E298: How Family Offices Think About Illiquidity, Taxes, and Compounding

How do tax efficiency, private markets, and structural change intersect in modern portfolio construction? David Weisburd speaks with Jeffrey Fulk about his career across hedge funds, fund-of-funds, and wealth platforms, and how AlTi Global approaches tax-aware investing, private credit, evergreen structures, and evolving access to private markets. Jeff shares insights on where opportunity is emerging as markets shift and why after-tax outcomes increasingly drive investment decisions.

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

• 0:00David Weisburd?

  So Jeff, you've had a prolific career, starting with being a top PM at Guggenheim Partners, to your time at Hightower, to today, you're at Altie Global, which has roughly $100 billion in AUM. But I want to go back to 2006, early stages of career, when you were at Signet Capital Management. Tell me about that experience.

• 0:25Speaker 01

  Yeah, it was really serendipitous. So, you know, even before my whole finance career, I started as a golf professional. So I came out of undergrad and taught golf for a couple of years. And my entryway into finance was really post-grad school. I ran into one of the members of the golf course that I used to work for, and he worked for Signet Capital. And this was a burgeoning fund of funds business at one of the best times to be a fund of funds investor. And they were growing assets quite quickly. They were largely a European firm, and they were looking to grow in the US. And so they brought this gentleman into the business,

• 1:07Speaker 01

  originally as a consultant, and then tasked him with the responsibility of building out the US business. And because the job was initially going to be from his basement, he wanted somebody that knew his family and he was comfortable having in his house. And this was kind of back before the era where people were working from home, or it was common to work from home. And so that's what got me my shot in this industry. I got a six months contract with Signet, and basically it was off to the races. The market was really attractive for opportunities in hedge funds. Everyone was looking to allocate to hedge funds because they were exciting and they were at the forefront of finance.

• 1:48Speaker 01

  And so all the stars aligned, and that kind of put me on my path to, you know, where I am today.

• 1:54David Weisburd?

  So tell me about how the collapse of long-term capital management led to the opportunities at Signet.

• 2:02Speaker 01

  Yeah, this is a great story and it really frames how we think about investing more broadly and how we pull that forward through different eras of investing. So what was fascinating about long-term capital management is it was really the culmination of all of the modern portfolio theory that was created in the seventies to the nineties. And a lot of this came out of the Chicago Booth School where modern portfolio theory, Black Scholes, option pricing, and all of these more sophisticated investment techniques were brought to the forefront and really led to the proliferation of derivatives in the market. And so, long-term capital management really took this to the extreme and they were doing

• 2:46Speaker 01

  these trades that were based on an efficient market hypothesis. And they basically pushed it so far into a market that was not broad enough or deep enough or sophisticated enough to handle what they were doing. And so, when long-term capital management collapsed, it created this incredible opportunity in the market. And so, relative value fixed income spreads got really wide. There was opportunities in emerging markets and the hedge funds that came out of or after long-term capital management had this unique lens into where markets were going. Just they got ahead of what the market could sustain.

• 3:27Speaker 01

  And so, post the collapse of long-term capital management, there were all these really interesting and compelling strategies. And that led to this really fantastic era that I talked about earlier in terms of the opportunities we saw in the hedge fund space and why so much money came in to that market from 2000 to 2007, 2008.

• 3:47David Weisburd?

  Span on that, why were there so many opportunities in the hedge fund space during that decade?

• 3:52Speaker 01

  Yeah, so when there had been so much money that had gone into groups like long-term capital management and then the banks were copying trades that they saw long-term capital management doing. And so, they took these prices to extreme levels. And so, maybe a good example would be merger R became a really interesting strategy, which is you play an M and A investment. And so, if XYZ company gets bought for $30 a share, typically it'll trade at a discount to that, so let's just call it $25 a share. And what long-term capital management did was they brought this efficient market hypothesis

• 4:34Speaker 01

  to the pricing and they said, well, if this deal is going to happen at 30, it should be much closer to 30 than it is to 25. So we'll just put a lot of leverage in this trade and basically bid up the price. And as they did that, it got closer and closer to 30. And then when the leverage unwound, there was dislocations across the market. And so those, that 30 went to 25, went to 22. And so we saw these opportunities across the board. And we saw the market see what happened in 1998 and 1999 and what markets could look like in the future. And basically, it allowed markets to move forward and progress. And then the strategies

• 5:19Speaker 01

  kind of backfilled and stepped into that broadening and deepening of markets. And we've seen that throughout time in different cycles. And we spend a lot of time thinking about what opportunities we see today from markets expanding and maybe expanding ahead of themselves. And then what opportunities are created around that?

• 5:40David Weisburd?

  And today, as I mentioned, Altiglobal has roughly $100 billion AAUM, some across the wealth, some across institutional. What are the key asset classes that you guys invest into today?

• 5:54Speaker 01

  It's a great question. I think the market's evolving a lot here and it's, it's a really fascinating dichotomy in terms of where we're looking for these opportunities. And so the first bucket is around tax-aware strategies. And since we're a wealth management platform, this idea of participating in investment opportunities in a more tax advantaged way is really compelling and something that our clients are really interested in. And it aligns really with where the opportunities are. So some of these opportunities are in some of the most tax disadvantaged structures. And so if you can put, put a good tax structure around it, it's really compelling. And so the example that I like to use is historically, on the equity side, people would use tax loss Harvesting as a strategy.

• 6:40Speaker 01

  And basically, you would sell some of the losers that you have in the portfolio and offset gains in the winners and you would have a better tax outcome. But people have been doing that for 10 or 15 years. The market has only gone up and to the right. And so now there's very few investments that have losses in the portfolio. So anything you trade creates a gain. And then when we go back and look at some of the strategies that we saw in the hedge fund business back in the 2000s, 130-30 strategies were really interesting back then. And so if you can now add basically a fully exposed portfolio by being 130 long and 130 short, so your net's 100, you can still get that market exposure.

• 7:22Speaker 01

  But the 30% of the portfolio that's short is generating losses as the market's going up. And so that creates a really interesting opportunity for tax loss harvesting. And it's really helps clients when they're investing and looking for distributions and things of that nature, but don't want to have the tax consequences of selling just purely profit profitable investments.

• 7:43David Weisburd?

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• 9:08David Weisburd?

  For listeners, a sense of the scope of these tax loss harvesting strategies, several of these strategies will throw off 100% capital loss in the first year. So you have a $10 million capital gain, let's say on January 1st, you invest that money, it'll throw off a $10 million capital loss for that year. There's a lot of caveats, and this is not tax advice, this is not investing advice, but it's become this part of the market that's just white hot. You have, I think, Quintino, you could correct me if I'm wrong, but I think it's gone from something like $1 to $30 billion within 12 months. You have AQR, that's deploying close to $100 billion. You have many firms going after the strategy

• 9:52David Weisburd?

  in today's market as well and trying to replicate it as well. Is that the kind of strategy that you're talking about, this long short tax loss harvesting?

• 10:00Speaker 01

  That's exactly correct. And you can optimize the structure for whatever the particular client's needs are. And so this idea of customization based on a client scenario is extremely valuable. And there isn't just a cookie cutter approach to this market, which makes it really helpful. And so in the most extreme example, which you kind of touched on there, was if you had a zero cost basis stock. And you wanted to diversify your exposure beyond just holding that one stock. You can deliver that in that individual stock in to one of the managers that you mentioned, and they can build a portfolio around it over time, leveraging the losses that they're generating. And they can use a fair amount of leverage in a lot of these structures, especially if the

• 10:45Speaker 01

  security that's being delivered has a large market value to it. And then they can diversify away from that single stock exposure all at the same time, creating the ability for you to take some distributions that are tax advantaged.

• 11:00David Weisburd?

  Who are the other large players in the space? I'm not asking you to qualitatively assess them, but just in terms of like the biggest players, who would you put in that same bucket as an AQR and Quintino?

• 11:10Speaker 01

  You've highlighted the two that are the most popular. Other groups are getting into this market, and I think people see these opportunities. And so a lot of the quant hedge funds that have historically focused more on high value, high fee structures are increasingly looking at these opportunities and seeing the potential to enter these markets, especially given they have all the tools that they need. The governor on all of this is you have to be a very sophisticated investor on the quantitative side because you don't want to run factor risks. You don't want to run any portfolio complexity

• 11:52Speaker 01

  risks associated with your longs and shorts positions where you have the potential to materially lag your desired index. And so you have to have very sophisticated quantitative tools to be able to match the factor risk so that you don't end up with any surprises from a purely performance perspective.

• 12:11David Weisburd?

  Said another way, you have to be a good investor because you're picking what to go short and long. So you're shorting GM, going long Ford, or the opposite because you have to stay close to index. So you have to know which one of those is, is on average can be better. And they do this across hundreds and if not thousands of stocks, but you have to be, you have to have picking ability.

• 12:32Speaker 01

  That's right. And you also have to understand the correlations and the betas of those names to the market because you want, if you have something that has a 1.5 beta to the market, you, in order for you to be hedged on the short side, you have to be confident that you're going to deliver a 1.5 beta on the short side. And where people get into trouble is, you know, sometimes the shorts that they like would have a 0.7 beta and the longs that they like have a 1.5 beta. So if you just do it on a spread trade, your betas are misaligned. And so you need alignment on your betas for the, to be able to achieve your, the correlation that you want to the index that you're trying to deliver a solution against.

• 13:14David Weisburd?

  One of the other criticisms of this strategy is the unwinding of the positions. So talk to me about that. Let's go back to that same example. I founded a company. I sold it for 10 million, or I have a $10 million position that I want to sell. How do I unwind myself from this $10 million position, this tax house harvesting vehicle?

• 13:38Speaker 01

  So the way that these structures typically work are that they will sell a portion of that $10 million position year one. And that will create, let's just call it a $1.5 million

• 13:55Speaker 01

  capital gains tax. And so then they will create a levered portfolio around that position. And through the trading of that, they will try to harvest the equivalent of the 1.5 in losses to offset that gain that they already realized on that name that then they use that 1.5 million to trade the rest of the portfolio. And so over a three to five year period, depending on the amount of leverage that you're willing to use, you can kind of disentangle that single position into a fully diversified position. And then maybe more specifically to your question, at the, at some point down the road, you are going to have positions again with a lot of gains in them. And if you wanted to sell them all at any one point in time, you would inherently have a gain.

• 14:39Speaker 01

  But as long as you give this time to work itself out and you can take specific distributions over time that are offset by losses in other parts of the portfolio, it is very tax efficient.

• 14:51David Weisburd?

  Give me a hypothetical case. I know there's a lot of factors, but is this someplace where you could go into cash in 10, 20 years? Or do you always have a small portion of it? That's perpetually out there? And how should you think about time value of money and all these other factors in implementing the strategy?

• 15:09Speaker 01

  Yeah, most of these have a very, like, they'll target a date to where you could be pretty much fully liquid if you want to, and you could liquidate with how much leverage you're willing to use, because the more leverage you use, the more losses you generate on the short side. Most of the models we see are between five and 10 years in terms of being able to do that. And then in terms of opportunity costs, the opportunity cost should be very limited. If the manager does a good job delivering returns against their target index that they're using as a proxy for the return that they're delivering, there shouldn't be any slippage.

• 15:43David Weisburd?

  Said another way, even if you're like me, where you have a ridiculous amount of percentage in alternatives and private investments, which is a topic for another day, you still want some exposure to publics, even if it's 20, 30, 40% instead of the typical, you know, 60, 60 to 80. So having that within a structure that has tax benefits is smarter than a structure in the same index that has no tax benefits.

• 16:12Speaker 01

  That's right. And we do like to marry up these strategies on the tax advantage side with the profits that we know that are going to be generated on the alternative side. It are going to come through in the K1 statements that clients are going to get. So if they have losses that they can deliver into against their K1 profits, it's quite valuable as well.

• 16:33David Weisburd?

  And perhaps this is an overly simplistic or not a conservative enough way to look at it, but I'm always amazed the things that people care about and the things that they don't care about when it comes to taxes. So one is they might not care that 35% of their money is going to go to taxes, but they're hyper focused on what is my tracking error on this index? Am I going to get 10% versus 11% or 12% versus 11%? Whatever that is, they're hyper focused on this and not hyper focused on the guaranteed zero and 35% of their portfolio.

• 17:10Speaker 01

  I think that's fair. I think that's evolving quite a bit. If I had gone back in my career 10 years, we were just hyper focused on how much alpha we could create in client portfolios. Independent of the tax consequences of those investments. And I think as we have more solutions from a tax advantaged perspective, as you can do that across many different asset classes now.

• 17:35Speaker 01

  There's definitely a much more focused awareness on tax situations and what you're delivering after tax. And I think it's something the whole market has really evolved in over the last five years. And it's why you're seeing this proliferation of vehicles that provide a solution into this market.

• 17:54David Weisburd?

  Last time we chatted, we talked about private credit. You believe we are not in a private credit bubble. Why do you believe we're not in a bubble? And how do you look at gaining exposure to private credit?

• 18:09Speaker 01

  Yeah, it's a great question, and I feel like this topic has gotten even more hotly debated since the last time we we talked about it. So I think our fundamental view on private credit is that you are lending capital to a company in the direct lending market. And so the idea of there being a bubble in that kind of structure is not how we would kind of think about it, the opportunity. Because if you were partnering with really good credit underwriters and they're underwriting that credit risk, they should get their money back at the end. And so I think oftentimes this conversation around bubbles in private credit really talk about the fundraising environment. And then the pocket of the market that we really love right now are credit secondaries.

• 18:51Speaker 01

  And if you think about credit secondaries, these were loans that were done anywhere from two to five years ago. The spread on these loans are 550 to 650 over base rates. And now the market's more at 430 to 470.

• 19:11Speaker 01

  And so you're getting inherent spread uplift. Also, there's a lot of sellers in the market because private markets more broadly have a DPI problem. And so there's investors that are looking to sell these opportunities. And a lot of these transactions are happening on a proprietary basis. And so it's basically principal to principal transactions that can be done quickly and discreetly. And so the outcome becomes really attractive pricing on these opportunities. The nuance in terms of what we're spending a lot of our time doing is because these secondary transactions come at a discount, some of that is capital gains. And what's really nice about how these discounts work is typically the reference date is several

• 19:55Speaker 01

  quarters, they happen with a several quarter lag. And so we're looking at some transactions right now that will close at the end of the year where the reference price is June 30. And so we've been able to see how these companies have performed over almost a six month period. We've seen the interest collection over that period of time. And we've just seen a really good opportunity to buy quality loans at a discount. And then based on how GAAP accounting rules work. And because we're investing in private credit transactions, secondary transactions, where there's a GP sponsor behind it, we then mark up the holding of that investment to the reported NAV from the underlying general.

• 20:41David Weisburd?

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• 21:24Speaker 01

  A partner.

• 21:25David Weisburd?

  In that same vein, fixed income ETFs have been generating a lot of buzz. Why would someone go about investing into a fixed income ETF?

• 21:35Speaker 01

  So maybe I'll break this down into two things. One, investing in ETFs and two, why we think the ETF-ization of the fixed income market has created a really compelling portfolio construction argument for private credit from an asset allocation perspective. And so on the ETF side itself, the market in general loves ETF structures. They're really easy to understand. Clients can easily access it through brokerage accounts. If you were to invest in individual loans, you know, they're oftentimes done by appointment or then you'd have to go into a mutual fund and the mutual funds have their own issues, especially around passing through of taxes.

• 22:19Speaker 01

  And so the ETF has become a very clean and easy way to gain access to high yield in the leveraged loan market. And I would expect that market to continue to grow. And why that is so important from our perspective is as there's been this ETF-ization of credit markets more broadly, there's this inherent risk that because the ETFs can be traded and traded in the same way that an equity security or an equity ETF would trade, the potential for those asset classes to collapse in correlation, especially when there's a risk-off environment where people are selling investments more broadly.

• 23:04Speaker 01

  The ability to kind of sell those ETFs means that investors may distinguish less between are they selling a fixed income ETF or an equity ETF? And so you have this potential for volatility and the movement away from intrinsic value on the credit side to be more apparent, just given where we've gone on the ETF side of. And I think that's, that's super interesting within the context of how credit markets have evolved over time. So if you went back to the eighties, the correlation of a credit security to equities was typically zero to point two. In the 90s and 2000s, when you had kind of WorldCom and some of those credit-related

• 23:47Speaker 01

  issues, it got as high as 0.6. Right now, we're probably running in the 0.4 to 0.5 range from a beta perspective. And so the worry there is if you get a sell-off and that beta goes to 0.8, you're not really getting diversification from your credit investment that you were hoping. And so this concept of a 60/40, you know, potentially has this correlation risk involved in it. Whereas on the private credit side, there's no risk that it can trade in that manner. The pricing is really tied to the intrinsic value and the, and the underlying ability of that company to make its interest payments.

• 24:27Speaker 01

  And so even in a more difficult environment, the correlation of the private credit portfolio to an equity portfolio should be very different. And that's part of the value that we see of using private credit in a portfolio construction context. And we talk about layering private credit into as a, in as a portion of a fixed income, the fixed income side of an investment within a client portfolio.

• 24:53David Weisburd?

  There are so many trends to unpack in privates. One of the maybe least talked-about trend in terms of the influence I believe it'll have is 401Ks going into privates. What are the second-order effects of 401Ks, which will soon be able to invest into private assets?

• 25:14Speaker 01

  It's a great question. We're monitoring this closely because it's moving a lot in real time. The administration just passed this democratization of private investments into 401Ks. And so some of the rules haven't even been written yet. We've been talking to some of the big players in the 401K space, and it looks like, you know, there's two avenues that this is going to go down initially. And both of them are within the target date space. And so the ability to incorporate privates into target date funds is something that all of these groups are pursuing. The first way that they're looking at this, and this is something that will probably happen sooner rather than later.

• 25:54Speaker 01

  And we'll see groups pushing the envelope here uh in terms of what opportunities they can capitalize on. But the mutual funds that are part of the target date funds now have more freedom to invest in private investments out of the mutual funds. And so historically, growth mutual funds would dabble a little bit in late-stage private venture markets. And so you'd get a little bit of that exposure.

• 26:20David Weisburd?

  Wellington fidelity, that that's that's the genesis of their entry.

• 26:24Speaker 01

  Exactly. And now there's kind of a green light for that to expand. And so I think you're going to see more of that. I think you're going to see more of it as this concept of private companies that look more like public companies, whether it's OpenAI or Anthropic or these companies that historically would have been public, but for a variety of reasons, aren't public now. Uh, and so I think that's kind of the first way. And then the second version of this is I think the industry is moving towards this concept of you're going to have your 2060 target date fund. And you're going to have your 2060 target date fund star P or something like that.

• 27:03Speaker 01

  That's going to be make portions of the target date investments into your traditional institutional style private uh managers. And so some of it will be on the private credit side, some of it will be on the private equity side. And then basically in that uh the 401k participants are going to have this option to be able to look at which ones they prefer. And I think if it's done well, these private, the star private ones, you know, will attract dollars that way and and be a really interesting addition to the 401k platforms.

• 27:40David Weisburd?

  If you have a 2060 target date fund, so that's 35 years away. It's absurd for it to all be liquid because that's almost the number one place where you should have liquidities in in your retirement account. I'm actually advocating and trying to get this idea that when these funds go out to the retail market, which today is defined as $5 million plus qualified purchasers, but still a much less sophisticated audience than say the endowments and the pension funds. I think they should actually have the target date of when the fund ends in the actual name. So you should have ABC Private Equity 2035 Fund.

• 28:24David Weisburd?

  And I think it's, there needs to be a collective effort to educate investors on just what it means to be illiquid, because I think it's one of those things that some people don't even understand. But even when they do understand, they don't viscerally understand, and they may not internalize what it means to be illiquid for 10 years. So I think as much as GPs and funds can just make it as explicit as humanly possible, I think that's going to be great for the entire industry.

• 28:52Speaker 01

  I think that makes a lot of sense. We're also seeing a lot of innovation in the evergreen structures that potentially put additional pressure on these managers to create that liquidity in very specific timelines. And the managers having to be more thoughtful around how they're constructing portfolios to be able to provide that liquidity, which I think is helpful in the 401k context, but I think it's really helpful for wealth clients to be able to access this market with the ability to tap into periodic liquidity as they need it, instead of being held captive to the private equity managers determining when they provide that liquidity.

• 29:29David Weisburd?

  What's the best use cases for evergreen funds today? What asset classes?

• 29:34Speaker 01

  We love it in private credit because there's a fixed date when the principal gets paid back, and you're getting interest payments along the way. And the interest payments along the way can be used to provide the periodic liquidity that needs to be, that the managers can provide to do the share repurchases on a quarterly basis. So we think that's a really good fit. We like it in private equity, but it's harder to get the visibility into the liquidity. But what's really great about the private equity side is the biggest hurdle some of our clients have with going into private equity is managing the capital calls, ramping up the exposure to the market, getting the timing right on when they're making these allocations, things of

• 30:19Speaker 01

  that nature. And the evergreen structure solves all of that. So there's no J curve. They're participating in the market. And you take this concept of, let's just call it an 18% IRR, and you turn that, convert that purely into a multiple of money. Whereas, an IRR and multiple of money can diverge quite significantly in a closed-end fund, depending on the timing of the cash flows. And so, we like the purity of the multiple of money you're getting on your investment much more reflects your IRR.

• 30:53David Weisburd?

  It's funny, because a lot of people in the institutional world will kind of look down at, well, how can you not manage your capital calls? But they forget a couple of things. One is, they themselves don't have to really manage them. Usually, there's back office. Some people's entire job is to actually manage capital calls. And two is, to that same point, I might be investing in venture or private equity, and I might want to put in 250,000 into private credit. Do I want to spend 100 hours a year managing capital calls? Or would I rather put that in the evergreen structure? Maybe I lose 100 to 200 basis points in alpha, you could

• 31:34David Weisburd?

  argue, which, there's arguments to the contrary as well, based on fees. But let's just say, even I'm losing a percentage per year, I'd rather actually eat that percentage, pay 2,500, and not spend 100 hours. So I think there's something very pragmatic about not managing all this headache in assets that you're not, it's not your full-time job to manage.

• 31:59Speaker 01

  Yeah, and then what really warps your mind is, if you do lose that 200 basis points, do you actually still get a better multiple of your money? Because you're fully invested that whole time, and get a better outcome on a dollar perspective by being in the evergreen structure?

• 32:16David Weisburd?

  Several family offices have told me that they're actually having some of their clients redeem from the flagship funds or from the non-evergreen funds and invest into the same exact side-by-side evergreen fund as the core fund because it's just the same structure with more liquidity and lower fees. What do you think about that?

• 32:42Speaker 01

  We're hearing that trend a lot as well. I think where we

• 32:45David Weisburd?

  Can you double click on that?

• 32:46Speaker 01

  Yes, for some of the reasons that we've already touched on in terms of the efficiency, the potential better return outcomes, the lack of operational stress. This idea that instead of re-upping in a private equity buyout fund every three years, because these managers will come to market every three years, you have to fill out your commitment documents, you have to manage the capital calls, you have to basically start with small amounts of capital called to build up your position and then take distributions and figure out what your recycling of that capital will look like over time. In the evergreen structure, that's all handled for you on the backend. And if you have a really good institutional

• 33:28Speaker 01

  partner, they will optimize that to improve your outcome in terms of the capital efficiency of your money. And it's very hard to kind of align your distributions since you have no idea when they're coming to capital commitments. If you had a target allocation to private equity of 10%, it's very hard to manage that through a private closed-end fund. And so we're seeing groups wanting to use these evergreen structures to ensure that they're maintaining the exposure that they want to private equity or private equity buyout in this case.

• 34:04David Weisburd?

  How strong are these regulatory protections that you know that the side-by-side funds you're getting similar exposure to if you were to go direct into the capital called a form of the fund?

• 34:18Speaker 01

  As an investor, I would not rely on kind of regulatory protections on this. I think I would rely on the trust that you have in the underlying general partner that you're investing with and alongside.

• 34:32Speaker 01

  We've seen this over and over again throughout various cycles. That unless you choose the best practitioners and the most honorable investors, there's always the ability to kind of move things around. There's going to be reasons why that they boo, you know, you know, there was one deal that they couldn't fit into the Evergreen Fund or things of that nature. If it's like a really good deal and, you know, there's some questionable practices happening. So in the end, and especially since you're in an Evergreen and you're probably going to be there for five to 10 years, you know, you need to find groups that you really trust and that are making decisions on your behalf. And you want to make sure the incentive alignment is there of that they have the incentive

• 35:17Speaker 01

  to make the right decisions in a lot of cases.

• 35:19David Weisburd?

  What are you seeing in the private equity market today? Whether large buyouts, lower middle market, middle market? What's your read on the market today? And what do you see evolving there over the next three to five years?

• 35:34Speaker 01

  Yeah, it's a great question. I get this all the time because there's just been a lot of negativity around private equity. And that's especially in the buyout space. You know, you had a lot of negativity around venture and that seemingly has come back with some of these, you know, big deals that have been done recently. But I think what the general investing population has been thinking about buyout is you had this great run in buyout because interest rates were coming down from, call it the 90s, all the way through to 2020.

• 36:08Speaker 01

  You also had lower entry prices and now entry prices are higher and it's, you know, interest rates are higher as well. But from our perspective, we see these really interesting pockets of opportunity. And so the first one is on the buyout side within continuation vehicles. And so this idea that you can acquire trophy assets through a continuation vehicle investment. These are investments that have probably been held for five, for four to five years.

• 36:39Speaker 01

  And you have the potential to make an investment in here and maybe there's a monetization event in an additional four to five years. And so we like that aspect of it. We also think that there's kind of just a scarcity value to trophy assets. And so if you're doing continuation vehicles well and acquiring these high quality assets, they inherently have some value. And then the continuation vehicle has a lot of the dynamic that secondaries have in the sense that they're typically coming at a discount to the price because that's what's needed to transact on on those investments. And we like it better than the secondary market because in the secondary market, you have to buy a pool of assets. And it's really hard to underwrite the entire pool of assets, whereas the continuation vehicle in most cases are the deals that we like.

• 37:24Speaker 01

  You're buying a single asset and so you can really get confidence around this single asset. The secondary of buyout that we like really ties back to the platform shift that we're seeing in AI. And so where we see buyout really working is in the ability to add value to portfolio companies. And so there's a select group of buyout managers that are helping deliver AI solutions into their portfolio companies. And we see the ability to do what happened in the 2010 to 2020 area, which was really around cloud migration and digitalization. And so the best buyout managers during that period were groups that were really at the forefront of

• 38:06Speaker 01

  moving their companies into cloud and getting an edge and building boats around businesses from cloud implementation. And so the value add on the AI side is is another area. And then we touched briefly on this, but on the growth equity side, we like what we're calling the private magnificent 15. And so there's these really high quality companies in private markets. They probably shouldn't be private, but if we can get our clients exposure to that where they can't get it through an ETF, it's a really value add proposition to our clients. And then on the venture side.

• 38:39David Weisburd?

  How do you access those? Is those on an individual basis?

• 38:43Speaker 01

  We do it through a combination of fund managers and co-investments are the primary ways. There's also some, we're seeing more co-investment growth equity funds where it's just four to five of these really high quality companies that you, their managers are creating a portfolio around. And it's actually a really unique dynamic and it's, it's only because of how the market's evolving. And so what you've seen is these venture deals have gotten so big that they're bigger than what a growth equity manager can invest in out of their fund. And so to be a lead investor in a large language model, you need to bring 1.5 billion to the table to, to lead that round.

• 39:27Speaker 01

  And, you know, these funds were not built to be that big or to play that much capital. And so now there's a whole new kind of industry being built around how did you raise additional money to be a lead investor on some of these deals? And oftentimes it's being done as a multi-company portfolio, where you can get some visibility into what the portfolio could look like. So those, those are the, the primary, primary ways that we're accessing it.

• 39:53David Weisburd?

  I think Menlo invested $500 million via SPV alongside their fund investment, but as a co-invest 500 million to Anthropic. And I'm sure there's, there's many others as well. If you could go back in time and give younger Jeff in 2001, as you were graduating college, one piece of advice that would have changed the trajectory of your career, what would that piece of advice be?

• 40:17Speaker 01

  It's really pushing in harder on these pockets of opportunity that arise over the course of a career. And so, you know, the first example was in 2008, there was this whole disruption of, there was, there was the whole credit crisis and new industries came out of that credit crisis. And, you know, when I looked at that opportunity at the time, I was kind of like, okay, there were some really good managers that navigated 2008 really well. But were they really the managers that were set up to do the best job possible going forward because we had just gone through this regime shift? And I had a good friend at the time that got this job offer to go into a credit fund.

• 41:02Speaker 01

  They were going to be doing private credit. And I was just, having gone through 2008, it felt to me a bit scary to kind of go into that market. And, you know, I was like, well, maybe I can introduce you into some of these other relative value funds that seem to be able to survive these markets. And she ended up taking the job and it was fantastic, right? She pushed into that area of opportunity.

• 41:25David Weisburd?

  A lot of lessons and life lessons people frame as almost these are the mistakes I made and this is how I would have avoided those mistakes. But sometimes you can actually overlearn and you become too conservative and you almost lose that beginner's mind or that kind of like overly optimistic mind that could sometimes actually be, be a better way of looking at opportunities than purely with a cynical mindset, which you just naturally get as you go, get older.

• 41:55Speaker 01

  I think that's exactly right. And also into these new markets, everyone's learning in real time. And so, you know, as somebody that's up and coming, you know, there's more room for you to grow into those markets because everyone's learning at the same time and it just becomes who has the most curiosity.

• 42:14David Weisburd?

  Well, Jeff, I've been looking forward to this, did not disappoint, looking forward to doing this again, and thanks so much for taking time.

• 42:21Speaker 01

  Thank you, David. This is wonderful. I really appreciate the opportunity.

• 42:24David 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.