The Ledger
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Harris: There are probably only 20 good long/short equity managers
“No, it's a very difficult model. There's probably only 20 good managers out there.”
Many investment funds are wealth transfers from LPs to GPs
“Many funds are structured as the greatest transfer of wealth from LPs to GPs.”
Harris: Non-continuing LPs in continuation funds get hit with fees
“We've already seen situations where the LPs who are not electing to continue are getting stuffed with fees. We're seeing deal fees that the manager's taking, and because there's not enough management fee, they're not being offset against it.”
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…”
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.”
Harris: Cybersecurity investments will lose more money than they make
“There's a lot of money going into cyber. I think cyber is going to be very difficult. I think a lot more money will be lost than made because you always have to ask yourself the question, what's stopping Microsoft from coming in and walking over XYZ company.”
Harris: China Directs Top Talent to AI While US Focuses on Apps
“They took their best and brightest, and they've been working on AI. They've been working on cybersecurity. Our best and brightest have been creating apps and games.”
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…”
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.”
Harris: Institutional allocators exploring secondary market sales are not forced sellers
“People aren't being forced. They're choosing to be tactical. There's no downside to exploring the market right now. I think a lot of people are looking, but I'm not hearing anybody who's in a forced situation.”
Harris: Co-investments carry high correlation in timing of deals and exits
“They can act like a portfolio, but it seems to be a lot more correlated. The sales happen together. Deal flow happens together.”
Harris: Fund managers ignore tax efficiency because incentives are tied to gross returns
“I think at the end of the day, when we talk about behavior, if you're being paid the incentive off of your gross return, that's what you're going to focus on.”
Harris: Long-only hedge fund fees are shifting toward zero-and-thirty models
“I think you're seeing on some of the more long only, but disguised as hedge funds, that the fees are coming down. With returns coming down, people are starting to push back. You're seeing a lot more zero and 30, more alignment where you're not going to be able…”
Harris: Young job candidates should avoid emphasizing network building in interviews
“Talk to any twenty-two-year-old, and that's all they want to build.
You hear this in interviews, and I'm thinking, don't mention network.”
Harris: The best time to add to managers is during drawdowns
“Some of the best time to add to a manager is when they're down, as long as they haven't gone dumb overnight.”
Harris: Few hedge fund managers monitor short-side portfolio liquidity
“Very few managers answer it anywhere beyond I own X amount of stocks long and this size, and I used to run this amount. Very few will actually talk about the liquidity on the short side. And I think going to Casey's point, that's where the trouble shows up fir…”
Harris: Ukraine war is an inflection point for drones, AI, and OSINT
“When the story's written about Ukraine, especially on drones and AI and open source data, It's really going to be a game changer and a real inflection point in these industries.”
Harris: Rebalancing hedge fund managers added hundreds of basis points to IRR
“We spent a lot of time looking at our IRR with hedge fund managers. We've been able to add a couple hundred basis points by taking money away when they're up and adding when they're down.”
Harris: Extraordinary Capital Will Flow into Defense Tech and Cybersecurity
“And we're spending a lot of time on that from an investment standpoint, because the amount of money that's going to be going into this It's going to be extraordinary, and you've already started seeing it.”
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.”
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 …”
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.”
AIM issues flashlights, smoke masks, and go bags to new hires
“Everybody on our team gets a flashlight and a smoke mask and a whistle when they join. We have go bags”
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.”