E154: How a First-Generation Immigrant Became a Top CIO: Paul Chai's Story

I've always felt that I've been an outsider for the most of my life. Being new to this country, being somebody who had transitioned from career to career positions throughout my life.
I've been an engineer, I've been a consultant, and then coming into the family office and as somebody who came into the endowment foundation space without a whole lot of pedigree. You're going after a manager where you're meaningful to them, where it's really a two-sided street.
Why does that matter? For us, like you said, it's a two-way street. So what we can contribute, our GPs are successful.
We are in turn also benefiting from their strong performance and become successful. For six months of placing on a trade, Telph 2.0 investment generated an 8% return.
That's roughly four times of the 2% return, I guess, the U.S. aggregate index for bonds during the same period.
So you have a very unique background for Chief Investment Officer. Tell me about your background.
Thank you so much again for having me on today, David. It's a real honor to be here.
I'm a first-generation immigrant from Taiwan. My mom brought me and my brother to the U.S.
when I was 14 with very little English ability. I eventually graduated from MIT with a degree in mechanical engineering.
After college, I worked in the aerospace industry as an engineer and the semiconductor industry as a consultant. I spent 12 years in the family office gaining invaluable investment experience.
In 2018, I saw an incredible opportunity to join the Kansas State University Foundation's investment team. And when our longtime CIO, Lois Cox, hired in 2023, I had the privilege of stepping into her role.
So you are a first-generation immigrant like myself. In what ways was being being first generation an advantage? In which way was it a disadvantage?

I've always felt that I've been an outsider for the most of my life.

Being new to this country, being somebody who had transitioned from career to career positions throughout my life.

I've been an engineer, I've been a consultant, and then coming into the family office and somebody who came into the endowment foundation space without a whole lot of pedigree. So this is something that I find to be both a disadvantage and an advantage.
The advantage being that I can be more adaptable. I can gain comfort in my environment.
And I've learned to really try to open myself up by sharing my own personal life to people who may be less familiar with my background. That's one way for me to also get them to open up to me and to learn about their culture and their backgrounds.
So I do find that to be an advantage for me to build connections with people in different backgrounds. Silicon Valley is the ultimate place where the ultimate outsiders become the ultimate insiders, whether it's Peter Thiel, Elon Musk, and countless others.
When you look at top GPs or people that you're investing in, do you also find that there's this theme where some of the top managers are outsiders? I find that to be incredibly a motivating factor. Being an outsider motivates you to try to work hard because you know that you are not given that endowment in some way.
You are not given the chance to fail multiple times. When you think about any emerging manager, anybody who's coming into a space who's a newcomer, who's an outsider, most people don't give you a lot of chance to fail.
When you think about the asset management industry, it's very easy to sometimes see a, for example, whether it's a diverse manager or a first-time manager, they will not be getting the same treatment as somebody who may have already had a track record, may have failed in their fund, but they are given a chance to restart. But for somebody who's a first-timer, you can very well have a large stroll down, and then you'll be out of the space.
The deeper I go with the top general partners, the top entrepreneurs, there is a dark aspect to it in that the very same things that make them the most successful are oftentimes rooted, at least initially, from insecurities, from not being enough, from being an outsider. It has them do these, you would say, inefficient things of spending 100 hours a week once they're already billionaires and just always striving to prove themselves and to be better.
Some of them are able to channel that dark energy into a lighter energy. How do I change the world? You look at Elon.
How do we make human species multi-planetary? You look at Blake Scholl. How do we make travel more accessible? But a lot are still stuck in this dark aspect.
Talk to me about how you suss out the motivation in your managers. Think about alignment of interest.
I think about the person, their makeup, what they are, what they are representing, what kind of community are they coming from? And what role do they play in that community? What's their aspiration and goal in their life. And that's where I focus.
And that fit is very hard to find. And in many ways, it's almost like dating.
You're trying to find your ideal mate and you have to go through many hoops in order to find that ideal fit. For us, it's oftentimes a multitude of things from the person's motivation, the alignment of interest to the vision for the strategy to whether it's actually a fit to the rest of the investments in our portfolio.
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I learned in my career, when you start out, you get really excited about these big names. Harvard Management Company.
Of course, I love Harvard, but Harvard has the pick of the litter in terms of which fund they want it. So it ends up being, in some ways, unless you're one of these mega funds, a one-sided relationship where you really benefit a lot from Harvard, but Harvard may not benefit as much.
What you're saying is you're picking based on your endowment size, which is roughly 1.2 billion. You're going after a manager where you're meaningful to them, where it's really a two-sided street.
Why does that matter? I'm sure you care about getting the co-invest, getting information, getting meeting times with the GPs. Tell me about why it's so important for you to actually also have value for the GPs.
Like you said, it's a two-way street. So what we can contribute when our GPs are successful, we are in turn also benefiting from their strong performance and become successful.
So that's where this is a two-way partnership. We want our GPs to be successful, but we also are mindful of the size of their opportunities.
So we don't want them to grow too big. So there's always a delicate balance of thinking and envisioning their future with them and thinking about what's their optimal size, but at the same time, helping them if they can go to a larger size to have more stability within their organization, we will do our best to help refer to other like-minded allocators to help them grow.
I want to double click on something that you said earlier. You said we have 40 to 50 managers.
They represent one to a couple of percentages in the portfolio. Obviously, not every manager you're allocating the same amount.
Just to play devil's advocate, why is it so important? Let's say one of those managers blows up. Obviously it's not what you want, but why does that affect your portfolio so dramatically? Because we have less number of managers.
Each manager would take a more meaningful position within the book. And that's where we have managers.
When we are allocating or considering allocation to a prospective fund manager, we always think from the perspective of we only have five people, how many managers can we comfortably establish a close relationship and work with over the long term? And that's where the 40 to 50 managers in our portfolio becomes sort of a sweet spot, that that's where we feel we can adequately cover the investment opportunity sets within our portfolio relatively well, fulfill our fiduciary responsibilities by knowing our investments, knowing the risks, and also at the same time, having enough bandwidth and manpower to establish that close relationship with our fund managers. So that's where when you have only 40 to 50 positions, the position size from anywhere between a percent to 10 percent of our portfolio.
And if you have a manager that fails for a 1 percent position or even a 10 percent position, that's a lot more material than, for example, a larger portfolio with 300, 400 positions and fund managers that you can tolerate the impact of 0.3%, 0.4%, as opposed to, for us, if it's a failure of a manager, that can be a 1% or above impact to us. At Kansas State, you guys make these tactical investments going back to 2020, when you made your first tactical investment.
Tell me about that trade and how do you use tactical investments in your portfolio? Managing a fund is complex. Tax season doesn't have to be.
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So in 2020, market dislocations created unique opportunities and TELF 2.0 was one of them. It's a government initiative designed to stabilize credit markets by providing low cost leverage on asset backed securities.
We knew that this wasn't an undiscovered trade because TELF 1.0, right after the great financial crisis of 2008, had delivered outsized returns for several fund managers. So this time, we certainly expected competition to be fierce for this opportunity set.
Instead of jumping in blindly, we partnered with a Kansas-based fund manager that anticipated the crowding effect. They were prepared to move fast, identify the best opportunities, and deploy capital efficiently.
We took up a substantial portion of the SPV they set up, allowing us to gain meaningful exposures without the operational complexities of a direct participation. By allocating a sizable portion of our core bond portfolio to this tactical opportunity.
We turned the short-term

market dislocation into a compelling source of alpha, which really set the stage for our tactical investment approach moving forward. Double click on the trade.
And what trade did you make in 2020? We partnered with this fund manager that invested into investment grade asset-backed securities, So the RMBS, EMBS securities through the TELF 2.0 program where the government offers non-recourse loans at a low interest rate for the fund managers to invest in the space in order for them to rejuvenate and stimulate the credit market to ensure that we don't have a run on the bank in the credit market when 2020 happened. This was a measure that the federal government has established post-refinancial crisis.
So in this case, we knew that the TELF 2.0 program is going to offer credit facilities, but what happened in 2020 was also unique in that you had a sharp market downturn in March 2020. And then right away, within a couple of months, market had a very strong bounce back.
So that opportunity window was very short. The amount of securities that qualify for 12.0 at the valuation that makes sense for fund manager were limited.
So this was a case where partnering with a smaller fund manager that was nimble, that was able to quickly act and deploy capital efficiently into a smaller opportunity set really make a difference. Many of our peers were also interested in this opportunity.
But in terms of execution, many of them struggle with bureaucratic hurdles. They have to wait for their board to approve the trade.
And some of them partner with larger managers that were not able to efficiently deploy capital. Because once you find out the opportunity is smaller than you think, you are not able to call as much capital as you will expect to deliver that investment outcome.
So I would say the ability to be nimble and to be able to execute fast, what's the difference maker for us? I spoke to Scott Chan, CIO of CalSTRS, and they had this prepared mind waiting for a dislocation, what they would do. And that's why they were able to take advantage of that opportunity.
Talk to me about how you put yourself in a position to execute. It's one thing to have the idea, but how do you corral the resources

and how do you make sure that you're ready

to take advantage of a dislocation when it occurs?

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Our asset management committee has the oversight of what we do, but our team was given full discretion over manager selection, as well as making the investments necessary as long as we fit within the top-down strategic asset allocation framework. So this is where we are able to have the ability to be nimble.
We can take advantage of practical market opportunities and dislocations based on what we are seeing in the near term. And that has been a source of alpha for us by being able to take calculated, thoughtful approach to deliver returns in a risk-managed way to help us generate a differentiated return from our target benchmark.
What kind of returns were you able to realize with TELF 2.0 and how significant was this trade? So over six months of placing on a trade, TELF 2.0 investment generated an 8% return. That's roughly four times of the 2% return of the U.S.
aggregate index for bonds during the same period. For fixed income portfolio low-yielding world back in 2020, that's a material outperformance for us, especially when we are considering this is an allocation for our liquidity bucket, which is essentially investment-grade core bonds at a low-yielding type of environment that we had back then.
Considering the low-risk nature of the trade, the leverage provided by TELF combined with disciplined asset allocation created a higher return, low volatility opportunity that was hard to replicate elsewhere in the bond market at the time. And it also reinforced our belief that tactical opportunities, when we executed thoughtfully, can enhance returns without taking excessive risk.
It's a good example of being strategic and agile and how that can turn a short-term dislocation into long-term. I was just speaking to Cliff Asnes of AQR, and he believes that investors systematically are either under leveraged or over leveraged.
And one of the places that they're under leveraged is their fixed income portfolio. He believes they should be much smaller, but with higher leverage.
What do you think about that? And how do you think about leverage in your portfolio in general? We don't take a lot of leverage within parts of our portfolio. There's inherent leverage.
Within our portfolio, we have currently about 65% of the portfolio participating in what we call the growth. So that's a growth bucket that participates in public and private equity.
And most of these are 100% loan positions on the public equity side. And in the private equity side, we also monitor the level of leverage carried by our general partners.
The amount of leverage that's taking that's a little bit higher within our portfolio comes from the diversifier part of our portfolio and specifically coming from the hedge fund portfolio, which makes up about 12% of our portfolio today. And that's where we are tactical.
We do monitor the leverage for our fund managers, but it's a smaller portion of our portfolio. So typically, higher leverage impact can be limited.
Having coming from a family office in the past where we managed a highly leveraged fund of hedge funds portfolio back in 2008 and living through the times of the great financial crisis when the portfolio has to be locked up due to essentially all of our funding in the portfolio having restricted liquidity access to their positions. We certainly have learned the lesson, or for me personally, I've learned the lesson that leverage is a double-edged sword.
It can enhance returns in good times, but in bad times, that's when you can have your head handed to you, when your loss can be amplified and you're losing multiples of your equity. Percent of your portfolio is in diversifiers, which is hedge fund like strategies.
I think it's probably the closest to a black box in the endowment world where it's very secretive, many different strategies. Unpack that box for me and tell me about what some of these diversifier strategies are.
Because the biggest portion of our portfolio, or 65% of that, is in global growth in public and private equity. Diversifiers are really seen and positioned to help dampen the volatility of the equity market because it can be very volatile at times.
This is really designed to smooth out the ride. We tend to invest in strategies with return drivers that are less correlated to stocks, such as hedge funds, real assets, and alternative credit.
So private credit are really all part of this 27% diversifiers pool. I think the 27%, 12% are in hedge funds at the moment.
For our hedge funds portfolio, it's again a concentrated portfolio of six positions. So each position take up one to 2% of total allocation.
I would say about 40% of the current hedge fund portfolio are in more tactical arbitrage quant-related strategies that are seen somewhat as a black box in certain ways. And while the rest of the portfolio are in other diversifier strategies, but when we are evaluating hedge funds, we always look at the broader correlation to the rest of the portfolio, liquidity of these strategies.
And we also focus on, again, some of the other things I talked about earlier, who the manager is, what do they represent, what's their alignment, what's their aspiration in managing the firm and the strategy, and try to identify a good fit to the portfolio based on correlation to the rest of the book, liquidity they can deliver. And also, we always shoot for strategies that can at least give us an 8% long term annualized return that will reach our long term investment return.
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There's almost like these three co-centric circles of diversification. There's within the fund, you don't want the fund to blow up.
Then you don't want your diversifiers to be highly correlated to your other diversifiers, which is the second circle. And then all of that has to be contextualized within the overall Kansas State portfolio.
How do you measure that? And how do you know that you're diversified as an overall portfolio? We do look at our correlations against the broader traditional stock bond index over time. We try to think about our portfolio in the context of upside and downside captures in various market conditions.
When, for example, the equity market is up 100%, what's our upside capture to equity risk in general? And we also look at various levers, for example, looking at interest rate volatility, looking at the value of valuation of US dollar fluctuation compared to other currencies, looking at inflation levels and trying to analyze the sensitivity of our portfolio return to each of these levers. So those are ways for us to think about how resilient and how all weather proof is our portfolio in in environments.
How often do you run this diversification exercise? And talk to me about how you manage whether your portfolio is diversified. We look at our portfolio continuously, but I would say every quarter at the end of the quarters are a time for us to at least look at the composition of our liquid portfolio, because most of our liquid funds have a liquidity of monthly or at least a quarterly and better liquidity.
That's how we are managing the liquidity of our portfolio to meet distribution needs and other operational expense needs for our institution. So at the end of each quarter, our team usually does an exercise where we will take all of our liquid managers and divide it up among our team members for every member to do a re-underwriting of that strategy to essentially write a commentary of the fund manager.
And we will gather again. We typically will also assign a devil's advocate for each of the fund for the person to get into a debate.
This is a way for us to really make sure that we are really thinking both the good and the bad of each of our fund managers in the portfolio today. So that first part is where we are looking at individual fund managers and how do they fit within the portfolio based on how they did over this past quarter, any material changes to when we underwrote the strategy.
And second part is also we have quarterly review meetings with our board and our committee. And that's where we also take the portfolio as a whole and look at upside, downside, overall diversification, benefits and correlation numbers and other metrics against our benchmark, against the various asset class benchmarks to really get a sense of if we are seeing a different scenario, if we are seeing a historically stressed scenario, how would our portfolio do? And how does that compare to the prior quarter? A couple of great nuggets to unpack there.
One is, this is not an academic exercise you do once a quarter, you're actually evaluating primary your liquid strategies, because those are the strategies that you could take some action on. So if you decide, if you make a decision, you could actually divest from one manager or invest in another manager.
Secondly, I think one of the biggest biases in asset management is that you need a reason not to re-up with somebody versus a reason to continue to re-up. If you think about it from first principles, you should be underwriting it just like Kansas State does in that, why am I in this manager? If I had it all over again today to make that decision to re-underwrite, would I make that same decision again? I think that's a rare discipline.
And of course, the devil's advocate, I love that. I'm a big fan of devil's advocate.
We oftentimes within our firm, we come up to a decision. Now we say, as a next step, we say, now let's kill it.
What is the best way to kill this idea, this strategy, this hire? I think it's a really useful and undervalued product. Tell me about the three investment categories that you divide your strategy into.
Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the bucket is designed to smooth out the ride.
We invest in strategies with return

drivers that are less correlated to stocks and to provide stability and enhance risk-adjusted returns. Finally, liquidity bucket ensures we always have the cash flow needed to support K-State's mission.
It consists of the highest quality credit assets, prioritizing capital preservation, liquidity so we can reliably fund scholarships, faculty salaries, and campus initiatives. You have these three investment categories.
Tell me about what target return are you trying to get on the entire portfolio? Sure. So when we are thinking about our target return, it's designed to ensure long-term sustainability of the endowment.
And it needs to cover three key components. First, annual distribution of 4.3% currently over the average market value of our endowment over the last three years.
And this is a portion where we distribute each year to support scholarships, faculty, and key campus initiatives. And then secondly, we have to cover our fees and expenses, including investment management costs, operational expenses, and support fees to help support our fundraising efforts to grow the endowment.
And that currently adds up to be roughly 1.5% a year of the endowment's market value. And lastly, to maintain our endowment's purchasing power over time, we need to keep up with the rising cost of education and campus needs.
So we have to keep up with long-term inflation numbers. There's always a little bit of a tricky exercise to determine what's the appropriate inflation number to use in this case.
For our institution, we choose to have a 2% long-term inflation target in line with what the Fed is targeting. But it's something that we continuously monitor.
So every year we have an exercise of reviewing investment policy statement to think about, is this target return still the right way to go about based on whether we are going to maintain that 4.3% distribution, whether we're going to charge the same amount of management fee across the foundation and what that inflation assumption is. So this is an annual exercise that we do based on the changing market environment.
But once you kind of add them up, today's long-term target return is about 7.8%. And hitting those numbers isn't just enough.
So this is where we try to exceed it while managing risk effectively. Our job is to construct a portfolio that not only meets the target, but goes in a way that provides stability and resilience through different market cycles.
So let's say you sit with your investment committee in 2026 and you decide you want to increase your return. What are some of the levers you could pull in order to increase Kansas State's return? There are several levers that we had historically pulled to enhance our returns compared to our benchmark while managing the risk effectively.
We do have the flexibility within approved rebalancing ranges to place an overweight or an underweight to certain asset classes based on our market conditions. So this does allow us to be more opportunistic while staying disciplined.
So for example, if we do need to increase expected returns, we can tactically increase the allocation to growth to equity positions when situation calls for it. Secondly, we also are somewhat different in that we do invest beyond traditional categories.
So even though we have a top-down strategic asset allocation framework, there are some high return strategies that don't fit neatly into a conventional asset class bucket. For example, if you think about convertible arbitrage strategies, niche equity strategies like a sector specialist or a country specialist, reinsurance strategies, or GP stake strategies.
They don't necessarily fit neatly into an equity or a credit or a hedge fund bucket. So that's where we try to be flexible and we find creative ways to incorporate them.
And then lastly, we try to take tactical opportunities when these locations arise. So like the TELF 2.0 trade we talked about earlier, we can act quickly to capture excess returns that wouldn't typically be available in a static asset allocation model.
So these are all different things that we do, but ultimately our goal is to balance risk and return while being nimble enough to take advantage to unique opportunities that fit within our governance framework. So you could either rebalance, so you have your growth, your diversifies, your liquidity.
You could rebalance a little bit more on growth, which essentially makes it slightly less diversified or slightly less liquid, but a higher return. You could do investments into things like GP stakes, reinsurance, or you could prepare kind of for these idiosyncratic trades like the TELF 2.0.
On the TELF 2.0, without giving away the secret sauce, how are you preparing yourself for the next TELF 2.0 trade? So how do you go about scouring the market and the managers for the next great trade? We don't. We wait for them to emerge themselves.
And sometimes when situations arise, you do see these locations. We are certainly not macroeconomists from our team, and we don't profess to know the market better than the fund managers that we have investments with.
So this is where we do partner with our fund managers. We rely on their expertise to identify these dislocation opportunities for us and notify us when these type of situations arise.
And that's where we will then, the team takes time and takes our energy and resources to underwrite these dislocation opportunities to build confidence and build convictions so that when we do decide that this is an opportunity that makes a lot of sense, we will act very quickly and try to be nimble to allocate a part of the portfolio that can make a meaningful impact to performance. You mentioned GP Stakes, which is a hot industry.
It's roughly 60 billion AUM. It's innovating rapidly.

How have you thought historically about the evergreen nature of GP stakes deals and that

they don't typically have a 10-year fun life?

And how do you incorporate that into the endowment strategy?

There's been a lot of growth within the space.

And you have managers within different spectrums of GP stake, depending on the type of strategy

of GPs they would invest ownership stakes in versus the size of the fund managers that GP stake investors would put in. From our standpoint, it's a space that we have not taken a lot of idiosyncratic risk per se.
We have partnered with the biggest GP stake managers in the market, essentially focusing on the trophy assets of fund managers. Because for us, we are really thinking about it as a way for us to deliver high cash-on-cash yields coming from the stability of the largest fund managers and GPs out there that have continuously been able to grow their asset size and deliver a relatively safe return for their LPs.
So these are the larger GPs that have seen the largest growth in their asset size. And we do feel there's some stability to how they are managed and taking GP stakes within those fund managers allow us to be able to diversify our portfolio in some ways.
Because when we think about our private equity portfolio at our size, we tend to partner with smaller, lower middle market buyout type of strategies and managers at a smaller size by doing GP stake in our portfolio in the trophy largest asset managers in some way that diversifies away from our exposure to smaller managers. And we get to participate in the growth of the larger asset management firms as well.
In many ways, that's a trifecta. You have your growth because the MOICs are pretty attractive in GP stakes, even for these mature trophy assets.
You have your liquidity. It starts to go liquid with the first quarter because you're getting a percentage of the management fees.
And then I would argue it's also diversifier because management fees are contractual. So even if a fund's not doing great, there's still 10 years of management fees.
Right. So there is a durability of the return.
And that's another part that plays in our interest. We don't see it as an equity investment.
We don't see it as a credit investment. But it's really components of both, where if the GPs continue to grow their assets, they will continue to see a higher share of growth in their performance fees.
and that performance speed along with with GP's own investment in their funds, will deliver our performance on top of kind of what you mentioned about the regular cash flows coming from the management fees. Part of the way that Kansas State has been able to sustain the returns that you guys have sustained is by going lower middle market, going into the smaller managers and where there's more alpha.
Firstly, there's also obviously blow up risk for smaller fund managers. How do you manage that? And why are you not more concerned about your small managers blowing up? Going concerned is certainly an additional risk that's higher with smaller, less established fund managers.
So we don't, we're somewhat constrained from investing and seeding day-one funds as a result of our smaller team and our lack of bandwidth to really take on high conviction kind of day-one fund positions. So in this case, we tend to partner with fund managers that's already relatively more established in some ways.
The only difference being that they are size smaller. So they are in a smaller AUM asset under management size where they may be in the inflection point of growth where we see something in them, we feel that this is a partner that we can work with to grow alongside them.
So if we are selecting our fund managers thoughtfully and correctly, our fund managers

should do very well over the long term.

And in turn, we can grow to be a bigger partner with them.

And we can also grow alongside them.

You guys also invest into small hedge funds.

Tell me about how you invest in small hedge funds.

And isn't that extremely risky?

And tell me how you manage the risk on smaller hedge fund strategies.

So our current portfolio, I would say we have probably a third of our portfolio

funds that are sub a billion dollars.

And but with that said, these funds are still somewhere between 500 or 250

on the smaller side to maybe 800 million dollars.

And that's what we are not going with the smallest of the fund managers for obvious reasons, because we are trying to make meaningful allocations within our portfolio at 1% plus. And for a billion dollar portfolio, that's roughly a $10 million investment.
And the other thing is we don't want to be more than 10% of the overall investment of a fund manager. That's also seen by us as a risk factor.
So that's where that limits the floor of the size of managers that we can invest into $100 million and more. So that's where we do invest in smaller fund managers in kind of from the size of managers that we can invest into a hundred million dollars and more.
So that's where we do invest in smaller fund managers in kind of from the perspective of a larger institutional investors perspective, where they may tend to focus more on hedge funds that's over a billion dollars in AUM. But then these are not ultra small managers that have going concerns.
What we try to do is we try to have a continuous dialogue with our fund managers to really understand the growth trajectory of their organization as a whole. Some of these fund managers may have a sub-billion dollar hedge fund in their firm, but the overall firm is supported with multiple products and overall firm AUM is still over a billion, and there's still some stability.
It's just a more niche strategy that takes advantage of a more fragmented or less efficient market opportunity. And those are things that usually we can get pretty comfortable with.
And it's intuitive to me why smaller buyout strategies or maybe smaller venture would lead to higher returns. In hedge funds, it would seem that the larger hedge funds have more resources for risk management, for the top quant traders, for the top macro traders.
Why is small beautiful when it comes to hedge funds? There are strategies where larger is more beautiful, and then there are strategies where smaller is beautiful. So when you think about even the pot shops, like the Millenniums of the world or the Citadels of the world, their asset size of multiple billion dollars require them to identify portfolio management teams that can manage an asset size of a billion dollars or more for them to be able to efficiently deploy their resources.

So they are not necessarily looking for smaller fund managers that's only seeing an opportunity set of, say, $500 million to $800 million.

So that's where there are things that make where the larger the scale you are,

the better you are.

You can't have world-class risk management capabilities. You can have better reporting capabilities and transparency provided to the investors as a larger investment firm.
But then there are also investment opportunities where it may be less accessible by the largest of the institutional investors, but these are equally compelling opportunity sets. And being a mid-sized endowment such as ours, one of the differentiators for us is to be able to participate in these investment opportunity sets and even further make it a more meaningful position so that it actually drives a bigger part of our return than what you can do for a much larger institutional investor.
Tell me about your buyout strategy. What is Kansas State's buyout strategy? So our buyout strategy is tailored to leverage our position and size.
So historically, we focused on the lower middle market buyout space. This market is more fragmented and less efficient, offering niche opportunities that larger buyout funds often overlook.
And in some ways, there are also many of the exits from our lower middle market buyout managers becomes the buying targets for the middle market and the larger buyout managers. So there is a natural ecosystem out there where exit environment can be relatively healthy when the larger funds are doing well.
And additionally, we've also strategically targeted less trafficked regions away from the coasts. This has to do partly because we are located in the Midwest.
We tend to feel have a more of a comfort to work with managers who are based out here in our region. And also, we do feel that

there is a little bit of a crowding where across the nation and across most of the institutional

investor space, there seems to be more of a focus on managers based in the East Coast or the West

Coast. So from our standpoint, by partnering with biomanagers from the Midwest, the South,

the Great Lakes region, we have actually been able to tap into unique opportunity sets

Let's do this. So from our standpoint, by partnering with biomanagers from the Midwest, the South, the Great Lakes region, we have actually been able to tap into unique opportunity sets that have delivered performance numbers equivalent, if not exceeding that of the larger managers.
Tell me about your venture strategy. How do you look to invest in venture? Sure.
So our venture strategy is all about gaining access to the best founders. And given our small team, we cannot underwrite a large number of funds.
So we focus on building a diversified yet concentrated portfolio. So we strategically select six to seven venture GPs who each have a unique approach to us, to accessing, to tackle the challenge of accessing top tier founders and opportunity sets.
So we have a few of our GPs are somewhat seen by us as a regional champion. We have some other GPs within our portfolio who are thought leaders in specific sectors, such as healthcare, biotech, or in AI.
And that's where these sectors where sometimes the regional champions may not be able to identify promising new trends and technologies that's emerging.

You need people with sector specialization.

You need domain expertise for the investors to be able to tackle.