An A R C H I V E of the history of NU Student Theater - C L I C K H E R E
University President Michael Schill resigns amid ‘painful’ challenges
Amy Falls on Bloomberg Television - Surveillance - Amy Falls, Northwestern University
Transcript of Amy Falls on Bloomberg:
"DEMAND FOR PRIVATE MARKETS RISING AS INVESTORS SEEK A SLICE OF THE BOOMING $13 TRILLION ASSET LANDSCAPE. NORTHWESTERN UNIVERSITY NAVIGATING THE SHIPS AND ASSET ALLEGATIONS WITH ONE OF THE MOST VALUABLE ENDOWMENTS, TOPPING $14 BILLION LAST YEAR. JOINING US NOW IS AMY FALLS,THE CHIEF INVESTMENT OFFICER FROM LONDON. WELCOME TO THE PROGRAM. TYPICALLY WE WOULD NOT BEGIN BYTALKING ABOUT CASH AND CASH ALLOCATION AND LIQUIDITY NEEDS BUT WE HAVE TO START THERE.
HOW HAS THAT CHANGE COMPARED TO YEARS GONE BY?
AMY: IT'S A LITTLE HIGHER. ABOUT 7% OF THE PORTFOLIO INCASH OR SHORT-TERM TREASURIES. THAT IS HIGHER THAN NORMAL.THE DURATION OF THE TREASURIES IS SHORTER, REFLECTING A LOT OF THE OPERATING UNCERTAINTY WE WANT TO BE PREPARED FOR
LISA:WHEN DID YOU START STOCKPILING ARE ADDING TO YOUR CASH HOLDINGS? WAS THERE A TRIGGER THAT PROMPTED THAT SHIFT?
AMY: I THINK IT'S A COMBINATION OF THINGS. WE STARTED AROUND DECEMBER OF LAST YEAR. THERE WAS A MOMENT WHERE I WAS THINKING ABOUT REDEPLOYING AROUND LIBERATION DAY.THE COMBINATION OF OPERATING UNCERTAINTY AND RELATIVELY FULLY VALUED MARKETS, SOME OTHER COMBINATION TO AT THIS MOMENT WHERE I THINK MARKETS ARE PRETTY FAIRLY VALUED AND THERE'S A LOT OF UNCERTAINTY IN OPERATING - UNCERTAINTY AT THE UNIVERSITY, IT JUST MAKES SENSE TO HAVE A LITTLE MORE DRY POWDER. THE RISK OF NOT BEING IN THE MARKETS SEEMS LESS EXTREME AND IT HELPS TO HAVE RELATIVELY HIGH RATES ON SHORT-TERM TREASURIES. ALL THREE THINGS ARE SUPPORTIVE OF HAVING MORE MONEY IN YOUR BACK POCKET.
LISA: YOU TALK ABOUT SOME OF THE MOMENTS WHERE YOU FLIRTED WITH GETTING INTO THE MARKET. I WONDER HOW YOU ARE INFLUENCED BY YOUR PEERS AT OTHERUNIVERSITIES WHO HAD HUGE ALLOCATIONS TO PRIVATE MARKETS THAT THEY COULD NOT QUICKLY LIQUIDATE WHEN THEY NEEDED CASH.DID THAT ENCOURAGE YOU TO HOLD ONTO LIQUIDITY AS WELL OR STAY AWAY FROM SOME OF T THAT ASPECT?
AMY: IT'S IMPORTANT. SETH KLARMAN TALKED ABOUT THE VALUE OF CASH AND IT'S HARD TO MEASURE. IT'S IMPORTANT TO HAVE ENOUGHLIQUIDITY TO REDEPLOYING AND OPPORTUNITY. WE HAVE A BIG PRIVATE EQUITY ALLOCATION AND WE HAVE BEEN GROWING IT OVER TIME. A BARBELL CAN BE HELPFUL IN THAT YOU WANT TO BE OPPORTUNISTIC AND ALSO WITH THE LONG-TERM BENEFITS OF EXTREMELY LONG HORIZON INVESTING, WHICH PRIVATE EQUITY STILL REPRESENTS.
ANNMARIE: WHAT DOES THE REST OF THE YEAR LOOK LIKE WITH FEDERAL CUTS TO UNIVERSITIES LIKE NORTHWESTERN?
AMY: WE ARE LOOKING HARD AT HOW TO RESPOND TO A CHANGING FUNDING ENVIRONMENT. THERE ARE MANY ASPECTS TO THAT FROM AN INVESTMENT STANDPOINT. WE HAVE TO CONTINUE TO WORK ON GENERATING HIGH RETURNS. WE ARE 25% OF THE UNIVERSITY'S BUDGET. I DON'T SEE THAT GOING DOWN ANYTIME SOON. WE ARE STUCK AT A HARD PLACE OF WANTING LIQUIDITY BUT ALSO WANTING HIGHER RETURNS. WE ARE DEFINITELY BARBELLING IN TERMS OF HOW WE RESPOND.
ANNMARIE: FEDERAL GRANTS REMAIN FROZEN BY THE ADMINISTRATION. IS THERE OUTREACH BETWEEN THE UNIVERSITY AND THE U.S. OFFICIALS?
AMY: YEAH. I'M NOT THE BEST PERSON TO COMMENT. I BELIEVE THERE IS A CONVERSATION.
JONATHAN: IT'S INTERESTING. HOW DO YOU BALANCE THE INCREASED LIQUIDITY NEEDS BECAUSE OF THE OPERATIONAL ENVIRONMENT? DOES IT MAKE IT DIFFICULT TO LEAN INTO THE STRATEGIES OR MOVE MONEY FROM YOUR PUBLIC MARKET ALLOCATION TO FUND THOSE NEEDS?
AMY: YOU HAVE TO HAVE MARGIN. THE IMPORTANT THING IS TO BE REALLY CLEAR WHY YOU ARE GIVING UP LIQUIDITY AND WHERE. YOU HAVE TO BELIEVE YOU'RE GOING TO GET THE HIGHER RETURNS. ONE THING WE HAVE BEEN DOING IS LOOKING FURTHER DOWN THE MARKET CAPITALIZATION OF PRIVATE EQUITY AS WE SEE THE PROBABILITY OF MORE MONEY THROUGH RETAIL AND OTHER PRODUCTS COMING IN AT THE HIGH-END OF PRIVATE EQUITY. WE THINK THE BETTER RETURNS MAY BE MIGRATING DOWN TO MIDDLE AND LOWER MIDDLE MARKET PRIVATE EQUITY. WE JUST WANT TO BE SURE WE ARE GETTING PAID TO GIVE UP LIQUIDITY, BECAUSE IT IS VALUABLE FOR REBALANCING AND FOR MEETING THE NEEDS OF THE UNIVERSITY. I THINK THERE ARE AREAS OF THE MARKET LIKE LARGE CAP U.S. STOCKS WHERE IT MAY BE LESS IMPORTANT. YOU CAN PROBABLY USE AN ETF, AND WE HAVE DONE MORE OF THAT. WE HAVE USED OPTIONS OR ETF'S TO PUT THE EXPOSURE ON. YOU DON'T NEED TO LOCK UP AS MUCH.
LISA: YOU TALKED ABOUT GETTING TO THE LOWER END OF THE PRIVATE EQUITY SPHERE, THE LOWER AND MIDDLE MARKET COMPANIES. I'M WONDERING IF YOU STILL SEE PRIVATE EQUITY AS A SOURCE OF RETURNS OVER PRIVATE CREDIT WHERE THERE HAS BEEN SO MUCH INTEREST AND MONEY, THE DISCUSSIONS AROUND THE GOLDEN AGE OF INCOME.
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
JONATHAN: AMY, APPRECIATE YOUR TIME.HOPEFULLY WE CAN DO THIS IN NEW YORK SOMETIME SOON. WHEN YOU ARE 25% OF THE UNIVERSITY BUDGET, THERE IS A RISK YOU MIGHT BECOME A BIGGER PROPORTION OF THE BUDGET AND YOU HAVE TO ACCOUNT FOR THAT. A LOT OF PEOPLE RUNNING ENDOWMENTS, YOU HAVE TO HAVE THAT BARBELL AND SHIFTED TO ALTERNATIVE STRATEGIES. YOU NEED LIQUIDITY AT THE FRONT END OF THE CURVE. THE INTEREST RATES ARE GOING TO START TO COME DOWN. YOU HAVE A DECISION TO MAKE. WHAT DO YOU DO WITH THAT POSITION? EXTEND DURATION? DO OTHER THINGS? THEY WILL GET SQUEEZED BY REGULATION AND INTEREST RATES.
LISA: THEY DON'T KNOW WHAT WILL COME DOWN THE PIKE, WHAT GRANTS ARE OR ARE NOT GOING TO COME THROUGH, WHAT STRINGS ARE GOING TO BE ATTACHED LIKE WITH HARVARD AND THE $500 MILLION PACKED WITH PRESIDENT TRUMP TO PROVIDE A LOT OF TRADE TO TRADE ORGANIZATIONS, TRADE SCHOOLS. HOW REMAIN LIQUID WHEN SO MUCH OF YOUR INVESTMENT HAS BEEN SEEKING FOR YIELD IN ILLIQUIDITY? WE HAVE SEEN THAT WAS SALES OF PRIVATE CREDIT FROM BIG UNIVERSITIES ALREADY. FASCINATING SHE IS BETTING ON MIDDLE-MARKET PRIVATE EQUITY AT A TIME WHEN THERE ARE QUESTIONS AROUND THE ECONOMIC GROWTH OF THIS COUNTRY. JONATHAN: AMY FALLS OF NORTHWESTERN UNIVERSITY."
