A US state with a sovereign wealth fund? Utah’s new approach to old money with Peter Madsen

Jan 23, 2025

In this engaging discussion, Peter Madsen, the Chief Investment Officer of Utah’s SITFO, shares his journey from skiing in the Wasatch mountains to managing a multi-billion dollar sovereign wealth fund. He delves into SITFO's governance structure, revealing how trust lands generate revenue through leasing and royalties. Peter also explains the shift from passive to diversified investments while debunking myths about equity-heavy portfolios. His insights on risk management and asset allocation provide a fascinating look into the complex world of institutional investing.

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ANECDOTE

Grand Staircase Trade Fueled Growth

A major windfall came when Grand Staircase-Escalante was designated, allowing land trades that concentrated trust parcels near St. George.
That swap unlocked valuable development and leasing revenue for the trust.

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ADVICE

Document Policy Before Acting

Establish clear investment beliefs and a written investment policy before implementing major portfolio shifts.
Use experienced trustees and consultants to professionalize governance before expanding strategies.

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INSIGHT

GRID Framework And Liquidity Rule

SIPFO groups investments into Growth, Real Assets, Income, and Defensive (GRID) and targets 40% private markets.
The fund avoids duration in real assets and enforces a ~15% daily-liquidity buffer for distributions.

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Backcountry Skiing and Personal Background

01:41 • 5min

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Growing Up and Living in Utah

06:20 • 5min

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Career Path into Institutional Investing

11:29 • 9min

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What Is SITFO and How Is It a Sovereign Wealth Fund?

20:13 • 6min

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Trustees, Governance, and Distribution to Schools

26:09 • 5min

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How Trust Lands Generate Revenue

31:30 • 2min

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Designing Governance and Trustee Selection

33:32 • 4min

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Why and How SITFO Diversified from Passive Vanguard Holdings

37:40 • 4min

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SITFO's GRID Framework and Asset Buckets

41:54 • 4min

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Constructing the Defensive Convexity Portfolio

45:45 • 2min

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Real Assets, Inflation Hedging, and Avoiding Duration

48:00 • 2min

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Asset Allocation Process and Risk Scenarios

49:41 • 2min

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Private Markets Marking and Illiquidity Considerations

52:00 • 3min

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Managing Private Equity Distributions and Secondaries

55:10 • 3min

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Biggest Worries: Upside Participation and Returns

58:27 • 4min

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Tactical Adjustments Between Strips and Trend/Macro

01:02:09 • 2min

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Rebalancing, Cash Flows, and Momentum Signals

01:04:04 • 3min

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Mythbusters: You Must Be Heavily Equity-Weighted

01:06:37 • 4min

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Managed Futures and Cyclical Investor Behavior

• Mentioned in 47 episodes

Stocks for the Long Run

The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

Jeremy Siegel

Stocks for the Long Run provides a detailed analysis of the stock market's historical trends and long-term investment strategies. The book, updated to reflect current market conditions, includes discussions on value investing, ESG issues, the impact of the financial crisis, and the role of international investing. Siegel argues that stocks have consistently outperformed other asset classes over the long term, averaging returns of 6. 5 to 7 percent per year after inflation. The book also addresses market valuation, the effects of inflation and interest rates, and the importance of diversification in a global economy.

In this first episode of 2025, we’re plunging right into the fascinating world of sovereign wealth funds with Peter Madsen, the CIO of Utah's School and Institutional Trust Funds Office (SITFO). Peter shares his unique perspective on managing a multi-billion dollar portfolio designed to support public education in the state for generations to come. From his personal background in skiing and outdoor adventures in the Wasatch mountains to the challenges of navigating Utah's rapid growth and development, Peter provides a captivating glimpse into the day-to-day realities of overseeing this complex institutional investor. Listeners will learn about the intricate governance structure of SITFO, the innovative approach to asset allocation and risk management, and the delicate balance of delivering competitive returns while preserving the fund's long-term corpus. Peter also tackles common investment myths, sharing insights on the potential for diversified portfolios to outperform high-equity allocations over the long run. This episode offers a rare behind-the-scenes look at the inner workings of a state-level sovereign wealth fund, highlighting the importance of prudent stewardship and a steadfast commitment to serving the public good. Whether you're an institutional investor, a student of finance, or simply someone fascinated by the intersection of public policy and investment management, this episode is sure to captivate and inform. SEND IT!

Chapters:

00:00-01:40=Intro

01:41-11:23= Backcountry Skiing with Utahans and the winding path to Institutional investing

11:24-20:07= Russian Historian to CIO of governing the states sovereign wealth fund

20:08-33:23= Landman – Constructing a diversified portfolio for perpetuity

33:24-37:37= The Trustees

37:38-47:29= Rethinking the 60/40 approach, avoiding duration and SITFO’s GRID system

47:30-58:19= Weathering market storms and balancing upside participation and downside protection

58:20-01:06:13= Carving the evolving landscape of sovereign wealth funds, strong enough returns & outperforming benchmarks

01:06:14-01:12:13= Myth busting: Bonds can outperform equities

Follow along with Peter on LinkedIn and visit SITFO's website for more information!

Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠

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