Adam Shapiro
Co-Founder and Managing Partner, East Rock Capital · 1 appearance on the record.
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Adam Shapiro co-founded and leads East Rock Capital, an investment firm managing several billion dollars for ultra-wealthy families with an emphasis on backing early-stage fund managers and direct private transactions. Prior to launching East Rock in 2006, he worked in Goldman Sachs' Special Situations Group and now writes the newsletter From Star to Founder.
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The record, in short
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Everything Adam Shapiro said on Capital Allocators that made the record, most notable first. Filter by type, assessment or year in the ledger →
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…”
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,…”
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.”
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…”
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…”
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.”
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…”
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…”
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,…”
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…”
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…”
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 …”
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…”
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.”
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…”
Appearances (1)
| Episode | Date | Speaking time |
|---|---|---|
| Adam Shapiro – Post-Breeding Grounds for Rising Stars and Families (Capital Allocators, EP | Jun 5, 2023 | 46m |