E313: Why the Endowment Model Doesn’t Work for Taxable Investors

Why does applying institutional investing frameworks often fail for taxable investors and families? David Weisburd speaks with Aneet Deshpande about adapting the endowment model to private clients, the rise of tax-aware private market investing, and why governance, pacing, and asset location matter more than product selection. Aneet explains how taxes, liquidity needs, and behavioral risks fundamentally change portfolio construction—and why clarity of objectives is the real edge.

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

• 0:00David Weisburd?

  What would most people be surprised about how you go about investing $15 billion in the market today?

• 0:06Speaker 01

  You have to have a clear line of sight on asset allocation around things like cash flows, taxes, financial plan, objectives that are oriented around the family's own desires that may not be prescriptive, such as a 5% mandate.

• 0:18David Weisburd?

  This rise of the taxable investor is a new phenomenon.

• 0:21Speaker 01

  It's such a hugely important phenomenon going on, and it's, I think, the segue a little bit into the democratization of private markets and all of the different investment vehicles that we are seeing come into markets. But this gets into a little bit of the how do you take an institutional framework and apply it to private clients? So it's one thing to be able to say, hey, we treat you as a multi-generational client, the same way we treat you as a perpetual endowner foundation. The reality is, in past, in history, it used to be very difficult to take and express the same investment ideas you would have for that institution and employ that for a private client. I think in this day and age now, if you set everything else aside, so all else equal, now we've solved that sourcing conundrum. So we have the ability to bring our own internally sourced private market investments for all of our clients.

• 1:06Speaker 01

  And we do so using technology and a couple of different relationships we have to create a simplified investment structure for private clients. You know, one of the nuances there is that perhaps didn't exist, you know, five, even maybe even 10 years ago, was being more tax aware in that process.

• 1:23David Weisburd?

  At the low end, for coastal clients, that could mean 35% difference in return. So you get a 15%, now you're 10%. At the high end, it could mean 15% to 8% if you're investing in hedge funds or private credit that have the short-term income.

• 1:37Speaker 01

  Part of the response to that is not only different products and structures, but also being very thoughtful about how they're deploying those investments and generating returns, be that vis a vis capital gains or through the income lens. And to your point, if you don't appropriately asset allocate or asset locate those investments, you can lose 30% to 40% of your total return off of that.

• 1:57David Weisburd?

  What are some logging fruit and where taxable investors can use specific structures in order to maximize their after-tax return? Give me an example of that.

• 2:05Speaker 01

  So infrastructure is a good example. So there's a couple of different strategies in the market right now where, again, these things didn't exist a handful of years ago where you're making infrastructure investments and because of the joint venture structure of their underlying investments, they're able to deploy all of the income distribution as return of capital. So if you're a private client, you think about that. After 10 years, you have a rote basis. And so now it's all long-term capital gain along the way. You've cut a coupon, clipped a coupon that's been tax efficient by having the ROC return of capital benefit on there. And then if you're estate planning, you can use that to your advantage by having that asset flowing through an estate plan. Therefore, there's a step up in basis and then you defer that capital gain even further. So a little small myopic way of dealing with taxes from an income seeking.

• 2:47David Weisburd?

  And that seems to be a lot of the tax strategy, which is either defer for decades where the net present value of those taxes are essentially near zero, but you still technically pay the taxes or die and then your, your, your kids get the step up in basis. Many private investors use the endowment model language when they talk about their portfolio, but they don't really apply the principles. What are most private investors missing when it comes to applying the endowment model to their own approach?

• 3:15Speaker 01

  I'll give you three challenges. So one, what is the right number? What is the number in terms of asset allocation that you're willing to put towards private markets? The second is, okay, you've got the number. How do you source for it? How do you make sure that by locking up your liquidity, you're getting a better than public market outcome? And then pacing. So in private clients, we have, I'm going to buy a house. I have to fund college. We had a family member pass away. We are buying the small business. We have these other tax considerations. We have all these investment cash flows, whereas an endowment may just simply have, hey, we have to spend 5%. This is what it looks like over the next year. So pacing becomes very important to how am I going to build to that number? Once I describe that number, those are the three, I think, biggest challenges in, in taking what we would say is a traditional endowment approach and applying to private clients.

• 4:00David Weisburd?

  There seems to be this trend in alternatives away from this two and 20 model into different things, independent sponsors, co-invest, even CVs and continuation vehicles fall under this trend. Do you think this trend is here to stay? And if so, how are you able to capitalize on this?

• 4:18Speaker 01

  The pick in the Python moment for private equity is real. So you have a general exit problem. So, you know, things look a little bit better than they did, say 12 months ago, 24 months ago for certain, but CV is going to play a role. There's no question about it in that, in that world. And for those trophy assets where we, you know, are working with sponsors that we know can continue to extract value relative to public markets, those are interesting opportunities and they will continue to be interesting opportunities. Again, I think the spread of outcomes there is going to be very wide, as you'd expect, some of what we would see in traditional buy out, buy out of growth, but that's something that's out there. Co-invest, you know, interestingly, co-invest is, you know, at a, there's almost two versions of this.

• 4:58Speaker 01

  One, there's co-invest strategies writ large and they want to invest dollars into co-investment funds and take advantage of, you know, private, getting private equity like returns without the fee burden necessarily. So there's, there's that component. There's also just the increasing component of co-invest opportunities that are arising from a lot of late-stage unicorns in the market. And, and, you know, this is again, they need exits, they need to deploy dollars and they're looking beyond the traditional VC realm to build, attract those dollars. And they're looking at RIAs as a functional part of where to get that, that investment, those capital commitments. And so you're seeing a lot of, you know, buyer beware moment here on SPVs, but you're seeing a lot of co-investment deals get structured with, or GPs that you may not have historically worked with.

• 5:42Speaker 01

  And you have to ask yourself the question, why am I seeing that at co-investment opportunity? Obviously, but for us, we've seen more and more of our, I would say our higher conviction GPs that we are currently invested with, bring us, bring us an increasing number of co-invest ideas.

• 5:57David Weisburd?

  Is it the two, the management fee, the 10-year 2% that bothers you? Or is it the 20% carry? What is it that bothers you exactly?

• 6:04Speaker 01

  I don't know that either one of them bother me. To be completely honest with you, whenever we underwrite, it's, we always think about the world on a net of fee basis, net of, net of, net of total fee basis. And so we have underwritten expectations that we, that we expect out of strategies. One of the reasons why we re-up with managers is because they've hit those buggies, generally speaking. And so we like to stick with proven managers that we've invested with. But I think for your average RIA or indiscriminate investor that doesn't know how to measure what success may look like on a after fee basis, after tax too, for that matter. Simply optimizing for lower fee on the front end is rationale to go after that investment. So I think, yes, it's good, but it's also, but be careful. Copy and after.

• 6:46David Weisburd?

  A lot of LPs telling me it's what irks them a little bit is the 10 years and sometimes the 12 years of paying. Obviously it steps down over five years, but that really accumulates. It's, it ends up being, you know, 20 plus percent of the actual investment that gets paid in fees, which is pretty crazy. 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 challenges has always been scale, speed and consistency.

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• 8:27Speaker 01

  That's, I mean, there's a, you know, the, the. And perhaps people more sensitive to it now because, you know, investment periods are longer, hold periods are longer, fund ages are longer, and there's a lot of different reasons to start looking at the compounding effect of that math. But I do, you know, again, I'm not apologizing for it, but I, I think a lot of that is being also used to drive dollars into the evergreen space because of the natural immediate compounding that they allege the benefit you get versus, say, a traditional drawdown structure. So, you know, it's hard to draw the similarities, it's hard to draw the parallels, and there's certainly nuances there, but, I mean, fees are a problem across the private market industry,

• 9:11Speaker 01

  and Evergreen will do its job, I think, to drive more competitive fees across the industry.

• 9:17David Weisburd?

  On the capital commitment, so you invest into a fund and it draws down over two to three years, what's the best practice in terms of how you manage those liabilities?

• 9:25Speaker 01

  In ordinary times, it's like-for-like assets. You know, you're funding a growth asset, it should, it should, it should be sourced from a growth asset to keep your asset allocation in check. Of course, I think what happens a lot of times is the market's in disarray or something's going on when you do get those calls. And so, the question that becomes more muddied, do you sell a depreciated asset in your growth assets to fund that, you know, by the words, just to put a finer point in this, do you sell your S and P 500 position to fund your, your, your buyout growth, your growth equity commitment that you've just been called for? Ordinarily, we would say, yeah, that makes sense. The reality is, if the market's down 20%, the S and P 500 is down 20%, there are, you know, you just start to have these probability, the probabilities start to go in your favor

• 10:10Speaker 01

  of keeping money there instead of taking money out. And so, you have a different problem there of sourcing from maybe relatively appreciated assets, or assets have done better than the growth asset that you've, that you've just talked about. The biggest issue during times of distress is, is denominator effect. You know, in times of duress, you have, public markets are decreasing, and your private markets are staying relatively intact for all the reasons we know. And so, you have a higher proportion of private assets than you would have otherwise normally thought prior to that decline in public markets. So that causes a little bit of friction, too.

• 10:43David Weisburd?

  You're not keeping the money in cash, you're keeping it in some, some asset that is liquid, and then as the, as the capital call comes in, you're, you're transferring out of that asset.

• 10:52Speaker 01

  The nuance there is for short duration. Strategies that we may be deploying it cash is probably the right thing. If you're talking about private equity, the six year investment period, that's a different liability construct. So it really is just, it should be dependent on what that investment period looks like, informed by your own pacing assumptions. And so you don't want to, scenario you don't want to be in ultimately is a short duration liability. These will be the capital call funded by a long duration asset like public equity. That's where you have to be mindful.

• 11:17David Weisburd?

  And this denominator effect, essentially, public markets go down. Your private markets on a percentage basis are now a larger part of your portfolio. Why not just under allocate to private markets ahead of this, knowing that there'll be this drawdown in the next 10 years? Or what other tools do you have to, to solve for that?

• 11:34Speaker 01

  Let's use today as a good example. So the S and P 500 has been up, you know, it's doubled in five, four, five, three, four, three and a half to five years, whatever it is. It's up, you know, double digit percentage points, 20, over 20, over 20, 18, whatever it was last year.

• 11:48Speaker 01

  And combine that now with the fact that you've had realizations anemic. You have capital call investments, you know, commitments that have been called increasingly now, but also very slow. So you have this natural fatigue of like, why am I locked up in private markets? I'm looking at the S and P going up 75% in three years. What is the benefit here? So now you have the inverse of the denominator effect, which you have increasing public market investments and lower proportionally, the numer effect. So we have to figure out how you actually go about solving that. And for us right now, it's simply just making sure that we have the number. We have this saying here, our head of sales says, if you don't know where you're going, any road will take you there. That's the same construct in, in asset allocation.

• 12:30Speaker 01

  If you don't know the number, you will have a very hard time ever getting to that point in time versus being disciplined about the S and P 500 is going to be volatile no matter what. You know, that's, that's why it has the 18% standard deviation. It's going to go up and it's going to go down over time. It will go up. Private markets are going to be a staple and stable part of portfolio. How do we get to the number that you want over time? And so pacing models are a very important part of that. Once you describe the number that you want to get to ultimately, and that's being committed through time, over time by vintage. And David, your point of how do you? Anticipate drawdowns. I think it's very hard to, to create expectations on pacing around probability of market outcomes. We have to assume certain things of public markets and then we react accordingly on the funding side of the equation for, for those commitments.

• 13:14David Weisburd?

  It's interesting because a lot of this actually comes down to the least sexy, most important thing in investing, governance, which is what's upstream of all your decisions? And the best endowments I talked to, which I think are the best private investors, they give their investment committee ranges versus specific numbers. So they don't allow themselves to optimize on arbitrary asset allocation numbers that keep them from this flexibility. I interviewed Brent Bishore, who has this really interesting 30-year private equity fund, and he predicts every decade, there's going to be some black swan event.

• 13:47Speaker 01

  Yeah, that's so true. And for the majority of our clients and just kind of focusing on the endowment foundation side, they're operating with that sort of framework. So you have to have one codified investment policy statements. That's, that's a, that is a future practice that every institution should, should follow. And then what you do inside of that really matters. That sets the tone for the investment committee. It protects the organization or the, the corpus of the assets from decisions that the, that the committee may have otherwise made. So there's a, there's a, there's a interplay there that I think is very valuable, that leads families and family outcomes also in a similar, similar way. Investment policy statements are, are, and should be a key front-end deliverable for clients. To your point around the ranges, that's a very, very, very important thing.

• 14:32Speaker 01

  Is, you know, what gets lost, I think, a lot of times in markets is the power of momentum. And if you rebalance too much, you lose the momentum effect. And that gets, that gets, that can be meaningful for people. So this idea that you want to be so precise every day and tout that as an asset, sort of sets aside the fact that there's this thing called momentum and that you may actually do better by letting it run a little bit before rebalancing. So you can quantify some of this stuff, obviously, but there, that, that, those things are real. And having things like ranges in your IPS is allowing you not only operational flexibility, but rebalancing flexibility and then investment flexibility for us as decision makers to be able to make decisions and not be held to, you know, an Excel sheet for all, for all intents.

• 15:13David Weisburd?

  Yeah, the 10 person IC, there's always that one bad apple. Especially when the market's down 20%. It only takes one panicked IC member to destroy the entire investment policy.

• 15:26David Weisburd?

  Instead of ruining that, you have to really think from the corporate governance side. And I think a few institutions have really gotten this right, like Alaska Permanent, URS, Utah Retirement Systems. And instead of sitting around hoping that human nature won't surface its ugly head again, they created these governance awaiting this kind of next crisis and making sure that the investment team itself is able to navigate some of these difficult times without kind of being captured by the IC.

• 15:53Speaker 01

  Yeah, yeah, that's so true. You have to have a, you have to have a source or a document that will outlive the trustees of a given and the employees of a given institution. It reinforces the permanent nature of those pool of assets.

• 16:09David Weisburd?

  What's some of the best practices that it comes to families that are looking to preserve their wealth over several generations? What are some governance principles that they could institute in order to avoid what I would call the Nepo baby or other, other issues that might come downstream? Not that it ever happens, but just theoretically speaking, hypothetically.

• 16:29Speaker 01

  Yeah, that's a, it's a great question. The, all of this work is done on the front end. I mean, so you have to have familial buy-in. It's education. It's educating not only Gen one, but Gen two, Gen three, wherever you are in the life cycle of, of the family. And so that's not only getting everything lined up with a advisor, making sure there's relationships built across the firm, that there's trust there, that you have all of these documents in a single place, available for all the generations to build an access pool, et cetera. Just basic governing principles for families include having all these documents set up, the estate plan, any governing docs for, for a family, the trust docs, everything spelled out clearly. Roles and responsibilities, probably the biggest thing. What is the role?

• 17:13Speaker 01

  What is the responsibility? How do you teach that and grain that into your, into your children, into your grandchildren, ensuring that you don't have that world of, you know, here's, here's, there's a statistic and it's hard to find this data, but you know, family offices tend to start to have problems after Gen four. You know, there's this little kind of behavioral idea that preserving the intention of the founding principles gets more and more difficult by generation. By generation three or four, it gets pretty, pretty well diluted out. So how do you, how do you sort of refine and define that over time is obviously very difficult. But having governing docs is very important.

• 17:48David Weisburd?

  When families come to you and they've had a bad experience with another RIA or another multifamily office, what are the most common one or two governance issues that were done at this other advisor that you just see happening over and over and over again?

• 18:03Speaker 01

  Yeah, not clear documentation is one. That's, that's clear.

• 18:07David Weisburd?

  Just making investments ad hoc, some family member comes in, I want to invest into this, this private equity.

• 18:12Speaker 01

  Like, look at this, I have this direct investment, can you please look at this? It's, you know, it's a, it's either a real estate deal down the street or it's a buddy's, you know, venture idea that he's raising for, pass the hat.

• 18:23Speaker 01

  So putting parameters around that is very important. And again, it goes back to the governance of documentation and ensuring, why are we investing in certain things? Who has, who has say in those investments is obviously a very important thing. Creating an investment committee or an investment advisory function or something that can rest within the family also is something of importance. But, you know, the scattershot, the buckshot, David, investments is, is probably the biggest thing where you have a,

• 18:50Speaker 01

  you know, just because you have amassed a ton of wealth doesn't mean you, you should be aloof about asset allocation. And the just mistake number is just also not willing to deal with a, a single provider. And I know it's very difficult. There's relationships involved. You may have a business with your, your own relationships there. And, and so how do you find a resource for you that can bring all of this together? Because it requires a deep middle and back office and significant amount of operational resources to go do that. And majority of, of firms out there or, you know, single advisors aren't prepared to do that, don't have the resources to do that. So that's, that's another area I'd say.

• 19:26David Weisburd?

  Because those are related, which is you make random investments and you don't even know which random investments you've made.

• 19:32Speaker 01

  Yeah, that's exactly. And, you know, the, the hard part is if you have a collection of private investments, what does that collection even look like? You know, from getting fund updates to understand what portfolio companies are doing, if they're, if they're fund level, if it's private investments, what are your exposures and how does that roll up into your broad overall asset allocation?

• 19:50David Weisburd?

  The second order effects of that, let's say you are invested in this friend's venture capital fund.

• 19:56David Weisburd?

  You may not even know whether they're calling money in six months or in five years. And the second order of effects of that, why does that even matter? Is that you have to keep all your portfolio liquid. You may be over allocating to liquid. And why does that matter? You're not getting that alternatives premium and the liquidity premium. So it's not just that you don't know what's going on. It's that you have to be overly conservative if you don't know what's going on.

• 20:17Speaker 01

  That's right. That's exactly right. And that's, we see that time and time again. And it's again, if you don't back, back to that saying, if you don't know where you're going, you're real take you there. So if you don't have an asset allocation or don't know what you're aspiring to. What chance do you have in making sure that you've got the right underlying investments to get there? I think it's very difficult.

• 20:34David Weisburd?

  A well-known single family office in New York City, which will remain nameless. They have this policy where I believe it's $10,000. Any family member can make these one-off investments, even in a restaurant, up to $10,000. But outside of that, it goes to IC and then the IC has final say. And this is how they've been able to kind of toe this line between giving the family members some level of autonomy while not just destroying the wealth.

• 20:58Speaker 01

  Yeah. And it's not to say that what we say is, is etched in stone. It goes back to the idea of having a investment policy with ranges around it, having very specific dollars carved out, say for co-investment ideas that you want to be interested in. That may not necessarily be part of your overall asset allocation.

• 21:15Speaker 01

  I think it's totally fine. We do this a lot where you have a predetermined or set amount of dollars carved out for opportunities that are being sussed out by internal networks, for example, instead of through our own platform. So those are, those are not things that shouldn't be done. It's just doing a way that's informed by the larger objective at hand. So I think your, your point's spot on.

• 21:38David Weisburd?

  On this co-investment, I see a trend in the institutional space of making it more

• 21:45David Weisburd?

  rules-based or algorithmic versus this kind of one-off. Do you see that happening in the taxable space? And is there a way to construct these portfolios? Maybe not to have, to be fully passive, but to have some rules-based approaches to how you process co-investment.

• 22:02Speaker 01

  Yeah, I think that's coming. I mean, it's already there. We're already there, but it's going to continue to grow and get better and more evolved. I do think, you know, once you describe the outcome that you're looking for, there's going to be a co-invest platform that can help you get to that, to that point. So again, a little bit of a technology plus desire thing, but I think the large one-off co-investments that we see through the late-stage venture lens are probably just that. That is just simply giving people access to,

• 22:30Speaker 01

  you know, things that would have ordinarily been in the public market. And so that's, you know, I'm going to call it, whether that's being able to talk about, you know, your investment in SpaceX at Saturday night at the, at the country club or otherwise, I think that those are a little bit separate. You're going to have more systematic co-invest opportunities. And it seems like we've seen a couple of platforms and I, I'm excited to see where this goes in the next, you know, 12 to 18 months.

• 22:54David Weisburd?

  SpaceX is an interesting thing. It went from a family office trade to an institutional trade. So some would argue a family office trade again.

• 23:00Speaker 01

  And that's where you gotta be careful of, you know, back to the co-invest saying you have SPVs being launched all over the place with blind access. In many cases, they don't have access. And you have multi-layered SPVs with fees upon fees upon fees upon fees. Like, what outcome do you expect in that? If you're a SpaceX investor on a multi-layered SPV, like, if the thing doubles, now we're talking to two trillion dollar company or whatever it is. One, that's got to be your underwrite. And then two, you have to net out the fee burden of all that stuff. And then, okay, is that a rational investment? It starts to get tough. I mean, we're simply looking at, I think, the retail market now being a liquidity mechanism for a lot of now employees with tenders and other institutions. And

• 23:40Speaker 01

  I think you gotta be careful there, but you know, certainly it hasn't changed, I don't think, the appetite from private clients to want to get exposed to these companies. And that's an outlier. I guess there's plenty of other firms out there, late-stage firms that are very interesting.

• 23:52David Weisburd?

  The only thing worse than two and 20 is two and 20 on a two and 20, four and 40. Unless I guess you're in Citadel or back in the day Stephen A. Cohen,

• 24:02David Weisburd?

  and then it might make sense. You started out as a trader in 1999. If you could go back and whisper one timeless principle in your ear in 1999 in order to help you either accelerate your career or help you avoid costly mistakes, what would be that one principle?

• 24:14Speaker 01

  It's a very good question, and I think about this a lot, actually. So I'm a runner, not avid, but I run just to try and stay in shape. And whenever I do it, invariably, doesn't matter how much I try to clear my mind, I keep coming back to this idea of replication crisis. And there's this statistical thing out there that says that the majority of,

• 24:33Speaker 01

  a significant majority of academic studies out in the literature have been difficult to replicate in real time out of sample. And I think that's very well seen or observed in finance. And you don't have to go too far to find that stuff, whether it's using PE multiples as your proxy for future expected return, whether it's inflation views, you know, these will be the 70s and the way we're printing money today, if I call it that. There's all kinds of ideas where if you just simply treat the world as a scatter plot, draw a best fit line and let that drive your decisions, you've been in a pretty bad place. So I mean, I think there's like going back in time, I think it's easier in hindsight today, but just thinking about the world that way is,

• 25:17Speaker 01

  I think, very important or interesting. That those things, meaning being able to look at mathematical relationships, we know there's no immutable laws in finance, but look at those relationships with a higher grain of salt and saying things can change permanently. And they do actually change permanently. And even if permanent is only 20 years inside of a career, and then maybe temporary on a hundred time scale, it's permanent for you inside of that time scale, your career time scale. So I think there's a fair amount of like just being more objective about what we see principally through the lens of academia versus what we expect in the future out of markets and out of our careers. So that's probably the biggest thing.

• 25:59David Weisburd?

  Thing in general, just intellectually being honest with yourself, writing down your priors, seeing how markets evolve. We humans have such a desire to just revise our, our investment thesis just in time to kind of hide, hide our mistakes. It's, it's almost like so inherently human. One of the things that I've been thinking a lot about, I spent on Sunday with, with a very well-known investor and he's done deals with Warren Buffett, Bill Ackman, all these top investors. And one of the things that in retrospect should have been extremely obvious as he was explaining these different, you know, you know, legendary investors, also Tony James and people like that, is that they were all so idiosyncratically different. And what makes Warren Buffett Warren Buffett,

• 26:44David Weisburd?

  and what makes Bill Ackman Bill Ackman, and what makes Tony James Tony James is so idiosyncratically different. And the reason they were successful is because they applied their genius into a very specific vertical. So in other way, I think Warren Buffett would be a terrible venture capitalist. Kind of sounds funny to think about that thought experience, but there's nothing, you know, Warren, venture has been around for, you know, over half a century. In some permutation of the world, there's a possibility that young Warren Buffett would have gone to venture capital, and he'd probably be a third or fourth tier investor, maybe he'd be second tier, maybe he'd be first quartile, he certainly wouldn't be Warren Buffett. And I think we have this misnomer that good investors are good investors, where I think good investors have very specific strengths, which oftentimes are very specific weaknesses in another context. And like finding the manager's

• 27:29David Weisburd?

  genius, I think is such an underrated thing. And it's only obvious in retrospect. It's like, of course, Bill Ackman's a great investor. Yes, but he's very great in this specific domain. And if you had put him in another domain, he maybe not, wouldn't have been as great. And maybe he'd still be top quartile, but he wouldn't be Bill Ackman.

• 27:45Speaker 01

  Yeah, it's so true today. And it permeates, I think, a lot of manager diligence processes today where, you know, you may have a process that eliminates that sort of genius because you can't handle that kind of key man. It is incredible risk inside of your underwriting. And that's a tough, that's a tough thing. I mean, we've taken the approach of we find smart people, we invest with them. You know, you gotta make sure a lot of other things are right. But if you, if you take a committee to everything, you will dilute yourself in the value of the investment down to, you know, it's lowest common denominator, which is medium-like outcomes, if not worse. So I think that's a very, very, very important part.

• 28:21David Weisburd?

  Yeah, that's so interesting. Key man, so much of this is just framing. It's so important when I speak to my partner, I'm so cautious not to frame certain things in certain ways. They just come out of your mouth and there's very few actually terms that are neutral. Key man risk. Genius. Those are pretty leading terms and frames to put on somebody. And yeah, we don't have this whole thing where it's very hard to actually frame things neutrally. And that that is downstream consequences, how we think of it and shape our our strategy.

• 28:53Speaker 01

  Yeah. And to your point, I think there's um. You know, the. You know, for for being in my seat or our seats, we're allocators. We're by definition, generalists. Our job is to. Preserve and grow client capital, not create a bunch of asymmetric wealth. You know, our client's already done that in the real economy. And so that's there's a nuance there too of making sure that we are able to find those people that we are generally not. But also have the discipline to create a process. That can be sustained, repeated and drive success for clients. So that's the the punchline for being an allocator versus, you know, being a bottoms up investor in a certain asset class.

• 29:31Speaker 01

  Like the like the Buffets and the the Acorns.

• 29:33David Weisburd?

  Have you found that in your own? In your own managers that? Almost their strength is their weakness. What makes them really good at what they do? They would be very bad in in other contexts, or it comes with this kind of like double edged sword where. They have other weaknesses that if they were in other verticals, they would be bottom quartile.

• 29:52Speaker 01

  Absolutely. I think there's. It could be not only in investing principles. That could show up, but also life principles, how they run their businesses. It's the entrepreneurial problem. Entrepreneurs like it their way. And so. You know, it takes a special person to be able to have a. Point of view on a market, have that expertise. Have the willingness to engage your team, be a team player. Because they're almost contradictory in some sense. And and do it for the benefit of of an increasing client base. And it's a it's a real. I think. Challenge number one, and then you overlay on top of that.

• 30:27Speaker 01

  You gotta be a good investor and a good business person. That's where the, if there's any sort of a rising conflict, it's probably first there. From a outcomes point of view, instead of, yeah, majority managers probably couldn't make it in other asset classes. I think we all know just they're there for that reason and no other. There are some very exceptional people that can do whatever they do. We've seen those kinds of generalists out there. The real test, however, is can you not only be a good investor, but run the business effectively? And that's where we see some differences between the good and the bad.

• 30:59Speaker 01

  It's one thing to get through fund one, raise money. It's a second, you know, if you go from pre-fund, pass the hat to a fund one, fund two, you get to a fund three, and now you're institutionalizing your business and roles, responsibilities, and all those kinds of things that you would expect, you know, more complex LPs or platforms to build up, to ask questions on. That kind of evolving is also very difficult.

• 31:21David Weisburd?

  Do you find out oftentimes this is the same? It's the player coach, the grain investor is also builds the firm because out of necessity? Or do you find out they bring in other talent? In your actual portfolio, what tends to happen and what do you think should happen from a best bet?

• 31:38Speaker 01

  Necessity is never good. It happens, but you want to have a, you know, a glide path to what success looks like. We ask those questions, you know, if you're at a fund two or fund three, what does success look like? What does the fund four, what does the fund five look like? What do, what does the resource build look like for you internally? And having a business plan or a strategic plan is really important. Oddly enough, you know, GPs will enforce that of their own portfolio companies. Yet if you look at their own businesses and ask them for that, they probably don't exist in many cases. So what is that strategic plan is very important because those are the, those are the, you know, those are the soundbites that get us comfortable with the next fund and then the re-up and everything else down the road. And that's where I think there's a little bit of that, you know, a little bit of that dilemma, which is interesting.

• 32:20David Weisburd?

  It used to be venture capitalists didn't use any technology. I think they've since caught up, but it's a funny thing. Well, Anit, this has been absolute masterclass. Thanks so much for taking time and looking forward to doing this again soon.

• 32:32Speaker 01

  Thank you, David. I appreciate the time and your wisdom as always. Appreciate it.

• 32:35David Weisburd?

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