Brian Graeme is a senior investment associate of private strategies at the Oklahoma State University Foundation, where he is tasked with reporting to the chief investment officer, and sourcing and evaluating private investments. In this interview, Graeme discusses how his past experience investing billions in the technology sector helps him better understand a manager's perspective, why the amount of dry powder in private equity is concerning and what he believes are the key drivers to the Foundation's success.
Previously, he was a global tactical asset allocation analyst at Messenger Advisors and a partner family specialist at Crow Holdings Capital. Prior to that, he actively invested $2 billion in assets in the technology sector across small, smid and mid-cap stocks on behalf of institutional clients.
Brian Graeme was recently named as one of Trusted Insight's 2018 Top 30 University Endowment Rising Stars.
Trusted Insight: You’ve had experience investing billions in the technology sector. How does that experience influence your current role at the OSU Foundation?
Brian Graeme: At the end of the day, our team is very collaborative and mission focused. Each person in the investment office brings a unique perspective to every single investment idea that we work on and the result is that our discussions are deeper and more robust. At OSU, I've had the opportunity to work with some very smart, collaborative and high-quality people. I'm grateful to be able to contribute to the team.
I tend to contribute to our conversations by pulling from my own experience. I started my career over twenty years ago following Muni’s, became an operator where we started and sold a company, covered REITs, became a PM for a REIT hedge fund, was a buy-side analyst where I ended up covering every sector in the Russell Index, became a PM for a $2 billion small-cap long-only fund, and worked as an analyst on global tactical asset allocation.
In our internal discussions on managers and co-investments, this history helps me to see both the forest and the trees. It also helps me to better understand a manager’s perspective having been in their position.
Trusted Insight: What’s your investment philosophy when evaluating private investments? What colors your investment theory?
Brian Graeme: Using a big picture view we look in targeted areas that we believe will do well over the long private equity holding period. These areas tend to have some form of disruption, a multi-year catalyst and are in need of capital to fully realize their growth trajectory. Then we apply a bottom-up focus to select a manager.
Trusted Insight: In terms of targeted areas, what do you find most interesting right now and, say, 10 years from now?
Brian Graeme: One of the areas where we've found compelling opportunities over the past decade is in the universe of private equity managers focused on technology. As the software industry has transitioned from a typical software model to Software as a Service, it is my personal opinion that the public markets have not always been the best vehicle for companies to make this transition.
This is due to two factors. First, there is a difference in time horizon. Public markets have a tendency to focus on quarterly earnings while private markets don’t. Second, it is easier to make quick and significant changes to management and the business model when you have greater control of the company.
Trusted Insight: Do you see the OSU Foundation investment office adopting machine learning or other tech tools in the foreseeable future?
Brian Graeme: I believe our investment office has been doing great in adopting technology to help in the investment process. One individual here has been very helpful to the entire team and that's due to his background. He's introducing us to new tools that will help us.
Trusted Insight: What are some of the pros and cons of potential co-investment opportunities?
Brian Graeme: The pros for co-investments have to do with their typical reduced fee structure. In addition, the ability to target specific investments that you might prefer or specific companies that you like better out of a fund. A con to that strategy could be, depending on the GP, that you don't always have co-investment opportunities on companies you want to get access to. The other con is that you're taking on greater company-specific risk.
Trusted Insight: What do you feel is driving the Foundation’s success?
Brian Graeme: For me, the most important component to the success of the Foundation is the people that we go on the journey with. Oklahoma State University Foundation is made up of really strong people that I'm incredibly grateful to work with. We are able to partner with very talented individuals at the investment manager level to help us achieve the University’s mission. None of this would occur without our current students and alumni, who are absolutely amazing in their support of OSU. I believe that's what's driving our success.
Trusted Insight: Is there any advice you'd give to investment professionals aspiring to work at a university endowment?
Brian Graeme: There are two key components to mention. The first is that this is an industry that requires an insatiable appetite to learn. I would recommend someone to process every bit of information that they can get ahold of across all investment options whether its private equity, venture, hedge funds, etc. If this is truly your passion, it will not feel like work. The second thing is that you need to find a mentor. There's so much information in this industry that it can become overwhelming and can cause you to lose front sight focus. As a result, you might not be able to build that solid foundation on asset allocation. A mentor can effectively guide you in making that transition or being more efficient. Ultimately, everyone in this industry is here because we've stood on the shoulders of giants and many of us feel that it's our responsibility to return the favor to those who follow.
Trusted Insight: Do you have any final thoughts?
Brian Graeme: I think the main element of uncertainty right now is market valuation. Given the low cost of capital, it is not surprising that a lot of capital has been raised, and in turn, valuations have increased over the last decade.
Yet two caution flags have emerged. The amount of dry powder in private equity is concerning relative to the pace of exits. In addition, the Fed has been raising rates. Therefore, there could be an increased risk of a downward valuation adjustment. This could also mean exits will not happen at expected prices in the future.
Given this environment, we’ve become even more focused on the quality of our investments, the valuation being reported on each investment, and the total exposure we want to have in an asset class.
View our full catalog of interviews here.
The full list of 2018 Top 30 University Endowment Rising Stars can be found here.
Previously, he was a global tactical asset allocation analyst at Messenger Advisors and a partner family specialist at Crow Holdings Capital. Prior to that, he actively invested $2 billion in assets in the technology sector across small, smid and mid-cap stocks on behalf of institutional clients.
Brian Graeme was recently named as one of Trusted Insight's 2018 Top 30 University Endowment Rising Stars.
Trusted Insight: You’ve had experience investing billions in the technology sector. How does that experience influence your current role at the OSU Foundation?
Brian Graeme: At the end of the day, our team is very collaborative and mission focused. Each person in the investment office brings a unique perspective to every single investment idea that we work on and the result is that our discussions are deeper and more robust. At OSU, I've had the opportunity to work with some very smart, collaborative and high-quality people. I'm grateful to be able to contribute to the team.
I tend to contribute to our conversations by pulling from my own experience. I started my career over twenty years ago following Muni’s, became an operator where we started and sold a company, covered REITs, became a PM for a REIT hedge fund, was a buy-side analyst where I ended up covering every sector in the Russell Index, became a PM for a $2 billion small-cap long-only fund, and worked as an analyst on global tactical asset allocation.
"One of the areas where we've found compelling opportunities over the past decade is in the universe of private equity managers focused on technology."
In our internal discussions on managers and co-investments, this history helps me to see both the forest and the trees. It also helps me to better understand a manager’s perspective having been in their position.
Trusted Insight: What’s your investment philosophy when evaluating private investments? What colors your investment theory?
Brian Graeme: Using a big picture view we look in targeted areas that we believe will do well over the long private equity holding period. These areas tend to have some form of disruption, a multi-year catalyst and are in need of capital to fully realize their growth trajectory. Then we apply a bottom-up focus to select a manager.
Trusted Insight: In terms of targeted areas, what do you find most interesting right now and, say, 10 years from now?
Brian Graeme: One of the areas where we've found compelling opportunities over the past decade is in the universe of private equity managers focused on technology. As the software industry has transitioned from a typical software model to Software as a Service, it is my personal opinion that the public markets have not always been the best vehicle for companies to make this transition.
"Oklahoma State University Foundation is made up of really strong people that I'm incredibly grateful to work with. We are able to partner with very talented individuals at the investment manager level to help us achieve the University’s mission."
This is due to two factors. First, there is a difference in time horizon. Public markets have a tendency to focus on quarterly earnings while private markets don’t. Second, it is easier to make quick and significant changes to management and the business model when you have greater control of the company.
Trusted Insight: Do you see the OSU Foundation investment office adopting machine learning or other tech tools in the foreseeable future?
Brian Graeme: I believe our investment office has been doing great in adopting technology to help in the investment process. One individual here has been very helpful to the entire team and that's due to his background. He's introducing us to new tools that will help us.
Trusted Insight: What are some of the pros and cons of potential co-investment opportunities?
Brian Graeme: The pros for co-investments have to do with their typical reduced fee structure. In addition, the ability to target specific investments that you might prefer or specific companies that you like better out of a fund. A con to that strategy could be, depending on the GP, that you don't always have co-investment opportunities on companies you want to get access to. The other con is that you're taking on greater company-specific risk.
Trusted Insight: What do you feel is driving the Foundation’s success?
Brian Graeme: For me, the most important component to the success of the Foundation is the people that we go on the journey with. Oklahoma State University Foundation is made up of really strong people that I'm incredibly grateful to work with. We are able to partner with very talented individuals at the investment manager level to help us achieve the University’s mission. None of this would occur without our current students and alumni, who are absolutely amazing in their support of OSU. I believe that's what's driving our success.
Trusted Insight: Is there any advice you'd give to investment professionals aspiring to work at a university endowment?
Brian Graeme: There are two key components to mention. The first is that this is an industry that requires an insatiable appetite to learn. I would recommend someone to process every bit of information that they can get ahold of across all investment options whether its private equity, venture, hedge funds, etc. If this is truly your passion, it will not feel like work. The second thing is that you need to find a mentor. There's so much information in this industry that it can become overwhelming and can cause you to lose front sight focus. As a result, you might not be able to build that solid foundation on asset allocation. A mentor can effectively guide you in making that transition or being more efficient. Ultimately, everyone in this industry is here because we've stood on the shoulders of giants and many of us feel that it's our responsibility to return the favor to those who follow.
Trusted Insight: Do you have any final thoughts?
Brian Graeme: I think the main element of uncertainty right now is market valuation. Given the low cost of capital, it is not surprising that a lot of capital has been raised, and in turn, valuations have increased over the last decade.
Yet two caution flags have emerged. The amount of dry powder in private equity is concerning relative to the pace of exits. In addition, the Fed has been raising rates. Therefore, there could be an increased risk of a downward valuation adjustment. This could also mean exits will not happen at expected prices in the future.
Given this environment, we’ve become even more focused on the quality of our investments, the valuation being reported on each investment, and the total exposure we want to have in an asset class.
View our full catalog of interviews here.
The full list of 2018 Top 30 University Endowment Rising Stars can be found here.