Key Takeaways
- Scott Malpass oversaw the University of Notre Dame endowment for 32 years, scaling the portfolio from $400 million to over $20 billion by backing disciplined, concentrated managers.
- Asset bloat stands as the primary killer of investment firms, shifting general partner incentives from generating performance carry to accumulating steady management fees.
- Rather than squeezing fund managers on standard 2-and-20 fee terms, Malpass agreed to higher incentive tiers above agreed IRR hurdles in exchange for guaranteed allocation access.
- Notre Dame routinely secured contractual capacity rights of 25% to 50% on future fundraises when providing early anchor capital to emerging managers.
- Outsized alpha compounds best in lower-middle-market buyouts, micro-cap equities, and focused venture partnerships where fund size remains strictly capped.
The Asset Growth Trap That Destroys Alpha
Most institutional allocators track fee schedules down to the basis point while ignoring the quiet risk in private markets: uncontrolled asset expansion. When private equity and venture capital firms double their fund size every vintage, their investment strategy breaks. What worked with a $300 million pool collapses under a $2 billion mandate. The universe of actionable deals shrinks, position sizes force managers into crowded auctions, and the focus drifts from operational alpha to asset gathering.
Malpass spent more than three decades building Notre Dame into an institutional powerhouse, anchored by long partnerships with firms like Sequoia Capital before launching Grafton Street Partners. Looking across hundreds of manager life cycles, he identified asset accumulation as the single greatest point of failure.
“I just think if I write a book someday on the 10 most important investment principles and what ruins a firm, size is number one,” Malpass said. “Absolutely no question. They just get too big for the strategy. They get sloppy. They get greedy. They start living off management fee.”
Once a management fee pays millions in guaranteed annual income to partners, the hunger for carried interest fades. Underwriting standards loosen, and risk management turns passive.
Negotiating Capacity Rights Instead of Fee Discounts
Standard LP playbooks focus heavily on fee concessions: fee breaks for first closes, co-investment rights, or reduced management rates. Malpass took the opposite stance. Squeezing a great GP on basic operational economics weakens their talent retention and starves their infrastructure.
“We would talk about terms, but we weren't overly obsessed with changing them just for our benefit,” Malpass explained. “We had a broader sense of the partnership, their challenges. We just wanted something fair that we thought was fair. We had no problem paying up for excellence.”
Instead of demanding discounts, Malpass offered to pay higher carry over aggressive IRR hurdles in exchange for long-term capacity. In high-performing micro-cap equity, venture, and lower-middle-market buyout funds, the real scarce resource is not capital. It is access. When an elite fund hard-caps its vintage at $400 million, oversubscribed allocations lock out most institutional money.
By anchoring managers early, Notre Dame negotiated rights to absorb future fund expansions. “So yeah, we did negotiate some capacity rights that if they ultimately were going to raise money, we would have the right to take whatever the 50% of the new money they raised or 25% or something like that,” Malpass noted.
This created structural alignment. The GP kept high economics on true outperformance, while Notre Dame locked in multi-decade access to constrained strategies without diluting return profiles.
Why It Matters
Private equity is facing a liquidity drought, forcing mega-funds to discount fees to attract institutional commitments. Malpass's track record shows that fee discounts on oversized funds are often a trap. The real winners in this cycle are allocators securing hard capacity in smaller, high-conviction vehicles before they scale beyond their core edge.