Doing Good, Earning Well in a $700 Million Family Foundation

---

• Asset allocation is a matter of personal preference for individual investors, based on things like risk tolerance and their season of life. But professional asset management is a different ballgame. Portfolio managers must navigate a complex terrain of investment strategies, diversification and risk management informed by research and sophisticated tools.
• Clint Stone, Senior Vice President of Investments at the family office of Salt Lake City powerhouse Larry H. Miller Companies, manages an investment portfolio for a $700 million foundation. These investments fall into several asset classes, which he weighs according to the current volatility of each.
• Was 2022 an outlier in terms of economic climate? Clint talks to Alan Dunne about what to expect next, and how he sees allocation changing as we approach the end of Q2 in 2023.

Investing, even at elite levels, is a bit like Texas hold ’em — or for those of us who spend more time at the kitchen table instead of Las Vegas, a friendly game of Monopoly. It’s a combination of luck and skill. But how can we tell which is which?

“There are times where you can ride some waves and look like a complete genius,” says Clint Stone, Senior Vice President of Investments at the family office of Larry H. Miller Companies (LHM) in Salt Lake City.  

“It’s a really difficult thing to pull apart all these risk factors. Am I just looking at something that was an artifact of the environment of that five- or 10-year period? I’ve got various quantitative tools to try to pull them apart, but it’s almost never black and white.”

LHM began when Larry Miller and his wife Gail purchased a single Murray, Utah automotive dealership in 1979. In the years since, the company has grown to become one of the largest privately-owned businesses in the western United States. Today, LHM includes a growing portfolio of companies and investments in real estate, financial services, health care, sports and entertainment.

Although Larry passed away in 2009, Gail still owns the company and presides over the Larry H. and Gail Miller Family Foundation. With the mission to “enrich lives,” the foundation (with a $700 million portfolio) supports a wide range of charitable, educational and humanitarian causes.

As SVP of Investments, Clint’s approach to asset allocation is focused on long-term capital appreciation, with a large allocation to private markets as a key pillar of the portfolio.

Clint joined Alan Dunne for an Allocator Series episode of Top Traders Unplugged for a look into how he helps the foundation carry out its mission, what he looks for in managers and some of his favorite strategies. Read on for highlights of their discussion about Clint’s portfolio construction approach, as well as why the volatility of a private-market portfolio might be lower than a public one.

LHM’s ‘bucket’ list

At LHM, Clint uses “a classic endowment-style approach” when allocating investments for the foundation, but with a few key differences from the way other not-for-profits (like his alma mater Cornell, for instance) might manage its endowment portfolio. 

LHM’s asset classes fall into eight “buckets” — four publics, four privates. Public assets include fixed income, U.S. equities, international equities and “multi-asset” (a catch-all, “mostly hedge funds,” some crypto and “anything that doesn’t fit in any of the other buckets”). The private asset classes are private equity, venture capital, real estate and natural resources.

Those eight building blocks are “the core of everything that we do here,” says Clint.

His philosophy: “You’ve got to look yourself in the mirror and say, What is my edge? How can I compete?” he says. “Global markets are a very competitive space. What can I do to bring a competitive advantage and do something unique with the resources and the team we built here at LHM?”

T-bills and time horizons

Alan recently read a paper about how a lot of institutional asset allocations may look diversified (in the sense of having allocations to different asset classes), but that can mask a lot of equity or economic risk in the portfolio. He suggests that the downside of managing this kind of risk is a long-term time horizon.

“Is that why you’re happy to be concentrated in that equity-economic risk factor?” Alan asks.

“Absolutely,” Clint replies. “My single biggest risk for the foundation is not meeting its objectives and its goals. I could put the whole thing in T-bills and have 100% liquidity. I would never have a year [with] a negative return — I’d have a positive, nominal return every single year. But I still would not meet the goals we’re trying to achieve … which is [to] cover the 5% [annual] spending [plus inflation] … and maintain its purchasing power and that investment pool in real terms.”

Because inflation has been so high recently, maintaining that purchasing power has been tough, he adds. “But that’s our goal. It’s ambitious … and T-bills are not going to get me there. So that’s how I view risk,” Clint explains. 

If the foundation spends 5% per year, 95% of its assets are not being spent — “so I can really think down the road,” he adds. 

Clint aims for diversification of “macro scenarios within various equity constructs … [both] geographic diversification and industry diversification.”

One thing is for sure: Asset allocation is never about “one big bet, all chips in one place,” he says. “It’s trying to think carefully about what can happen … illiquidity, interest rate, inflation, all of these various macro scenarios, but I do have the luxury of being able to look down the road five to 10 years because I’m only spending 5% per year.”

Was 2022 an anomaly? 

The growth-heavy, equity-heavy approach certainly did very well over the last decade. But recently, the macro backdrop has radically changed. 

Last year, we saw higher inflation, while equities and bonds were down. Alan asks Clint whether he thinks that was an anomaly or if we should be worried that equities will remain stagnant (or volatile) for years to come. 

“I definitely view 2022 as an anomalous year,” says Clint. “It makes sense … when you look at what the market was pricing in for interest rate hikes — and then what the Fed actually delivered … and how that translated from Fed hikes to markets, particularly the public markets — [as well as] stocks and bonds.”

Clint notes that over the last 100 years or so (in the United States), stocks and bonds were rarely down. One could count the years that happened on one hand, he says. 

“It’s a pretty low-probability event but one that made complete sense for what transpired in 2022.”

Accuracy and optimism 

Clint sees fixed income as the one area in which we can model returns with specificity and accuracy. 

“Your yield to maturity at entry is going to be very, very close to your realized return,” he explains. “As I look at those yields, they are certainly more attractive but they’re still not in a place where I’m going to put 100% of the foundation assets. I look at all my other asset classes — carbon markets, oil and gas, pockets of real estate that are still very attractive [and] very cash flow [positive] from a supply-demand perspective.”

He’s confident that there are plenty of opportunities outside of fixed income — “in all of these various equity pieces of the capital structure, whether that’s a public company, a private company, a piece of real estate [or] a natural resource project.”

Though he’s optimistic about the years to come, he thinks it’s “very likely that the next 10 [years] are not going to look like the last 10.”

The decade of public equities

Alan wonders whether Clint’s prediction about the next decade is driven by valuation: “I suppose the valuations in the equity space are clearly different than they were maybe back in 2010. Obviously, as you say, you can talk about returns for valuations and fixed income with a degree of certainty. But what is your perspective on valuations in the public and private equity space?”

Clint says he’s “actually pretty constructive [bullish] on valuations in both.”

Public equities in the U.S. “had an incredible decade,” he explains. “I just looked at the numbers this morning: 12% annualized compound return for 10 years. Those are extraordinary returns. International public equities [were] 4% and emerging markets [saw] 2% annualized returns [over] the last 10 years.” 

Anyone whose asset allocation and expected return models suggested it was prudent to overweight on emerging market or international valuations 10 years ago were flat-out wrong.

“The world gave us something very, very different,” Clint says. “There were a lot of tailwinds to the U.S. equity market that I think are going to not be there — or not be as strong — going forward.”

That being said, he still maintains a 20% strategic allocation to U.S. equities and a 10% allocation to international equities. 

“There are some incredible companies around the world in public markets. Despite the higher starting valuations today, especially in the U.S., I still want some exposure there,” he says.

EBITDA

Meanwhile, the private equity side of things offers LHM a bit more latitude.

Although he hears plenty of commentary about valuations today seeming quite high, “I don’t feel it as much on the private side,” says Clint.  

In venture capital, “we’re still seeing lots of innovation and lots of really interesting opportunities to deploy capital in companies around the world today,” he notes.

When it comes to buying out promising startups, it’s not uncommon to see a return of 12 or 15 times EBITDA. 

“I wouldn’t call it cheap, but not out of the realm [in which] it’s going to be difficult to make money,” Clint adds. “There’s still a lot of room in private markets.”

If Clint’s prediction is correct — that the next 10 years will look very different from the last decade — public markets might be an environment of day-to-day anxiety. 

But private equity plays by a different set of rules. And as always, adaptability is crucial. While change is the only constant in finance (and in life), the ability to pivot can keep us afloat no matter the weather to come.

---

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.