December 8, 2014
Interviewed by: Tom Franco
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VC-Focused Endowment Investing

Commonfund Capital invests in private equity and venture capital globally, says the co-head of VC, Brijesh Jeevarathnam. He discusses where he has found successful investments, the opportunities and risks found in emerging markets, and deal sourcing strategies. In conversation with Thomas Franco of Clayton, Dubilier & Rice and Daniel Feder of Washington University Investment Management Co.

Commonfund Capital invests in private equity and venture capital globally, says the co-head of VC, Brijesh Jeevarathnam. He discusses where he has found successful investments, the opportunities and risks found in emerging markets, and deal sourcing strategies. In conversation with Thomas Franco of Clayton, Dubilier & Rice and Daniel Feder of Washington University Investment Management Co.

VC-Focused Endowment Investing
With Brijesh Jeevarathnam of Commonfund Capital

Dan Feder, Washington University Investment Management Co.: Hello, I’m Dan Feder. I’m here with Tom Franco to have a discussion with Brijesh Jeevarathnam about private equity, and I guess, with out further ado, let’s get right to it.

Brijesh Jeevarathnam, Commonfund Capital: Good morning.

Feder: So Brijesh, maybe you could just start off and tell us a little bit about Common Fund and the work you and your team are doing there.

Jeevarathnam: Sure. Common Fund is a 40-plus-year-old organization. It’s a global investment firm. We manage money for hundreds of clients, most of whom are endowments and foundations. We have offices today in the U.S. on the East Coast and the West Coast, as well as in Beijing in China and in London in the U.K. We manage money for our clients in multiple formats in hedge funds, in fixed income, in loan-only equity and private capital. And we manage money for them in what’s called a fund-of-funds format or a customized-account format. On the private capital side, that includes, for us, venture capital, private equity, and natural resources.

Feder: I would love to hear your perspectives on the sorts of challenges your clients face.

Jeevarathnam: Sure. Our clients span the spectrum in size from as little as $25 million to $50 million in total investable assets to as much as multi-billion. Our largest client, in fact, is a non-endowment that has $65 billion under management so really spans the whole spectrum in size. But our sweet spot is the endowment foundation client that is typically between $200 million to a billion dollars in size in terms of total investable assets. And their challenges are the same, I would say, as any sort of midsize endowment foundation pool that has a perpetual investment horizon. They’re looking to meet needs for the organization in terms of either operating needs for the college or the foundation or the university, as the case may be, and at the same time preserve capital and grow capital with a perpetual horizon.

Feder: When you’re working with your clients, how do you communicate what you see on the ground and the work that you’re doing—a lot of times sort of under, behind the scenes—communicating the opportunity for a board or for a client who, as you say, won’t see the fruits of that for years to come?

Jeevarathnam: I focus, by the way, on venture capital and private equity, with a specific focus on venture capital. These are obviously long-lived asset classes, and we’re picking the geography, we’re picking the sector and the strategy. We’re also picking, very importantly, the team, and as a global firm our perspective is we’re looking for the same principles in an investment firm, no matter where they are. They could be in India, they could be in Africa, they could be in the U.S. And those principles at the team level are ones of alignment with investors. We’re looking for a team with experience and a track record. We’re looking for a team with integrity—somebody that can be a 10-plus-year partner with us. In a way, it’s like a marriage. What is different is the lens through which you evaluate the various input criteria in Africa or China or India. What I mean by that is, there are certain social causes or differences that may mean something, that are a marker of something in a certain geography, but may mean nothing somewhere else. It’s a false positive. And how we diligence that is by doing a couple of things, being very local. We have on-the-ground presence in many of these markets and travel a lot.

Tom Franco, Clayton, Dubilier & Rice: If you are going to China—and going to China and doing venture investing, that’s pretty far up the risk curve, I would think—is the tolerance for those kinds of investments the same today as it was two years ago?

Jeevarathnam: That’s a good question. I think there are two—once again, to simplify the response—two kinds of client reactions to some of the risks we’re seeing and in the world today. One says, “Look, we are in an environment where growth is flattening. There are some macro shock potential vents. Pick what you want to pick, whether it’s Ebola or something in the Middle East or something else.” And I need to take a long-term perspective and invest in something that has lower correlation to something that’s going to happen next quarter, next month, or next year.

Feder: How do you think about managing risk within your own portfolio, given run-ups in value, which can be happy news, although unrealized with portfolio companies? And what does that mean for you?

Jeevarathnam: There has been, I think, a fundamental shift in private valuations in the venture growth equity world. And I think these large private financing events—you’re talking about a billion, five billion, 15 billion, 18 billion in Uber’s case—are really, in our view, quasi-public events, meaning the quasi-IPOs. And I say that because of the valuation of these rounds, and I say that because, who is investing in these rounds? You look at the investor syndicates in these multi-billion valuation rounds, it’s the likes of Wellington and Fidelity and T. Rowe Price and so on. And they’re investing from pools of capital which, in fact, could have accessed the same companies in the public markets, but now they need to get a good return when the company is still private. Our portfolio in venture is mostly venture, I mean early-stage-focused, and it’s becoming more and more early-stage-focused.

Franco: So how do you go about sourcing these concepts? And then how do you figure out the guy who is in a garage today is gonna be in a skyscraper tomorrow?

Jeevarathnam: So I’ll be the first to admit my skill set is not finding those companies in the garages. Our firm’s skill set and my skill set is finding the great managers who find those people in the garages—the future Steve Jobs, if you will. And over the last 25 years, we’ve been investing in private capital managers, and we’ve honed this skill of finding managers who have the edge, the “it” factor of finding great deals and then winning great deals. Ultimately the entrepreneur is the customer, and the entrepreneur clout has gone up more and more in today’s world.

Feder: One of the things that really strikes me is that Common Fund has been really thoughtful over a long period of time about connecting and writing about, quite a bit, how institutions and particular endowments, foundations, ought to think about connecting the missions of their institutions or their affiliated institutions with their investment programs. And so how do you, in your decision-making and your process, incorporate ESG into what you’re doing day to day?

Jeevarathnam: Yeah, we serve constituents who are very ESG-aware. When you think about student bodies around the country, they’re definitely very activist in that sense of being responsible environmentally, socially, and otherwise. So we as an organization—Common Fund—became a signatory to the U.N. PRI a couple of years ago, and we practice and institute ESG principles with our managers.

Franco: Just kind of changing gears here, in terms of the post-financial-crisis mindset of the endowments, have there been profound changes as a result of that experience that you see having changed the way you do business?

Jeevarathnam: No matter what you do today, it’s slightly different than what you did seven, eight years ago, pre-crisis. And that’s certainly true of our business. So if you look at our business, we are doing the exact same things we did 25 years ago in the sense that we invest in venture capital, private equity, and natural resources around the world. That hasn’t changed. What has changed is the way we provide those services to clients, the solutions to clients. We now have more funds or fund sleeves, so that clients can customize how they have a mix of, let’s say, European private equity versus emerging markets versus U.S. private equity. We have, as I was saying earlier, customized accounts where a client says, “I want something very bespoke where I can really tell you I want attribute X, Y, and Z but not A and B and C.” And that, I think, is the single biggest change, which is the way we provide client solutions.

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