Transcript
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$70,000,000,000 plan.
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It wouldn't be out of the norm to put a
$1,000,000,000 of capital to work in private
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equity over a 1 year period.
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And so because VC was a part of private equity,
we would allocate, say, 15% to VC.
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You spent 13 and a half years at PCERS.
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What did you wish you knew when you started in
year 1?
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How challenging it could be working with
different constituents.
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You're dealing with not only staff and the
different levels there, but you're also dealing
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with consultants.
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You're dealing with the board.
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And a lot of times you're not dealing with them
directly, but you could be dealing with the
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public as well through press or something like
that.
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So there's a lot of potential things that can
get in your head over the long term.
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I'm not a big proponent of pension plans that
give bonuses to their staff as well because I
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think it's difficult to be able to incentivize
staff in the short term with a long term asset
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class.
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1 year return doesn't necessarily mean that
you're doing a great job just because the
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market has gone up or down in commercially a
bad job.
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Tony, I've been excited to chat since our
friend Arianna Thacker made the introduction.
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Welcome to 10X Capital podcast.
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Hey.
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Thanks for having me.
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You don't know how much of a benefit you've
been on, long drives where I get to listen to
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multiple podcasts and listen to a lot of
people's views and and certainly your insight.
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I always appreciate the questions you're
asking.
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Thank you for the kind words.
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So you worked at PCERS, which is a public
school retirement system, in Pennsylvania,
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which today has over $70,000,000,000 AUM.
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Tell me about your experience there.
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So I started in PCERS as an accountant in the
finance department.
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About halfway through my career there, I moved
over to investment, started off as an analyst,
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looking at, you know, working with
infrastructure, absolute return, private
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credit, and then obviously private equity in
VC.
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I then began working on co investments.
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So during my time there, I underwrote about 36
co investments worth $800,000,000 of
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commitment.
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And then I also sourced and wrote and
recommended primary fund commitments to the
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board.
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And you had 36 co investments.
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That's that's a prolific amount.
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How did you go choosing those co investments?
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The way that we were delegated authority from
the board is that we could do co investments
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with existing GPs.
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So you had that underwriting process.
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You understood the GP strategy, and and a lot
of the underwriting process was just making
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sure that the GP was staying within their
lanes.
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I executed on 36.
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We had a lot more opportunities.
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We did turn down some from the buyout
perspective.
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It was almost you know, we could get into our
own heads and overthink the co investments.
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And, honestly, if you have conviction in the
GP, you should almost do every co investment
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from a buyout opportunity perspective.
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Do you find that as an asset class, private
equity is less adversely selected when it comes
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to coinvestments versus something like a
venture capital coinvestment?
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I think adverse selection when it comes to
buyout is something that was pre GFC for sure.
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You know, there was there was a lot of talk
about that back then.
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I think in the present form, with most of the
high quality GPs that you're investing in, you
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don't have very much adverse selection.
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They're doing good investments.
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It's just a matter of whether you want more
exposure or not.
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BC is a different animal.
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You're talking about follow on rounds and
things of that nature where you could have a
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little bit more conflicts there.
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So that is a little bit different underwriting
process.
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As it related to co investment, how did you
position yourself as the partner of choice for
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whether buyout or venture capital firms?
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1, you have to be able to execute on the deals.
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And so we we certainly executed on deals.
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You have to be able to, you know, respond in a
in a short amount of time.
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So a lot of times, we were given a week, 2
weeks to be able to perform the underwriting,
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get a yes, no.
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Because we had delegation, still didn't mean
you know, it didn't mean that we didn't do an
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underwriting to the fullest extent.
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We still had a staff IC that we had to present
to.
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So myself and someone else are you know, would
likely underwrite a coinvestment, present that
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coinvestment as if it was a primary investment
to the IC, and, certainly get their questions
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from there.
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And it was nice to have that additional check.
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All that had to happen within a 2 week time
period oftentimes.
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You know, sometimes we would get a little bit
longer, but executing, being open to co
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investments, one of the feedbacks that we got
when we were talking to new managers is, do you
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actually execute on co investments?
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Because LPs tend to say that they like co
investments, But when it comes down to actually
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executing them, that whittles down to a
possible universe.
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From a governance standpoint, what allowed you
to process co investments so quickly?
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Talk to me about that.
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It was really all hands on deck.
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So the way that private equity specifically was
structured was that there was a director, and
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there were 4 portfolio managers or analysts
that were reported to them.
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And so if I was underwriting a fund for a
primary investment, the you know, I may end up
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having to put that aside for a week or 2 in
order to work on the co investments.
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The way that it was structured, the co
investments, is that if it was my relationship,
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so I was overseeing xyz manager, I'm over I'm
underwriting the co investment opportunity for
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that GP.
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Whereas, a colleague of mine may have a
different relationship, he would only
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underwrite the relation no.
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He would underwrite the co investments to that
relationship.
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So you have that familiarity with the GP, and a
lot of times, it's not a surprise that, you
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know, the deal is coming forward.
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Depends on the timing.
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Sometimes they were done at close.
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Sometimes they were syndicated deals post
close.
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And so that certainly dictated, you know, the
the amount of time that you needed to spend on
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the deal as well.
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You were decentralized in that.
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You organized at PCERS around the the GP
relationship.
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When it comes to the economics of the co
invest, what was the median terms that you
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would get at a pension fund investing with your
GPs?
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For the most part on buyout deals, there were
no fee, no carry.
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And so that was the main avenue.
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We did have, some coinvestments that would
have, say, an admin fee, so you would have a
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onetime charge at the front end.
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It might be 1% of the deal or 2% of the deal,
and then you would incorporate that in the
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commitment.
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But for the most part, there was no fee, no
carry plus expenses, which is typically the the
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financial reporting and the auditing and things
of that nature for that co investment vehicle.
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Is that a function of your check size?
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You were writing $100,000,000 plus checks into
the GP, so you were able to dictate that.
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Were were all LPs getting the same economics?
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No.
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I mean, for the most part, the GPs that we were
investing in, that was the common structure was
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no fee, no carry.
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For other asset classes, real estate, for
instance, it was more on a GP by GB basis, and
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a lot of times that they would have, you know,
some sort of fee structure along with that.
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But for buyout, by and large, it was just
market that it was no fee, no carry.
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You were a portfolio manager in the private
equity group.
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You were at Piecers for over 13 years.
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Talk to me about the portfolio construction
within private equity at Piecers.
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It was something that was a little bit more of
an art form than science.
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It was something I was working on, in my latter
days as well to to try and refine that.
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But by and large, the the majority of our
investments from the buyout perspective were
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middle market.
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So you would you would go from, say, a
$300,000,000 fund at the very low end, and that
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was few and far between, and those were usually
legacy portfolios up to $10,000,000,000 funds.
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We would have exposure to larger funds.
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So kind of way that you looked at the universe
or I looked at the universe was sub
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1,000,000,000,000 to 3, 3 to 7, 7 to 10, and 10
and up.
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And you kinda bifurcate that buyout universe in
that way.
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They all have different attributes.
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So a sub $1,000,000,000 fund is likely gonna be
investing in EBITDA multiples a little bit
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higher.
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But from a total EBITDA, it's likely gonna be
15,000,000 or less.
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And so when you take a look at those smaller
companies, it's just a different strategy.
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It's very similar to VC in that small buyout.
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There are a ton of small buyout GPs.
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You can have a lot of volatility in return.
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So manager selection becomes that much more
important for the small buyout than you do
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with, say, $20,000,000,000 plus funds.
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There's a very limited, universe of
$20,000,000,000 plus funds out there.
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That's the kind of way that we kinda look at
the universe was just from those size
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perspectives, and that was, information that
we're getting from consultants as well.
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That was kind of the way that they saw their
universe, and so we just adopted the way they
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saw that universe and and attacked it the same
way.
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Did your strategy around check size change by
the size of the fund?
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You mentioned you had a small as a $300,000,000
fund, and you had a $10,000,000,000 fund.
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How would you size your checks in those cases?
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Yeah.
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Those $300,000,000 funds again were were pretty
old.
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In in the present day, I would say that it was
likely not less than a $500,000,000 fund just
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because of the concentration limit.
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We couldn't be at LP that was greater than 30%
of a fund size.
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And most times, we're writing $100,000,000
checks.
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And so if you take a look at it from a
historical perspective, most of those
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commitments that we made were around a 100,
150,000,000.
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We had a couple that were a little bit less,
and we had commitments and this is our, you
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know, this is public information.
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You can see them out there, but there was one
GP, that we made a $300,000,000 commitment to.
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Again, it was kinda more art than science.
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And so, you know, certainly, the length of the
relationship, the familiarity with the GP all
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came into play when you're making a a
$300,000,000 commitment to a GP.
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And your minimum investment being a
100,000,000, did that make it really difficult
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to invest in venture capital?
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Talk to me about the challenges of having too
much capital when it comes to investing into
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venture capital.
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When you look at portfolio construction and you
take a look at the budget here, so
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$70,000,000,000 plan, it wouldn't be out of the
norm to put a $1,000,000,000 of capital to work
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in private equity over a 1 year period.
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And so because VC was a part of private equity,
we would allocate, say, 15% to VC.
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So now you're looking at a $150,000,000 a year,
$100,000,000 check size.
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Only looking at one commitment a year over a 3
year period.
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You might be able to do 3 or 4 if you're able
to straddle budget years.
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Conversely, you take a look at buyout, and, you
know, we were a lot more diversified on the
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buyout side than we were on the VC side if
we're gonna be doing those VC investments.
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It also limits the universe because, again, you
would likely have to have a minimum, fund of 3,
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4, or $500,000,000 because even though you can
be a 30% LP of a fundraise, as you know, most
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GPs don't want one LP being 30%.
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So it's usually GPs don't want more than 10,
15% of a fundraise, and so that also dictates
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the fund size when you back into that.
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From a pension plan perspective, if you can't
properly diversify VC, which, you know, you
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should be diversifying, and we can get into
early stage, late stage, multistage strategies,
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and things of that nature, Is your money better
deployed, you know, to VC direct deals?
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Is it to fund to funds, or do you just
eliminate VC in general saying, I can't get
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that diversification, so maybe my money is
better spent than to buy out spectrum?
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I had
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the former CIO of Calipers, and he mentioned
that funds like Sequoia, at least historically,
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have shied away from pension funds.
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Did you come across that where venture funds
did not want to take pension fund capital?
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Is that still something that goes on today?
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I've never personally had conversation with
Sequoia.
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It is funny how much sometimes just that kind
of sentiment dictates your investable universe.
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So because I constantly was told there's no way
Sequoia would take my money, it was like, okay.
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Well, why bother reaching out to Sequoia?
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Because everyone's telling me they're not gonna
take my money.
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It could be true.
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It could be incorrect.
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It could be an antiquated thought.
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There was a GP that, you know, from our
strategy here, our perspective was that there's
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no way that they even wanna have a conversation
with us.
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And we reached out to them.
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They were excited to have the conversation with
us, and it's just something that I've I've
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learned from the past is don't don't go by
market sentiment.
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Don't go by, you know, the rumor mill and
things of that nature.
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Always talk to everybody that you can.
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Reach out to everybody, and it it'll be you
know, it could surprise you, you know, where
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that conversation could lead you.
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So to to go back to, like, Sequoia or
Andreessen or, you know, some of the other
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names out there, I can't speak to that because
I never addressed them directly just because it
218
00:12:40,274 --> 00:12:43,975
was just kinda pounded in my brain that they
weren't gonna take our capital anyway.
219
00:12:44,059 --> 00:12:46,699
But it wouldn't surprise me if they are open to
it.
220
00:12:46,699 --> 00:12:48,699
You know, I think the world has changed a
little bit.
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00:12:48,699 --> 00:12:52,059
FOIA laws being what they are, every state is
different.
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00:12:52,059 --> 00:12:55,579
I don't know that there's still that concern
that that information would get out there.
223
00:12:55,579 --> 00:13:01,615
I would think that the larger, GPs would want
pension plans in there because it's larger
224
00:13:01,615 --> 00:13:01,855
checks.
225
00:13:01,855 --> 00:13:05,454
Do you have a, you know, fewer LPs in your LP
base?
226
00:13:05,454 --> 00:13:09,294
On the surface, it sounds like you would want
those larger checks, but maybe the headache's
227
00:13:09,294 --> 00:13:10,095
not worth it either.
228
00:13:10,095 --> 00:13:14,809
You just spoke about some of the cons, but what
are some of the pros, and what positions
229
00:13:14,870 --> 00:13:19,690
pension funds in a powerful position to invest
into either buyout or venture capital?
230
00:13:19,830 --> 00:13:21,690
Well, first and foremost are the returns.
231
00:13:21,830 --> 00:13:22,149
You know?
232
00:13:22,149 --> 00:13:28,845
I mean, if you can get a top quartile GP on
your roster, you're gonna be super happy with
233
00:13:28,845 --> 00:13:29,985
those those returns.
234
00:13:30,285 --> 00:13:34,205
The opposite side of that is, can you cover
enough of the market to be able to identify
235
00:13:34,205 --> 00:13:35,185
those top GPs?
236
00:13:35,644 --> 00:13:37,884
And so that's where that rub ends up being.
237
00:13:37,884 --> 00:13:43,170
For me, personally, I mean, I find BC exciting
because it's, you know, very forward thinking
238
00:13:43,230 --> 00:13:43,870
asset class.
239
00:13:43,870 --> 00:13:49,149
It's a lot more forward thinking than, you
know, obviously, buyout and, some of the other
240
00:13:49,149 --> 00:13:50,110
strategies out there.
241
00:13:50,110 --> 00:13:55,950
You can certainly help fund these change agents
that are constantly finding founders that are
242
00:13:55,950 --> 00:13:57,434
changing the world for the better.
243
00:13:57,595 --> 00:14:02,394
Again, whether it's environmental, whether it's
health, whether even software, things of that
244
00:14:02,394 --> 00:14:04,154
nature is just I don't know.
245
00:14:04,154 --> 00:14:05,934
I I find it super exciting.
246
00:14:06,154 --> 00:14:09,375
You were at a pension fund, and you built out a
great venture book.
247
00:14:09,450 --> 00:14:14,330
How would you advise pension funds in 2024 to
go about building out a great venture book?
248
00:14:14,330 --> 00:14:19,370
You certainly wanna be intentional with how
you're spending your time and building that
249
00:14:19,370 --> 00:14:19,870
portfolio.
250
00:14:20,889 --> 00:14:25,004
So if you take a look historically as to the
outperforming asset classes, you know, it's
251
00:14:25,085 --> 00:14:25,725
gonna be health care.
252
00:14:25,725 --> 00:14:26,684
It's gonna be IT.
253
00:14:26,684 --> 00:14:27,825
It's gonna be financials.
254
00:14:28,205 --> 00:14:32,924
Doesn't mean that you're not exposed to
consumer or industrials or some other asset
255
00:14:32,924 --> 00:14:34,705
class within VC.
256
00:14:34,924 --> 00:14:38,684
You're likely gonna be concentrated in those
asset classes, though, because those are the
257
00:14:38,684 --> 00:14:40,544
ones that have historically driven performance.
258
00:14:41,299 --> 00:14:43,720
Then you wanna take a look at from a stage
perspective.
259
00:14:44,179 --> 00:14:47,059
You know, how much do you wanna be exposed to
early, late?
260
00:14:47,059 --> 00:14:51,720
Do you wanna leave room for GPs that invest
across strategies or across stages?
261
00:14:52,339 --> 00:14:54,360
Do you wanna be exposed to growth equity?
262
00:14:54,500 --> 00:14:59,445
The the high upside is not there for growth
equity, but, you know, you certainly have a,
263
00:14:59,445 --> 00:15:03,684
you know, a little less volatility, a lot less
volatility from a growth equity standpoint.
264
00:15:03,684 --> 00:15:08,985
So being really intentional on that portfolio
construction the way that you wanna see that
265
00:15:10,220 --> 00:15:14,480
manifested, and then you have to put in the
time to be able to meet with GPs.
266
00:15:14,539 --> 00:15:19,679
You know, that's the the the one thing that I
found difficult from a pension plan perspective
267
00:15:19,740 --> 00:15:25,745
is that, you know, from a, you know, a very
established pension plan, You have monitoring.
268
00:15:25,884 --> 00:15:30,125
You're approving capital calls and
distributions, and and you're also doing, you
269
00:15:30,125 --> 00:15:31,824
know, monthly or quarterly reporting.
270
00:15:32,605 --> 00:15:35,324
You have all these other things that are coming
into play.
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00:15:35,324 --> 00:15:40,690
Can you cover enough of the market to be able
to identify and select the top GPs?
272
00:15:40,830 --> 00:15:44,909
You have to be intentional with that, whether
it's, you know, a dedicated in house staff,
273
00:15:44,909 --> 00:15:46,129
whether it's using consultants.
274
00:15:46,589 --> 00:15:51,250
Whatever the avenue is, don't be satisfied with
meeting performance from a VC asset class.
275
00:15:51,394 --> 00:15:53,794
And where did you find the sweet spot in terms
of your entry point?
276
00:15:53,794 --> 00:15:54,855
I would say multistage.
277
00:15:55,154 --> 00:16:01,634
So take Insight Partners or, you know, Summit
or OHCFT that are you know, they're all
278
00:16:01,634 --> 00:16:04,274
investing in early through growth equity.
279
00:16:04,274 --> 00:16:06,799
And so that's where we would spend most of our
time.
280
00:16:06,799 --> 00:16:13,279
From a pension plan standpoint, yeah, it's
difficult to do a fund one, just because of the
281
00:16:13,279 --> 00:16:18,240
underwriting internally as well as, you know,
getting that buy in from consultants.
282
00:16:18,240 --> 00:16:23,264
Some consultants will have focus on emerging
managers, and therefore, the underwriting could
283
00:16:23,264 --> 00:16:24,225
be a little bit easier.
284
00:16:24,225 --> 00:16:29,105
Other ones won't recommend any fund 1, so that
could be a difficulty doing that.
285
00:16:29,105 --> 00:16:34,019
From a buyout perspective, I had just
recommended before I left, well, in a end up
286
00:16:34,019 --> 00:16:36,340
getting passed on to someone else, but it was a
fun 2.
287
00:16:36,340 --> 00:16:43,299
And so it was very different fun 2 because you
had, you know, a really long established track
288
00:16:43,299 --> 00:16:45,240
record from a previous GP.
289
00:16:46,144 --> 00:16:51,665
You had 3 people coming together that you know,
you already had that that buy in that the team
290
00:16:51,665 --> 00:16:55,024
dynamics were really good and strong, and you
had confidence in that.
291
00:16:55,024 --> 00:16:59,504
And so those are a lot of the underwriting that
you would have difficulty from a pension plan
292
00:16:59,504 --> 00:17:02,509
perspective is just surety of team.
293
00:17:02,509 --> 00:17:08,589
You always have to kind of you know, there is
this outperformance for fund 1 dynamic out
294
00:17:08,589 --> 00:17:08,990
there.
295
00:17:08,990 --> 00:17:12,930
But what I don't think a lot of people
appreciate is that fund twos can underperform
296
00:17:13,150 --> 00:17:18,765
because you have different dynamics happening
in fund 2, before the team kinda, you know,
297
00:17:18,765 --> 00:17:22,285
wrangles together and then starts outperforming
fund 3, 4, and 5.
298
00:17:22,285 --> 00:17:23,505
What's the reason there?
299
00:17:23,565 --> 00:17:29,404
I've had some conversations with some GPs on
fund 2 as to why their performance had lagged.
300
00:17:29,404 --> 00:17:32,690
Some of the sentiment was, you know, you had
team dynamics.
301
00:17:32,750 --> 00:17:37,329
From a Fund 1 perspective, you had everybody
coming together feeling really strong, very
302
00:17:37,630 --> 00:17:42,750
motivated, and, you know, all on the same page,
and they just want to be the best that they
303
00:17:42,750 --> 00:17:43,230
can.
304
00:17:43,230 --> 00:17:44,589
And so they do that.
305
00:17:44,589 --> 00:17:45,490
They come together.
306
00:17:45,704 --> 00:17:46,845
It's a great team dynamic.
307
00:17:47,384 --> 00:17:53,964
And then 3, 4, 5 years into a firm cycle, you
start getting egos that are coming into play.
308
00:17:54,265 --> 00:17:59,865
People tend to wanna do this deal versus that
deal, or you have different dynamics that are
309
00:17:59,865 --> 00:18:04,410
happening that can pull a team apart and then
actually hurt performance.
310
00:18:04,410 --> 00:18:10,110
So what you would actually see is that from a
fund 3, there may be a revamp of the GP.
311
00:18:10,170 --> 00:18:10,490
You know?
312
00:18:10,490 --> 00:18:12,730
So one one team member may leave.
313
00:18:12,730 --> 00:18:14,009
They may add someone else.
314
00:18:14,009 --> 00:18:16,590
Those are some of the things that happen at a
fund 2.
315
00:18:17,025 --> 00:18:17,525
Absolutely.
316
00:18:17,744 --> 00:18:23,184
I've seen a lot of pension funds access first,
second, vintages through programs, through fund
317
00:18:23,184 --> 00:18:23,845
of funds.
318
00:18:23,904 --> 00:18:29,119
Did you ever consider that at Piecers in terms
of instead of writing $100,000,000 checks, you
319
00:18:29,119 --> 00:18:32,720
know, being part of these programs at
different, different fund of funds or
320
00:18:32,720 --> 00:18:33,220
consultants?
321
00:18:33,440 --> 00:18:33,680
Yeah.
322
00:18:33,680 --> 00:18:34,000
Definitely.
323
00:18:34,000 --> 00:18:39,200
It was something I was taking a look at, you
know, in in my last year there was, possibly
324
00:18:39,200 --> 00:18:42,535
outsourcing 2, 2 strategies.
325
00:18:42,535 --> 00:18:44,875
1, you know, I mentioned before, small buyout.
326
00:18:45,255 --> 00:18:50,215
So sub say, sub $500,000,000 funds, I can't
access directly.
327
00:18:50,215 --> 00:18:53,494
We're certainly looking for a solution there,
and there's some really good providers out
328
00:18:53,494 --> 00:18:54,375
there that do that.
329
00:18:54,375 --> 00:18:59,809
Some have been guests on your show, And then
certainly from a VC standpoint, now Piecers
330
00:18:59,809 --> 00:19:03,809
themselves didn't have a mandate for emerging
managers or diversity or anything like that.
331
00:19:03,809 --> 00:19:08,950
It was just part of the process is that, you
know, you may allocate to emerging or diverse,
332
00:19:09,144 --> 00:19:11,944
but it wasn't, you know, a dedicated amount of
capital.
333
00:19:11,944 --> 00:19:17,545
But from a VC standpoint, again, when we talk
about, like, early stage, there are so many
334
00:19:17,545 --> 00:19:18,684
early stage VCs.
335
00:19:18,825 --> 00:19:23,224
You have the ability to cover enough in the
market to be able to select those top tier
336
00:19:23,224 --> 00:19:23,724
managers.
337
00:19:24,070 --> 00:19:25,269
We spoke last time.
338
00:19:25,269 --> 00:19:31,109
Hamilton Lane put out a chart that bifurcated
emerging versus established manager returns.
339
00:19:31,109 --> 00:19:32,070
Tell me about that.
340
00:19:32,070 --> 00:19:32,309
Yeah.
341
00:19:32,309 --> 00:19:37,690
Did you, I'm curious on on your thoughts before
I before I get too carried away.
342
00:19:37,984 --> 00:19:43,445
There's somewhat of a paradox that I found in
venture capital where there is high persistence
343
00:19:43,825 --> 00:19:44,484
on return.
344
00:19:44,785 --> 00:19:48,625
I believe there's a University of Chicago study
that showed that the persistence of top
345
00:19:48,625 --> 00:19:53,769
quartile performances roughly 5th in the
fifties percentage, statistically significant.
346
00:19:54,710 --> 00:20:00,869
The paradox there being that emerging managers
tend to be the ones that return in the top desk
347
00:20:00,869 --> 00:20:01,929
on the top 10%.
348
00:20:02,549 --> 00:20:08,255
So if you want to get top quartile, you try to
get into the very difficult to access VCs.
349
00:20:08,714 --> 00:20:11,755
But if you wanna get top decile, you do have to
take some risks.
350
00:20:11,755 --> 00:20:13,214
What have you found in your data?
351
00:20:13,275 --> 00:20:16,815
I love the data myself because it it actually
speaks to our strategy.
352
00:20:16,875 --> 00:20:20,830
So when I found that and came in my feed and
then you asked the question, I was like, shit.
353
00:20:20,830 --> 00:20:22,110
We're all on the same page here.
354
00:20:22,110 --> 00:20:23,809
So I'm I'm happy you brought it up.
355
00:20:24,110 --> 00:20:26,529
But, yeah, I mean, it's done on a IRR basis.
356
00:20:26,830 --> 00:20:28,610
I was not surprised by the volatility.
357
00:20:28,750 --> 00:20:33,710
You know, I would think that established GPs
would have less volatile returns, and so that's
358
00:20:33,710 --> 00:20:35,330
what that's that's showing there.
359
00:20:35,975 --> 00:20:40,535
But what I was surprised is is that they had
higher median and higher quartile for
360
00:20:40,535 --> 00:20:46,934
established EPs, because to your point, it's
kind of contra what what people have always
361
00:20:46,934 --> 00:20:47,434
thought.
362
00:20:47,494 --> 00:20:54,230
And I I do think that if you look at returns
from a Fund Size perspective, and and
363
00:20:54,230 --> 00:20:58,470
oftentimes, people use Fund Size as a proxy for
established or emerging because this is the
364
00:20:58,470 --> 00:21:03,990
first time I've ever seen established versus
emerging, and certainly am familiar with the
365
00:21:03,990 --> 00:21:06,250
the persistence discussions as well.
366
00:21:06,765 --> 00:21:12,525
So I I found it interesting, and it was a bit
of, you know, confirmation bias on on our end
367
00:21:12,525 --> 00:21:16,785
because, we're we're gonna be allocating to
establish as well as emerging managers.
368
00:21:17,164 --> 00:21:22,220
And so my thesis was that, you know, I would
have less volatility.
369
00:21:22,759 --> 00:21:28,919
I think selecting the best emerging managers is
tougher, and and you should be compensated for
370
00:21:28,919 --> 00:21:29,159
that.
371
00:21:29,159 --> 00:21:33,899
But if it's not necessary to your investment
thesis, why not allocate some to established
372
00:21:33,960 --> 00:21:34,460
GPs?
373
00:21:34,875 --> 00:21:39,515
After working at Piecers for 13 and a half
years, you joined as a partner for fund to fund
374
00:21:39,515 --> 00:21:40,335
called Cinefina.
375
00:21:40,714 --> 00:21:42,894
Tell me about the impetus for joining Cinefina.
376
00:21:43,674 --> 00:21:47,515
My partner and founder, Yasmin, started a firm
a couple years ago.
377
00:21:47,515 --> 00:21:53,029
And she when she left Drive Capital, what she
wanted to do was was start something that was
378
00:21:53,029 --> 00:21:54,970
focused on women in VC.
379
00:21:55,190 --> 00:22:00,789
And so what that looks like today is, you know,
having a fund to fund where we're gonna be
380
00:22:00,789 --> 00:22:04,329
dedicating capital to women led and co led VC
firms.
381
00:22:04,444 --> 00:22:08,785
We wanna make sure that the GP, proportion is
equal.
382
00:22:09,164 --> 00:22:14,704
And so if there's one woman on a 4 person GP,
that she's 25%, she's not 5%.
383
00:22:15,404 --> 00:22:20,509
And so it really started for me, if I were to
take it to to why I joined, it started for me
384
00:22:20,509 --> 00:22:21,650
when I was at Piecers.
385
00:22:21,869 --> 00:22:23,570
I had a couple different investments.
386
00:22:23,630 --> 00:22:31,410
1 was a top performing GP, and it was the first
commitment that Piecers had made to a women led
387
00:22:31,470 --> 00:22:34,205
or or co led private equity firm.
388
00:22:34,205 --> 00:22:36,144
And so I found that interesting.
389
00:22:36,205 --> 00:22:38,465
It wasn't part of the investment thesis.
390
00:22:38,525 --> 00:22:39,725
It was, hey.
391
00:22:39,725 --> 00:22:45,105
This is an awesome multistage VC growth equity
firm who happened to be led by women.
392
00:22:45,725 --> 00:22:51,240
And so that was that was the first investment
that I had made there, you know, regarding
393
00:22:51,240 --> 00:22:51,559
women.
394
00:22:51,559 --> 00:22:54,539
And then a couple years later, I did an
investment with Insight.
395
00:22:54,839 --> 00:22:57,079
You had a couple of guests a couple weeks ago.
396
00:22:57,079 --> 00:23:00,375
So Insight Vision, I led our investment there.
397
00:23:00,454 --> 00:23:04,315
The thesis there was to invest in diverse and
women led GPs.
398
00:23:04,535 --> 00:23:09,414
And, again, part of that fund to fund was that
it was gonna be accessing GPs that we can't
399
00:23:09,414 --> 00:23:11,095
access because they're typically smaller.
400
00:23:11,095 --> 00:23:12,615
They're typically early stage.
401
00:23:12,615 --> 00:23:15,329
They're typically, emerging managers.
402
00:23:15,869 --> 00:23:22,349
And as I worked with underwriting that fund
level commitment, I had GP conversations, and
403
00:23:22,349 --> 00:23:24,990
then I really became enamored with the asset
class.
404
00:23:24,990 --> 00:23:30,825
From that perspective, the opportunity set, the
diversity that's embedded within the GPs, just
405
00:23:30,825 --> 00:23:32,825
the different lens that they were investing
with.
406
00:23:32,825 --> 00:23:36,845
It was something that I thought was
underutilized from an investment standpoint.
407
00:23:37,225 --> 00:23:39,404
And I was like, why not lean into diversity?
408
00:23:39,545 --> 00:23:41,404
Why not promote diversity?
409
00:23:41,865 --> 00:23:43,245
This does drive returns.
410
00:23:43,669 --> 00:23:46,009
And so it was something that I had been taking
a look into.
411
00:23:46,069 --> 00:23:51,109
And so, you know, I had a, you know,
conversations with Diaz, and it just made sense
412
00:23:51,109 --> 00:23:52,329
for us to team up.
413
00:23:52,630 --> 00:23:57,289
For somebody to qualify as as investment to
Cinefine, tell me about the criteria there.
414
00:23:57,429 --> 00:23:59,210
So it's really only one qualifier.
415
00:23:59,724 --> 00:24:02,065
The qualifier is at the GP level.
416
00:24:03,004 --> 00:24:05,644
There's proportional ownership at the GP level.
417
00:24:05,644 --> 00:24:08,924
Other than that, we'll be intentional with our
portfolio construction.
418
00:24:08,924 --> 00:24:14,309
We're gonna have, you know, a portion that's
gonna be too early, late, multistage, possibly
419
00:24:14,309 --> 00:24:16,569
growth equity if the opportunity set is there.
420
00:24:16,789 --> 00:24:21,109
We certainly wanna be investing mostly in the
US, but there are some good European
421
00:24:21,109 --> 00:24:24,009
opportunities that we find, possibly LATAM.
422
00:24:25,509 --> 00:24:26,890
But those are the only qualifications.
423
00:24:27,190 --> 00:24:33,654
We expect that half of our capital will be to
establish GPs, and the other half would be
424
00:24:34,115 --> 00:24:35,955
funds 1 through, call it, 4.
425
00:24:35,955 --> 00:24:41,140
And it the way that we take a look at that
universe is really by experience.
426
00:24:41,519 --> 00:24:46,259
And so what you're doing from an underwriting
perspective is, you know, trading qualitative
427
00:24:46,399 --> 00:24:48,259
information with quantitative data.
428
00:24:48,319 --> 00:24:52,480
And the more quantitative data you have, the
better you can get an understanding of their
429
00:24:52,480 --> 00:24:56,315
strategy, the way that they have discipline,
their investing style.
430
00:24:57,015 --> 00:25:01,414
So the more commitment you have there, and that
goes to, you know, what we're talking about
431
00:25:01,414 --> 00:25:06,694
with Hamilton Lane, I do see that there is a
different return spectrum that from that
432
00:25:06,694 --> 00:25:09,349
allocation established versus emerging, but we
definitely wanna be able to support both.
433
00:25:09,349 --> 00:25:10,710
Which vintage is the hardest?
434
00:25:10,710 --> 00:25:11,349
Fund 1,
435
00:25:11,349 --> 00:25:12,950
fund 2, fund 3?
436
00:25:12,950 --> 00:25:14,809
You know, I've been talking to people,
437
00:25:15,109 --> 00:25:18,630
and and they seem to think that fund 3 seems to
be the hardest vintage because in the current
438
00:25:18,630 --> 00:25:27,485
environment so I I would say, I would I would
lean back to that, that it's probably more fund
439
00:25:27,485 --> 00:25:34,045
3 if you don't have fund 1 DPI, because from a
fund 2 perspective, it's still just making
440
00:25:34,045 --> 00:25:34,924
sure, hey.
441
00:25:34,924 --> 00:25:36,445
You know, we'd like to fund 1.
442
00:25:36,445 --> 00:25:39,744
Let's re up in fund 2 as long as things haven't
changed.
443
00:25:40,019 --> 00:25:43,700
And they've shown that that they're gonna be
disciplined with their investing style, and
444
00:25:43,700 --> 00:25:46,420
they're doing everything that did that they
said they were gonna do.
445
00:25:46,420 --> 00:25:49,779
So from a fund 1 fundraise, you know, you're
telling LPs, hey.
446
00:25:49,779 --> 00:25:51,460
We're going to do x, y, z.
447
00:25:51,460 --> 00:25:55,785
And the reporting from them should just be, a,
we told you we're gonna do x, y, z, and this is
448
00:25:55,785 --> 00:25:56,525
what we did.
449
00:25:56,825 --> 00:25:59,805
And then if you have deviations, that's where
you end up running into trouble.
450
00:25:59,865 --> 00:26:05,545
But if you did everything that you told, you
know, your LPs, in fund 1, fund 2 raise should
451
00:26:05,545 --> 00:26:06,265
be fairly easy.
452
00:26:06,265 --> 00:26:11,279
Fund 3 is just I think in the current
environment, fund threes are tougher to raise
453
00:26:11,279 --> 00:26:12,740
just from a DPI perspective.
454
00:26:13,119 --> 00:26:13,599
Absolutely.
455
00:26:13,599 --> 00:26:16,399
Similarly, could be said about, raising
venture.
456
00:26:16,399 --> 00:26:20,285
Sometimes series b could be more difficult
because series a, you could still still sell
457
00:26:20,285 --> 00:26:20,944
the story.
458
00:26:21,565 --> 00:26:28,204
You invested at at Piecers, presumably mostly
in male GPs, just statistically speaking, and
459
00:26:28,204 --> 00:26:30,144
now you focus on female GPs.
460
00:26:30,444 --> 00:26:35,460
What are the main difference between male GPs
and female GPs in terms of how they source, how
461
00:26:35,460 --> 00:26:37,380
they provide, how they generate alpha?
462
00:26:37,380 --> 00:26:41,799
Tell me a little bit about the stylistic or
qualitative differences in female GPs.
463
00:26:42,180 --> 00:26:44,980
I don't see that there's too much of a
stylistic standpoint.
464
00:26:44,980 --> 00:26:47,275
They're still going to be alpha people.
465
00:26:47,275 --> 00:26:47,595
Right?
466
00:26:47,595 --> 00:26:52,315
They're the ones that are going out there, and
they're just driven from an internal
467
00:26:52,315 --> 00:26:52,795
perspective.
468
00:26:52,795 --> 00:26:56,875
They're not at least when they they start
they're not in it for the money.
469
00:26:56,875 --> 00:26:59,595
They're not in it for, you know, the glory and
things of that nature.
470
00:26:59,595 --> 00:27:03,650
They're in it because they think that they can
outperform everyone else.
471
00:27:03,650 --> 00:27:05,269
It's a very competitive nature.
472
00:27:05,329 --> 00:27:11,009
And so they're just, you know, people out there
that have that competitive edge, and those are
473
00:27:11,009 --> 00:27:12,769
the ones that you really wanna focus on.
474
00:27:12,769 --> 00:27:14,595
They, you know, they don't give a shit what I
think.
475
00:27:14,674 --> 00:27:16,434
They're they have an investing style.
476
00:27:16,434 --> 00:27:17,474
They're moving forward.
477
00:27:17,474 --> 00:27:19,474
They're doing everything they can.
478
00:27:19,474 --> 00:27:24,595
Now when you take a look back, and, you know,
perhaps we'll we'll get into it, is from a
479
00:27:24,595 --> 00:27:30,930
different perspective, is that because that
universe of women, and this can can go into
480
00:27:31,309 --> 00:27:35,970
other diverse GPs as well because there are so
few women that when they're being promoted,
481
00:27:36,589 --> 00:27:39,710
you're almost always selecting the very best.
482
00:27:39,710 --> 00:27:45,375
And so from a counterpart standpoint, from a
typical white man, they're usually
483
00:27:45,434 --> 00:27:49,695
outperforming that typical white man because
they've had to overcome a lot of possible
484
00:27:49,755 --> 00:27:51,934
stigmas, you know, in their process.
485
00:27:52,394 --> 00:27:56,519
And so they have, for lack of a better term, a
lot of them will have a chip on their shoulder
486
00:27:56,519 --> 00:27:58,759
because they're like, I'm gonna show you.
487
00:27:58,759 --> 00:27:59,240
You know?
488
00:27:59,240 --> 00:28:03,179
And so, you know, that's that's just what I'm
seeing.
489
00:28:03,480 --> 00:28:09,194
But any outstanding person, you know, whether
it's sports, whether it's, you know, from a
490
00:28:09,194 --> 00:28:11,694
founder perspective, they always have that chip
on their shoulder.
491
00:28:11,755 --> 00:28:12,234
Absolutely.
492
00:28:12,234 --> 00:28:18,174
They've had to overcome more obstacles, whether
it's a person of color, immigrant, or female.
493
00:28:18,315 --> 00:28:21,755
For them to even get to the point where they
could be promoted, they have to be so
494
00:28:21,755 --> 00:28:23,934
exceptional just to just to get in the room.
495
00:28:24,230 --> 00:28:28,630
You mentioned something interesting around the
daughter effect for male GPs and LPs.
496
00:28:28,630 --> 00:28:29,609
Tell me about that.
497
00:28:29,670 --> 00:28:36,789
It was a lot of research that I'd done on bias
and, you know, researching, sent me down this
498
00:28:36,789 --> 00:28:38,295
rabbit hole, the daughter effect.
499
00:28:38,375 --> 00:28:43,335
And so I started reading articles by Siri
Chilazi from the Harvard Kennedy School.
500
00:28:43,335 --> 00:28:46,394
In her research, she often cited research from
others.
501
00:28:46,695 --> 00:28:51,255
And the daughter effect was a discussion from
Paul Kompers and Sophie Wang in a working paper
502
00:28:51,255 --> 00:28:52,075
in 2017.
503
00:28:53,410 --> 00:28:56,369
But more broadly, the daughter effect is as it
sound.
504
00:28:56,369 --> 00:29:01,890
It relates to when a man has children and what
Gompers and Wang found or what they were trying
505
00:29:01,890 --> 00:29:08,085
to study there was the impact of VC firms and
how, you know, it had a potential cascading
506
00:29:08,144 --> 00:29:08,644
effect.
507
00:29:08,865 --> 00:29:12,644
So, again, historically, VC firms have been run
by men.
508
00:29:13,025 --> 00:29:18,065
When these men have daughters, they tend to
reduce their bias towards women, leading to
509
00:29:18,065 --> 00:29:19,205
more female hires.
510
00:29:20,039 --> 00:29:25,240
Since the pool of female investors are, you
know, relatively untapped and it's a lot more
511
00:29:25,240 --> 00:29:28,380
finite, those hires tend to be of higher
quality than their male counterparts.
512
00:29:28,840 --> 00:29:34,815
That higher quality of hires leads to higher
returns because introducing people with diverse
513
00:29:34,815 --> 00:29:37,875
backgrounds reduces probability of correlated
errors.
514
00:29:38,815 --> 00:29:44,575
You have diverse backgrounds that lead to wider
deal flow, increasing the deal quality.
515
00:29:44,575 --> 00:29:50,220
I will say that they do caveat the paper by
stating that implementing, you know, blunt
516
00:29:50,220 --> 00:29:53,099
gender quotas may not have the same positive
outcomes.
517
00:29:53,099 --> 00:29:58,140
These are things that just happen through
genuine removal of bias.
518
00:29:58,140 --> 00:30:00,880
You're saying, oh, you know, I have a daughter.
519
00:30:00,940 --> 00:30:07,625
Therefore, you know, I see this whole other
avenue that is is possibly open to me, and it
520
00:30:07,625 --> 00:30:09,704
has that cascading effect that I mentioned.
521
00:30:09,704 --> 00:30:14,045
You know, some of the other bias behaviors I
was I was, you know, looking at was homophily
522
00:30:14,265 --> 00:30:17,759
or the halo effect or the, you know, the
opposite, which is the horn effect,
523
00:30:17,920 --> 00:30:19,859
confirmation bias, peak, and rule.
524
00:30:19,920 --> 00:30:25,920
These are all different biases that we have as
allocators when we're, speaking to, potential
525
00:30:25,920 --> 00:30:26,420
GPs.
526
00:30:26,960 --> 00:30:29,299
Horn effect being the opposite of a halo
effect?
527
00:30:29,599 --> 00:30:29,839
Yeah.
528
00:30:29,839 --> 00:30:33,460
So the halo effect is you have this initial
positive impression.
529
00:30:33,519 --> 00:30:37,255
This person is just awesome whether, you know,
for whatever reason.
530
00:30:37,255 --> 00:30:41,654
The opposite is true, is that no matter you
know, certainly on a political spectrum, you
531
00:30:41,654 --> 00:30:45,255
could you could say, no matter what, this
candidate says, there's no way I'm gonna like
532
00:30:45,255 --> 00:30:45,494
them.
533
00:30:45,494 --> 00:30:46,394
It doesn't matter.
534
00:30:46,609 --> 00:30:51,410
The opposite is also true whereas you have this
wonderful effect that you know, wonderful
535
00:30:51,410 --> 00:30:51,910
impression.
536
00:30:52,130 --> 00:30:55,509
No matter what anybody says, they're not gonna
be able to sway you.
537
00:30:55,890 --> 00:30:58,450
Congratulations, 10X Capital podcast listeners.
538
00:30:58,450 --> 00:31:01,990
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539
00:31:02,255 --> 00:31:06,414
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540
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541
00:31:06,894 --> 00:31:10,735
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542
00:31:10,735 --> 00:31:14,595
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543
00:31:14,815 --> 00:31:16,035
Thank you for your support.
544
00:31:16,670 --> 00:31:18,589
Talk to me about your portfolio construction.
545
00:31:18,589 --> 00:31:22,130
You mentioned that you invest in both emerging
as well as established managers.
546
00:31:22,429 --> 00:31:24,929
How are you constructing your portfolio at
Cinefina?
547
00:31:25,390 --> 00:31:31,545
I I'm I'm pretty focused on, you know, cash
flow profiles and return profiles.
548
00:31:31,545 --> 00:31:37,224
So as you go through the modeling exercise, you
know, there are certain benefits and, to to
549
00:31:37,224 --> 00:31:38,285
each of the stages.
550
00:31:38,664 --> 00:31:44,089
And so when you're looking at that portfolio
construction, you can certainly say from a
551
00:31:44,089 --> 00:31:50,109
return perspective, I only wanna do early stage
because early stage, I had the potential to,
552
00:31:51,049 --> 00:31:52,669
you know, high upside.
553
00:31:53,049 --> 00:31:57,069
The problem with early stage is that there are
so many early stage VCs out there.
554
00:31:57,355 --> 00:31:58,734
So how can you cover that market?
555
00:31:59,034 --> 00:32:03,434
And how are you understanding, you know, what
is good, what is bad?
556
00:32:03,434 --> 00:32:11,054
And do you have the wherewithal of making
genuine, great selection from a GP perspective?
557
00:32:11,514 --> 00:32:14,679
And so when you take that into consideration,
okay.
558
00:32:14,679 --> 00:32:16,619
How can I mitigate some of those factors?
559
00:32:16,839 --> 00:32:22,440
Well, 1, you can, you know, dedicate capital to
established GPs with a longer track record.
560
00:32:22,440 --> 00:32:27,835
So that helps mitigate still allocating to
early stage, but also mitigating that with not
561
00:32:27,835 --> 00:32:32,555
doing all emerging managers because, again,
manager selection can be so tough, funds 1
562
00:32:32,555 --> 00:32:36,575
through 3, that you wanna help mitigate that
exposure as well.
563
00:32:36,795 --> 00:32:41,650
From a early or late stage, I mean, certainly,
you know, we've seen during COVID, the
564
00:32:41,650 --> 00:32:43,170
valuations have gone crazy.
565
00:32:43,170 --> 00:32:48,450
So you wanna be cognizant of your exposure to
early or late stages as well.
566
00:32:48,450 --> 00:32:51,329
Late stages GPs, you know, there's fewer a
number.
567
00:32:51,329 --> 00:32:54,390
So, again, I think you can cover the universe a
little bit easier.
568
00:32:54,769 --> 00:33:01,075
You can have a better understanding of that
investable universe and have better manager
569
00:33:01,075 --> 00:33:01,575
selection.
570
00:33:02,034 --> 00:33:07,714
And so that's the way that we kinda see the
world is we think that 40, 45% is gonna be
571
00:33:07,714 --> 00:33:09,154
dedicated to early stage.
572
00:33:09,154 --> 00:33:15,529
25 to, say, 35% is gonna be to late stage,
possibly growth equity if it's really
573
00:33:15,529 --> 00:33:18,750
compelling, and then another 25% to multistage.
574
00:33:19,289 --> 00:33:22,110
How do you think about time diversification and
vintage diversification?
575
00:33:22,674 --> 00:33:27,875
And another thing I I love talking about so
what what we would wanna do is we wanna take a
576
00:33:27,875 --> 00:33:29,654
look at a 3 year investing period.
577
00:33:29,954 --> 00:33:32,115
We don't wanna take a look at a 1 year
investing period.
578
00:33:32,115 --> 00:33:35,555
I wanna select the best GPs that are coming to
market over a 3 year period.
579
00:33:35,555 --> 00:33:44,570
So, say, 25 through 27, if in my funnel, I
wanna look at all the early stage GPs and say,
580
00:33:44,570 --> 00:33:45,049
okay.
581
00:33:45,049 --> 00:33:47,610
Who's coming to market over the next 3 years?
582
00:33:47,610 --> 00:33:54,964
And then we'll take a look at industry exposure
and have those GPs in each of those funnels.
583
00:33:54,964 --> 00:34:00,184
So we're making the best health care
investment, best IT investment, best financials
584
00:34:00,724 --> 00:34:04,505
over that 3 year period from a stage and
industry's perspective.
585
00:34:04,565 --> 00:34:10,010
So while I want vintage year diversification
and to the point that, you know, I would like
586
00:34:10,010 --> 00:34:14,570
it to be equal because I'm a very, we didn't
talk about it earlier.
587
00:34:14,570 --> 00:34:20,089
But from a VC allocation perspective, I'm very
much in belief that it needs to be an evergreen
588
00:34:20,089 --> 00:34:20,804
asset class.
589
00:34:20,885 --> 00:34:26,005
You have to dedicate a certain amount of
capital consistently to be exposed to those
590
00:34:26,005 --> 00:34:29,364
outstanding vintages because you are gonna be
exposed to bad vintages.
591
00:34:29,364 --> 00:34:34,804
And don't compound the the the issue by being
under allocated to outstanding vintages when
592
00:34:34,804 --> 00:34:36,664
you've been exposed to a bad vintage.
593
00:34:37,409 --> 00:34:42,469
So we'll try to equal weight over a 3 year
investing period to the best that we can.
594
00:34:42,609 --> 00:34:47,730
But if it means that we're overweight 1 vintage
year because we're selecting the best GP and
595
00:34:47,730 --> 00:34:50,710
that vintage, then we'll we'll make that
decision.
596
00:34:50,994 --> 00:34:55,554
Presumably, if your investment period is 3
years and then VC's investment period is, let's
597
00:34:55,554 --> 00:34:58,614
say, 3 years, then you're really getting
exposure to 5 vintages.
598
00:34:59,155 --> 00:35:02,355
Because year 3, you're getting exposure to year
4 year 5.
599
00:35:02,355 --> 00:35:03,315
You're absolutely right.
600
00:35:03,315 --> 00:35:08,769
I mean, we're gonna be exposed for, you know,
25 through, you know, what, 29, 30.
601
00:35:09,070 --> 00:35:14,289
And so from a deal level perspective, we're
we're gonna have a good chunk of allocation
602
00:35:14,430 --> 00:35:16,449
diversification from a vintage year standpoint.
603
00:35:16,910 --> 00:35:19,875
You spent 13 and a half years at PCERS.
604
00:35:19,875 --> 00:35:22,855
What did you wish you knew beef when you've
started in year 1?
605
00:35:23,155 --> 00:35:23,954
That's a good question.
606
00:35:23,954 --> 00:35:27,735
You know, I think how challenging it could be
working with different constituents.
607
00:35:28,114 --> 00:35:31,099
So we didn't get to talk to it too much.
608
00:35:31,640 --> 00:35:37,160
But, you know, you're dealing with not only
staff and the different levels there, but
609
00:35:37,160 --> 00:35:38,539
you're also dealing with consultants.
610
00:35:38,840 --> 00:35:40,360
You're dealing with the board.
611
00:35:40,360 --> 00:35:43,944
And a lot of times, you know, you're not
dealing with them directly, but you could be
612
00:35:43,944 --> 00:35:47,704
dealing with, you know, the public as well
through press or something like that.
613
00:35:47,704 --> 00:35:52,424
So there's a lot of potential, things that can
get in your head over the long term.
614
00:35:52,424 --> 00:35:56,744
It's typically not any one issue that isn't is
is a big problem.
615
00:35:56,744 --> 00:36:02,380
But over the long term, those micro issues
could just say, you know, my quality of life
616
00:36:02,380 --> 00:36:04,559
may be better off spent somewhere else.
617
00:36:04,940 --> 00:36:10,539
If you had to remove one friction as working
out of pension funds and constituents check
618
00:36:10,539 --> 00:36:14,664
sizes, what what friction would lead to higher
returns for the asset class?
619
00:36:15,204 --> 00:36:21,605
From a sourcing perspective, the way that most
pension plans source their investments are
620
00:36:21,605 --> 00:36:26,940
through, like, what we had, which was if we had
the relationship, we would manage to re up.
621
00:36:27,099 --> 00:36:32,059
If we had, you know, recommendation, we were
the ones that end up monitoring that
622
00:36:32,059 --> 00:36:32,559
recommendation.
623
00:36:32,619 --> 00:36:36,319
I think, actually and I I've talked to some
pension plans that do this.
624
00:36:36,380 --> 00:36:41,015
They will have a separate sourcing and
recommendation team than they do have for a
625
00:36:41,015 --> 00:36:46,215
monitoring team because you do have a lot of
from a monitoring perspective, you could be too
626
00:36:46,215 --> 00:36:47,434
in love with the GP.
627
00:36:47,494 --> 00:36:48,954
You have that close relationship.
628
00:36:50,135 --> 00:36:52,199
You can have conflicts of interest there.
629
00:36:52,280 --> 00:36:57,159
I think having a different sourcing team that
is you know, you would have to take a look at
630
00:36:57,159 --> 00:37:03,179
that structure, because I'm not a big proponent
of pension plans that give bonuses to their
631
00:37:03,320 --> 00:37:07,525
staff as well, because I think it's difficult
to be able to incentivize staff in the short
632
00:37:07,525 --> 00:37:09,204
term with a long term asset class.
633
00:37:09,204 --> 00:37:13,525
You know, 1 year return doesn't necessarily
mean that you're doing a great job just because
634
00:37:13,525 --> 00:37:16,744
the market has gone up or down and,
commercially, a bad job.
635
00:37:16,965 --> 00:37:21,859
But, you know, separating out the sourcing and
recommendation team from monitoring team, I
636
00:37:21,859 --> 00:37:23,320
think, would add a lot of value.
637
00:37:23,699 --> 00:37:28,500
Just to double click on that, is that there's a
bias to advocate for your own fund even if it
638
00:37:28,500 --> 00:37:30,434
may or may not still be a great fund?
639
00:37:31,074 --> 00:37:31,574
Absolutely.
640
00:37:31,954 --> 00:37:32,275
No.
641
00:37:32,275 --> 00:37:33,974
There absolutely is that possibility.
642
00:37:34,114 --> 00:37:34,515
You know?
643
00:37:34,515 --> 00:37:35,494
We're all humans.
644
00:37:35,795 --> 00:37:43,635
And while I'm doing the best I can right now to
eliminate or at least be aware of my bias, not
645
00:37:43,635 --> 00:37:45,655
all people out there do the same.
646
00:37:45,929 --> 00:37:49,789
How were you evaluated as a portfolio manager
for private equity?
647
00:37:49,929 --> 00:37:54,190
Talk to me about how PCERS would go about
evaluating how well of a job you were doing.
648
00:37:54,250 --> 00:37:55,550
Well, it was done internally.
649
00:37:55,769 --> 00:38:01,914
It just like any, any other structure, you have
an annual evaluation by your immediate
650
00:38:02,055 --> 00:38:02,555
supervisor.
651
00:38:03,015 --> 00:38:04,555
So it was done from that perspective.
652
00:38:04,855 --> 00:38:10,055
The annual increase was actually done based on
the fund total fund performance.
653
00:38:10,055 --> 00:38:14,750
So it was kind of, again, market driven than,
you know, more than anything else.
654
00:38:14,750 --> 00:38:16,449
TVPI, earmarks.
655
00:38:18,510 --> 00:38:18,829
No.
656
00:38:18,829 --> 00:38:23,150
I mean, I I think that would be probably a
better way, but you would have to do it over
657
00:38:23,150 --> 00:38:23,630
the long term.
658
00:38:23,630 --> 00:38:28,144
But, no, the annual was just done on, you know,
what was the total fund return from a
659
00:38:28,144 --> 00:38:30,724
performance perspective that was done by the
general consultant.
660
00:38:31,184 --> 00:38:35,505
Is it similar to how GPs have their own
attributable track record where you had your
661
00:38:35,505 --> 00:38:40,300
attributable track record in the funds that you
sourced, or was there more of a pooled return?
662
00:38:40,300 --> 00:38:44,780
Well, again, yeah, the the private equity team
didn't have a separate compensation structure.
663
00:38:44,780 --> 00:38:48,380
It was the entire investment team, so it was
based on the entire fund.
664
00:38:48,380 --> 00:38:52,480
So, you know, you would certainly make your
case to your supervisor.
665
00:38:52,940 --> 00:38:57,224
I've done x y z over the past 12 months, and,
you know, that would turn into, you know,
666
00:38:57,224 --> 00:39:02,445
whether you were on par with everybody else or
if you exceeded expectations or whatever the
667
00:39:03,864 --> 00:39:05,864
the, the structure was there.
668
00:39:05,864 --> 00:39:11,150
But, yeah, I mean, the the compensation was
just completely differentiated from, you know,
669
00:39:11,150 --> 00:39:14,210
your actual performance, which I I found
difficult.
670
00:39:14,510 --> 00:39:18,829
What would you like our listeners to know about
you, about, or anything else you'd like to
671
00:39:18,829 --> 00:39:19,755
shine a light on?
672
00:39:19,835 --> 00:39:23,355
You know, we're here to to be value accretive
to the VC Universe.
673
00:39:23,355 --> 00:39:27,134
So, hopefully, you know, if you're a GP or an
LP, we're certainly welcome to conversation.
674
00:39:27,194 --> 00:39:28,414
Take a look at our website.
675
00:39:29,194 --> 00:39:33,275
What we're trying to do is cover the entire
women led and co led universe.
676
00:39:33,275 --> 00:39:37,819
So we have a page now that is listing every GP
that we've spoken to.
677
00:39:37,960 --> 00:39:41,880
So now that's over 200 GPs so far this year,
and it will continue to grow.
678
00:39:41,880 --> 00:39:47,099
So if you have a focus on women led or co led
VC firms, you're not sure where to even
679
00:39:47,494 --> 00:39:50,074
identify who they are, certainly welcome a
conversation.
680
00:39:50,454 --> 00:39:53,675
Always love diversity of thought and and
everybody's perspective.
681
00:39:53,894 --> 00:39:55,255
Thanks for taking the time to chat.
682
00:39:55,255 --> 00:39:56,775
Look forward to sitting down very soon.
683
00:39:56,775 --> 00:39:57,515
Thanks, David.
684
00:39:57,815 --> 00:39:59,115
Appreciate you having me.
685
00:40:00,376 --> 00:40:04,475
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