E444: NEPC President on AI Portfolio Risk, Finding Top Funds, and Preparing for a Downturn

Tim McCusker (0:00)

This enormous pool of assets collectively, almost $2 trillion, is the ability to think long term and invest for the long term, because a lot of the rest of the market is not thinking that way, and that introduces opportunities that aren't there for those that have a one-year time horizon, or even a three-year time horizon.

David Weisburd (0:20)

What are those best practices that really set apart the top 10% of LPs?

Tim McCusker (0:26)

Over half of the private markets funds we've underwritten over the last decade have been in fund one, two, three or four. So it's a primary focus for us to find those newer ideas.

David Weisburd (0:37)

Is the difference in portfolio construction between pension funds endowments? Is it just that endowments are just much more evergreen in their nature?

Tim McCusker (0:44)

A $50 million commitment to a great venture manager would be a really sizable commitment in a venture fund. It just doesn't move the needle for a $100 billion pension plan at the end of the day. So they need to think more broadly about their partnerships.

David Weisburd (0:59)

What's keeping you up at night today, October 2026?

Tim McCusker (1:03)

I think it begins and ends with...

David Weisburd (1:05)

So NEPC advises on approximately $2 trillion in assets with a T. What do you learn having that aperture and seeing so many different portfolios?

Tim McCusker (1:16)

It's been fascinating. I've been there for 20 years watching the growth in the types of clients that we work with and also the assets that we advise and support. And I think the biggest thing that I've learned over the years is just the... It's less about the scale of that huge AUA figure. And it's more about the diversity of goals and missions across our clients. And then within those, the organizational risks and opportunities that just drive dramatically different outcomes. You could have two endowments, as an example, that have very similar size assets, but may have a very different risk profile because of the needs of the organization. How much of the total spending of the organization is supported by the endowments, the time horizon of that organization, and how willing they are to take risk or to be more conservative because of maybe protection that they need from that robust portfolio. I love that variety of getting to work with all kinds of different clients and then getting to see the really important work that they do. When we go to meet with our health care clients, we're usually meeting in the hospitals and seeing the work that's happening. That's just one example. You walk into one of our large public pension clients and there's retirees meeting to understand their benefits as you get checked in.

That variety of experiences has been really powerful for me and I think most of NEPC to understand that we're doing really important work across 400-plus clients.

David Weisburd (2:55)

Such a great point. A lot of people will ask. I'm sure you get questions for stock tips. I only do from my mom and from childhood friends and they'll always say, what should I invest in?

And the answer to that is usually a list of boring questions. How long are you investing for? How much of it could you afford to lose? What is your opportunity cost? What else could you invest in? What's the rest of your portfolio look like? Those questions, although they're oftentimes are boring, they end up in a place where you have very diverse outcomes in terms of what you actually should invest in.

Tim McCusker (3:27)

That's exactly right. And that's such an important part of for us working with new clients. It's such a rigorous process to understand what their opportunities and constraints are. And that cascades down through their portfolio. It's first, how much risk are they willing to take? It then gets into how much do you want in public versus privates? What kind of liquidity tolerance do you have? What are the drains on the portfolio due to benefit payments or spending needs that if we're in a downturn could really constrain what you can do going forward? And that's why there's never a cookie cutter for clients.

Every single portfolio looks a little bit different because every single client and organization has different constraints and opportunities going on.

David Weisburd (4:13)

At the amount of assets that you're advising, you're dealing with some of the most sophisticated institutional investors on the planet. What mistakes do you see the most sophisticated institutional investors make over and over again?

Tim McCusker (4:24)

No matter how focused a client or an investment team or investment committee wants to be on just delivering the right outcome for their organization, there is always an element of trying to understand what peers are doing, and then not being willing to go too far away from their peers. No matter how much you want to make it about the total return or relative to spending needs or liabilities, there's still this question of, well, where do I rank?