The Wisdom Wall

“If there's a large lump sum, whether it's a boutique firm or a huge organization, it's probably going to be tricky for that next gen to buy them out, which leads to Increased risk of a GP state coming in or an outside minority or majority investor, which necessarily changes the incentives and the way that the firm…”

“Even if you knew your exposure to Chinese venture to the 10th point, you can't really trade on it because it's illiquid unless you do a secondary sale.”

“And when you think about the return potential for some of those earlier stage private investments, it dwarfs the fee impact and it's well worth it.”

“Millennials were raised as mini consultants to their parents. Parents would say, where do you want to go on vacation this year? What should we have for dinner tonight? And they want to be part of every decision. They want to be involved.”

“There's a lot of tension on price, and this is something that needs to be thought about at least five years in advance of a liquidity event or a transfer of ownership.”

“Oftentimes, it's the person who has a zone of genius In doing deals, and then they're asked to manage people, and they have no idea what to do. They throw spaghetti against the wall to see what sticks, and a lot of damage can be done in the meantime.”

“If it's somebody's last name, it's a bit of an indicator that perhaps there's maybe going to be some difficulty in imagining a firm without them.”

“But they're going to want to grow that base, and oftentimes there's pressure to scale and diversify the revenue streams, which can be a big distraction for folks if they have to manage a smaller fund, lower middle market buyout pool when they've only been doing megas for their entire career, or if they branch out, it…”

“This founder's son came to work for the company, 24 years old, becomes the CIO. So he's directing all sorts of stuff and managing people who are 20 to 30 years his senior. Of course we saw turnover, we saw cultural issues, we saw redemptions, and turns out the positions they had were highly illiquid and the stock…”

“I don't think that there's any real way to get this information if they don't share it with you, especially with the private market GPs. It's not going to be necessarily laid out in a Form ADV or anything like that, so I don't think there's a lot of transparency.”

“And I would say nine times out of 10, that next gen has no idea what the firm's plans are for them.”

“The other thing that I learned is that boards, in many cases, at least for a public pension, tend to be composed more of maybe retired state policemen or people who are not in the industry. And so learning to present at a different level is actually much harder when you're trying to make something relatable to all the…”

“But it's very difficult for humans to think in terms of pair trades. The temptation to look at line item risk is huge. Even if you know that a long treasury position is in there to offset the meaningful equity risk in the rest of the portfolio, you still might want to talk about that 80% of the time if it's…”

“we developed an active management versus index framework where we would put more active dollars to work and asset classes on the traded side that had a wider dispersion of results from the best and the worst managers, and where the median manager outperformed net of fees. So that was linear, as you would imagine,…”

“So the good GPs attract the good LPs, and this all also attracts the greatest portfolio companies. It's super important to get into those best top names.”

“The first is loss, so people don't want to change the way to do things usually because we're humans, and then doubt in the new process and their new leader, and then discomfort, and I watched all this happen. It's like a cycle. After discomfort, it's this danger zone. You're either going to win people over or you're…”

“And if they need an IR of two to be successful, I don't think they're going to be very successful.”

“The larger firms generally know what their exposures are because they have risk management teams who are looking at these things. The smaller firms are much more gut-driven in general in terms of managing risk, and they are sometimes surprised.”

“And I think that's a big issue with teams, especially when there are specialists in long only versus specialists in privates is creating a common language. You've got multiple uninvested capital and IRR versus time way to return. You've got all sorts of different ways of approaching things. If we can break that down,…”

“Really, you need to start grooming that next generation at least five years before it's time.”

“When it comes to the future of diligence, I do think we can do a lot more virtually, but we still need to be traveling and meeting with managers. You miss a lot of stuff when you're not there face-to-face, whether it's the dynamics of the junior person with the senior person, or we went to one manager we loved, but…”

“Some of the best vintage year returns are in years like this, leading up to and during a market correction or a recession.”

“Don't try to time vintage your allocations to private markets. You can't do it.”

“When you think about the David Swenson model, people think it's this recipe that you can replicate by just throwing ingredients into a bucket and throwing them into an asset allocation model, and you're going to get the same results. And the reality is you have to be quite careful and unique and different, which is…”

“Ideal committees should be five to seven people. It increases accountability, it increases the preparation, the discussion is different in the room”

“We went from 10 to 20% in terms of target, 10% in privates to 20%, and they want to do it overnight. You can't. You can't increase it more than one and a half to two percent a year.”

“If we have an extended period of underperformance, it's going to lead to fatigue on behalf of not only the founder, who has accumulated a great deal of wealth in this organization, and may be tempted to fold and say, you know what, I've made my money. I'd love a higher quality of life. I want to be happy and hang out…”

“Don't worry about titles. Go into the best company and you'll find amazing opportunities there.”

“We were generalists at Wellesley, which I think is a really good model. It works really well with smaller investment offices, and I learned a lot about how to think like a CIO and allocate capital across the liquidity spectrum and have perspectives on everything, whereas many larger teams are siloed.”

“And another tool that we use is to ask why three times. So if they tell you a story about a stock, You dig a layer deeper and say, well, why is that? Then you can really get to the meat of what is actually happening and go beyond that prepared marketing response.”

“I wish I knew this much earlier, but the advice that I got from someone once is just have 30 seconds of bravery. If it's asking for a promotion, if it's interviewing for a job, doing something bold, speaking up in a meeting, just be brave for 30 seconds, even if it makes you sweat, even if you feel like you're going to…”