To ensure alignment, VCU provides its investment memo to a manager before committing capital. This allows the manager to correct misunderstandings and confirms a shared understanding of the strategy and KPIs, making difficult future discussions more objective and data-driven.
Being counter-cyclical is effective, but jumping into unfamiliar distressed assets is risky. The key is to invest in familiar managers or sectors during a crisis, leveraging pre-existing knowledge rather than reacting to new information under pressure.
Instead of viewing gold as a broad geopolitical or inflation hedge, VCU's initial rationale was more specific: it is one of the most effective hedges against emerging market currency crises. This provided a targeted way to protect their significant India and Vietnam allocations.
Inheriting a portfolio means spending years reviewing and slowly changing it. Starting from scratch, while painful initially, forces a team to build a cohesive culture, process, and sourcing engine from the ground up, creating a stronger foundation for the long term.
In VCU's investment process, the entire team participates in underwriting and meets managers. This shared ownership model encourages bolder, higher-conviction bets because the responsibility is collective, reducing the fear of individual failure and career risk for junior members.
Many endowments have lost their ability to act counter-cyclically due to high illiquidity from private assets. VCU intentionally keeps a large liquidity buffer, treating it as a strategic tool to deploy capital during market dislocations when others are unable to invest.
Bruce MacDonald applies philosopher Søren Kierkegaard's concept of faith—that it requires constant questioning—to investing. This means maintaining conviction in an investment while simultaneously and relentlessly probing for what could go wrong, a central tenet of his risk management process.
VCU learned that being an early, small investor in an overlooked asset class is not enough; larger capital must eventually follow. The true advantage of small size is access to capacity-constrained opportunities (like early-stage venture or Vietnam) that larger funds physically cannot enter.
With a small team, you cannot be an expert in everything. VCU's strategy embraces this by consciously deciding which areas to ignore (e.g., China, private credit). This 'anti-portfolio' approach forces deep focus in the few areas they do choose, turning a resource constraint into a strategic advantage.