E319: GP Stakes Investing: Liquidity, Alignment, and the Real Risk

Why would an LP invest in the GP instead of the fund… and what problem is GP stakes really solving? In this episode, I sit down with Todd Owens, Managing Partner of Cantilever Group, to unpack the world of GP stakes. Todd explains what investors are actually buying when they take a minority stake in an alternative asset manager, why liquidity risk is the central challenge, and how structural innovation could reshape the asset class.

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

• 0:00David Weisburd?

  So Todd, you're managing partner at Cantilever Group, where you focus on GP stakes. Why do you like GP stakes?

• 0:08Speaker 01

  It's a very interesting and new asset class, new in the last decade, and it provides an opportunity for investors to partner with the principles of private asset money managers. And so we think it's a very interesting space with a lot of tailwinds and a very deep number of potential targets.

• 0:30David Weisburd?

  When you invest into a manager, what exactly are you buying? And how do you look at it as an investment?

• 0:36Speaker 01

  Yeah, fundamentally, GP stakes investing is a minority equity investment in the operating business of an alternative asset manager. And what that means when you drill down is you are purchasing a participation in the fee streams that are derived in these private asset managers. So specifically, management fees, carried interest, incentive fees, and other fees that come about from managing the capital.

• 1:11David Weisburd?

  And when LPs look at investing, they could invest within the fund, they could invest in a GP stake. How should an LP think about whether they want exposure to the fund or exposure to a manager?

• 1:21Speaker 01

  That's a good question. So as an LP, you're investing in a fund that's managed by the GP. And the economics can are related, of course, but they can be different. And so if you are investing in, for example, a private credit business, those returns will be somewhere between eight and 12% at the fund level. Whereas if you're making an equity investment at the GP level, those returns are more commensurate with equity investing and more like private equity. It's a derivative of the same business, and there are lots of examples of investors doing both, being an investor, an LP in the fund, but also owning a portion of the economics at the management company.

• 2:04David Weisburd?

  What's the downside risk when you make a GP stake? And what are you exactly underwriting to?

• 2:09Speaker 01

  Well, there's a lot of ways to answer that question, but let's first start with one of the issues in GP Stakes investing, which is as a minority equity partner of the underlying firm, it's hard to predict when or even whether there will be any liquidity for that investment. You don't control the exit. So if you think about a private equity fund, the management company of the private equity fund can determine when there will be liquidity. They can determine when to sell a portfolio company. In GP Stakes, that's not the case. You are a minority equity partner and cannot make that decision. And so you are in effect betting with the principles of that firm and relying on them ultimately for your exit. So that's one of the big

• 2:55Speaker 01

  issues or concerns that one might have about investing in GP Stakes.

• 3:00David Weisburd?

  Lack of liquidity.

• 3:02Speaker 01

  Lack of liquidity or unpredictable liquidity.

• 3:05David Weisburd?

  You've seen GP Stakes managers evolve their strategy around providing liquidity to their underlying LPs. Where does that sit as a solution for LPs today?

• 3:17Speaker 01

  Yes, so for sure, the GP Stakes market has evolved rapidly and many of the managers of GP Stakes funds have pursued ways to provide liquidity to their LPs. I would say that that is still evolving really, and there's no perfect solution yet broadly defined for the market. But among the things that can happen are underlying firms can themselves be sold or go public, which results in a liquidity event for the fund and the GP Stakes investor. We've seen plenty of examples of strip sales where a portion of the portfolio is sold to a new investor.

• 3:58Speaker 01

  It's almost like a continuation vehicle and that can provide liquidity to the underlying investors. There are levered recaps effectively of the funds and that can provide liquidity. There have been some efforts to list publicly, although that hasn't been done in the United States, but there are examples of public listings in Australia and in the UK, which is another way of providing liquidity to the initial LP investors.

• 4:26David Weisburd?

  And Peters Hill, which was part of Goldman Sachs famously went public. What went wrong? Why didn't that work?

• 4:33Speaker 01

  In Peters Hill, it's important to start with the following observation. The investments in that portfolio did quite well. The portfolio performed well. The underlying investments, by and large, not all of them were perfect, but by and large, the portfolio performed quite well. The issue really was that the structure and the venue were not right for that type of a listing. Most of those investments, as a, as a, for example, or one point is they were investments into US firms. But the investors that owned Peters Hill publicly were not US investors in large part. There were some, this is a generalization, but it was harder to explain to UK investors what was in the portfolio.

• 5:18Speaker 01

  I think there were some other structural issues that they had to contend with. There were the dividend policy and how they approached that, paying corporate taxes, which was a leakage. But I think the biggest issue really was the venue had a hard time, or the investors in the venue had a hard time understanding what they were investing in.

• 5:40David Weisburd?

  And you're looking to solve this at Cantilever Group. Tell me about that.

• 5:44Speaker 01

  So we've designed our entire business to be able to list our fund publicly in the United States, and it's hard to do. Many of the larger firms like Peters Hill can't do it because the affiliate rules under the 40 Act are prescriptive. We think the only way to do what we're doing is to be an independent business, which we are focused only on GP stakes, which is what we're focused on. And there are other hurdles work that has to be done from a structuring perspective to enable us to convert our fund ultimately into a 40 Act vehicle and, and provide liquidity to our investors through a public listing in the United States.

• 6:26David Weisburd?

  Is that what you're really solving around liquidity or are there other reasons to go public?

• 6:29Speaker 01

  Going public creates a lot of benefits. For, most importantly, for our LPs, it provides liquidity and we think is a, an enhancement to the overall return profile of their investment. For our affiliates, it's also helpful because we are truly a permanent capital partner. They don't need to wonder. We talked earlier about some of the ways of getting liquidity. As an affiliate, you don't need to worry about that with our model because we have no need or interest really in getting liquidity for the underlying investments. And so our affiliates don't have to look over their shoulder or wonder about that. And then for our business, we're creating a permanent capital vehicle in an interesting

• 7:12Speaker 01

  asset class, and that would be a nice position to be in.

• 7:16David Weisburd?

  Said another way, you're aligning yourselves with the GPs that you're investing in, and you're also solving this problem for LPs. So instead of creating this ballooning issue that you have to solve in year 10, where you might have to go with a divorce with the manager, you're basically pre-solving for this problem and allowing the capital markets to work for you.

• 7:35Speaker 01

  Yes, that's a, that's a very good summary. It's not lost on us, by the way, while we were pre-solving this and coming up with the business model that many, many firms raise billions and billions of dollars to pursue GP states' investments. Still, we like our model and we like the ability to provide liquidity to our LPs.

• 7:54David Weisburd?

  One of the hardest things of investing is seeing what's shifting before everyone else does. For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and to stay ahead of consensus. Meanwhile, smaller funds have been forced to cobble together ad hoc channel intelligence or rely on stale reports from sell-side shops. But channel checks are no longer a luxury, they're becoming table stakes for the industry. The challenge has always been scale, speed, and consistency. That's where AlphaSense comes in. AlphaSense is redefining channel research. Instead of static point-in-time reports, AlphaSense channel checks delivers a continuously refreshed view of demand, pricing, and competitive dynamics powered by interviews with real operators, suppliers, distributors, and channel partners across the value chain.

• 8:40David Weisburd?

  Thousands of consistent channel conversations every month deliver clean, comparable signals, helping investors spot inflection points weeks before they show up in earnings or consensus estimates. The best part, these proprietary channel checks integrate directly into AlphaSense's research platform, trusted by 75% of the world's top hedge funds, with access to over 500 million premium sources. From company filings and brokerage research, to news trade journals and more than 240,000 expert call transcripts. That context turns raw signal into conviction. The first to see wins, the rest follow. Check it out for yourself at alphascense.com/HowIInvest. To be specific, I think there's been over 70 billion that's been raised for GP stakes,

• 9:23David Weisburd?

  more, most famously by Dial and Blue Owl, but other, there's other players as well in the space. How do you look at your positioning in the market and has that evolved over the last couple of years?

• 9:35Speaker 01

  We, by design, are focused on the lower middle market and what that, and middle market, lower middle market can be confusing. So what we mean more specifically is that we want to be able to make investments that are between 15 million, 1.5 on the low side, and 75 million on the high side, but with a focus really on the lower end of that. We like to make 20 or 25 million dollar investments into these firms. And that part of the market, for a variety of reasons, is attractive. There's less capital focused on that space. So the names, David, that you just mentioned are mostly looking at deals that are 100

• 10:16Speaker 01

  million or above. And in the market below that, there are fewer providers of capital. And so, we like that space. It's not, of course, without its risks, but we think the opportunities there are substantial.

• 10:30David Weisburd?

  How much of your deal sourcing is push versus pull? In other words, how much of your deal sourcing is solving a problem that GPs knowingly have versus selling to GPs about a partnership with Canada?

• 10:43Speaker 01

  When I talk to potential affiliates, when I talk to these alternative asset management firms about potentially selling a GP stake, I almost always say that our product is not sold, it's bought. I'm not going to talk a firm into taking our money because it's expensive. We need to get a mid twenties type return profile for our investment. We need an equity return on our investment. And if the underlying management company doesn't need that capital, I'm not going to be able to talk them into it. And so it's only if they have a need for that capital that justifies the cost that it makes sense to take our investment.

• 11:25Speaker 01

  And it's at that point really that deals can move forward. I should say, in many cases, we have conversations that last a long time. And at the start of the conversation with the manager, we're educating them a little bit on the availability of capital. And then really they have to decide if it's something that's appropriate for their business.

• 11:47David Weisburd?

  Is there an 80 20 rule to why GPs are looking to sell a stake? Are there one or two reasons why routinely come up?

• 11:55Speaker 01

  We think of them as as three reasons really. And the deals that we do have done and the deals that are in our pipeline really fall into the three baskets. The first basket is growth capital. They are using our capital in a variety of ways to accelerate the growth of their own business. The second use of proceeds is capital restructure. And so that would include, for example, buying out a retiring partner or buying out angel investors that helped stand up the firm originally. It can also include just the benefit of having a third party put a price tag on your business when you are starting to think about generational transfer and how to handle that. So that's the second bucket.

• 12:39Speaker 01

  And then the third bucket is taking money off the table. And in many of the firms that we invest in, these are principals who have been focused on building their business over 10 or 12 or 15 years. And then they're at a stage where they'd like to take a little bit of money off the table. And obviously, that's the least interesting use of our capital. But it's a use of proceeds that we can underwrite to. I would say the majority of, not quite the majority, but the biggest use is really growth equity.

• 13:10David Weisburd?

  I want to double click on that. Growth capital. Is there also two or three ways that GPs use your capital in order to grow? Are there some best practices?

• 13:20Speaker 01

  Yeah, absolutely. The easiest way to think about it is that our capital can be used to fund GP commitments. And that's, I think, reasonably straightforward. And in many cases, the funds that we're investing in have growing flagship funds. They've gone from 250 to 350 to 500 million, which means the dollar magnitude of the GP commitment is increasing. And then on top of that, many firms want to increase the percentage and believe that if they can make a 5% GP commitment instead of a 2% GP commitment, it will de-risk the capital raise or allow them to raise a larger fund.

• 14:02Speaker 01

  So that's the easiest way to think about our capital being used to grow the business. Another way to think about it is that our capital can be used to seed a new strategy. For example, and many of the firms that we invest in are at a bit of a turning point in their business where they're well established. They're on their third or fourth fund. They've been in business for 15 years. They have a good team. They have a good track record and they're starting to think about how to grow and diversify their business. And one of the ways to do that is to launch an adjacent strategy. So you can think about a mezz lender wanting to offer a senior loan product, or you could think about a mezz lender wanting to own, wanting to launch a control strategy.

• 14:48Speaker 01

  And our capital can come in handy in seeding those strategies. So that's another typical use of growth capital.

• 14:55David Weisburd?

  I want to double click on the GP commit aspect of the business because I think that's really interesting in this hyper competitive markets, very difficult to fundraise today in 2026. Is there a break even point where the managers are in a better place than before taking that capital?

• 15:11Speaker 01

  Yeah, David, I think actually by definition, in all cases, we make an investment where we assume that to be the case. In other words, if you're taking our capital and paying us a cost of capital that is, let's just say, a 25% cost of capital, you have to feel like it's worth it to do that. And that either the impact of that capital on your ability to grow is higher than that cost, or it accomplishes something else that's important to you, like a generational transfer. If you don't have a use of that capital that is comfortably above the cost, then we think you probably are looking at the wrong type of capital.

• 15:54Speaker 01

  You should perhaps borrow money from a bank or from another lender at the GP, or not do it at all. Our capital really fundamentally is meant to accelerate the growth of the underlying managers.

• 16:06David Weisburd?

  When you think about starting new product lines, let's say you're in private equity, now you're starting private credit. Is there a way to structure these GP stakes in a way that you're only giving up the upside and the new opportunity, given that the downside is taken care of? Or is it always at the parent company level?

• 16:25Speaker 01

  It's a good question. So the answer is yes. You can, you can structure it in such a way that the GP capital is, invests in only the GP of the new strategy. That's not an investment that Cantilever likes to do, because part of the critical thing in GP stakes, in our view, is full alignment with the partners and the principals who are running the firm. And if we buy only a piece of their business, then the alignment is not right. And so it's possible to do that. Many of those types of transactions are more structured. They're not equity. They can be a structured preferred, or even a structured

• 17:05Speaker 01

  debt investment, where the return is acceptable coming from the single strategy and where alignment is not as critical with the overall team. But as equity investors in businesses, we want to invest in the entire business, not just a piece of it.

• 17:22David Weisburd?

  There's this evolving term GP solutions. So you had GP staking for the first decade and now a lot of your competitors are focused on GP solutions. Give me some use cases of GP solutions that are being used in the market today.

• 17:38Speaker 01

  Yeah, so you're absolutely right. GP solutions is the idea that there are a variety of ways that an alternative asset management firm can capitalize its manager. And so the way that we talk about a cantilever is a minority equity investment. But you could imagine a firm, and we run into this all the time. You could imagine a firm who would prefer, or which I should say would prefer, to do a debt financing. They're not selling a piece of their business. The cost of capital is effectively lower. And depending on what the use of proceeds is, that might be a more appropriate way to finance the business. And so when we use the word GP solutions,

• 18:21Speaker 01

  it's a little bit like you can provide anything in the capital stack. You can provide equity, you can provide preferred, or you could provide a term loan. And that to me is capital solutions at the GP level. A more broad definition would also include things like secondaries, continuation vehicles, NAV lending, and other products that while they don't sit necessarily at the GP, the GP might use in their underlying funds.

• 18:55David Weisburd?

  You mentioned that the second most common use of GP stakes after growth levers is capital restructuring, taking out maybe partners that are no longer active, early investors that are no longer part of the fund. Talk to me about that. And how does that actually solve the problem? Aren't you just taking debt capital on the cap table and changing it to cantilever? How are you solving a problem?

• 19:21Speaker 01

  Yeah, it's not necessarily debt capital that we're replacing, although it can be. In many instances, these firms have been created with the support of, for example, friends and family. And the firm's been around for 10 or 12 years. It's done very well, but not so well that the principals feel they can buy out the initial investors. And so our capital can provide a respectful exit for the early investors. It can consolidate a relationship from a bunch of early investors to one institutional capital partner. And that's really, really helpful in the right set of circumstances for some of these managers.

• 20:02Speaker 01

  On top of that, there are many instances where the early investor was not, don't think friends and family, but think private equity or some other form of capital, where ultimately they need liquidity for their investment because they made it out of a 10-year fund, for example, and that fund is at the end of its life. And they need to get liquidity for the investment. And so by stepping in and buying that stake, we can provide liquidity for a firm like that as well.

• 20:31David Weisburd?

  The third most common case, you mentioned taking money off the table. A lot of LPs are uncomfortable with GPs taking money off the table while they're investing to the fund. Talk to me about that. And what's a red flag? What's a red flag when somebody's taking off money off the table? And what's a legitimate reason?

• 20:52Speaker 01

  That's a good question. I think it's an important, our view is that you have to underwrite the use of proceeds, regardless of the use of proceeds. And furthermore, when you look at some of these firms that we're investing in, there's a lot of overlap between a personal balance sheet and a firm balance sheet. Those are not bright divisions in firms of this size or indeed in much larger firms. And so when we are underwriting a deal, what we consider is the implication of our capital being taken out of the system. In other words, taking money off the table for the principals, to use that term. And we want to make sure that

• 21:38Speaker 01

  The magnitude of that is not so much that we would expect the principals to change their approach, to change their commitment to their business, or really to change much of anything. And so we look very, very closely at our net proceeds that are leaving the system. How does that look relative to the balance sheet of the partners who've taken the money off the table and can we get comfortable with that risk profile? I think a red flag for us as a general matter is if we're investing in a firm where the principal is wealthy, it's unclear to us why they need our money. And so typically, we would stay away from those types of situations.

• 22:19Speaker 01

  It's one of the reasons that we have a hard time getting comfortable with mid-sized hedge funds, as a for example, is because taking money off the table where the principal has already taken a lot of money off the table seems like a red flag to us.

• 22:36David Weisburd?

  I think the devil's in the details here. There's a precedent in startup secondaries. So before, it was this black mark for a founder to sell secondary. So even if it was a series D, series E, series F company, VCs would not allow it, LPs were not happy with it. And then there evolved this use case where if you could get somebody to take a little chips off the table to remove some of that stress of housecar baby, then you could really focus on how do we build a world-class organization? Because what was inevitably happening with those startups is that financial pressure

• 23:16David Weisburd?

  was forcing either that company to sell early or to go public early, both which were inefficient for everybody involved. But there's this efficient frontier maximal result where a little money could actually help align everybody.

• 23:32Speaker 01

  Yeah, look, we believe that. And I should say that among the larger firms, more than half of them have sold GP stakes. And so the path has become somewhat well-worn. And concerns about selling a GP stake, I think, have diminished by virtue of the fact that many firms have done it, and there hasn't been a significant change in how they run their business or in what the returns are. And so I think that LPs and other investors are increasingly comfortable with it. That's not to say that there are certain LPs who remain skeptical about a firm selling a GP stake. But we do think fundamentally that

• 24:13Speaker 01

  our investment enhances the ability of the firm to grow, to continue to institutionalize itself, to diversify itself, to incentivize a next generation. And when we make an investment, we are attempting to identify a firm that is a business, that will be in business for 10 years or 20 years, and will continue to institutionalize itself. And that's really the point of our capital. If we see an opportunity where we don't think a firm is capable of doing it, that would be another red flag for us.

• 24:48David Weisburd?

  There's this art to that, which is, what is a firm, or maybe a founder or two, and what is a business? How do you differentiate between those two?

• 24:56Speaker 01

  With difficulty, to be fair. That is a tough distinction to make. You get to know the firm, you get to know the principles, you get to know what they are trying to accomplish. You meet the junior team, you assess how committed they are to the business, what they see as their future with the firm. And all of those things can lead to a conclusion that it's a business, rather than just an investment partnership. But sometimes, and we've seen a number of cases where we couldn't invest because it was not clear to us that it was a firm. We can underwrite lower growth in our investment model, but we have to have some growth. It has to be a business. And what I say in some settings with potential

• 25:40Speaker 01

  affiliates is, I don't need you to double your business in five years. I need you to just be growing steadily. Doubling would be great, don't get me wrong, but I need you to grow steadily, and I need you to be there in five years and in 10 years. And that's really the basis of our investment.

• 25:56David Weisburd?

  What are you looking for in managers when assessing whether you want to invest in them?

• 26:01Speaker 01

  Any asset management business starts with returns. What is the return profile? How do they compare to other competitors? And what does that mean in terms of their existing LP relationships? I mean, that's very fundamental. A second thing is, do we believe the management team? Do we believe the principals and founders want to continue to grow and build their business? We talked about that a little bit already, so that's fundamental as well. There are a lot of, I don't want to call it ticking the boxes, but making sure that all of the infrastructure makes sense, that the SEC filings are good,

• 26:42Speaker 01

  and all of those other things also bear on the overall underwriting. But really, asset management is a people business. You have to respect and trust the firms that you're investing in and believe that you're aligning your own interests with their long-term interests. And that involves getting to know the principals and ultimately making that judgment. That's the most, I think, the most difficult and the most important thing that we do from an underwriting perspective. The firms that we're investing in are usually on their third or fourth fund. And so by definition, their performance has been good enough to get to a fourth fund.

• 27:25Speaker 01

  By definition, their relationships with LPs are good enough to get to their fourth fund. And at that point, you need to understand what direction they're taking the business, what they want to build, and can they replicate the success that they've had so far?

• 27:40David Weisburd?

  Like we mentioned, this art of figuring out whether they're a person or a firm in a sustainable business. How long does it take to assess that? The qualitative measures of a team and what the future of their firm looks like?

• 27:53Speaker 01

  It can take a long time. I mean, we have, for many of our investments, we are in conversations with the firm for a year or more. We have conversations ongoing today that are 18 months long. And so it can take a long time. At a minimum, if we're involved in an auction process where there's a banker involved and they're speaking to a number of firms, that's a process that is pretty intensive, but it's three, four, or five months usually at a minimum.

• 28:23David Weisburd?

  So even though it's an auction, there's still a lot of dating going on to make sure there's fit.

• 28:28Speaker 01

  There is, and the dating is important both ways. It's important for us as a minority equity investor, but it's also important for the affiliate to understand what we're motivated by. Do we have a common vision? Is this somebody that you want as your capital partner for five years, 10 years, 20 years? And that's a big step for any firm to take, and it's a big step for us to take as we're making our investment. And so we do spend a fair amount of time with the affiliates.

• 28:55David Weisburd?

  Are there cases where it's a good investment? You have downside protection, you see your path to your return, you decide to say no?

• 29:06Speaker 01

  Yeah, for sure. I mean, that happens, has happened a number of times. Sometimes it's that we can't agree on price or that they have a higher priced offer from another firm. We lost two deals last year. In each case, because we were uncomfortable moving to a higher price. Both of those were great firms, but we couldn't get there from a price perspective.

• 29:34David Weisburd?

  So you invest and now you're a partner in the business, you own a stake of it.

• 29:40David Weisburd?

  How do you come in as a partner and provide value to the underlying GP?

• 29:44Speaker 01

  We think about it really in three components. The first component is that our capital is by itself strategic. If the firm goes out looking for growth capital and decides to do a transaction, they need that capital to achieve some of their objectives, whether that's growing, whether it's capital restructure, the things that we talked about earlier in the podcast. So that's, that's number one. Our capital is by itself strategic. Number two, we bring decades of experience advising asset management and alternative asset management firms. And as a capital partner, we are also a strategic partner.

• 30:25Speaker 01

  And we believe that we can help them think about strategic topics, how to grow, how to diversify. Should we add a product? Should we add a step out investment strategy? Should we hire a team? Should we buy a team? Those are types of topics that we have substantial experience in. And in in the part of the market that we're focused on, these smaller firms, they don't always have ready access to that type of advice. And we have found that for the conversations that we have with potential affiliates, that that is a very attractive thing. And then the third bucket is really something that we'll build over time,

• 31:07Speaker 01

  which is to provide our affiliates with available services or offerings that can help them in their business. Many other GP stakes firms have built similar support structures. And we will, as we build our portfolio, add those as well. That can include distribution. For example, that's a critical thing for these firms. It can include advice around generational transfer, another critical thing. And so, but we will build that over time and make those available to our portfolio companies. I should have really started the answer to your question to point out that we are, our capital is by itself strategic.

• 31:51Speaker 01

  It's also passive and permanent. And, and so we start with, can we help you? But we're not going to control the business. We don't want to control the business. We want the principals to control the business and make the important decisions. If we can be additive to that, we're delighted to do it. But fundamentally, ours is a passive type of investment.

• 32:12David Weisburd?

  The GP is the main character. You're an advisor.

• 32:15Speaker 01

  Exactly right.

• 32:16David Weisburd?

  One of the most interesting things about GP stakes is when you invest, you're on the GP side versus the LP side. Are there strategic benefits to being on the GP side? And if so, what are some of those benefits?

• 32:28Speaker 01

  When you're investing at the GP, you are really partnering with the founders, with the principals of the firm. It's critically important for a GP investor as well as an LP investor that the underlying performance of the funds is good. The returns are good and the core strategy that drives everything. And so there's no misalignment in that regard. But as an investor at the GP, there are potential strategic benefits. We see co-invest deal flow that we wouldn't otherwise see. We see interesting potential future investment opportunities. We can help these firms also think about other strategic things, like for example, selling the firm.

• 33:14Speaker 01

  In our part of the market, we wouldn't be surprised that a number of the firms we invest in ultimately sell control of their firm in five years or seven years or 10 years. And so we can help them think about that as well.

• 33:28David Weisburd?

  You're in a very interesting part of the market. 15 to 75 million dollar deals. So you're in lower middle market. I'm sure you get pitched many venture capital firms that want to sell a GP stake. Is there some product there, whether currently or evolving, that makes sense for you guys to invest in a venture capital firm? And if so, what does that product look like?

• 33:50Speaker 01

  So investing in venture capital businesses, we think is difficult. And the reason for that is that it's hard to persuade yourself that there's enterprise value, that there's really a business in our part of the market. It's clear to us that there are large venture capital businesses that are businesses that have enterprise value. In the smaller end of the market, it's harder to come to that conclusion. And, and so the bar for us is quite high when we think about investing in a venture capital business. We don't like the fact that there are a few barriers to entry. And we also don't like the fact that there are a few barriers to exit. And that actually is even of the two, the more concerning. Where we've found opportunities that we like, and we have not made an investment in a venture

• 34:34Speaker 01

  capital business, but where we have found opportunities that we like, it's often a venture capital business that has built other parts of the business that are hard to replicate, that would take years to build. So we've seen, for example, venture capital businesses that have created an AI-generated sourcing engine for their investment strategy that has significant, has a significant database. And when we look at that, we see a business that would be hard to replicate. The principals just can't leave and walk across the street and start over. And so that begins to feel more like a business to us. And it would be something like that, I think, that would open up the idea of an investment in a venture capital firm.

• 35:19David Weisburd?

  Just to play devil's advocate, you mentioned barriers to entry. What are the barriers to entry when it comes to private equity and private credit that are different than venture capital?

• 35:27Speaker 01

  In other types of alternative asset managers, the barrier entry is that it can take a long time. It's a more steady progression. If you raise your first fund and do well, and then you raise your second fund and your third fund, you've really sort of created something that you can look at and audit. The same is true to a degree in venture capital, but the issue is that that second fund may make all of the principals extremely wealthy. Or that second fund might be something that performs very poorly, and at which point the venture capital firm can just shut down and walk across the street, go to the beach for a couple of years, and then start over. That's not investable for us. And so there are overlaps,

• 36:09Speaker 01

  and there are similarities. But when you look at private credit, or private equity, or infrastructure, or secondaries, there's much more of a repeatable investment process than you typically see in the venture space.

• 36:24David Weisburd?

  Said another way, venture could be too volatile for its own good as a GP stake.

• 36:29Speaker 01

  Yes, that's a better way of putting it. It can be too volatile, both on the upside and the downside.

• 36:34David Weisburd?

  If you could go back to 1990, when you had just graduated college and you started at Goldman where you became a partner, what would be one piece of advice you'd give a younger Todd that would have either accelerated your career or helped you avoid costly mistakes?

• 36:48Speaker 01

  I talk a lot to folks who are starting their career on Wall Street. And what I talk to them about is really a couple of things. Number one, invest in your network. If you go to work at a place like Goldman Sachs, the people who are sitting around you and the people that are in your analyst class or your associate class are going to do amazing things. And, and so spend time and be deliberate about building out your network because whatever you do in the future will benefit from those types of relationships. The second thing I tell people is do something that you enjoy.

• 37:28Speaker 01

  If you hate your job, you're not going to be good at it and it's a waste of everybody's time. So find something that you love to do. And you will enjoy it, of course, but you're also going to be better at it. And so that's the second, I think, piece of advice that I give to folks. And then the third thing is there's a, there's a career arc for most people and significant investments at the outset pay dividends in the long run. And so be prepared to work really, really hard, particularly in the early years of your career. And you have to trust that that will pay dividends in the long run.

• 38:05David Weisburd?

  Absolutely. Well, Todd, this has been an absolute masterclass. Thanks so much for jumping on the podcast and looking forward to continuing this conversation soon.

• 38:13Speaker 01

  David, I appreciate the time. Thanks for having me on.

• 38:15David 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.