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Investing in long-only, venture capital and growth equity to compound wealth and not impair capital
Key Takeaways
- Sender Cohen of Schusterman Family Interests describes the strategy he employs at the family office to compound and preserve wealth through time.
- He does not over-focus on short-term volatility, but protects his downside by making sure there is enough excess liquidity in the portfolio and by choosing managers that won't impair capital.
- Schusterman invests in long-only strategies for dollar preservation, and then venture capital and private equity (growth equity) predominantly to generate outsized returns. They don't invest in hedge funds.
- For every year of lock-up, Cohen expects 100 basis points of extra return on the firm's capital.
Transcript
Hi. My name is Sender Cohen, and I'm the chief investment officer at Schusterman Family Interests, which is a family office for a Midwestern-based oil and gas family. The objectives of my family office of the family that I work for are, you know, I guess like most compound wealth prudently. There are some people more in the get rich mode, some people more in the stay rich mode. We're kind of a hybrid in terms of how we think about compounding the family's asset base and the family's foundation.
How would I describe our investment philosophy? Not worrying about market volatility. That's not something that factors into what we do. Worrying a lot about excess liquidity, worrying a lot about capital impairment. I have all the eggs in specific asset classes, and I watch them closely. And that's how I do it. I think it's more what I don't do than what I do that leads to results, hopefully, positive results. We don't invest in any hedge funds. We don't employ any leverage. There's one strategy that's an exception to every rule. There has to be an exception or two to make it inconsistent for me. We don't invest in traditional private equity, invest a lot in venture, a lot in growth equity, and a ton in long-only mandates. And there are little things here, and credit that we do that are very, very idiosyncratic, a little bit of macro, partly because of my DNA, but for the most part, it's long only in growth in venture with a very healthy dose of liquidity and a very sharp focus on keeping excess liquidity in the portfolio because we tend to embrace a lot of beta in the portfolio.
Our rule of thumb is for every year of lock-up, there should be another 100 basis points of outperformance relative to the benchmark you're evaluating against. The more liquid any asset is, the more it is chance causes you outperform unless you're what I like to call the touched by God types, the Stan Druckenmiller's of the world. Other than that, you're not going to outperform over time. Whereas the earlier stage something is, the more it is about the right access. So just based on that logic alone, the long-onlys to me are for embracing better dollar production for lack of a better term. And the venture and the growth are about getting the right access to the right companies that can outperform over time.
You embrace your capital. And with capital like this, you don't have to be in hedge funds solving for short-term market moves. We can embrace that volatility as long as we're comfortable that somebody is not going to impair capital for us, and we can have a good long-only portfolio to kind of track the market. And hopefully, there's some alpha, but there rarely, if ever, is. But if we have good managers that don't impair capital on the long-only side, that can play the right trends and keep up with the market. And on the private side, we can embrace some really unique early-stage opportunities and venture and in growth. Then over time, you get a portfolio that outperforms, at least in my experience.
I have a mantra I repeat over and over again; as long as I've come and said somebody is not going to impair capital and I have excess liquidity, I'm good. I don't overthink from there, but I give a lot of thought to having the right level of excess liquidity and having the right managers that won't impair capital, both internally and externally.
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