Meet David Aung,Investment Officer at the City of San José

David Aung is an Investment Officer at the City of San José's Office of Retirement Services, which manages the retirement assets of the city's employees and retirees. He leads real assets, venture capital, and absolute return, and was the principal architect of the City's venture program.

David joined the City in July 2018 as the plans' Risk Officer before assuming investment coverage. He spent six and a half years at KKR, most recently as a Principal in the Risk and Analytics group at KKR Credit, and six years at TCW prior to that. He holds a B.A. in Economics from UCLA and an M.S. in Financial Engineering from Claremont Graduate University, and is a CFA charterholder.

In this conversation with Michelle Moon for Asian Tech Collective, David reflects on serendipity, beta, why he thinks the conventional wisdom about venture manager selection deserves a second look, and what a career in risk teaches you about being an allocator.

Michelle: What led you to pursue a career in investing?

David: I went to UCLA as an economics major, and at the time it was the dot-com boom, so everyone was looking to get into tech. I did a specialization in computing, got an Oracle certification — whatever I could do to break in.

The timing was bad. I graduated in 2001, right around the bust, so a full-time job was hard to come by. And I was an international student, which made it tougher. I found a six-month internship at Disney doing IT work as an Oracle developer, and I really didn't like it.

Going back to school was the easier option. I felt I needed to build tangible skills, and Financial Engineering fit. It was quantitative, and I'd always had an interest in investments. So I went through Claremont’s program, and from there I fell into a risk analytics role on the buy side.

Michelle: You built an extensive career in risk and analytics before joining the City of San José. Looking back, how did spending your formative years on the risk side shape the kind of allocator you've become?

David: It's been very helpful, because at the end of the day, every investment professional is managing risk in some form — whether you're investing in the end investment or you're allocating.

As an allocator, that background gives me a better understanding of beta. It's a broad term, but generally it's true that if you have the right exposures, you're going to do well. So the way I think about allocating is: we have to have the right betas. You think top-down. You decide what exposures you want, then go find the manager to execute on them.

Everyone focuses on manager selection, but manager selection and beta exposure are sometimes synonymous. What that means is we don't have to boil the ocean looking for the single best manager. The beta exposure is more important. You want managers who are good at it, hopefully great, but if you have the right betas, good is, to be frank, good enough. That lets us be efficient with our time.

Michelle: Does that show up in how the portfolio is built?

David: For the size of plan we are, we have more manager relationships than people typically would, especially in the sleeves I'm responsible for.

We had a GP tell us, "we think you're a little over-diversified." We don't think so. We want nuance in those beta exposures even within a single bucket like oil and gas. Our portfolio spreads along the risk-return spectrum, from PDP-heavy strategies at one end to exploration at the other.

Everything comes back to risk. You need to think about the dimensions of risk you want exposure to and diversify across them. That's different from having four or six managers and calling that diversification. It's about breaking things into factors. That's how the background helps me. You stay focused on what actually drives returns.

Michelle: Coming from your role at KKR to the City of San Jose, how directly did that experience translate? What was transferable, and what did you have to build from scratch?

David: It translated fairly directly at first, because I came in as the risk officer. Nobody was going to hire me as an allocator in real assets with zero experience there. So I came in as a risk manager and transitioned onto the core investment side from there.

The good thing about being an allocator is you don't have to drill down into as much detail as you do working for a manager. That's one of the attractions. When you work for a manager, most roles are a mile deep and an inch wide. I've always been drawn to bigger-picture thinking, and that's why being an allocator is so great.

At TCW, I was part of a broader analytics team that covered everything TCW did, and one of my responsibilities was supporting the new products development committee. TCW at the time was essentially a collection of boutiques, comprised of people running their own P&Ls under a parent company. They fostered that entrepreneurialism by letting people pitch management on new strategies and funding them with capital. Our group did the analytical work.

That gave me touch points into public equity, fixed income, credit, the securitized world, hedge funds. It's what piqued my interest in different asset classes and their risk-return characteristics.

Michelle: When you joined the City of San José in 2018, what did it look like, and how has it panned out?

David: The plans' history has been interesting. It started post-dot-com, when the city council wanted investment professionals on the board. From then until I joined, there was a lot of turnover at both the leadership and staff level. The plan was bottom decile among public plans.

I joined six months before our CIO, Prabhu (Palani). The current incarnation of the private markets program had started in 2017, so it was about a year in. Historically we'd been very tactical in our allocation, and my understanding is that's what led to the poor performance.

What Prabhu did was stabilize the organization. He had open roles and,and was given latitude by the board to execute his vision. He brought in new talent, and instituted the discipline of sticking to a long-term strategic allocation and minimizing the tactical.

Michelle: What does it mean to you to steward capital on behalf of people whose retirement security depends on these decisions?

David: Honestly, for me it's a plus, but it's more about doing the best job I can generating financial performance. I'm not sure it motivates me any more or less depending on who I'm doing it for. Regardless, I'm trying to do the best I can.

Michelle: You built the venture program largely from scratch. What's been the hardest part?

David: We were fortunate to start when we did, because from 2018 to 2022 you effectively saw three or four cycles in four years. And we spent a year or two studying the market before deciding on a strategy. So we got a truncated view of what can go right and what can go wrong.

The extra burden of this place is that we manage two clients, each with its own governance structure. We have one investment consultant, so generally the plans are managed similarly. But venture was a new asset class, and we had to work with both boards to figure out our approach. Two independent groups of people naturally had two different views. So we had to implement two almost diametrically opposed strategies. It's hard enough to execute one plan with adequate resources, let alone two with less than half. That's on top of being a new entrant and a public plan with the associated disclosures.

Michelle: What was the biggest intellectual shift coming to venture from other asset classes?

David: In most asset classes you give a lot of thought to downside risk. You want to minimize it and get an asymmetric profile by focusing on that downside. Venture is the other way around. You don't necessarily care about the left tail. You want to maximize the right tail.

The second thing is mean reversion. Look at managers in the public space — very rarely do you see someone consistently top quartile year after year. There's a lot of cyclicality, so you're often wary of someone doing really well. Venture historically has been very different. The persistence of outperformance is very strong. Top-quartile funds tend to stay top-quartile, for good reason: you back a successful company, that company funds other entrepreneurs, and those entrepreneurs go to trusted partners.

And the LP-GP dynamic is completely different. In most asset classes the balance of power sits more with the LP. In venture, for the top managers anyway, that's completely not the case.

Michelle: What's your framework for evaluating a new venture manager?

David: I have a bit of a different take.

The conventional wisdom is that you want a concentrated pool of relationships, because the median venture manager isn't very good. If you diversify your manager lineup, your chances of picking up that median manager go up, and you end up with the same distribution as the universe, which isn't a good outcome. So the thinking goes: only invest in your absolute best ideas.

The problem is it's a very different industry than it was ten or fifteen years ago. More GPs, more LPs, a lot more money coming in. And there's more democratization of networks. I don't think the networks the top firms have are exclusive to them now. There have been plenty of generational transitions and spinouts.

So the framework we're trying to apply is thinking about the power law in the manager space, as opposed to the company space. We want to increase our chances of finding that 5x, 10x, 20x manager by having more managers, but the key is more managers who clear some bar of excellence and have diversified networks. More shots on goal, with managers fishing in different ponds.

You can get exposure to generational companies through the big platforms, but they're so large, they're investing at later stages, and they're all fighting for the same deal. If you only invest in those, the beta exposures are very similar. Having five or six isn't diversifying. You might think it is, but it isn't.

Michelle: So what are the risk dimensions you're diversifying across?

David: The obvious ones are size and stage. Vintage is another. We always want to be deploying consistently. And network.

On size, we were historically biased toward small, but we're rethinking that, given some of these outcomes are much bigger than in the past. That makes the math work for some mega funds to deliver 3 or 4x, as opposed to the 2 or 2.5x that might have traditionally penciled out.

Network is squishier. We look for people with a differentiated network, but there's a difference between a differentiated network that's meaningful and one that isn't. If you start a venture firm, your differentiated network could be your neighbors. Is it meaningful? Not really.

Versus a manager we looked at whose differentiating network was product managers. Is that meaningful? I think so. Because with all this vibe coding and the ability to generate code yourself, the need for a gazillion engineers goes away. What matters is somebody who understands the business problem and how to solve it, and that lends itself, on the margin, to product managers more than engineers. You still need top engineers for the really hard problems, but you need smart product managers to build interesting businesses.

All of this is probabilistic. We don't know what's going to happen. We just want to give ourselves the highest probability of backing managers who find great companies.

Michelle: What is one tradition from your heritage that you still practice or deeply value today?

David: My parents are Buddhist, so that's my cultural heritage. I was born in Burma and moved to Hong Kong when I was three. What I practice is basically the general philosophy of Buddhism, and there's nothing earth-shattering about it. Treat people how you want to be treated, general respect.