Key Takeaways

  • NEPC President Tim McCusker, overseeing roughly $2 trillion in advisory assets, argues that contrarian deployment during market drawdowns depends on committee alignment rather than portfolio analysis.
  • David Weisburd observes that simply refusing to liquidate underperforming managers at market bottoms places an institutional allocator in the top 5% of long-term performers.
  • Rebalancing into equities during drawdowns of 20% to 25% requires pre-existing institutional support from executive leadership and trustees to protect investment teams from career risk.
  • Allocators like Yale, Michigan, and CalSTRS rely on pre-downturn war-gaming and manager diligence to establish conviction before market stress forces emotional decision-making.
  • When an underperforming manager's return profile matches expected economic cycle pressures, top-decile allocators increase capital allocations instead of terminating the mandate.

Committee Governance Decides Contrarian Execution

Most institutional allocators know when assets are cheap. The failure to buy them is rarely an analytical error; it is an organizational bottleneck. Tim McCusker observes that an investment team can spot valuation disconnects in public equities down 20% or 25%, yet remain paralyzed if the governing board is unprepared for short-term pain. Acting against the herd requires clear air cover. As McCusker puts it: “To have that conviction to stick with something or rebalance back into equities when they're down 20, 25%, you have to feel like you've got the support of the decision-makers, the larger organization, to really be able to do that.”

Without that mandate, investment officers face asymmetric career risk. Rebalancing into a falling market creates immediate exposure if asset prices drop another 10%. Doing nothing, or moving capital into cash alongside peers, preserves institutional standing even as it degrades multi-year returns. McCusker notes that teams capable of executing uncomfortable trades “typically, if not always, have the support of their investment committee and the larger organizations.” Downturn discipline is determined in boardroom discussions held months before the crisis arrives.

The Mechanics of Not Liquidating at the Trough

The simplest route to superior decile rank is avoiding forced sales. David Weisburd points out that resisting the reflex to terminate lagging managers during broad pullbacks puts an allocator in the top 5%. Weisburd calls this dynamic “a heroic trade just not to sell your losers in a downturn.” Institutional capital frequently capitulates at the bottom because board oversight mistakes cyclical style headwinds for structural manager decay.

McCusker argues that this capitulation misreads standard market cycles. When a high-conviction manager lags, the weakness usually reflects cyclical positioning rather than operational failure. “Most of the time it's something in the economic and market cycle that's driving that that aligns with what you would expect from that manager, and you should be sticking with them at that time,” McCusker explains.

Top institutions like Yale, Michigan, and CalSTRS prepare for these drawdowns through structured war-gaming and pre-crisis diligence. By mapping expected manager behavior across down-market scenarios in advance, these funds strip emotion out of mid-crash reviews. Instead of replacing managers at the bottom, prepared allocators lean in. McCusker notes: “If you really have courage, maybe you should be adding more to that manager at that time cuz that's just the time to buy them when they've had a little bit of a downturn and the cycle's going to turn and they're ready to deliver.”

Why It Matters

Institutional allocators often treat contrarian execution as an individual trait, but McCusker's experience across $2 trillion in advisory assets shows it is a structural governance feature. When market distress hits, capital moves away from allocators who must defend lagging marks to boards and toward institutions with pre-authorized rebalancing mandates. This separation deepens dispersion in private equity and public allocations alike, allowing disciplined endowments to capture cyclical rebounds while peer institutions lock in permanent capital losses.