A (4:00)

Previously interviewed John Merrill, who was at Grove street at the time, and. And we talked a little bit about this unique blend of skills that David Swensen had. So he had David Swensen as a professor at Yale. One of the paradoxical skill sets that David Swensen had is he knew how to partner with the way with the GP to provide a lot of value to the gp. He knew how to get a lot of value for Yale and also he knew how to create an ecosystem where other co investors with Yale also got the benefit of the deal and the fund. So it seems like a paradox, it seems zero sum, but he somehow structured deals in a way that all three parties would get value. What are the best practices when it comes to being a great LP in the ecosystem?

B (4:50)

You can absolutely run it one way, right, with that mentality of I'm here to maximize the outcomes for who my constituents are and what my portfolio needs to do. I don't think anybody looks at that and says, you're not doing a good job, you're not doing the right thing. But I think of the folks now having been in these seats for over 20 years. It becomes a really interesting playbook of okay, when I find a manager and I'd spend a lot of time in the emerging space, so I'll use that as an example. My goal is to be able to introduce those folks that manager, if I find them really interesting to my peers who may think similarly or may think differently, but I know them well enough that this is going to pique their interest as well. So this constant flow of idea sharing back and forth with LPs we use ecosystem, but I think it's even more so. It's this network of folks who know and trust each other, where the idea of warm intros, the idea of a peer who you understand how they think, maybe you've invested together in the past. How can you make that, how can you give that investor some value? The way I always find to do that is this network of idea sharing, the number of WhatsApp groups, Slack channels, all those sorts of things where we're constantly trading ideas. You also get leverage on diligence. Right. If you're looking at something, I may have a very formal process. A lot of things that I'm looking for that are relevant to either my institution or the way I think in my framework. But other folks are going to look at it differently. And I always use the phrase nobody is smarter than everybody. So that's one of the places where you can really get the value of the community. And that's just talking about bringing value to the lp.

A (6:41)

Nobody's smarter than everybody, meaning crowd wisdom, on average is a top quartile or top decile investor.

B (6:48)

Let's put it this way. I'd say if you're just sitting by yourself going through ideas, digging through a lot of this stuff without any external feedback, I think you're, you're going to be prone to miss some things. Right? Whether the, the crowdsourcing or the groupthink or those sorts of approaches. Having good inputs but having, making sure they're vetted. I think that's the risk of how many people do you want? When is enough enough? We always have this debate of when you're doing diligence on a manager, what's the right number of reference calls? And to say, you know, when enough is enough is just, is a little bit too loose, but also putting a fine number on it. Saying it's, it's five or seven or 20, it's not going to be the same, but making sure you have enough inputs that you've hopefully seen around all corners. And we can never get to 100% conviction on things, but getting to the level that you feel comfortable enough to pull that trigger.

A (7:48)

The power of AI. Let me look up on who Wants to Be a Millionaire how often the crowd answer was right. I have to have to admit I was surprised. UK is 91 to 95% and US was 95%. I thought it would be closer to like 75, 80. We systematically underappreciate how smart the crowd could actually be. Is referencing one of the last things that you give to somebody junior? In other words, is it one of those critical success factors that is very difficult to train and teach somebody to do?

B (8:19)

It is. Well, I think a lot of things in this industry come from reps, right? Just I used to joke the junior folks that I would hire and work on our teams, they should want to give money to the first 10 managers they see. Right? Because they don't have necessarily a body of work to compare them to. Right? The first versus the second, the second versus the tenth. You then start to get a critical eye on that. And the same thing with references, I think one is understanding what you're listening for, crafting the right questions and listening to say, okay, did they hesitate? Did they use certain words? So I would always follow the shadow process, right? Sit in, listen to how a reference call goes. Nowadays in the virtual world, it's a lot easier to have multiple people on calls and things like that. So I think that's something from a. We always used to try to get those junior folks to see as much as they could, review as many decks as they could, and then sit in on reference calls before you let them go. And really do that because you are relying a ton on EQ and investment judgment. It's true that most references end up being positive. The onsheet references, we all know this. They've gotten the call beforehand. Hey, I'm putting you on the list. Make sure you say nice things. Now is that the only reason they're saying nice things? Probably not. I don't want to assume that the world is running this shell game where people are just saying things for the sake of raising capital. But I do think when you dig a little deeper and are talking to folks in a pointed way, looking for specific answers as well as talking off sheet, right? You have to make people comfortable with what they're hearing, what they're talking about, who you are and how you're going to use that. There's a little bit of that. I'd say there's a little bit of trust building There's a little bit of the digging deeper and understanding the nuance in conversation.

A (10:16)

Let's say you're hiring somebody and you create this criteria and you're talking to people. Once in a while you get somebody. You're like, this is awesome. Everybody on your team is like, this guy's awesome, this girl's awesome. We should hire him. And, and once in a while you're like, well, there's nothing technically wrong with them. They check all the boxes. But there's not this kind of drive to hire him or her. There's not this excitement does that. Is that where LPs make mistakes, where they can't necessarily verbalize what's wrong? But it's not a hell yes.

B (10:47)

I think that is, that is true. Right. It depends on the program. Right. If I have making one investment a year versus 100 investments a year, the bar is a little bit different. So every incremental GP I'm looking at is maybe looked at it in a different way. I was a tennis player growing up, so we always used to say if it's, if it's 99 out, it's 100% in. Right. So you just need it to be. That's. It's the flip side of what we're talking about. You really do. You need to be 100% of the way there to say that this is, this is the thing that's gonna, you know, I have that gut feeling there's some of this where it goes back to reps, it goes back to kind of knowing what the right fit is and what the right model is. We talk a lot about when we look at managers, is it a conviction based or a consensus based decision making process? So do we have to get everybody around the table to say yes? That may be a little too obvious, a little bit too. That's going to weed out some of the things that look that are more difficult to quantify and more difficult to articulate. But that conviction base is more about. I have that drive. I can feel that, that connection and that energy from the person or the manager of the firm that makes you want to drive forward.

A (12:00)

There's almost like these two different types of pits in your stomach. One is the consensus base where, yeah, they went to Harvard Business School, they were at this firm. Something's off, but I can't highlight it, I can't figure out what it is. And they check all the boxes, but I still have a pit in my stomach. And then there's the exact opposite, which is this person was the top engineer at SpaceX has never made an investment, but he's going to invest in all his SpaceX peers. But he may not even be able to file a quarterly update or do these rudimentary. I have a pit in the stomach to the upside. So there's this kind of asymmetric downside and upside bets.

B (12:37)

You're spot on. Right. And it's back to the point of you can never know 100% of everything you need to, especially in blind pool investing. So all of this is a leap of faith and it's a calculated leap of faith. Faith. And whether that's the. That's. I feel like this should be great, but I don't feel it or there's really no reason on paper where this is going to be a driver. You get a lot of this non consensus or contrarian. A lot of these terms come out when people talk about investing. I think you have to look a little bit deeper of just what. What that feeling is as an allocator. I don't think that happens in year one or two. It happens down the line because you're looking for certain qualities.

A (13:15)

There's this interesting discrepancy between how GPS pick top startups and how VCs pick GPs or underlying startups. And that is that the most experienced GPs and really LPs will jump on my podcast and we'll say the biggest mistake I made over the last 20 years was I underestimated the upside. I underwrote a co Invest to a $500 million valuation. It was $10 billion. A Finkelstein from Vintage previously said that if you look at first principles from the LP side, they should be much more gung ho. So if they have 10 portfolios of 25 companies, any one position is 250. And they should be really pressuring almost the GPS to take these kind of crazy asymmetric upside power law bets. But it seems like, ironically, the lps are more conservative in their approach than the gps. Is that kind of a feature or a bug in the system? And shouldn't LPs be more risk tolerant given that they're more diversified?

B (14:17)

100% definitely bug in my mind. Right? I'm going to go on a soapbox for a little bit now because I think there's this concept of misaligned incentives with a lot of institutional LPs, a lot of groups where there really isn't a benefit to taking a lot of risk, whether perceived or otherwise in manager selection. Because I always say look at compensation structures and I can tell you how people are going to manage their portfolio. So if there's not a benefit to putting your neck out and investing in something that may be perceived as more risky or may inherently be more risky by the metrics, there's not really that motivation other than finding something new and interesting. And you have to have that inner intellectual curiosity to want to dig for those. But there's organizational structures that would much more drive the LP to make a decision that is more about preservation than maximization of returns and preservation. I say job preservation because making a smart investment that outperforms in three, five or seven years, that's great. I don't necessarily know if you're going to get a lot of credit for that both on the bottom line or the top line in the portfolio. I think the flip side is I hate using it because I feel like everybody's talking about it. But you don't get fired for buying IBM. So there's more of a pull for folks to be investing in things that feel safer. I say the perceived safety of larger brands, bigger firms, things that may be more diversified big because you're right, David. The embedded diversification within institutional portfolios. Any single position, if we run the numbers, it's going to be quite small. So LPs maybe need to think a little bit more about the flow through of a single investment and how you want managers to operate. Because when managers operate on that conviction basis and they're not spreading a bunch of chips across the board because they're not 100% sure or they don't, they haven't built the conviction in the areas they're investing, that shows me a little bit of weakness in their strategy. It's not to say diversified strategies can't work, but I think that in a portfolio context, if I'm an LP and I'm underwriting to maximize my return, I want more of those concentrated portfolios. Almost think of the hedge fund pod model where I want the smartest people to operate with an exclusive focus on the one thing that we know really well. And if you're successful, you're going to continue to get capital. If you're not, it goes away. Now you can't do that in an institutional multi asset portfolio necessarily, but that's the way I think about it. Because the compensation structures and the alignment aren't necessarily putting folks in the position to be able to make those hard decisions.

A (17:16)

And yet we've seen some LPs almost supersede their incentives in their search for excellence and alpha. What are the characteristics of those LPs that see the incentives, yes, I don't get fired for being IBM, but I'm going to supersede them. What are some common characteristics or drives behind these LPs?

B (17:37)

I think there's something about, about the point in your career that you're at as well, the comfort, the cruise control versus the revving the engine. How much do I have to build in terms of my own track record? Things that I believe versus is most of my track record built as an Investor, as an LP? Some of those LPs are a little bit further along in their journey, whether that be the institution itself has the bandwidth to take a little bit more risk and they have the support of the governance body. Right. So that might be a, an endowment or a foundation where the board is willing to take some of that goes back to setting it at the top, setting out what you're able to do and what the tolerance is of that organization. And I should couch it by saying most of these funds are not going to lose money. Right. When you look at the numbers and the averages, they underperform what other assets are going to be. So the opportunity cost and the, and the Sharpe ratio is probably low on some of these. But you're not talking about full impairment of capital within the private markets in particular. So I think some LPs need to frame it in the way of where are we in our journey as an institution and an independent investor? Do we have the governance structure that allows us to take some of those risks and afford that wide band of potential outcomes? And I think, you know, I'm a big people person. I feel like are the people aligned personally with trying to push that envelope in terms of supporting the next generation of managers thinking about the overall ecosystem and environment. I think a lot of folks now in the space that I spend a lot of time in with emerging managers are thinking about how do we fund that next generation, how do we bring that next generation into, into light. So I think there's, it's a confluence of a lot of those factors.

A (19:35)

I obsess over these long term games that organizations or people play. And there's also a long term game on the LP side, on the board side. Whereas if you fire a CIO for taking the right bet at the wrong time, other top CIOs, you're going to have a trouble recruiting. There's a sports analogy. One of my close friends, Mike Brown, just became the Knicks head coach and he got fired from the Kings a year after being unanimous NBA Coach of the Year. Because of a player dispute. Then it was done in a poor way. Now the Kings are going to have significant issues hiring the next top top tier coach. So oftentimes, if you don't think many years out, you're going to come across these kind of repetitive games where you start to lose. And the opposite is true too, which is the institutions that could see past the headline, that actually do the diligence, that do the references on the top LPs are able to become these cultures that attract the top tier talent not just at the CIO level, but at every level of the organization.

B (20:36)

100%. David, the average tenure I did a little research on of US public pension CIOs is about six years. So that, that is, I mean obviously that's an average. So there are some with much longer tenure, others with less. So I think it goes back to you need the right governance structure in place where yes, there are things that are inevitably not going to work throughout that cycle. It's the carrot and stick analogy, right? Is it, is there a reward in place or are we avoiding punishment? And you could argue that those two things are rarely aligned in our market. It's often a lot more avoiding the stick than it is the carrot. But you have organizations that can maybe not have that be the compensation structure, but the leash or the latitude to be able to go out and experiment and find new opportunities and take on more of that perceived risk, whether that be through managers or strategies or whatever it be underlying. But yeah, I think that's exactly the case is when you start seeing a lot of churn and you see this with some of the biggest public pensions where there's a ton of external pressures or politics that play into it. Those are ones where yes, they're very high profile jobs, they represent a ton of capital. It gives you the potential springboard to do some of this creative stuff. But the governance structure tends to turn a lot of that top talent away.

A (22:03)

What are some advantages that large institutional investors have over their small institutional peers?

B (22:10)

What the large institutions lack in, let me say, nimbleness, I think they make up with the benefits of scale so they can be a little bit more creative in the way they structure. I think of it as like access to best ideas. So you can go to a large manager, a large multi strategy manager, if you have a nine or ten figure check that you can deploy within them and create a fee optimized so a lower overall fee, potentially cross collateralized, collateralized incentive access to all the top talent within that organization to create a Best ideas portfolio. So that's something that as a smaller investor can't do because the scale buys you into those rooms and allows you to build that structure with the groups that have the capabilities resident within their firms.

A (23:04)

Can you give me an example of that?

B (23:05)

I want to say it was the state of New Jersey really pioneered this with some of the larger gps. I'm going to blank on. It was one of the large multi strategy gps. Maybe it was Apollo or TPG or one of those at the time. But you know when you can deploy the size of capital, I want to say it was in the hundreds of millions of dollars to create a separate account to be able to then build a portfolio that maps directly to your investment needs and your goals at a lower cost. That's something that really gives you that leverage point. Obviously you have to be with the right manager, you're getting the right support. But that is just something that's not available to an institution that can only write seven or eight figure checks.

A (23:52)

I had Professor Steve Kaplan from University of Chicago, arguably the top researcher on private equity and venture capital. One of the things that he said that although large organizations oftentimes are limited kind of to these second maybe third tier funds, where they do benefit is from the co invest. And just to give you an example, if a fund is 25% gross that's roughly 19% net. So that's roughly 6% in in fees that you're paying to the 2 and 20 is essentially equates to about a 6% said another way if you could have half of your portfolio be in co invest, half of it at 19, so half at 26, half at 19, you're outperforming the median fund by 3%. So what you lose and maybe your ability to get into the emerging managers or earlier stage funds, sometimes you get back and co invest and that could be pretty meaningful as well.

B (24:46)

The ability to do some of those things it just opens doors with that size and some of those things it doesn't have to be at the co investment, doesn't have to be at the largest, the very largest. I think a lot of the mid market managers are looking for investors who have that appetite and can deliver on that. You'll start entering into what does a co investment program look like? How do you make the decisions? Are the deals where co invest is available, the best deals, alpha drivers within the portfolio. So it's beyond just the fee arbitrage. I think you have to then think about the selection criteria that flows through there. But it absolutely can be the case, right? If you can dollar cost average into a fund and get the same exposures, you absolutely will have a benefit at size.

A (25:37)

So you spent 22 years across some of the top LPs in the world. Hamilton Lane, MetLife, Hurdle Callahan. What is the best in class co investor program look like?

B (25:46)

LPs need two things. One, a clear point of view of what they want to do with co investing and a process that is streamlined and efficient. So they don't, so they can provide clarity to the gp. So one is what are we looking to capture here? There are things about a co investment program it could be I want that dollar cost average, I want every deal that I'm offered because I believe this manager is a quality manager and the deals that I'm going to be able to be able to access at a lower rate are ultimately going to drive returns higher. That's one method it could be I want particular exposure to certain sectors or partners or whatever it might be so I can take a little bit more of a pick and choose approach, a bottoms up diligence perspective to co investments and I'm going to overweight some of those. I'm going to introduce some idiosyncratic risk into my program. Both of those are reasons why you can run a program. They have to be staffed differently. You have to think about the underwriting, the dollars, just the overall fit in the portfolio. And then on the other side I think the, the process is even more important because the number of gps that I talk to that say every LP raises their hand and says they want co investment. Being able to have a process where your underwriting is not going to slow down that manager. You also want to be able to give the GP clear guidance around. I need to, you know, we need a week to review the data room, a week to do legals. We want to have a call with management, we want to talk to your deal team, then we can give you an answer and we'll be done. So you think you, you just need to streamline that in a way that that works for the GP and for you.

A (27:27)

I want you to brutally critique my back of the envelope analysis. So mine is how much of the fund is investing in the co invest, how much of the partner the GP commit in the opportunity. Third one is which partner. So I think there's huge variation in quality within a fund in terms of the partner. And then who are the co investors on the opportunity? What are the things that I miss and what would you remove from that criteria list?

B (27:58)

I don't know if you gave them in rank order, but I think the number one that I would look at it is the alignment with the strategy. Am I investing behind the partner who has the right healthcare experience to do this, with a track record doing that half or 65% of my analysis is the sponsor review, is it aligned with their strategy? Is it looking at, is it the right partner involved in it? Yeah, I think those are the ones that you can kind of start with. I also like the first one you mentioned in terms of how much of the fund is going into this and a second step of that is at what point in the fund is this co investment being made? If it's the last deal out the door before they can start the fundraising clock on the next fund. Not that that's a guarantee, but that's something to think about. The first deal versus the last deal in a fund. I'm sure there's some analyses that could be done whether that is, there's better or worse performance. But if it's that first deal, if it's a deal in the mid fund, if it's a deal later in the fund, what are the incentives behind that deal and what are the reasons why I'm seeing that that's something that I love as a co investor. How did this get to my desk? What are the reasons why the GP isn't taking all of this or they aren't bringing in other co investors? So those are the types of things I do like to see who else is in the deal. It gives you a point of reference and it also tells you okay, that other groups who may have been thinking about this same space, that point of nobody being smarter than everyone get the benefit of how other people are thinking about it. So I worry less about a particular co investment context, I worry less about the GP putting incremental capital into the deal. But I do think about, you know, just how it fits from an overall portfolio perspective. We're talking about a continuation vehicle or a co investment. In that context, I absolutely want to see alignment with the GP's dollars going into that rolling their carry, whatever it might look like, but in a regular way, co investment, I'm a little less focused on that more the alignment within the firm, with the people and strategy and then where it happens in the fund life.

A (30:06)

How else do you suss out the GP's conviction in the investment? What are some non traditional ways to understand how much conviction that the entire team or specific partner has on the deal?

B (30:21)

You can use the, the traditional metrics would be like how much is this a max position in your fund? But I think too that's going to come from one to one conversations. I don't know if you can references of course, but I don't know if you can end around that really in any way. You really have to talk to the GP about what they've seen in this and maybe you can intuit some of that from the way they write about it in their memos and what you're going to see in a data room for that deal. But I think most of it is going to be asking them relative to every GP will tell you they don't pick their favorite children every deal they love, every deal they underwrite to great outcomes. But really I think having that conversation and knowing enough about the rest of that portfolio that you can juxtapose the deal they did the prior year versus this one, why is this better? Why is this different? And then back to that point of why am I seeing it? That's the thing you want to suss out too is if, if there is co investment available, what is the reason why? Is it a conviction based, is it a portfolio construction based, is it a time, is it a deal size? So all those sorts of things, not that that's going to give you the, you know, the flashing light on the why on the level of conviction, but they're all pieces that could go into that puzzle.

A (31:42)

The way that I look at it is I do look at it as basically like intelligence gathering, not to be skeptical. And to your point, everybody, every GP is going to say this is their, their favorite kid. So I think if you're doing the diligence just in time, I think you've already lost. You have to be building a mosaic of information on that GP on that fund. And that's why I think when LPs look at CO invest, it's smarter to pick a couple managers that you could go deep on, understand their how they think about things, understand the cadence, build the relationship with them. Relationship is not built just in time either. And then you'll have a better sense for. There's two ways to find out if this is a max deal or if this is the right size. You could ask them for that deal, which they may give some reason. Oh yes, but there's less reserves etc. Or you could look know their last 10 deal sizes, be up to date on it and then just ask them for the check size. So kind of today's episode is brought to you by Square Smart streamlined tools to make running your business simple because the right tools make all the difference. One of the things I love about Square is how seamless it makes everyday transactions. Whether I'm at my favorite local coffee shop or buying my favorite strawberry banana smoothie, the experience is fast, easy and reliable. No fumbling for cash or awkward tech glitches. It just works. Square keeps things simple because who has time for complicated things? It's like having a personal assistant that never clocks out. You get smart, easy, use tools that let you take payments, track sales, manage staff, and more, all from one system. And here's the best part. Square keeps up so you don't have to slow down. Get everything you need to run and grow your business without any long term commitments. And why wait? Right now you could get up to $200 off square hardware. @square.com go how I invest. That's sq u a r e.com go/how I invest, right? Run your business smarter with square. Get started today. Do your own homework versus asking the GP to kind of narc on themselves. You really do have to pick your GP partners and you have to pick your horses. And this is where having those relationships come to fruition.

B (33:51)

This, David, is how we started our program at MetLife is we identified who the partners were that we had the most faith in. And I'll take a step back, not who we had the most faith in, where we were seeing co investment flow or we liked the nature of it, where we had partners where we could shortcut some of that, that whole prepared mind idea of we know what we like, we know what we believe this manager is really good at and the deals that we would want to co invest with them on. So that was a way to one, help us build our own process on the ground versus just opening up the top of the funnel and saying everybody send everything. And then we're left scrambling and trying to meet deadlines and do a lot of those things. So I think that is, that is a critical point is like knowing what you're looking for and being as prepared as you can.

A (34:40)

Wait, are you saying that at MetLife you had more favored managers versus less favored managers, just like GPs have more favorites. That can't possibly be true. Right?

B (34:50)

You're picking your favorite children.

A (34:51)

Of course, you almost narked on yourself as well.

B (34:55)

Oh no. So.

A (35:00)

Before you went to MetLife you went to Hurdle Callahan. We had the CIO, Brad Conger. What was the main difference between Hurdle Callahan and Hamilton Lane? What was the stark differences between those two organizations?

B (35:12)

Yeah, obviously organization type, right? One being an asset manager consultant, dealing with large institutions and the other being an OCIO where the core market is high net worth individuals, family offices and small institutions. All the things I got to do at Hamilton Lane from back office, front office, research, product, investor relations, legal, all the things that I touched, I actually was responsible for. When I ultimately took over the role leading that team, I felt closer to the money, which, you know, you're talking to the individuals, you're really seeing the impact that you're having on those what we called good works organizations. So a lot of the institutions were foundations, charitable organizations, hospitals, orphanages, things like that. And those were, you know, there's just a deeper connection when you can see that and talk to the folks there.

A (36:04)

And you mentioned you had more interaction with LPs in the seat in a hurdle. How did having daily or weekly conversations with LPs affecting, affect the way that you went about investing the portfolio? Did that make a change?

B (36:19)

It did. It's like this lens of stewardship of just like, okay, I can see, I can talk to the principals at the family offices, I can talk to some of these charitable organizations and see the great things that they're doing. And that rightly or wrongly gave me the greater sense of connection to the dollars. But I also got to hear the challenges of what they were going through. So we had taxable and non taxable clients. For the first time in my career, I was learning about how to think about after tax returns. K1s reporting it helped bring a lens into the odd, into the operational due diligence of how my conversations with managers went. And also thinking about efficiency of cash. How do we use credit facility? How do we think about capital call timing when you are trying to not just maximize return, but be more efficient for these clients? And David, I'd say the other thing too. Working directly with these folks, each of these annual, semiannual or biannual vintages, we had about 200 discrete clients in each of those pools. And the level of understanding of the market was kind of up and down the spectrum. So it kept me on my toes, but it also forced me to distill what our IC said. So when we did our underwriting, how can we bring that then this is a fantastic investment opportunity, but how can I put that across in clear, concise way to the clients so they can see the value in what we're doing?

A (37:46)

Hamilton Lane is approaching a trillion dollars in assets. I think Hurdle callahan is over 20 billion. This is extremely large and by no means small pool of capital at the same light, it is a 50x difference. What are some challenges with being on the smaller side as an LP and as an allocator?

B (38:08)

The smaller size generally means smaller teams, which means less resources to canvas the market and oftentimes less capital to command attention. Right. Everything we just talked about with the large institutions where scale can be a weapon, you don't necessarily have that as a smaller investor. Now we had the beauty as an ocio, the model is to aggregate even smaller investors and look and feel like a $20 billion institution, so operate with that heft in the market. So we were able to one, I think, get more access than what we could have, what any of our institutions could get on their own. But we also had the level of flexibility to do things up and down the size range. If you're deploying nine figures a year, billion plus a year, that's going to be something that the small end of the manager horizon is really hard to do in an efficient way. So as a smaller institution, not only could we look at some of those managers, but we're also of a big enough size that we could attract the attention of some of the larger folks. So by and large, smaller investors face those challenges. Sometimes they can't get direct experience exposure, so have to use platforms, fund of funds, intermediary intermediaries. But when you're, when you're sort of where we were at, hurdle that size was, was optimal because you could still do the small things that were interesting, but you also had enough punching power to get, you know, to get exposure to some of the bigger names.

A (39:45)

I've been doing my own intelligence gathering around what is the optimal LP size. And everybody wants to give me a different narrative, but it seems like somewhere between 5 to 10 billion and 10 to $20 million checks is kind of like the ideal for both getting access and generating alpha. Would you agree with that or what would be your optimal size?

B (40:06)

I think you could go even a little smaller than that. We talk about the moving the needle, right? The efficiency of capital. If I'm $1 billion, I can't write a 10 or 20 or $50 million check and have it matter. But when I am of, I would say the $1 to $5 billion range is also a place where you can do a lot of things, be impactful in the small and emerging space. So where I think the true alpha exists in the market, but then you also have the ability to do some things that are a little bit larger. So I'd say as small as a billion dollars in terms of total assets. And then that can go all the way up to. I think I'm biased. But what we had at hurdle was a great, a great size that gave us that latitude that I could see firsthand.

A (40:54)

While at hurdle, you would get about 300hp pitches a year and you would say yes to only 10. Tell me about what would make you say no very quickly. Is it just returns or is there something else outside of returns that would be like no, this is a no.

B (41:10)

Pile immediately that 300 were ones that I think we actually looked at with any level. So the cold inbound pitches, there's another tier above that where I think there is a blunt instrument that you say this is just not a fit from size, structure, whatever it might be that you've predefined. Right. Say we won't do first time funds. Okay, that's an easy disqualifiers. But once you get into that first conversation, our program at Hurdle had autonomy over all alternatives, but the program had the specific need to fill within the client's asset allocation. So not only were we putting together our own puzzle in each individual pool, but generally clients were participating on an annual basis. So it all had to fit in not just their private equity allocation or private assets allocation, but also in their overall asset allocation. And so because of that I had very few disqualifiers at the top. But the one thing I would try to suss out as quickly as possible, I mentioned it before, but is this lack of partnership mentality. So I was focused on the relationship building short and long term. And I was willing to hear almost anybody out, regardless of the source or the strategy. So we took inbound from our clients, from our sales folks, from placement agents, from wherever it was. My goal was to see as much as I could make quick decisions on does this even have any potential. But because we could go pretty much anywhere, I tried to be as open minded. Then after that second call, that's when you really had to start thinking about what is the real fit here, Bottoms up, tops down and think about that.

A (42:51)

Perhaps a very odd question, but why does the partnership mentality matter? In other words, if you had a best in class crypto or venture investor and let's say he or she was not a very likable person, but just a good investor, why would that be a problem?

B (43:11)

It's partly the way I was brought up and the, partly the way I think about the world. Like the, I think it was Seth Alexander who said, like it's, don't, don't treat relationships as if they're transactions, right. If, if I'm buying and selling a security, great. Like that's, that is a transaction, that's a trade. Sometimes get uncomfortable when people talk about investments they make as bets. Right. Because that's inherently. You're investing in people and what they're building. And the flow through is either a founder who's building something, a company that's creating something. So I always think about it in, you know, what is the long term nature of this? So that is where, you know, the ways that I think about partnership mentality are very much qualitative. Right. It's, it's. What do we start talking about when that first 10 minutes of the conversation. Are you already on page five or six of your slide deck talking about your performance and your returns? Are we, are you interested in what this matter, what this means to me in terms of I'm going to be the source of your capital? Let's talk about what I'm looking for. And then you should have the awareness to understand if that is going to be a fit or not and where to take it from there. So I think there's, there's like a pitch style, there's a conversation, there's how do we start, how do we start this potential long term relationship? If it's just talking about a deal or something like that, that's a little bit harder now. It's not a disqualifier, but I'm looking out for that. I want to see also responsiveness. I want to see a lot of these intangibles that go beyond what's in the pitch deck and go beyond the performance numbers. And those are the things that, you know, I think about a lot.

A (44:53)

This goes back to this long term games and the devil's in the details. I got to pitch to Marc Andreessen when I was 25 years old. In retrospect, it was an absurd pitch. I remember it so clearly because it was Marc Andreessen. Still at the time, he was incredibly famous and he gave me so much benefit of doubt and he gave me so much of his attention that I could never, even if I wanted to give a negative reference on somebody Andreessen, I would hold my mouth. He just endeared so much loyalty in me for the rest of my career because it was such a, such a difference in power and he was so respectful to me. And that oftentimes plays out over several decades where it was, it would be easy for him to be rude and that wouldn't really show up in his Numbers maybe for three to four years. So there is this kind of lagging indicator in how you treat people. And that doesn't mean that you have to invest in them or you have to even keep the relationship. Treating somebody like a person and like a human being may not show up in the numbers right away, but actually can endear pretty loyalty for a long, long enough time period.

B (45:57)

That's great to hear because I do think the, the thing that most people want is, is feedback and attention. And if you can give that to someone who's pitching, you know, going in 95, 98% of 100 conversations are going to be a no. But getting, create, getting constructive feedback, having someone of that caliber be able to pay attention to you, I have used now for the last six, seven years. My favorite hashtag is people first. Right. And that's across the board. I feel like that's always the tiebreaker. If you think about managers that look similar, right. That may have similar returns, operating in a similar space, how do you feel about that person? How did they make you feel? What are a lot of the intangibles that they have? Because at the end of the day, these are long term relationships. And it goes back to the how do people make decisions? They make decisions with their gut and they confirm it with data and with their head rather than vice versa. And I don't know if that's universal, but that's certainly the way I try to fight some of those biases. But after this amount of time, I have a good inclination on after that first meeting, how do I feel about this person? Let me take stock of what was going on there. And now what can I do? Back to those points of like, what are the three or four things that are really going to drive my decision? If I'm questioning the character of a person or their ability to be a partner, I'm not sure I can tease that out in references. I may have more conversations, but those are things that kind of stick with.

A (47:30)

It's interesting because in your seat at Hamilton Lane, also at Hurdle, you, you were probably in situations where you could make somebody's career. You were a kingmaker. And I think oftentimes about this it's like, who are the people that other people want to king make? There's almost opposite stories on this. I'll give you two stories. One is there's a startup founder. I invested a small amount in his company. I made the introduction for him to get acquired. He made tens of millions of dollars and I was happy to do it. I Wasn't looking for fear or anything. But then a year later he told me the story about how he reached out to the person. It was such a compelling story that I had to check my email to see like if I was misremembering. But he had literally deleted that story that I made the introduction to that person, which I was happy to do at the time. That's one extreme. The other extreme is you see these people and sometimes you see these subtle signals. Sometimes they could be, they could seem kind of cocky or overconfident, but they keep their fun the right size or, or they do the right thing with LPs and you're like, this person's not only a good steward of capital, but this is a humble person. This is somebody that checks their, has their ego in check. And my theory is that those are the type of people that maybe paradoxically will end up building the next great asset managers. Because people realize that people like you realize that if they king make them, they're not going to go back and forget who helped them. They're going to be grateful. And those are the kind of people that you want to, to be the next billionaires. And I think that's this kind of soft part of the market that goes underappreciated.

B (49:05)

That is exactly how I see it. And that is great to kind of put that out in the world too. You hear the phrase no asshole policy from a lot of people all the time. That's a big word to use to define people. But you can still be an asshole and be a good investor. Right? But are you a good partner? Does that bleed into other areas that you know, if that is a differential for me, if I'm only return seeking and I'm going to be okay to bite my tongue and deal with what might be a less than favorable partnership dynamic, then I think you'll have that. And you definitely have numbers and numbers of people who might fall into that category who are super successful. But my own personal view and this, this concept of king making is, is. It's certainly there, but it's one of those things where who, who should be that next generation? Who are you to decide? But if I'm looking at characteristics and being able to put those forward, I'm certainly going to favor those that walk in the world a certain.

A (50:09)

So today you have a very interesting seat. So you consult both GPs and LPs. Why did you make the choice to consult on both sides?

B (50:19)

I wouldn't say it was a conscious choice, honestly. I had after the Long and winding road at Hamilton Lane, Hurdle and then Metlife, and then most recently at a startup called Allocate. You know, those, those were all experiences where, with the exception of MetLife, were commercial roles. Right. I was dealing with LPs and GPs, ran our investment team at Allocate, led our private equity program at Hurdle, obviously was seeing a bunch of stuff at Hamilton Lane. All of those things. Let me, we talked a little bit about it, Let me see the LP lens, but also understand what GPS are looking for or what LPs are looking for in GPS. So what I started doing was actually talking with GPS in more of like a coaching context where they're like, hey, I'm kind of hitting a brick wall on this. Can you give me some feedback? Back to your analogy with Marc Andreessen. All these GPs are starved for feedback. In my informal survey of these groups, 80% of emerging GPs were getting little to no feedback. And that could be the ghosting, or that could be, sorry, not interested, that's not helping them get any better. So they're starved for feedback. So that was one of the places where I slotted in and I found that most of these groups, particularly on the emerging side, they. They didn't know what they didn't know. So just being able to shine a light for those groups, that was a great opportunity. And as I put it today, and this overlaps with the LPs, it's the zero to one moment. And the zero to one can be with GPS. Anyone who's just starting out raising their first fund, that's the most obvious. But going to fund two or fund three, where you're targeting institutional LPs now, or you need to figure out what an odd process looks like, or a Fund 4, where now you have a body of work and you have to figure out how to display your performance in a certain way, or tell the story about some lessons learned. Fund five, where you might have some generational transition. So zero to one moments are happening everywhere within the GP community. So that's where I plug in to be able to give them some insights on how LPs are going to view that, but also how to optimize that. That. And then on the LP side, you can imagine it's the most natural transition for me, having managed portfolios and programs for 20 years, that's where I can lend myself into emerging LPs so think of multifamily offices, RIAs, groups that are just getting started, that may not have the governance rails to work with some groups that are Thinking about what's the right IC structure, how should we vote, how should we produce memos, what are some of the milestones. So some of the procedural stuff, others it's eyes and ears in certain markets helping them underwrite introductions. Like a lot of this stuff where I can help craft a portfolio without having a full time seat within there. So LPs more and more these days are looking for that kind of support. They're going through their own zero to one moments there too. So that's how it all kind of came together over the last 15, 16 months. And I would say it puts me in a very interesting position, as you alluded to, where I'm seeing probably more, maybe more GP pipeline than I had as a sitting lp. But with my LP consultation advice, I'm also having a pulse on the market of what many of these LPs are looking for.

A (53:45)

You mentioned 80% of GPs have almost no feedback. That's. It's one of the sad parts about being an emerging manager is that it's not only that people are rejecting you and saying no, you don't even know why. So there's not this like feedback loop. Now you obviously have this different vantage point and 22 years of experience when you look at these GPS, double click on why GPS that might have all the internal ingredients, so everything's good, but they somehow fail to raise money. What are some common patterns among those gps?

B (54:20)

I should say every GP is a little different, of course, but I think it's the fundamental mismatch of what most LPs want to hear versus what GP's think they have to say. And I'll unwrap that a little bit because most of the GPS I'm working with are emerging managers and they just don't have enough context. They continue to use words like unique and proprietary in this market and in their, in their own universe. They, they may well be, and these may be words that are supportive as an lp. Going back to just my hurdle Callahan days, a number you cited, 3, 4, 5, 600 funds a year, 10 meetings a week. Unique means you're one is an N of one. Proprietary means you're the only person with access to this means those are things that I look at with a lot of skepticism and I think a lot of LPs do that too. So fundamentally it's GPS are told you have to figure out your differentiation, your edge, how you're going to win in this market. And a lot of them lean towards we're the only ones who are doing what we're doing without the understanding that it's not about being different in my mind, it's about being authentic and being better. Right. How are you positioned to do the thing that you're going to do and in the way that makes sense from all the experiences that you've had? And how are you going to be able to do that better than peers? So it's less about unique, proprietary, it's more about different and better.

A (55:48)

The analogy I like to use is analogous to the NBA. You might be an excellent basketball player, you might be one in a thousand, one in ten thousand, but private equity or venture capital market is the professional leagues. And just because you're exceptionally good at basketball doesn't mean you're going to make it to the NBA. So you having that context of it's not that you're not good, it's not that you're not even extremely good, it's that the bar is that high. And let's try to point how you could get better versus focusing on how you're already good. And kind of reframing that could be, could be helpful. Especially GPS could get in the stark place of constant rejection. And the stakes are so high, once you quote, unquote, make it, you are set sometimes from for intergenerational wealth. So the stakes and the rewards are high. But having the right mindset is also critical.

B (56:39)

I would 100% echo that in that. You know, one of the things we talked about too is how gps perceive themselves, right? It's, are they overconfident? Are they not? Like what's, what's the framing of that? And I feel like some gps and I'm fortunate I get to work with who I regard as some of the smartest and most accomplished people. To your point, like they have, they have the reason to exist, they have the credibility there, but they systematically undersell themselves. They, it's usually more on paper. But even when you talk, you talk to them like that in fundraising, right? You're saying like it's not just about the skill, but being able to self promote is, is essential, right? So as an investor I think you have to, you have to establish credibility and gain trust from investors. And I think that comes from telling LPs exactly what you've done and how well you've done it, including all your accomplishments, but not just the past, but how that's going to translate into future outperformance or a future way to really pull this through. And I think that's not meant to be braggadocious. It's meant to, to you do it in a matter of fact way that still recognizes that you, you know what you don't know and that you're still learning. It's this combination of humility and, you know, self promotion. It's tough.

A (58:13)

And you said this last time we chatted, you said GPS are at the same time too much humble and too much bragging. What did you mean by that?

B (58:22)

A lot around the, the idea that they, they may lean into certain areas that they think people want to hear. So in, in my mind you do have to pound your chest a little bit and talk about the things that you've done where the perception of that might be this person's arrogant, this person is, is too self promoting. But in this market you can't, you have to articulate that so people will understand what's happening and why you're positioned in a way that you deserve capital. And then on the flip side, the humility piece, that is a quality that is necessary to your point. One of my favorite emerging managers is a guy by the name of Dan Kimmerling at Desien's Capital and he wrote a piece where he said he went an entire calendar year without hearing yes. So a calendar year of hearing no's. Talk about an industry that humbles you. I think that is something that you really have to put into context if you're not already humble, if you already, if you go into this thinking, I'm going to steamroll through this, I'm going to go up and down in my fundraise, everybody's going to love me, I'm going to tell people how great I am, It's a mentality. But if you go in with the idea that yes, I know this is going to be hard, my first question to every GP is like, why do you want to do this now? Right? Why do you want to run into what are a ton of headwinds in one of the more challenging markets? So the self awareness that I know this is going to be hard. I believe I have the skills to do it, but I also know that things aren't going to go my way in a lot of this. So trying to keep that nice balance, but it is, it's tough, it is very hard for a GP to be both of those things. But you do need to be both of those things to be successful.

A (60:13)

The razor that I use on anything that I start is do I want to do this for 10 years? Because if you commit to something for 10 years, you will be world class, especially in the Business world. So the question is, do you want to pay the toll of 10 years? It's not whether you could be world class, not whether you could be get great. It's are you willing to put in the suffering? I'll give you a distinct example. I started a newsletter probably about a year ago and I actually got to a thousand subscribers pretty quickly, which is good metric. And every week I would sit down and it would be, it's not, it wasn't fun. I didn't love it. I didn't love it like our conversation. And I asked myself that simple razor, can I do it for 10 years? First answer was immediately no. Can I do it for one year? Probably I'd hate it. But if you look at everything as the value of compounding, if you ask yourself is this worth it for 10 years? And frankly, you know, a lot of people should be, should quit more tasks more often if they're not aligned with them, if they're not naturally good with it. People think quitting is bad. I very happily quit the newsletter and I'm very happily will talk about it because I think it's something that's under, under shared in terms of the virtue of quitting. I guess, for lack of a better.

B (61:26)

Word, it's a great example, right? It's investing a fund too. I mean that's your time, that's your energy. That's something that I'm sure you could have gritted your teeth and gone through it, but it's about where you get energy. I take it a step further with most of the managers that I'm talking to that want to launch a first time fund. We do the math, right. Of like, what do you understand raising a $10 million fund now and charging 2% management fees. Right. What does that mean? Are you in a position where financially that's not going to bring any stress to you? That's taking aside all the other factors of how you're going to execute, what you're going to build. Do you know everything you need to know? But just looking at it from a pure dollars and cents perspective, a lot of people don't. And I think we're probably past that now. Four or five years ago, when money was cheap and flowing freely, yeah, you saw your friend do it, you wanted to do it, you did it. And then coming back and raising fund too, it's a completely different environment. So now I think people have seen some of the carnage of what's happened. But I do have to give advice to people where I tell them just take a beat maybe don't do this right now. Think about the implications of keeping your job for another year, continuing to do some angel investing, build a track record. Think more about this. Right. And that's. It's hard to give that feedback because you feel like you're popping a balloon for somebody. But it is much more of a. It's just being realistic and pragmatic about what I see that idea of context and letting people know it's okay. I heard a great quote too where it's the quote is I'm in the middle of the ocean now and it's going to take me just as much time and energy to swim back to shore. Sure. As it is to go out. So those are. That's something where I think you do have to be thoughtful about. When you first commit, know that you know you're getting deeper and deeper into that. So when do you pull the rip cord? How do you continuously assess this? All the things that you said, There is virtue in it. But I like the 10 year test for sure.

A (63:38)

And there's also some, some stuff should stay as, as a hobby. I actually, I'm a big, big proponent for top CEOs doing angel investing on the side. I think that really betters people being CEOs, but that doesn't mean they have to go into a fund. I was listening to Alex Hermosi. I just had a three hour sit down with him which will be released in a month or so. He's, I think one of the most underrated thinkers. And one of the stories that he tells is he used to be really into ping pong. And so his. So he asked how do I get better as a ping pong player? And he looked at it and he realized it's like doing 504 hands a day. And he's like, no, no thank you, I'm good. Being an amateur, I don't want to take away the joy from my ping pong playing. I get that that's really what it takes to get to the next level. But it's not a price I'm willing to pay.

B (64:27)

Yeah, it's all about the joy and the energy. Right. If you can, is it sucking it out of you or are you putting it back out? Those are the things too where it's going to be tough. Let's think about it.

A (64:39)

So you also, we talked about on the GP side, you also advise some of the top emerging LPs for lack of a better word, what are the characteristics of these LPs that you advise and how do you help them?

B (64:53)

For the most part, the label emerging means they're relatively new to the asset class. They also tend to be understaffed. Right. They may, there may be a CIO and a junior resource that are maybe doing other things as well. So they don't have the resident expertise on private markets. So I'd say early on in their, in their journey, I will say it's self awareness and humility as well in this case that they will self select into working with me because I think there's a lot of this. We need to be the ones going out and finding this and owning relationships and things like that. When you put it back into the framework of what is my institutional organizational goal, how do I best achieve that? It's the idea of some people are afraid to use fund of funds because they feel like they're outsourcing some of what they should be doing internally. The groups that I'm working with and the right fit for me are groups that have that understand that they can't do everything on their own and they need some of that time and attention from an expert. And I use this phrase, adult supervision, where these are not kids by any means, but these are groups that they want to push the envelope. They want to continue to do things internally, but they also want a second set of eyes who can help them avoid the landmines that might be there. I coach them through a lot of things in just investment, due diligence frameworks, operational due diligence, marketing of a deal, all those sorts of things.

A (66:23)

You seem to have this great skill of self selecting for the right people, your life, the right GPS and the right LPs. Maybe you could coach me on this. How do you signal or set the right intention in the market in order to select self select into the type of people that you want?

B (66:39)

You kiss a lot of frogs, right? I think part of it is making sure that you are out there enough. Right. It's not a funnel analogy, but it's putting yourself in the right places. About six years ago, I started thinking in public writing a lot, whether that be long form, short form. I found my voice and I think that's something where I'm curious what you think about it, but I see so much content that's AI generated that does it, that feels generic. So I think there's this concept of authenticity. I have no problem sharing my background, the things that I've done, the things that I failed at, how I think I can be valuable. And if I can't be, I'm happy to tell you as well. I find now having gone through this, you get a better ear and I think about it in the lens of how can I help you in our first 30 minute call? If I can't identify one way that I can help you and I will talk to pretty much anybody on that context, then I'm not going to try to sell services or things that you don't need. It's being understanding where your value lies and how you can bring it to folks. Having that authentic voice, being, you know, the interactions with folks. Thankfully I've had this good fortune of now having worked with a lot of great folks and having great experiences with them. So that's, that's my, my method. I don't know if that's a, if that's a playbook or a coachable point, but definitely the way I'm thinking about it.

A (68:11)

Use a Tim Ferriss quote, fire your customers. You could go upstream of that and just being explicit about this is what I do, this is what I don't do. I, I'm not just going to do this for you because I believe, you know, if I'm working on the wrong task for you, I feel like I'm being a DennisService to the LP. So setting those expectations up front I think could be powerful as well. Matt, this has been absolute masterclass on LP GP Emerging. Really appreciate you taking so much time and I look forward to continuing the conversation live.

B (68:40)

Absolutely. Thanks David. This is great.

A (68:42)

Thanks Matt. Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This helps us grow Grow also provides the very best feedback when we review the episode's analytics. Thank you for your support.