Key Takeaways

  • Children's Healthcare of Atlanta (CHOA) runs an endowment with an 111-year history using a strict 70/30 split instead of conventional strategic asset allocation buckets.
  • The 30% defensive bucket holds liquid, low-beta, low-correlation assets designed to protect the system during market drawdowns.
  • The 70% growth bucket treats public equity, private equity, and venture capital as a single asset class seeking an equity risk premium.
  • Senior Managing Director Zack McGuire defines the playbook across three distinct postures: buy quality in public equity, build quality in private equity, and back innovation in venture capital.
  • CHOA pairs top-down risk and liquidity constraints with bottom-up concentration, allocating capital based on market inefficiencies rather than predetermined asset quotas.

The One-Equity Pool

Most institutional allocators divide their risk capital into neat buckets: 20% to buyout, 10% to growth equity, 10% to venture, and 30% to public equities. Then they spend their years trying to hit those targets regardless of price.

McGuire runs CHOA on a different rule. He combines public and private vehicles into a single 70% growth sleeve. As McGuire explains, “The other 70% of assets, the goal there is performance. That's public and private equity. We have one asset class as equity. We think a lot about how do we earn an equity premium, how do we compound capital to preserve intergenerational purchasing power, indifferent between public or private equity.” (play from 22:04)

This structural indifference breaks the traditional private equity fund cycle. When general partners show up pitching an 8% hurdle with a 20% carry, CHOA does not ask whether they have an open slot in their buyout bucket. They ask whether the opportunity beats buying high-quality, liquid equities that compound at 10% with zero illiquidity discount.

Dynamic Allocation Over Static Targets

Traditional strategic asset allocation assumes historical asset class correlations hold steady over decades. That model works well in quiet markets. It fails when liquidity vanishes or valuation multiples collapse across private portfolios.

CHOA replaces static quotas with a dual-mandate model. “Children's has a rich 111-year history. We have a dual mandate to both provide protection and performance,” (play from 21:39) McGuire notes. “About 30% of the assets are in defensive or fixed income-like assets, relatively liquid, low beta strategies that have low correlation to equity markets, low correlation to credit, generally except for the credit book, diversifying strategies that can earn attractive returns in a liquid format.” (play from 21:46)

By locking down liquidity and downside coverage in the 30% bucket, the remaining 70% can absorb concentration risk. McGuire describes it directly: “The approach is one of dynamic asset allocation rather than strategic asset allocation. The approach is emphasized by top-down diversification. We pair that with bottom-up concentration within our portfolio construction.” (play from 23:51)

Instead of spreading capital evenly across standard categories, the investment office focuses capital where markets are most dislocated. McGuire sums up the philosophy: “It's not how do I fill a bucket, how do I fill an allocation, it's where is the most attractive risk-adjusted return, often time that's based on the level of inefficiency in a market or perhaps the level of innovation, finding compelling bottom-up opportunities to partner with what we think are exceptional managers.” (play from 22:53)

That leads to three clean operational mandates across the equity book: “buy quality in public equity, build quality in private equity, and back innovation in venture capital.” (play from 39:58) Private equity managers who merely run leveraged financial engineering find little room in this structure. CHOA expects private equity partners to build real operational value to justify the lockup.

Why It Matters

CHOA's structure signals a shift in how sophisticated LPs evaluate PE and VC managers. Allocators no longer need to allocate to alternatives simply to satisfy a consultant-mandated policy portfolio. When private equity must compete directly against public equities in a single growth book, the bar for manager selection rises, demanding genuine operational value creation rather than simple leverage.