Dec 18, 2023 · 1h 22m · news
Peter Lacaillade: Why Now is the Best Time to Invest in Emerging Managers | E1096 · 20VC with Harry Stebbings
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In this comprehensive interview, Peter Lacaillade of SCS Financial details how limited partners can build elite private market portfolios, emphasizing the mathematical necessity of scale, rigorous manager selection, and proactive liquidity management.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 16.9% of the talking time here. How this is scored →
Harry as informed peer 3.6 Guest teaching 4.4 Guest disagreement 1.3 Harry pushing back 2.0
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 10:15 Peter confronts an aggressive LP on an LPAC meeting
Peter describes his blood pressure rising as an institutional allocator berated a GP over co-investment carry, prompting Peter to step in directly and declare 'that's on you' to the complaining LP.
Hardest push from Harry ▶ 3:48 Harry challenges Peter's market timing argumentHarry directly interrupts Peter's macro timing thesis by citing Peter's specific early picks in Thrive, Andreessen, and Founders Fund, forcing Peter to admit skill in emerging manager selection.
Biggest teaching moment ▶ 58:20 Peter details lower middle market return mechanicsPeter breaks down the exact math of buying small EBITDA businesses at 6-8x, professionalizing them to $25M EBITDA, and selling to mid-market buyers at 10-14x EBITDA to prove superior risk-adjusted returns.
Harry holds his own ▶ 17:30 Harry demonstrates stealth reference check methodologyHarry displays deep interviewing expertise by sharing a subtle reference question that forces allocators to reveal candidate weaknesses without asking directly.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Peter Lacaillade's Career Path and Joining SCS Financial | 1 | 1 | 0 | 0 | Harry warmly opens the conversation and asks Peter to trace his journey into SCS Financial and the LP world. Peter details his early career in investment banking, HarborVest, and how an alumni referral led him to build out the private equity strategy at SCS. | |
| The Impact of Market Timing and Backing Emerging Managers | 5 | 3 | 1 | 5 | Harry explicitly pushes back on Peter's assertion that 2011 success was purely fortunate timing, citing Peter's early bets on Thrive, Andreessen, and Founders Fund. Peter readily accepts the reframe, explaining his conscious choice to back next-gen emerging winners over tier-two Sand Hill Road incumbents. | |
| Institutional Constraints and the Broken LP Incentive Structure | 4 | 6 | 3 | 3 | Harry raises the issue of broken LP incentives where allocators take no career risk. Peter elaborates on institutional constraints in pension funds before sharing a passionate story about defending a GP on an LPAC against an aggressive consultant LP. | |
| How to Assess Manager Quality and Conduct Off-List References | 5 | 4 | 1 | 2 | Harry displays his own domain expertise by sharing a subtle reference checking technique designed to extract candid feedback. Peter validates the tactic and recounts a situation where off-list diligence warned him away from an increasingly arrogant GP. | |
| Portfolio Construction, Valuations, and the Barbell Approach | 5 | 5 | 2 | 4 | Harry questions LP incentive structures around holding high valuations during fund deployment cycles. Peter explains SCS's barbell approach and contrasts how top firms like Founders Fund aggressively mark down books compared to fund-of-funds seeking artificial marks. | |
| GP Lifecycles and Backfilling Franchise Funds with Seed Managers | 5 | 5 | 2 | 5 | Harry challenges Peter on whether exiting funds when they scale is counterproductive given that top managers compound capital. Peter clarifies that his churn strategy applies mostly to buyouts, while seed VC managers are backfilled to preserve early-stage optionality. | |
| The Strategic Advantages and Operations of Co-Investing | 4 | 5 | 2 | 4 | Peter breaks down the mechanics of SCS's co-investment engine, highlighting low fees and rapid execution windows. Harry playfully challenges the necessity of Peter's investment committee given its near-zero rejection rate. | |
| The Importance of Scale in Private Equity Allocation | 3 | 5 | 2 | 2 | Peter argues that effective private equity allocation requires significant scale, deeming sub-$30M annual budgets impractical. He also criticizes investment bank wealth platforms for pushing oversubscribed, large-cap products onto clients. | |
| LP Pullbacks and Opportunities in Venture Secondaries | 4 | 5 | 1 | 2 | Harry asks whether LP capital pullbacks are widespread. Peter confirms the tight liquidity environment and explains why traditional secondary buyers struggle to price venture portfolios, creating opportunities for specialized vehicles. | |
| Lessons in Active Liquidity Management and Portfolio Exits | 3 | 5 | 1 | 1 | Peter candidly reflects on liquidity management lessons, citing his biggest mistake of failing to take secondary liquidity on a company that ran from $200M to $6B. He contrasts this with successfully selling tail-end holdings at 94 cents on the dollar in late 2021. | |
| The Lower Middle Market Buyout Strategy Math | 3 | 6 | 0 | 0 | Peter provides a masterclass on lower middle market buyout strategy, walking step-by-step through earnings growth from $5M to $25M EBITDA and subsequent multiple expansion. Harry praises Peter's exceptional depth of understanding across asset classes. | |
| Evaluating Endowments and Managing LP Concentration Risks | 3 | 5 | 1 | 1 | Harry asks about evaluating endowments as LPs. Peter outlines endowment team dynamics, herd mentality risks, and advises managers to enforce a 20% cap on any single LP to maintain investor base resilience. | |
| Avoiding Common Mistakes of Emerging Venture Managers | 3 | 5 | 1 | 1 | Harry probes the common errors made by emerging managers during fundraising. Peter emphasizes selecting long-term, non-bureaucratic LP partners, comparing fund commitments to marriages that outlast average unions. | |
| The Disadvantages of Sub-Scale Single Family Offices | 3 | 5 | 2 | 1 | Peter strongly questions the rationale for sub-scale single family offices, asserting that setting up a dedicated office makes no financial sense below $1B to $5B net worth compared to using multi-family offices. | |
| Portfolio Allocation Mathematics for $100 Million Families | 5 | 5 | 1 | 3 | Peter breaks down exact portfolio allocation math for a $100M family office. Harry actively engages in calculating commitment pacing over multi-year deployment cycles. | |
| Curating Targeted Fundraising and Placement Agent Pitfalls | 4 | 4 | 2 | 2 | Peter urges emerging managers to run highly targeted fundraising processes rather than mass pitching 120 LPs. He also warns that employing placement agents in venture capital is a major negative signal. | |
| Quick Fire: LP Diversification and Family Life Balance | 2 | 2 | 1 | 0 | In a quick-fire round, Peter defends holding 60 to 70 active GP relationships against traditional concentration advice. He also shares how he balances intense work travel with family life. | |
| Track Record Persistence and Elite GP Relationships | 2 | 3 | 0 | 0 | Peter reflects on track record persistence in venture, names Benchmark as the fund he would most love to back, and shares personal dinner guest choices including Winston Churchill. |
Statements from this episode (57)
Lacaillade: SCS Financial private deployment grew from $250M to $1.5B annually
“When I joined SCS, we had seven billion dollars under management. I was investing maybe two hundred and fifty million a year. Now it's like about a billion and a half.”
Lacaillade: In a 10-fund LP portfolio, 3-5 exceed expectations and 1-3 underperform
“If I do 10 funds, what I've found is three to five exceed expectations, three to five meet expectations, one to three underperform.”
Lacaillade: LP capital scarcity creates ideal window to build investment programs
“I mean, I think probably in 2016, 17, like a lot of funds were really oversubscribed quickly, but being in that moment where the power shifts, where there's a dearth of capital on the LP side, and there's that, that is a ideal time to scale a program. To build…”
SCS Financial manages money for partners of Accel and Greylock
“And we manage money for the partners of founding partner of Excel and Greylock. So I knew that it was tough to get into those funds because I had it in and it still wasn't like”
Lacaillade: SCS Financial was one of few early institutional LPs in Founders Fund
“We were one of the only institutions in it. I mean, there were not that many institutions. Now everyone wants to get into it.”
Lacaillade: SCS Financial provided the first check to Shore Capital
“Not to ramble, but on the buyout side, there's a group called Shore Capital, which Justin Ishbia at the time was 32 years old, and he had three partners that were 27, 28. And we were the first check there, and I like to say that I got more push, I got as much …”
Lacaillade: SCS Financial manages $30 billion for 200 families
“We're a multi-family office, we manage thirty billion from 200 families”
Lacaillade: Charter rules block large state pensions from sub-$1B funds
“They have a rule in their charter that they can't be more than 10% of a fund. And they can't write less than a hundred million dollar check. Therefore, they can't invest in funds that are smaller than a billion dollars.”
Lacaillade: Tenzing co-investment is on track for a 4x-plus return
“Mentioned a situation with a London manager, Tenzing, where there was a co-investment. I was on the LPAC and basically very track. It's going to work out. It's going to be like a Forex plus deal.”
Lacaillade: Banning co-investment carry incentivizes fund size over alpha
“By saying you can never charge carry on a co-investment means that they're just going to solve for a bigger fund and become asset managers and not deliver the alpha that we all want as investors.”
Lacaillade: 95% of LP peers rely solely on manager-provided reference lists
“I think 95% of my peers just like do the reference list.”
Lacaillade: Track record ranks fourth or fifth when evaluating fund managers
“Track record is important. Like it tells you, do these people know how to invest? Like, are they smart? But for me, and I say this often, it's like, maybe it's number four or five on my list of things that are important, like the quality of the team. And we ca…”
Stebbings: Indirect reference questions reveal a manager's key weaknesses
“I always ask, like, you know, if we were hiring someone underneath Peter to support him, what skills would they have? And they go, oh, well, that'd be super organized, that'd be very rigorous and analytical. That's right. And you're like, huh, okay, you just t…”
Lacaillade: SCS halves commitment sizes for VC funds deploying within 6-12 months
“So I would size my commitments accordingly. So it's like, if you tell me you're going to put out your fund in six to 12 months, I'm just going to size you at a half bite.”
Lacaillade: My past prediction that 85-90% of SPACs would fail was too generous
“At the time, I said SPACs were gonna, I made the comment, like, I was like, 85, 90% of these SPACs are gonna be a disaster. And it turns out I was wrong. I was too generous.”
Lacaillade: SCS's 2020-2021 co-investments will yield 2-3x instead of 4-6x
“If I look back and I did a bunch of co-investments, like in what I believe to be like great, in some cases, great companies. Right. But they're going to have to grow into their multiples. So rather than making four to six acts, we'll make two or three acts.”
Lacaillade: Founders Fund, a16z, Greenoaks, and Thrive proactively marked down valuations
“In my core relationships Founders Fund's the most extreme, because Peter Thiel's very contrarian and he wants to reset the mindset of his team. Which I think is great. But Andreessen Horowitz, Green Oaks Thrive, they've all proactively marked down their compan…”
Lacaillade: Access to top VC managers will remain open over the next few years
“It's a really good time to start a program. If you want to get into badass, like, Really good managers right now, you can do it. And that probably, and that will probably be the case in the next few years.”
Lacaillade: Lower middle market buyouts will generate venture-like returns
“I'm spending like, the vast majority of my time on lower middle market buyouts. And I'm so excited about like the opportunities that I'm seeing. And actually, I'm going to generate like venture-like returns. In small cap, EBITDA positive businesses, right?”
Lacaillade: SCS Financial venture portfolio is 70% franchise, 30% emerging
“In venture, it's probably, it's like, 50, 50, like, franchise versus emerging. It might even be like, 70% franchise, 30% emerging. Actually, I think, yeah, those are the numbers, right?”
Lacaillade: Seed fund baskets deliver 5x net vs 2.5-3.5x for franchise funds
“The basket I think can do five X of those seed funds versus what do I think? Like a franchise firm can do two and a half, three X net, maybe three and a half.”
Lacaillade: Multiple billion-dollar-plus venture funds have achieved 5x-plus returns
“Founders Fund, like, there, if you, I mean, I'm saying some of the data, like, there's, I, there's a number of examples of big funds being five X plus, right?”
Lacaillade: SCS Financial holds ~130 co-investments at 10bps fee, 7-8% carry
“Well, first of all, like from a fee perspective, and we have like over a hundred, it's maybe a 130 or so direct investments. I think, I mean, essentially no management fee, like 10 basis points blended. And the carry is like seven or eight percent, which is th…”
SCS Financial allocates 20-25% to co-investments, capping positions at 2%
“If you think of, like, our vehicle, right, it's about 20, 25% co-investments. So at the full, and we've raised these vehicles every 18, 24 months, but at the high level, it's like a co-investment will be, it will max out around two percent exposure, but it's p…”
SCS Financial Writes $20M-$100M Fund Checks and $5M-$15M Seed Checks
“My typical investment is somewhere between kind of 10 to 25. I'll go up to 50, I'll go down to five. Funds, I will write checks between 20 to like a hundred million. And actually in the seed venture, it's like kind of like five to 15.”
SCS Financial uses 48-hour memo approvals to bypass formal IC meetings
“We do standing investment committee Every other Monday, right? But for co-investments, there's no, we don't need to convene investment committee. You send out a memo, and the investment committee has 48 hours to reply.”
Lacaillade: SCS Financial's IC rejected under 5 deals in 12 years
“The investment committee I mean, I can count on one hand the amount of funds or co-investments that have been declined in my 12 years, and I remember them well.”
Lacaillade: Deploying $30M annually in private equity lacks necessary LP scale
“There's a minimum scale. Like, if you're investing thirty million dollars a year, like, that's not enough money. Unless you want to do something, like, really concentrated, but I don't recommend that.”
Lacaillade: Top PE funds never list on investment bank platforms
“But if you think of like, if you're a Goldman Sachs or Morgan Stanley or whatever, like the funds they put on their platform are large cap funds that are having trouble distributing They need, like, we invest in ADVENT in the large cap bio. We invest in ADVENT…”
Lacaillade: LPs stopped investing post-GFC and missed top vintages
“Going back to the start of our conversation, like, you know, six and oh seven, like, a lot of people poured a bunch of money into, like, large cap buyout stuff, and then, you know, didn't commit after the goal for, like, oh nine, 10, 1112, and they missed some…”
SCS Financial tightens LP commitments, force-ranking venture managers
“We are very tight. But we make exceptions for exceptional managers, but it is causing a force ranking of things right now.”
Lacaillade: Big secondary investors avoid venture capital, creating a market gap
“Most of the secondary people are not really comfortable in venture... I think all the big secondary players skew towards heavily towards buyout portfolios. So there's a gap in the market.”
SCS Financial Took 25-30% Venture Write-Downs But Maintains 29% Net IRR
“I feel like we've written down our portfolio In the venture, when I say we, our managers, I don't know, it's like, 25%, 30%? After having years of hundred percent IRRs. So it's still good. It still looks good. I think it's a 29% Net IRR after all that, and the…”
Lacaillade: Venture portfolios have absorbed 70-80% of valuation write-down pain
“And I don't think we've taken all our pain. I think there's more to come, but I think we've taken like 70, 80% of it.”
Lacaillade: SCS sold tail-end fund stakes at 94 cents in late 2021
“We sold, we were able to execute a secondary sale of, like, a bunch of, like, tail end stuff with managers we weren't continuing to back at, like, 94 cents in the fall of 21.”
Lacaillade: SCS exited manager at 104 cents due to ethical issue
“I also sold a manager that we got out of because of some ethical situation at one Oh four.”
Lacaillade: SCS is currently a buyer, not seller, of venture assets
“And right now I think if we wanted to sell some of our venture stuff, it'd be very unattractive. So it's, yeah, we'd be a buyer right now. I'm a buyer, not a seller”
Lacaillade: Lower middle market buyouts offer a repeatable 3x-5x return model
“So you buy a founder led business, you professionalize it, you buy it at like six to eight times EBITDA. You put on like maybe three turns of debt, maybe three to four, depends on the business, but you professionalize it, you grow it, say it had five million E…”
Lacaillade: Over-indexing on interconnected endowments creates severe LP run risk
“If you get money from endowment A, endowment B, endowment C, endowment D, that all, like, are very close to each other and talk to each other, and then one of them leaves, Then they might all leave. So having diversity of, like, mindset”
Lacaillade: SCS Financial accounts for 50% of capital in select funds
“I'm like half a couple of funds.”
Lacaillade: Fund managers at scale should cap single LP exposure at 20%
“If you're asking me, you're raising a fund, I think you don't want to have too many LPs, but you also want to have diversity. So I think probably max out ideally at least at scale at call it like 20% would be a lot.”
Lacaillade: Bureaucracy and low pay depress competition among institutional LPs
“A lot of the big pools of capital have very bureaucratic structures and low pay.”
Lacaillade: Fund of funds act transactionally to optimize short-term optics
“Funded funds are transactional. They're trying to raise their next funds. You know, they're often, like, trying to, like, cut a deal, like, get, like, a, like, they want to look good early”
Lacaillade: Single family offices require at least $5B net worth to justify
“Like, I mean, I think it's definitely not a billion dollars. Like, I think it's, you have to be maybe worth ten billion. At least five.”
Lacaillade: Subscale single-family offices pay higher fees for worse portfolios
“If you're subscale, it's probably going to have, you're going to have a less sophisticated investment portfolio and you're going to pay a lot more.”
Peter Lacaillade allocates about 70% of personal capital to private equity
“I'm probably like 70, but I eat my own cooking.”
Lacaillade: $100M family offices should use multifamily offices or fund-of-funds
“You should probably, in that scenario, you should either partner with a multifamily office like SES, or you should invest in a fund of funds.”
Stebbings: Top VC fund managers will not meet LPs for $1M commitments
“The best managers are not going to meet you for a million dollars if you're not.”
Lacaillade: Emerging managers should target 20 LP meetings with high yield
“I'm a big proponent of doing targeted, like not meeting like a 120 LPs and taking the first dollars, but like having like a thoughtful, like do 20 meetings and try to have a, you know, 40, 50% yield.”
Lacaillade: SCS Financial does not accept cold email outreach from managers
“I don't do cold emails”
Lacaillade: Using placement agents is a terrible sign for venture funds
“I'm not saying I would, Completely rule out a venture fund that had an agent, but it's a terrible sign.”
Lacaillade: SCS does 5–15 references by calling fund-of-funds that did 60
“I will maybe do, Five, 10, 15 reference calls where these funded funds will be like 60. But one of my reference calls will be the funded funds that did 60 calls.”
Lacaillade: Optimal private equity portfolios require 60 to 70 active GP relationships
“I think it's the diversification piece in, in private equity, the way to build an optimal portfolio, which I think is, I have 60, 70 active relationships in private equity. I think there's a lot of people out there that say it should be like 20 to 30.”
Lacaillade: Venture Capital Displays Stronger Return Persistence Around Brand Than Buyouts
“Although that's probably more true in buyouts, I think, ah, where the track record piece, because in venture there is brand, right? And there is, I think, more persistence of returns around brand.”
Lacaillade: SCS Financial Is Not Invested in Benchmark but Wants to Be
“Yeah, it's a good question. Probably, probably benchmark.”