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

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 . #venturecapital #vc #startups #openlp #assetmanagement #interview #podcast Stay Connected with David Weisburd: X/Twitter: @dweisburd LinkedIn: https://www.linkedin.com/in/dweisburd/ Weisburd Capital: https://www.weisburdcapital.com/ Stay Connected with Peter Madsen: 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, legal, or tax advice. Nothing in this episode should be interpreted as an offer to buy or sell any securities or to participate in any investment strategy. All opinions expressed by the host and guests are their own and do not represent the views of Weisburd Capital. Participants may hold positions or have financial interests in the companies, funds, or investments discussed. Any references to specific investments are for illustrative purposes only. Investing involves risk, including the potential loss of capital. Past performance is not indicative of future results, and any forward-looking statements are subject to risks and uncertainties. Any third-party data or opinions have not been independently verified. Listeners should conduct their own research and consult their own advisors before making any investment decisions. (0:00) Introduction (2:02) Assessing fund managers and market conditions; Active vs. passive investing (7:22) Shift from small cap to private equity; Diversification and asset allocation (11:46) Factor exposure and tools for analysis in investment strategies (16:08) Investment strategy and evaluation in venture capital (23:03) Collaborative model and structuring co-invest accounts for better returns (27:10) Utilizing AI tools in investment screening (31:51) Sovereign wealth fund investing insights (32:55) Closing remarks