The Exchanges

Q Why don't we go way back? Your initial backgrounds getting into investing. Vinny, why don't you start?

A I was an accountant first. Got my CPA. Did my two-year stint, and I knew from jump, I did not want to be in the accounting CPA business. So I started looking around, and I was fortunate enough to have a friend that I went to college with, and he hooked me up with Oppenheimer at the time, and a fellow by the name of Steve Eisman. And we interviewed, I think we hit it off considering how long we worked together. And I was initially the junior analyst for Steve covering this wacky world called specialty finance, which was pretty much everything that lent out in markets without a checking account that wasn't regulated. So that's where the whole initial foray of knowing subprime mortgage, credit card businesses and the like started. I worked with him there for four years. I had a brief stint away from him. One starting my own business with two other gentlemen, them working at Keith Bretton Woods after they lost so many people, sadly, after nine-eleven. And then we came back together at a firm called Frontpoint, which is where I've started to really meet Porter Collins.

AI assessment note: “I was an accountant first... hooked me up with Oppenheimer at the time, and... Steve Eisman.”

Q Porter, you want to go back further than that?

A I was a Olympic rower, and I obviously had no income doing that. And so I got a job working for a firm called Commodities Corporation. Commodities Corporation was then bought by Goldman Sachs. And I did the two-year analyst program at Goldman, which was in Princeton, New Jersey, where I was rowing and living. After the 2000 Olympics, I knew I wanted to go to New York City and pounded pavement and knocked on a lot of doors and eventually got a job at a hedge fund called the Chilton Investment Corporation. I was the junior analyst there covering retail and consumer mostly. One of my bosses left and Richard basically came to me and said, well, Your family's background is in banking. Why don't you go work for Steve? And Steve Eisen was the financial services analyst there. Steve sat me down, had a good long talk. And he said, before you even start working for me, you have to spend five weeks reading, knowing about who I am, what I like, and the books I like. And so I did that for a little while and then worked for Steve and we left and then started Frontpoint with Vinny.

AI assessment note: “I was a Olympic rower, and I obviously had no income doing that.”

Q How do you describe and map out the single family rental market and opportunity set?

A The way we started it, um, was we recognized that a couple things. We were in the midst of ten million foreclosures. Every one of those people is going to be a renter in some way, shape, or form. So we had a massive increase in supply. We had a huge volume of houses that were stuck in sort of the American foreclosure system, and usually when they came out of that, they were really degraded in quality, so needed a lot of work. So they weren't really eligible for homeowners because there was so much work. Most homeowners don't walk around with both a down payment and 30,000 dollars to rehabilitate the asset. So we had this massive inefficiency in the system that could be turned around. We originally mapped it out that we would buy distressed houses like I described, but the process was so full of fat tails, meaning, you know, so many houses that your estimate of 30,000 of repairs was 70 when you really got possession of it. And we also realized that the industry of servicing the houses was so nascent, because the small local players weren't really ever going to be able to use the technology platforms we needed, the efficiency of delivery to people, To drive margins that we ended up having to map the industry out by only buying owner-occupied houses, so houses that homeowners are choosing to sell, and therefore, we're buying high-quality assets, not distressed assets, and by drivi…

AI assessment note: “we ended up having to map the industry out by only buying owner-occupied houses”

Q Once you own these homes, you mentioned there's an alpha component in servicing. What have you been able to build that's different and better from the servicing capabilities outside of Pretium?

A Well, there's a couple of tiers to look at. There's the original small mom and pop home servicers in the communities. When I owned houses and those folks serviced my house, you had NOI margins of like 30%. When we put an asset management layer and create a federation of them and force tech on them, we were able to get to 45%. Once we built our internal structure where we did a hundred percent of the operations, we were able to drive margins to 65% and even higher in some portfolios. So what's the difference that we do first versus that tiering? The first thing is what we did was actually save time. So it's not pricing. It's time. By owning the workflow, we crushed that down to a fraction of what it used to be. The house cash flow is more, and the house is available for renters sooner. Reducing the cost of turnover by both the quality of maintenance while residents are in the asset, and by doing it yourself with your own workers ends up saving money. And creates time savings too. So I'd say the peer group of the largest folks, we have similar efficiencies, particularly I'm talking about invitation homes, for example, American homes for rent. The next tier down just doesn't have the scale for owning your own workforce, owning the strategic purchasing, being able to rent houses because of your advertising budget in a more efficient way. So what we've done is capture the mindshare …

AI assessment note: “Once we built our internal structure where we did a hundred percent of the operations”

Q What are the things that you've experienced where you see their opportunities or risks to avoid in your portfolio companies that someone without the industry specialization might miss?

A I think of people who use too much leverage. Leverage is the enemy of liquidity and liquidity is where value comes from. And so I would say that's the most common thing is the reality is if you over leverage an asset, especially urban hotels, and we don't do as many of those, but urban hotels are cyclical because a lot of their business comes from corporations. Corporations have hard times and they say cut costs. Cut costs means cut travel. That doesn't apply to your family vacation nearly the same way it applies to your job. And because of that, as soon as the CEO of JP Morgan, Jamie Dimon says, cut back, say on travel, JP Morgan bankers won't travel. And if you're a hotel that has a lot of that demand, you're going to see cyclicality. If the owner of that hotel used too much leverage, guess what? They have a problem. I'd say that's the most common thing. The other thing I would say is all the ancillary businesses around a hotel, someone who tends to look at urban hotels, 80% plus of the revenue, maybe even 90% is coming from the hotel room rate. You go into the resort world, perhaps 30%, 40% of the revenue is coming from the hotel room rate. All the other revenue comes from everything else. The restaurant, the spa, the retail activities, and other amenities that they sell. If you don't really understand the complicated rule set of running a retail shop versus running a hotel,…

AI assessment note: “I think of people who use too much leverage. Leverage is the enemy of liquidity”

Q What are the things you most took away from the experience?

A So I'd say two things. One, I learned what a terrible business looks like. So trying to run this training center, right, we're trying to offer first world services at third world prices. And so the only way that worked is if we could get volunteer free labor from college students who are willing to come over either for a summer or for a year and teach English for absolutely nothing. The second thing I learned growing up as an American, most of us are really taught this idea of meritocracy. If you're this great phenom at basketball, you're going to get recruited, you're going to get noticed, and eventually you kind of get in the system. I think a lot of us believe that the same thing is true in normal intellectual pursuits and any kind of typical job, right? If I go to school, I get a four point oh, I put in the hours, someone's going to find me, I'm going to get a great opportunity. And being in the Middle East, they have this term in Arabic called wasta. And the direct translation is influence, but what it really means is Who you know is everything. They get their job based on their uncle or their sister or their father gets them a position. And seeing this just so rampant, I realized I was like, you know, if this is here in the Middle East, this has to exist in the States as well. Maybe it's important for me to focus on who I know and building connections, et cetera, and not …

AI assessment note: “So I'd say two things. One, I learned what a terrible business looks like.”

Q As you look at your list of the hundred best companies, are there biases in terms of sectors and market cap?

A We have three strategies. We have a SMID strategy, an all cap strategy, and a large cap strategy. We kind of cut the difference between SMID and large at around twenty billion. So there's no overlap. As far as industries, there are some areas that we avoid. So for us, with our long-term time horizon, we don't know what the price of a commodity is going to be five to 10 years into the future. So if the value of a company is dependent on the underlying price of a commodity, that's probably not going to work for us. We tend to stay away from things that are highly levered because it makes those values really unstable over time. And then we tend to stay away from things that are highly regulated by various government entities. And so while we're global in nature, we're willing to look anywhere. There are certain countries where if there isn't the rule of law or we don't have recourse to the assets, probably not going to invest.

AI assessment note: “We have a SMID strategy, an all cap strategy, and a large cap strategy.”

Q How did you think about your tenure at Goldman?

A I think of it as three amazing years, then two years that were much less exciting. So, 2002, 2004 was phenomenal. I worked with an incredible group of people. It was a relatively target-rich environment. We were given pretty free reign to go after whatever made sense. And starting around two-thand-five, as markets got really frothy and some key people left, Goldman grew a lot. And 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, or somebody's claiming it was their area, and so it became a lot less fun in oh five and oh six, and so I ended up leaving right at the end of oh six.

AI assessment note: “I think of it as three amazing years, then two years that were much less”

Q I'd love to turn to talking about some of the underlying strategies within hedge fund portfolios. And Dan, I think we have to start with the platforms. These platform hedge funds in what's become a pretty concentrated industry by assets have by far the largest footprint. What's the investment case for the platform hedge funds?

A It's an interesting case because the elevator pitch for hedge funds, I think, and Adam alluded to this earlier, is that if you invest in hedge funds, generally, you're not going to get total returns that are quite as high as equity markets, but you'll get something maybe that's between the returns of bonds and equities, and the volatility will be much closer to that of bonds. And you'll have low beta to both. That actually sounds pretty good. Now with these platforms that we're talking about, if you look over the last three, five, 10, or even 20 to 30 years in cases where they've been around for that long, and there are some that have, the platforms have actually outperformed equities on a total return basis with volatility and the betas that have been as low or lower than the overall hedge fund industry. So it almost looks like a silver bullet. That's why people have been attracted to this exposure. The results have just been highly compelling on paper. But if you step back and think about what is a platform, a platform in short is just a type of hedge fund that's allocating risk taking across multiple distinct portfolio managers or trading teams. Each of those teams is pursuing a specialized strategy. One could be trading utility stocks. Another could do M&A. Another could do rates and FX. For the most part, they're running market neutral. That is with very little exposure to…

AI assessment note: “platforms have actually outperformed equities on a total return basis with volatility”

Q I want to take a step back and talk about the outlook for the space in general. Craig, the most obvious change, certainly over the last year, is the rate environment. How does the rate environment affect what you're doing, both on your decisions and what you expect from the portfolio?

A So there's the short-term answer, which was painful last year, but I think driven by disruption caused by how quickly rates moved, in particular, long-term discount rates. Most of our portfolio, we think, has a pretty direct structural relationship to short-term rates. We're active in long-short equity where people earn short rebate off short rates. Most of our credit portfolio is either truly floating rate or effectively doesn't carry much rate duration because of coupon or price or event-driven characteristics. And even our macro portfolio typically carries a pretty high level of unencumbered cash, which should earn short rates. So if we're moving to an environment of structurally higher rates, we would expect our returns to be structurally higher in a highly correlated and direct fashion.

AI assessment note: “we would expect our returns to be structurally higher in a highly correlated and direct fashion”

Q What do you think it'll take to bring more capital into the countries you're investing in?

A I think it's just a function of more and more success stories. If you take a step back and look at the more developed emerging markets, be it LATAM or Southeast Asia, and we did a study, and my colleague Alex actually wrote a report on it recently, looking at the early vintages of the venture firms that were investing in them when those markets were in their nascency. Those are some of the highest performing vintages I've seen. There were 10 X, 15 X, 20 X funds, and obviously you have survivorship bias. But once you've validated that opportunity set works, At that point, inevitably, more capital comes in, and we're already seeing that. If you look at a country like Pakistan, they went, on average, for three years, raising twenty million dollars in total for the venture ecosystem, where in twenty-twenty-one, it got to two hundred fifty million dollars. In twenty-twenty-two, it was three hundred million dollars, and you see that growth exponentially once you prove out, and that's basically been the story of nearly every more developed emerging market.

AI assessment note: “I think it's just a function of more and more success stories.”

Q As you use that lens, what are the countries that you came to that fit into those characteristics?

A The first region was Central Asia and the Caucasus, and to put that maybe on a map, it's basically all the countries between China and Europe. Which is a quite a large part of the world, which easily gets ignored because you don't hear about it day to day. And why there? Because the Sturgeon prior to restarted a strategy when I took over day to day management and this did a lot of business in Central Asia. And so we had a pretty good network and infrastructure there. Two, you had just had the IPO of a company called Caspi, which is a fifteen billion dollar business listed in London, a technology business out of Kazakhstan of all places, which had validated that you could build a sizable business there. And so had sprung a lot of entrepreneurs trying to build technology companies across the region, and that basically you had no VCs that were investing there. So we almost had, again, an unfair advantage and a blank canvas to allocate capital and hopefully building out what the technology ecosystem of that region looks like. And then once we started doing that, the other region that became obvious was South Asia ex India. There is basically two countries, Bangladesh and Pakistan. We're combining about four hundred million people. GDP capital actually higher than India. But still, sub-one percent e-commerce penetration, low levels of digital payments, and low levels of BTP software…

AI assessment note: “The first region was Central Asia and the Caucasus”

Q What's the competitive environment like for the deals you're interested in?

A Yeah. So I think at this stage where we are in the countries, one of the criteria is that we purposely don't want too many venture firms to be in there to start with. So you take a country like Bangladesh, hundred and seventy million people, eighth largest smartphone user base in the world. As I said, GDP per capita higher than India. You only have two VCs in the whole country. So by just being focused and dedicated to it, you kind of have an unfair advantage when it comes to sourcing, such that if you are an entrepreneur of company of any quality, we are hopefully a natural partner for you to reach out to, to want to see capital from. That's the competitive environment today, but we then work to bring in more competition counterintuitively because we want more liquidity in these markets. So whether it's from regional investment firms, international investment firms, Half of our job is capital formation, and we take that seriously.

AI assessment note: “You only have two VCs in the whole country.”

Q Well, let's circle back. So in that period of time at Andover, what happened under your tenure?

A Well, the returns got better. And the global financial crisis happened. So two big things. On the return front, we were bottom quartile when I took over. I don't think we knew we were bottom quartile, because you tend not to look at that as an all-volunteer committee. We had more than 60 managers for a six hundred million dollar portfolio, and more or less firing about a third of them was very important in boosting performance, and I've not figured out the math, but somehow the tail of managers seems to drag you down more than it pulls you up, and I think that's true with stock positions, too. I think it has probably to do with conviction levels. We definitely narrowed the manager roster. In many cases, we would have four guys doing the same thing. We'd take it to two. Then the financial crisis. I mean, that was huge. And that I really feel we did well in the financial crisis because we had a high level of trust between the board and myself and the rest of the staff. So when the markets were imploding in the fall, We actually issued some debt on behalf of the institution to stay invested, and we rebalanced back into equities in February, March, not because we thought the crisis was over. In fact, I had a horrible stomach ache for, I think, that whole three-month period, but we were so far under our targets that the decision was made to put one percent back into both emerging ma…

AI assessment note: “Well, the returns got better. And the global financial crisis happened.”

Q You mentioned defining asset classes or what they meant. Did you come out of that with sort of a different than, let's say, common definitions of asset classes?

A I have on several occasions felt that common definitions are not helpful. I like to define asset classes in terms of risk and correlation, and somewhat what risk factor do they imply. I'm probably closer to what you would call factor analysis than asset classes, but it gets tricky because that's just not the way the world is really organized. But I think it's helpful when you think about something like fixed income. What do we mean by fixed income? For us, we wanted to have something that was liquid, highly safe, or would have a negative correlation with equities and not complicated. So I don't really want the Barclays Ag. I don't need a bunch of mortgage-backed securities in there that have complicated duration, complicated character. Don't need a bunch of investment-grade corporate bonds either. So if you define it that way, you might put credit elsewhere in the portfolio But your fixed income for me is really like a treasury portfolio so that I can say with some degree of confidence, this is the kind of characteristic it's going to have. It's going to be up for me in down markets, not always. Similarly, hedge funds or absolute return, I've typically divided that into two categories, equity-oriented strategies, i.e. long short, because there we assume you're going to have a . seven-ish correlation to stocks. But you're going to have less volatility and more alpha. And then we…

AI assessment note: “I have on several occasions felt that common definitions are not helpful.”

Q Why are these people engaging in this data science contest?

A Well, for sure, they find data science fun. They could have a job as a data scientist somewhere. We have someone who's, uh, who is, uh, working at NASA Jet Propulsion Lab, and then on the side, he would train a numeri model. And so there's a lot of different types of people in these fields where they have to pick up data science skills for their job, but then they want to practice. So that's a big motivator. And another big motivator is just competition, becoming a master. At something is very compelling. And finally, money. Numeri has created the highest paying data science tournament on the internet. We pay out more than Kaggle does, and we've paid out over thirty million dollars since we started. So it's 30 Netflix prizes worth of pet prizes. So that's definitely a piece. But we don't know. I mean, sometimes our users are anonymous and we don't even know why they're there or what their, what their motivations are.

AI assessment note: “Well, for sure, they find data science fun. They could have a job”

Q What goes into developing a new, say, good feature?

A Yeah. Well, the first part is it shouldn't be correlated with existing features. That's one thing, but there are many other things besides. One thing we don't like our features to do is move fast, like have high turnover themselves. If we stuck a seven day momentum feature into Numerai's dataset, the Numerai users would like it and their models would pick up on it. But coming to trade execution, we wouldn't want to trade that fast. And then we wouldn't actually make any money from that. So there's a sensitivity to churn. And then we also like to see features that don't have long periods of not working. Like they should have something to say about the variance of stocks all the time.

AI assessment note: “the first part is it shouldn't be correlated with existing features.”

Q When you buy a company and you're teamed up with the operating partner, how do you create that game plan for one of your portfolio companies?

A Yeah, we just kind of wing it. We have a repository of what must now be thousands of pages of value creation plans. These are typically 60 to hundred page PowerPoint documents that focus on the four or five levers that we've identified during due diligence that are going to move the needle during our investment period. And then we track those meticulously with KPIs, monthly, quarterly, in some cases weekly. The operating partner and the investing partners work together to define What success is going to look like. We may have different areas of expertise along the way in terms of who drives which of those components. But pretty quickly, even pre-closing, it transitions to the operating partner and the management team co-authoring. How do you get from good to great? Starts with a hundred day plan, which is how do we get out of the blocks extremely well, extremely successfully, but it's really about the next four or five years. And I mentioned operating partners. That's one element of what we do. We have also operating principles. So we have a team now of six going on seven. And in addition, we enlist former executives from our portfolio companies who are now looking for value-added board positions, and so we do try to group hug the value creation process, structure it, document it, measure it.

AI assessment note: “transitions to the operating partner and the management team co-authoring. How do you get”

Q So circle back now, just from that perspective of doing something that previously to that point in time had been very popular. As you said, it was kind of unpopular when tech was going wild. You could probably say the same thing of, say, two years ago, if not today. What did you learn from having done that?

A Well, you become deeply skeptical of trends that are suddenly these watershed moments where The future is not going to be anything like the past, and so leave all that behind. And what I can say left a great impression on me was the FT ran an ad, it must have been 2000, maybe late 2000, and it was the following, thanks old economy, we'll take it from here. And it was an ad for something like Roberts and Stevens, or Hamburg request, or some high-flying shop. A year later, that looked really stupid. And the more of those kinds of humbling lessons That you can learn early in your career where markets change brutally, and it becomes about surviving and not chasing what's hot at that moment, but taking a longer term perspective, to me that was Goldman Sachs. I could have gone to some startup and done who knows what, and priced my options that eventually would have been worth a hamburger. But going to Goldman to me felt safe, and it felt like a long term career move. And a place that could weather storms. So I adapted a pretty early risk antenna that said that could kind of sniff out maybe bullshit a little bit and stick with things that have been around for a while.

AI assessment note: “you become deeply skeptical of trends that are suddenly these watershed moments”

Q John, let's go from the macro to the micro, and maybe we'll start with The existing portfolio companies of your managers. The first question everyone's scratching their head about now is valuation. What are you seeing in terms of marks where they are today and where you think they might be headed based on conversations with your managers?

A I think it depends whether you're in the venture growthy part of the market or the general buyout market. I think throughout 2020 to everybody expected with the declines in public equity values that the other shoe would drop in privates. And frankly, we didn't see that underlying in company performance continue to be strong even in the second half of the year. And we saw, I'd say, low single digit declines even at year end. For the broad buyout market, probably plus or minus five percent. I think the place where we saw the most significant write downs were in the venture, but even the growth part of the market by and large, those are the places where you had a melt up in valuations on the tech side in 20, 21 into 20, 22. And I think certain managers, particularly the crossover investors, the mutual fund investors that publish their company valuations every quarter now, they really invested into that and took those valuations up to full value. That's where we saw the greatest declines. I mean, in some cases, 25% declines for those types of managers. But for the rest of the venture market that just had much broader exposure and frankly didn't participate in quite as much of the melt up, we've seen over the course of 20 to probably ten-ish, 15% declines in values for those broadly diversified portfolios.

AI assessment note: “For the broad buyout market, probably plus or minus five percent.”

Q John, are there distinctions between that you call traditional Portfolio secondaries and the single asset from the continuation funds in terms of what you're seeing in the market?

A I would tell you the single asset or the GP leads, I mean, that market evolved the way the LP market did. The early returns were spectacular. Capital follows the returns as it always does. And then people follow the capital, right? There's more opportunities. And so we've seen that develop admittedly in a much shorter period of time. I think last year might've been the first year or has been in 21 where the GP lead market was larger than the LP market. Those deals are pretty chunky. And in many ways, the market is capital constrained. When you look at the amount of dry powder and secondaries relative to the annual deal flow and you compare it to literally every other part of private equity, it's pretty extraordinary how undercapitalized it is despite all the large size funds that are being raised within the market. That momentum of the GP lead actually reversed course in 22, and Mario alluded to that. It's a lot easier for an asset owner to decide to sell a portfolio of LP interests at 80 because they have a particular objective in mind than it is for a general partner to convince their existing investors to take the option of selling at 80 cents on the dollar for that single company or that small portfolio of companies When the manager themselves are on sitting on both sides of the transaction because they're rolling their economics or they're going to benefit from continuing …

AI assessment note: “It's a lot easier for an asset owner to decide to sell a portfolio of LP interests”

Q So that sounds more like a step up type business than a business with an NOL. When you look at those two different investment opportunities, How do you assess the pluses and minuses of those two different types of TRAs?

A Yeah, so net operating losses are incredibly challenging for us to underwrite because our entire value prop to many of our investments were endowments and foundations is that we seek to deliver an uncorrelated return. A net operating loss TRA is incredibly correlated to the economic performance of a company. I would also articulate that oftentimes there is a bid ask between us As well as the sellers, insofar that they have a more bullish view of when a company would utilize its NOL, and versus relative to what we might be willing to underwrite. Where we are more focused on is the step-up TRA, primarily because for many of the names that we are underwriting, they can see almost a 60 to 80% drop in their earnings metrics, might that be an EBITDA-oriented metric, and see no changes to their overall payment. Often the one thing that people fail to understand is you never lose a tax asset, you merely defer it, which has the impact on your IRR, but not necessarily changing your MOIC on an opportunity.

AI assessment note: “net operating losses are incredibly challenging for us to underwrite because our entire value prop”

Q How do you think about your exit strategy with these investments?

A So there are a number of avenues. Obviously this is annuity and self-amortizing. First and foremost is the inherent cash yield that we get on an annual basis. But look, we're pursuing a path similar to the leaders in the pharma royalty space, as well as the musical royalty space who have undertaken the process of Consolidating their holdings and ultimately listed them. Our goal is to undertake a similar process. We did that in 2021 and are in the process of completing our second merger. But on a go forward basis, our goal is to originate these assets and subsequent to that, um, contribute them into our overall portfolios with the long term exit strategy of potentially going public.

AI assessment note: “with the long term exit strategy of potentially going public.”

Q What are some of the other things that affect your investment?

A There are two other risks, the first of which is bankruptcy risk. As mentioned, they are an unsecured obligation, and so a lot of our work relates to the credit worthiness of these companies. I think the item across the industry that is not well understood is that they are oftentimes IG or near IG names, and they oftentimes are large scale and with access to public markets. And so on average, we see the industry being approximately 400 plus of EBITDA, less than two times leverage, so less than a billion of indebtedness. And they oftentimes have a market cap in the five to ten billion dollars of code. And so the LTVs across the opportunities are relatively low.

AI assessment note: “There are two other risks, the first of which is bankruptcy risk.”

Q What's the competitive environment like for investing in these assets?

A It's more so a lack of competitors, and there are really five rationales as to why that is. I think the first that I alluded to is the domain expertise requisite to underwrite the opportunity set. Most deal professionals here wear tax and they just run away. The second rationale is around the Return expectations. The third rationale is around the fact that the duration of the opportunity oftentimes makes it incredibly challenging for people to clear committees insofar that if you were a hedge fund with one year locks and you had a one year asset, everyone could do it. If you said that you need to have eight to 10 year funds, that starts becoming incredibly challenging for many of the more credit oriented firms who have six to eight year vehicles. To originate the opportunity. The fourth reason is around the sourcing of the opportunity and the size of each opportunity. The average opportunity is between 15 to twenty million dollars. If you are a large-scale manager with several billion dollars to deploy, that can be challenging to spend a significant amount of time to deploy 15 to twenty million dollars for each check. And the fifth reason and final reason is we're trying to make it challenging to compete against us. Several of the things that we've done to do that includes the likes of pre-underwriting the opportunity set to the extent that we can deliver our sellers speed and …

AI assessment note: “It's more so a lack of competitors, and there are really five rationales”

Q As you look at that going forward, what do you think you'll be able to do with the business?

A Well, I love the word corporate carve out and can put distressed in front of it, but I only say distressed because I think anybody would define a business that has declined that much as a distressed asset. I think there were three easy examples that I can give you as to why we're excited about the capital and the turnaround. The first one is just programming. The X Games, which really focuses on a much younger demographic, is really Created now, the linear television, where most of its demographic probably don't even own a television. It's really hard to reach them if they have no way of watching your content. So creating relationships with digital platforms to promote the content digitally, and also internationally, there's no international deal for the X Games. The second area is really what I'll call sponsorship. So for all sports teams and media assets, sponsorship is a big revenue line. Now inside ESPN, given the size of the X Games, the prioritization was on much bigger intellectual property. The NFL, UFC, Major League Baseball. So not a dedicated sales team to monetize the IP through sponsorship. So having a dedicated sales team, and by the way, there was no dedicated management team either, so hiring a dedicated CEO who's Stephen Flissler who ran original content at Twitch gives you a sense for the challenges that the business had before. So now you have a CEO who under…

AI assessment note: “three easy examples that I can give you as to why we're excited”

Q What are some of the ones that have achieved that kind of success?

A A few that you've had on your show. So Vision Ridge is one, and that's a good example of part of what we've tried to create over time. So we had started to invest into a fair amount of renewable power generation, water, agriculture, sustainably managed, and the scale of that activity got so much larger than our balance sheet could manage. And frankly, the specialization as more and more high quality investment firms came into the space, Necessitated that we put more of a dedicated focus on it, and so what we did was we actually contributed our assets, and then the team at Capricorn that had been managing those assets left, and they partnered with Ruben Munger at Vision Ridge, and to their collective credit, they've built just an incredibly high quality investment organization. That's certainly been one really positive

AI assessment note: “Vision Ridge is one, and that's a good example”

Q So in a relatively short period of time at a young age, You set out and started Farallon. What was your thinking and decision process to doing that at the time?

A The real question is why would I want to leave Goldman Sachs, which was the premier investment bank in the world, actually. I think that's continued to be true and a place where I think everybody at Goldman, including me, thought that I would make much more money and take much less risk staying where I was. But there were a couple things I wanted to move back to the West Coast, because I'd gone to Stanford, and I was an age to somebody from the West Coast. So there was a huge draw to move West. Bob Rubin, who was the person to whom I had the Personal loyalty had gone from running four people to running half the firm two years later or something was going to be running the whole firm so that my connection to the group was completely different. I didn't realize this at the time either, Ted, so who knew? I think that I was comfortable with the idea that if I was going to fail at Goldman Sachs and do a bad job of investing, they would dump me. If I went out on my own and did a bad job of investing, the investors would dump me. But in one case, I would have a little more control. I felt like I'm going to take the same risk at Goldman. They're still going to dump me if I do a bad job. So I might as well do it on my own behalf. My last year at Goldman Sachs, just to put it in a context of investment, I was running half of the investments for the art group. They paid me one 10th of one…

AI assessment note: “I felt like I'm going to take the same risk at Goldman... might as well do it on my own”

Q It has indeed. And you've been up to a whole bunch of things in the interim, it seems. Tom, why don't we go all the way back to your formative years in the investment business?

A When I went to Stanford Business School, my summer job between the two years of business school was working in an investment firm called General Atlantic. And they were the only investment group, as far as I knew, that was hiring summer people from Stanford Business School. So they had one job and I applied and I got it. And I had previously worked for two years as a mergers and acquisition analyst at Morgan Stanley out of college. And I'd spent one summer working as a research analyst at a investment bank called Kidder Peabody. So I knew the difference between investing and investment banking, and I was very intent on being on the investing side. That was what I was interested in.

AI assessment note: “my summer job between the two years of business school was working in an investment firm”

Q So what was the path to launching a hedge fund back in 86 when you started?

A So first of all, no one did it. No one left Goldman to do that ever. They were furious at me for leaving and really, really, really annoyed. When I asked two different people if they would basically back me with limited partner money, one of them was a firm in San Francisco where the number three person was my old roommate. It's called Hellman and Friedman, and I think they guaranteed me eight million dollars of LP money, and one of my good friends at GA said they would go on the hook for five million dollars of LP money. Hellman and Friedman was on the West Coast. Eight is more than five. It's about as complicated as it was.

AI assessment note: “Hellman and Friedman, and I think they guaranteed me eight million dollars of LP money”