Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74)

Crisis Management

Navigating the financial crisis required strategic thinking and adaptability. Karl Scheer recalls the transition from a seamless operation with an outsourced CIO to taking charge just before the Lehman Brothers collapse. He and his colleague decided to "batten down the hatches" by focusing on core portfolio elements and avoiding drastic changes, which helped them weather the storm effectively 1. The challenge was not only financial but also psychological, as they had to maintain confidence amidst uncertainty. Scheer shares an anecdote about a meeting with a family patriarch, using a philosophical approach to reassure him that their capital pool was secure 2.

   

Investment Lessons

The financial crisis imparted valuable lessons on managing investments during turbulent times. Karl Scheer emphasizes the importance of minimizing mistakes and ensuring they are low-impact when they occur. He recounts an investment in a low-volatility hedge fund that resulted in a minor loss, highlighting the significance of due diligence 3. Another lesson involved avoiding deals with misaligned interests, such as a healthcare firm with a resetting high water mark, which he deemed a "deal killer" 4. Scheer stresses the need for transparency and a nuanced view on fees, preferring smaller funds to avoid hidden charges from larger managers.