WEBVTT - Masters in Business LIVE: The Emerging Manager Playbook 0:00:02.040 --> 0:00:06.000 This is Master's in Business with Barry rid Hoolds on 0:00:06.240 --> 0:00:07.320 Bloomberg Radio. 0:00:08.560 --> 0:00:13.440 We have an extra special Masters in Business live panel 0:00:13.640 --> 0:00:19.840 that I recorded last month at Bloomberg's Hedge fund startup conference, 0:00:20.480 --> 0:00:25.200 and Wow, what a tremendous lineup. This was Alana Weinstein 0:00:25.840 --> 0:00:30.800 from IDW, probably the most prominent headhunter in the hedge 0:00:30.800 --> 0:00:36.400 fund industry. Additionally, we had a series of rock star 0:00:36.720 --> 0:00:42.200 advisors as part of the panel. Mike Rockefeller, he runs 0:00:42.240 --> 0:00:46.479 Woodline Partners there about six billion dollars. Previously he was 0:00:46.640 --> 0:00:52.199 at Citadel and Millennium. He really is one of the 0:00:52.280 --> 0:00:55.600 up and comers in the world of hedge funds. Thomas 0:00:55.680 --> 0:00:59.320 Wagner has been running a credit fund for about a decade. 0:00:59.320 --> 0:01:02.400 They run about over at Nighthead Capital. He runs about 0:01:02.400 --> 0:01:07.480 ten billion dollars. Really insightful stuff. Brennan Diaz probably runs 0:01:07.520 --> 0:01:10.080 the newest of these hedge funds. He's a little over 0:01:10.080 --> 0:01:13.800 a billion dollars. He launched right into the teeth of 0:01:14.720 --> 0:01:18.440 the pandemic, a long only billion dollar hedge fund. And 0:01:19.480 --> 0:01:21.360 this panel was absolutely fascinating. 0:01:21.400 --> 0:01:22.400 If you're thinking. 0:01:22.080 --> 0:01:25.400 About going out on your own, hanging your own shingle, 0:01:26.000 --> 0:01:29.360 just trying to do it, yourself. These folks can tell 0:01:29.360 --> 0:01:32.600 you exactly how challenging it is and the tools you're 0:01:32.640 --> 0:01:35.560 gonna need to succeed. I thought this was a really 0:01:35.640 --> 0:01:40.600 fascinating conversation with no Ado my panel discussion at Masters 0:01:40.640 --> 0:01:45.560 in Business Live The Emerging Manager Playbook. It's been a 0:01:45.640 --> 0:01:49.440 crazy couple of years, from the pandemic to the new 0:01:49.520 --> 0:01:54.200 regime of rate increases. Frame what's going on in today's 0:01:54.960 --> 0:01:58.240 environment and what's it like managing a fund in this 0:01:58.280 --> 0:01:59.960 sort of circumstances. 0:02:00.120 --> 0:02:01.560 Start with you sure so. 0:02:02.480 --> 0:02:06.800 I think one theme is that allocators are becoming more 0:02:06.840 --> 0:02:11.080 sophisticated about the return quality that they are receiving and 0:02:11.080 --> 0:02:14.120 what they're willing to pay for and what they want 0:02:14.200 --> 0:02:15.640 is uncorrelated alpha. 0:02:16.480 --> 0:02:18.320 And you take that. 0:02:18.360 --> 0:02:22.200 Concept, but then you look at the traditional long short 0:02:22.639 --> 0:02:26.359 hedge fund and they are running portfolios of less than 0:02:26.400 --> 0:02:31.160 thirty percent idio, which means that those returns are highly 0:02:31.200 --> 0:02:37.720 dependent on macro factors, very unpredictable factors that you'll be 0:02:37.800 --> 0:02:41.919 subject to. And what I think is an increasing appreciation 0:02:42.080 --> 0:02:46.320 is that a high idio portfolio is what is predictive 0:02:46.400 --> 0:02:48.960 for an uncorrelated alpha stream, and that is why you're 0:02:49.000 --> 0:02:54.840 seeing the massive increase in multimanager assets, and those assets 0:02:54.880 --> 0:02:57.799 have more than doubled since twenty seventeen. If you look 0:02:57.800 --> 0:02:59.440 at some of the top launches that are coming out 0:02:59.440 --> 0:03:03.600 in twenty twenty three, Ilex and Freestone, that trend looks 0:03:03.600 --> 0:03:06.360 to be continuing. And the reason why is that a 0:03:06.440 --> 0:03:10.600 multi manager provides a one stop shop for an allocator 0:03:10.919 --> 0:03:15.960 where you can get a high IDEO, lowvall durable return 0:03:16.000 --> 0:03:19.080 stream and you can do it in one single investment 0:03:19.800 --> 0:03:22.680 where you could have scale and you eliminate. 0:03:22.240 --> 0:03:26.799 Complexity, diversification built in right from the good go. 0:03:27.000 --> 0:03:28.560 That's right, Alana, Let's. 0:03:28.360 --> 0:03:31.480 Talk a little bit about this current environment. You see 0:03:31.480 --> 0:03:33.400 it from the perspective of talent. 0:03:33.960 --> 0:03:34.760 Tell us what you're seeing. 0:03:34.800 --> 0:03:37.120 Well, I'm going to zoom out, because if you all 0:03:37.160 --> 0:03:39.480 want to start a hedge fund, I think we need 0:03:39.520 --> 0:03:41.440 to kind of start at the top and I'm going 0:03:41.480 --> 0:03:43.360 to give you the macro and then we'll go quickly 0:03:43.400 --> 0:03:47.760 strategy by strategy. Barry, you and I talked about this recently. 0:03:48.000 --> 0:03:51.000 There was to me at least an amazing article that 0:03:51.080 --> 0:03:54.560 the FT put out a couple months ago which said 0:03:54.880 --> 0:03:56.360 this was news to me. I knew there were a 0:03:56.400 --> 0:03:59.880 lot of hedge funds, but apparently there are more hedge 0:04:00.000 --> 0:04:06.840 funds than burger kings. Okay, true, thirty thousand hedge funds. 0:04:07.520 --> 0:04:08.800 The other thing you should keep. 0:04:08.720 --> 0:04:12.600 In mind is that the average lifespan of a hedge 0:04:12.600 --> 0:04:15.720 fund is three years. So if you guys want to 0:04:15.760 --> 0:04:18.080 start a fund and you don't want it to be 0:04:18.320 --> 0:04:21.000 just another Burger king that goes out of business, you 0:04:21.120 --> 0:04:23.760 need to understand what the lay of the land is 0:04:23.800 --> 0:04:26.280 within each of those strategies. Mike talked a little bit 0:04:26.279 --> 0:04:31.279 about long short equities not to be like the grim reaper, 0:04:31.600 --> 0:04:35.279 but the reality is, if you're not a multi manager 0:04:35.480 --> 0:04:39.120 and you're not aggressively managing market risk, then you fall 0:04:39.160 --> 0:04:44.159 into the category of a long short single manager that 0:04:44.320 --> 0:04:48.719 probably takes concentrated more concentrated directional risk. And if you 0:04:48.760 --> 0:04:52.719 look at how these funds have performed over the last 0:04:52.920 --> 0:04:56.280 two full years twenty one and twenty two, the average 0:04:56.760 --> 0:05:01.240 the cumulative return of these funds is down forty percent, okay, 0:05:01.279 --> 0:05:03.640 with some funds down as high as sixty percent, like 0:05:03.760 --> 0:05:04.520 Tiger Global. 0:05:05.000 --> 0:05:07.320 So if you think about the dollars loss. 0:05:07.000 --> 0:05:10.000 To LPs, and it's important you understand this because forty 0:05:10.040 --> 0:05:12.839 percent of the hedge fund universe is long short equities, 0:05:13.120 --> 0:05:15.600 so I'm betting there's a decent percentage of you here 0:05:16.120 --> 0:05:18.839 that is thinking about starting a long short equity fund. 0:05:19.279 --> 0:05:22.040 There was a tremendous amount of AUM. 0:05:21.640 --> 0:05:25.560 Lost, so Tiger Global pre twenty twenty one was one 0:05:25.640 --> 0:05:30.440 hundred billion, Maverick fourteen billion, d one thirty billion, and 0:05:30.480 --> 0:05:34.840 then non Tiger cubs like Alkeon thirty billion, Perceptive ten billion. 0:05:35.200 --> 0:05:38.240 When you're down forty percent on average, it's a huge 0:05:38.279 --> 0:05:42.320 loss to the industry. More than fifty percent of total 0:05:42.400 --> 0:05:46.040 losses into in twenty twenty two came from long short 0:05:46.040 --> 0:05:50.000 equity funds, and half of hedge fund liquidations came from 0:05:50.080 --> 0:05:53.040 long short equity funds. So you really need to think 0:05:53.040 --> 0:05:57.000 about if you don't fall into a all alpha non 0:05:57.040 --> 0:06:00.880 correlated category like Mike does, what is the value that 0:06:00.920 --> 0:06:06.680 you're providing. Macro very volatile return stream. Twenty twenty one 0:06:07.000 --> 0:06:10.800 crappy year for most macro funds. Twenty twenty two, great year, 0:06:11.200 --> 0:06:14.680 twenty three again not such a good year, and you 0:06:14.720 --> 0:06:18.880 see again brand name funds like Rocos, Castle, Hook, Element 0:06:19.040 --> 0:06:22.120 Element charged forty percent fees was able to up it 0:06:22.160 --> 0:06:25.599 to that in twenty twenty shrinking and trying to stem 0:06:25.640 --> 0:06:27.680 the bleeding from negative returns. 0:06:29.120 --> 0:06:30.840 Credit a bright spot. 0:06:31.040 --> 0:06:32.800 But I think, and I'm sure Tom will talk more 0:06:32.839 --> 0:06:36.880 about this, you really need scale to compete. And then 0:06:36.920 --> 0:06:39.280 there's the multi managers, and that's going to be your 0:06:39.320 --> 0:06:43.480 biggest problem as a new emerging manager, how you're going 0:06:43.520 --> 0:06:48.400 to compete for talent within a paradigm that has everything 0:06:48.480 --> 0:06:49.960 to offer from. 0:06:49.880 --> 0:06:51.640 Analysts up through to pms. 0:06:52.000 --> 0:06:55.840 They have scale, they have capital, they have resources, they 0:06:55.839 --> 0:06:58.280 have a pathway to be a PM. They have an 0:06:58.279 --> 0:07:03.479 aggressive payout. They have that and they are like, it's 0:07:03.520 --> 0:07:05.840 like mitosis. You know, we used to have we have 0:07:05.960 --> 0:07:09.160 the tiger cubs. Now we have the multi manager cubs. 0:07:09.840 --> 0:07:12.320 Mike is one of them. He mentioned Islex. I hope 0:07:12.320 --> 0:07:16.360 it's okay. I share that you. He is now. 0:07:16.080 --> 0:07:20.920 Providing strategic investments to multi manager funds. 0:07:21.520 --> 0:07:22.000 Islex. 0:07:22.080 --> 0:07:24.679 Are two guys from Citadel that Mike and his team 0:07:24.760 --> 0:07:27.640 gave capital too, and they're going to launch with two billion. 0:07:28.000 --> 0:07:30.800 Freestone Grove, another Citadel guy, is going to launch with 0:07:30.880 --> 0:07:34.240 many billions. Andrew Comery, who came out of D E. 0:07:34.400 --> 0:07:37.880 Shaw is launching with three billion. So into the fray. 0:07:38.080 --> 0:07:42.080 So this is the environment you're entering into and I 0:07:42.840 --> 0:07:47.200 as someone who has been recruiting in this industry for 0:07:47.240 --> 0:07:49.559 the past twenty years with my team, and we're working 0:07:49.600 --> 0:07:53.520 with the biggest, most successful funds in the world. It's tough, 0:07:54.000 --> 0:07:59.400 Talent is scarce, it's they have many options, and I 0:07:59.400 --> 0:08:02.280 think the multi manager dynamic just makes it that much 0:08:02.280 --> 0:08:02.880 more intense. 0:08:03.040 --> 0:08:06.280 So let me see what Brennan has to say about this. 0:08:06.440 --> 0:08:10.840 You're the only long only person on the panel. Is 0:08:10.880 --> 0:08:14.560 it that challenging to be long only or how are 0:08:14.600 --> 0:08:18.920 you finding this environment from your investment style? 0:08:19.440 --> 0:08:21.600 Well, I mean, I think all the points Mike made 0:08:21.880 --> 0:08:24.440 are right, and I think that the whole rationale behind 0:08:24.520 --> 0:08:28.080 launching along only, coming from a long short background, was 0:08:28.240 --> 0:08:31.960 the realization that market structure was changing. The ability to 0:08:32.000 --> 0:08:34.240 access short alpha and short alpha curs were changing. 0:08:34.240 --> 0:08:34.520 In us. 0:08:34.520 --> 0:08:36.600 The ability to maintain short gross exposure with the same 0:08:36.600 --> 0:08:39.760 investment style and generate that level of alpha wasn't there 0:08:39.800 --> 0:08:42.040 as much, and so I kind of felt that pressure 0:08:42.040 --> 0:08:44.880 on the short side of the portfolio, forcing shorts or 0:08:44.920 --> 0:08:47.240 a running higher net kind of too bad options for 0:08:47.280 --> 0:08:51.080 an absolute return product. But looked at alongside a ledger 0:08:51.280 --> 0:08:54.240 and still felt very strongly that the pool of alpha. 0:08:54.240 --> 0:08:57.320 We were accessing there looking out you know, basically eighteen 0:08:57.360 --> 0:08:59.480 to eighteen to thirty six months, so not looking out 0:08:59.480 --> 0:09:01.680 five to ten years, but eighteen to thirty six months forward, 0:09:01.720 --> 0:09:04.280 looking forward to what underlying businesses are going to be earning, 0:09:04.320 --> 0:09:07.880 and thinking about absolute value and intrinsic value and taking big, 0:09:07.920 --> 0:09:13.000 concentrated bets on opportunities that were really attractive. That window 0:09:13.720 --> 0:09:16.240 was not only kind of as attractive as it ever been, 0:09:16.280 --> 0:09:18.400 but in some ways it is getting more attracted, kind 0:09:18.400 --> 0:09:20.679 of driven by the underlying short term volatility in the market. 0:09:22.000 --> 0:09:25.520 And so I don't think managing along only is more 0:09:25.520 --> 0:09:28.120 difficult to managing along shore. I think it's actually materially 0:09:28.600 --> 0:09:30.880 materially easier, which is kind of why we went down 0:09:30.920 --> 0:09:31.840 that route. 0:09:31.920 --> 0:09:33.720 And I also think that there's material demand. 0:09:33.760 --> 0:09:35.720 I think my expoint is one hundred percent right that 0:09:35.720 --> 0:09:39.680 allocators want to pay for value, right. You know, investors 0:09:39.720 --> 0:09:42.240 historically have not been you know, invested in hedge funds 0:09:42.280 --> 0:09:44.840 just to pay fees on beta. They've been willing to 0:09:44.840 --> 0:09:47.120 pay the fees on beta because the underlying assumption would 0:09:47.120 --> 0:09:48.840 be that you would deliver them enough OUTFA to cover. 0:09:48.720 --> 0:09:49.440 The beta costs. 0:09:50.320 --> 0:09:52.920 However, there are you know, large pools of capital in 0:09:52.960 --> 0:09:56.280 the world that want data exposure, very very large pools 0:09:56.280 --> 0:09:58.040 of capital that will always have beta exposure. 0:09:58.040 --> 0:09:58.640 And so I think the. 0:09:59.679 --> 0:10:01.880 Message of going to people and saying I will take 0:10:01.880 --> 0:10:04.319 that beta exposure, I personally want that beta exposure for 0:10:04.440 --> 0:10:06.959 my own capital, like over time, I want the beta 0:10:06.960 --> 0:10:09.360 because the beta collecting that risk premium should be positive 0:10:10.040 --> 0:10:13.120 and you only pay me when I generate value for you, 0:10:13.280 --> 0:10:15.599 value being defined as excess returns relative to the S 0:10:15.640 --> 0:10:15.800 and P. 0:10:16.160 --> 0:10:19.400 I think that has a lot of resonance with. 0:10:18.679 --> 0:10:20.839 With with a lot of capital providers out there, And 0:10:20.880 --> 0:10:24.080 I think that it's it's it's an opportunity for people 0:10:24.080 --> 0:10:26.599 who invest like me, who think like me, to to 0:10:26.800 --> 0:10:28.760 to go out and uh to go out and execute 0:10:28.760 --> 0:10:32.160 on if they so choose. But you know, you have 0:10:32.240 --> 0:10:35.040 to have the right model, you have to have a 0:10:35.040 --> 0:10:38.120 truly aligned fee structure and you and you have to 0:10:38.160 --> 0:10:39.640 kind of be willing to go down that road. So 0:10:39.679 --> 0:10:43.240 I I, you know, I think it's in many ways 0:10:43.240 --> 0:10:45.640 the same. It's it's it's it's responding to the same 0:10:45.679 --> 0:10:48.920 trend that Mike is talking about and taking it in 0:10:48.960 --> 0:10:49.800 a different direction. 0:10:50.200 --> 0:10:52.880 So so to clarify, some people have called them pivot fees. 0:10:53.600 --> 0:10:58.840 The profit participation is only on returns over and above. 0:10:58.760 --> 0:11:01.320 What the SPX is generally, so it's actually I would 0:11:01.320 --> 0:11:03.640 say even more advantageous in that our management fees are 0:11:03.800 --> 0:11:06.640 are a pre payment on future alpha, So we have 0:11:06.720 --> 0:11:11.920 to generate alpha before we get to any type of incentive, right, 0:11:11.960 --> 0:11:13.800 so that the idea is over time, over the life 0:11:13.840 --> 0:11:16.560 of the fund, which hopefully is a very long life. 0:11:17.440 --> 0:11:19.080 When you when we when we end at the end, 0:11:19.160 --> 0:11:22.400 we will look back and seventy percent of the economics 0:11:22.440 --> 0:11:24.800 of the alpha that has been generated will flow to 0:11:24.840 --> 0:11:28.760 the investors, in thirty percent will crew demander, and we 0:11:28.840 --> 0:11:31.200 try to make that as clean and transparent as possible. 0:11:31.800 --> 0:11:32.640 That creates more. 0:11:32.760 --> 0:11:37.000 Volatility in our in our and our overall incentive fee 0:11:37.040 --> 0:11:40.640 income relative to to other models. But I think that's 0:11:41.040 --> 0:11:43.160 very solvable from a talent perspective. HOWLD you kind of 0:11:43.160 --> 0:11:45.840 talk about that, but that's the underlying model. 0:11:46.160 --> 0:11:48.680 Really interesting, Tom, What do you make of this current 0:11:48.760 --> 0:11:52.199 environment and how are you finding the world of credit 0:11:52.960 --> 0:11:55.120 within within the headphones realm? 0:11:55.720 --> 0:11:58.520 Well, I, first of all, thank you Barry for having 0:11:58.559 --> 0:12:01.640 me here and for everyone tending appreciate it. 0:12:02.720 --> 0:12:03.800 You know, credit is. 0:12:05.600 --> 0:12:08.600 Relative to every other asset class we see today, and 0:12:08.640 --> 0:12:12.600 we invest we have of our ten billion, six of 0:12:12.640 --> 0:12:15.400 it is permanent capital, so we do a lot beyond 0:12:15.520 --> 0:12:18.640 just credit. We can do basically anything anywhere in the 0:12:18.640 --> 0:12:24.120 world we want. But credit today, and particularly private structured credit, 0:12:24.600 --> 0:12:31.559 so rescue financings, bridge loans, financings, to provide growth capital, 0:12:32.240 --> 0:12:35.640 all structured as credit offer the greatest amount of alpha 0:12:36.000 --> 0:12:38.079 relative to the risk I've ever seen. 0:12:38.400 --> 0:12:39.880 In the twenty five years have been doing this. 0:12:40.760 --> 0:12:45.800 It's extraordinary excess return and that's because that's not liquid. 0:12:46.440 --> 0:12:49.560 And one thing that I think all of you, or 0:12:49.559 --> 0:12:51.600 of those of you in the room that are contemplating 0:12:51.960 --> 0:12:54.439 launching a hedge fund, is there is an extreme push 0:12:54.480 --> 0:13:00.079 pull presently for liquidity visa V returns. Investors are allocators, 0:13:00.120 --> 0:13:04.600 are not liquid, and they need to generate returns, particularly 0:13:04.600 --> 0:13:06.920 in a context of higher rates where their hurdles have 0:13:06.960 --> 0:13:09.560 all gone up and they're stuck in older investments, particularly 0:13:09.559 --> 0:13:11.480 private equity. They're probably going to take a period of 0:13:11.559 --> 0:13:15.160 time to recover to the alpha generative returns that they 0:13:15.160 --> 0:13:18.199 had historically produced. So they want you to be liquid 0:13:18.280 --> 0:13:22.840 and generate returns. That's not really possible today. So you've 0:13:22.840 --> 0:13:24.840 got to find a niche that fits you. And I 0:13:24.840 --> 0:13:27.920 think the best advice that I could give for folks 0:13:28.000 --> 0:13:31.560 thinking about launching is forget all the noise, Forget what 0:13:31.559 --> 0:13:33.520 the markets want, forget what the LPs want. 0:13:33.920 --> 0:13:35.120 Do what you're going to be good at. 0:13:35.760 --> 0:13:38.360 It doesn't matter what your strategy is, doesn't matter what 0:13:38.360 --> 0:13:40.360 your structure is, doesn't matter what your fees are. If 0:13:40.360 --> 0:13:44.640 you're good relative to whatever benchmark you're posted against, you'll 0:13:44.640 --> 0:13:45.360 do just fine. 0:13:45.880 --> 0:13:46.720 Your business will. 0:13:46.600 --> 0:13:50.240 Grow, you'll make plenty of money, you'll retire a happy person, 0:13:50.520 --> 0:13:52.120 your kids will do never have to work if they 0:13:52.160 --> 0:13:52.680 don't want to. 0:13:53.080 --> 0:13:54.040 You'll do just fine. 0:13:54.400 --> 0:13:56.880 But if you try to shoehorn yourself into something that 0:13:56.960 --> 0:13:59.120 doesn't fit, it'll go terribly wrong. 0:13:59.360 --> 0:14:03.120 And I think the second most valuable piece of advice 0:14:03.120 --> 0:14:03.720 I can give you is. 0:14:03.720 --> 0:14:06.400 Separate from all the examples you're hearing up here, of 0:14:06.400 --> 0:14:10.000 all these multi billion dollar launches, that's not normal, right, 0:14:10.320 --> 0:14:12.280 It's not normal. And you might think you're gonna launch 0:14:12.280 --> 0:14:14.720 with billion dollars. A lot of helped us get started. 0:14:15.320 --> 0:14:16.920 We thought we were going to launch with a billion 0:14:17.000 --> 0:14:20.760 five as of March sixteenth, two thousand and eight. 0:14:20.880 --> 0:14:22.960 We had just come out of the Emerging Manager's Conference. 0:14:23.160 --> 0:14:24.200 Going was perfect. 0:14:24.320 --> 0:14:26.080 I was like, this is so easy. 0:14:26.440 --> 0:14:28.600 Then eight weeks we raised a billion and a half. 0:14:28.600 --> 0:14:30.920 We're going to launch with three billion. Ken Griffin was 0:14:30.960 --> 0:14:33.440 backing us. It was like the greatest thing ever. Next 0:14:33.560 --> 0:14:35.960 day bear Stearns went bankrupt and by the time we 0:14:36.000 --> 0:14:38.000 launched on June third, two thousand and eight, we had 0:14:38.040 --> 0:14:41.080 four hundred and thirteen million of caple and the world 0:14:41.160 --> 0:14:43.640 just changed. Nothing happened with us. All the investments we 0:14:43.680 --> 0:14:46.440 were pursuing was good. Our first couple years were spectacular, 0:14:46.560 --> 0:14:49.440 like everything went great and things turned out okay. But 0:14:49.520 --> 0:14:52.840 that second piece of advice is you can't bank on 0:14:52.960 --> 0:14:55.880 being a multi billion dollar launch, And so what does 0:14:55.880 --> 0:14:56.360 that mean. 0:14:56.760 --> 0:14:58.880 That means you have to do everything. 0:15:00.000 --> 0:15:01.720 You stand how to set up a computer on a phone, 0:15:02.000 --> 0:15:04.040 You better know how to debug your computer, you better 0:15:04.080 --> 0:15:06.120 know how to answer the phones politely, you should know 0:15:06.120 --> 0:15:07.920 how to make good coffee for your LPs when we 0:15:07.960 --> 0:15:08.480 stop by. 0:15:08.920 --> 0:15:11.000 You're going to be doing all of it, Like, don't 0:15:11.080 --> 0:15:11.720 kid yourself. 0:15:11.760 --> 0:15:14.040 And if you don't launch with billions of dollars of 0:15:14.120 --> 0:15:17.200 capital locked up for a multi year period. You run 0:15:17.240 --> 0:15:19.240 a lot of risk that you create a cost structure that' 0:15:19.280 --> 0:15:22.160 seemed compatible with where your capital could be, not where 0:15:22.200 --> 0:15:25.440 it is today. So I would advise that you do 0:15:25.480 --> 0:15:28.040 what you're good at and learn how to do everything well, 0:15:28.160 --> 0:15:30.480 and work really, really hard and stick to it for 0:15:30.520 --> 0:15:33.160 a period of time and if you love it, it'll 0:15:33.160 --> 0:15:33.560 work out. 0:15:33.880 --> 0:15:37.360 So let's address the issue you just touched on that 0:15:37.760 --> 0:15:43.400 subscale operations. How do you compete for talent in the 0:15:43.400 --> 0:15:46.880 most competitive market in the world when you can't write 0:15:46.920 --> 0:15:48.920 giant checks and you're running subscale. 0:15:49.160 --> 0:15:49.880 Let's start with you. 0:15:50.800 --> 0:15:54.480 He ran subscale. That's good, clear, but on. 0:15:54.400 --> 0:15:58.120 A relative basis, Yeah, it was only two billions. 0:15:58.200 --> 0:16:01.600 Well, you know, there's a great movie that came out 0:16:01.640 --> 0:16:04.440 in nineteen eighty nine, so some of you might not 0:16:04.480 --> 0:16:08.400 have known it, but Fielded Dreams and if you haven't 0:16:08.400 --> 0:16:12.640 seen it, the main character Ray Kinsella who's played by 0:16:12.720 --> 0:16:16.280 Kevin Costner. He's out in the middle of his cornfield 0:16:16.480 --> 0:16:18.480 and he hears a voice. 0:16:18.560 --> 0:16:20.880 If you build it, he will come. 0:16:21.400 --> 0:16:23.320 And he doesn't know what build it is, but he 0:16:23.400 --> 0:16:27.760 decides to build a baseball field in his cornfield and 0:16:29.120 --> 0:16:32.080 lo and behold a bunch of dead baseball players show 0:16:32.160 --> 0:16:35.280 up at his house and start playing baseball. And you 0:16:35.320 --> 0:16:40.520 should have the mindset of what that movie tells you, 0:16:40.640 --> 0:16:43.000 which is, if you build it, they will come. If 0:16:43.040 --> 0:16:48.440 you have a differentiated value proposition, people will invest. And 0:16:48.480 --> 0:16:52.360 you know, this panel is a great representation because it's 0:16:52.400 --> 0:16:56.880 all different strategies. We're all but what we have and 0:16:56.920 --> 0:16:59.280 what people forget is what we're offering is a product. 0:17:00.160 --> 0:17:02.320 And so you have to ask yourself, Okay, why am 0:17:02.360 --> 0:17:04.960 I here, what is the product that I'm offering, and 0:17:05.240 --> 0:17:09.040 what customer base is going to want this product? And 0:17:09.560 --> 0:17:13.760 if you invest early in your infrastructure, if you hire 0:17:14.200 --> 0:17:18.919 before you have capital, not after, then I think that 0:17:19.000 --> 0:17:21.440 you will get that capital. You know, my good friend 0:17:21.440 --> 0:17:26.200 Brandon Haley, who launched holisne He in twenty seventeen, had 0:17:26.320 --> 0:17:31.320 over two dozen employees without a zero with zero dollars 0:17:31.359 --> 0:17:35.159 and he ended up being a gigantic launch because he 0:17:35.320 --> 0:17:37.639 sold that story to investors. So that's the mindset I 0:17:37.640 --> 0:17:38.880 would take lot. 0:17:39.080 --> 0:17:41.760 I think the difference, though, Mike, is you were coming 0:17:41.800 --> 0:17:42.520 from Citadel. 0:17:42.680 --> 0:17:44.280 Brandon was coming from Citadel. 0:17:44.359 --> 0:17:47.119 People were willing to come before you built it because 0:17:47.160 --> 0:17:53.359 they knew what each of you represented. We as a 0:17:53.400 --> 0:17:56.560 firm are very loath I'll be candied with you to 0:17:56.840 --> 0:18:00.680 do work with emerging managers because the truth is, most 0:18:00.720 --> 0:18:01.360 of you are. 0:18:01.160 --> 0:18:04.720 Not launching with millions of dollars. You're probably not even 0:18:04.760 --> 0:18:08.600 launching with hundreds of millions of dollars. And given how 0:18:08.640 --> 0:18:14.000 competitive the talent market is, it's very hard for really 0:18:14.080 --> 0:18:17.159 talented people to get behind you with no proof of 0:18:17.240 --> 0:18:20.920 concept because they're making two bets on you that are 0:18:21.000 --> 0:18:21.640 beyond the. 0:18:21.600 --> 0:18:24.600 Scope of what they're the bets they're normally making. They're 0:18:24.600 --> 0:18:26.880 making a bet on you as a new founder, you've 0:18:26.880 --> 0:18:29.480 never done this before, and they're making a bet that 0:18:29.520 --> 0:18:32.199 you can scale, that you are worth getting in the 0:18:32.240 --> 0:18:35.720 trenches with, and that you can grow. 0:18:37.280 --> 0:18:38.360 And I guess the. 0:18:38.600 --> 0:18:42.440 Good news bad news about my Unfortunately, it's not a prediction, 0:18:42.480 --> 0:18:43.639 it's just a fact of life. 0:18:43.840 --> 0:18:46.080 Very few of you will launch with scale. 0:18:46.720 --> 0:18:50.000 Is if you're under two hundred and fifty million, I 0:18:50.040 --> 0:18:52.040 actually don't think you need to worry about this. 0:18:52.280 --> 0:18:54.720 You guys may disagree with me, but if you're a. 0:18:54.600 --> 0:18:57.280 Really small fund, and many of you may start with 0:18:57.320 --> 0:18:59.920 twenty five million, or fifty million or one hundred million, 0:19:00.880 --> 0:19:03.520 you can hire junior people. You can hire people out 0:19:03.520 --> 0:19:07.359 of the cell side. You can hire people at a 0:19:07.359 --> 0:19:10.000 banking and they're moldable and will be thrilled to have 0:19:10.040 --> 0:19:13.520 a seat at the table. And I also think it's 0:19:13.760 --> 0:19:15.520 difficult unless people. 0:19:15.320 --> 0:19:17.480 Know you and have worked with you before. 0:19:17.720 --> 0:19:20.320 You know, the whole other set of things is are 0:19:20.359 --> 0:19:22.800 you a good mentor can you develop them? Are you 0:19:23.119 --> 0:19:27.120 going to pay them fairly? Are they joining something special 0:19:27.200 --> 0:19:29.320 with a great culture? Is there a runway? These are 0:19:29.359 --> 0:19:31.679 all the sets of things we deal with in helping 0:19:31.760 --> 0:19:35.320 people cross the divide to go from where they are 0:19:35.400 --> 0:19:37.840 to a large, established manager and get them comfortable on 0:19:37.920 --> 0:19:38.639 all those points. 0:19:38.960 --> 0:19:41.120 And so that's also there. And if they haven't. 0:19:40.800 --> 0:19:43.879 Worked with you, you know, they don't really know what 0:19:43.920 --> 0:19:45.960 the odds are that it's going to be a good fit. 0:19:46.040 --> 0:19:47.960 And you in turn also don't want to bring on 0:19:48.040 --> 0:19:51.000 board senior people that you don't really know and have 0:19:51.080 --> 0:19:53.879 to give them substantial points in the fund and then 0:19:53.920 --> 0:19:56.239 it may not work out. And if you end up 0:19:56.440 --> 0:20:01.480 with the high class problem of achieving scale, then we 0:20:01.600 --> 0:20:07.400 get into the setting up an economic structure which is 0:20:07.920 --> 0:20:12.120 going to be attractive to your investment staff. And I'd 0:20:12.160 --> 0:20:15.639 say the one guiding principle on that is, and it's. 0:20:15.520 --> 0:20:16.040 A good thing. 0:20:16.280 --> 0:20:21.600 As a newer fund, the value creation for everyone working 0:20:21.640 --> 0:20:25.320 there should come at a massively different pace than sitting 0:20:25.400 --> 0:20:28.040 at a large, established player where much of that value 0:20:28.080 --> 0:20:29.440 has already been created. 0:20:29.520 --> 0:20:30.640 So what do I mean by that? 0:20:31.280 --> 0:20:34.879 If let's call it twenty five to thirty percent gets 0:20:34.920 --> 0:20:38.000 paid out to the investment and leadership team. 0:20:38.320 --> 0:20:39.400 This is on average, and. 0:20:39.359 --> 0:20:42.439 This is a back of the envelope thought, but I 0:20:42.480 --> 0:20:48.639 think directionally it's true here you should be talking about 0:20:48.680 --> 0:20:53.360 thirty percent at going to fifty percent to the extent 0:20:53.440 --> 0:20:55.520 that the people you hire. And again this is further 0:20:55.560 --> 0:20:57.560 on down the road. Once you have scale and can 0:20:57.600 --> 0:21:02.479