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

Episode Date: February 26, 2026

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

What would most people be surprised about how you go about investing $15 billion in the market today? You have to have a clear line of a side on asset allocation around things like cash flows, taxes, financial plan, objectives that are oriented around the family's own desires that may not be prescriptive, such as a 5% mandate. This rise of the taxable investor is a new phenomenon. It's such a hugely important phenomenon going on. And it's, I think, the segue a little bit into the democratization of private markets and all of the different investment. vehicles that we are saying come into markets. But, you know, this gets into a little bit of the, how do you take a institutional like framework and apply it to private clients? So it's one thing

to be able to say, hey, we treat you as a multi-generational client, the same way we treat you as a, you know, perpetual and down to our foundation. The reality is in past, in history, it used to be very difficult to take and express the same investment ideas you would have for that institution and employ that for a private client. I think in this day and age now, if you set everything else aside, so all else equal. Now we've solved that sourcing conundrum, so we have the ability to bring our own internally sourced private market investments for all of our clients. And we do so using technology and a couple of different relationships we have to create a simplified investment structure for private clients. You know, one of the nuances there is that perhaps didn't exist,

you know, five, even maybe even 10 years ago, was being more tax aware in that process. At the low end for coastal clients, it can mean 35% difference in return. So you get a 15% now, you're 10%. At the high end, it can mean 15% to 8% if you're investing in hedge funds or private credit that have the short-term income. Part of the response to that is not only different products and structures, but also being very thoughtful about how they're deploying those investments and generating returns, be that vis-a-vis capital gains or through the income lens.

And to your point, if you don't appropriately asset allocate or asset-locate those investments, you can lose 30 to 40% of your total return right off of that. What are some logging fruit in where taxable investors can use specific structures in order to maximize their after tax return? Give me an example of that. So infrastructure is a good example. So there's a couple of different strategies in the market right now where, again, these things didn't exist a handful of years ago where you're making infrastructure investments. And because of the joint venture structure of their underlying investments, they're able to deploy all of the income distribution as return of capital.

So if you're a product client, you think about that. After 10 years, years, you've eroded basis. And so now it's all long-term capital gain along the way you've cut a coupon, clip to coupon that's been tax-efficient by having the ROC return capital benefit on there. And then if you're estate planning, you can use that to your advantage by having that asset flowing through an estate plan. Therefore, there's a step up in basis, and then you defer that capital gain even further. So a little small myopic way of dealing with taxes from an income and that seems to be a lot of the tax strategy, which is either defer for decades where the net present value of those taxes are essentially near zero, but you still technically pay the taxes,

or die, and then your kids get the stuff up on basis. Many private investors use the endowment model language when they talk about their portfolio, but they don't really apply the principles. What are most private investors missing when it comes to applying the endowment model to their own approach? I'll give you three challenges. So one, what is the right number? What is the number in terms of asset allocation that you're willing to put towards private markets. The second is, okay, you've got the number. How do you source for it? How do you make sure that by locking up the liquidity, you're getting better than public

market outcome? And then pacing. So in private clients, you have, I'm going to buy house. I have to fund college. We had a family number who passed away. We are buying the small business. We have these other tax considerations. We have all these investment cash flows.

Whereas an endowment may just simply have, hey, we have to spend 5% of what it looks like over the next year. So pacing becomes very. very important to how am I going to build to that number once I describe that number. Those are the three, I think, biggest challenges in taking what we would say is the traditional endowment approach of applying to product clients. There seems to be this trend in alternatives away from this two and 20 model into different things, independent sponsors, co-invest, even CVs and continuation vehicles fall under this trend.

Do you think this trend is here to stay? And if so, how are you able to capitalize on this? the picking the Python moment for private equity is real. So you have a general exit problem. So, you know, things look a little bit better than they did, say 12 months ago, or 24 months ago for certain. But CV is going to play a role. There's no question about it in that world.

And for those trophy assets where we, you know, are working with sponsors that we know can continue to extract value relative to public markets. Those are interesting opportunities. And they will continue to be interesting opportunities. You know, again, I think the spread of outcomes there is going to be very wide, as you'd expect, some of what we would see in traditional buyout or growth, but that's something that's out there. Co-invest, you know, interestingly, co-invest is, you know,

there's almost two versions of this. One, there's co-invest strategies at a writ large and we want to invest dollars into co-investment funds and take advantage of, you know, getting private equity like returns without the fee burden necessarily. So there's that component. There's also just the increasing component of co-investment that are arising from a lot of late stage unicorns in the market. And, you know, this is, again, they need exits.

They need to deploy dollars. And they're looking beyond the traditional VC realm to build attract those dollars. And they're looking at RIAs is the functional part of where to get that investment, those capital commitments. And so you're seeing a lot of, you know, Buy Everywhere moment here on SPVs, but you're seeing a lot of co-investment deals get structured with or GPs that you may not have historically worked with. And you have to ask yourself a question, why am I seeing that at kind of,

investment opportunity, obviously. But for us, we've seen more and more of our, I would say, our higher conviction GPs that we are currently invested with bring us, bring us an increasing number of co-invested ideas. Is it the two, the management fee, the 10-year, 2% that bothers here, or is it that the 20% carry? What is it that bothers you exactly? I don't know that either one of them bother me to believe completely honest with the dividend. Whenever we underwrite, it's, we always think about the world on a net of fee basis, net of, net of total fee basis. And so we have underwritten expectations that we expect out of strategy. One of the reasons why we re-up with managers is because they've hit those bogeys, generally speaking.

So we like to stick with proving managers that we've invested with. But I think for your average RIA or indiscriminate investor that doesn't know how to measure what success may look like on a after fee basis, after tax too, for that matter, simply optimizing for lower fee on the front end is rationale to go after that investment. So I think, yes, it's good, but it's also, but be careful. A lot of LEPs telling me it's what irks them a little bit is the 10 years and sometimes the 12 years of paying. Obviously it steps down over five years, but that really accumulates. It ends up being 20 plus percent of the actual investment that gets paid in fees, which is pretty crazy. One of the hardest things of investing is seeing what's shifting before everyone else does.

For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and to stay ahead of consensus. Meanwhile, smaller funds have been forced to cobble together ad hoc channel intelligence or rely on stale reports from sell-side shops. But channel checks are no longer a luxury. They're becoming table stakes for the industry. The challenges has always been scale, speed, and consistency. That's where Alpha Sense comes in. Alpha Sense is redefining channel research instead of static point-and-time reports.

Alpha-Sense channel checks delivers a continuously refreshed view of demand, pricing, and competitive dynamics, powered by interviews with real operators. suppliers, distributors, and channel partners across the value chain. Thousands of consistent channel conversations every month deliver clean, comparable signals, helping investors spot inflection points weeks before they show up in earnings or consensus estimates. The best part, these proprietary channel checks integrate directly into Alpha Census research platform trusted by 75% of the world's top hedge funds with access to over 500 million premium sources. From company filings and brokerage research to news, trade journals, and more than 240, 40,000 expert call transcripts.

That context turned draw signal into conviction. The first to see wins. The rest follow. Check it out for yourself at alpha dash sense.com slash how I invest. I mean, there's a, you know, the, the, um, and perhaps people more sensitive to it now because, you know, investment periods are longer, hold periods are longer,

fund ages are longer. And there's a lot of different reasons to start looking at the compounding effect of that math. But I do, you know, again, I'm not apologizing for it, But I think a lot of that is being also used to drive dollars into the evergreen space because of the natural immediate compounding that they allege the benefit you get versus, say, a traditional drawdown structure. So, you know, it's hard to draw the similarities. It's hard to draw the parallels. And there's certainly nuances there.

But fees are a problem across the private market industry. And Evergreen will do its job, I think, to drive more competitive fees. across the industry. On the capital commitment, so you invest into a fund and it draws down over two to three years, what's the best practice in terms of how you manage those liabilities? In ordinary times, it's like-for-like assets. You know, you're funding a growth asset or it should, it should be sourced from a growth asset to keep your asset allocation in check. Of course, I think what happens a lot of times is the market's in disarray or something's going on when you do get those calls. And so the question that becomes more muddied, do you sell a

depreciated asset in your growth assets to fund that, in other words, just to put a finer point that is, do you sell your S&P 500 position to fund your, your, your, your, buyout, your growth, your growth equity commitment that you've just been called for. Ordinarily, we would say, yeah, that makes sense. The reality is, if the market's down 20%, the S&P 500 is down 20%, there are, you know, you just start to have these probability, the probability start to go in your favor of keeping money there instead of taking money out. And so you have a different problem there of sourcing from maybe relatively appreciated assets or assets have done better than the growth asset that you've just talked about.

The biggest issue during times of distresses is denominator effect. In times of duress, you have public markets are decreasing and your private markets are staying relatively intact for all the reasons we know. And so you have a higher proportion of private assets than you would have otherwise normally thought prior to that decline in public markets. So that causes a little bit of friction too. you're not keeping the money in cash. You're keeping it at some, some asset that is liquid. And then as the, as the capital call comes in, you're transferring out of that asset. The nuance there is for short duration strategies that we may be deploying it, cash is probably the right thing. If you're talking about private equity, the six year investment period, that's a different liability construct. So it really is just, it should be dependent on what that investment period looks like informed by your own pacing assumptions. And so you don't want to, a scenario you don't want to be in ultimately is a short duration liability.

of these be the capital of all funded by a long-duration asset like public equity. That's where you have to be mined. And this denominator effect, essentially public markets go down. Your private markets on a percentage basis are now a larger part of your portfolio. Why not just under-allocate to private markets ahead of this knowing that there'll be this drawdown in the next 10 years? Or what other tools do you have to solve for that? Let's use today as a good example.

So the S&P 500 has been up, you know, it's doubled in five, four, five, three and a half to five years, whatever it is, it's up, you know, double-digit percentage points, over 20, over 20, 18, whatever it was last year. And combine that now with the fact that you've had realizations, anemic. You have capital call, investments that have been called increasingly now, but also very slow. So you have this natural fatigue of like, why am I locked up in private markets? I'm looking at the S&P going up, 75% in three years. What is the benefit here? So now you have the inverse of the denominator effect, which you have increasing public market investments and lower proportionally the numerator effect.

So we have to figure out how you actually go about solving that. And for us right now, it's simply just making sure that we have the number. We have this saying here, our head of sales says, if you don't know where you're going, any road will take you there. That's the same construct and asset allocation. If you don't know the number, you will have a very hard time ever getting to that point in time versus being disciplined about the SMPI-5 learn is going to be volatile no matter what. That's why it has the 18% standard usage.

It's going to go up and it's going to go down. Over time, it will go up. Private markets are going to be a staple and stable part of portfolio. How do we get to the number that you want over time? And so pacing models are very important part of that once you describe the number you want to get to, ultimately. And that's being committed through time over time by vintage. And David, your point of how do you anticipate drawdowns? I think it's very hard to create expectations on pacing around probability of market outcomes.

We have to assume certain things of public markets and then we react accordingly on the funding side equation for those commitments. It's interesting because a lot of this actually comes down to the least sexy, most important thing in investing governance, which is what's upstream of all your decisions? And the best endowments I talk to, which I think are the best private investors, they give their investment committee ranges versus specific numbers. So they don't allow themselves to optimize on arbitrary asset allocation numbers that keep them from this flexibility. I interviewed Brent Bishar, who has this really interesting 30-year private equity fund, and he predicts every decade there's going to be some Black Swan event. Yeah, that's so true.

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

To your point around the ranges, that's a very, very, very important thing is, you know, what gets lost, I think a lot of times in markets is the power of momentum. And if you rebalance too much, you lose a momentum effect. And that can be meaningful for people. So this idea that you want to be so precise every day and tout that as an asset sort of sets aside the fact that there's this thing called momentum and that you may actually do better by letting it run a little bit before rebalancing. So you can quantify some of this stuff, obviously, but those things are real. And having things like ranges and your IPS is allow you not only operational flexibility, but rebalancing flexibility and then investment flexibility for us is this. as decision makers to be able to make decisions and that be held to, you know, an Excel sheet for all from tests. Yeah, the 10 person I see, there's always that one bad apple, especially when the

market's down 20%. It only takes one panicked IC member to destroy the entire investment policy. Instead of ruining that, you have to really think from the corporate governance side. And I think a few institutions have really gotten this right, like Alaska permanent, URS, Utah retirement systems. And instead of sitting around hoping that human nature won't surface its ugly head again, they created these governance awaiting this kind of next crisis and making sure that the investment team itself is able to navigate some of these difficult times without kind of being captured by the I see. Yeah. Yeah. And that's so true. You have to have a, you have to have a source or a document that will outlive the trustees of a given and the employees of a given institution. It reinforces the permanent nature of those pool of assets. What's some of the best practices that it comes to families that are looking to preserve their wealth over several generations?

What are some governance principles that they get instituted in order to avoid what I would call the Nepo Baby or other issues that might come downstream? Not that it ever happens, but just theoretically speaking, hypothetically. Yeah, that's a great question. All of this work is done on the front end. And so you have to have familial buy-in. It's education. It's educating not only Gen 1, but Gen 2, Gen 3, wherever you are in the life cycle of the family. And so that's not only getting everything lined up with a advisor, making sure there's relationships built across the firm, that there's trust there, that you have all of these documents in a single place available for all the generations to build an access pool, et cetera.

Just basic governing principles for families include having all these. documents set up, they stay planned, any governing docs for a family, the trust docs, everything spelled out clearly. Roles and responsibilities, probably the biggest thing. What is the role? What is the responsibility? How do you teach that and grain that into your children, into your grandchildren, ensuring that you don't have that world of, you know, here's, there's a statistic and it's hard to find

this data, but, you know, family offices tend to start to have problems after Gen 4. You know, there's this little kind of behavioral idea that preserving the intention of the founding principles gets more and more difficult by generation. By generation three or four gets pretty well diluted out. So how do you sort of refine and define that over time is obviously very difficult. But having governing docs is... If you've been considering future straightings, now might be the time to take a closer look. The futures markets has seen increased activity recently and plus 500 futures offers a straightforward

entry point. The platform provides access to major instruments, including the S&P 500, NASDAQ, Bitcoin, natural gas and other key markets across equity indices, energy, metals, Forex, and crypto. Their interface is designed for accessibility. You can monitor and execute trades from your phone with $100 minimum deposit. Once your account is open, potential trades can be executed in two clicks. For those who prefer to practice first, Plus 500 offers an unlimited demo account with full charting and analytical tools, no risk involved while you familiarize yourself with the platform. The company has been operating in a trading space for over 20 years.

Download the plus 500 app. Trading and futures involves the risk of loss. This is not suitable for everyone. Not all applicants will qualify. When you want more, you start your business with Northwest registered agent. They give you access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. With Northwest, you're not just forming an LLC.

You're building your complete business identity. From what customers see to what they don't see, like operating agreements, meeting minutes, and compliance paperwork, you get more privacy, more guidance, and more free resources to grow the right way. Northwest has been helping founders and entrepreneurs for nearly 30 years. They're the largest registered agent LLC service in the U.S. with over 1,500 corporate guides, real people who know your local laws and help you every step of the way. What I love is how fast you could build your business identity with their free resources. You could access thousands of forms, step-by-step guides, and even lawyer-drafted operating agreements and bylaws without even creating an account.

Northwest makes life easy for business owners. They don't just help you from your company. They give you the tools you need after you form it. And with Northwest, privacy is automatic. They never sell your data because privacy by default is their pledge. Don't pay hundreds or thousands of dollars for what you could get from Northwest for free. Visit Northwest Registeredagent.com slash investfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at Northwestregisteredagent.com slash invest

free. Very important. When families come to you and they've had a bad experience with another RIA or another multifamily office, what are the most common one or two governance issues that were done at this other advisor that you just see happening over and over and over again? Yeah, no, not clear documentation is one. That's clear. Just making investments ad hoc. Some family member comes in. I want to invest into this, this private equity. Like, look at this. I just direct investment. You please look at this. It's, you know, it's either a real estate deal down the street or it's a buddy's, you know, venture idea that he's raising for or passed a hat.

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

you know, just because you have amassed a ton of wealth doesn't mean you, you should be aloof about asset allocation. And just mistake number is just also not willing to deal with a single provider. And I know it's very difficult. There's relationships involved. You may have a business with your own relationships there. And so how do you find a resource for you that can bring all of this together?

Because it requires a deep middle and back office and a significant amount of operational resources to go do that. And majority of firms out there or, you know, single advisors aren't prepared to do that. I don't have resources to do that. So that's another area, I'd say. It says there's a related, which is you make random investments and you don't even know which random investments you've made. Yeah, that's exactly.

And, you know, the hard part is if you have a collection of private investments, what does that collection even look like? You know, from getting fund updates to understand what portfolio companies are doing, if they're fund level, if it's private investment, What are your exposures and how does that roll up into your broad overall asset allocation? The second order of that, let's say you are invested in this friend's venture capital fund. You may not even know whether they're calling money in six months or in five years. And the second order of the effects of that, why does that even matter, is that you have to keep all your portfolio liquid.

You may be over allocating to liquid. And why does that matter? You're not getting that alternatives premium and the illiquity premium. So it's not just that you don't know what. what's going on, is that you have to be overly conservative if you don't know what's going. That's right. That's exactly. We see that time and time again. And it's, again, if you don't, back to that saying, if you don't know where you're going, you'll take you there. So if you don't have an asset allocation or don't know what you're aspiring to, what chance do you have in making sure that you've got the right

underlying investments to get you there. I think it's very difficult. A well-known single family office in New York City, which will remain nameless. They have this policy where I believe it's $10,000. Any family member can make these one-off investments even in a restaurant up to $10,000. But outside of that, it goes to IC and then the IC has final say. And this is how they've been able to kind of tow this line between giving the family members some level of autonomy while not just storing the wealth. Yeah. And it's not to say that what we say is etched in stone. It goes back to the idea of having a investment policy with ranges around it, having very specific dollars carved out, say for co-investment ideas that you want to be interested in.

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

On this go investment, I see a trend. in the institutional space of making it more rules-based or algorithmic versus this kind of one-off. Do you see that happening in the taxable space? And is there a way to construct these portfolios, maybe not to be fully passive, but to have some rules-based approaches to how you process going to? Yeah, I think that's coming. I mean, it's already there. We're already there, but it's going to continue to grill and get better and more evolved.

I do think, you know, once you describe the outcome that you're looking forward, there's going to be a co-invest platform that can help you get to that, to that point. So, again, a little bit of a technology plus desire thing. But I think the large one-off co-investments that we see through the late stage venture lens are probably just that. That is just simply giving people access to, you know, things that would have ordinarily been in the public market. And so that's, you know, I'm going to call it whether that's being able to talk about, you know, your investment in SpaceX at Saturday night at the country club or otherwise.

I think those are a little bit separate. You're going to have more systematic co-invest opportunities. And it seems like we've seen a couple of platforms. And I'm excited to see where this goes in the next 12 and 18 months. SpaceX is an interesting thing. It went from a family office trade to an institutional trade. So some would argue a family office trade against. And that's where you've got to be careful of, you know, back to the co-invest saying you have SPVs being launched all over the place with blind access.

In many cases, they don't have access. And you have multi-layered SPVs with fees upon fees upon fees upon fees. Like, what outcome do you expect in that if you're a SpaceX investor on a multi-layered SPV? Like if the thing doubles, now we're talking to two trillion dollar company or whatever it is. One, that's got to be your underwrite. And then two, you have to net out the fee burden of all that stuff. And then, okay, is that a rational investment? It starts to get tough.

I mean, we're simply looking at, I think, the retail market now being a liquidity mechanism for a lot of now employees with tenders and other institutions. and I think you have to be careful there, but certainly it hasn't changed. I don't think the appetite from private clients to want to get exposed to these companies. And that's an outlier. There's plenty of other firms out there, late-stage firms that are interesting. The only thing worse than 2-20 is 2-20 on a 2-and-20, 4-40. Unless I guess you're in Citadel or back in the day, Stephen A. Cohn. And then it might make sense.

You start out as a trader in 1999. If you could go back and whisper one timeless principle in your ear in 1990, 99 in order to help you either accelerate your career or help you avoid costly mistakes. What would be that one principle? It's a very good question. And I think about this a lot, actually. So I'm a runner, not avid, but I run just to try and sting shape. And whenever I do it, it doesn't matter how much I try to clear my mind, I keep coming

back to this idea of replication crisis. And there's this statistical thing out there that says that majority of, you know, a significant majority of academic studies out in literature have been difficult to replicate in real time out of sample. And I think that's very well seen or observed in finance. And you don't have to go too far to find that stuff, whether it's using PE multiples as your proxy for future expected return, whether it's inflation views, you know, vis-a-vis the 70s and the way we're printing money today, if I want to call it that.

There's all kinds of ideas where if you just simply treat the world. is a scatter plot, draw a best fit line and let that drive your decisions, you've been a pretty bad place. So, I mean, I think there's like going back in time, I think it's easier in hindsight today, but just thinking about the world that way is, I think, very important or interesting, that those things, meaning being able to look at mathematical relationships, we know there's no immutable laws in finance, but look at those relationships with a higher grain of salt and saying things can change permanently.

And they do actually change permanently. And even if permanent is only 20 years inside of a career, and then maybe temporary on 100 timescale, it's permanent for you inside of that time scale, your career timescale. So I think there's a fair amount of just being more objective about what we see principally through the lens of academia versus what we expect in the future out of markets

and out of our career. So that's probably the biggest thing. I think in general, just intellectually being honest with yourself, writing down your priors, seeing how markets evolve. We humans have such a desire to just revise our investment thesis just in time to kind of hide our mistakes. It's almost like so inherently human. One of the things that I've been thinking a lot about, I spent on Sunday with a very well-known investor, and he's done deals with Warren Buffett, Bill Lackman, all these top investors. And one of the things that in retrospect should have been extremely obvious,

as he was explaining these different, you know, legendary investors, also Tony James and people like that, is that they were all so idiosyncratically different. And what makes Warren Buffett, Warren Buffett, what makes Bill Acklin, Bill Acklin, and what makes Tony James, Tony James is so, and it is syncratically different. And the reason they were successful is because they applied their genius

into a very specific vertical. So another way, I think Warren Buffet would be a terrible venture capitalist. Kind of sounds funny to think about that thought experience, but there's nothing, you know, Warn venture has been around for, you know, over half the century. In some permutation of the world, there's a possibility that young Warren Buther would have gone into venture capital. And he'd probably be a third or fourth tier investor. Maybe it'd be second tier. Maybe it'd be first quarter to be certainly wouldn't be Warren Buffy.

And I think we have this misnomer that good investors are good investors, where I think good investors have very specific strengths, which oftentimes are very specific weaknesses in another context. And like finding the manager's genius, I think is such an underrated thing. And it's only obvious in retrospect. It's like, of course, Bill Ackman's a great investor. Yes, but he's very great in this specific domain. And if you had put him in another domain, he maybe not have wouldn't have been as great.

And maybe still be top court top, but he wouldn't be Bill Ackman. Yeah, it's so true today. And it permeates, I think, a lot of manager due diligence processes today where, you know, you may have a process that eliminates that sort of genius because you can't handle that kind of key man, idiosyncratic risk inside of your underwrite. And that's a tough, that's a tough thing. I mean,

we've taken the approach of it. We find smart people, we invest with them. You know, you're going to make sure a lot of other things are right. But if you, if you take a committee to everything, you will dilute yourself in the value of the investment down to, you know,

it's lowest common denominator, which is medium-like outcomes, if not worse. So I think that's a very, very, very important part. Yeah, that's so interesting. Keyman, so much of this is just framing. It's so important when I speak to my partner. I'm so cautious not to frame certain things in certain ways. They just come out of your mouth. And there's very few actually terms that are neutral. Keyman risk. Genius. Those are pretty leading terms and frames to put on somebody. And yeah, we don't have this whole thing where it's very hard to actually frame things neutrally. And that is downstream consequences, how we think about. and shape our strategy. Yeah. And to your point, I think there's a, you know, the, you know, for being in my seat or our seats, we're allocators. We're by definition generalists.

Our job is to preserve and grow client capital, not create a bunch of asymmetric wealth. You know, our clients already done that in real economy. And so that's, there's a nuance there too of making sure that we are able to find those people that we are generally not, but also have the discipline to create a process that can be sustained, repeated, and drive success for clients. So that's the punchline for being an allocator versus, you know, being a bottoms up investor in a certain asset class, like the Buffets and the equins.

Have you found that in your own, in your own managers that almost their strength is their weakness? What makes them really good at what they do, they would be very bad in other contexts. Or it comes with this kind of like double-edged sword where they have other weaknesses that if they were in other verticals, they would be bottom quartet. Absolutely. I think there's, it could be not only in investing principles that could show up, but also life principles, how they run their businesses.

It's the entrepreneurial problem. Entrepreneurs like it their way. And so, you know, it takes a special person to be able to have a point of view on a market, have that expertise, have the willingness to engage a team, be a team player, because they're almost contradictory in some sense. And do it for the benefit of an increasing client. line face. And that's a real, I think, challenge number one. And then you overlay on top of that, you got to be a good investor and a good business person. That's where the, if there's any sort of

arising conflict, it's probably first there from a outcomes point of view instead of, you know, majority managers probably couldn't make it in other asset classes. I think we all know just they're there for that reason and no other. There are some very exceptional people that can do well, whatever they do. We've seen those kind of generalists out there. The real test, however, is can you not only be a good investor, but run the business effectively. And that's where we see some differences between the good and the bad. It's one thing to get through Fund 1, Raise Money. It's a second, you know, if you go from pre-fund, pass the hat to a Fund 1, Fund 2, you get to a Fund 3,

and now you're institutionalizing your business and roles, responsibilities and all those kind of things that you would expect, you know, more complex LPs or platforms to build up to ask questions on. That kind of evolving is also very difficult. Do you find that oftentimes this is the saying it's the player coach, the great investor is also builds the firm because out of necessity or do you find that they bring in other talent in your actual portfolio? What tends to happen? What do you think should happen from the best friends? Necessity is never good. It happens, but you want to have a, you know, a glide path to what success looks like.

We ask those questions. You know, if you're at a fund two or fund three, what does success look like? What does the fund for? What does a fund five look like? What does the resource bill look like for you internally? And having a business plan or a strategic plan is really important. Oddly enough, you know, GPs will enforce that of their own portfolio companies. Yet if you look at their own businesses and ask them for that, they probably don't exist in many cases.

So what is that strategic plan is very important? Because those are the, those are the sound bites that get us comfortable with the next fund and then the re-up and everything else down the road. And that's where I think there's a little bit of that dilemma, which is interesting. It used to be venture capitalists. Didn't use any technology. I think they've since caught up, but it's a funny thing. Well, Anita, this has been an absolute masterclass. Thanks so much for taking time and looking forward to doing this again soon.

Thank you, David. I appreciate the time. And your wisdom is always appreciate it. That's it for today's episode of how I invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find a valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.