Jun 5, 2023 · 1h 2m · capital-allocators
Adam Shapiro – Post-Breeding Grounds for Rising Stars and Families (Capital Allocators, EP.319)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Adam Shapiro, Managing Partner of East Rock Capital, exploring his career journey from Goldman Sachs to managing three billion dollars of multi-family capital. Shapiro details his probabilistic underwriting philosophy, his strategy for identifying and backing star emerging managers during their prime early launch window, and best practices for modern family office governance.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 17.7% of the talking time here. How this is scored →
Ted as informed peer 5.1 Guest teaching 5.9 Guest disagreement 1.1 Ted pushing back 1.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 29:00 Critique of cynical public short pitches
Adam pushes back against standard LP pitch evaluations, warning that cynical short pitches exploit psychological biases to sound intelligent without reflecting true investment edge.
Hardest push from Ted ▶ 21:50 Questioning talent independence from institutionsTed presses Adam on how allocators can possibly verify whether a departing manager's track record was genuinely individual alpha or merely the product of their parent firm's massive resources.
Biggest teaching moment ▶ 32:40 Exposing the myth of delayed skin-in-the-gameAdam reframes traditional LP concepts of alignment, demonstrating how syndicating capital into an investment a sponsor already owns destroys objective due diligence alignment.
Ted holds their own ▶ 42:53 Challenging endowment asset-allocation dogmasTed prompts a deep comparison between family structures and classic institutional endowments, prompting a detailed breakdown of why standard endowment categories like core real estate and traditional credit offer poor risk-reward.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Early Foundations: Video Game Programming and Probabilistic Thinking | 4 | 5 | 1 | 1 | Ted prompts Adam on his early background, and Adam provides a conceptual reflection on programming basic video games as his introduction to probabilistic thinking and investing in Latin America. | |
| Business School Transition and Goldman Sachs Special Situations | 5 | 5 | 1 | 1 | Ted guides Adam from Latin American private equity to business school and Goldman Sachs SSG, where Adam explains the paradigm shift from venture-like binary risk to asymmetric downside-protected asset investing. | |
| Case Study: The Distressed Non-Performing Loan Portfolio | 5 | 6 | 0 | 1 | Adam details a concrete distressed loan portfolio case study from 2003 where multiple undervalued collateral pieces provided free upside optionality. | |
| Goldman Culture Shifts and Upgrading the Operating Partner Model | 5 | 6 | 1 | 1 | Adam outlines how Goldman's internal competition prompted him to exit and conceptualize upgrading the external operating partner model into independent investor partnerships. | |
| Founding East Rock Capital and the Emerging Manager Sweet Spot | 5 | 6 | 1 | 1 | Adam describes teaming up with Graham Duncan and backing emerging managers in their first five years, highlighting empirical data showing outperformance during early career sweet spots. | |
| Evaluating Manager Portability and Reference Checks | 6 | 6 | 1 | 2 | Ted asks how to separate institutional resources from individual skill when talent leaves blue-chip firms. Adam references Boris Groysberg's research on portability and outlines rigorous in-person reference checks. | |
| Key Positive Signals: Leaving Cold and Informed Confidence | 5 | 6 | 1 | 1 | Adam explains key positive selection signals, particularly when a star manager leaves cold without a pre-packaged fund in place, demonstrating genuine informed confidence. | |
| Relationship Sourcing and Pre-Spinout Engagement | 6 | 7 | 2 | 2 | Ted questions how to evaluate live ideas given information asymmetry. Adam distinguishes public from private diligence, pointing out how cynical short pitches often mislead allocators by merely sounding clever. | |
| Sponsor Message: Ridgeline Cloud Platform | 4 | 7 | 2 | 1 | Following a sponsor break, Adam dissects true alignment versus superficial skin-in-the-game metrics, citing historical errors made when investing into deals sponsors were already long on. | |
| East Rock's Investment Objectives for Family Capital | 5 | 5 | 1 | 1 | Adam discusses East Rock's mandate for family clients, structuring an endowment-like portfolio designed to play to win while freeing families from active investment burdens. | |
| Family Client Engagement, Transparency, and Tangibility | 6 | 6 | 1 | 1 | Adam breaks down risk management into statistical analysis and fundamental judgment, outlining his strategy of investing in shrinking or non-correlated asset businesses for downside insulation. | |
| East Rock Strategy vs. the Traditional Endowment Model | 6 | 6 | 2 | 2 | Ted asks how East Rock's model compares to traditional endowments. Adam explains why he avoids core real estate, conventional credit, and broad beta long-only equities within East Rock's structure. | |
| Managing Dynamic Liquidity Scenarios for Family Offices | 5 | 6 | 1 | 1 | Adam describes the critical role of air traffic control in family offices to avoid surprise liquidity or administrative friction across multi-asset portfolios. | |
| The Evolution and Maturation of Outsourced Family Capital | 5 | 6 | 1 | 1 | Adam reflects on the nascent state of family capital outsourcing and positions East Rock as the premier springboard and post-breeding ground for top investment talent. |
Statements from this episode (24)
Multiple investment risks compound rather than adding together linearly
“One risk plus another risk is not just the equivalent of two risks, but it compounds.”
Goldman Special Situations achieved 20% unleveraged returns post-2001 by conservative pricing
“And what this group at Goldman was doing was buying portfolios of assets, which could be real estate, aircraft, financial assets like receivables, and this was now, 2001, 2002, Nasdaq bubble had burst, and so you could buy these portfolios and not use any leve…”
Valuing assets via scrap and collateral creates asymmetric downside protection
“The use of structure and the fact that diversification could work in your favor, the way you could value assets, not just on EBITDA, but on a variety of things, which included collateral value, scrap value, or alternative use type of value.
And so that you cou…”
Goldman occasionally closed distressed deals with immediate Day-1 value certainty
“And when I got to Goldman once in a while, we would make an investment and we'd celebrate as if we had already had a success. The money hadn't come back. We hadn't realized any profit, but we knew that what we had just invested in was worth more than we paid.”
Goldman Sachs habitually allows internal investment groups to overlap and compete
“Goldman has a habit of allowing different groups to play in the same areas. We started bumping into other groups within Goldman more and more, and possible investments I was working on, all of a sudden I would get a phone call that it was somebody else's area,…”
Sourcing via aligned co-investors is superior to managing operating partners
“I thought instead of thinking of that network as operators who need tremendous oversight and who you don't give much discretion to, you could essentially upgrade To a network of people you think of as investors, whose judgment you trust, who invest their own m…”
Investment managers hit their career sweet spot in their first five years
“We have a very strong belief, backed up by quite a lot of data, that there is a sweet spot in the careers of great investment managers that really occurs in those first five or so years when somebody who's proven themselves at a larger firm leaves, start somet…”
Assessing spinouts from mega-funds like Goldman or Blackstone is uniquely difficult
“The irony is the stronger the firm, the harder that assessment is. So it's harder to assess people actually out of Goldman or Blackstone or some of the really great firms, because it's just harder to tell was it them or was it the firm. If somebody just did an…”
Emerging manager reference checks must be 60-plus minutes and off-list
“In any case, there's no substitute for a massive number of references done a certain way Ideally done, for example, in person, ideally done, not in 10 or 15 minute conversations, but in 60 plus minute conversations, and ideally off list, and even more ideally,…”
Leaving a firm without pre-arranged funding is the best emerging manager signal
“The best positive signal there is, is that somebody leaves the larger place without something already set up.”
East Rock fields a dedicated team to track talent before spinouts
“We have A whole team that is dedicated towards figuring out who those best people are at those larger firms and dedicated to spending time with them sort of in any way that makes sense, which could be inviting them to events, providing career advice, making in…”
Replicating public managers' edge is harder than replicating private market diligence
“I guess this is ironic because in the public markets, we ought to have the same amount of information, but it's much harder to replicate a public manager's knowledge base. When they see edge in a public name, they're talking about the primary research they did…”
Cynical short pitches make hedge fund managers sound deceptively smart
“Everybody knows that if there are 20 hedge fund managers around the table and you want to sound the smartest, you do a really colorful short pitch. There's even, I think some psychological research that says like cynicism, negativity, those things actually sou…”
East Rock's worst losses occurred when not investing simultaneously with sponsors
“We at East Rock have probably made 140 or so private investments, and a very small number of them, thankfully, have been poor investments, but a majority of those poor investments were cases where we broke our own rule, and our own rule is we must invest our m…”
Personal character and long-term relationships matter more for alignment than co-investment
“There's a personal element to alignment that has to do with your relationship with the person, the character of that person, them caring about alignment. And that in many cases is much more important than just the financial flows of what do they put in and wha…”
The family advisory sector fails to promote endowment-style investing
“The way our whole sector is structured to service families doesn't necessarily promote that as much as it should.”
Investing in shrinking businesses insulates portfolios from macro and valuation risks
“One of the things I believe in terms of downside protection is you can protect your downside several different ways. One way is to have some specific hedge. Another way is to be high up in the capital structure, have some structural protection. And a third way…”
East Rock avoids credit, core real estate, and infrastructure as low-reward
“Some of the differences, first, there are a set of Areas that endowments seem to like to invest in that to us seemed like poor returns on risk. And so those included for most of the 16 years we've been doing this, most of credit has fallen in that category. Wh…”
East Rock advises clients to hold long-only equity exposure outside its umbrella
“We did relatively little in traditional long-only equities, and the thinking there, here's where we had to make a choice about what we thought was best for our family clients, and we felt that to the extent our families ought to have long-only equity exposure,…”
Family offices require higher liquidity thresholds than endowments due to uncertain payouts
“We actually make payouts and they're more uncertain than what endowments have to make. So we tend to actually have to have a higher liquidity threshold in certain ways than an endowment would.”
Non-investor operational managers best serve families uninterested in direct investing
“For families who want to spend 95% of their time thinking about something other than investing and other than the asset base and how it's protected and managed. For most of those families, finding a great air traffic controller, a small number of employees, an…”
The outsourced family office sector remains nascent and dominated by mega-institutions
“When I look at our sector, define my sector as this world of managing family capital. On some basis that is essentially outsourced rather than an in-house family office. I think our sector is nascent. Like, I think in some ways what I just described to you, th…”
Investing on pre-negotiated terms after fundamental de-risking yields top returns
“Once in a while, you get this look at the end, and I think in a lot of cases, those will be some of the best investments you ever make.”
High deal sourcing volume reduces an investor's reliance on intellectual brilliance
“If you see hundreds and hundreds of things each year, you're gonna be able to pick a few that are just obviously good, and so there's no such thing as too much sourcing. You just want tons and tons and tons of ideas, and you want an engine for producing those …”