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- [00:00]
David
Jonathan, I've been very excited to chat. Welcome to how to Invest podcast.
- [00:03]
Jonathan
Thank you, David. Happy to be here today.
- [00:06]
David
So, Jonathan, you're the CIO at Defined Capital, where you work with families with a couple billion dollars, but before that you were at both Goldman Sachs and Jefferies. What made you realize when you were at Goldman and Jefferies that there was a gap in the family office market?
- [00:21]
Jonathan
The sell side is a really interesting place. You learn a lot there. I enjoyed my time, but I think the longer you're on the sell side, the more you realize it's a factory that's a consensus machine. And what I mean by that is so one, everything the sell side does is about not rocking the boat. And so they want to make sure that, hey, if you're moving things around the edges, whether that's smoothing a circle, making things better, you don't want to rock a boat, just want to kind of keep its status quo, adjust here, there, but no big changes. But the other big thing on the sell side is that there's this structural problem. You have institutions that are doing custody advice and product under one roof. And when you do that, you have this situation where what advice you're giving may not be the best advice for a client. And so what we started to realize, what I realized more and more, is that let's say you're working with a family office, that or a founder that just sold a business for 30 million, 50 million, $60 million, and all of a sudden these institutions are talking about investments, non stop investments. Hey, let's go into some great forward swaps. I have this great product here, this power plan here, this there. But for someone who just sold their business and they're building a family office, that's not what their focus is. They're. Their focus is, did I implement my estate plan right? Is my QSBS treatment going to come in right? How is my family controlling these assets? The investments is a great piece of it, but that's maybe at number three on their list. And so when I started the business and my wife is a co founder with me, she had this saying, it's only helpful if it helps. And so for us, we start with what a family needs and then you work backward. And I think that's the big difference with where I saw the inefficiencies there and what we wanted to build from day one with defiance.
- [01:47]
David
One of the biggest trends in taxable investing, arguably is this rise of the RIAs. The independent wealth advisors and the independent wealth advisors will say that you need really to have an independent advisor that the big banks are conflicted. Explain to me maybe why that is. Why can't a large bank give you independent advice and maybe direct you to other products? What's the incentive structure like?
- [02:15]
Jonathan
You can tell me you're a fiduciary. You can tell me all day that you talk in my best interest. But when half of your firm is building products and your bonus structure and your incentive structure is all about those products, or when you're telling a client that hey, I'm willing to waive a fee if you go into this product, that's not the best advice for your client. Maybe, maybe it's a good product, but that's not the best advice for them. Because right off the bat you are incentivized to go with your firm's product. If you go with someone independent. When the meat isn't made in my factory, I'm looking at the whole universe and I really don't care whether I'm going with a Goldman or a Jeffries or a Blackstone or a blackrock, it doesn't matter to me because all I care about is the right product for my client. I talk about this a lot to my clients. It's not that we're fee agnostic, fees matter. We always look at fees. But that's not going to be the number one thing I look at when I look at a product. It doesn't matter who's waiving fees or who's giving me a discount. It's about where's the best product that fits the need that we have today.
- [03:10]
David
Last time we chatted, we had this funny conversation about first generation wealth versus inherited wealth. What are the key differences and how
- [03:15]
Podcast Host/Announcer
does that show up in portfolios for us?
- [03:19]
Jonathan
We focus a lot on first gen wealth. We really work to build family offices with them. And what I've seen coming from, I've worked with third generation wealth and second and a lot on the first now is the first generation wealth. Those families, they are operators, they have been in the trenches their entire career and they have built it. And they know every nuance of the business that they have built. I mean they, they typically even know who all their employees are on a first name basis. And that level of detail, that level of involvement, when they come back into the investing world, for them, they're still in risk mindset, they're still, hey, I need to grow, I need to kill it, I need to get out there hands on, do everything. And you see them kind of struggle sometimes because there's a mindset switch that happens. They have been all about growing their wealth, doing whatever they have to do, being aggressive, and they kind of have to take a step back and talk. Maybe I need to preserve it. Think bigger picture about legacy. And then you have Gen 2 that comes in. Gen 2 never built a business, but Gen 2 has benefited from day one with the wealth that the family has had, with the success of the business and their mentality, Day one is actually preservation. I don't want my lifestyle to change. I want to continue doing what we're doing. So let's be a little more conservative. Let's do things. But at the same time, I see in Gen 2 they'll take a risk, but it might not be as calculated as Gen1, because for Gen2, a little bit of a loss here or there, okay, I took a risk. It's not a big deal. And I think that there is this hunger that it starts to go away. And you really see it with the family investment committee into how they think about this pool of capital and growing it over time.
- [04:49]
Podcast Host/Announcer
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- [06:16]
David
is hungry for returns, hungry to build their empire, hungry to actually get actual returns and gen 2 is almost hungry to prove themselves, to satiate their ego, to prove to the family that they're as smart as Gen1. But I find this like different hunger and different drive in terms of what they're trying to prove, where Gen1 is willing to take more risk, willing to really go after it. But it's not because they're trying to prove themselves. It's because they're trying to really grow wealth. Some of the best entrepreneurs, they're so focused on their business that they oftentimes don't think about wealth planning and all these things. What are one or two things that an entrepreneur that's 24, 7 in this business can focus on that could set them up for more optimal structures post liquidity?
- [06:57]
Jonathan
When you're deep in it, you're right, you don't think about it every day. And one of the problems that we see is a lot of these families, especially to your point, it's the Gen one. So people who have built it, they don't even think about the real estate picture until they're at the finish line. We talk a lot about thinking about what your family office will be as you approach your exit and putting that structure in place years before. So. So whether that's setting up an flp, whether that's setting up the trust, whether it is gifting shares. Now we tell a family, and this is one of the more important things too, even if you think the exit's 10 years away, you're in that business every day. You know better than anybody else what it's going to do. You might have an opportunity today to gift shares at a valuation that you'll never get again. And the valuation might be low because the business isn't doing well, or it's a down year, but you're in it every day. Like we said, Gen1 knows exactly what they want to do. There's your opportunity. So if you think about estate planning as you're building that business, especially in the times that are tough, a down year or right when you hit the inflection for growth, get in there, move shares, gift shares, set up that structure and, and if you do it proactively, the benefits of it down the road are millions, I mean, truly millions of dollars in savings.
- [08:06]
David
I have a high appreciation for people that are building their businesses that are not optimizing around crazy tax structures. But if you really distill it to the very basis, if you have a company that's worth $100 million, and let's say it's only worth $50 million on paper, you could take those shares at a lower 409A valuation and, and gift it to your heirs and be under that tax exclusion. So essentially you don't pay that 50% estate taxes. Is that a good kind of simple, simple thing that families could do?
- [08:36]
Jonathan
We try to look at it in two phases to your point. If you do the trust the right way for the QSBs, for the gifting, moving outside of your federal taxable state, that's really all it's to it. And you can build great trust documents that give you the flexibility you need to later establish the foundation, your family office. And so yeah, we tell our clients, look, how many kids do you have? What's your charitable inclination? What do you want to set up? Let's build this out with you, your wife, your kids, bring in the family, move the shares in. Now in the process, it is, to your point, it's not that hard. It does take time, but you can get it done pretty quickly. And once that's done and in place, then you spend the hours, the weeks, the months developing the family office infrastructure.
- [09:19]
David
Last time we chatted, we talked about these two universes that exist from investable side for families that have less than $50 million and more than $50 million. Talk to me about the investment universe when a family has more than $50
- [09:31]
Jonathan
million, which fundamentally changes once you've reached that threshold. Once the wealth becomes truly in our view, it becomes generational. The idea becomes what happens tomorrow if you make 5 million versus lose 5 million and the downside becomes more damaging. Over 50 million is now about family governance. It is about putting structures and processes and these other types of vehicles into place to help God the wealth for generations. This is really where we talk to families about, let's talk, what does your family office look like? What are your goals? What is important to your family? And we start building that and yes, the investment plan, everything else becomes a piece of that. And how we invest becomes needs to be more documented and it needs to be more institutionalized. But that all happens once you breach that threshold beforehand. Under 50, there's still a lot of scrappy investing going on. You're looking for those best deals. There might not be as much structure, but once you break that threshold, now it's time to talk structure. And that's where you need to talk. Not just about the investment structure, but it has to tie into the estate even more. What trust is owning it? What asset location is this going into? Who's controlling that? How are these things being handled and it becomes a much bigger piece at that point. Right.
- [10:39]
David
Let's talk portfolio construction. What's the portfolio construction look like for a typical $1 billion family office?
- [10:45]
Jonathan
When you in a billion dollar family office you're going to be heavy. In the alts public markets are a very small piece. You have a little bit of fixed income, but your alts portfolio is going to dominate it and it's going to be well over 50% of the portfolio. I mean that's just on average what it looks like. And in that alt sleeve then you have to start breaking it down. How much is private equity, how much is venture, how much is real asset? And what I would say when it comes to portfolio construction there is thinking about the income. Because at that level families, they may not have an operating business anymore. The income that the portfolio is producing matters more than ever. And so when we look at those portfolios and we think about it, you really need to develop the alt program in place. The equities, the bonds, you can put processes in place for that. But in the alts bucket you need a diversified program. You can't just be putting money into every single need opportunity that comes to you. You need a process. You need to figure out. We need our real assets because why? Because it's going to generate income and provide our stability. We want the private equity for this reason. We want this, this is going to be our risk bucket of venture. Here's how we're doing it. And so I think at that point the diligence becomes even more important because you're not just diligencing it for hey, a one off return. You're now looking at it as this holistic portfolio of how does each piece talk to the other? Is adding this new venture investment truly adding any portfolio value add? And that's where having the teams and being able to actually analyze what you're investing in becomes so much more important.
- [12:08]
David
One of the most positive developments for family offices is now managers are focusing for the first time, I would argue on taxable investors and tax aware strategies. How should portfolios for family offices, let's say it's a billion dollar family office, how should that differ from a billion dollar endowment or foundation?
- [12:25]
Jonathan
It drives me crazy when you talk to managers because they don't they half the time they don't think about taxes. And so you get there and you start talking to them and all of a sudden, well, what's your turnover? What do you, what's your tax looks like? Can you send me a sample K1 and they just don't care because half of their investments have been to your point. These endowments where taxes have never mattered. When the managers realize asset location matters that much, it really opens up a seat in them. Because I am so much more willing to go into it when I know that you're thinking about taxes too and that that's the other than the other. I'd say the other piece too is when it comes to K1 reporting, you know what managers worry about taxes. When you get their K1s, how are they breaking things down? How are they classifying versus the manager that they've never had to deal with taxable money before. So the K1 is what it is. There's no effort spent to it. It's an afterthought.
- [13:09]
David
This trend of managers being more focused on the taxable investor is going to take care of itself. One of the most underappreciated things is that institutional investors in most asset classes have more or less picked their core managers. They've picked their 15 to 25 core managers. They're looking for very specific things. I'll talk to an institutional investor and they'll say I'm looking for a secondary product. I'm looking for a lower middle market pe. Very specific things, sometimes even more niche than that. They're looking for lower middle market PE focused on AI implementation in widget companies. So something. They're looking for something very specific. The taxable investor on the other hand, is just coming on board. So you have a confluence of factors. You have retail coming in, which doesn't mean literally, but oftentimes it's through platforms like iCapital or it's through RIAs, it's through multifamily offices. I think we're going to see much more tax aware strategies by virtue of it's going to be a big enough market and it may become the biggest net new investor over the next decade.
- [14:03]
Jonathan
It's an important concept and I think it also ties to something else that we're seeing in the investing world and that is this shift from portfolio silos to holistic portfolio construction for, for family offices for taxable investors. We've always looked at every opportunity as how does it matter in your portfolio? Yes, I like lower middle market, but it doesn't have to only do this. What I want is this theme and I'm looking at you in absolute terms. What are you doing to get me value? What is the net of tax, net of fee return that you're putting in my portfolio? And when I look at that I compare it to everything, whether it's public equities, bonds, venture. I'm looking at it. And what I think you're starting to see is that approach is broadening to institutions and endowments. And I think the focus on just true net attacks net a fee, absolute return. What are you adding to my portfolio's value is another trend that when the slack on the edges where they could get away with things, goes away. And one of those is inefficient tax management. Because now people are looking at you more in absolute terms for everything. You have to really batten it down and you have to get the institutional infrastructure in place to do it the right way.
- [15:11]
David
How would you go about building out that portfolio for this taxable investor that just came into a billion dollars?
- [15:17]
Jonathan
Day one for us, it's working backwards and it's about un. It's about the net of fee, net of tax return. So we're going to start day one with what is the cash flow that we need to generate off your portfolio? What's it look like, and how are we going to meet our capital calls? Because liquidity, at the end of the day, liquidity management is one of the biggest pieces of investing. So that people don't care enough about the big institutions might do it. But family offices and even the $100 million, $500 million families, there's not enough focus on how you think about liquidity management. And that's going to be our focus. Day one of how do we think about how much capital we're committing to the funds? Because we don't want to over allocate to the wrong places? I think the other thing that we always look at day one is where do you want to be actively involved versus where do you want to be passively involved? So are there boards that you want to be on? Are there industries that because you sold your business, you don't just want to buy when you want more?
- [16:07]
Podcast Host/Announcer
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- [19:36]
Jonathan
To a fund, you want to be there and we're going to carve that into its own piece of the bucket. We're not for those specific instances, we're going to do one of three things. We're going to write a huge check to a fund to make sure that we can be on the LPAC committee and be a part of it. We're going to go out and buy a company and operate it ourselves or we're going to go out with another family office or another investor. We're going to buy a company and we're going to be some type of executive chairman role helping guide it. And that could be a huge piece of the portfolio. I mean I have families that after they've sold it, they'll put 20, 30% of what their liquidity back into another business. And so you have that piece of it has to be considered in the holistic portfolio. So once we know that where you want to operate, what it looks like from a cash flow need, then the rest of it starts to fall into place. We build a program. How much do you want to do in venture real assets, public markets? We need the beta exposure. What's that look like? But I really think it comes down to just working with the family to understand where their mindset is.
- [20:27]
David
I love that. So you start with the liquidity because that's essentially constraint. If you need to have $10 million a year, you can never have a situation where the market draws down so much that you can't access that $10 million. So you start with the constraint and, and then you actually go in the other direction, which is you play to their strengths. Where does that family have alpha? Where could they build alpha within their portfolio and then size that accordingly and then build out the rest of your portfolio.
- [20:50]
Jonathan
I'll give you an antidote because I have a family, they're actually still owner operators of a business and I spoke with them recently and they over committed to all these funds. And what ended up happening is I was reviewing their private investment portfolio with them and they had capital calls coming in, they couldn't meet because they just kept Committing, committed, committing. And what they had to do is go into their operating business, get a new line of credit, draw down from that just to fund their capital calls and commitments. And that's what happens when you build your investment portfolio without that liquidity structure in place from day one, because they weren't changing their lifestyle, they still needed their money to live their life. The business was running. So how do you get the money to fund the capital calls? Unfortunately for them, they had to go into the operating company and do it that way. That's never a good answer.
- [21:31]
David
Institutional investors talk to me about they're much more sensitive towards long dated commitments and drawdown vehicles. Do you see that transfer over to the family office side? And so what are some ways to solve around that?
- [21:45]
Jonathan
I get a ton of pushback lately about every single long dated fund we go into, especially in the venture world, because I'm hearing endowments live forever, institutions live forever, but families, family money actually want to see that return materialize. And so every time we bring another fund to the table, the term of it becomes, I would say, a top two discussion. What's this fund look like? Where are we going to hit our returns when we even get our money back? I would say families have become more and more stuck on the idea of am I really locking up money for 15 years in a venture fund to maybe what do I ultimately get? A 3x return, is that worth it? And so I think that's where when we invest now, there has to be something in that structure. It's not just private markets. Beta. If we're going to lock up for 10 years, 15 years, ideal liquidity premium has to justify that lockup and the families care about it more so than ever.
- [22:43]
David
Do you think that's the right approach?
- [22:45]
Jonathan
I think that locked up money needs to be rewarded. Nobody would give the irs, nobody likes paying quarterly estimates and nobody likes overpaying taxes because that's a free loan to a company. If I'm working with a manager and their docs say that I'm paying a 2% fee on committed capital, which maybe that phases down after the investment window, but I'm paying a 2% fee on the capital I commit to you, but I'm not going to see the bulk of my return until after eight years, is that really the best way to give you money and earn a return versus hindsight and recency? Bias aside, the Nasdaq, which is kicked off 15% a year, which I could have put into a tax efficient structure, tax loss harvested, did a long short extension and sit here with almost no tax implications of it versus I just sat through a 300 page K1 from this company, I'm paying taxes across 17 different states. I think it matters a lot. I think that, I think if I'm locking up capital for a long term, you have to show me something unique that you're doing with my capital that justifies that long term lockup.
- [23:45]
David
I think there's a couple of things at play here. One is, I think there's a psychological aspect. There's almost this desire that you don't want to believe that in 15 years you'll be 15 years older and you don't want to wait till 15, you want that money sooner. So I think that's probably noise and that's probably inefficient. What you said about if you're getting a 3x over 15 years, depending on when that cash flow comes in, that's not a great return. You should be getting a higher return in that asset class in venture. On the other side, I see the best thing you could do from a tax structure is to compound the returns for as long as possible because you're not paying money on a compounding obviously take advantage of USPS and other things. So I kind of see both of both of those sides. But I do think there's this egotistical drive to want to have the money sooner and to feel like you're doing well sooner, that distorts the thinking.
- [24:32]
Jonathan
It does. And it also comes into play with older families. So when, let's say you, you've been working with a family or family became liquid when the founder was in his 40s, 50s, the, the horizon, you know, at 40, 50 years old, your horizon still feels endless. You're 40 years away, 50 years away, it doesn't matter. So now flash forward 20 years, the family's paycheck is 72 years old. And now he's starting to think about life expectancy and legacy. And you bring him an investment, a phenomenal venture fund that is doing the earliest of early stage venture investments. We're looking at an 8x projected return for 15 years. So he sits there and he's like, I'm 72 now, so maybe at 87 I'll see this return. Is it even going to work? I don't know. Or my kids, what are they going to see? Are they going to understand why we did this? And so I think this to your point, the psychological aspect starts playing a bigger factor the older the family gets, which is why the investment committee matters so much. But when you're older, you want to see those returns hit faster and sooner. And it doesn't help that the media just sensationalizes the one or two big wins that come out every two to three years. And if you had invested yesterday, you would be at a billion dollars today. But people see that that's what's on top of your mind. And then why am I investing for 15 years when I could have been in something that hit it in two
- [25:44]
David
years when the Mag 7 is beating Venture Beta? That's, that's a problem.
- [25:49]
Jonathan
Yeah, I mean, I, I hear that every single day. We, it's. Hey, why. I mean, I, I had this conversation two weeks ago with the family. Why am I still putting money in early stage venture when the Mag 7 has outperformed it for the past, I think it's five years now, or I guess roll it back, it's even a whole decade. Well, why am I still locking up capital on them? Why don't I just go on the Mag 7? We'll do a long short extension, we'll overwrite it, we'll do all this, there won't even be taxes on it. And that's a, that's a really tough conversation to have. Yes. Portfolio construction, beta, SI drawdown, volatility. But if you're just worried about returns, I mean, that is a very hard conversation and that is top of mind with people. And I have a lot of families that they're very frustrated at the lack of DPI coming out of funds. It's great that you're marking me on paper after four or five years. Multiples 3, 4, 5 x Morex. That's great. But I haven't seen more than $1,000 get distributed to me. So when do I actually get this money? And that's becoming a real concern of families that I talk to that I don't really care what paper says. When am I actually going to see the dollar?
- [26:49]
David
Talk to me about lower middle market pe. It's one of your favorite asset classes. Why do you love it so much?
- [26:55]
Jonathan
There's three reasons we like it. One, the growth of mega funds has created this massive inefficiency in the space because the bigger funds, which to your point of bringing retail money and all the money, they can't write 30 to 40 million dollars equity checks. It doesn't even move the needle on their fund. So you have a lot of smart institutional money that can no longer invest in the space. And when you do that, it narrows the bucket to a lot of Regional private equity firms, or I'll call them the super regionals that want to come into it. So you have this smaller bucket of people, some of it less institutionalized, less experienced. But in this country, in the Midwest, in the Rust belt, we're private business owned in this country. I mean that's where all wealth is created. That's the majority of how businesses are. You have this huge pool of companies and you have a lack of smart money chasing it. That creates an inefficient market and great opportunities for buyers. So that inefficiency is something that we love. The other thing is there is simply tangible value creation in middle market private equity. These are family owned businesses. These could be first gen or second gen families that they've just been running it and the families have done really well for themselves, they've made a lot of money, they have a great lifestyle. But there may not be processes and procedures in place. They may not have a real cfo, a real sales channel, they may not have integrated into ERP systems. And so when private equity comes in, there is actually a legitimate playbook you can put in place to create operational value. We're not even financially engineering or talking bolt ons for top line and multiple arb. We're talking true operational value of just coming into a company with a fresh set of eyes and making things efficient in it. And so I love that because it's not contingent on multiple expansion or engineering. It is, there's a core operating way to increase it and then the last piece of it. And this is where my love hate relationship comes in. How do you, how do you exit it? Well, you bought in a space that the big funds couldn't play in. But if you grew it, you may have grown it to a size where you can now exit to the big funds. And so it's this interesting dynamic of I don't need to compete with a big fund to buy, I can put tangible efficiencies in place to grow it. Oh, but now I'll take advantage of this massive market of dry powder, billion billion dollar funds and sell to them because they have to deploy. And if I have a half decent company, what a great exit we can build.
- [29:08]
David
Said another way, the amount of dry powder is a problem for the large buyouts. It's an opportunity for the lower mill market that's selling to them.
- [29:14]
Jonathan
That's correct.
- [29:15]
David
100% is lower middle market. I think there's, correct me if I'm wrong, hundreds of thousands, if not maybe a million of these small businesses. What Specific sub sector of the lower middle market do you like the most?
- [29:28]
Jonathan
I'm in Pennsylvania, we're based in Pittsburgh. And in this demographic which I'm just going to lump into the rust Belt, the lower middle market, manufacturing is a phenomenal space to play in. There are so many opportunities there, especially in this region of the country that I look at them and we love it because you don't have the volatility of like a consumer packaged good or something. You have businesses that because they're manufacturing, they can be scaled, they can grow because of what they do. You can put sales systems in place and truly create value. And it's really our favorite place in all of middle market, of all of lower middle market private equity. We love manufacturing, we love value add distribution and I would say we love anything on the industrial side. There is just so much value to be unlocked there.
- [30:16]
David
One of the most interesting trends that I see in the lower mill market is independent sponsors. To your point, you have these former kkr, former Blackstone partners that have been classically trained in the large bias are now coming in and buying smaller assets. How does a family go about accessing something like that?
- [30:35]
Jonathan
We work with independent sponsors, but they're not the number one place that we go to. And for us it really comes down to skin in the game. I'm happy to work with an independent sponsor, but I like to see them put something into the table too. My biggest concern with them is many of them know the playbook and they know how to do these things, but then it's just on from one deal onto the next. Bought it, dropped it, I'm finding the next opportunity. And that lack of conviction around the idea that lack of staying power can be problematic. I like independent sponsors. Who they are, they're, they're, they came out of a larger institution, they want to make a name for themselves and so they're out there deal hunting but they're putting everything into it. Like this is going to be their deal. They're going to buy this company, pour their personal capital in, they're going to build it, grow it, get it sustained and then they'll find another one. I mean, I love that, that, that's almost like a family office buying a company. They because that independent sponsor, they are hungry for everything and you know that you can get behind them and actually rely on them to do something.
- [31:36]
David
What's the most common mistake that families with 50 to $500 million routinely makes?
- [31:42]
Jonathan
I see families just starting out building their family office infrastructure over investing. When you have $50 million. You do not need to be in 30 different private equity funds. You do not need 22 different managers that you're investing in. What that does is basically give you a beta private equity portfolio that you could have just invested in one fund of funds. You didn't create anything interesting. And I can tell you all the arguments about why family wants to do it. We're building relationships. We want to make sure that as further liquidity comes in, we have access to their funds. But what you forget along the way is you need to keep investing in every fund or the manager is going to cut you. I mean, if you don't invest in fund two, they might not give you the offer for fund three. And so I don't like that argument. That is the biggest problem I see because it leads to a consolidation of returns. From a family office structure standpoint, you can barely manage it because you don't have a full infrastructure in place yet. And then just trying to understand and follow and monitor those investments doesn't work. I tell smaller families all the time, just go into a fund to fund.
- [32:42]
David
What's the highest leverage way that you're implementing AI today? As for,
- [32:48]
Jonathan
let me start by telling you where I'm not implementing AI. And that's for investment decisions, especially in private markets. Nothing will beat judgment and experience. And talking to a person, we have a saying that we don't invest in funds, we invest in people. And that is more true than ever today because AI is doing so much work that people are forgetting to meet with the person, compare stories across analyst and GP and managers. Everybody aligned in the infrastructure. So we are not using it there. So where are we using it? Data processing, research processing. If we're digging into a data room and we're looking at decks and we want to start aggregating returns and ripping out that data, we're absolutely using it there because it will do the work of two analysts in two minutes. We can load in memos and we can load in quarterly commentary and it can scan it. It's extract what we need to do and show us performance numbers. We can use AI to help overnight with, hey, we want to see how the beta of this fund compares to our portfolio. And it can just show us from historical numbers and investment types and what they've done, how it compares so quantitatively. We love it. It saves time overnight. The other big place to use it is we are using it with our client communication. AI is absolutely helping to prepare a client for content or helping to prepare content for clients. That doesn't mean it's doing it all. But if you're not using AI to enhance your workflow, you're just shooting yourself on the foot.
- [34:13]
David
If you could go back to 2008 and you could give younger Jonathan one piece of advice that was timeless, what would be that one piece of advice be that would either help you accelerate your career or help you avoid costly mistakes?
- [34:26]
Jonathan
I would tell my younger self the answer is always no if you don't ask. And I would say, in my career, whether it's been working with families, whether it's been working with managers, if you're afraid to ask, then the answer is already no. So what's the worst that could happen? Hey, can I join the board of this company that you just invested in? No. Okay. I wasn't on the board anyway. It didn't hurt me. But being afraid to ask that question, being afraid to ask any question is a. It's a career hinderer. You won't move forward because you've never put yourself out there. And so I would say I. I didn't start asking the questions early enough in my career.
- [35:04]
David
Jonathan, this has been absolute masterclass. Thanks so much for jumping on the podcast. Looking forward to continuing this conversation live.
- [35:09]
Jonathan
Yeah, Dave. Thank you, Jordan, as well.
- [35:11]
Podcast Host/Announcer
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