Allocators

“If you looked at the amount of money allocated to hedge funds post the crisis, for the next three, four years, 95% of the dollars allocated to hedge funds globally went to hedge funds with more than five billion dollars.”

“When you were an allocator meeting hundreds of funds a year, you've seen everything more than once. But every manager thinks their story is unique. They think their edge is unique.”

“Today, trillions of dollars in capital are moving from one place to another, in most cases in one direction, from public markets to private markets, which really causes a lot of liquidity management challenges for the various allocators.”

“Venture is very volatile as an asset class because it's the tail end of the whip. It's the last asset class allocators allocate to. So they start with bonds, then they go to public equities, then they'll go to real estate, you know, then they'll go to credit, …”

“Things that differentiate individuals who are gonna be a perfect analyst forever do include that presentation ability, that executive presence, and frankly, that desire. Managing people is hard. Managing sideways to your executive leadership peers is work. Man…”

“When I contemplate why the combination of high active share, concentration, and volatility tolerance yields alpha over time, it's simply because it's too damn hard for most people in our industry to actually invest that way. It's too damn hard for managers to …”

“When you start inching towards B, you start behaving differently. Instead of playing to win, you might just be playing not to lose. And as an allocator, when you have a PM that's doing that, you're probably not getting the process that you underwrote.”

“When you talk to allocators, they're not actually worried about liquidity. This is nothing like 2008, but they are wondering when will distributions come back and how will they address continuing to invest in the private markets?”

“You're starting to see consolidation. We just put out a conversation about consolidation on the allocator side. There's certainly a lot more of that happening on the manager side as well.”

“No allocator actually wants to meet with small and emerging managers. They really want to meet with good ones. They just don't want to have to go through all of the chaff to find the wheat.”

“Allocators have infinite budgets to spend on money management services and next to no budget to spend on anything else.”

“All VCs need to exist because how can you outperform if everybody's, you know, a top performer, right? You want to be able to benchmark yourself against the bottom 80%, even if you're in the top”

“I don't think it's a great look when you're existing investor marking up that existing deal to give employees the, you know, liquidity. I'm surprised that investors are not, like, allocators are not asking the hard questions.”

“In almost any rational assessment, the playbook favors growth. Expanding organizations can attract and retain talent and capital, which creates durability. Staying the same may benefit from focus, but it carries significant business risk.”

“Daily marks, monthly reporting, and frequent subscription and withdrawal dates lead allocators to draw conclusions about a manager's skill far more quickly than statistically significant data would suggest.”

“Private market strategies can undergo two or three fundraising cycles over five or more years before allocators have any evidence of the success of their initial commitment.”

“For a fund, you want to meet with an investor who's running at least a hundred million in order for it to make sense, because at that level, you can get a large enough allocation from them that it's worth the time and energy, because this is not a quick sales …”

“And that's where I think having these relative multi-strategy shops is very helpful because they actually help educate us to understand, oh, there's these other sectors over here. They think it's relatively attractive. Maybe we can do that in a bigger way some…”

“You're going to have bad vintages. When the bad vintages occur, it's like cat risk. You get the best opportunities on a go-forward basis, but allocators tend to get scared away, or boards tend to get scared away at precisely the wrong time.”

“Allocators kept getting Investment manager hand-me-downs, or they kept getting in bed with firms that would really service their asset manager clients before them.”

“Doing what you said you would do, that process and adherence thereof, can be measured in the here and now, and I think that is as, if not more important, right, for allocators”

“What surprises me is I have yet to have an allocator reach out as a backdoor reference. It's never happened. They basically take the references that the firm offers, and that's who they call.”

“My belief has always been that rates would be stuck at low levels. We're still at that space, and I continue to believe that they'll be not only lower for longer, but lower forever, and that's putting more pressure than ever on allocators”

“Everyone takes a meeting when you launch your first private equity fund or your first venture fund or your first hedge fund. But 90% of them are just learning from you. They're not necessarily going to invest in your first fund or in the first three years of y…”

“And in our industry, we see so many opportunities that revisiting something we've discarded actually has a higher bar than looking at something new, which is also kind of an interesting behavioral bias.”

“I actually think a lot of the consolidation of assets in the industry is more correlated to the allocator side of the equation. Like I mentioned, this career risk and desire to play it safe.”

“There are many allocators who have an absolute return component of their portfolio. You're, Typically trying to diversify risk with that allocation, but you end up sacrificing return in the process.”

“What people don't tell you about being an investment manager is not only are people underwriting your ability to execute on an investment portfolio and to run a business, but every now and then you have allocators that are underwriting your ability to go to th…”

“Maybe the very first interview, you're just gathering facts, trying to figure out, is this a fit structurally for what we're trying to do? Somewhere down the road, you probably want to do a deep dive on their process. You might want to do a deep dive on indivi…”

“What you see often in manager, kind of, allocator interactions is that allocators want to be the smartest person in the room and prove themselves. And so they talk too much. You're not going to learn a whole lot about somebody else by talking. You're going to …”

“Where technological advance comes into play has more to do with the efficiency of information and risk than in making investment decisions. And the reason for that is fairly simple, which is that As you get a few layers away from the underlying asset, you have…”

“Well, if that's your bias, you are going to disadvantage people of color. Let's just instead think about what Someone being on the lacrosse team tells you about them, and is there another proxy for that? That is more applicable for a person of color, or a pers…”

“I think there's an obsession with the short-term, and it's been created because there's so many allocators that need simply quarterly or monthly liquidity, but that's just insane. And I think for activists, it's even worse because it encourages activists to pu…”

“We think that there is a strong opportunity for allocators to be engaging with all of their managers on sustainability, on ESG integration, on team diversity, And especially for public equity firms, right, how their practices and policies are reflected in thei…”

“This assumption that you get paid an illiquidity premium for anything that happens to be illiquid is I think dangerous. I think it is going to cause you not to be focused on the question of, all right, if I think this is about operational excellence, why do I …”

“If I'm an allocator to a particularly large buy side firm, and I say to myself, gosh, I can't redeem, but how do I justify to my superiors that I've done my best to hedge? I start shorting that stock. And I know it's absurd, but I've actually seen it happen ov…”

“Particularly, I've noticed that if it's a female GP or a female head of office, that people will go to this like nth degree to find every single thing out about this person.”

“The firms that over-communicate during crises are the ones that have the sticky assets.”

“So I think the biggest lesson was how to not backseat drive, because that is, I think the biggest risk to having this model of people from switching from being existing portfolio managers to our side.”

“The only way to really know if somebody's good is to dive into a stock. And so you have to be up on what's going on in these stocks to be able to really have deep analytical conversations.”

“I mean, I often write that the essential skill of a hedge fund manager is continuing to run a hedge fund. There's some sort of Inherent storytelling element to the job where you'll have like a time series of returns and like, that's interesting, but what you m…”

“To some extent, it's like you're telling yourself a story about like why this guy, why his good results are representative and his bad results are anomalous. And the story that is intellectually satisfying to you is naturally going to get some weight.”

“In those first couple of meetings, you might have roughly the same meeting with different subsets of people on the other team. And so as the person on the other side of the table, you're looking for consistency of the message. You're looking for the way people…”

“Ultimately, it comes down to listening. I think that when you're in a dynamic, when someone enters a room to be presenting Their heart and soul, their business, their strategy. They do have a tendency to just tell their story. Press play and tell their story. …”

“The longer that someone takes, the longer they're going to be with you.”

“Really the question that an allocator could ask is say, hey, what's your sixth best idea? And pause. And wait for them to tell you what their sixth best idea is. Now, if they can turn to a sheet, or a dashboard, or something like that, that says, that's my six…”

“If you did a look through analysis in Allocator, and you owned 5000 equities, and your top 10 were nine percent, There was really very little chance that you were going to generate substantial alpha over the S&P, right?”

“If we could just let our managers run with twice as much of all, I think we'd probably get more than twice as much return.”

“Some of the academic work and some of the simulation work suggests that the time horizon is a little bit longer than it is practically. But the flip side is if I'm an allocator and I have someone who's underperforming, I don't really don't know if it's just a …”

“If you want to go invest in the Two, three, five, ten billion dollar hedge fund today and be the next marginal investor, you're always a price taker. But when you invest early on, you have the opportunity to be a price maker.”

“I think allocators of the world out there right now are really going through an existential crisis as to what to do about investment grade.”

“The other problem that we kind of see with allocators is that they're looking, well, and you can opine on this more than I can, is that they're looking for specialization, and if you look at the people that have really outperformed over long periods of time, t…”

“I think direct management of portfolios is a wonderful training for someone who ultimately becomes an allocator because you get used to pulling the trigger, you get used to being wrong and having to extricate yourself from mistakes and understanding the nature…”

“You want to be reducing when someone's doing well. You want to be adding when someone's doing poorly if everything else, all else is equal. You want to be investing in a new manager, at least new for our portfolio after a period in which they've been strugglin…”