#276: Jihan Bowes-Little on Identifying Private Market Opportunities

Jihan Bowes-Little is Managing Partner and Co-Founder of Bracket Capital. ‍ Jihan began his investing career in London on Goldman Sachs’ esteemed Global Macro Proprietary Trading Desk, the first analyst in the firm’s history to be asked to join. In 2006, he moved to Credit Trading, where he managed a multi-billion dollar portfolio throughout the subprime crisis, generating record profits and gaining invaluable expertise investing in illiquid markets and emerging asset classes. He later joined Millennium Capital as a Portfolio Manager, and was later recruited to lead a multi-strategy portfolio for BlueCrest Capital, where he was promoted to Partner in 2012. In this conversation, we discussed why liquidity matters, good mental frameworks for balancing risk and reward, how to identify markets with attractive dislocation, where Jihan sees opportunity in the world of venture capital, and why the era of passive investing is dead. =============================== BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. =============================== TaxBit is a refund-maximizing, cryptocurrency tax software you can depend on. Visit taxbit.com/invite/pomp and receive 10% off your tax plan today by signing up for a free trial. ===============================

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

• 0:00Anthony Pompliano?

  This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Jihan Bowes-Little is managing partner and co-founder of Bracket Capital. Jihan began his investing career in London on Goldman Sachs esteemed global macro proprietary trading desk, the first analyst in the firm's history to be asked to join. In 2006, he moved to credit trading, where he managed a multi-billion dollar portfolio throughout the subprime crisis, generating record profits and gaining invaluable expertise investing in illiquid markets and emerging asset classes. He later joined Millennium Capital as a portfolio manager and was later recruited

• 0:42Anthony Pompliano?

  to lead a multi-strategy portfolio for Bluecrest Capital, where he was promoted to partner in 2012. In this conversation, we discussed why liquidity matters, good mental frameworks for balancing risk and reward, how to identify markets with attractive dislocation, where Jahan sees opportunity in the world of venture capital, and why the era of passive investing is dead. I really enjoyed this conversation, as I do every single one with Jahan. Before we get into this episode, though, I want to quickly talk about our two sponsors. The first is BlockFi. As you guys know, I'm a big fan of the company. I'm an investor and a user. They currently have three products. The first is giving US dollar loans against your crypto as collateral. The second is an interest-bearing account for your crypto deposits, and the

• 1:26Anthony Pompliano?

  third is allowing you to buy or trade cryptocurrencies. On their interest-bearing account, you can earn 6% APY on your Bitcoin or up to 8.6% APY on GUSD and USDC deposits. Go check it out at blockfi.com/pomp. Again, blockfi.com/pomp. I promise you won't be disappointed. Blockfi.com/pomp. Our second sponsor is TaxBit. They make paying your taxes super easy. TaxBit automates your cryptocurrency taxes, enabling you to effortlessly track, calculate, and report your transactions. You can easily connect your exchanges to securely sync your transactions and run them through TaxBit's tax engine. Generate a completed tax form with a single click. The company was founded by tax attorneys and CPAs.

• 2:11Anthony Pompliano?

  Taxbit is the most trusted cryptocurrency tax solution. You can get 10% off your tax plan today with a free trial by going to taxbit.com/invite/pomp. Again, taxbit.com/invite/pomp. Go get your taxes paid. All right, guys, let's get into this episode with Jahan. I hope you guys enjoy it just as much as I did.

• 2:32Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:00Anthony Pompliano?

  All right, guys, bang, bang. I am here with my good friend Jahan. Thanks for doing this, man.

• 3:07Speaker 02

  Thanks for having me.

• 3:08Anthony Pompliano?

  I feel like there's a lot of people who are going to listen to this and be pleasantly surprised by you. You've kept a low profile, but we're going to expose you right now.

• 3:19Anthony Pompliano?

  Let's jump into your background. You spent a lot of time on Wall Street, now do a bunch of tech investing in private markets, but maybe just walk us through kind of how we get here.

• 3:27Speaker 02

  Sure. Yeah, so, you know, I graduated '02, went to work right on Wall Street, went to work at Goldman. Sat in front of a computer screen, modeling Excel, you know, valuations, dislocated structures, a lot of cash flow analysis for a couple of years, like most people do. I actually had Goldman transfer me over to London within my first year. And so I spent the entirety of my career in London, actually from 2003 to 2016, I was on the macro proprietary trading desk. So that's like an internal hedge fund within, you know, within the firm. It was the You know, was the the largest risk-taking group within the firm. And so for someone at twenty-three, who had no experience in trading, you know, no background, um, I was definitely the odd man out, right?

• 4:09Speaker 02

  So I was a young analyst soaking up knowledge from some of the best who ever did it, really, you know, some of the largest risk-takers in Goldman's history. Um, they often went to go set up their own hedge funds. And so after a few years of doing that, I moved over to credit trading, where I, you know, ran a relatively big book, trading credit default swaps and high-yield bonds. Um, you know, I often say Goldman's a pretty good allocator of talent, you know, sometimes they see around the curve. So there was a time a few years before when a lot of talented people started moving into commodities before anything had happened. And the same thing happened in credit. You know, I moved into credit in oh-six. In oh-seven, things got busier. And as you know, you know, in oh-eight, uh, you know, the the firm was very well-staffed up to kind of, um, you know, manage that crisis, et cetera. And so I read a credit derivatives book throughout the crisis, um, in oh-seven, oh-eight, and oh-nine.

• 4:53Speaker 02

  Um, then I moved to the buy side. And so I traded the multi-strategy book, you know, at Millennium, Blue Crescent, and large hedge funds. So I've always traded pretty, pretty broad risk, you know, equities, fixed income, rates, commodities, et cetera. Um, and as you said, now, uh, you know, I'm running the firm in L.A., which is focused on private investments.

• 5:10Speaker 03

  Got it. Um, let's talk about the navigating the crisis. Obviously, that's, uh, got some parallels today, some differences. Um, but maybe just like, what were your big lessons learned, given that not only did you kind of go through the crisis, but you're actually trading the exact assets that were uh, at the center of that crisis?

• 5:28Speaker 02

  Yeah, yeah. It was a trial by fire, you know? I mean, you never really know, you never really know what the importance of liquidity is until you're really sitting front row and center, um, and really understanding what it means when people can't source the liquidity they want. I think all of us take for granted, uh, that the market is fully functioning at most times. And even now, for the most part, it's been fully functioning, you know, perhaps with the exception of, uh, of oil in recent days. But in general, you know, prices move in a relatively linear fashion. You can buy, you can sell. The price might be higher or lower, but you can get things done. Um, that was really an introduction to the fact that if somebody doesn't want to make a price for you in the opposite direction that you're in, there's sometimes no exit, right?

• 6:10Speaker 02

  And so, um, trading that book, you know, for Goldman throughout that crisis, I learned a lot about liquidity. We traded that at scale, obviously. Um, and so I think some of the lessons there as well were that, you know, sometimes these things can persist for longer than you think. Right? The price of liquidity is high and it's more valuable than most people think. And actually, you know, I'm sure we'll get into it, but you know, a lot of what led me to, you know, to co-found this business here, which is focused on private investments with a lot of secondary market focus, the corollaries and the parallels to trading credit are very similar to what I think is happening in the secondary market with adventure now. And so essentially, you know, what we do now is we provide a lot of liquidity for early investors, early employees,

• 6:53Speaker 02

  etc. And I think it was that appreciation of knowing that, you know, liquidity only matters when you need it. You know, you only know you need it when you need it. And so, you know, I think those were some of the large lessons learned.

• 7:03Speaker 03

  And we're seeing that, you know, over the last couple of weeks in the market, you know, public markets today, right? Is there a complete, you know, price just fell off a cliff in many, many asset classes? And it's because people literally were looking for that liquidity.

• 7:16Speaker 02

  Yeah, yeah, that's right. You look for it and, you know, and you have to, you know, you learn, you know, you learn how to trade size. That's why you go on the hedge fund world. And I think the same is true in venture, which is a capacity constrained business. But you know, it's different putting, you know, a million dollars to work in the market and a billion dollars to work, right? And it's not just the psychology and the fear around trading large sizes. There's actually a different way that you have to learn how to move large blocks of risk in and out of the market. And so when you see some of these top hedge fund performers, these large asset managers managing these books that are, you know, 100, 500 times the scale of an average asset manager, it's really a whole nother dimension to the, to the risk analysis and the skill set, right? It's not just picking the right investments at the right

• 7:58Speaker 02

  time. There's different ways you have to move in and out of risk when you're managing large books of that size. And so even though the venture capital market is a lot smaller, you know, the risk I was trading Goldman was large in a moderate sized market here in venture, the market's relatively small. And so everybody has to understand how to move relatively large, you know, blocks of risk around when the time comes.

• 8:20Speaker 03

  Yeah. And you mentioned risk a couple of times. And I think that people who are unfamiliar with the mentality on Wall Street, right? The best of the best, it's all about risk, right? And it's understanding that risk, pricing that risk, probabilities of the risk actually occurring and stuff like that. Maybe any lessons learned over your career, given the various classes, classes that you traded where risk like, hey, this is the one or two lessons I learned that really stick out in my head. And now you've brought that to the business today?

• 8:47Speaker 02

  Yeah. Yeah. You know, I think one of the large lessons learned is that. You know, unless you're in the seat, unless you're managing the risk, right? Your opinions on the matter are very qualitative and speculative at best, right? So you often see traders, you know, they don't want to know what you think about the market. Just tell me your position, right? If you're bullish, how long are you, right? I'll judge your conviction based on that. If you're bearish, how short are you? I think in a market right now, where, as we were talking about earlier, a lot of people have opinions on COVID, on the market, et cetera. If you don't have skin in the game, right? If you're not managing and feeling that risk as it oscillates and as it goes up and down, you're really doing a very different job than people, you know, than the people managing the risk, right?

• 9:29Speaker 02

  So I think for me, you know, some of the lessons there are, I think, going into trading, I thought that the objective of trading was to predict the future, essentially, right? You know, I, I used to laugh with my flatmate about it. You know, I thought that I had been given a job where I was going to be paid to learn about everything in the world, this multifactorial job, right? Where there's an infinite amount of inputs, really fascinating, right? What the taxi driver said mattered, what the CEO said mattered. And you can sort of take all these inputs from around the world and crystallize it into a trading view and try to predict what's going to happen next. What the job really is, I think, at least, you know, in my, in my humble opinion, is it's about understanding when there's a setup in the market where even if you can't predict the possibility, the probability of what's happening next,

• 10:14Speaker 02

  you know that if X happens, the return might be 10X. And if the opposite of that happens, the return might be negative 1X, right? And if you can put yourself in situations where even if you don't have any idea, I think we're in a perfect situation now, right? Where we're faced with unknowable risk, right? There are a lot of opinions. We really have no way to quantify when we're going back to work, what the long-term economic impacts are, et cetera. And so trying to position your portfolio by predicting what we think will happen with the coronavirus is a recipe for disaster, right? That's relatively unknowable and the market is smarter than any individual person, right? It's the sum total of millions and millions of. People voting, right? Billions of people.

• 10:58Speaker 02

  And so, but what if you can find investments that you know that if there's an equal probability of two events occurring, which is generally the base case for something which is unknowable. If you can put yourself in risk reward situations where the reward is multiples larger than the risk, you know, you do that systematically and do that over time. And that's, and that's how the great investors make money. You know, I think, I think one of the other things I learned is that the hit rate of the great investors is not necessarily meaningfully larger than the hit rate of the good investor. You know, they're both better than the hit rate of the average or the novice, right? But we're talking about single digit percentage points, right? Many hedge fund managers are right. Fifty-five to sixty percent of the

• 11:42Speaker 02

  time would be a very large number, right? But the magnitude of what they make when they're right versus the magnitude of what they lose when they're wrong is very, very different. And so I think that investors and traders have to really understand and be honest with themselves about when they feel like the risk reward is truly skewed and to know when to really push the chips in. And so that kind of bet sizing, investment sizing, risk management is often more important, you know, than just getting the right or wrong view, right? Because, you know, because we all, we all get them right and wrong.

• 12:18Speaker 03

  Yeah. And I guess, how do you think about that? Like, let's take oil, for example. I said, we're recording this right after oil went negative for the first time ever. And I think a lot of people would have said to you, the lowest price point that oil can trade at is zero dollars, right? And then all of a sudden, now in hindsight, it's like, oh, well, yeah, it does make sense that somebody would pay you to take the oil if they can't store it and kind of everything that we saw happen yesterday.

• 12:41Speaker 02

  Right.

• 12:41Speaker 03

  How do you think through the like, there's the known risk, and then there's the unknown risk or the unknown downside, right? And kind of how you, you, you put that into a framework. And it's weird because you know that you don't know something. And so how do you actually evaluate that?

• 12:56Speaker 02

  Yeah, it's interesting, you know, and I think the corollary from my side, thinking about equity and credit as well, you know, which, which I've traded more, but I've traded a little oil, is that there's often a very appealing strategy, broadly speaking, right? Which is? Short volatility, which is the idea you're essentially collecting premium for for some sort of reason, right? And you can either be explicitly short volatility, right? You can be selling options. But there are lots of other ways to be implicitly short volatility, right? Where the idea is that if something unknowable or unexpected happens, you can lose a lot more money than you think, right? And the flip side of that is, you know, essentially the insurance model, right? And so it's very tantalizing to in some way, shape or form be short volatility because you're right often.

• 13:40Speaker 02

  Right? People like being right often, right? And it kind of, you know, you make money on a consistent basis and you feel like you're doing something right. And the flip side of that is that if you're long volatility, you often have to wait large periods of time, right? It's a very painful job waiting for something unusual to happen. But when it happens, obviously the magnitude of it is very, very high, right? And so I think about that because I think, you know, you often have risks in your portfolio, especially, you know, when you're new to it or, you know, when you're a novice investor, that you didn't really know you had. So the idea that a front month oil future contract can go negative is not something that a lot of people would have expected, right? Um, the idea that you might be short an option and have convexity, which means as the position goes against you, not only do you lose money,

• 14:25Speaker 02

  but the position gets larger and larger, right? And theoretically, you know, we can understand that from a mathematical perspective, but until you've sat in a seat and realized that as the position goes against you and grows, you have to swim faster and faster just to tread water. Um, you know, it's what makes a lot of the great hedge fund managers implicitly long volatility all the time. You know, they refuse to sell tail options, right? They refuse to be short that kind of risk because even if they can't foresee, you know, around the corner as to what might happen, they know that when those things do happen, you know, it's it's career risk, right? Or it's personal financial disaster, et cetera, right? So I think, um,

• 15:06Speaker 02

  You know, it takes it takes a lot of diligence to make sure you're looking at your positions and being honest with yourself. Right about why you're entering it, what the unknown unknowns really are. And whether or not on in some way, shape or form. You're trying to pick up, you know, pennies in front of a steamroller or whatever the analogy is. Right. And to make sure you really quantify that correctly, right? Because, you know, it could be negative oil, it could be negative convexity and a, you know, an option portfolio. And there are many, many other examples of it. Right. We work as a good example, right? Where you thought that there were certain risks and it turned out that you had counterparty risk. And then it turned out that you had new layers of risk, right? Because the saga just continues to grow and grow.

• 15:48Speaker 02

  And so that's one of the reasons why, you know, a lot of people who are long term investors who've made it. In their careers long enough to still be in the game. Right. Which is a large part of it is that they often have some sort of tail hedging. Right. Some sort of risk which they expect to lose money. But which is, you know, meant to act as a kind of a what if hedge to the portfolio. Right. And you learn that it's worth paying that fee to have that.

• 16:15Speaker 03

  And and part of this too is there's obviously a difference of the public and private markets. Right. The public markets, in theory, there's supposed to be more access to information. Kind of there's an even a more even playing field in terms of what people know. But there's obviously a very big difference in how that information is interpreted and kind of your position on it. The private markets, not so much. So maybe talk a little bit about how you view the difference between those public and private markets. And then we'll get into what you guys are doing at Bracket.

• 16:42Speaker 02

  Yeah, sure. Good question. Yeah. So, you know, actually, that that apprehension or that acknowledgement that the markets, you know, are relatively efficient in the public markets.

• 16:54Speaker 02

  You don't really have an asymmetric advantage with respect to access to information. You don't have an asymmetric advantage in terms of access to price. Right. Prices are on the screens for the most part and trading the same as everyone else. And really, although I think a lot of people base their analysis on this. You know, the analysis that you can have about a company which broadly shares this information. is relatively homogeneous as well, right? There's very little, if you could know about Amazon, that I couldn't know if we both were willing to do the right amount of work, right? The information is essentially there, it's known. And in a market with quants and algos and, you know, research teams doing unbelievable amounts of analysis, there's very little edge in terms of analytical information, right? Which I think is not what the banks are selling you, right?

• 17:39Speaker 02

  They're selling you that they've been able to analyze this company better than the people. But the truth is, is that, you know, generally speaking, people have accessed the same information, they come to relatively similar conclusions, right? And I think there's some hindsight bias in terms of people explaining why they got things right or wrong. Private markets are exactly the opposite, right? And that's actually why I've moved from one to the other. I think that after being on the buy side, being in public markets broadly speaking for 15 or so years, and you've seen how average hedge fund returns have declined, right? In the 80s and 90s, when some of the luminaries, you know, were putting up 30% plus a year, right? Many of those same people have closed down their hedge funds, right? Unable to break even in a market, right? And it's not because they're not as smart as they were 20 years ago.

• 18:22Speaker 02

  It's because the game has changed, the amount of capital was arbitrage away opportunities faster. And so I think that you'll, I think that most people would acknowledge that if you see truly outsized performance, there's some level of asymmetry or dislocation alongside some very hard diligence and some fundamental work and analysis, right? So when I was thinking about the next step in my career, I'm from California, thinking about when to come back home, you know, when to make the next transition, I was looking for a market that was asymmetric, right? I wanted a market where there was imperfect information, where there was imperfect access to information, imperfect access to supply, where there were more unknowables, right?

• 19:06Speaker 02

  Because if you're on the right side of an asymmetry, you have the chance for true alpha, right? For true outperformance relative to a benchmark. And so I specifically targeted venture, you know, I'd been a tourist in it. I'd have an angel investing with some friends. We even met before I set up Bracket, right? And so I was investing in some funds, in some individual companies. And I was very intrigued by the fact that that the information was so opaque.

• 19:32Speaker 02

  Right, and that was a draw for me, right? And I feel like I've seen markets move from opacity to transparency. The credit market is a great example, you know? And I think all markets move in that direction because, you know, capital is efficient, right? And when there's an inefficient outcome to the positive side, a lot of people enter that space until it, until it sort of, you know, becomes more transparent and more efficient. So, looking into venture, I looked at venture and, and private markets and thought, okay, this is an inefficient area with great upside, great innovation, innovation, you know? I'm long human potential in general as a person, I'm an optimist. You know, I feel like disruption of incumbents is a theme which is accelerating, et cetera. And so I was curious about that. And then even within venture, I kind of went at a level lower and thought,

• 20:16Speaker 02

  what is the most commoditized, homogenous area of access within venture? Right, I want to be sure to stay away from that. And my, my thought at the beginning, with a few notable exceptions of some firms that have built some unbelievable network effects, but by and large, early-stage investing, which was sort of a niche profession by true enthusiasts,

• 20:36Speaker 02

  is now, you know, an area where there are thousands of fund managers, right? Putting billions of dollars to work, right? And the amount of exits have not increased, right? And so the valuations have gone up, the competition has gone up, right? Some of those signaling effects and some of those network benefits, various different networks within Northern California in particular, et cetera, have become a lot more commoditized, just because there are so many more people doing it, just as smart probably and just as talented as the people who generated outside returns a decade ago in that space. But from a supply and demand perspective, the returns can only fall relative to, to history in that area, right? When you have more capital chasing the same amount of outcomes.

• 21:18Speaker 02

  But I became intrigued by this, you know, subsector, you know, this niche within venture, which is the secondary markets, right? Which is essentially, you know, what does an employee do when they're five, seven, nine years into a private company? They've got a lot of stock, but there's no liquid market for them to access that liquidity. There's no way for them to buy a house and plan for their family, et cetera. Employees, early investors, and so bracket does a number of things, and I'm sure we'll talk about it. But one of the most acute areas that we began to look at was, we think that over time, the secondary market for venture will be larger than the primary market. Right, secondary markets in general are larger than the primary market. The stock market is a secondary market, right?

• 22:00Speaker 02

  The housing market, except for new builds, is a secondary market. The bond market is a secondary market, right? And so as companies stay private longer and there are more people with trapped liquidity on the cap table, you know, we think it's the right thing to do because we think those people should have access to that liquidity. They've earned it, right, by their stock options in those companies. And we also think that the market will gravitate towards that way. And so, you know, we began a strategy which was relatively focused, you know, within that.

• 22:27Speaker 03

  Got it. And so before we go deeper there, what else does Bracket do? Can I give us a full overview and then we'll go into really the secondary markets? I think that's a key piece a lot of people don't understand and obviously is quite attractive.

• 22:39Speaker 02

  Sure. So, you know, in essence, you know, we're an investment management firm, you know, we're a few years old. I co-founded it with my partner, Yalta, in 2017. And essentially what we're looking to do is operate in areas of asymmetry where we think that there are dislocated opportunities that can generate outsized returns, right? And given, you know, my background and our background, we have a relatively wide aperture in terms of open-mindedness, in terms of what that might be, right? If that was in the credit markets, that was in the equity markets, that was in subsects of that market, you know, we're, we have experience in sort of all those areas. But one of the things I also learned from my time trading is that it's very easy to be too broad, right?

• 23:22Speaker 02

  There's a lot of good ideas and there are very few great ideas. And there are very few great ideas that also are symmetrical with your personal skillset, right? There might be a great idea, but your personality or your network or your background may not make you an A player in that area, right? And so to find an area where you think you can be an A player and find that area is actually opportune at that particular moment in time is rare, right? And I think it's easy to be too broad. I think it's easy to be too diversified, actually, with respect to your time and your focus, right? And founders know this better than anyone, right? They can be maniacal about, about the one thing that they're doing. And so when we started Bracket, you know, there was a lot of things that we could do,

• 24:05Speaker 02

  but we decided to only focus on places where we thought the opportunity was 10 out of 10 and where we thought that our skillset was 10 out of 10. And so we started only within private markets and venture, right? And we focus on growth in late-stage companies. So that's, the growth bucket is anywhere from companies worth sort of 200 million to a billion, broadly speaking. And then the late-stage bucket is companies, they're so-called in points, right? Worth a billion plus. So those are companies which will go to IPO or M and A presumably in a much shorter timeframe, right? So the duration is shorter, the liquidity return of cash to investors is faster and higher. We spend the vast majority of our time there. But we're also interested in other sort of emerging areas. We're interested in private credit, right?

• 24:49Speaker 02

  There's some symmetrical kind of relationships and networking advantages to sort of what we do all day on the venture side and how that can be put to work within private credit. At a time when, you know, at least a few months ago, the market was at all-time highs, correlation was at all-time highs, didn't think that was the most opportune time to be spending time in public markets, right? You may get it right or wrong, but you don't have a true competitive advantage. At least we didn't think from our perspective. So we spent no time there. Over time, as volatility picks up, and this is like, you know, one of the themes of Brackett, essentially where we're positioned for volatility. It could be to the downside or to the upside, but we embrace volatility, right? Essentially, all our strategies have a long volatility sort of aperture and a focus.

• 25:33Speaker 02

  And so when markets dislocate, you know, when large moves happen, and I think we're entering a world in which large things are going to happen more frequently, we get drawn to those areas. And so we're beginning to invest in crypto. We spend a lot of time investing in late-stage venture. You know, we're looking a lot more at public markets recently, you know, in terms of the roadmap of where things might go. And I think broadly speaking, that can all be encapsulated by the fact that over the last decade or so, passive investing, right? Indexing through 401ks, et cetera, mutual funds is really taking over the investment landscape, right? It's actually driven a lot of active managers out of business. Because why say, you know, why pay somebody 220 when you can get a low or almost fee-free, you know, kind of structure via?

• 26:18Speaker 02

  Any number of mutual funds, right? And outperform the market. And that's because this wave of liquidity that the Fed and global central banks have unleashed just lifted all boats, right? And relatively speaking, a great boat might perform a little bit better than a good boat. But essentially, they're all upward drifting in such a consistent fashion that the dispersion between the two, you know, was relatively low. And the correlation was very, very high, right? So it didn't make a lot of sense to pay an active manager. I think that's changed, right? I think the era of passive investing is essentially over. And I think that's one of the biggest bubbles in the market. You know, when you talk about unknown risks, right? So many of us have our 401Ks and our families, et cetera, and these ETFs, these trackers.

• 27:03Speaker 02

  Most people don't even know what's in them, right? They don't know how it's calculated. They don't know how liquid that future, that ETF might really be or not be in a time of, you know, severe distress. And so we want to allocate our time to active management, right? To more tactical investing with a long-term horizon, but with tactical investing in between. And so Brackett is doing all those things, right? But in terms of the funds that we manage now, the vast, vast majority of the capital we manage is focused on private markets simply because we think it's the largest dislocation, the most amount of asymmetry. And so we want to focus our time, you know, on that.

• 27:40Speaker 03

  Yeah, it's interesting, I think, because there's a lot of people who would look at, you know, the various assets or markets that you're looking at and say, wow, how can they say that they are, you know, have a single strategy, right? That there's so many different assets, there's so many different markets. But actually, and I'm cheating because I know you, and we've talked about it before, is you can take very similar frameworks and very similar approaches. And what you're really doing is you're looking for that dislocation, right? And so maybe talk a little bit about, like, when you're analyzing either a new asset class or a market, like, what are the things you're looking at that say, yes, this fits kind of that dislocation type theme? Or it doesn't? Like, what is that evaluation process like?

• 28:23Speaker 02

  Yeah, sure. So when we think about dislocations and asymmetries, generally, we think about it kind of along three axes, right?

• 28:31Speaker 02

  The first is price. So in a liquid market, we all pay the same price, more or less, right? The price, as I said, for Amazon is the same as it is for you, for me. In private markets, it's very different, right? You may get a different price because of the time you enter, based on your relationship, based on the value add you may or not bring to the company, based on whether you're buying directly from the company itself, or whether you're buying from an employee or an early investor, right? If we're buying from an angel investor who's up 100x on the position, right? They may value the speed to liquidity a little bit higher than eking out those extra few percent, right? Which may be somebody else's entire strategy they play for. So, you know, in the broadest of senses, you know, we're trying to pay fair price and not pay premiums for everything that we're investing in, right?

• 29:16Speaker 02

  And you have to be a price taker in most markets. But in things which are kind of over the counter, so to speak, that are not traded on exchanges, that could be a house, that could be a piece of art, that could be, you know, an access to a private company, right? Those prices are not really set in the same way. And so there's a more interpersonal aspect, there's an aspect of negotiation, and there's just, there's elements there that give you some flexibility to pay the right or wrong price depending upon, you know, a thing on your analysis, right? People can differ more widely in terms of their fair value analysis of that type of price, right? And so it doesn't always mean that one person is right or wrong. It might just mean that it's an opaque asset and people value it a little bit differently.

• 29:59Speaker 02

  So, you know, we look for price from an asymmetric standpoint. Access is another asymmetric standpoint, right? The great companies within private markets are in high demand, right? And so when you think about the ability to even access that company if you had the cash and if you had the willingness, you know, a founder generally has earned the right to be choosy, right? A successful founder has earned the right to be choosy, you know this as well as anyone, right? So, you know, what your brand is, what your network is, what else you're bringing to the table, right? Your interpersonal skills, how you manage relationships, all those things kind of come to bear upon not only what price you might pay, but, you know, if somebody's issuing $100 million of stock in a new financing and they've got $700 million of interest.

• 30:44Speaker 02

  Who gets that, right? And different people have different ways of managing and kind of making themselves appealing, so to speak, right, to that founder or to that seller. So you want to market from our perspective where access is not totally egalitarian, right? It's not totally homogenized. And so you want to play to your strengths, you know, in terms of the ways in which you, which you access, right, which you were given access to those kinds of things. And then from a timing perspective, this is one of the, you know, perhaps the benefits of being, you know, an outsider, so to speak, you know, to venture and bringing a different lens, you know, there are always benefits and negatives to being longly steeped kind of in an area, right?

• 31:26Speaker 02

  And also to having, you know, a fresh lens on things, right? From our perspective, we look at primary financings and venture, which, you know, is essentially when a company goes out and raises money onto its own balance sheet from investors, right? And those typically happen, you know, once every year or two, right? Depending upon the needs of the company, et cetera. And all the interest from investors is focused on that one round, right? So it's the most competitive time to invest. Invariably, that competition leads to higher prices, right? And there's no particular asymmetric advantage there, you know, from our perspective as well. We prefer to be more fluid, right? And I guess this is sort of the traitor in me, you know, in our, in our firm's DNA,

• 32:11Speaker 02

  is that we like to be able to enter a position when we think that it's reached an inflection point, not just when the company has decided that it's time to raise their Series D or their Series E, right? And so we do invest in primary rounds when we think that's the opportune time. But also because we have the flexibility to do secondaries as well, the round is never closed, so to speak, right? We may do some primaries and some secondary, we may choose one versus the other. And so we look at all that alongside what I would say is the sort of table stakes analysis, which is the fundamental diligence, the valuation work, the comparative company analysis, the growth rate analysis, the analysis of the team. I feel like if you're not doing that well, clearly, you know, you're not set up for

• 32:53Speaker 02

  success anyway, but I think that's baseline, right? And above that, you have to think about what else are you doing? And, you know, that's the way in which we've, you know, which we decide to approach it.

• 33:05Speaker 03

  And so what this brings then is if there's not that equal access to information, right, there is an opportunity for the dislocation. There's obviously winners and losers in those markets, right, and access to information is one of the key components. How do you think about gaining information, both kind of, you know, market-driven stuff, but then also either company or opportunity specific in a market where you can't just go log into a Bloomberg and, you know, type in a symbol and all of a sudden there's everything you need to know?

• 33:35Speaker 02

  Right. Yeah. You know, that's also one of the nuances of venture that makes it particular is that, you know, the information is out there, but you have to know how to find it, right? You have to, you have to know who to find it from. You have to know where to look for it. You have to be able to piece things together and triangulate in different ways. And I think that's one of the things that makes it a little more interesting and exciting. You know, on the hedge fund side, you know, I was sitting behind eight screens for 15 years, you know, almost 24 hours a day, right? Up at night looking at the Asian markets, during the day trading here in the US. Here, there's not that constant information flow. And there, as you say, are wide asymmetries. You know, some people can find that information out with a single phone call, right? Other people may have to find that information

• 34:18Speaker 02

  out through dozens of reference checks and triangulations. And some investments you have, you have the direct line in that kind of a way. It's a very easy call. Some is very difficult, right? You have to nurture and manufacture a way in which to get access to that information. And I think those dislocations, you know, those inequities, right, are what, what kind of present the opportunity, right? And so, so we think about all that, you know, it's a, it's a, it's a large part of the diligence. It's not just how do you analyze the information, but how do you go about finding the information, you know, that you want to analyze, right? And there's a lot of qualitative and subjective things with respect to private companies as well, right? I mean, these companies are often growing so fast.

• 35:00Speaker 02

  You know, if you're looking at the right ones, that historical analysis is useful. You have to do it, but the future doesn't necessarily look like the past. Whereas if you're in a public company with a three to five percent growth rate and it's been around for fifty years. Right? Tomorrow looks pretty similar, right? In most instances to today, right? And so that kind of historical analysis is more valuable there. Right? Here you have to add an extra dimension where you have to be able to understand and think exponentially. And I think even, you know, even government responses to this crisis, right? And individual responses to this crisis show it's very difficult for us to fathom exponential growth. Right? Even if we understand it conceptually, it's hard to, hard to imagine it if you haven't experienced it.

• 35:44Speaker 02

  Which is why I think some of the compounding benefits to investing and seeing these kinds of things take place. Right? Once you've seen it and you've felt it, we talked about negative convexity and downside. When you've seen the positive convexity to the upside and you know it's possible, you know, in your bones. As opposed to just on paper, um, you approach investing, you know, sometimes in a slightly different way as well.

• 36:07Speaker 03

  Yeah, one of the things I think venture investors obviously understand, but those that don't understand the venture market. Um, is in the public markets, uh, we would all do a bunch of speculating, uh, do a lot of research. Do a lot of estimations as to, you know, what is the earnings report going to show? Or what are the key metrics going to show, uh, at kind of these predefined points in time? We all will speculate in the market, buy, sell, hold, whatever. Um, and then there's kind of this like reveal of the numbers to everyone all at once. And then some action happens to the price. But in the private markets, that information, uh, one is much more robust. And also two is heavily driven by access that's granted by the team itself, right?

• 36:48Speaker 03

  So if you're an existing investor, for example, you can go and see the financials, the user growth, all these kind of metrics. Uh, pretty much whenever you want or whenever they allow you. If you're not an existing investor, obviously you can ask, right? You can, you can kind of triangulate, do things, but that there is greater access to information, which then can drive investment decisions. Which I think gives it advantage, right? But kind of how do you think about that, um, you know, not only the persistent access, but also the types of information you can get in the private market versus what you can get in the public market?

• 37:20Speaker 02

  Yeah, yeah. Good question. Um, and I think also, you know, to overlay with that, what it also comes down to is you always have. Some imperfect information, right? You can have the balance sheet sitting right in front of you. You can be talking to the CEO, but people misjudge those things all the time, right? They're unknowable, they're difficult to judge as to why the market would already have moved to that price. And so I think as an investor, you have to appreciate that you're always operating with imperfect information, right? A public market investor might think they have more information than a private market investor, and that may or may not be the case as well, right? In the public company, you have those financials with easier access that you have to work a little harder for on the private side. On the private side, you might actually know the management team, right?

• 38:04Speaker 02

  It's pretty difficult to get stuck on the phone if you want to buy 50 shares of Facebook, something like that, right? Whereas in the private market, it's a little bit different. So I think if you're comfortable with uncertainty, right? If you're comfortable with the fact that you don't know everything, right?

• 38:19Speaker 02

  Then I think you take a step back and you say, "In any market with any access to information, should I bet everything in one go?" Right? The answer is obviously no. Then if you say, "What if I institute a process whereby if I can do something 10 or 100 or 1,000 times?" Right? Knowing that there are certain imperfections in terms of not only the information, but my ability to analyze it and also what may happen tomorrow from exogenous events like we're going through now, etc. And you say, "But this process itself, if I stick to it over time, it will tilt, you know, tilt the scales, right? Tilt the balance of the scales in my direction,

• 39:00Speaker 02

  and then I can have predictable outcomes at a portfolio level over time." Right? And so that's also essentially what we're trying to do, right? I think that, you know, the idea here is that, you know, we have a certain process, both fundamental and qualitative, right? Some of those investments, you know, could go better than expected or worse than expected. But I think one of the benefits about coming from the hedge fund side for me is that, you know, I put on probably somewhere between, you know, one and 50 trades a day for 15 years, something like that, right? And the feedback loop is almost immediate, and that's very valuable, right? And I think operators talk about that when they say you want to iterate, you push product, you get the feedback.

• 39:42Speaker 02

  It's hard to iterate on your investment style in venture if you have to wait ten years to know if you're right or wrong yet. Right? And it's hard to know if you're right or wrong just by looking at whether or not one investment that you made at seed made money or not, because maybe you made money for the thesis that you thought. But these companies pivot dozens of times along the way, right? And so it's, it's, it's much more difficult to measure yourself. And if you can't measure yourself, then it's hard to adapt, right? And I think one of the things that I feel quite strongly about in terms of the market, you know, especially the public markets. Um, that really drew me to it was the philosophical side, right? And the introspective side of it and the idea that

• 40:22Speaker 02

  um, you know, this is a, this is a game, right? This is an experience where you know you're right or wrong because the ticker is telling you every single second of every single day, right? And so if you're honest and if you're humble and if you're willing to change and if you're willing to learn from your own mistakes as opposed to ignore them, right? By yourself blaming the market, you know, you're probably in the wrong position, right? Probably in the wrong seat, right? But if you look at what you're doing and you're, you know, you're kind of analyzing your own patterns. You may begin to see after those ten thousand hours, twenty thousand hours, thirty thousand hours that I'm very good at this kind of a setup. And actually, this kind of a setup over here

• 41:04Speaker 02

  that I thought that I was good at, right? And that I had conviction in, I learned over time through the pain of losing money. Right? Getting things wrong, then I'm, I'm just not great at that. Right? And so if you then tend to do more of what works. Right? And, and less of what doesn't, which isn't a given because we're all quite stubborn and you have to sort of fight against yourself within this. But I think, you know, from my perspective, when I, when I met and sat around some of these great investors when I was twenty-three and they were in their forties, the top of their game and I was, you know, I was learning from square one. The consistency that I saw across all of the truly great investors who I've been around are things like that. It's humility, flexibility, you know, honesty.

• 41:50Speaker 02

  And I think that the perception that great investors, you know, have large egos, at least in my experience, that's true of the above-average investor, right? Making enough money to feel overly confident. But the truly great investors really respect the market, right? And they don't base too much of their decision on a particular outcome. They're really focused on their process, right? And they're focused on refining that process over time. And so, you know, I kind of took that short feedback loop, right? High-frequency-like experience. And, you know, we're overlaying some of those learnings, you know, onto this private market where you do generally have to wait a long time to find things out, right?

• 42:35Speaker 02

  And so I think that's one of the benefits from working in an area where you really touch and feel the market every day. And, uh, and, yeah.

• 42:45Speaker 03

  And it feels like, I know you've said previously, like, the market, you know, or that game is really a game of psychological and emotional discipline. Right? It's kind of what you're talking about here. I, I think that there's two ways to look at this, right? One is, hey, I am in the market and I don't have that feedback loop. But also, if you look around the room, nobody else has that feedback loop as well, right? And so it's almost like, you know, this could be a disadvantage. Or if I understand that everyone's kind of got the same disadvantage, can I actually use this to my advantage, which I think you guys have done very well, right?

• 43:17Speaker 02

  Yeah, that's right. And I think also, one of the things you'll find as well is that there's really no formula for being a good or greater successful investor. I think that what one needs to do is understand their self and then understand the market opportunity and try and bring those, you know, in line, right? Like, we were saying earlier, you know, a short seller is a great example, right? You look at the chart of the S and P 500 over the last, you know, 50, 80 years, et cetera. Tough market to be short, right? It basically looks like a forty-five degree line, more or less up into the right. Some short sellers have been, you know, successful, others haven't. But you're wrong, clearly, much more often than you're right, right?

• 43:59Speaker 02

  And so it's not a good or bad thing, but some people have the stomach to be wrong nine times out of ten, you know, ninety-nine times out of a hundred, and have that one pay for the rest. Early-stage ventures is a little bit like that as well, right? There's like the power law, right? Great fund portfolios are not a lot of, you know, a five X fund is not a lot of moderate X's. You know, it's typically one driver or two compensating for many, many losses, right? And that can be very effective, but not for everyone, and only if you have the stomach to be wrong for long periods of time, right? There are other people who might need more consistent positive feedback. It might be like a streaky shooter in basketball, right?

• 44:42Speaker 02

  You know, if you get hot and you feel good and you're playing from the front foot, right? Or if you come out of the gate in a track meet first versus last, you know, there are openers and closers, et cetera. And so I think one of the things in the market is, you know, you want to study, you want to study all the external things that you can, but you also really want to keep a close eye on yourself and understand where your own personal strength and weaknesses lie. And then you want to construct an investment strategy which plays to those strengths and weaknesses, right? If you just hate losing money, if it throws you off all the time, right, then A, investing is a difficult job for you, but B, you should be taking, you know, short stock losses, right? You should be in setups that have a high probability of winning, but perhaps a low

• 45:27Speaker 02

  magnitude of the winnings when you win, right? If you're kind of somebody who's built with more of a home run mentality, right, if that works for you, and not because you want it to work for you, but because it actually works for you, you know, then you can take a different approach, right? And so I think that, you know, one of the things we try to do, and every time we bring on a new hire, we're bringing in a whole new psychology to the firm. And so one of the interesting things about, you know, co-running your own firm is you're also trying to bring people who have a different perspective than you, right? Have different strengths and weaknesses, you know, versus yourself, and then, you know, create a portfolio and a platform where, you know, everybody's doing as much of what they're great at as possible and as little of what they're not.

• 46:12Speaker 03

  Yeah, that home run mentality, I think there's two pieces of this. And so in the venture world, the idea of being a contrarian is so overblown that people hear the word, they will like throw up at this point, right? But, but I do think that this home run mentality is important because when everyone has consensus around an idea, a trend, a company, you know, whatever it is, there's a lot of commoditization in the returns, right? Kind of the returns go down as more people believe something is going to happen. That's just how markets work. So maybe talk a little bit about where you guys see, hey, you know, we've got a different opinion and if we're right, it'll pay off, but we fully understand if we're wrong,

• 46:55Speaker 03

  you know, we lose money. Kind of what are those areas that you guys believe could potentially fit into that bucket?

• 47:02Speaker 02

  Yeah, yeah, yeah. Great question. So, um, you know, I, I spend a lot of time thinking about what's consensus in the market, right? Sometimes we're in a consensus trade, sometimes we're not, right? And not every anti-consensus trade is right, not every consensus trade is wrong, but it's important to be honest with yourself. And when you know that you're in a consensus trade, to be on guard, right? Be very careful when, you know, I mean, I think, I think these feedback loops that we have in Twitter and stuff like that are also particularly dangerous, right? You know, your news feed, as we know from elections, et cetera, you know, it morphs into some sort of a mirror, right? And if your market news feed, right, where you get your information or whose ideas you follow

• 47:47Speaker 02

  are essentially a reflection or an amplification of your own, you may, you may misunderstand the risks, right? So if we're just thinking high level, you know, what are some very consensus opinions, right? I mean, one that I believe in, that I think we both believe in right now is that this money printing machine that central banks and governments are on is problematic and must eventually lead to a debasement of fiat currency versus quote unquote hard assets, right? Be that gold, Bitcoin, or something else, right? That's a very strong view of mine and ours, right? We're very bullish that idea.

• 48:29Speaker 02

  But also slightly concerned that it seems consensus, right? And so if there was a washout lower in those kinds of assets at the exact moment when we're increasing our balance sheet by historic proportions, you know, on an almost daily basis, that wouldn't be surprising, right? So how would we approach a situation like that where we'd say consensus opinion, but strongly held and agreed with on our side? Perhaps we would size that position to say, if it goes up from here, we're happy. Obviously, we're in the money, right? But if it goes down from here materially, in a sense, we're also happy because we've been looking for a chance to buy more, right? And so the risk management, if you can find yourself in a position where psychologically

• 49:13Speaker 02

  you're happy if the move in the investment goes with you or against you, right? That's a great position to be in psychologically, allows you to trade with confidence. If you're too big, right, which we, you know, which, which human nature often leads us to be, right? You really believe in something you're all in, then it goes down by a little bit. It doesn't invalidate invalidate the thesis, right? The reason it went down may have nothing to do with the reason you thought it was going to go up, but it's painful, right? And so people bail at the lows, right? And always will, right? I mean, that's just literally how we're made as humans, right? So that's a consensus opinion which we agree with, right? A consensus opinion that I think is also, you know, perhaps we don't agree with is that,

• 49:58Speaker 02

  you know, it's very natural to think that the stock market is a reflection of the economy, right? So to say, who could say that the economy is stronger in April 2020, you know, than it was on March 24th, for example, right? Who's to say that we're looking at an all time record year in terms of GDP growth and employment, right? We know these things are bad, right? We know they may get worse, right? But the market is not the economy. Right, there are correlations between the two, but they're not one for one. And the inputs and outputs differ at different times, you know, sometimes deficits matter, sometimes they don't.

• 50:42Speaker 02

  Sometimes employment matters to the market, sometimes it doesn't, right? And so, you know, when I look at an opinion like that and I see shorts in the S and P are at all-time highs, right? My Twitter feed, which I try and keep relatively bipartisan with respect to politics and the market, right, just so I can, you know, imbue information from all sides, you know, bears have been angry for the last couple of weeks, right? People are mad at the market, right? They feel like it's doing the wrong thing, et cetera, right? Now, if I did want to be bearish up here as well, I would be concerned, right? That everything looks like the market should go lower, right? And everyone thinks the market should go lower.

• 51:27Speaker 02

  That's generally not a good recipe for profitability as an investor, because even if you're right, the magnitude of the move is small because it's not surprising, right? Whereas, you know, if somebody were to have me right now that the market's about to go to all-time highs, right? Not that that's our view, but that would be an interesting non-consensus view. If your fundamentals were strong and your conviction was strong and it was in direct opposition, right, to common sense, right? And so I think that's one of the ways in which, you know, we like to measure the fear and greed index. We like to measure it in our own hearts and minds. We like to measure it, you know, by a fundamental analysis like put-call ratios, short interest

• 52:11Speaker 02

  and things like that. And it doesn't drive our decisions per se, but it's the factor, and from my perspective, being someone who's traded tactically for a long time.

• 52:24Speaker 02

  It's probably a bigger input for us than it is for other people. You know, I'm someone who does not think the market is wrong. Right? I don't think it's always right per se, but I'm agnostic more times than I, you know, than, than, than having a strong view against the market. I think generally when you feel like you're in a fight with the market, you probably need to reassess. Whether your, you know, whether your convictions are, are not loosely held, as they say, right? Which is a good way to approach investing.

• 52:53Speaker 03

  Yeah. And, and one of the pieces, again, I'm cheating because I know how you guys treat some of the strategies and investments. Is you can be contrarian when you put an investment or a position on, right? So when you enter the trade or the investment, I believe something is true that others don't. And therefore, when they come around to this idea, there's a return to be made. But you also can be contrarian or ahead of the curve on exiting a position as well. And in the public markets, that's a little bit more commoditized because people have entry and exit points and there's a lot of liquidity. In private markets, I don't know, majority at least, if not, you know, 80, 90% of the market is net long till liquidity event.

• 53:38Speaker 03

  And that liquidity event is out of their hands, right? They're waiting for that M and A or they're waiting for that IPO. You guys take a little bit of a different strategy, given the secondary markets. So maybe talk a little bit about like, you know, what you guys look at and then how you actually, you know, put this into practice.

• 53:55Speaker 02

  Yeah, sure. Yeah. So to your point, you know, we do take profit sometimes in positions, right? And, you know, that's natural from our perspective. You know, the hedge funds I worked at had various tight stop losses, so to speak, right? You could be down a very little, you know, very, very small amount of money and lose your job. So you learn a lock-in profits to roll your stops on positions, et cetera. And, um, and we take that mentality to some degree. Yeah. So one of the things which does make us a little bit different, and it kind of alludes to my point earlier about the difference, opportunity set between passive and active management, right? Is that we do take profits, right? We actively manage this portfolio and we don't necessarily always wait for an IPO or an M and A event.

• 54:40Speaker 02

  Or a negative event to to crystallize profits. And so we seek to return cash on a more frequent basis. Right. We've had numerous exits in the last year. We had one last week that are either partial or full. Um, where we're selling to secondary, you know, market buyers, right? And I think that what's developing within the secondary market, I think this is healthy and I think it is a win win actually. Is that you're starting to see a whole class of investor who previously used to be a public market only investor. Right? That might be a public hedge fund. It might be a high net worth individual. And, uh, you know, companies used to IPO at a relatively early stage in their lifecycle, right? I think Amazon IPO did a sub $500 million valuation.

• 55:24Speaker 02

  Right? And now you have ByteDance, which is worth a hundred billion and is still private. Right? And so clearly the value creation is accruing to the private markets much more. Right? I think that one of the, um, the lessons, which I think people are slow to realize, unfortunately, especially, um, you know, small investors, mom and pop investors, retail investors who are boxed out of private markets generally. Is that, you know, you're often pitched this 6040 portfolio, for example, right? You got your public equity portfolio, you have your bond portfolio. Well, you know, bonds are negative. Right? Yielding in in many instances now. So that's not a great place to put your money. And public equities now are crystallizing so much of the gains in the private market. Right? From staying private for 10, 12, 15 years.

• 56:09Speaker 02

  Right? Accruing that value to private market investors that by the time they go public, even if they do perform, and obviously some of them do, a lot of that value creation has been eked out of it, right? Even fantastic private market investments like Uber or Lyft. Right? Or subpar public market investments, right? Even pre-carrum. And so what you've begun to see, and I think that this is a trend which will eventually become a tidal wave. Right, which is that people who used to wait to either buy the IPO or buy early in a company's life cycle as a public company are now realizing the value creation is happening, you know, in the private markets by and large. And there's a new cohort of investors who are increasingly realizing they need to come a little bit earlier.

• 56:54Speaker 02

  And so, you know, I think there's a win-win on both sides, right? And you provide liquidity for early investors to return capital to their LPs to early employees to be able to live their life, right, without kind of being locked into, you know, an option which may take 10 or 15 years to realize. You generate good returns for your investors. And then some of those previously public market investors who I now deem as crossover investors, so to speak, they have an opportunity to enter these companies prior to the IPO, right? But at the latest stage of kind of private market activity, right? I think that you're going to see that ecosystem develop and grow materially.

• 57:33Speaker 03

  Yeah, and how do you look at if there is much more liquidity and those secondary markets become much larger, especially around venture? How does that change the public markets? And is there eventually like this blending of the two? Or how do you kind of see that transpiring?

• 57:48Speaker 02

  Yeah, good question. I think that's probably the end game, right? I think, you know, it's the prerogative of private companies not to share all their information with everyone, right? I don't think that will necessarily change. At the same time, you know, I think were I a CEO of a startup, whether it's employee retention or just wanting to do the right thing, right? You realize that you have to let your employees monetize some of the liquidity along the way, right? It's not fair, I think, for a CEO who always has access to liquidity, right? As we've seen in some very public examples, right?

• 58:28Speaker 02

  Or a venture capitalist, who by and large has already had some major liquidity events in their life, right? If both of those people are telling all the employees in a company that you need to have more skin in the game, right? You need to have ninety-nine percent probably of your personal wealth concentrated in this one private company, you have no access to liquidity. You know, I don't think it's a vote against your confidence in the business you're working for to say, I want to sell five or ten percent of my position, right? Because I want to help my mom retire or buy a house in the same zip code as my office, right? And so, you know, I think that wave, that realization is coming, right? It's coming, you know, came for WeWork employees, right? It's coming for other employees, even high-performing companies

• 59:13Speaker 02

  who are continually waiting to go public. And that may actually be the right thing to do, perhaps from a company perspective. But I think that boards and CEOs are realizing and will increasingly realize that, um, you know, there's nothing to fear if your company is performing well from letting some of your early investors or some of your early employees monetize along the way. You just have to do it in a controlled fashion, right? And I think you don't want noise in the secondary market distracting from the narrative. You don't want employees trying to trade, you know, secondary stock in their company all the time. But public companies have done this for a very long time, right? You know, I can only speak for the financial industry, but, you know, as a, as a employee at a bank,

• 59:55Speaker 02

  you know, every single year you get a cash component of your bonus and you get options, right? Those options vest over time, you have to stay at the company. But when they vest, you're allowed to sell them. You're allowed to sell them in certain prescribed windows, you know, within a certain time period, according to certain compliance regulations. And so, I really don't see any reason why multi-billion dollar private companies, right? Wouldn't afford their employees that same kind of flexibility. Um, I think it's right that they want to control it to a degree. But I think probably, you know, tech CEOs have gone a little bit too far with respect to their control, their desired control generally, right? You don't need fifty to one voting rights necessarily, right? You don't need a full prohibition.

• 1:00:39Speaker 02

  On all secondary transfers in all situations, right? At the same time, you don't want your employees flipping out of your company at a series A when you're just getting started, right? But these are actually relatively easy to solve. And I think as long as everybody has the same objective, right? And everybody is trying to be a good actor. And so I think whether the market forces it, right? Or whether people get there willingly over time, as you say, I'm not sure exactly what the structure would look like. But you know, a very late stage private company on the scale of an Airbnb or, you know, a ByteDance or Lyft or Uber prior to IPO. You know, it's not inconceivable that somebody should be able to eventually log on to a portal or call their head of HR, right? And say that I want to exercise some options and sell them within this window, right?

• 1:01:24Speaker 02

  It seems fair and right to me. And so I think that we have the momentum of inevitability on our side with respect to it. And, you know, whether that's a year away or a decade away, I feel like that's probably the end game. As long as companies do stay private and continue to want to stay private for as long, you know, as they seem to now.

• 1:01:45Speaker 03

  Yeah, I, I, I tend to agree with you and people are learning hard lessons right now, right? And so hopefully it'll, it'll change. And the last question I want to talk about before we end is you've got a very diversified set of LPs. And some of them are very large, some of them are kind of more traditional LPs. What has kind of those conversations been like over the last few weeks during this market turmoil? And how are they thinking either differently or kind of their thoughts evolving about various markets? And then specifically around what you guys are doing?

• 1:02:17Speaker 02

  Yeah. Question, so, you know, I think that, you know, at the, at the most basic of levels, everybody knows you're supposed to buy low and sell hot, right? And everybody likes to retweet those, you know, Warren Buffett apparisms and other ones, right? That you want to be greedy when people are fearful and the reverse, right? The truth is, is that everybody in the market knows that too, and they've always known it. But I think everybody, and perhaps because we were talking about before the show, you know, the coronavirus has been such a. You know, it's been such a well documented, right, kind of instance of this. It wasn't kind of limited to sort of the financial markets like it was in two thousand eight, right?

• 1:02:58Speaker 02

  This is something everybody is seeing in their daily life. And so, you know, one can ask oneself, you know, how many people went all in? On March twenty third or twenty fourth at the lows, right? And the market always feels like that at a low, right? This time it's a pandemic. It could be a systemic financial issue. It could be, you know, something else, right? Um, and so I think that we all know our investors as well, right? As well as ourselves, everybody knows that you are supposed to be greedy, quote unquote, you're supposed to be aggressive when others are fearful, right? And people who invest with us also know that we are not trying to pick up pennies in front of a steamroller, right?

• 1:03:40Speaker 02

  That we are long volatility and that when things become dislocated or asymmetric, up or down. You know, that's an area in which we have a lot of confidence, a lot of experience in terms of, you know, generating outsized returns. And so I think everyone invested with us, everyone who, you know, may perhaps seek to invest with us in the future, understands that that's the kind of profile that they're investing in. At the same time, when things like this happen, right? Other asset classes move against, against you, right? People are not always as liquid as they would like to be in this type of a drawdown, right? And so, um, I think that, you know, we'll see over time, right? We have committed capital funds and we invest them over multi-year periods, et cetera.

• 1:04:22Speaker 02

  And so I think, you know, moving into the next fundraise, for example, you know, depending upon where the world is, you know, with respect to this. It will be interesting to see, I think that people know that our strategy frankly will perform probably quite well. Amongst this uncertain backdrop, and I think that the backdrop, um, will be uncertain for the foreseeable future, right? That's whether or not there's a miracle vaccine tomorrow or not. To your point, you said people have learned hard lessons. I think, um, you know, hopefully those lessons were. Were hard earned and will be relatively short-lived in terms of their application, right? In terms of, you know, the bounce back that we all hope the economy and the world sees. But either way, I think as an employee or investor in a private company,

• 1:05:04Speaker 02

  you're going to appreciate risk in a slightly different way post WeWork, post these kinds of things. You're going to want to know that you have a pro-volatility stance to some degree in your portfolio and you're going to want to make sure that you're selling into strength and buying into weakness, right? And so the question is, not only will people appreciate that and appreciate, you know, that that's the time in which to be on the front foot and to be aggressive, as hard as it is, as uncomfortable as it feels, you know? I think that we should seek discomfort to some degree within investing and lean into those opportunities when there are our own risk parameters. But then also there's just real-life situations where, you know, people are liquid, right?

• 1:05:48Speaker 02

  People's, you know, jobs are less certain than they were before. And that's one of, I think, the unfortunate, you know, one of the many unfortunate knock-on effects of this kind of 1%, 99% bifurcation, right? Is if you're in a financial position where even if you've been hurt by this, you've still got enough dry powder, right? To act into extreme situations, whether to the upside or the downside, you're in a much better position, right? And so everyone has to trade their own portfolio and their own personal wealth, you know, accordingly. But certainly, this is the kind of environment, and I'm not just talking about stocks here, I'm just talking about, you know, dislocations. Generally, this is the kind of environment where if you look around and you see that everybody else is fearful, you know?

• 1:06:33Speaker 02

  If you are an optimist, if you do believe in human innovation, right? If you do believe that generally, these things always feel like this to some degree. This is a very extreme example, but every example feels like an extreme example at the time, right? And so I'm not advocating that anybody be imprudent, but I would say that, you know, when everybody's calm... Right and when on the cover of magazines, you're seeing tech titans and titanium bowls on the cover of the Economist and things like that, you know, not a bad time to monetize and get a little bit more into cash, you know, and when you see, um, you know, when you see this kind of volatility, not only is it a way to support the economy, right,

• 1:07:16Speaker 02

  support people, right, invest in businesses that you believe in, um, and to vote with your pocket, you know, it's also the right thing to do from an investment standpoint, right? And so I think, um, you know, our investors, we generally raise from a relatively small group of, of obviously well-capitalized individuals and, you know, and institutions. Um, and so they're well, well-positioned, right, to, to add into these kinds of volatility. You know, we've, we've made some recent investments, we're doing two more this week, you know, we continue to stay active. Um, but on the personal level, I think that we should all, you know, one of the lessons that everybody should take from this, especially if, if the market resolves itself to the upside eventually, which is obviously all of our

• 1:07:57Speaker 02

  stronghold, is that, um, you know, remember, remember what this felt like, right? Remember, you know, to, to have a pro-volatility stance in your portfolio to some degree, you know, don't be afraid to take a little bit of profit into winnings. Um, and I think that's good advice for all of us that, you know, that we all, we all should continue to remind ourselves of over time.

• 1:08:21Speaker 03

  For sure. Um, before we finish up, uh, I asked everyone what their favorite book is or their most important book. What, what would yours be?

• 1:08:29Speaker 02

  Favorite book or most important book? You know, the truth is, my favorite book is Shogun. You read that?

• 1:08:34Speaker 03

  No, what is that?

• 1:08:35Speaker 02

  Really? It, um, it takes place, um, in feudal Japan, you know, with the samurai. This guy washes up on the shores of Japan. He's the first Westerner to be there, um, and, and goes on to live this, you know, this sort of amazing life. It's a fictional book. Um, but, um, you know, I'm actually someone who, you know, I read a lot, but I like to go back to the same things as well. So I've probably read that book 25 or 50 times, you know? I mean, I just, yeah, I love it. Um, and so I'm, I'm always, as you know, maybe able to tell, I'm interested in philosophy. I'm interested in kind of introspection. I'm interested in, you know, quote unquote, eastern philosophy, you know, Buddhism, Daoism, et cetera. Um, I think being in the markets has amplified that. Um, and so I don't know

• 1:09:19Speaker 02

  if it's the most important or the most useful book, but it's, um, it's the most enjoyable one for me.

• 1:09:24Speaker 03

  What I've learned in asking that question to so many people is the most important book has a lot to do with what it meant to you and when you read it.

• 1:09:32Speaker 02

  Yeah, yeah.

• 1:09:34Speaker 03

  Which is always interesting. I got one question for everyone, which is aliens believer, non believer?

• 1:09:45Speaker 02

  Wasn't expecting that one. I'm gonna say believer.

• 1:09:49Speaker 03

  Yeah, why?

• 1:09:51Speaker 02

  Just think the odds are if the universe is infinite, right? I don't bet against, you know, kind of short the unknown. So I'd say somewhere out there for sure.

• 1:10:02Speaker 03

  I asked the question because it tells a lot about the way somebody thinks. And so literally short the unknown is a perfect way for you to articulate why you believe. What one question do you have for me to wrap up?

• 1:10:16Speaker 02

  Yeah, good question. You know, obviously, we know each other for a while. I've been following, you know, this podcast, etc. I'm curious, this kind of feedback, this, you know, these conversations that you're having with people from all over, I'm curious, you know, I guess in the context of investing, you know, which is what we've all spent a lot of our time on, how do you feel like you've changed as an investor as a result of all these interviews that you've been doing over the, you know, past year?

• 1:10:41Speaker 03

  Yeah, it's, um, I explained it to somebody literally just yesterday and I said, this is the most selfish thing I do because basically I can go to people who probably wouldn't talk to me or have a conversation in this level of detail and say, hey, I'll make you a deal. You come on, you're gonna have one conversation, it's gonna go to a lot of people. I'm gonna ask you all the questions that I want to know, right? And just happens to be there's a bunch of other psychos out there that I want to hear as well. And so as I've done that, it really allows me to get so many different perspectives, so many different inputs. And what you realize is that when you go into a situation with very high level of conviction,

• 1:11:23Speaker 03

  Very quickly, as you hear more and more variety in the opinions, it's not so much that you change your mind. What happens is you actually start to calibrate the level of your conviction. Right? So it's still, hey, I believe X. I may not believe it as strongly as I previously did. Or I didn't believe something. And maybe now, you know, it's not 100% that's wrong. It's 60% or whatever. And so the severity of belief and how that gets calibrated, the more people you talk to. And then also the different types of people, right? You know, talking to somebody who no one's ever heard of before, has no investing track whatsoever, but they're an expert on one specific thing. Has, you know, just as much weight, if not more weight,

• 1:12:08Speaker 03

  than going and talking to the most famous investor in the world about that same topic. Because this person's an expert that, you know, a big investor is not. And so I think it's just, it's all things that we know, right? But, but actually going through the process really is a reminder, right? And, and so it's super valuable.

• 1:12:26Speaker 02

  Yeah, well, I've been enjoying it. So well done on you.

• 1:12:30Speaker 03

  Yeah, I appreciate it. Where can people go find you on the internet and Bracket?

• 1:12:35Speaker 02

  Sure. Yeah, you know, I don't, I'm not on social media a lot, but I'm on there, you know,

• 1:12:41Speaker 02

  mainly collecting information. But Twitter, I'm at JBL Bracket. Bracket Capital is our website. And, you know, you can find us there. Reach us at info at bracket capital, you know, bracket capital.com.

• 1:12:54Speaker 03

  You went on CNBC. I saw you up there. I was like, look, man, look at you. The guy who's hiding in the shadows is, is on TV.

• 1:13:02Speaker 02

  Yeah, here and there, here and there.

• 1:13:05Speaker 03

  I love it. Well, listen, thanks for doing this. I think people are really going to enjoy this one and we'll talk soon.

• 1:13:10Speaker 02

  All right. You're welcome. Take care.