanding of the portfolio. Verger focuses on partnerships with mission-aligned institutions like universities, healthcare institutions, independent schools, and hospital foundations.

00:15:00

In this segment of the video, the speaker discusses their initial experience joining a relatively immature private equity program and their efforts to understand the strategies and portfolios at Verger. Initially, they spent most of their time familiarizing themselves with the different roles of managers, aided by a knowledgeable colleague. This process allowed them to build crucial relationships with managers and gain comprehensive portfolio insights as their responsibilities expanded.

Further, the speaker elaborates on Verger’s unique asset allocation approach, differentiating their methodology from traditional models. Verger divides its portfolio into four segments: Equity, Real Assets, Absolute Return, and Fixed Income. Each segment encompasses various strategies, both long-only and hedged, including private strategies. The focus is on the underlying drivers of returns and risks rather than viewing them as distinct asset classes.

Examples of this approach include housing long-short and private equity strategies under Equity, while Absolute Return is oriented toward uncorrelated strategies aimed at performing across all market cycles. In contrast, Verger’s Fixed Income segment shuns traditional core strategies in favor of long-short credit and private credit. Real Assets are somewhat aligned with inflation-sensitive assets but with a broader interpretation, typically physical assets.

Lastly, the segment hints at a deeper dive into the manager selection and underwriting process, setting the stage for practical insights into bringing new managers into Verger’s portfolio.

00:20:00

In this segment of the video, the speaker discusses their bottom-up investment process, while also allowing for top-down approaches when necessary. The team leverages their diverse backgrounds and extensive networks for sourcing opportunities, preferring personal connections over traditional screening methods. They involve different team members step-by-step during the evaluation of new investment managers. The process includes initial conversations, collaborative evaluations, in-depth due diligence, and comprehensive memos, with continuous communication facilitated by their open office layout. This dynamic fosters collaboration and ensures that all voices are heard for the improvement of the investment portfolio.

00:25:00

In this segment of the video, the speaker discusses the ongoing process of re-underwriting their investment portfolio, both on the private and public sides. They explain that on the public side, re-underwriting requires more discipline due to the lack of a natural cadence. They have a structured annual process where the investment team reassesses each manager’s role in the portfolio. Additionally, the speaker talks about how Verger approaches relationships with managers. They emphasize the importance of patience, genuine feedback, and maintaining long-term relationships, even if initial investments are not made immediately. Examples are given of cases where Verger invested in managers years after the initial contact, demonstrating the value of persistent and honest communication. The discussion also touches upon the preference for either specialist or generalist managers depending on the strategy, highlighting the benefits of both approaches. For sourcing, particularly in venture capital and private market investing, the speaker stresses the importance of cultivating strong relationships to gain access to managers and investment opportunities.

00:30:00

In this part of the video, the speaker discusses their strategy for building and managing relationships with investment managers. They highlight the importance of understanding the underlying companies and portfolios, emphasizing that their approach is collaborative and focused on partnership rather than transactional interactions. The necessity of transparency and providing feedback to new managers is underscored as a practice that enhances reputations and opens up new opportunities.

The speaker also addresses their investment approach, noting the difficulty of timing private markets and the benefit of working with disciplined managers who allocate capital over multiple years. They mention a particular focus on small market buyouts, as these managers use significantly less leverage and aim to create value through operational improvements and professionalizing businesses. Additionally, they point out that these managers often win deals despite not being the highest bidders because of their strategic value addition and partnership mindset. Therefore, they find investing in small businesses to be an attractive opportunity for generating value and growth.

00:35:00

In this part of the video, the speaker discusses their venture capital strategy, emphasizing they are not aggressively adding to their investments but are optimistic about the increasing deal flow and quality in the coming year. They also talk about their approach to engaging with emerging managers, often partnering with them early and maintaining connections even if immediate investment isn’t possible. The conversation also covers engagement with these managers, providing feedback, and facilitating introductions to other potential investors.

Additionally, the speaker highlights Verger’s commitment to Diversity, Equity, and Inclusion (DEI) in their manager selection process. They recount an instance of selecting a buyout manager after ensuring the firm was taking significant steps to improve diversity. Verger now boasts a portfolio where 30-40% of NAV is managed by diverse teams. They further explain Verger’s internal DEI efforts, noting that 60% of their staff and 40% of the investment team are women, and they have implemented unbiased hiring practices, particularly in their internship program.

00:40:00

In this part of the video, the speaker discusses the positive impact of recent changes to the intern recruitment process, highlighting the increased quality and diversity of candidates. They share examples of interns with varied academic backgrounds, which contribute to a rich talent pool. The conversation shifts to the importance of mentorship and how influential figures have supported the speaker’s career, especially during their time at the state of North Carolina. The support and collaborative environment helped them advance professionally. The segment concludes with acknowledgments of success and a discussion on community engagement, emphasizing the rewarding experience of working with selected institutions and the broader community.

00:45:00

In this part of the video, various community engagement initiatives by Verger are discussed. These include supporting the Wake Forest University face-to-face speaker series by sponsoring tickets for community members, partnering with HBCUvc to support people of color in ventures, and working with Climate Vault in carbon removal projects. Verger has also hedged both the firm’s and employees’ personal carbon footprints. Additionally, the firm collaborates with Girls Who Invest to support gender equity, with their CIO mentoring students. The team celebrates milestones through volunteer projects, emphasizing authentic community engagement.

The segment also highlights Verger’s successful internship program, focusing on comprehensive integration into the firm beyond typical intern tasks. Interns are exposed to various departments and partake in significant projects, including leading an investment process. This approach helps interns develop diverse skills, with many remaining in touch after their internships. The video concludes with an invitation to learn more about Verger Capital through their website and available podcast platforms.

00:50:00

In this part of the video, the hosts encourage viewers to like, follow, and share the episodes and welcome their feedback. They thank Taylor for participating, Dan for his consistent contribution, and the audience for their time.