This piece covers how the University of Washington endowment invests differently. Instead of just picking fund managers, they prefer to directly own assets for better returns. They see China as similarly risky as a decade ago but cheaper now, so they've increased exposure there. Key holdings include an unnamed Nigerian power plant (30x return via government contract), a Southeast Asian gaming/e-commerce firm (early-stage, de-risked), and a Nashville real estate project (one of their best co-investments in 2022).
The University of Washington’s Chief Investment Officer Scott Wilson manages an endowment fund exceeding $13 billion, adopting a non-traditional endowment model. Core thesis: generating excess returns through direct ownership and frontier market investments. Key conclusions: 1) In Asian and emerging
Scott Wilson is the Chief Investment Officer of the University of Washington endowment (managing over $13 billion), with a background in quantitative fixed-income trading, living experience in Japan, and prior work at the Grinnell College endowment. The main theme of this episode: building a portfolio that diverges sharply from the traditional endowment model through direct ownership, frontier market allocation, and deep partnership relationships. The most weighty judgment in the entire episode: Scott Wilson believes that the risks of investing in China are fundamentally no different from 10 years ago, and the current asset discount actually makes it more attractive—his team has actually increased their China exposure over the past six months.
Scott Wilson argues that the core competency of endowments should shift from screening fund managers to directly owning underlying assets.
Wilson’s model stands in stark contrast to the Yale Model. He describes: "Grinnell was already at an extreme at the time—like the Buffett model, we were just looking for good partners and investments, putting as much capital as possible into the highest-conviction opportunities, and then compounding over the long term." Under this philosophy, the University of Washington endowment has only about 30 core partners and 50 core relationships, with over 90% of the team’s time spent researching the underlying investments of these partners.
Direct ownership is achieved in two ways:
Data support:
Wilson explains the source of excess returns: "The highest-conviction ideas tend to perform better. With the perspective of 30 partners, we can allocate capital to the absolute best ideas across all portfolios. Some investments we tracked for 2–4 years before finally entering the shareholder register."
Reader’s Note: Wilson uses the argument of "partners selecting partners" to support his model, which is a typical narrative from the position-holding side—the strong performance of co-investments may partly stem from survivorship bias (only good opportunities are shared), and this strategy places extremely high demands on team size and expertise.
Wilson argues that frontier and emerging markets offer valuation opportunities absent in developed markets, with the key being to distinguish between "correlated risk" and "idiosyncratic risk."
He describes: "You find companies trading at 4x earnings, growing 30%, with ROEs of 40-50%. You simply cannot buy these high-quality companies at that price in developed markets." Wilson emphasizes that all investments carry risk, "the question is whether it's correlated or idiosyncratic risk, and whether you are being adequately compensated."
Typical Case: A Nigerian Power Plant
Southeast Asian Gaming and E-commerce Companies: Wilson believes most of the thesis has been de-risked, but "if we hadn't spent time with the local management teams on the ground, we could never have built the same level of conviction, nor allocated such a large position in the portfolio."
Methodology Core: Wilson insists on "investing in local markets with local people." "It is very difficult to invest in Japan, Vietnam, Malaysia, or Indonesia from New York. These markets have huge populations and growing economies, but you need partners who can navigate the local political and economic realities. I would never invest in Japan with someone based in New York."
Wilson argues that the view that investing in China today is different from 10 years ago reflects a lack of attention to China over the past decade; the current discount instead creates opportunities.
"Anyone who thinks investing in China today is different from 10 years ago hasn’t been paying attention to China for the past decade," Wilson noted. While geopolitical tensions have indeed surfaced, "in terms of investing in what the government prioritizes, I don’t think there has been a real change." His team has actually "increased exposure to China over the past six months."
Risk framework: Wilson acknowledges that shareholders’ claims on economic returns exist "only as long as they serve the best interests of the Chinese people and the Chinese government." He states clearly: "You have to enter with a very clear perspective — 'This is the risk, are we being compensated for it?' We generally like geopolitical risk because it tends to be uncorrelated with other macro risks in the portfolio."
Execution advantage: The University of Washington maintains a small office in Shanghai, which allowed it to conduct deeper due diligence than competitors during the pandemic.
Reader’s note: Wilson’s "risk hasn’t changed" argument carries an unmistakable tone of position defense — China’s regulatory environment has undergone fundamental shifts over the past two years (tech antitrust, education double-reduction, real estate deleveraging), and the impact of these changes on shareholder rights is substantive, not superficial.
Wilson, from a quant trader's perspective, offers a systematic critique of mainstream asset classes, centered on "incentive misalignment" and "engineered returns."
Wilson argues that capital convergence among large institutions is the norm, and actively combating tracking error is the source of excess returns, but it requires enduring short-term pain.
Reasons for Convergence: Wilson points directly to "career risk and career longevity" — "No one gets fired for investing in BlackRock, Bain, or Blackstone. It’s easy and efficient."
University of Washington’s Differentiation:
The Dual Nature of Tracking Error: Wilson candidly notes, "It’s lovely when it’s on the right side and painful when it’s on the wrong side." In 2022, the University of Washington’s return was approximately 65-70% (public data), but Wilson emphasizes that "high returns are equally meaningless."
Current Opportunity: Wilson believes the present is "absolutely the best time for capital allocation" — "If you can’t enjoy investing in a market like this, you might be in the wrong seat." The team is increasing allocations to Asia (especially China) and Europe, while reducing exposure to frontier markets (where natural resource economies have performed relatively well).
Reader’s Note: A tracking error of 1,000 basis points statistically implies that about one-third of the time, the portfolio will underperform the benchmark by more than 10% — this places immense psychological pressure on any institution. Wilson’s narrative may understate the actual impact of such pressure on team dynamics and board relationships.
| Position | Guest Stance | Key Data |
|---|---|---|
| Nigeria Power Plant (Unnamed) | Bullish (Realized) | Expected return 30x, government take-or-pay contract, scalable to 30 communities |
| Southeast Asian Gaming & E-commerce Company (Unnamed) | Bullish (Realized) | Early-stage investment, most theses have been de-risked |
| Nashville Real Estate Project (Unnamed) | Bullish (Realized) | One of the best co-investments in 2022 |
1. "Anyone who thinks investing in China today is different from 10 years ago hasn't been paying attention to China for the past 10 years" (Scott Wilson) — Support: Asset discounts create opportunities, government priorities remain unchanged, the team has increased China exposure over the past six months; Falsification condition: Substantive changes in Chinese shareholder rights law.
2. "More than half of large private equity players generate returns through financial engineering" (Scott Wilson) — Support: Transaction valuations have risen from 6-8x EBITDA to 10-12x, compensated by using 2x leverage; Falsifiable: The deleveraged IRR of large buyout funds can be tracked.
3. "If you hold a basket of long-short hedge funds, the underlying exposure eventually becomes an index fund on both sides" (Scott Wilson) — Mechanism: Longs and shorts cancel each other out, leaving only index exposure plus a high fee structure; Analogy: Equivalent to "long correlation."
4. "No one gets fired for investing in BlackRock, Bain, or Blackstone" (Scott Wilson) — Explains the root cause of institutional convergence: career risk aversion leads to "the guarantee of mediocrity."
5. "Co-investments perform better because we can see the best ideas across 30 portfolios" (Scott Wilson) — Mechanism: Information advantage + optionality, but survivorship bias must be noted; Falsification condition: Whether co-investments offer the same downside protection as funds during market downturns.
6. "The risk in frontier markets is not correlation risk, but idiosyncratic risk" (Scott Wilson) — Framework: Geopolitical risks are often uncorrelated with macro risks, thus providing true portfolio diversification; Case study: 30x return from a Nigerian power plant.
7. "VC entry valuations have shifted from 5-8x to 5-8x (revenue multiples), making it less optimistic to generate the same returns" (Scott Wilson) — Data: Industry returns over the past 20 years were 5-8x, but entry valuations have inflated more than 10x; Implication: Either valuations compress or returns decline.
8. "A 1,000 basis point tracking error means there will be very good years and very bad years" (Scott Wilson) — Mechanism: Short-term performance measurement is meaningless; evaluation requires a rolling 3-5 year horizon; Risk: Extremely high discipline required from the board and the team.