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HOW A CIO OF A SMALL ENDOWMENT BUILT A LEGENDARY VC PORTFOLIO


STUART MASON, CIO OF THE UNIVERSITY OF MINNESOTA’S ENDOWMENT, LOOKS BACK AT HIS
WORK AHEAD OF HIS 2024 RETIREMENT.

By Alicia McElhaney
October 6, 2023


Courtesy Photo

After 21 years, Stuart Mason is plotting his retirement from the University of
Minnesota’s endowment.

The longtime CIO announced this week that he plans to step down in early 2024,
and the school has launched a search for his replacement.

The new investment chief will have big shoes to fill: Mason has a whole host of
accomplishments to be proud of. The endowment’s performance has regularly been
in the top quartile among endowments and foundations, and number one among the
Big 10 endowments. Under his purview, the endowment has grown from $485 million
to $2.3 billion — and that’s with having paid out $850 million to the
university.



When Mason joined the endowment, U of M had no professional investment team.
Most of its portfolio was held in public stocks and bonds, and “a smattering” of
local private equity and venture managers. As Mason put it, he had a “clean
sheet of paper” to work with.

Mason, too, was new to the asset allocation business: He had worked in M&A for
about 20 years before joining the U of M. Armed with a copy of David Swensen’s
Pioneering Portfolio Management, he decided he’d emulate the great Yale
Investment Office CIO when he built the portfolio.

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Today, the venture allocation makes up about 35 percent of U of M’s portfolio.
About 17 percent is held in small to middle market growth and private equity,
and another 15 percent or so is held in private credit. According to Mason, U of
M’s team was actively building up its exposure to private markets before the
2008 financial crisis, and “turned up the heat” in 2010.

This strategy has worked. The University of Minnesota endowment has posted
ten-year venture returns of 25 percent annualized.



Mason’s team has been successful in venture investing for several reasons.
First, its size — $2.3 billion — has allowed the team to commit as little as $5
million and still make a difference to the portfolio. “Our size has given us the
opportunity to invest in smaller funds that are more focused and quite often are
earlier in their life cycle,” Mason said. “If a venture manager does really
well, there’s an opportunity for 10x your money.”

The endowment’s small size has kept it from committing to large, name brand
venture firms. “They’ve done quite well without us as an LP,” Mason joked. “I
would venture to say that our returns as a portfolio are at least as good.”

Mason has also found that allocating to investment managers who previously built
and operated companies is a winning strategy. “If you have been a very
successful entrepreneur and have raised capital for your companies, you know how
the game is played and know your criteria,” he said.

This attention to size has also kept U of M’s focus on earlier stage funds. This
has pushed Mason and his team to focus on technologies that they think will
define their industries in years to come. This meant putting capital to work in
AI and machine learning nearly eight years ago — and avoiding adding any crypto
managers to their fund lineup.



“The AI and machine learning trend is in the early innings,” Mason said. “Rather
than look beyond that technology, we’re looking for segments of the market where
those applications have not yet gained traction and might be at the early
stages.”

Mason and his team have invested in two or three biotech funds that focus on
deploying this type of technology in the sector. The results have been
“enormously successful,” Mason said.

As he looks ahead to retirement, Mason’s goal is to spend less time traveling.
He said he hopes to spend quality time with his grandchildren — and in the great
outdoors. A mountain climber, backpacker, and long-distance canoer, Mason won’t
be short on things to do.

“I have spent too much of my life indoors,” Mason said. “I say to many of my
friends, some people retire so they can travel, I am retiring so I can go
outside.”



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