The Ledger
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Ripley: Emerging PE managers average higher returns than mid and large cap
“I was surprised as I looked at the industry data to see that in many cases, there was much wider dispersion at that earlier phase of a manager's life cycle, that fund one, fund two type era, but it was dispersion in both ways. The average was better than mid c…”
Ripley: Strong pre-fund returns do not predict Fund I success
“We found over time that simply having strong returns pre-fund is not a good prerequisite for a fund one. It's about the intangibles we learn about you that support them.”
Ripley: Tech alumni-focused emerging VC funds have a three-fund shelf life
“The issue and the trick for the folks in our seat is it's got a three-fund shelf life. By the time you finish fund three, everybody you know at Airbnb is left. By fund four, you're talking to strangers.”
Ripley: Leveraged 2x gross PE buyout strategies aren't worth it
“Especially in private equity, you meet a lot of folks who look good in a blue suit. We're trained to buy A plus assets and A plus auctions at very high prices with a lot of leverage. And that shows well to a committee. People like that. It feels good. A lot of…”
Ripley: 1-to-1 co-invest offers to emerging managers merely seek 50% fee cuts
“We back a lot of these emerging managers. I can tell you they are inundated with offers from folks who are saying, I'll give you a hundred million for your fund one, and I want one to one co-invest. What those folks are really saying is I want half off the rac…”
Ripley: PE firms typically dictate plans rather than seek consensus
“In many cases, we were really forced to come to a consensus with the management team in a way that I later learned you wouldn't normally see in private equity. Usually it's here's the plan and you can either do it or I'm going to fire you.”
Ripley: Large private equity firms generate mediocre net LP returns
“When I got to Jam and I started looking through the industry data, in many cases, those folks worked at larger firms, and their returns were no better than medium. It was surprising to me that my ground level observation is brilliant people, incredibly smart a…”
Ripley: Buyout investors trained to accept 2x gross returns struggle to unlearn that standard
“We're generally looking for folks that trained at firms where the investment committee is a little more difficult, there's more of a culture of asymmetry internally, because if you're trained to the two X gross is acceptable, It's hard to shake that later. Tha…”
Ripley: Most private equity professionals are not natural risk-takers
“I might argue, while it is interestingly a risk-taking asset class, most people going to private equity are not risk-takers themselves. They chose a conventional career path in a lot of ways.”
Ripley: Pre-fund co-investments are the best diligence before backing a Fund I
“We felt like the best diligence you could do on a sponsor before they raised a fund one was to make pre-fund co-investments, because that would give us the insights to see the things that matter before you back someone in a blind pool.”
Ripley: Independent sponsors know target companies better than large PE firms in auctions
“I would argue independent sponsors know a lot more about their companies than the traditional large sponsor does about an asset that they have to move quickly in an auction.”
Ripley: Majority of independent sponsors cannot operate businesses
“That's going to be a minority of independent sponsors. The majority of independent sponsors are more transactional in nature and quasi deal finders. They've locked up a deal under LOI. They know how to get a deal closed, but they don't know how to run and oper…”
Ripley: Some independent sponsors abandon troubled assets when carry is out of money
“In a few cases, it was a family office and they'd done a deal with an independent sponsor and the sponsor viewed the carry as sort of a levered option. Once it became clear that the levered option was not going to be in the money, they said, here are the keys.…”
Ripley: Raising VC fund size without securing more ownership breaks fund math
“That's a major problem. We see that they want a bigger fund size, but they don't want to buy more ownership. And that's like saying, Hey, I want to start paying 15 times EBITDA for companies, but this company will grow really large. And so it'll be okay. At so…”
Ripley: Seed and micro-VC lack performance persistence
“In the seed micro realm, I don't think there's a lot of persistence. There is more idiosyncratic lottery ticket type risk in some of these cases, depending on what groups to produce spinouts and where you were at that time.”
Ripley: Scale is an asset to returns in absolute return hedge funds
“It is usually true that on the absolute return side of the equation, it's one of the few areas where scale is the friend of returns.”
Ripley: Well-Curated Long-Only Portfolios Can and Should Outperform Global Stocks
“My personal view is that's a mistake. Over time, a well-curated portfolio of long-only managers can and should be able to outperform global stocks.”
Ripley: Endowments wrongly prioritize manager pedigree over strategy base rates
“I tend to weight the quality of the game the manager's playing more heavily than most do. Most of the endowments I talk to tend to say we're looking for the best people, and the quality of what they're trying to do, or how hard it is, or the base rates around …”
Ripley: Co-investing in buyout funds rarely captures the single outlier winning deal
“In many cases, if you'd step back and say, the typical buyout fund has 10 investments in it. If it produces a median return, it's likely that there was a bell curve distribution of deals. We're fine. If it produces an outlier return, it's likely that one deal …”
Ripley: Buyout investing is fundamentally an apprenticeship business with high barriers
“A buyout is an apprenticeship business, fundamentally. You can't walk in off the street with no credibility or history and complete buyout deals, generally speaking, because you've got to get an investment banker to show you a deal. You've got to get a commerc…”
Ripley: GEM evaluates emerging buyout managers by their apprenticeship firm
“We think that as a general rule, we need to have an opinion on the firm you came from to have an opinion on you, because almost all the folks that we evaluate on the emerging manager side are a product of wherever their apprenticeship occurred.”
Ripley: GEM refuses to provide income floors to emerging managers
“When we back any emerging manager, we don't put a bridge or a floor under them because we think that discourages risk-taking behavior. It sets the wrong mindset and doesn't educate them on how hard it's going to be in most cases.”
Ripley: Buyout investors hit peak productivity between ages 35 and 55
“I generally think the sweet spot is when you've had 15 years of experience to 25 or 30, so call it, mid to late thirties to mid fifties, when you're most productive, most dialed in, most hungry.”
Ripley: Broad mandates turn off allocators and overburden emerging managers
“In those cases, they do themselves a real disservice because one, it turns folks like us off who say, now I don't know how to define you. And two, it makes the job a lot harder because then you're trying to cover four or five massive markets instead of one.”
Ripley: VC vintages since 2018 have generated more pedestrian returns
“Since 2018, venture vintages have been more pedestrian in nature. Returns have not been what they were in the preceding years.”
Ripley: LP-GP alignment peaks during a sponsor's Fund I era
“You're never more aligned with a sponsor than you are in that fund one era when they want to have that stamp.”
Ripley: Early hedge fund backers secure founder discounts and liquidity control
“Some of the benefits that we see, one is you're generally gonna get better economics, so there's gonna be some form of founder class shares that you can participate in, whether that's a fee or a carry discount or both, both of those are available. Generally, y…”
Ripley: Manager growth and IR intermediation make scaling capital allocations harder
“We find that as these managers grow, they hire an hour person, suddenly you're being intermediated. You're not getting the same perspective. You're not able to read the temperament of the manager, understand what they're thinking about. It becomes more difficu…”
Ripley: Good endowment investing starts with an emerging manager program
“Any good endowment style investing starts with a good emerging manager program, including on the public side.”
Ripley: Hedge fund investing is an apprenticeship business learned at top firms
“In almost all the cases, though, it's an apprenticeship business where you've trained at a good firm. You've been shown what good looks like from a research perspective, and most importantly, from a portfolio management perspective.”
Ripley: Multi-manager pod shops do not suit emerging managers
“Some of the pods don't really lend themselves to emerging managers. They're really scale games where technology and systems and access are more important.”
Ripley: Retail meme trading makes short-side alpha much harder to generate
“We're living through another era now where meme stocks are going to the moon, and so the more short of the stock, the more it's being put up on Reddit and Robin Hood and places like that. That game has gotten a lot harder over time, and so we're looking for fo…”
Ripley: GEM Allocates to Concentrated Long-Only Managers Holding 5 to 25 Stocks
“And most of the long only managers that we invest with are going to have a fairly concentrated portfolio of fundamentally driven investment decisions. Call it maybe as low as five or six and up to maybe 20 or 25 kind of thing.”
Ripley: Sector Selection in Real Estate Outweighed Individual REIT Picking
“If you looked at public markets to make this a simple comparison, the decision to invest in data centers over retail real estate was dramatically more impactful than the decision of which REIT you bought within that structure.”
Ripley: GEM Has Recently Reduced New Software Buyout Allocations
“And even within buyout, we were adding software for a long time. We've been doing a little less than that recently.”
Ripley: Most Original OCIO Firms Pivoted Models or Sold Out
“If you look at the original class of OCIOs that was created, most have either pivoted their model to something else, sold themselves, or both.”
Ripley: Willingness to walk away from deals strongly correlates with sponsor success
“Demonstrating a willingness to walk away from deals, we find it correlates very strongly with long-term success of a sponsor.”
Ripley: Most independent sponsors GEM backs pair with past operators
“Most of the independent sponsors we back are paired up with an operator they worked with previously.”
Ripley: 15% of VC funds generate roughly 80% of industry returns
“It's a power law business. Eighty-ish percent of the gains come from 15% of the funds.”
Ripley: GEM allocates roughly 60% to buyouts and 40% to venture
“In most portfolios for our clients, we're 60% buyout, 40% venture, roughly speaking.”