E328: Why Most Funds Get Rejected in the First Five Minutes

Summary

Podcast Summary: "How I Invest with David Weisburd" (E328: Why Most Funds Get Rejected in the First Five Minutes)
Date: March 19, 2026
Host: David Weisburd
Guest: George (CIO/CEO of a single family office based in Dubai)

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Episode Overview

This episode centers on how leading institutional investors assess venture and private equity funds, focusing on the most common reasons funds are rejected almost immediately—before even examining their returns. George, CIO/CEO of a prominent Dubai family office, shares insights on fund manager alignment, governance, scaling funds without losing alpha, due diligence challenges, the appeal of emerging managers, and the complexities of family office investing. The discussion is rich with practical advice for both fund managers and investors, emphasizing alignment, transparency, and strategic patience.

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Key Discussion Points & Insights

1. Why Most Funds Get Rejected Quickly ([00:00]–[01:53])

• Top Reasons for Immediate Rejection:
  • Lack of GP Alignment:
    • "If it's anything below 2% [GP commitment] we reject straight away." – George [00:24]
    • Prefers to see 10%+ GP commitment; has invested in funds with up to 30%.
    • Alignment isn't just about capital—structure and motivation matter too.
  • Governance Weaknesses:
    • The family office, being Dubai-based, requires strong governance to maintain favorable tax status and minimize risk.
  • Growth for the Wrong Reasons:
    • Dislikes funds that double in size every vintage just to collect management fees:
      "We want to see people motivated for the performance and not the fees." – George [01:03]

2. Management Fees vs. Incentives ([01:10]–[01:53])

• The host points out the risk of shifting from investing to asset management.
• George notes the importance of widely distributed carry among team members, not just a select few.
• Management fees become more of a focus above $1 billion AUM:
  "Anything above a billion of AUM, management fees play a huge role already." – George [01:48]

3. What Makes Scalable (Yet Still High-Performing) Funds? ([01:53]–[02:56])

• Consistency and Avoiding Strategy Drift:
  • Successful funds retain their edge and stick to their original strategy, even as they grow.
  • "Consistency is the critical variable here." – George [02:20]
  • Host gives an example: moving from non-lead seed checks to leading Series A is a whole new business.

4. Why George is Bullish on Emerging Fund Managers, Especially Fund Ones ([02:57]–[05:17])

• Best performance often comes from Fund I's, but picking winners is difficult.
• Key edge is alignment and motivation:
  "If you're doing your fund one, it has to work, otherwise you don't have the [next step]." – George [03:21]
• Typical fund ones come with strong, well-developed deal pipelines.
• Manager's personal reputation—and often net worth—is on the line, increasing drive.

5. Track Record Challenges & the Art of Diligence ([05:18]–[11:17])

• Attribution Difficulties:

  • Many managers have track records from prior platforms/roles, which can be hard to verify.
  • George shares an audit deep-dive story:
    "We check with BDO itself if that was a real report... that was a real example where we went lots of steps to try to really verify..." – George [06:54]
  • Most often, due diligence relies on trust and face value due to limited resources.

• The Probabilistic Nature of Investment Decisions:

  • Host points out the limits of certainty even with perfect attribution:
    "You can never know anything for certain... there's so many variables." – Weisburd [08:55]

• Reference Checks: Art or Science?

  • The host prefers referencing the CEO of portfolio companies, but George cautions against taking references at face value:
    "He gave a very positive feedback and I knew that he wasn't happy... he told me, because if I lie means that I did a bad deal... it will look bad on him." – George [09:38]
  • Within the family office community, information is shared openly, which minimizes competition and builds trust.

6. Family Offices: Collaboration and Constraints ([11:17]–[14:28])

• Family Office Networks:

  • Club deals are less common; most value comes from sharing information, not competing.
  • Collaboration is about referencing and opportunity sharing; competition is rare except for direct deals with limited access.

• On Direct Deals:

  • George's office generally avoids them due to bandwidth, check sizing, monitoring complexity, and lack of control over exits:
    "Directs are a headache... you have no control. Also around the exit timing... it never happens." – George [13:30]
  • They only do directs if there's a strong strategic reason, e.g., UAE expansion.

7. Why Invest at Final Close? ([14:28]–[15:33], [19:36]–[21:06])

• They now invest only at final close due to frustrations with capital being uncalled (e.g., sitting idle for years, only used for management fees).
• Committed but undrawn capital creates "cash drag"—you must keep cash or quasi-cash on hand, which impacts asset allocation.
• Final close investing ensures faster capital deployment, better portfolio velocity, and less administrative complexity.

8. The Case for Evergreen Funds and Cash Drag Solutions ([21:06]–[22:11])

• Evergreen funds allow for:
  • Single, upfront capital call.
  • Immediate, full deployment, maximizing return compounding.
• Over a decade, even a lower IRR can match the multiple-on-invested-capital (MOIC) of a traditional fund due to higher average invested capital.

9. Assessing Performance: IRR, MOIC, DPI ([22:11]–[23:44])

• IRR often manipulated with short holding periods and debt; MOIC and DPI are preferred.
• Red flags: vintage funds (2017–2020) with zero DPI after 7 years.
• Only ~50% of 2000-vintage funds had >0.1x DPI after six years, highlighting illiquidity risks for LPs, especially endowments.

10. Secondaries as Portfolio Solutions ([24:05]–[24:34])

• Secondaries provide diversification, quicker DPI, and access to prior vintages.
• Mitigates venture’s "penalty box" risk—if you miss a fund, you're often locked out for good.

11. Barbell Approach to Venture ([24:54]–[26:47])

• Invest both in early stage (via emerging or established managers) and in pre-IPO/growth deals.
• Pre-IPO funds allow access to "cream of the crop" names (e.g., SpaceX, Anthropic) with shorter fund lives.
• Early-stage venture fund lifecycles are actually lengthening (10 → 14 years); pre-IPO funds are growing due to delayed public market exits.

12. Using Fund of Funds to Capture Early Stage Alpha ([26:47]–[28:06])

• Though sometimes seen as "unsexy," a fund-of-funds approach provides diversified access to top fund ones.
• "It's a humble way, but it's a way to capture early stage alpha." – Weisburd [28:06]
• The goal is to "flatten" the risk curve of emerging managers, smoothing out volatility.

13. Family Office Leadership: Governance and Stakeholder Management ([28:06]–[32:19])

• George shares learnings as CEO/CIO:
  • Stakeholder management is more challenging than expected.
  • Balancing different family interests, governance, philanthropy, and succession is key.
  • Establishing mission/vision is foundational.
    "You have to start from having a very clear mission and vision. You won't believe how many family officers don't have that." – George [29:35]
  • Building consensus is a process—consensus does not mean agreement, but acceptance.

14. Where Family Offices Have an Edge ([32:19]–[33:56])

• Three Strengths:
  1. Simpler, faster diligence.
  2. Flexibility in geography/strategy.
  3. Patience—can truly take a long-term view.

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Notable Quotes & Memorable Moments

• "If it's anything below 2% [GP commitment] we reject straight away." – George [00:24]
• "Consistency is the critical variable here." – George [02:20]
• "If you're doing your fund one, it has to work, otherwise you don't have the [next step]." – George [03:21]
• "References are the most underestimated aspect of Alpha in investing. Why? Because they're boring, they're hard." – Weisburd [10:27]
• "He gave a very positive feedback and I knew that he wasn't happy... he told me, because if I lie means that I did a bad deal." – George [09:38]
• "Directs are a headache... you have no control. Also around the exit timing... it never happens." – George [13:30]
• "Evergreen funds, they are beautiful because... one capital call, the money's out of the door and you start, you know, accumulating." – George [21:07]
• "Focus on your strengths and work with people that you like and that complement your strengths. Life is so short. Don't work with people you don't like." – George [34:08]
• "The beauty of being aware of your weaknesses is that... you work with people that can complement your weaknesses, and. And then together you achieve much more." – George [35:18]

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Key Timestamps

• [00:00] Rejection criteria for new funds
• [01:10] Transition from investor to asset manager
• [02:07] How scale can erode alpha
• [03:07] The opportunity and pitfalls of emerging managers/fund ones
• [05:30] The art (and challenge) of verifying manager attribution
• [08:55] The probabilistic approach to investment decisions
• [09:27] Perils of relying on reference checks
• [11:32] The realities of family office collaboration
• [12:24] Direct deal challenges and why this office avoids them
• [14:35] The logic behind committing at final close
• [19:36] Discussion around capital call, cash drag, and evergreen funds
• [22:11] IRR vs. MOIC vs. DPI
• [24:05] Secondaries and managing liquidity
• [24:58] Barbell strategy in venture (early stage and pre-IPO)
• [26:47] Fund-of-funds approach to emerging managers
• [28:30] Family office governance and stakeholder management
• [29:35] Importance of mission, vision, and consensus
• [32:32] What gives family offices an edge over other LPs?
• [34:08] Timeless career advice
• [35:49] George's self-described superpower: emotional intelligence

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Flow and Tone

The conversation balances technical depth with candid anecdotes and practical wisdom. George, grounded, methodical, and focused on clarity of incentives, delivers advice that is both actionable and rooted in lived experience. Weisburd's questions elicit specifics on LP decision-making and prompt George to relay behind-the-scenes realities few investors openly discuss.

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For Listeners

Whether you're an emerging fund manager seeking to improve LP fit, a family office leader navigating governance, or an allocator trying to avoid pitfalls in private markets, this episode provides a transparent look at what it takes to earn and keep top-tier institutional capital.

Transcript

[Interviewer]

Last time we chatted you said that we reject most funds before we even see the irr. What's the main reason why you would reject a fund?

[George]

I would say there are three key reasons. First one is in terms of terms and alignment, second on governance and third is around the way they are growing. So let's start with the main one for us is the alignment, the importance of alignment, the fee structure, but also the alignment of the GP with the GP commitment. This for us is a critical, a critical figure that we look at as a KPI and if it's anything below 2% we reject straight away.

[Interviewer]

So 2% GP commit, absolute minimum. What do you like to see?

[George]

We like to see 10 plus.

[Interviewer]

10 plus, 10 plus.

[George]

And we've been in funds that are 30% GP commits. We've been to funds which are 20 and we really show the skins and game. On the governance side, there's a lot of things that we look for, but it's really how strong the systems are, how the structure is set up for us. We are based in Dubai in UAE and of course the tax situation is very favorable to us, so we need to make sure that it's kept throughout the structure of the fund. And finally, you know, we hate funds that just double in size for every vintage.

[Interviewer]

Yeah.

[George]

So we are very, you know, we want to see people motivated for the performance and not the fees on the management fees.

[Interviewer]

At some point you end up in an asset management business versus an investing business.

[George]

That's right. That's right.

[Interviewer]

Where do you hit that point? Where is a fund start to feel more like it's making money off of management fees versus scary?

[George]

Eventually it does happen. I think it's just part of how things develop and how funds grow over time. But I think it's really one of the things we look at is also like who gets to carry. And you have situations when it's only really a very few number of people in the fund that gets that. We don't like it. We like when it's widely distributed across the investment team and also support functions and others. But yeah, I think it's hard to put a number on it, but I think anything above a billion of aum, it's measurement fees play a huge role already. Right.

[Interviewer]

I'm curious. There's obviously franchises that have grown successfully that have been able to scale AUM and keep their returns. Founders Fund comes to mind among other venture firms. What's the common thread between the funds that are able to scale and still generate alpha?

[George]

My view would be that they keep their edge and they keep their focus and their strategy. So there's no strategy drift. They keep doing what they're good at doing. Sometimes they could go up the chain and do bigger ticket sizes. That's one reason why fund sizes can grow. But usually I think those managers have the discipline of keeping with the same focus, the same strategy and they just repeat that consistently. Consistency is the critical variable here.

[Interviewer]

So if they're doing a non lead, a smaller check in seed and suddenly they're trying to lead series A, that's almost like just a whole different business.

[George]

Exactly. Or they say we're going to grow the portfolio size from 10 companies to 50 companies. You know, it's a very different, it's a very different strategy. They're different relationship with the companies. Right.

[Interviewer]

You know, if you have to re underwrite them in the new strategy as if almost you have an investment before.

[George]

That's right, that's right.

[Interviewer]

So you're bullish on emerging managers and even specifically fund ones. While most LPs are not deploying in emerging managers today. Why are you so bullish?

[George]

Research shows that the best performing funds are the fund ones. The problem is that there are many of them and only a few of them actually do well. And very few of them will get to fund 2, 3, 4 and so on. And so you do get the alpha, you do get the performance, but it's just hard to find them. I think one of the reasons why they work is because it's basically your own shot. If you're doing your fund one, it has to work, otherwise you don't have the.

[Interviewer]

It goes back to the alignment.

[George]

The alignment. Usually they have very strong pipelines. That's one of the things I noticed with fund ones. They've been working on that idea for a number of years usually. And they would have a very strong pipeline of very high conviction deals that they are ready to do and they just need to raise the money. Of course that is the hard part for an emerging manager. But I think the pipeline is there, the hungariness is there, they are hungry, it has to work. There's the reputation on the line and they are fully aligned in terms of performance because usually they are smaller funds and what really matters is the carrying on the management fee.

[Interviewer]

Some of the best venture funds ever were actually not venture funds. They were the personal investment funds of Marc Andreessen, Tim David Sachs before they became VCs. And one of the reasons for that is they had just come out of the startup network. So they were literally Just investing into people that I'd worked with that they had long track records of knowing how somebody would be as a portfolio CEOs. And as you go from fund one to fund two, fund three, your network actually sometimes starts to age out. Tell me about that.

[George]

You know, I don't have the experience of being in a, as a, on the, on a VC fund myself, but you can see how that happens. You of course, for refund one, you take your best, best contacts, the best network you have and you, and as you said, those people inside out because you know, if you think about venture, especially early stage, you're investing in the person, the idea might even change or pivot later on. But the people are really, you know, they are really what will make sure that investment works. So I think you have a huge advantage as a first time fund knowing having that network coming out of that networker is another. So one of the strategies we look at is also managers there, although they are the first time fund, but they are either coming from another fund or established platform or as you said, they are coming from that startup ecosystem where they do have the network.

[Interviewer]

So they might not have an institutional track record, but they have a track record working at a previous fund. So they have some attribution or they've been angel investing. They have that track record.

[George]

Exactly. It's always tricky to verify that and to do the audit of the attribution. That's one of the things we look for. The best Fund 1 performers are also the ones that have that history either as an Android or as a, of a larger platform.

[Interviewer]

I want to double click on that because a lot of people think a track record is a track record, but sometimes history is a little difficult to ascertain who owns what, whose track record is it? Was it the brand, was it the manager? How do you go about asserting a manager's track record and really figuring out whether it's actually them that achieve these returns?

[George]

We were looking at a hedge fund, not venture, but yeah, you know, a hedge fund that had a 12 year track record, but 10 out of the 12 years, the gentleman was part of a family office and he was running, you know, the same strategy inside the family office with very limited growth but phenomenal performance. And somehow part of his deal with the family office when he left was that he could take the track record and the full attribution, et cetera. And that was the key question we had in diligence. Is this real or not? Was it him really? Was it the strategy? Is that the same that he's doing because then he did for two years on his own as a fund manager and ultimately he had a BDO audit report that was shared. And of course those things can be fabricated. We check with BDO itself if that was a real report, if it was really done, you know, of course they couldn't tell us if the numbers were, you know, correct or not. It's all confidential. But at least they could tell us that, yes, this is a BDO report, it's not a fraud. So that was a real example where we went lots of steps to try to really verify and make sure, because the whole investment idea was predicated, that that track record was real. So this is one example. I think overall in VC and funds, we ask for the information. It's very hard to verify if the information given is real unless it's coming from, let's say the person is coming from another fund and then you can call and verify is that true that he works on this, this, this deal. So that happened once we did it. But overall we just have to take a face value, whatever is given and otherwise we don't have that many resources as well to go and do all those verifications. I think this particular case of the hedge fund, because we want to do a meaningful ticket, we did the extra, extra mile there.

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[Interviewer]

People, I think, have a hard time understanding that the world in general is probabilistic. You can never know anything for certain, even if it was their track record. Maybe now they're in different stage of their life. Maybe they just had kids. There's so many variables. You're trying to come to the best possible answer. I've had many conversations with LPs about attribution. I actually think there is a right answer. Most things are a little bit nuanced, but I think if you go. I think the source of truth is the CEO of the portfolio company. Why? If you go to the CEO of the portfolio company, they're going to tell you a why they made the decision, who provided the value. Said another way, they're the least corrupted in the entire.

[George]

I'll be surprised by that. I was in a real life situation where I was on a P fund and we had this portfolio company with the CEO and I was very close to him and he was then given as a reference for reference checks for other LPs, et cetera, or other. In this particular case was another portfolio company that we're looking to acquire. And he gave a very positive feedback and I knew that he wasn't happy with how things were going. There was a lot of micromanagement on the PE side. And then I asked him, why did you lie? Why you didn't tell the truth? Right. He told me, because if I lie means that I did a bad deal. Right. Why did I sell to you, to this particular fund and you look bad on me that I chose to give a, you know, as a majority stake and I thought, wow, that is. That is true. It will look bad on him if he. If it says that, you know, okay,

[Interviewer]

so sometimes there are other.

[George]

So I think, yeah, you have to be careful. We have to be careful. You really need to know the person, which in most cases is very difficult. Right.

[Interviewer]

I think references are the most underestimated aspect of Alpha in investing. Why? Because they're boring, they're hard. We talked about this earlier. But also, a reference is not a reference. You could have two institutional LPs on a single call. Let's say there's a third party asking the questions and they'll have two completely different reads on the reference. There's an art to it. True.

[George]

But among family officers, the beauty of it is that we share a lot of things.

[Interviewer]

So we incentives are aligned and we're

[George]

not competing with each other, we're not competing for deals, we're not competing for allocation in funds. And if you ask a family office, even if you don't know the CIO CEO very well, they will give you, I think in most cases, an honest answer. You're right. You might hear different answers from the same manager. One likes, one doesn't, which makes it hard in many ways. But at least the network is so strong that people are very open to share and give their honest opinion.

[Interviewer]

Double click on that. I think family offices to 99.99% of the world are this very opaque, secretive community of essentially billionaires. Talk to me about how family offices work with each other and where there are areas for collaboration, is there areas where there's competition as well?

[George]

There's this myth that family offices do club deals or invest together. And I think this is really the minority of the cases. I think in most cases the collaboration is purely sharing opportunities, things that they like or they don't like. Referencing is super powerful and I think overall people are always very open to disclose it. I think it's very different, for example, with sovereigns. They don't share anything, but family offices are very open to share. And in a lot of cases, I don't see cases of competition, to be honest. I think because you might have that in families that like to do direct deals. And of course you have limited capacity, you have limited access, but that's not what we do. So I think that could be one situation where there's competition among family officers. But in general there's. There isn't.

[Interviewer]

You had this internal discussion whether you should do direct deals or not. You decide not to do direct deals. Why is that?

[George]

We see direct deals not as an asset class, but as a capability. So unless you have the capabilities to do it, you know, you shouldn't do it because it takes a lot of effort, it takes a lot of bandwidth across, you know, among the team. And because they are single name checks, you have to size the check very well. So usually you have to do smaller checks and that creates a problem because you do all this work and then at the end you write a very small check. So we rather do funds where you have also a lot of work, due diligence. But once a fund is selected, then you can size it well. The other thing is the complexity to monitor and track a direct deal. It is very hard to get the information from the companies. It's very hard to aggregate those things to Keep a close eye on it. When we do, for example, annual audit, we need to have the numbers for December. And there's always a pressure like when is the audit coming out, et cetera. So directs are a headache in that sense. You have no control. Also around the exit timing. Usually they always say, oh, it's going to be the next 16 to 24 months, and it never happens.

[Interviewer]

I used to hear 18 to 24 months, but I guess it's now 16.

[George]

Yeah, it's tough. It's tough. And you have such a small stake that you don't even have access to the company itself. So in our case, we only do directs if there's a real reason for us to be on the cap table. And in most cases will be, and we've done one or two where the company actually wanted to expand in Dubai or the uae.

[Interviewer]

You have a right to win it.

[George]

Exactly. Because. And especially like what we say, especially in the Middle east, is that if a deal gets to my desk is because it came to all the desks in New York and la, Miami and Europe and London, in the Middle east,

[Interviewer]

uae, Saudi, they're really focused on being the first call. Do you think that's evolving now that the Middle east is getting the first call on these because of the size of the checks, or do you think they're still kind of second to the

[George]

U.S. i think they're second. I think maybe the exception could be the sovereign funds because they have a lot of firepower and they have a lot of capital to deploy big checks. So I'm sure they are getting first calls for some of the strategic deals. And you see that happening. But family offices? Definitely not. Definitely not.

[Interviewer]

Speaking of fund investing, you just recently changed your investment policy to invest in the final close only. Talk to me about that.

[George]

This came out of our portfolio four years ago when I joined the firm at zero private markets allocation, only real estate, but nothing on PE venture private credit. And we started deploying. And what we notice is that a lot of the funds will take a long time to come to their fundraising end the final close. During this entire period, they use facilities and they will not call any capital. So there was one particular case where for two years we had 5% of the capital called basically just to pay the management fee. And the principles, the mentality is like once you make an investment, the money goes out of the door, you start accumulating all the returns, you get distributions, et cetera, et cetera. And of course, when you pitch, let's say a private equity fund you're saying, oh, we're going to get 20% IRR. And then when you report on a monthly basis and you see that the IRR is minus 5, minus 10, minus, of course, it's a J curve, which is in itself a hard one to explain.

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[George]

And to accept, you must feel it.

[Interviewer]

It's hard to internalize until you feel it exactly.

[George]

And for someone that never done it before, they start asking questions, is the manager doing anything at all? Right? Are they just sitting on the commitment, not doing deals? And then you explain, no, they are, but they're borrowing money. Why are they borrowing money for that by the way, I'm paying interest on this. And again, the capital, it creates a cash drag in the portfolio because we have that cash. Let's say we commit 10 million, you'd think about, okay, two and a half million a year.

[Interviewer]

I should keep four year. Four year, exactly.

[George]

So this two and a half million, I cannot have to sort of keep almost like cash or quasi cash.

[Interviewer]

Why is that? Can't you put that money and put it in public securities? Typically you have 10 days for capital call to, to call in your money. Why not just put it into S&P 500 or MSCI or something like that?

[George]

The reason is because we have an saa, right. A strategic asset allocation where we have an equity target. Our case for example, is around 25%. And you know, if I take this two and a half million and put in there, you know that 25 will go up. So I would be imbalanced.

[Interviewer]

You'll be more overallocated.

[George]

Exactly. And, and again we have our equity allocation. So I don't want to have to use that cash, the committed capital for that. So that's why we changed to final close. Because then at least in most cases, very quickly you get that sort of 25, 30% of the, of the fund out of the commitment, out of the door very quickly. The other advantage is that because we are targeting, you know, a high concentration on private markets, this, the quicker we deploy, the better. So velocity is also important to us.

[Interviewer]

You want your capital at work.

[George]

Exactly. We like for example, evergreen funds, they are beautiful because of that, because you grow straight one capital call. So managing capital calls, another headache.

[Interviewer]

Yes.

[George]

So you have one capital call, the money's out of the door and you start, you know, accumulating. That's one reason why we also been doing a lot of evergreen.

[Interviewer]

I've had pension funds on a podcast that are investing into evergreen funds because of this cash drag. Yeah, they realize that, that 2, 300 basis points they could get per year is actually alpha.

[George]

And if you think in a long term, because you're 100% invested, if you think about a 10 year period, you know, comparing to the traditional fund where you know, you at best, on average 60% invested, you need a much lower IRR on the evergreen. I think the metrics are like to get a 2X, you need a 9% or 10% IRR versus a 20 in the, in the traditional private equity fund. So it's a huge half the irr. Get you the same moic.

[Interviewer]

This goes really at the heart of the incentives of Private equity and to somewhat venture managers, which is they want to boost their irr, which is why they're using the strategy. They're not doing it to annoy the lp. They're doing it because they want to show higher RIR when they go out to fundraise for their next one.

[George]

That's right. That's why, that's why they use it. That's why, you know, IRR for us is not a key variable. It is important. But we like moic, we like, you know, the dpi, of course, you know, track record on that is very important. You know, you have situations where you have funds, you know, back to the VC world where you know, it is a 27, you know, 2018, 2020 fund with zero DPI. You know, it's a massive red flag for us. You know, how can in seven years they couldn't distribute a single dollar. It's not a good sign. Right.

[Interviewer]

I had Alex Ambrose from the Allocator Training Institute. He was formerly at Cleveland Clinic and a bunch of other institutions and he gave me the stat 50% 5 0. Funds of the 2000 vintage are under 0.1x DPI 5 0.

[George]

Wow.

[Interviewer]

So you have a 50, you have a heads or tails whether your fund that you invested six years ago has returned less than 10%.

[George]

Yeah, exactly. That's.

[Interviewer]

What are the downstream consequences for endowment makes. Makes sense. They have to pay tuition, they have to do all these things. What are the downstream consequences for family offices when they don't get their capital back?

[George]

We're fortunate that we have capital inflows coming every year. The family still has, you know, they still own operating businesses that generate dividends. I'm not involved in those. But they do get this inflows every, every year. So we don't have a problem that, you know, we have to have a self funded portfolio which I think most of the endowments have. Yeah. So in that sense we are okay, we are patient. You know, we don't, we don't have that pressure that we need the DPI to fund and commit, you know, the, to fund the commitments. But I think for someone that, you know, and diamonds are classic case where by design they built a self funded portfolio. They're definitely in trouble. Right. That capital doesn't come. They cannot. They can.

[Interviewer]

The David Swenson Yale model assumed a 25% DPI per year. 2024 we had 9%. 2020, which was the lowest I think since 2000. 2025 we had between 9 and 10%. It's not yet Finalized and that's the exact, that's the new. So two and a half times less liquidity than the model suggested. And that's just having all these problems in terms of liquidity in terms of asset allocation. So it's a huge.

[George]

Creates a good opportunity on secondaries.

[Interviewer]

Yes, tell me about that.

[George]

It's something we like as well as a diversifier. But also because we started investing four years ago, it's great to have access to secondaries. So we can get a 2000, 2000, you know, sort of not 2000, 20, 20, 20, 21 and 18, 19 vintages, which again secondaries also have a role in terms of generating DPI quicker. So we like that as well. So it's an opportunity. We like it. It's a huge diversifier for our portfolio.

[Interviewer]

I obviously love venture, but a strategy is only as good as you could apply. And if you're not getting DPI till year eight, the worst thing that happens is people stop investing to venture. Venture is something that you have to stay in. If you're in a good fund and you miss a fund, you're in the penalty box forever. So having that mitigated J curve could really keep you in the game, which is the most important thing.

[George]

That's right. That's right.

[Interviewer]

Speaking of venture, you have a barbelled approach to investing in venture. Tell me about your investment.

[George]

One side, we like early stage, either through emerging managers or established managers as well. And we like the pre ipo. So one is really for the true potential venture, like a lot of potential and investments that you have from early stage that can really return the fund. And on the other hand we have this pre IPO approach where you invest in companies that don't have the market fit challenge. They're already generating revenue that's a lot of times profitable, ready to get the

[Interviewer]

cream of the crop, kind of like the private max.

[George]

That's also a great way to, you know, as you're thinking, the stakeholders, I have to manage a lot of them, like direct deals, they all want to be in the exciting names, you know,

[Interviewer]

SpaceX, anthropic, as an AI, you name it.

[George]

So doing a pre IPO fund is a great way to get access to all of those, you know, with a diversified approach and having hopefully a fund life which is much shorter.

[Interviewer]

You're telling me you invested in a fund with a two year investment period and a six year fund? Yeah, six years, four year harvesting. Do you see the venture capital model changing from a ten year to an eight year.

[George]

The early stage Is very difficult. Right?

[Interviewer]

It's going from 10 to 14. Yes.

[George]

It's actually going the opposite way. So I don't think it will. I don't think it will. I think it's one of the challenges is exactly that companies are staying private longer. So the pre IPO or the grow funds or they have the winners funds, those sort of vehicles, I think these are going to grow because these companies are not going to the public market and people won't have access to them. So these are ways to get this access. Of course they're all access constrained. So I think that would be something that I see a trend of more and more funds in that space. So either the Coco invest the winners, the pre IPOs, et cetera and you're

[Interviewer]

accessing early stage managers in a fund of fund. So fund. A fund is somewhat of a dirty term and it implies you don't have access but you've chosen to use a fund to fund around fund ones. Tell me about that.

[George]

Again going back to the idea that fund ones do perform better but it's hard to find them. Who is best place to find them? Someone that has access and knows a lot of them and look at hundreds of them and then choose the best 10, 12, 15 funds. So that was the approach we took and said listen, this is an elegant solution for that. We have one fund, so it's one capital call cycle, et cetera. Of course you have to trust the manager that you'll be able to sort of source or identify who will be the winners. But then you have access to 15 different funds that you never invest by yourself. So many. So I thought it was a good way to get that sort of early

[Interviewer]

stage kind of have this double edged sword and fund ones where they are the best returning but sometimes they do really bad, sometimes they do really good. You have the spikiness with a fund, you're able to flatten that and capture some alpha.

[George]

Hopefully. Yeah, that's the goal. That's the goal. We'll see how it goes. It's early, a few years in, so it's performing well. But it's, you know, you need to wait at least seven years to get a good picture. So we'll see how it goes. But it was one strategy that we thought very contrarian to do both a fund of funds with a merger.

[Interviewer]

It's a low ego way to capture alpha a lot of people. To your point, the opposite of fund of fund is doing the direct deal, doing the SpaceX and the 2 in 20 SPV and the 2 in 20 SPV. That's very sexy. Probably not the best strategy. Doing a fund of funds is not very sexy. It's a humble way, but it's a way to capture early stage alpha. You came from the private equity world and you joined Alnula four years ago, which is single family office. What have been your learnings about being the CEO and CIO of family office?

[George]

I underestimated how. How challenge is to manage your different stakeholders because you have very different stakeholders, very different interests. Family and money are things that don't make so well to be very honest. And. And there is a whole. The investment part is the classic CIO role, but the CEO role is quite interesting as well. Like you have to think about their philanthropic efforts, their art collection and how you manage that. Things that I never done myself in the past. So you learn a lot, which is great. Governance is a huge topic, right? You have to a family office, particularly in my case, it was already established, but they didn't have a proper governance framework.

[Interviewer]

How many generations are you dealing with?

[George]

So I'm dealing with two and there is an ongoing effort to engage the next gen, the third generation, but they're still high school undergrad age. So we started engaging with them and it was also very interesting. But definitely like two generations is the

[Interviewer]

taking off your Alnula hat. Just in general, for single family offices, what are some best practices for establishing the best governance?

[George]

You have to start from having a very clear mission and vision. You won't believe how many family officers don't have that.

[Interviewer]

Why do you exist?

[George]

Exactly. Why is this? What do you want to achieve? Right? It's so important to have the clarity. What's your goal? Right? Are you looking for capital preservation? Are you looking for growth? Are you looking. Do you need the money from. For your expenses or you. Right, so there's so many things which are so important and I think the governance, it's very important to. It was interesting, someone told me that, and it was true, that the most important is not where you get to, but the journey to get there. You could have beautiful documents and bylaws and charters and all of it. But the most important is engaging the family on building these documents. And I remember telling them that you need consensus and consensus doesn't mean you

[Interviewer]

agree to something, but you accept it, disagree and commit.

[George]

And it's so important. And the only way to do that is by bringing the family together through extended periods of time, through extended length of time, so that they can digest, mature, reflect and then you build the consensus around it because, you know, for sure not everyone will be happy with the outcome, but at least because they were part of that journey, they would accept it. Right? And this is so important because, you know, a lot of family officers, the main goal is that they will keep that for generations to come. And it's not usually what happens. So governance and building that process together as a family is so vital. And in our case, we spent nine months doing that and it was worth it.

[Interviewer]

You know, tell me about that process.

[George]

Started with the vision and mission, you know, the very basic, how do you articulate that, what do you want, et cetera, what do you see yourself? And then, you know, structuring that. You know, we did a whole new structure of a DIFC foundation in UAE and we created a family office as a separate entity that manages the assets of the foundation. So that again, was a whole effort. And then you have to create your charter, your bylaws, you know, your board, your family council, your investment committee. None of that was properly established before. And the process, as I said, is really bringing the family members together. You know, the key, you know, the first and second gen that need to be on board and build that consensus that this is how it's going to work, this is how it's going to work. On the event of succession, nobody likes to talk about it, but it's the one thing that you know for sure is going to happen, right? Succession, sooner or later will happen and how you're going to deal with it. And so we, you know, it was quite an interesting, you know, and you as an outsider, you have an advantage that, you know, you're now part of the family. I think it'll be very difficult to do just among family members. But having an outsider facilitating the process I think helps.

[Interviewer]

There's obviously challenges in working within a family office. Just like there is an endowment, pension fund, foundations, if you look at the capital markets and you're competing with other types of LPs, where do family offices have an edge?

[George]

Family offices, I think they are more patient and they are more flexible and they are easier to deal with as well. So I think those three things are very important. So starting from the last one, you know, our diligence process is much simpler. You know, we don't have consultants, we don't have third policies, going with 200 DDQ questionnaires and all of that. So I think it's a lot easier to deal with a family office than any large institutional investor. Then on the flexibility, again, we're very flexible, like we, you know, from a geographical point of view, from a strategy point of view, you have institutionals that they just want to do German real estate. So if your fund does one deal outside of that, oh no, no, no, you're not. So I think that flexibility is something that we have and I think it's valuable for managers. And I think the long term, the patience I think is also something that family offices do have, a long term patient capital. It doesn't mean that we'll be accepting underperformance for a long time. But the view, and every manager invests. We're not just investing in that particular fund, but the idea is to invest for the longest term possible in the next fund and the following and so on and so forth. We don't want to have too many managers, we don't want to have too much complexity in the portfolio. So if you find a manager that delivers in that strategy, you know, usually at maximum we're going to have two managers per strategy. So that's how we see it.

[Interviewer]

If you go back to 2008 and just graduated London Business School and you could give younger George one piece of timeless advice that would have either accelerated your career or helped you avoid costly mistakes, what would be that one piece of advice?

[George]

Focus on your strengths and work with people that you like and that complement your strengths. You know, absolutely. So important. Life is so short. Don't work with people you don't like.

[Interviewer]

Yeah.

[George]

You know, don't try to, you know, force yourself to be good at things that you're just not naturally good at. I think that would be my advice.

[Interviewer]

People have this tendency to focus on their weaknesses. Do you think that's downstream of the school system? What is that?

[George]

I think it is, it's, you know, I work for BCG and it's a typical case. Like even in the interview, let's say I'm interviewing you, David, and you're not very good at maths. We have this, this one of the criteria, your numbers, et cetera. What I'm going to do in the next round, I'm going to tell the interviewer for the next round that, oh, he's not very good at math, so you have to scrutinize his maths. And if you don't do well, it's a fail. And when you join, it's the same thing. You have your strengths, you have your weaknesses. The focus is always like, oh, okay, we have to fix those weaknesses instead of okay, how can we take advantage of your strengths? And I think that's the Corporate world. I think academic world is similar as well. Right. And. And it's a big mistake. Yeah, it's a big mistake. I think it should. Definitely. People can go much further if they focus on the strengths. And, of course, if. And the beauty of being aware of your weaknesses is that, as I said, you. You work with people that can complement your weaknesses, and. And then together you achieve much more

[Interviewer]

as you get older. You start to have more confidence. You start to accept your weaknesses, and for a while, it's, like, hard to accept them. And you're afraid that somebody might be like, you're not good at math, even if you're good at something much more valuable.

[George]

We also realize, like, our limits, I think, as you get older.

[Interviewer]

Yeah.

[George]

And you have to deal with that. Right.

[Interviewer]

What is your superpower?

[George]

My superpower. You know, I think I have a very, you know, I have a high emotional intelligence. I think that helps me a lot in building connections and working with people. I can really understand the other side. And I'm not a. The bully, the pushy, the alpha that tries to always get my way and

[Interviewer]

not a zero sum thinker.

[George]

Yeah.

[Interviewer]

On that Note, thank you, iConnections, for hosting us. Thank you so much, George, for coming on and looking forward to doing this again soon.

[George]

Pleasure.

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