CIO Greatest Hits: Multi-Family Offices – Stan Miranda (Partners Capital) | Capital Allocators – Inside the Institutional Investment Industry Brief

Key Takeaways

Partners Capital was founded post-tech bubble to offer transparent investment management, addressing private banks' conflicts of interest.
The firm scaled to $1.5 billion by 2005 by adopting a slow-growth strategy and in-depth, "blank sheet" asset class analysis.
Its endowment model emphasizes high static risk, multi-asset class diversification, and concentrated, specialist asset managers with personal investment.
Manager selection involves team experience, quantitative analysis against multi-factor benchmarks, and psychometric assessments spanning 300-500 hours.
Risk management has evolved, utilizing factor models to identify over/underweights and measuring risk using beta instead of volatility.
A three-layer tactical asset allocation model is employed, aiming to generate alpha through sub-asset class moves that cover fees.
The firm avoids large platform hedge funds due to high fees, preferring spin-offs with better terms (e.g., 2 and 20) and specialized focus.
Partners Capital is exploring internal strategies for areas like "New World Equity" and energy transition where external managers are lacking.

Partners Capital was founded by Stan Miranda and Paul Dimitric after concentrated tech investments led to significant losses post-tech bubble.
An investigation revealed private banks had conflicts of interest, lacked transparency, and provided managers with no alpha.
The firm was created to be an independent, transparent investment management firm, inspired by Michael Porter's strategy work.
Starting with $7.7 million, they initially served 43 private equity GPs and friends.

The firm scaled to $1.5 billion by 2005, initially capping annual growth at $1.5 billion until the global financial crisis.
Their endowment model, fully expanded to all asset classes by 2003 (private debt added in 2009), keeps a consistent core offering.
Key pillars include high static risk and multi-asset class diversification biased towards illiquid assets.
Another pillar is selecting concentrated, specialist managers who make significant personal investments.

Portfolios contain risks beyond equity beta, such as geopolitical risk in China and regulatory risk in biotech, making public equities challenging.
The firm moved beyond believing only top 8-10 venture capital managers were viable, now focusing on early-stage opportunities with emerging managers.
They prefer early-stage managers spinning out of established firms, rarely investing in those without significant "reps."
Quantitative due diligence uses a global funnel, eliminating 95% of equity managers by analyzing performance against multi-factor benchmarks.

Risk management is a key endowment model evolution, utilizing factor models to identify over/underweights and presenting a 'risk dashboard' with over 16 metrics.
They counter unintentional overweights using liquid instruments like ETFs or futures in portfolio construction.
A three-layer tactical asset allocation (TAA) model includes rebalancing absolute risk (Layer 1) and adjusting 13 asset classes or seven betas (Layer 2).
Layer 3 focuses on sub-asset class tactical moves, like successful railway investments, aiming to generate alpha to cover fees.
Performance fees are emphasized on alpha, not beta, with fee negotiation possible for larger allocations.

The firm modernized its endowment model by emphasizing risk management, tactical asset allocation, and acting as a value-added LP (e.g., a 70-page book on post-acquisition practices).
Beta is used as a risk measure instead of volatility, rejecting volatility budgets that lead to counterintuitive trading.
Partners Capital has shifted from passive public equity strategies to actively seeking managers, and also manages investments internally when external options are insufficient.
They developed an internal "New World Equity Portfolio" post-COVID and are exploring a "brown to green" energy transition strategy, as external managers are not currently pursuing these.

Private equity expected returns historically averaged 15%, focusing on lower middle market and software specialists with high earnings growth potential.
Hedge fund investing is categorized into hedged equities and absolute return strategies, aiming for 3-4% stable alpha from 12-20 managers.
The firm avoids large platform hedge funds like Citadel and Millennium due to high fees and low return on cost.
Instead, they invest in spin-offs, often from Citadel, with better terms (e.g., 2 and 20) and specialized sector focus.
"Alternative alternatives" include insurance, litigation financing, and royalties, offering uncorrelated, high single-digit returns with limited capacity.

Partners Capital manages a $50 billion asset base, fostering improved relationships and transparency with asset managers.
Succession planning at Partners Capital emphasizes a partnership model with multiple principals and natural transitions, rather than a single key person.
The firm envisions potentially engaging in more direct investing in the future, identifying unexploited opportunities.
Future vision outlines Partners Capital as a privately owned, management-run outsourced CIO, maintaining its reputation for thought leadership.
The guest identifies mistaking alpha for beta and a past investment in catastrophe insurance (linked to global warming) as significant pet peeves and mistakes.