E274:How LPs Miss Early Asymmetry by Waiting

What if the biggest barrier to earning returns in alternatives isn’t access, fees, or performance but friction, complexity, and behavior? In this episode, I talk with Brett Hillard, Founder and CEO of GLASFunds, about why infrastructure matters more than selection in alternative investing. Brett explains how GLASFunds helps wealth managers implement alternatives at scale, why K-1 friction keeps investors out of high-return asset classes, and how thoughtful design around vintages, liquidity, and reporting can dramatically improve long-term outcomes. We also explore why “alternatives” is an overused label, how to build portfolios across vintages, and why illiquidity can actually protect investors from themselves.

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

• 0:00David Weisburd?

  So for those unfamiliar, what is GlassFunds? And tell me how it fits into the alternatives ecosystem.

• 0:05Speaker 01

  Yeah, so GlassFunds is an infrastructure, an alternative infrastructure platform. We work with about 150, 175 advisor firms to help them implement custom alternative platforms in scale. So they can allocate to hedge private capital across, you know, their plethora of ultra-high net worth clients, create fully customized portfolios and easily implement that through the GlassFunds platform with minimal administrative input on their side. And we provide a number of efficiencies for them to do this, you know, for example, it's a one-time subscription document. It's all electronic and we also provide a number of workflow efficiencies such as a single destination and source of cash flows to a single custodial bank,

• 0:50Speaker 01

  as well as aggregated reporting, including aggregated tax reporting. So an underlying investor can own 15 different positions and they'll receive a single federal K1. So we exist to help the advisor firms implement their alternative programs in a way that they see fit. They can fully customize it client by client. They can allocate the funds programmatically. They can pick and choose their own funds or pick off our list or a mixture of the two.

• 1:14David Weisburd?

  And this might sound like an esoteric question, but it is something that a lot of people that invest into startups and venture capital funds deal with K1 management. In the early-stage venture, you want to have really broad exposure into a lot of different funds and a lot of underlying startups. Is there a solution to solve this K1 issue so that you don't have to deal with 200, 300 K1s in order to get broad exposure?

• 1:35Speaker 01

  We think we've effectively solved for that. So it is through our legal structure. We manage two master evergreen investing entities in onshore and offshore, depending on the tax status of the client. And when a fund gets on our platform at a stroke of a pen, we create a new series. And given the legal structure, our auditor and tax partner are a big four firm that everyone's heard of. They can look at all of the series a client owns, which that series is an individual fund. And they can amalgamate the tax information from each underlying fund and put it together in a single K1. And this is meaningful to advisor firms because some of our advisor firms have hundreds or thousands of qualified purchasers.

• 2:20Speaker 01

  So if each qualified purchaser ends up owning 10 to 20 funds. You know, if there's not an efficiency there, they could be spending on an annual basis, tracking down thousands of K1s. And also that ends up being an end cost to the investor. You know, we've heard some accounting firms charge $500 and up per K1. So it is a meaningful time savings and just hard dollar cost savings to the end investor.

• 2:43David Weisburd?

  It's like one of those things. It's like, what does it matter how many K1s you have? Well, if the number of K1s keeps you from investing into the asset class, then it matters a hell lot. In other words, it's, it's almost more important than everything else because the word. The, the number one rule of investing in the most underrated part of investing is you must be invested in the market. It's kind of one of these things that no one talks about, but if you're not invested in the market, it doesn't matter about your timing. All these things downstream of that don't matter. And if your K1s either keeps you from investing or keeps you from continuing to invest and, and get some of that alpha in the asset class. That's extremely important, extremely underrated.

• 3:18Speaker 01

  Yes, we agree.

• 3:18David Weisburd?

  Alternatives is evolving at a dizzying pace. Tell me about what a model portfolio looks like today for a $20 million client of one of your choices.

• 3:28Speaker 01

  If it's a mature client that's been allocating for a number of years, uh, you know, there can be some variations, but let's say. The advisor firm allocates to hedge and private capital. This client will own a basket of hedge funds, maybe five to eight underlying funds typically implemented through a model construct of which the advisor firm manages. And that hedge fund portfolio is typically funded through bonds. So that's a substitute for a bond allocation in that portfolio.

• 3:55Speaker 01

  Then the client will also own a diversified basket of private capital funds typically across credit, buyout, greater venture, real estate, and potentially some other real assets or esoteric strategies. But the core allocation is typically buyout, credit, and then the low less so growth venture and then smaller weightings on, you know, more of the satellite strategies. The overall alternatives portfolio typically ranges from 10 to 20% of the overall client's assets. And the advisor firm can take several different approaches on implementing that. They can be fully bespoke, meaning client A has a completely different mix to client B, or if the advisor firm wants to get some scale or some consistent exposure, they can elect to

• 4:36Speaker 01

  implement, you know, the hedge or the private capital in baskets. So on the private capital side, our advisor firms typically use vintage series constructs. So there are clients that participate in private capital, they're going to sign up for advisor A's 2026 private capital vintage series. And it could be a basket of three to seven funds diversified across strategy, or the advisor can run dedicated vintage series and private credit or buyout, et cetera. And the advisor firm can go out to the client or their group of clients one time a year, have him sign up for the vintage series, then through the remaining of the year, they can deploy that capital. And at the time this client executes, they don't, the advisor firm doesn't even have to have the managers identified. Through our legal structuring and through the

• 5:19Speaker 01

  subdocs that clients signs, you know, they're signing up for vintage series and then within that legal agreement allows the advisor firm to allocate that commitment as they see fit as they serve as the investment manager. So that's the typical construct we see for a $20 million client.

• 5:35David Weisburd?

  Again, not rocket science, but you're creating these vintages, you're making these easy buttons for clients so that they don't have to get in the minutia of this private credit fund versus this other private credit fund, which again, might get them in this analysis paralysis and not take me any action. You solve that upstream and so much so that they could actually invest before you've even chosen the managers.

• 5:55Speaker 01

  Correct. Also, we also typically see where an advisor firm, they want to get scale and consistent exposure so that the clients can, you know, have the full benefit of the research process that they're running. But also, from time to time, there are certain clients that need customized exposure. Or there's certain clients that want this, but they don't want that. So our construct allows fully programmatic exposure, but it also allows customization client by client. And we typically see that as the amount of client assets goes up, or the, you know, or the net worth of the client goes up. Typically, there's a demand for the advisor firm to be able to customize those portfolios.

• 6:31David Weisburd?

  I've gotten to know you a little bit, Brett. You're a great first principles thinker. You said that some of the underlying clients have 10 to 20% exposure. I'm sure you know a lot of endowments have 40% in alternatives.

• 6:45David Weisburd?

  There's, there's, there's rumors that some IV endowments have over 50% in alternatives. That's quite a gulf between 10 to 20 and 40 to 50%. Is that because you are trying to get your clients off of zero, so even 10 to 20% is a win? Or is there something fundamentally about high net worth individuals that should have different exposure to alternatives than, say, an endowment?

• 7:08Speaker 01

  The reason there's a difference is just when the, on average, the cohort started allocating. Endowments and pensions and institutions, they've been allocating in some cases since the 1980s. Wealth management at broad scale really started taking off late, you know, 2010s, early 2020s. So you're starting from zero, and for many wealth managers, this is a new endeavor. And when you're going into a new endeavor, there are a lot of considerations that need to be paid attention to. For example, no wealth manager wants to go through the implementation process, the education process, and then they make their first initial allocations, and then they end up not going well.

• 7:50Speaker 01

  So there's a desire to start this process in more bite-sized chunks. And also, from a capital deployment perspective, if you're starting at zero, there's, there's really not a need to set the target allocation up to 40%. It will take a number of years to, even if you had the target at 40%, it would take a number of years to get the portfolio fully exposed, the private capital strategies with that plan. So it's sensible maybe to start out at 10%. Then reevaluate. If the client experience is going well, the returns are good, the receptivity is good. Then maybe you consider going up to 15 or 20. But again, just given the nature of private capital and that's still a lot of the assets are being deployed through drawdown funds.

• 8:32Speaker 01

  There's just a natural time limit on how fast that money can be deployed. See, if we looked at some of those endowments that are currently allocating 40 to 50 to maybe 60% of their portfolio. Probably when they first started setting those allocations, those weren't the target allocations. There's a good chance those initial allocations were 10 to 15% and they worked up over time. I think we're just seeing that in the wealth management space, given that wealth management more recently started allocating.

• 8:58David Weisburd?

  And there's two aspects to that. One is a behavioral, understanding your true risk tolerance, your true tolerance towards illiquidity. So on an individual basis, understanding, well, I put this in for 14 years. Yes, it sounds like I could handle that when I first put in my money, AKA a seed fund and venture capital. But as I've started to invest, I realized that's just too long for me. So I need to back up my illiquidity. And the second one is you want to deploy in a prudent way across vintages. So you don't want to put all of your venture or buyout in 2025. You want to do 2025, 26, 27, 28 and make sure that you have smoothed out exposure to the asset class in general. That's also a key consideration.

• 9:39Speaker 01

  Yes, it just simply takes time to ramp up. It also takes time to get educated on the plethora of strategies. You know, we talk about broad asset classes, hedge funds, private capital. But underneath the hood, there are vast differences. There's a very big difference between an absolute return hedge fund that has a target volatility of 4 to 6% versus a venture capital fund that is focusing on seed rounds. And they all get lumped in under the alternative bucket. But it just takes time for the advisor firms as well as underlying clients to truly understand the intricacies, the target risk, returns, liquidity profiles of all these different strategies.

• 10:17David Weisburd?

  When we last chatted, you mentioned that the term alternatives is overused. What did you mean by that?

• 10:22Speaker 01

  Alternatives is a catchall. What if the term basically says it's alternative to what? Well, typically cash, stock, bonds. But underneath this catchall term are very disparate strategies, either from risk profile, return targets, liquidity underlying, return drivers. When we communicate internally, we don't use that term a lot. You know, we're talking about specific strategies, specific risk targets, specific goals of strategies in a portfolio, liquidity characteristics, and it's all different. I'd also say alternative is a relative term. So as the market shifts, I also think the definition of alternative needs to shift as well.

• 11:04Speaker 01

  And I think allocators need to ask themselves, you know, this particular strategy was alternative historically. But if it's grown either in popularity or size, is it still alternative? It doesn't make it a bad strategy. It's just when we talk about alternatives, typically they are differentiated exposures. They're harder to access and they charge higher fees. So as a strategy that becomes larger and more popular and more quote unquote beta like, allocators should ask themselves, is this really truly differentiated anymore? And two, should I be willing to pay fees that historically may have made sense? But do they still make sense?

• 11:44David Weisburd?

  What's the right approach to building out your alternatives book as an individual investor?

• 11:48Speaker 01

  Investors should target a multi-year timeframe. I also think it needs to be reasonable in length. You know, there's no right answer, but I think three to four years can make some sense. I also think investors need to clearly define what their objective is. Are they looking to increase income? Are they more focused on capital appreciation? What are the tax sensitivities? What are the liquidity sensitivities? Are there certain areas of the market where you're not comfortable with? Not necessarily from an economic standpoint, but more of a personal goals and values? And what area of the market they want to target? What, what does, what does their other assets look like? Do they, are they a business owner? Do they own a small business? Do they own a decent sized real estate portfolio?

• 12:27Speaker 01

  These are all the types of questions that our advisor friends are asking when they decide to craft a portfolio of alternatives. Then it also can make some sense on picking certain parts of the market on where to start. On the equity side, we think a great area to start is either secondaries or GP stakes. There are a number of attractive attributes with these types of strategies. One is secondaries can provide instant diversification to hundreds of underlying funds, sometimes thousands, you know, well over 10 vintage years, thousands of underlying private companies. It can be very capital efficient in terms of the cadence of capital calls, distributions, limited J curve, which from a behavioral standpoint is just easier to hold.

• 13:11Speaker 01

  So it can serve as a nice initial core allocation within a new private equity portfolio. We also think to a lesser extent, GP stakes firms can do this. A portfolio of growth oriented structured investments in a private capital firm can have exposure to a number of underlying funds and either portfolio companies, loans, pieces of real estate that offers, you know, more cash flow efficient and diversified exposure. We also think private credit is a great place to start. We do think evergreen fund structures within private credit can make a lot of sense. To be clear, we always start out with manager conviction. We have to have a high quality view of the manager.

• 13:55Speaker 01

  Then we look at the wrappers that the manager offers the strategies in and determine, does that wrapper make sense, given the attributes of the stretch? We think in private credit, the evergreens can make sense. And from an initial allocation standpoint, this can be favorable because capital can be deployed into an existing diversified portfolio that you get pretty quick cash flows. You know, the quarter after you, the fund has called your capital, you're eligible for income distributions, which can be attractive for new investors to see some more instant, or not instant, but quicker cash flows from their private capital portfolio compared to a buyout fund or venture fund where it may be a number of years before you see their gains or cash flows.

• 14:36David Weisburd?

  Yeah, I want to double click on a couple of things that you're highlighting, which are very smart. One is

• 14:42David Weisburd?

  You're essentially advocating, without saying it, for a beta or market average, so that you make sure that you're within a certain band of returns for that vintage. Without using numbers, you're not going to heavily outperform or underperform a specific vintage year. And two is, from a behavioral aspect, you're making sure that, like my previous example, you're not waiting till year 14 to get your first distribution. You're getting at least those markups earlier on. You have a minimized Jaker, which, again, from a behavioral aspect, encourages you to continue investing into the asset class.

• 15:13Speaker 01

  Those are excellent points. You know, when we look at inter-court class spreads of private credit and secondaries, it is materially more narrow than venture capital. Venture capital, the inter-court class spread can be over 30 percentage points. In secondaries and private credit, in some instances, it's less than 10 percentage points, and sometimes it's even smaller. So when an advisor firm is new into private capital, it's important to show early wins and to really limit the downside. So if we can find sort of the core evergreen, we're not, the core, middle of the fairway type strategies that will deliver attractive returns, maybe in a narrower band, you have a higher floor but a lower ceiling, that can be initially attractive for new allocators to private capital.

• 15:53David Weisburd?

  I've been speaking to a lot of secondary private credit funds and strategies, and it has this, it emerges, two of the things that you were talking about, secondaries and private credit. What are your thoughts about this space and why do you think it's been evolving at such a fast pace?

• 16:12Speaker 01

  With the liquidity struggles of primary strategies, I think the answer, or the partial answer, has been the secondary markets and providing long-holding LPs with liquidity and creating that demand for secondary capital. How we've looked at private credit secondaries, we prefer primaries on more middle-of-the-fareway private credit. I think where secondaries can make sense is in more opportunistic type debt, and we've been able to identify some structural reasons for that. One is opportunistic private capital is a smaller strategy within the broad ecosystem. Two, when these large institutional portfolios go out to market...

• 17:00Speaker 01

  Many of the secondary firms do not want the opportunistic debt exposure. Therefore, to a certain extent, these can be orphaned assets, allowing dedicated players to come in and scoop up these orphaned assets at a much favorable price compared to some other areas of the market. And it's because of this dynamic of the supply and demand of secondary capital and where that secondary capital wants to go. We think on more of the opportunistic debt, either mezzanine debt, maybe structured preferred equity, those types of funds can be acquired pretty attractively on the secondary market. On more of the direct lending type strategies,

• 17:42Speaker 01

  you know, we prefer, our approach is finding areas in the direct lending market outside of large middle market spotter back that is targeting on certain niches and has better supply, demand dynamics from capital flows perspective, where the underwriters can get more attractive pricing, covenants, risk perfection, collateral protections, et cetera.

• 18:04David Weisburd?

  I had the CIO of Calstr, Scott Chan, and because they're so big, 350 billion, they move markets, so they have to be very purposeful about where they go in with supply and demand dynamics. But I would actually argue that everybody should be looking at supply and demand dynamics of every market because they're an actor in that market. Whether or not they move the market to a new equilibrium or not, there is an existing equilibrium and there's an existing risk and return spread for that entire asset class, not just the manager. Everybody's focused on the manager, but also knowing what asset class to go after, I think is a highly underrated aspect of investing.

• 18:39Speaker 01

  100% agree. I think the one advantage that I think is the most underutilized in wealth management, alternative investing, is wealth managers don't have to write big tickets. Wealth managers, as a firm level, depending on the size of the firm, could write a $5 million ticket and that's meaningful to them. So really, at that level, the world is your oyster. You can go into a number of different strategies and a number of different funds and areas that have lower capacity. I think if you look at where the wealth management capital flows are, I think they're over indexing to the very large private capital managers. And I understand why. I understand why that can make sense. If you're doing something new, you want to go with a brand name.

• 19:22Speaker 01

  It can be safer, it can have lower perceived risk. I'd also venture to say that probably if you did some correlation analysis,

• 19:32Speaker 01

  there's a probably a pretty strong relationship to the number of if, if you calculate how big a private capital firm's wealth distribution team is, relative to how much capital flows are getting from the wealth management channel, I think there's a pretty strong relationship there. And again, we think some of these strategies offered by the big private capital managers are high quality. We're not opposed to them. But I also would urge wealth management allocators to really utilize the one benefit that they clearly have over institutional investors is that they are not capacity constrained.

• 20:02David Weisburd?

  There's this chicken and egg there, similar to what we were talking before, which the biggest mistake you can make as a private investor investing in alternatives is not to invest at all in alternatives. The second biggest mistake is not to invest in a certain space. So sometimes going with a Blackstone KKR could be the gateway drug to actually investing in that space. And maybe they have slightly lower returns. I'm not saying that's the case, or maybe they have the average returns. Maybe technically you might be getting another 100, 200 basis points alpha going in a lower mill market. But the fact that you started that decision or you started that decision five years ahead of when you would have typically have made that decision, maybe that is actually the behavioral alpha that is available to platforms like that, to investors that invest in platforms like that.

• 20:46Speaker 01

  Yes, that makes a lot of sense. And again, for example, we look at a lot of large cap buyout and we think some of them are really good. And if they are really good, it makes a ton of sense. If I could offer something to an investor that they've heard of, it's a brand name and it's good. That's a win-win. What I would encourage wealth managers to do is just broaden what you're looking at. And over time, if you do have hard and fast rules that the manager needs to be of this size or have X amount of years, maybe as you come up to speed in the marketplace, your knowledge grows, your experience grows, you become more comfortable. It's just to expand what you're looking at so that, you know, you can fully do the comparable analysis. So I only historically, if, for example, you only looked historically at large cap buyout, now I'm looking at smaller managers.

• 21:31Speaker 01

  Once you broaden your horizon, maybe you can find better pockets to allocate to.

• 21:36David Weisburd?

  Got taken to extreme. One advisor might have 100 out of 100 trusts with a client where they don't even ask the asset class. They're just like, just invest. I trust you. I'm not even a, you don't even have to do it on the asset class basis. On the other extreme, you have somebody that looks at their advisor purely as somebody that's giving them products and they want to know every single thing. So it's all about having the right products for the right solution.

• 21:57Speaker 01

  Our more long-term advisors have been doing this for a number of years. You know, they do gravitate typically down market over time. Not always, there's still a mix of some very high quality strategies offered by large managers that have been able to deploy capital in larger size and still generate attractive returns. But the general trend is as advisors become more experienced in this space, they do tend to shift towards smaller, more targeted managers.

• 22:23David Weisburd?

  At Glassfunds, you've invested in over 150 funds. What are some general principles that you look for in terms of GPs that you want to put on your platform?

• 22:32Speaker 01

  Year to date, we've onboarded over 150 funds. Now, a little nuance there, the vast majority of those funds have been sourced by our advisor firms. For the funds that we underwrite, we really take a bottom up approach. We don't make top down calls. I don't have the expertise to say, you know, this sector in real estate is better than this sector. So that's where I'm going to allocate to. We leave that up to the managers. Now, in the extremes, we are macro and sector aware. For example, several years ago, the bar would have been very high for a central business district office type real estate strategy. Not because I'm the office expert, just that the trend seems severe enough where it just probably wasn't worth the risk. So we care less about the raw materials that managers are working with.

• 23:16Speaker 01

  We care more about how they're using those raw materials and how if they have competitive advantages that are durable and that we can underwrite and can they generate attractive returns at a specified risk level going forward? And that's what we focus on. To put a little more granularity on it, in hedge funds, we focus on funds that generate most of their returns through stocks, either security selection or specifically idiosyncratic exposure versus common risk factors. So we tend to shy away from long short equity or long bias managers that have a material beta exposure to the market. We want to, you know, we believe that if investors are going to pay hedge fund fees, that we want those fees to be going towards security selection versus just repackage beta exposures.

• 24:03Speaker 01

  For private capital, you know, we look at transactional level data, you know, it's for example, for a buyout vertical, we want to look at all the transactions that the team has done and we will understand how they created value. We favor strategies that create value through EBITDA growth, either by preferably top line growth or margin improvement, and we discount multiple expansion and leverage or financial engineering. Not that we have a negative view on those, we just don't think that the manager has a competitive advantage in trying to tie multiple expansion or tidying the debt market. We do think managers can have an advantage on buying companies, creating value through top line growth or internal efficiencies at the platform company. That's what we want to focus.

• 24:44David Weisburd?

  So just to double click on that, the way you would ascertain that is to somehow derive what the return would have been if it wasn't for the multiple expansion historically and if it wasn't for the changes in interest rate. So you have to somehow take that out of their models and see if they're still alpha in there.

• 25:00Speaker 01

  Correct. And many managers will provide fundamental data for their historical transactions and current transactions. And what we need are the fundamental data at entry and at exit or the current or the current reporting period. And if we get that data, we can run the attribution. Many managers provide this. If we came across managers that don't, we'd probably just move on. We have thousands of private capital firms to pick and choose from. You know, we're going to focus on the ones that provide a degree of transparency, not to say that the ones that don't are high quality. They could very much maybe, but you know, it's just a matter of, you know, we really value that transparency and alignment and we want to, that really enhances our due diligence process.

• 25:39David Weisburd?

  Not that you would want to shorten the process, but can you not get a similar sense based on the year and the vintage returns? So let's say it's a 2019 vintage versus a 2021 vintage, the relative outperformance against the benchmark is what's going to lead you there? Or is there something else that you're trying to ascertain by stripping the, the entry and exit points that that's not captured in this vintage year?

• 26:03Speaker 01

  Yeah, so what we compare to the benchmarks, we're really comparing the level. Is the level of returns that this fund has generated? Is it, how does it compare to the benchmark? And we look at that by geography, strategy and the year. And we want to know how that stack ranks. We'll also look at individual comparables that are also in the market to make sure that we're focused on potentially the highest quality executable idea that's available in the market. When we dive into the attribution, that's answering how did the manager generate that level of returns? And that's where we're crunching the fundamental metrics to suss out which, how much of the recharge is coming from revenue EBITDA growth versus other areas that are probably more out of the manager's control.

• 26:45David Weisburd?

  And also, maybe it's just one company that accounted for everything. That might be luck if it's, if it's just across the entire portfolio, then that's more skill.

• 26:53Speaker 01

  Correct. We want to see consistent competitive advantages. It's harder to underwrite if a small handful of outsized deals generated most of the returns. Because it's always hard to determine what is luck, what is skill.

• 27:07David Weisburd?

  There's strengths and weaknesses to these large buyouts. Where do you think the, the best risk reward lays in terms of fund vintage? Is this a fund three, fund four, is it a fund two? And when you invest your own money, what vintage do you like to access?

• 27:23Speaker 01

  It, it's a great question. I, I would, a typical setup that we have found attractive is a first time fund, but within an established manager or an established company. And these can be found when a, when a private capital manager, they can expand horizontally. And they can get into different areas of the market. They can go lift out other teams or promote within. And you can underwrite typically the managers of that fund one typically have a tracker that you can underwrite. And if they're in a very established manager, you can, you don't have to take on the new firm risk. It's challenging when you're starting a brand new firm and raising a first time fund. Because the key decision makers of the fund are typically the founders of the business.

• 28:08Speaker 01

  And they also spend a lot of time doing the business development, business creation functions that are required, but they're not going to affect returns at the end of the day. So we have had a degree of success of finding these first time funds, but then within very established managers. And we also like the, what we believe to be the additional focus and incentive of a first time fund.

• 28:32Speaker 01

  Every participant knows, they know and the investors know that if Fund One goes well, there's going to be a Fund Two. If Fund doesn't go well, it's, it may not get the Fund Two. So there is a hyper-focus on generating high-quality returns in a Fund One. Also, typically, but not always, the key decision-makers of a Fund One may not have already achieved some of their own personal wealth creation as opposed to managers of Fund Seven or Fund Eight. It's just human nature where, once you've achieved a certain wealth level, it may just be hard to have the same motivation what you did when you were either younger, or you just didn't have as much wealth as you do now.

• 29:10David Weisburd?

  Just to crystallize this phenomenon, it's oftentimes at the margins. So in venture capital, you have, the further away the manager is from the board seat, the higher returning the asset. And it's a joke because the further away the VC stays from the company, the better they do. The narrative that I believe is true there is that they're willing to make that flight to Austin, meaning it's a higher-quality company, in order to get over that benchmark. So you have the same thing where, at the margins, yes, if somebody comes to your front door and, you know, it's this incredible opportunity, you're going to make that investment. But if you have to go to West Virginia and spend two weeks while your kid is playing their basketball game and all these other things that are important to human beings in general, you're not going to make that sacrifice on a Fund Seven versus on a Fund One. You will make that sacrifice.

• 29:53Speaker 01

  Correct. And also, to just to highlight the dynamics of the hyper-focus on a Fund One, you know, we currently have on our platform a Fund One, but within an established firm and a very experienced investment team. And they are being hyper-vigilant on the deals that they're approving for the fund. And, you know, the weighted average entry multiple is seven and a half times EBITDA. And given the level of quality of the businesses, we think this is highly attractive. They've turned down a lot of deals that were at nine times, 10 times EBITDA, which compared to the marketplace, is still at a pretty attractive valuation. But they're only focused on the most attractively priced and the highest-quality businesses through their investment committee process.

• 30:30David Weisburd?

  It's interesting to kind of look at what people think is risk and what is actually risk and alternatives. This Fund One, maybe the managers have 10 years of experience working at Apollo or Blackstone, and they have the same team. And yes, it's technically a Fund One. It's a diversified portfolio. People might see that as really risky versus investing into a very late-stage startup with common equity at $100 billion valuation may be seen as a safe bet. There's a mismatch between reality and perception.

• 30:58Speaker 01

  Yes, and 100% agree. I think certainly I'm prone to it. I think when I am prone to it, I'm conflating my comfort versus what is truly attractive from a risk-adjusted return standpoint. When I look at a, you know, Fund A and the seven previous vintages are all pretty good. That does provide a degree of comfort, but I always have to remind myself, I'm not buying historical performance. I'm buying the performance in that Fund A.

• 31:22David Weisburd?

  The reason you always have to make the disclosure, previous results do not guarantee future performance because that's the implicit understanding and that's how people market themselves is look at our previous performance.

• 31:32Speaker 01

  Correct. And also the trick is I've never seen a non-quartile manager. So you have to suss that out as well.

• 31:39David Weisburd?

  Professor Steve Kaplan talked about this. It actually, it's first and second quartile managers are the only ones that go out to fundraise. So if you're in a third quartile, they have to wait for either new strategy or a new market before they go out to fundraise. So it may not be only first quartile, but certainly it seems like only first and second quartile managers empirically are the ones that are fundraising.

• 32:00Speaker 01

  Yes, there's definitely that dynamic and there's also the dynamic of you make sure you read the footnotes on how they're constructing the benchmark and how they're comparing and what they're comparing themselves to.

• 32:12David Weisburd?

  On that note, what is one piece of timeless advice that you would give a younger Brett just going into investing that would have either helped accelerate your career or helped you avoid costly mistakes?

• 32:24Speaker 01

  Yeah, I really like this question. If I would go back, I would tell myself, focus and learn about and develop your emotional skills. I think early on, at least for me, it was being technically proficient and understanding all the technical aspects of investing certain asset classes. You know, I went through the CFA program and found that very valuable and it was very valuable. But then I also wanted to demonstrate my technical prowess early on in my career. I wanted to show, I wanted to show how technically or how smart at least I thought I was. But if I could go back, I'd sit myself down and say, investing, yes, you need to be smart enough. And for the most part, there are incredibly smart

• 33:08Speaker 01

  people in this industry and chances are if you're mid industry, you're smart enough. But what makes, I think, better investors is emotionally, can you make, can you handle your emotions to make better decisions? Because I've just found markets, whatever they may be, private, public.

• 33:26Speaker 01

  They just have a knack of making you make tough emotional decisions. And you know, that's what the market shakes out that we can't, that's what it's emotionally tough to hold out those, to hold on to those positions. And that's where I think. At least if I could design a curriculum or a program for incoming investors, I would. Spend a decent amount of time on emotional intelligence and how to manage that. Because I do think that is very important in becoming a good investor, especially. Avoiding overconfidence, hubris, self-reflection, being able to admit when you're wrong and you made a mistake and being able to communicate that effectively.

• 34:02David Weisburd?

  I would even go a step further. I coined this term, the virtue of illiquidity. I think certain asset classes, the investors benefit from illiquidity. It's the most paradoxical thing you could say in investing and asset management. But even taken to extremes. So when I interview. The top decile crypto funds. So if you think about it, there's millions of hundreds of millions, maybe a billion dollars, a billion crypto investors. Let's say a couple hundred of those are bestowed with outside capital. And then the top 10% of them. What many of them privately admit is that their best investment just came from being illiquid. Thus this forced diamond hands. I watched an interview with Stan Druckenmiller and he said, nothing looks as cheap as after it's gone up 40%.

• 34:41David Weisburd?

  And when I watched that interview and I realized one of the greatest traders of all time, Stan Druckenmiller, if he suffers with this issue, this isn't even a thing to necessarily. Work on, it's just a thing to avoid. And the best way to avoid a mistake is not to be able to do. Create it. And I know that's extremely paradoxical to say. And it probably should not be taken literally, just figuratively, but there is certainly an advantage in certain asset classes to be illiquid. And that is a held that I will personally die on.

• 35:08Speaker 01

  Yes, I agree with that. And it's interesting that you brought up Druckenmiller as well. I've had a saying that I asked to people. When they talk about locking up their capital and not having access to liquidity, I asked them, well, what are you, what are you, what are you going to do with intraday instant liquidity? If you're Stanley Druckenmiller, that's very valuable to you. But unfortunately for, unfortunately for us near mortals that don't have that trading prowess, having instant. Liquidity probably is a bad thing. It will probably lead to lower returns than having your capital locked up and having frictions. That ultimately protect you against yourselves.

• 35:46David Weisburd?

  And it's not even, it's not even a thing that hurts, but leads to higher returns. It's actually a thing that creates pain and leads to lower returns. There, there is no payoff.

• 35:56Speaker 01

  Yes, it's 0 for 2. You have lower returns and you don't feel good about it.

• 35:59David Weisburd?

  Brett, I appreciate you jumping on the podcast and appreciate all the wisdom. Looking forward to continue this conversation live.

• 36:06Speaker 01

  I really appreciated the conversation, David. Thanks for having me on.

• 36:08David 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.