Wealth Strategies

Three Questions For Lazard’s Casey Whalen

Joseph W Reilly New York January 23, 2024

 Three Questions For Lazard’s Casey Whalen

Regular FWR contributor and editorial board member Joe Reilly sits down with a figure in the US family office and wealth sector to discuss endowment models of investment, governance and alignment of interests.

Host of the Private Capital podcast and Family Wealth Report editorial board member – and regular contributor – Joseph Reilly talks to Casey Whalen, managing director, head, and CIO of Lazard Family Office Partners. Whalen, who is the former CIO of the New York Public Library, started her career at the Yale Investments Office.

Joe Reilly: Pioneering Portfolio Management by David Swensen has had a huge influence on family offices, but I'm curious about what you think people get wrong about what's come to be called the endowment model. 

Casey Whalen: The first thing I would say is that it is prescriptive and it is hard to talk about now that David is no longer here because you'd like to have him bounce [ideas] back and forth. 

I was talking to a couple of my former colleagues about it. There was never a “right asset allocation” that's specific for anyone. It was more about what is appropriate for you.  And this happens on the institutional side, too. 

I'm not sure whether it's specific to families, but they just want a prescriptive way of doing it [investing], and I always spend a lot of time initially with the families learning about them because everybody's goals are really different. Some families want all the money to go to the next generation, some want none of it, some want a mix of giving charitably, and some have family dynamics that make it more complicated. 

And then there is the behavioral [aspect] – a lesson I learned on the institutional side. You must be able to create a portfolio that regardless of what the governance structure is – which might be an individual person, or it might be a committee of people or trustees – that they can actually stay invested in. 

I think the most damage that gets done in crisis events is when the markets are down, and you are a forced seller. Either because you need liquidity when you didn't think you did, or you can't behaviorally handle the drawdown because of the way the portfolio is acting. 

The other book David should have written was on governance. 

He did such a brilliant job in retrospect on governance, in terms of just the president of the school, the investment committee, which was mostly alumni, and the staff all being aligned 100 per cent. They disagreed on individual investments and would have a debate on that, but everybody was totally aligned on how to behave, what the asset allocation was, and what we were trying to achieve. 

So I think getting that alignment is really where things fall apart. I think you can see other institutions where governance breaks down – they might have had the best investment team there talent-wise, but it just breaks down because the governance wasn't working appropriately. 

So, in my opinion, that's the biggest thing. And with families, it's really behavioral because it is different. You're dealing with the principal. It's their money, it’s not an institution's money and at the end of the day, they can do whatever they want. There are no guideposts and guardrails that force them like a trustee to behave a certain way. 

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