Inside the $1.2 Billion Endowment Playbook ft. Paul Chai | Allocator | Ep. 36

Summary

Paul Chai, CIO of the $1.2 billion Kansas State University Foundation, discusses endowment portfolio construction with host Alan Dunne. The conversation covers strategic asset allocation, the search for unconventional opportunities, and how a small team balances top-down discipline with bottom-up manager selection. Chai shares current investment plays in private energy equity and secondary markets, explains his use of multi-strategy hedge funds, and outlines why CTA strategies no longer fit the portfolio.

• Endowment invests as a 'forever retiree' targeting 6% real return (8% nominal) through a 60% growth / 40% diversifying split.
• Strategic asset allocation is reviewed every 3-5 years, optimized for multiple objectives rather than a single best answer.
• The portfolio diverges from traditional 60/40 by substituting less liquid assets for bonds to improve diversification.
• Capital outflows from traditional energy for non-economic reasons created a buying opportunity in private oil and gas equity.
• Forced selling by large institutions due to endowment tax/illiquidity needs made secondary private equity attractive.
• Multi-strategy pod shops are a core diversifier, offering uncorrelated absolute returns above 8% despite high fees.
• CTA and managed futures strategies are avoided because their return drivers are seen as commoditized or too opaque to underwrite.
• Manager selection focuses on grit (harmonious passion plus perseverance) and building a team that challenges biases.