E261: How Sovereign Wealth Funds Create Alpha w/Peter Madsen

Episode 261

What does it take to build a sovereign wealth fund from scratch—and still outperform in some of the hardest markets in decades? In this episode, I talk with Peter Madsen, Chief Investment Officer of the Utah School & Institutional Trust Funds Office (SITFO), one of the most quietly sophisticated sovereign wealth funds in the United States. Peter shares how he went from running hedge fund portfolios in London to becoming the first investment hire tasked with modernizing Utah’s endowment. We break down SITFO’s philosophy on mean reversion, factor-based investing, public vs. private markets, active vs. passive strategy, and how a small CIO team competes with far larger institutions. Peter also explains why small caps are broken, how he shifted capital into private equity, why micro-VC funds outperform mega-funds, and how SITFO uses AI and collaborative models to underwrite managers in a world of overwhelming information.

Highlights:

Why Peter left London to build a sovereign wealth fund with permanent capital
The decline of fund-of-funds—and how it shaped his CIO philosophy
Why mean reversion still matters, even when markets feel one-sided
Active vs. passive: why benchmarks themselves are an “active decision”
Why small caps are structurally different today—and no longer reliably outperform
The “equal-weighted portfolio” origin story and how SITFO built asset allocation from scratch
Why SITFO shifted capital from small caps into private equity
How micro-VC funds outperform large venture funds mathematically
Why SITFO partners with seed funds, super angels, and Fund I/Fund II managers
The collaborative LP model: revenue-sharing, co-invest structures, and research leverage
How SITFO built a zero-and-zero co-invest platform to recapture fee drag
Using AI to screen manager decks, extract underwriting criteria, and systematize memo writing
Why sovereign wealth fund investing differs from pensions and endowments
Managing cashflows from land revenues while protecting K–12 distributions
Why Sharpe ratio optimization is misleading for long-horizon investors
Factor modeling, Venn by Two Sigma, and designing purpose-driven portfolios

Guest Bio:

Peter Madsen is the Director and Chief Investment Officer of the Utah School & Institutional Trust Funds Office (SITFO), where he has led the state’s sovereign wealth fund since 2015. He previously served as a Managing Director at Cube Capital in London and as a Partner at RVK, advising large institutional investors on global portfolios, governance, and asset allocation. At SITFO, Peter has overseen the evolution of the fund from a more traditional portfolio into a globally diversified allocator across public and private markets, grounded in mean reversion, factor-based risk management, and long-term stewardship for Utah’s public education system. Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email David Weisburd at david@weisburdcapital.com.

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LinkedIn: https://www.linkedin.com/in/pmads/

Questions or topics you want us to discuss on How I Invest? Email us at david@weisburdcapital.com.

Disclaimer:

This podcast is for informational purposes only and does not constitute investment, financial, le

Published on 6 days, 8 hours ago