The Exchanges

Q I'd love to ask each of you one last question, which is, What initiatives in your respective areas are most top of mind? And Eric, maybe start with venture.

A I've got a pet peeve right now. I've been looking at vesting schedules. There's this influx of investment bankers, mutual funds, hedge funds coming into the venture space, and this is a ten-year vehicle. Most of those funds don't end in 10 years. There's always the plus, plus, plus. I've seen An explosion of short vesting schedules of two to four to five years, and it's just not great alignment. I don't want a GP to be able to leave after two years, get a hundred percent of their carry, sit on the beach, and now the team or the LP base have to dilute the carry to bring in another partner, and then somebody reaps those benefits. I think that is proliferated. I don't know why some of the law firms have allowed this, I think it's bad for the GP as well as the LP, and I've seen some of the best funds fall apart because of that.

AI assessment note: “I've got a pet peeve right now. I've been looking at vesting schedules.”

Q How have you thought about where you want to play in venture from the earliest stages to the late stages?

A So that changes from whatever cycle we're in. Couple years ago, we were not necessarily supporting your crossover late stage managers for your venture portfolio. Now, that being said, there's some good ones we backed and we would like to continue the relationship with, but we'll target certain areas. We actually have a heat map of areas that we're looking for early stage. Let's put that aside. I think there's always a good time for early stage investing. You have to have a disbelief in the ability of the homo sapien to innovate if you're going to turn your back on early stage venture capital. But I think in the mid-stage late and growth, you have a high risk area because there's the technology risk still inherent in those businesses. Early stage, you know it is, they're going to ebb and flow. Mid-stage and late, you start Wondering if that technology is going to work and companies are going to really adopt that product or service. And then in the growth, you're really paying for growth and expansion and sales if the technology is already baked. So sometimes that area, you can find the right manager, the right opportunity where you can have a little bit less of a risk appetite, but also get venture-like returns. At the moment, we're looking at more of a Barbell strategy, that very early stage and true growth, which I believe is the growth that is using to fuel extra sales. Techn…

AI assessment note: “At the moment, we're looking at more of a Barbell strategy”

Q What have you figured out in your due diligence process that allows you to tease out the differences between someone on the margin that you do want to invest with and someone on the margin that you take a pass?

A A lot of it is through that reference checking and the face-to-face due diligence process. Zoom is great. It makes things more efficient, but I still believe there's no replacement for face-to-face. The ability to break bread, get to understand that individual, see them in action, how they're working as a partnership, managing conflict, throwing a pro or con out there that Could be a little controversial and see how they manage it. See how they even treat waitstaff and hostesses if you're having a meal with them. This is a long-term asset class, sometimes longer than many marriages in the United States. You want to be partnering with these people. So sometimes it is the human element. There's a lot of great managers out there, and you don't need to be partnering with jerks.

AI assessment note: “A lot of it is through that reference checking and the face-to-face due diligence process.”

Q As you bring that all together, as we talked about with John, how do you think about your approved list for your clients?

A So we try to maintain the relationships with the best of the best managers. Keep an eye on those that may not be performing as well, but we're always trying to upgrade. There's some managers that change strategy. They could go from growth to small buyout, and they move over to the buyout team. They could Take their eye off the ball and create too many strategies, create too many platforms, and it suffers. Returns sometimes as the firm grows and creates other products, their returns diminish. So the very selective few that we are putting on an approved list has a mix of all. You have some of the new managers, and then you have your established managers, because I think there's lots of turnover that's going to be coming in the next few years, given where we are in the market and where valuations are. It's the old adage, we'll see who's wearing pants.

AI assessment note: “the very selective few that we are putting on an approved list has a mix”

Q How do you then dive in to assess which managers you want to partner with?

A Piecing together a whole bunch of things. There's understanding what references, may it be an LP reference or another GP or the CEO has said about those individuals. The ones that will be responsive to take a call, we're pretty lucky being Mercer and the clientele base that we have is so broad. We have a pretty good ability to access the most access constrained managers, and we will do a targeted approach. Again, just as John will see anybody just about that comes through, we'll look at their deck. Doesn't mean we'll necessarily always take a call, but there's a very high percentage of them we will take a look at, and it's a combination of the targeted rifle shot approach, and then we're always An open door policy and happy to talk to managers. One element we do like is we do like to skew towards the smaller managers of each sector or asset class. Smaller growth equity managers, smaller early stage managers, smaller mid-stage, because we want to begin a relationship that we can grow over time with them, allowing the clientele base to also grow and expand with that manager.

AI assessment note: “There's understanding what references, may it be an LP reference or another GP”

Q How do you think about re-up decisions?

A Re-ups are interesting because we take a fresh look at every manager. Many managers come to us and think it's a done deal. We have a relationship. We've kept in touch with them, but it is difficult to knock out an incumbent because we have a very good manager base, but it's not an automatic ticket that they're going to get a re-up. We like to build relationships. We like to keep relationships. We have some Very long relationships. Being decade-long investors with many GPs, we prefer that, but it's not a given, and we'll put them through the gauntlet again when it comes time for due diligence, and I'm happy to say those have been persevering, but we also have a very good knowledge base on those managers because we have a much closer relationship, particularly through co-investments we might be doing with them. And or secondary opportunities they may give us.

AI assessment note: “we'll put them through the gauntlet again when it comes time for due diligence”

Q At the top of the funnel, how have you organized your team to canvas an area that's so commonly thought of as an access game and getting to the right GPs?

A One of the comments that John made about The asset class is having empowerment. We also have a global reach, which is fantastic. And that allows us to have our Asia team try to reach out to interesting managers in Asia. We get to understand who are the good investors from just being in the marketplace. Alternatives is a relationship industry. I would say venture is exponentially so. And as Mercer's name is out there and we're participating in conferences, we're doing good work as an LPAC member, doing good work for clients. We get recommended as well as we're talking to other LPs. We're talking to other GPs. We're talking to CEOs, asking them about their syndicate partners, who they like the best. And we start developing targeted managers to develop a relationship because it takes time. Particularly with those access constrained managers. And you build that relationship. You show why you're valuable beyond just money. And you slowly start trying to find opportunities to partner together.

AI assessment note: “allows us to have our Asia team try to reach out to interesting managers”

Q How do you view the way you've built the process relative to other of your peers?

A I'm happy to chime in. This is Eric here. I think that we've taken the best of all worlds every time there was an acquisition. We compare the research and the process and the data that Each possess, and we take a little bit of the best. Plus, we get feedback from the clients, understand what their needs are, and as market changes, things might change, but at the end of the day, much of the research is pretty similar. And then picking the managers, again, is pretty similar, but you will have a diverse group of individuals that are in investment committees, and as the fund or the opportunity is going through the process, It starts off with an initial due diligence, and there's probably a larger group that looks at it and opines on it, points out areas of diligence that's required, and then you go to the full research report, and that's a body of knowledge that is built over a long period of time.

AI assessment note: “at the end of the day, much of the research is pretty similar”