Jul 29, 2019 · 1h 3m · capital-allocators
Jon Harris – Investing in People at AIM (Capital Allocators, EP.105)
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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, Ted Seides interviews Jon Harris, CEO of Alternative Investment Management (AIM), exploring his people-first investment philosophy, qualitative due diligence frameworks, and structural approaches to alignment across private and hedged equity strategies.
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 19.8% of the talking time here. How this is scored →
Ted as informed peer 3.2 Guest teaching 2.0 Guest disagreement 1.0 Ted pushing back 1.3
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 41:30 Jon Harris mocks GP clawback tax calculations
Jon ridicules general partners who claim calculating individual LP tax rates for clawbacks is too complex while asking investors to trust them with multi-million dollar portfolios.
Hardest push from Ted ▶ 47:06 Ted Seides challenges LP leverage against top-tier GPsTed presses Jon on whether all his diligence on fund terms actually matters when in practice allocators are price takers eager to wash a top manager's car to get capacity.
Biggest teaching moment ▶ 36:20 Jon Harris breaks down the co-investment delusionJon cites empirical survey data showing LPs chase co-investments for returns while GPs offer them purely for relationship building, leading to overpaying for mega-deals.
Ted holds their own ▶ 47:06 Ted frames the allocator reality checkTed cuts through the negotiation posturing to highlight the core economic power dynamic in alternative asset allocation.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Formation of AIM and Family Office Roots | 2 | 1 | 0 | 0 | Ted opens with broad framing questions about the founding of AIM and Jon's family office origins. Jon warmly recounts his father's background and early relationship-driven investment philosophy in a collaborative tone. | |
| Early Career: Senate Banking Committee, Kemp Campaign, and Madison Dearborn | 1 | 0 | 0 | 0 | Ted asks how Jon got started in the business, prompting an autobiographical narrative about the Senate Banking Committee, the Jack Kemp campaign, and Madison Dearborn. | |
| Goldman Sachs and the Launch of AIM | 3 | 0 | 0 | 1 | Ted probes the unusual career choice of going from private equity to Goldman Sachs rather than the reverse. Jon explains the unique experience in London and Neuberger before establishing AIM with his father. | |
| Core Investment Philosophy: People First and Manager Motivation | 3 | 2 | 1 | 1 | Ted asks what 'people first' concretely means beyond standard industry platitudes. Jon explains that a manager's willingness to return capital and cap fund size is the ultimate test of genuine alignment. | |
| Manager Sourcing Tactics and Regional Deal Flow | 3 | 2 | 1 | 1 | Ted challenges Jon on the difficulty of accessing scarce-capacity managers. Jon details his network-based sourcing tactics and visiting under-covered regional markets like Birmingham and Little Rock. | |
| Diligence Frameworks, LinkedIn Networks, and Biography Analysis | 4 | 2 | 1 | 2 | Ted asks how Jon processes unstructured inbound referrals without statistical data. Jon explains AIM's systematic use of LinkedIn networks, biography tracing, and getting to a quick 'no'. | |
| Conducting Reference Checks and Evaluating Manager Character | 4 | 3 | 1 | 1 | Ted inquires about deep reference checking and how past red flags are evaluated years later. Jon shares detailed tactics, such as asking managers about their personal K-1 tax efficiency to test their claims of alignment. | |
| Evaluating Firm Culture and Team Dynamics | 3 | 2 | 1 | 2 | Ted brings up harsh workplace dynamics using the TV show Billions as an analogy. Jon distinguishes between intense coaching cultures and toxic ego-driven environments. | |
| Private Equity Sourcing and the Risks of Co-Investments | 4 | 4 | 2 | 1 | Ted prompts Jon on private equity selection and fund sizing biases. Jon delivers a strong critique of LP co-investment behavior, pointing out how misaligned incentives inflate deal sizes and risk ending in disaster. | |
| Pushing Back Against Unfriendly GP Terms and Hidden Fees | 4 | 3 | 3 | 2 | Ted invites Jon to detail his public pushback on creeping GP terms. Jon passionately lists GP abuses, including post-tax clawback calculations, loose key man clauses, and passing administrative expenses to LPs. | |
| Structuring Fair Alignment, Fee Trade-Offs, and Partnership Terms | 6 | 3 | 2 | 5 | Ted pushes back with an incisive question asking whether LPs in top-tier funds are ultimately just price takers who must accept whatever terms are offered. Jon agrees top managers have leverage but explains how true partners collaborate on legal terms. | |
| Hedged Equity Allocation and Downside Protection Strategy | 4 | 4 | 2 | 2 | Jon gently corrects Ted's terminology from 'hedge funds' to 'hedged strategies' with an emphasis on downside protection. Jon explains why short alpha is essential and illustrates the math behind the power of negative compounding. | |
| Creative Due Diligence: Uber Ratings and Historical Archives | 2 | 2 | 0 | 0 | Ted asks about non-traditional diligence tactics and Jon's known obsession with catastrophic risk preparedness. Jon shares humorous examples like checking Uber passenger ratings and keeping emergency supplies. | |
| Time Management, Personal Routines, and Philanthropy | 2 | 0 | 0 | 0 | Ted closes with questions on time management, personal habits, and philanthropy. Jon candidly discusses his struggles with over-committing and shares his family's charitable background. |
Statements from this episode (19)
George Walker created Goldman Sachs's first outsourced CIO practice
“George Walker, who's now running Neuberger, had come up with this idea that I really described as the first outsource CIO at Goldman. We were over the wall working with large institutional families, a lot of times pre-transaction.”
Willingness to return capital is the best predictor of hedge fund success
“And yet some of these managers who I think that if you were to ask me, especially on the hedge fund side, if there was one characteristic to predict a successful manager, what would it be? I'd have to say is, are they willing to return capital? Because are the…”
Capital introduction and industry conferences make finding unknown managers very difficult
“With the evolution of capital introduction, with evolution of conferences, it's really hard to find those unknown managers these days.”
Hedge fund portfolio overlap stems from managers fearing being wrong alone
“A lot of people
Feel they can be wrong, but they can't be alone, which is one reason that you see tremendous overlap in the hedge fund industry.”
Regional private equity managers frequently win founder-led deals without highest bids
“Many times our managers are not the highest bids in some of these more regional areas. It's because people trust them. They know what they're going to do with their business and how they're going to be as a partner.”
Jon Harris leverages his personal LinkedIn network for AIM manager diligence
“We use my LinkedIn account as a firm, and so when we're meeting with managers, we'll connect to everybody within that firm. We then are able to get graduation years, so we can see everybody that went to Yale, And being able to find a warm connection and making…”
Past performance predicts the future only when evaluating manager character
“We have a saying, which is past performance is not indicative of future performance, unless you're talking about one's character.”
Mid-level private equity staff lack financial incentives to pass on deals
“So if you're a thirty-five-year-old VP at a firm, and the firm's been successful, you're not gonna get credit for passing on a deal. And you only get paid for the stuff that you do do.”
Private equity co-investment trend will end poorly, creating restructuring opportunities
“So I think that the whole co-investment phase is going to be a great opportunity for many of the restructuring funds because people are just paying way up. They're pricing some of these deals at perfection. You have people who don't have the resources that are…”
Limited partners are not forced to accept GP-friendly subscription terms
“Nobody is forcing limited partners to sign these sub docs. Nobody's forcing them to wire the money in, so it really was written with calling out limited partners, and there's a number of things that you've seen, as you always do in the cycle, which have become…”
Jon Harris forced a $3.5B fund manager to stop expensing travel
“Another manager had gotten up to about three and a half billion, was charging travel, and I said, Listen, we are big fans of Hyatt, so here's my Hyatt number, and if we're paying for the rooms, use my Hyatt courtesy number so I get the points, because those ar…”
Private equity fund organizational expenses have ballooned to $3 million
“Organizational expenses have gone up. You know, you're seeing three million dollars for a fund for They've already done all the docs, and so now all of a sudden you're using private planes, you're using things like that.”
Jon Harris prefers paying heavy incentive fees over guaranteed management fees
“I'm more than happy to pay in fees. I actually wake up every morning saying a prayer that I'm going to pay the most in fees that year that I've ever paid, but I'd rather be paying an incentive. And I don't want somebody to make money just for showing up. They …”
Many investment funds are wealth transfers from LPs to GPs
“Many funds are structured as the greatest transfer of wealth from LPs to GPs.”
Hedge funds that merely short indices cannot beat the market after fees
“And so people that just short the indices and call themselves a hedge fund, by definition, after fees, you can't beat the market.”
AIM asks prospective fund managers to show their personal Uber passenger ratings
“We always will bring up in the meeting, we'll get the person to show us their Uber score.”
Pre-2008 investors overlooked gross exposure risks, losing on both sides
“And I think that going into oh eight, a lot of people thought about what is your net exposure? Not enough people thought about what's your gross exposure. And you ended up, a lot of people lost money on both sides.”