E320: Why Institutional Capital Avoids the Best Returns

What if the best private equity opportunities are the ones no one else is set up to pursue? In this episode, I sit down with Jeff Collins, Founder and Managing Partner of Cloverlay, to explore how he built a $2 billion firm by going where capital isn’t. After 14 years at Morgan Stanley Investment Management, Jeff spun out to focus on what he calls “uncorrelated private assets” - niche, often overlooked segments where return dispersion is wide and operator selection matters more than financial engineering.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Weisburd?

  So you ran parts of Morgan Stanley's private business before you launched Cloverlay, which today is $2 billion in assets. What made you think that there was a gap in the market?

• 0:11Speaker 01

  I was at Morgan Stanley Investment Management for 14 years, 13 years before setting up Cloverlay, and we invested in all strategies, all geographies in private markets. The overarching theme was to go where the money isn't, to go where the dispersion of returns is greatest, because that's where selection of partners and selection of strategy can lead to outsized returns, which is a very different profile than most traditional definitions of private equity, where returns are fairly banded. Like, you'll have some absurd outliers, certainly in the venture world, but in other strategies, fairly banded and fairly tight dispersion of returns.

• 0:53Speaker 01

  Whereas when you wander into the esoteric asset wilderness, dispersion of returns is enormous. We took that mantra, applied it to our uncorrelated asset strategy while at Morgan Stanley, and had great success. And so that led me to leave the firm and set up Cloverlay.

• 1:12David Weisburd?

  I don't think I've ever met a manager that doesn't want to invest where the money isn't going. How do you go about building an organization that takes advantage of the supply-demand dynamics in the capital markets?

• 1:23Speaker 01

  Prep for this conversation, I pulled our weekly pipeline from last Monday. The deal we expect to close next has been on our pipeline for 291 days. There aren't many categories within private markets where you have all the time in the world to do your work and get an opportunity surrounded, and if you decide to pass, there is no transaction. That's the world that we live in, and I know that sounds like nonsense to very experienced private equity investors who say, "Everything is competed, everything is agented." Well, I'll tell you, there aren't any investment bankers solely focused on wireless spectrum.

• 2:03Speaker 01

  There aren't any investment bankers solely focused on defaulted reverse mortgages. These are runoff opportunities that live in the corners of the world, and you have to have a team with an experienced base and a sourcing network.

• 2:18Speaker 01

  To be able to find diligence and manage a disparate collection of really, really unique assets. And that's the team we built. We have 18 people sitting outside of Philadelphia. That's where the old Morgan Stanley business, I think they have $50 billion now. That's where the Morgan Stanley business is based in. So when I left, we walked diagonally across the street. And that's where Cloverlay is currently located.

• 2:38David Weisburd?

  What I'm trying to understand is how do these one-off opportunities find you? And how do you make Cloverlay a pool of capital that attracts these kinds of opportunities?

• 2:47Speaker 01

  So the team that we've assembled on the investment side starts at the top, where the three partners responsible for all of the transactions that we do, primarily myself and Kendra Corbett. We have been investing in these spaces for 27 years and 20 years on her part. Beneath the two of us, the rest of the team, the newest joiner was three years ago. Everyone else tenure, average tenure is eight. So sort of since inception, they were trained internally in how to assess these kinds of assets. So there are not very many mid-level professionals who have done the things that we do. So therefore, we have on boarded exactly zero of those people.

• 3:29Speaker 01

  We trained our own team internally, specific for the purpose of Cloverlay.

• 3:35David Weisburd?

  And the second aspect of that, so now you have this very unique skill set in order to diligence deals. How do you get the deal flowing? How do you put Cloverlay out in the market as somebody looking for disparate deals? How do you go about building this business of one-off opportunities?

• 3:51Speaker 01

  It is much more art than science because there aren't a lot of, you know, industry conferences where we walk around with business cards. That's, that's not a thing that exists in our world. Rather, it's an organic building over time of a meaningful network inside many, many, many small ecosystems. And when you see the next opportunity in special mission aircraft, like firefighting helicopters and planes.

• 4:18Speaker 01

  Our starting point is some of the most informed operators and executives around that space. And so while I don't know how to fly a helicopter, with a deep experience base and network in aviation, we understand how this segment behaves and we're able to triangulate through the networks that we've built up over the decades. There's a really important point in referencing, we heavily reference at the very beginning of any process that we get serious about. And that is a step in our investment CRM where, once we have drawn on someone's time as a reference, it is that person is entered into our database. And whoever

• 4:57Speaker 01

  from the investment team spoke with that reference has a discrete, time-certain follow-up obligation to go back to that reference who kindly gave us their time in exchange for nothing. And we go back and we say, what are you spending time on? Is there anything or anyone resident inside Cloverlay or the Cloverlay network that can be helpful to you? You find over a period of time that that is a flywheel that grows and grows and grows. And so we try to be incredibly respectful and thankful to everyone that gives us time. And we tried very hard to return the favor. That ends up in inbound deal flow that you would not expect. Hey, we had a call nine months ago and you explained what Cloverlay does and some of the other things you're doing

• 5:40Speaker 01

  away from my space. I have a friend who's doing something that you might care about. That is a very regular occurrence in what we do. Now, some of it's low-grade or, but we want to see all of it. And we try to be helpful and that doesn't take very long. So we're built and overstaffed arguably to be responsive, to be outward facing and to get the name out there. Fortunately, because we've been doing it for a long time, I think our names and increasingly the firm is a known audience for the nichey and the strange. And we know, everyone out there knows, we will take that meeting and we will tell you what we like about it and what our biggest questions are very, very quickly. It's a different information flow. It's a different back and forth with the operator or the potential seller to say, we're going to

• 6:24Speaker 01

  be as transparent as we possibly can because we know there's nobody else around the hoop here. So is there something to talk about? This is what we're trying to accomplish. Or if not, that's perfectly fine. And maybe we touch base later.

• 6:35David Weisburd?

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• 7:16David Weisburd?

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• 8:01David Weisburd?

  One of the arts of what you guys are doing is you say no quite a bit, but you're continuously building these relationships. What are some best practices for people that are dealing with sourcing networks that are trying to continue their relationship despite constantly saying no?

• 8:14Speaker 01

  Whatever the word might be, the opposite of transactional. Be relationship-oriented, because some relationships will end up in mutually beneficial transactions that everyone's very happy about. Other relationships won't result in a transaction or a broken transaction, but if you've conducted yourself with a spirit of partnership, that relationship isn't dead. We are very serious about a transaction right now, broadly defined in aviation space, with an operating partner that I invested with at Morgan Stanley Investment Management in 2004/5.

• 8:51Speaker 01

  He has probably brought me 10 opportunities since then and I've said no to every single one, but we have a relationship where it's very straightforward back and forth. And he knows exactly what to expect from me. I don't waste his time. I tell him what I think. He probably already knows it. And now we're very serious about something. So I don't think people get 11 looks or whatever from potential sources or potential operators unless you're conducting yourself as a firm in the right way. We certainly hope that we are doing that.

• 9:20David Weisburd?

  Said another way, there's a pattern of reinforcement behavior that's positive. Even if you say no, you're helping them develop your thesis. You're giving them back feedback on why this might not be a fit. You're building the relationship and providing value outside the context of just this one milestone of deal or no deal. It's not a binary process.

• 9:37Speaker 01

  We regularly hold kill calls. We have a kill call on every deal that we end up passing on. We regularly have kill calls where we tell them what we liked and why we drew on their time. Tell them what we don't like and why we are passing. Wish them luck in proving us wrong. And by the way, we know someone who might be more interested than we are and have a different view of the world. Can I make two introductions for you? And it's not a throwaway. It's helpful to the potential operator. It's also helpful to our friends because they reciprocate. We're very, very collaborative within the investor world. It's not a zero sum game because we're not running into each other. We can, we can team up and galvanize a situation that otherwise we wouldn't be able to do by ourselves. And that happens on a regular basis. And I think it only happens when you have that kind of open, honest dialogue with all

• 10:21Speaker 01

  participants inside each segment or each strategy.

• 10:25David Weisburd?

  I'm wondering whether upstream of your relationship driven process is very specific shot selection on who you want to build relationships with. Oftentimes I have people go on a podcast and they'll say, I respond to every LinkedIn. I jump on every meeting. Obviously that's not possible and obviously that's, you know, maybe it's people deluding themselves, but I think upstream of I want to build a relationship with these key people is I need to be very particular in who those key people are.

• 10:55Speaker 01

  I would agree 100% and there is certainly an element in the network building that is reactive. We're introduced to someone or someone approaches us, but there's also a very important proactive element where we have identified someone that we don't yet know. And we triangulate to try to get to that person and fold them into the network. And so we, as I said earlier, we do want to see everything that's ostensibly on mandate. We try to be decisive on a reasonable timeline so that we treat people the right way. But we also are exploring, like we have desk-driven theses that we're working on as an investment team.

• 11:37Speaker 01

  Everyone has two or three side projects at any point in time where it's 100% proactive work saying, this is an asset or a category that should be actionable for our kind of capital that we don't hear about it. Why is that? Let me create a network in, you know, the precatoryos market in Brazil, which are basically claims due to already adjudicated and awarded to small businesses or medium-sized businesses that are placed in the following year's federal budget. The pay rate is 100%, it's factoring a Brazilian government receivable. Sounds kind of spicy until you look at the repayment rate. So it's, you know, who is around this opportunity?

• 12:22Speaker 01

  It evolved very quickly and by staying around it, we found a piece of that market that we still found very interesting, while the easiest point of entry attracted a lot of capital from New York. And they came down and it was $200 million from a New York hedge fund to buy the easiest, cleanest, best things. We always like to look at the lower end of the market and say, well, there are a lot of really interesting $5 million claims. What if we did that 70 times? That could be pretty interesting and New York is not looking at that opportunity. So we try to pull it apart and understand the behavior of inside any segment through network, through the proactive work. Let's try to understand what's the behavior of strategics through eras? What's the behavior of other participants to the extent there are any through eras?

• 13:07Speaker 01

  Are they on the offensive or are they feeling pain and a bit on the defensive? What's the behavior of capital markets to the extent capital markets play any role in that asset type? Where are we in that cycle? And is this an interesting entry point? Or are we too late? And Marina's, we were too late. We ran away. Too much capital chasing too many small deals. There are a number of other segments, certainly that we. Another angle where we. If you look at our fund one, it doesn't even rhyme with our fund three. Because the world changes and it's been nine years. And so our job nine years ago was to invest in data center adjacent interesting assets. We haven't invested in a data center adjacent asset in eight years. If you would like data centers, there are 15

• 13:50Speaker 01

  high quality dedicated managers that you can invest with. Our job was to do it eight years ago, nine years ago, 10 years ago. So that's informed by network. You know, the proactive research can result in opportunities that we execute. Not always having the network to quickly get up to speed on interesting things that come in the door is equally important.

• 14:10David Weisburd?

  When you decide to go into an industry, how long does it take to really get reputation and network effects in that industry? And tell me about how that evolves over the first couple of years.

• 14:20Speaker 01

  It depends on which industry you're talking about, because some of the the quote industries that we are highly, highly interested in are not large communities. Right, there, there are not a lot of non strategic owners of intellectual property on the content side. So we own 100% of the Care Bears intellectual property. Everyone that looks like the Care Bears is owned by a major toy company or studio.

• 14:48Speaker 01

  But the Care Bears is owned by us. That's interesting. So it's not an enormous world. I mean, there, there are 11 people to call and you've covered the entire children's brand category for the last 45 years. So some are easily digestible and you can very quickly speak with everyone. The special mission aircraft is one where it's a series of segments of single purpose aircraft like mid air refueling tankers. There are not very many mid air refueling tankers on planet earth. So it doesn't take long to get up to speed and know everyone that owns or operates a mid air refueling tanker. There are others, other spaces. Music publishing rights, that's a segment that we love the asset, but we also realize

• 15:32Speaker 01

  that it's attracted so much capital that we will never get there again on a return basis. But that's a large, you know, global industry where we're not known as one of the 10 best buyers, but we think we know the second, the most interesting second and third derivative operators who might find some interesting things in different genres that are absent from the monster portfolios. Or something that is, and this is something that we've, we've executed on, music catalog adjacent, creating royalty streams out of other revenue sources that touch an artist other than their catalog. Right now it's episodic payments, but constructed properly, that can look like a series of very interesting growing royalties.

• 16:16Speaker 01

  Can't usually grow a royalty, but those are the kinds of things we look for in, in the corners, right? Where no one else is, is paying attention.

• 16:23David Weisburd?

  So you're approaching $2 billion and just had your 11th anniversary. How did you grow from fund one, from this spin out from Morgan Stanley into this multi-billion dollar fund and franchise?

• 16:36Speaker 01

  Hard work, great team and great partners. That's what it is. The returns need to be what the returns need to be versus what we held out when it was just a PowerPoint slide and Jeff running around. But building the team before the capital shows up matters a lot. So we were and remain arguably overstaffed. We've had amazing partners throughout our journey, whether it's public plans in the U.S., we've only raised capital in the U.S. to date. Public plans in the U.S., corporate pension funds, hospital systems. Interestingly, the founders of some of the largest private equity firms in the world, uh, who are longtime friends from, you know, first job out of college or used to do deals with them at Morgan Stanley when they had a Roman numeral one, and now they have 70

• 17:21Speaker 01

  billion under management. The individual partners, family offices are a decent percentage of our capital raise each time we've, we've organized the flagship fund. So I think for all of those investor profiles, referrals are amazing. You don't hear about referrals very frequently, but we've certainly benefited from referrals from our existing investors who run into a peer and say, if you've never met Cloverlay, you should really take a look at it. This is the role that it plays in my portfolio, uh, whether I'm a, a $30 billion public plan or, you know, a high net worth guy who runs, you know, a giant buyout fund.

• 17:56David Weisburd?

  I want to double click on that exact point. Talk to me about how you frame yourself as a fund and what role does that play within an institutional portfolio?

• 18:04Speaker 01

  So our term of art is uncorrelated private assets. The return profile should land somewhere between your spiciest private credit and your buyout funds should outperform us. But our predictable uncorrelated returns will show up no matter what the S and P is doing, no matter what credit markets are doing. And so our investors, whether it's the large family offices or the public or corporate clans, they use us as an uncorrelated ballast in their private portfolio to enable them to have more flexibility elsewhere away from us. When your core has a beta that approaches zero,

• 18:47Speaker 01

  that gives you more flexibility in your higher beta spicier areas of interest. Now, how aggressive do you want to be in AI or before that blockchain or before that

• 19:00Speaker 01

  Bitcoin or before that pre-IPO Uber financings? You can be a bit more opportunistic when you know that your core will perform in a certain way, no matter what the market environment may be. So that's the way we articulate the role that we've played in institutional portfolios. And another way of getting to, and this resounds with some investors, another way of getting to the core of what we do is you should have no exposure to the assets that we acquire during this fund.

• 19:32Speaker 01

  You probably now have exposure to the assets we acquired in Fund One because that was a long time ago. So not always, the thesis is not always being ahead of the curve, investing before others show up. Sometimes it is and strategies and assets will graduate from our mandate. And our LPs should do that on their own. It's a very different world now and you can take care of it.

• 19:56David Weisburd?

  So in many ways, you're competing against hedge funds in these uncorrelated returns in the public markets, but you're on the private side.

• 20:02Speaker 01

  Not usually, there are illiquid side pockets that some, that will lead some hedge funds to occasionally dabble in the spaces that we care about. We will always or have always. Selected a different entry point, different partner. We've never been side by side with them. But they'll occasionally show up at the illiquidity of what we invest in. You know, the average life of a dollar that we invest ends up being between four and five years on average. That could be sort of a long time for a hedge fund. So I would say, no, we don't compete with hedge funds. We occasionally see them coming in as tourists and always as financial buyers. They don't know operators. They just found someone doing something interesting. They typically don't understand the entirety of the opportunity set.

• 20:47Speaker 01

  They just made an affirmative decision. That is the opposite of what we do. We need to know everyone and everything about it before we say yes.

• 20:54David Weisburd?

  When we last chatted, you said that more than 90% of your capital comes from pensions. Why are pensions comfortable with this type of asset? And how do they look at it in their portfolio?

• 21:05Speaker 01

  It varies by institution, but I think first and foremost, the lack of correlation is attractive to them. Secondly, Cloverlay's role as a completion portfolio, providing access to a number of assets that they do not currently own. And they're not staffed or maybe experienced or physically located in a place where they are able to digest these assets and understand them. So therefore, they don't have any exposure. Our largest investor, I sit in on their weekly team workflow call. So we are opining on the things that are being done away from us, getting back to the network, because I ran US buyouts for a long time at Morgan Stanley.

• 21:51Speaker 01

  I don't know everyone's when they're looking at a US buyout strategy away from us, say, be sure to speak with these people. And if you need an introduction, let me know. Or on the venture side, we know lots of venture operators, even though it's completely off mandate for us. So we partner with them and have a regular dialogue with them, are sensitive to their constraints around what is investable compared with our house view of what is investable. So for example, one of the large opportunities that is squarely on mandate is longevity assets, also known as life settlements.

• 22:25Speaker 01

  Uncorrelated, interesting market, historically very, very broad dispersion of returns among actors. All that rhymes with what we want. Purchasing below intrinsic replacement value, that checks another box. We took the decision at the onset of Cloverly that that is a gray area that we just will choose not to participate in. There are the regular exclusions that you would run into with with any public plan. But we also talked to them, one of our corporate pension plans, we talked to them and said, this is leading up to fund two, I believe. We said, so this cannabis industry is growing and there are assets upon which that entire industry is built that are owned by your uncle.

• 23:10Speaker 01

  There could be some opportunities, but they lie within the cannabis ecosystem. Is that off mandate for you? Because we want to treat you the right way as opposed to letting them know that they now have something that they either hate or can't do. Because it wasn't addressed in in the LPA. And the response was interesting. The response was, under no circumstances can you invest in the cannabis ecosystem, period. Because we, fill in the blank, might decide to purchase the entire cannabis ecosystem.

• 23:39Speaker 01

  So they wanted to avoid conflicts as opposed to, you know, a moral stance. And we listened to them and we, because we have a regular dialogue with our investors, investors will tell us what they think is interesting. And sometimes that's something we had heard a little about, but hadn't really chased down. So it's a really healthy back and forth. And having great partners is critical to to our growth because as a firm, because, you know, when our largest public plan says to his other public plan buddies, you should definitely meet with Cloverly, it's one of my my cornerstone relationships. That carries a lot of weight and I'm not sure there are a lot of recommendations flying around in other strategies.

• 24:18David Weisburd?

  I want to double click on something that you said, broad dispersion of returns. That was an attractive thing in longevity asset space. Why are you looking for broad dispersion of returns? And what's downstream of that?

• 24:28Speaker 01

  That's where unfair talent applied to a particular opportunity. Because the long and the short of it is, a lot of the participants don't know what they're doing. They're not institutional, they're not as experienced as you, they don't have the networks you do. When I say that, this is not within that space, two layers down, when you're sourcing the actual asset. That's not Cloverlay, that's the operating partner that we've decided to go hip to hip with. He or she must be in a position to outcompete everyone else that's in that space. That's easier to do in small spaces rather than, you know,

• 25:04Speaker 01

  popular, well capitalized, every team has incredible resumes and experience. That's a difficult place to generate, much easier when you back a purpose-built partner, one-trick pony who has the blinders on. And it's up to us to decide, is this a point in time that we care about this segment? And if so, who's the, what's the right skill set in an operator to map with our view of what the opportunity is right now? And if we can't find it, we won't do anything. But frequently, we find an overlap and we say, okay, this is an asset plus an operator that we should work and see if we can get something done.

• 25:42David Weisburd?

  Said another way, it's almost definitionally below the headlines. You might have an asset that's returning 11%, but then when you double click, some of the asset is at 5, 7%, some of it is at 18, 24%. And then you double click more and you see that it's not necessarily, you're not being compensated for risk, you're being compensated for shot selection.

• 26:01Speaker 01

  Shot selection in terms of, I mean, in all honesty, who the operator is. Because, you know, as I said, I'm not writing Care Bears movies and I'm also not, you know, at the courthouse steps in the middle of a government auction of ERC claims. Our operator needs to be the one that is head and shoulders above. Peers, if there are peers. And so it's selection of your operator plus selection of the segment that leads to tailwinds in a segment that will lift all boats. That's really nice, but and sometimes it happens in our world, but typically most of the investments in the space are pretty boring. And our hope is that our combination of operator and asset profile

• 26:43Speaker 01

  ends up leading to unusual results within an otherwise boring ignored segment.

• 26:49David Weisburd?

  I've noticed that institutional investors in their mind, when they hear boring, many of them equate that to structural alpha and get excited by boring.

• 26:58Speaker 01

  We love boring and sometimes we have conversations with people that love boring and we give them lots of boring examples. We've got the largest coin collection in the world. We didn't invest in it, but you've also never seen it before. So what does it mean? Is it like fine wine? Is it like vintage cars? Or is it something different? We also looked at, what was at the time, the largest vintage car collection in the world? Being sold as a portfolio. We didn't get there on that either, but we did work on it and say, what? How does this market behave? And how do you double your money? When you might be paying $250,000 for some beautiful old cars? We couldn't get there and we've never gotten there on fine art, but these are things we spend time on. Structural alpha appears in some of our segments.

• 27:43Speaker 01

  We like to think that the alpha generated is really through asset type selection. Because you can't paint an entire asset category with one brush. They're very, very different. When you buy wireless spectrum in one zip code, it's very, very different than different zip code. You know, Auburn, Alabama versus Chicago. That, yes, they're both 600 megahertz wireless spectrum, but they behave in very different ways over time. And the interest level of strategics for either usage or purchase varies over time between those two. And so we try to make those distinctions and get the right assets in the right hands to reposition them. Not just, oh, we bought this incredibly well and we'll click coupons. This is repositioning and creating something, a portfolio of scale

• 28:27Speaker 01

  that large buyers now care about, but would never go through the trouble to assemble themselves. And that's shown up in industrial outdoor storage, which is becoming more and more popular and sort of real estate land. So real estate adjacent. This is extremely sexy. These are the hourglass shaped 10 acre parking lots with gravel on the ground and surrounded by a chain link fence. Where the proverbial Verizon truck has to park every night forever and ever and ever. Because you're right beside the highways and the bridges and the tunnels.

• 28:59Speaker 01

  This is a segment of industrial real estate that had zero institutional capital and it's six years ago. Five years ago, we made our first commitment in the US platform. And four years ago, we made our first commitment in the UK focused on Heathrow. You assemble, you know, our US partner was charged with doing 75 $4 million acquisitions.

• 29:22Speaker 01

  The way you reposition is you now have a portfolio of scale. What can you do with the client mix? You kick out the gardener and you sign Hertz Heavy to store creams on a 12 year lease. All of a sudden. That hourglass shaped eyesore in your town is a part of a $500 million portfolio with national tenants that should be a REIT. That's the reason we got involved. The asset there is obviously land in the United States that's zoned industrial. Lots of uses for that. The value add is the repositioning through tenant mix and only our operating partner could do that, not us. And then the exit value is portfolio premium.

• 30:08Speaker 01

  Where large private equity real estate funds say, thank you. I would love to be the first owner of a portfolio of iOS of scale. And that's exactly how it's been playing out. So you can create, we say sometimes internally, we don't want to buy the utility and clipped coupons. We want to create the utility and sell it to that cost of capital that's interested in the utility. That's where you can make unusual returns in something that's really boring like gravel parking lots.

• 30:33David Weisburd?

  What's the number one thing you've learned about time management over the last 11 years of running Cloverly?

• 30:38Speaker 01

  My time is split four different ways and each one requires about 50% of my time. And that's a really lame thing to say, but it's the reality when you have a large and dynamic team that requires time. You have a vibrant investment business with a very large top of the funnel that needs assistance from everyone on the investment team to narrow that funnel and focus on the most important things. Oh, by the way, these aren't already set up and ready to go. You have to actually do the work to create a transaction. That takes a lot of time. We are in the fundraising business. And so every so often, we are speaking with potential new investors. And then there's the regular way outbound portion of my week architected where I am making calls to friends of all

• 31:23Speaker 01

  kinds, maybe prior reference calls, maybe operators in a space, whatever the case may be, keeping the network fresh with an outbound call with no agenda. What are you looking for? Can I be helpful? Here's what we're looking at, sharing our pipeline. You know, anybody in these spaces?

• 31:41Speaker 01

  Oh, you're serious about this segment. We might be interested. And this is what we might bring to the table in terms of network and diligence and how we might get there. And you start to brainstorm and you start to receive inbounds. And so that's an important part of the week. So I think it's overall time management comes down to trade offs. It comes down to having invested in a team large enough to accomplish all of the tasks across all functional areas. And we try our best, but we still seem to work pretty hard. And that's the reason it's fun is you work very hard and then you end up talking about the largest coin collection in the world and, you know, the voluntary carbon credit market and, you know, the residual royalties tied to physical printed books.

• 32:27Speaker 01

  It's fun. We, I mean, there's something new sitting on my desk literally every day.

• 32:33Speaker 01

  We're not going to invest in it all, but it's always interesting. And we have to turn over a lot of rocks and find, find how to remain differentiated. It would be a shame to work as hard as we do and, you know, be the 80th fund in that strategy.

• 32:50Speaker 01

  So we appreciate being a bit unique, even though it's a blessing and a curse for sure.

• 32:55David Weisburd?

  If you could go back to 1996, you had just graduated Princeton, you're starting investment banking. What would be one piece of advice you'd give a younger version of yourself that would have either helped accelerate your career or helped you avoid cost of mistakes?

• 33:10Speaker 01

  That is an excellent question, and I, I spend a fair amount of time, or I should say, I have a lot of energy around having conversations with younger people that are either in our industry, private equity broadly, or looking to enter it, and they're usually younger. And your question, the answer to your question is, it rhymes with two of the things that I tell them. The first is actively look for mentors, but it's never going to be one person that you'd like to clone and become. You have to look at all the mentors around you and pull the best things out of each one.

• 33:49Speaker 01

  So when I was at Robertson Stevens and Company, my boss was the greatest relationship person I'd ever been around. And watching how he maintains relationships without lying to people, without doing the whole like, hey, I see in my notes without saying that, but

• 34:06Speaker 01

  how's your son's soccer team doing? Like, he didn't do that. He was just a genuine, really, really smart guy that people gravitated to. You would not want him to touch an Excel file. I had other mentors that were just ninjas on the analytics side. How did they become that? They weren't born that way. So trying to take little pieces is the first, the first answer. The second is pay attention to your peer network, your lateral network throughout your career. If you're lucky enough to be in private equity, you should be in constant contact with the other senior associates or the other vice presidents on the other side of the transactions that you worked on.

• 34:50Speaker 01

  Because if you roll forward 15 years, some of those people are going to be really important in our industry and really important to your career. And so saying like, hey, I think we did a deal together 100 years ago, that doesn't matter at all. But if you're still in constant contact with them, you have a network node that is not replicable. You can't create that when you're 42 because that person might be too busy or maybe you're too busy. You know, it's a, so I always tell people, keep your head on a swivel, pay attention to people, and then have the analytical chops to back it up. That's kind of the, the total package. That's what we look for.

• 35:24David Weisburd?

  Your boss at Robertson Stevens was this great relationship guy. And then there's another coworker that was a great analytics person. Do those have to be two distinct people?

• 35:34Speaker 01

  You can think about that in a number of different ways, and I don't know that there's a right answer. If you're an A minus in the three most important things in your job, you're probably pretty valued and you probably have a lot of options in mobility. Should you choose to try to do something different or start something yourself? If you're an A plus in one and a B minus in two, I believe you have less mobility, less flexibility, and arguably less value besides being that one singular tool. Because if that tool is suddenly devalued, that's the only thing you're good at. And so obviously the goal is to be an A plus in everything. And that's what you have done and that's what I have done, of course. But that's not a reality.

• 36:16Speaker 01

  So just being aware of the complement of skillsets that one can develop. I think it's important to, to not gravitate immediately to your strengths, but to lean on your strengths while working constantly incessantly on the things you need to shore up. And sometimes for younger people, sometimes that means business school. Well, which business school? Because some are more analytically focused, others are much more entrepreneurial or theoretical in practice. What's the best compliment to your existing skillset? You should think about that. You should think about it in your next job. Is it a fabulous brand that everyone's heard of, but you're locked in a cubicle? Or is it a brand no one's ever heard of? And there's a trade off here.

• 37:00Speaker 01

  I mean, you're talking to him, a brand no one's ever heard of, but the experience is richer. What are you trying to accomplish so that you can make your next step and your next step? Not just get the next best job, right? Think, picture your 40 year old self. How do you get there?

• 37:16David Weisburd?

  Thought a lot about the strengths versus weaknesses. And I think of it as multiplying by zero. So if you have two really strong traits, but you're weak in one area and you don't have the team around you, it could be a million times a million times zero.

• 37:30Speaker 01

  Right.

• 37:30David Weisburd?

  But conversely, if you do have two strengths and then you find that missing piece in the jigsaw puzzle, then you'll have far more upside than you would if you were an A minus player.

• 37:40Speaker 01

  I agree with that, and I think that's an individual statement and it's also a team statement. You have to have a diversity of skillsets and interests and personalities, honestly, to have a robust organization that can pivot, that can respond to the environment, that can solve problems. If a certain issue were to arise while I'm here on the road, I know exactly who to send that to because I know our team so well and there is usually a very clear answer, depending on the nature of problem. You know, is this a modeling exercise we need to get to the bottom of in very short order? I know, I know where that's going. Is this a relationship driven, like we have an LP that has a question? And it's a complicated question. They've misinterpreted something that they heard in the market or something.

• 38:24Speaker 01

  I know who should have that call to speak with them in a language that they will understand. So having the yeah, non-zero factors in your equation is critically important. And of course you want to make each of the factors as large as you can, right?

• 38:37David Weisburd?

  I think the hardest thing and what I'm very blessed with, with my partner Curtis is we are in many ways opposites of each other. But what binds us together is the value system. One of the most boring exercises we did is for a week before we started the firm together, we wrote down our values, what we cared about. 10 years ago, I would have thought that would be the most, the biggest waste of time. But when you have those values aligned, then you could have two different, completely different skillsets, maybe even different worldviews, but if the culture and the mutual respect is there, it could build a beautiful organization.

• 39:10Speaker 01

  I'd love to think that that's the way we've tried to do it at Cloverlay. I think the, one of the things that I'm most proud of here, 10 plus years in, is that since inception, we've had zero unwanted turnover on the team. No one has ever quit. I love that. I also love the fact that we now have 29 children among the 18 of us. And it can get a little stressful, but with 29 kids and we operate as a family. And it's, I mean, that's a throwaway line, but everyone knows everyone else's family. And that's important when you work long hours and when you hit the road for a week and a half. You know, your home base needs to understand why you're doing that. And another thing that's unique to us, a benefit, I would say almost always a benefit,

• 39:55Speaker 01

  is that every single employee at Cloverlay has a reason to be in Philadelphia.

• 40:03Speaker 01

  And so some of our shared values relate to work-life balance. We're going to work really hard, but your family's going to know why. And we are going to spend time with your family and they're going to appreciate, hopefully what the effort that you're putting in. Another value is we don't ever expect to have $20 billion under management. We don't need to. If you'd like to do that, you are not going to live in Philadelphia. So head to New York, make all of the trade-offs implied, or you can stay here and do something really interesting while working hard with reasonable ambitions where everyone is happy and everyone wins. And everyone has a enjoyable and rewarding career. That's not to say people are settling. It's people are saying, I have a high level of intellectual curiosity in this mission

• 40:47Speaker 01

  and my daily existence and everything about it works for me. So I guess maybe that's not exactly the ethics or the morals or the goals that you and your partner discussed, but that's how we think about it. Is everyone pushing in the same direction? Or are there some that are more financially motivated? Or others that are on cruise control? Luckily, we've had neither, but it's important to understand the people that you bring on to the team because obviously turnover is a difficult thing to overcome.

• 41:14David Weisburd?

  How do you deal with the ego always wants to expand and get bigger and grow bigger? How do you temper that with what you're building?

• 41:25Speaker 01

  Some of the team has probably been frustrated with my being so dogmatic, which is, we really know how to do one thing. And so let's do that as well as we can, and we will be rewarded for that thing. We've been approached by investors asking us to take a look at our industry and asset segments and create a credit strategy. Well, I'd have to double the size of the team to do that because we're already at capacity. Or we could not double the size of the team and say, sure, we'll take your money. We've never done that. We have one set of workflows and we have 18 people focused on those workflows and we will sink or swim on our ability to execute on that.

• 42:06Speaker 01

  And so expansion will come with compelling returns and an interesting position in the market relative to other private equity funds. But I don't believe it's a scalable opportunity that'll, you know, lead me to have a jet, but I don't really need a jet and the people around me don't need a jet.

• 42:24David Weisburd?

  Said another way, you're not focusing your ego on growth and AUM, you're focusing your ego on being the best and being a good shepherd of your capital.

• 42:33Speaker 01

  It's about performance and going back to the mentor question that you you asked a couple of minutes ago. I had two at Morgan Stanley, the two greatest among equals of the six of us that were running that business. Were the most balanced investors I've ever come across. There was not an ounce of promotion. There was not a minute of deal fever. It was, I think this is a very compelling opportunity that we should give thought to for the following reasons. And these are the six reasons that it could die. Let's talk about it. I try to maintain that culture where there's no deal fever, there are no silos, it's an open dialogue. Because the entire team is incentivized to land on the best investment decisions.

• 43:13Speaker 01

  And if one person does zero deals for a year, that's okay, because they should have ducked based on what landed on their desk. We never want to get into a position where people feel like they have to invest. They have to put something on the scoreboard because it's about the team's performance, not individual performance. So it's a, it's unique. I don't think it's present in a lot of other places because it can get a bit mercenary, but we're firmly anti-mercenary.

• 43:39David Weisburd?

  When you found these very balanced mentors, did you find that other parts of their life gave them more peace, their family life, their hobbies? Or do you feel that they would have just been that level headed, just relying solely on their business?

• 43:51Speaker 01

  They were the same person in the office and out of the office. I don't know how common that is. I like to think I am, but I'm probably not. Yes, they were very balanced. One, Tom, has in retirement, gone on solo kite boarding trips for weeks at a time to the kite boarding hotspots around the world. That's what brings him peace. That's his interest. He loved to ski. He would ski, I don't know how many 150 days a year or something like that. So he figured out the balance and kept himself extremely active when he was no longer at Morgan Stanley. And my current senior advisor and co-founder Corey Palfrey, who's the head of the entire business at Morgan Stanley, same exact thing. Spends a tremendous amount of time, always has with his family and lives in Montana because he wants to

• 44:35Speaker 01

  and snowboards 150 days a year and yet dials into every single pipeline call, every IC and will travel when we ask him to. So he's got the right balance between remaining active. He's 15 years older than I am and I'm about to turn 52. And he does 50% more than we ask him to do, which is phenomenal. And it's just because he has a genuine interest in it. It's, we're blessed to have those guys in our, in our network and in Corey's case in our firm.

• 45:04David Weisburd?

  Jeff, this has been absolute masterclass. Thanks so much for jumping on and looking forward to continuing this conversation live.

• 45:09Speaker 01

  Thank you again. Thanks for having me and best of luck with the rest of 2026.

• 45:14David Weisburd?

  That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find it valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.