Oct 19, 2026 · 57 min
Institutional investors turn governance into an edge
E444: President of NEPC on Picking Fund Managers, Venture Capital, and AI Risk
The episode shows how institutions can protect long-term investment advantages while navigating liquidity, incentives, diversification, and AI-driven uncertainty.
- 1Strong governance and organizational continuity help institutions resist peer pressure and stay committed to sound investment theses.
- 2Top LPs prepare for downturns, trust managers within their expertise, and distinguish temporary underperformance from broken theses.
- 3AI, inflation, deficits, and hidden correlations make portfolio resilience and a margin of safety increasingly important.
Don't miss
McCusker identifies AI as the issue most likely to keep him awake, weighing its transformative promise against existential and systemic portfolio risks.
The brief
Tim McCusker, president of NEPC, argues that institutional investing begins with context: goals, spending needs, liquidity, constraints, and risk tolerance—not generic tips.
The conversation makes governance part of portfolio construction. Peer rankings, compensation, and leadership turnover can push sophisticated institutions toward herd behavior and weaken long-term conviction.
Top LPs prepare before markets break, rehearsing difficult decisions and preserving the governance support needed to act decisively when a downturn creates opportunity.
McCusker favors trusting a selected manager’s established strike zone in co-investments rather than recreating the GP’s underwriting, while balancing emerging funds against established managers.
The episode’s sharpest tension is diversification: spreading risk across too many managers can dilute asymmetric opportunities and leave investors paying active fees for index-like exposure.
AI is McCusker’s biggest concern, combining transformative potential with systemic risk as investors also confront inflation, fiscal deficits, changing correlations, and limited control over macro outcomes.
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