How I Invest with David Weisburd
E148: TIFF's $8B Portfolio Revealed: Strategies Institutions Need
Fri, 21 Mar 2025
In this episode of How I Invest, I speak with Brendon Parry, Head of Private Markets, Deputy CIO, and Managing Director at TIFF Investment Management. Brendon shares insights on TIFF’s mission to serve nonprofit institutions through tailored investment solutions. He discusses the importance of private market investments, the legacy of leaders like David Swensen, and how TIFF partners with foundations to achieve long-term financial goals. Tune in for actionable strategies and valuable perspectives from a seasoned investment professional.
Chapter 1: What early investment risks did Brendon Parry consider?
I think early on, I would consider sort of a wider range of investment opportunities, willing to take certain risks that I wouldn't now, but maybe those risks depended more heavily on a very specific future state of the world. Hey, I was confident about it. The experts I talked to were confident about it, but there were fewer paths, again, fewer paths to victory, fewer ways to win.
And so you really needed to believe that you could predict the future a bit better.
Tell me about how David Swenson from the Yale Endowment got involved in TIFF.
Chapter 2: How did David Swensen influence TIFF's early days?
TIFF has been fortunate enough to have involvement of a lot of fantastic people over the years from the nonprofit community. It all started with the MacArthur Foundation and the Rockefeller Foundations back when TIFF was founded in 1991. And David Swenson, a TIF board member, Hall of Famer, and he was involved with TIF in its very early days.
I think there are myriad reasons why any CIO or other senior executive typically gets involved with TIF. And they're typically CIOs or senior execs at larger nonprofits, and they come sit on our board. I think a fairly universal one is that they have a desire to serve a broad array of nonprofits worldwide.
while at the same time getting to share ideas and best practices with other accomplished investors who sit around the table. So I had not yet joined TIFF when David was on our board, but I have been told over the years of his many contributions and lasting contributions from asset allocation, help recruiting other great board members and clients.
Potentially, most importantly, particularly in those really early days, he helped TIFF access great closed managers just as we were ramping up. And a fun fact I learned fairly recently, so I haven't verified this, and if I'm wrong, I apologize.
I was recently told that in the first edition of his famous pioneering portfolio management, Swenson called out TIFF as actually one of a very few number of allocators or fund of funds that he thought merited consideration by serious investors. So instrumental board member in the early days. And thankfully, we have a great board still of amazing people
CIOs and other senior execs at a great list of nonprofits. And tell me about TIFF. What is TIFF exactly? Sure. So TIFF's existed over 30 years to provide investment solutions, primarily to nonprofit institutions. We're really specialized as an outsource chief investment officer and specialize in private market solutions.
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Chapter 3: What is TIFF and how does it serve nonprofit institutions?
When we started, again, MacArthur and Rockefeller Foundations looked at the investment landscape of the non-mega nonprofits of the day, and they saw the lack of scale, the inability to find and access the best investment opportunities. And they saw really high fees for pretty bad investments. They created TIFF to help solve each of those issues.
So it's been our mission to partner with our clients closely, educate them on areas of our investment expertise and other areas of expertise and create investment solutions that help them and support them with their long-term objectives. Most importantly, delivering what we view as the top investment returns consistently over long periods of time.
How does TIFF partner with foundations and tell me exactly how that's done? At the core of it, we're trying to deliver client-centric investment solutions crafted to support that institution's long-term mission and objectives. Typically large, medium to larger size nonprofits, small nonprofits as well. It's really been our mission to serve a broad array of clients that...
Chapter 4: How does TIFF create tailored investment solutions for foundations?
could fit with our expertise. So what's included in that? The first piece is investment portfolios. That is core to our client needs. Based on each client's unique situation, we believe that any institution, even if it is another foundation of a very similar size, they have their own unique needs and we want to make sure that we can customize to build around that. We try to partner
On other topics outside of investment as well, though, investments is really the core of it. So many clients come to TIFF to outsource their entire endowment, and some come to TIFF just to manage a portion. Those clients for endowment will be typically coming for all or a portion of our private markets program.
As you know, me and my team, we focus on deeply on seed and early stage venture, lower mid market PE, and then direct investments primarily alongside independent sponsors in that sort of micro cap private equity space.
Foundations, are they essentially understaffed? They might be too small to have all the proper staff to do these functions. And talk to me about what you see from your foundation clients in terms of capabilities in staffing.
It does vary, and it depends a bit on how they partner with us. You could have a much larger endowment with a deep team, deep back office, lots of resources, but they're of a size that they don't have the resources to necessarily dedicate to the areas in private markets that we focus.
And so that could be a very different nonprofit or different client than someone who is $50 million or $100 million. They're doing everything. They're handling all the investment reporting historically and things of that nature. But they're also managing the finances of the institution. And so it is actually quite a large variation in the resourcing that any of our individual clients would have.
Again, one reason TIFF was founded was to support all sorts of different types of nonprofits. from the very small and maybe under-resourced to ones that are a bit larger and more sophisticated. And so we want to have the capabilities on the investment side, the advice side, and the client management side, as well as the back office to support that wide range of different type of institution.
I want to talk about model portfolios. So if somebody came to you, let's say a close family member or friend was starting a foundation, given kind of average liquidity and average foundation constraints, what would be your model portfolio for that foundation? What would you advise them to do?
The standard portfolio is something like 25% private markets, 40% public equities, 20% diversifying strategies, sort of low beta hedge fund portfolio as a diversifier. And then about something like 15% to pretty traditional fixed income, think treasuries. The average nonprofit's trying to obtain a CPI plus five. to maintain purchasing power after inflation and withdrawals.
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Chapter 5: Why are private markets and independent sponsors crucial for TIFF?
And then, frankly, many levers for managers we partner with, sponsors we partner with to create value through strategic and operational involvement with their portfolio companies. And so we're looking to partner with smaller specialist managers who can drive alpha, who could take advantage of these opportunities and these attractive parts of the market.
And picking the right investments in lower mid-market PE, early stage VC is not easy. There's clearly a much wider return dispersion in these parts of the market than when you go up market. There's risk. It's extremely important to have tested, regimented sourcing and diligence processes tailored to these markets. It's also really important to have a purpose-built team to attack these markets.
Because again, it is a different animal to invest, be really focused here versus be more diversified across all parts of the markets or be more focused on less volatile, larger cap strategies.
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I was speaking to the CIO of Broken Bro, which is a $4 billion OCIO, and he has this thesis on lower middle market P.E., and he believed that it was less risky than medium and large cap P.E., Do you agree with that?
I sort of agree with that. If you have the expertise and the team to focus on that part of the market, it can be less risky. How private equity has gotten more and more competitive over the years for your paths to victory than there were in the past. As you move up market to perfection, the ability to add economic value, be a growth catalyst or an organizational change catalyst.
Is this harder with larger, more complex organizations and companies?
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Chapter 6: What makes lower mid-market private equity investments attractive?
more flexible debt later on but there's so much so much return sort of baked into the base case even in an over equitized transaction that you could see your way to really attractive returns in that transaction i don't think that that dynamic exists in the larger part of the private equity world you really given the prices you have to pay you need to be able to have a substantial amount of debt the equity to to to create the equity value that some of those managers are targeting so
Piff, along with other top allocators, are really focused on independent sponsors. Why are independent sponsors so sexy today?
You know, we think they've been sexy for a decade. So it is exciting that other people are starting to appreciate that the universe can be a really attractive place to drive returns. Why is it interesting? The first piece is that the independent sponsor universe, it's a way to access micro-cap PE that you can't get even if you're focused on lower mid-market fund investments.
90% plus of deals that independent sponsors do are sub-deals. $10 million of EBITDA. Many are less than five. So again, there are fewer lower mid-market firms that will go that small. And so it does open up a massive universe of opportunities that a really high quality independent sponsor can sift through to find hidden gems. The second piece is...
You know, at least today, I mean, people don't get too, too excited about dumping capital to back independent sponsors. It is the least efficient part of the least efficient part of the market, the PE market, the lower mid market. Many of the companies independent sponsor right back again, too small for a typical lower mid market PE manager. the use of sell-side bankers isn't universal.
The quality of those intermediaries is variable, let's say, put it kindly, is highly variable. And then most institutional peers, even though there is more interest, as you say, most institutional peers of ours don't invest in this market either. It's complicated and hard to navigate. It requires a combo of kind of
company underwriting and RV manager underwriting, massive amount of time and effort. And so it's hard to get people to devote, like a lot of people just don't have the resources or don't want to devote the significant resources and time you would need to be in this market. Being less efficient as the independent sponsor market is, allows for more attractive entry prices.
And over 80% of these deals are less than seven times Ipita. Many are cheaper than that. Cheap pricing, no guarantee of success by any means, but it is a... Good starting point oftentimes, and it provides some downside protection.
And then if a sponsor finds a good company, can actually create economic value, really help build that into a better, take a nice small business with a good product or service and make it a really great bigger business with that same great product or service. There's a huge universe of middle market private equity firms to sell these companies on to achieve significant multiple expansion.
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Chapter 7: How does TIFF evaluate independent sponsors?
And then we do that deeper dive. A lot of the assessment with independent sponsors is a more qualitative assessment on people one or two, oftentimes one or two people with a brand new independent sponsor. That said, it's not that different than when we might evaluate a fund one where you don't necessarily have a deep attributable track record yet.
You have to do a little bit of sleuthing because we're not looking at back independent sponsors who've never done a deal or never been a senior investor, like leading a company from beginning to end. And so while they may not have attribution, they certainly probably don't have attribution from the firm that they left, but we can find out which deals that they were involved in
We can talk to the CEOs, CFOs at those companies, try to figure out what they did, what they didn't do, put together, cobble together a track record and sort of degree of attribution for their prior deal so that we can, using sort of that qualitative assessment as well as kind of putting together some quantitative metrics to look at an important part of our diligence process for an independent sponsor.
And that's because at the previous firm, they left the firm. The previous managers might not be thrilled about their top people leaving the firm. They're not necessarily going to openly vouch for them.
That's right. I mean, even if they're happy for them and are excited for their next step in their career, doing something entrepreneurial, you know, private equity firms wouldn't want to give attribution. They want to keep the attribution themselves. They have their own business to run, their own funds to raise.
It's a zero sum. Attribution is a zero sum game. That's right. Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the follow button above to subscribe. There's so many great fund wands. If you look at the supply and demand dynamics in the market right now, there's more quality managers than there is quality capital in that space.
Why even go for independent sponsor deals? Why not just do fund wands?
Tiff does do fund wands.
ones as well a variety of reasons why we don't just do that but maybe i'll just focus on one primary reason i think i guess it was years ago maybe i guess over a decade ago at this point when we did our first independent sponsor transaction tiff would would look at fun ones in the the the lower mid market i guess the terminology was different way back then and we had some really fantastic successes
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Chapter 8: Why does TIFF engage in independent sponsor deals over fund ones?
Luckily, we have the team that's good at it. We have pretty regimented processes in how we, what we focus on in our diligence for whether it be sponsor or deal. And so we can get it done. Again, our preference would be to not have it, not have to dedicate two deal teams at the same time to one sponsor, but we will do it for the right sponsor and the right deals.
And it's two separate teams at TIF, diligencing the sponsor versus the deal. Yeah.
There's clearly a ton of coordination and communication and overlap in certain sessions of diligence or meetings or things like that. And so we need to be able to have people dedicated to digging into that company, that sector, and we need to have people who are really digging into that manager's background.
All the stuff I talked about earlier, putting together that qualitative and semi-quantitative assessment of their track record, it takes a massive amount of work. And then the deal itself, as you know, would take, it takes a lot of work to underwrite a company that we're going to be, you know, partners in for three to six years.
If several years ago went through an organizational change, tell me about that organizational change and how does that affect your clients today?
TIFF became a public benefit company, an employee-owned company, about a year and a half ago. Prior to that, it was a tax-paying non-stock corporation, sort of complex legal structure with no owner, so sort of a pseudo-nonprofit. Not much has changed, which I think is good, right? Being a public benefit company, TIFF's mission is the same mission as it was when I joined.
Our focus is still the same. Our advisory board didn't change. It's about these great CIOs and senior executives at these wonderful nonprofits who were the board pre-conversion and post-conversion. And so that hasn't really changed.
I think the thing that is particularly valuable about this current structure that we have is many of our peers have had equity to grant as a form of retention and long-term retention. We now have that ability. And so we only think that it will keep the same team in their seats for as long as possible.
Thankfully, I've been able to work with the same crew, senior crew on the private markets team for many years at this point. I think now having a pretty broad base of employee ownership allows us to feel even more confident we're going to have the same people doing the work here, doing the investment work here that we did pre-conversion.
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