Investing Billions - E341: Why VC is Changing Forever ($150 Billion LP)

Episode Date: April 6, 2026

What if the best venture returns come from the LPs that are most patient and most strategic? In this episode, I sit down with Scott Voss, Partner at HarborVest, to explore how the $150B multi-manager firm generates consistent outperformance across venture, growth equity, buyouts, and secondaries. Scott shares how consensus risk, vintage year timing, and strategic co-investing shape returns, why continuation vehicles and evergreen structures are transforming private markets, and how long-term relationships with GPs create first-look access to top deals.

Tell me about consensus risk. I spent a lot of time in the field with investors. And kind of the last question I always get asked is what keeps you up at night related to the things that you're investing in? And as I thought about it, it's consensus risk. For some background here, it builds on an idea by a psychologist named Irving Janice, but people like Buffett, Marx, and Teal also talk about it. And I specifically reference this thing called the consensus risk trap, which is group think, right? It's the illusion of some kind of invulnerability or collective rationalization that occurs when,

groups converge on a popular theme without really thinking about what could sit around the corners. So, you know, in venture specifically, which we're going to spend a lot of time on, it's, I think about it as those hundred companies that today are valued at, you know, $10 billion or greater. And there's a lot of capital that wants to find their way into those companies. But it's not thousands of companies. It's less than 100. And that kind of gives me some concern.

I ran this algorithm when I came up with this idea of if I just picked the top 10 themes that defined private markets in 2025 and fed those into an AI. and asked it to stack for income based on how much media coverage each theme got. I think as I worry about 2026, it's which themes got the most coverage from the media that was generally promoting. And I think there's some risks that we could face there. And we've actually seen a few of those play out in the last month or so. It's a quantification of a potential bubble of sorts.

Yeah, I think that's right. How do you know something's a hot sector versus a bubble? It becomes pretty obvious when things move up into the right pretty fast. It's, look, with that kind of growth, there's always kind of bubble-like characteristics. So one of the questions I get a lot in these same meeting. is are we in an AI bubble, for example? And my answer is like when Sam Altman or Jensen Wong say things feel a little bit bubbly, they're probably a little bit bubbly. And one of those risks I talked about in the consensus risk trap is, is there an AI valuation reckoning? I honestly didn't

contemplate it being could AI disrupt the software business model, but we've seen a bit of that play out right now. This whole question of are we in a bubble? I think is actually the wrong question. it bubbles just downstream of human beings investing, meaning everything will eventually bubble with enough returns. And you see this in other asset classes. You saw this. And Spacks, you saw this. And Bitcoin Treasury is like, it's not a question of are we in a bubble.

It's how far are we into the bubble? And potentially how far before the bubble pops? In other words, if you know that you're five years away from the AI bubble popping, the right thing to do is to stay invested, there's always a bubble for any asset class that goes up. The question is how far into it are you and how big of a bubble is it not? Are we in a bubble? I think that's right.

And maybe the bubble never pops. It just lets a little bit air out of the system and then it reinflates as it kind of makes its journey to kind of the future state. People have made this analogy. If you think about the internet bubble of 1999, which is when I first joined Harborvest, there was a lot of venture capital flowing into companies that were measuring eyeballs and then that bubble burst. And when internet 2.0 came around, there were a lot of VCs that decided they weren't going to invest in the internet. Well, that was exactly the right time to invest in the internet because that's where the business models kind of got sorted out. And the dot-com boom, it took three, four years of 20 plus percent losses.

It's not like a literal bubble that just popped. It actually just went down over three, four years. If you go back to late 99, early 2000, when the bubble burst, there was this weird thing that happened where I think a lot of entrepreneurs abandoned startup activity. They actually went back to big technology companies. And there was a bit of a dearth of innovation that didn't happen from 2000 to 2010. What you need is these kind of moments, like these innovation cycles to play out that allow entrepreneurs to recognize there's an opportunity to build a company on top of the cycle. And I think this has been referenced before probably 2007 and the iPhone was that moment.

But from an institutional investor standpoint, there was a period in like 2010 where if you look at performance data from Cambridge Associates on the venture industry, a 10-year return was negative. And a lot of institutions had concluded that this is not an asset class. The venture model is broken. And the irony is from 2000, if you measured performance in private markets, from 2010 to 2020, it is by far the best performing sub-asset class within private markets. So I know it's never one-to-one and it's never like a textbook or like an academic thing,

but do you see a direct correlation between investing in venture in the worst possible year? If you just consistently did that versus investing in the best possible year, you would have outperformed? Or is there more nuance to how you should invest? There's more nuance to it. What I tell investors, if they're going to allocate the venture, is they just need to be committed that they're going to do it over the long term because there are these windows where the outcomes are very big, but the windows are pretty narrow. And you need a ripe portfolio to sell into that type of market to make your return. And the mistake a lot of

investors make is they're confident investing when the returns are phenomenal, but there might then be this period of time where those returns dry up, but you're planting the seeds that are going to sell into the next part of the cycle. There is correlation. If you look at vintage year performance in venture and leverage buyout in the years that the most capital is raised, there tends to be the lowest performance, and in the years, the lease capital is raised, tends to be higher performance. I think that correlation. Shocking. Yeah, we, I know, but I think it's actually stronger in the biop space than it is in the venture space. Taking a step back, give me a sense for how big Harvard Vest is today, and tell me about your role.

Harbor Vest is a global private equity firm, but we call ourselves a multi-manager. Our model is built off of building really core LP investor relationship with some of the top managers around the world. So think large investor relationships with 150 to 200 of the top performing venture growth equity funds and leverage bio funds. But then we have a platform approach where we invest directly into companies alongside these managers and we're also a very large secondary investors. So we provide liquidity into the market many times around these managers. And that's what we call platform approach. But to answer your question specifically, today we are more than 150 billion of assets under management. We have over 1,200,

people around the world. We have 15 offices around the world. Our original strategy was a venture fund. So our founders, Ed and Brooks, when they set out to raise our first fund, it was a multi-manager venture fund of funds, thought to be, if not the first, one of the first of its kind. But today, we give investors access to private markets, venture, growth equity, leverage by a private credit, infrastructure. And more importantly, we give them access through three different entry points. You can be an investor in a blind pool fund that might be raised by Excel or index or somebody like that, you can invest directly into companies alongside those firms or their respected buyout cohort. And then the secondary strategy, we give them access through that access

point. And that type of diversification across all those different areas just results in a very consistent, diversified, high quality performance experience for the investors. In the world, we're in today with 150 billion plus of AUM, there's probably, we're not on an island on our own, but there's probably just a couple of other peers that are at the same size that we're at. Expert calls have always been one of the most powerful ways to build conviction, but today investors are asked to cover more companies, move faster and do it with leaner teams. With Alpha Sense AI-led expert calls, their TGIS call service team sources experts based on your research criteria

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how you use your scale to your advantage. Tell me about how you partner and why is your scale advantage? So we want to be not just an investor with leading firms. We want to be thought of as a strategic partner to leading firms. So in select situations, we have capital relationships across fund investing, direct investing, secondary investing that might be $2 billion, $3 billion, $4 billion or greater of capital alongside what are some of the larger leading funds in the industry. And therefore, because of that scale and the capability that we bring to the table, it's not just passive investor, our partners look at us more strategically than they do,

perhaps other firms. So I won't name names, but there's company examples. Some that were recent exits. You know, I think $20 billion plus exits where through our fund investment, we gained access to the company at the formation stage. It could have been CED or Series A. And let's say it was a $20 billion plus outcome. We would have gotten in at $100 million or less through our fund investments. And then as that company grows and deep risks, we might be presented with the opportunity to come in as a direct investor to price around in the company. And then through our secondary strategy, we could accumulate interest in that company that give us indirect access to the cap table through that process. So there was a recent cybersecurity exit, put it in the $20 billion plus category where we participated

in the A through our managers. That was probably a 30 or 40 times return. We did a preemptive direct co-investment where we made three times our money and then we did a continuation vehicle in the secondary market where we made two times our money. And it was a sizable total return for our LPs. Continuation vehicles just passed $100 billion as an asset class. LPs are are ambivalent to say the least. They both love it and hate it. And oftentimes it's within the same LP. They both love it and hate it.

Talk to me about the best practices for investing in continuation vehicles in venture specifically. First, the evolution of this continuation vehicle really just started. It was nascent if you go back to six or seven years ago. And it started in the buyout space and maybe the growth equity space. And now, as you noted, within the secondary market where there was 200 billion of volume in secondaries last year,

CVs, either single asset or multi-asset accounted for about 50, percent of that total volume. So it's very sizable. And I believe it's a, it's a part of the market that's here to stay. The buyout market was the innovator. Venture has kind of been a bit of a slower follower, I would say venture really hasn't embraced this concept until maybe two or three years ago. But now with companies staying private longer and the duration of the whole period for these companies, just being elongated as they stay private longer, the secondary market has stepped in and provided a solution for an investor that wants liquidity that's not going to happen through the normal course of action. Now, to get you a question, as the GP and the original LP or the buying LP,

you've got to create alignment. You've got to remove as much of the potential conflict that could exist in that type of trade. And the conflict really kind of centers on the GP who owns the asset because they're kind of, they're selling on one side and they're buying on the other side with, in many cases, two different constituents, right? And you want to just make it a fair trade. Where the markets evolve is there's intermediaries now that facilitate these transactions. they run a broad process just like any investment bank would, and they go out and get a market price. And then what's fortunate is the original LP, if you have the ability to work within the constraints, which are usually time constraints, you have the decision to either take the deal or not take

the deal. So if you think the secondary buyer is getting a good deal, you can roll into that same deal, but maybe you're prioritizing liquidity and you're going to take some money off the table because of where your plan might be or things that are unique to your institution situation. My personal view is that it's very difficult, it's been very difficult for LPs to block this activity because they essentially have the option to roll. So it's, it's a hard psychological position to have that I'm against it, but I could be part of the deal. So those that are against it, in many cases, just aren't built to operate under the timelines and constraints that are required to actually make some kind of decision, right? So there's many institutions that might be

quarterly with their investment committees or they have governance that makes it just hard for them to be nimble. So almost by default, they're forced to take the default provision. Given how young this is, I think those original LPs are going to kind of evolve over time, and they're probably going to pre-negotiate what their deal should be when they sign up to the fund originally, right? So it's understood. And I think we'll see some evolution there. I also, I've seen certain GPs, you know, are you a price taker or a price maker, right, or setter? And I've seen some recent CVs where the GP kind of sets the price and the secondary market.

has to decide whether to take or not take the price that's on the table instead of having the secondary market come forward and offer a price. So I think we're going to see continued innovation and evolution with respect to the CV that frankly will probably further cleanse any concerns around, you know, conflicts. I had Michael Woolhouse from TBG Capital who created a $1.9 billion fund to go after these CV opportunities and they're all indirect buyouts. And there's so much demand for this, that he's literally bringing in his competitors to go invest with him. That's how much demand there is for this product. One of the interesting things about direct investing in general, I talked about this with Roger Vincent, who was at the Cornell Endowment.

And there's this misnomer of diversification when it comes to investors where they feel the need oftentimes to diversify on two different levels. What does that mean? That means if I have a $20 million position in a company, yes, that could go to zero. But if I have 30 of those positions, then that could be diversified. And then you can also get diversification if you're in multiple managers. But people become so focused on, oh, I can't make this single investment that's in one company. I'm not diversified. There's almost like this disconnect between diversifying on the company level and on the portfolio level.

As incredibly simple as it sounds, it seems like something that people have trouble with. At Harbor Best, we have what's called our quantitative investment sciences team. It's over 50 people that are literally rocket scientists who have now come to kind of synthesize all this proprietary data that we sit on related to private markets, whether it's at the fund level or at the portfolio company level. And that really informs us on portfolio construction and specifically on how we should be thinking about diversification. On the diversification front, I think it has to do with what is the range of potential outcomes? What is the dispersion in the part of the markets that you're investing into? And if there's limited dispersion, then you probably don't need as much diversification.

But if there's greater dispersion than you do, and then it's also the skill piece. You're not blindly selecting these assets, right? You're underwriting them. and you're making a decision on what you want to buy and what you don't want to buy. I kind of go back to what is the original law of diversification. Like you're adequately diversified when you, I don't know, I think the number is like 22.5 investments that you've made. The other thing, like where we sit on the fund side where we build portfolios of funds, should our number be 25 funds in a portfolio if those funds are each putting us into 30

underlying portfolio companies? What is the right diversification at that level? So I don't know if this addresses kind of where you're going with your question, But that's kind of how we think about diversification inside Harborvest. There's also these questions that seem very simple or dumb, but are actually good questions, which one question is, are you diversified? And the follow-up question to that is, what does that even mean? I define diversification as in what percentage of the time will your portfolio have a certain type of drawdown.

In other words, some investors might be comfortable with a 10% drawdown. Some might be with 20. Some might completely not be comfortable with any drawdown. So they should be in like bonds and cash and things like that. But I think there's actually a scale to diversification as well. Is that structural alpha? What is that exactly? Or is it access? Is it all the above? So I think it is a bit of all of the above. So it's an inform on how we build out portfolios, but then it's it's both access and identification. So there is academic research. It shows there's

persistence in performance across managers and private markets. So a new entrant, especially in venture capital. So a new entrant might quickly figure out these are the top firms I want to invest in, but they may not be able to get into them. Support for today's episode comes from Square. The all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business,

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That's SQU-A-R-E.com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today. Support for today's episode comes from Square. The all-in-one way for business owners to take payments, book appointments, man and staff,

and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground. It's actually thinking about this the other day when I stopped by a local cafe here.

They use Square, and everything just works. Check out as fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square, they just feel more put together. The experience is smoother for them, and it's smoother for me as a customer. Square makes it easy to be.

You sell wherever your customers are in store, online, on your phone, or even at pop-ups, and everything stay synced in real time. You could track sales, manage inventory, book appointments, and see reports instantly whether you're in your shop or on the go. And when you make a sell, you don't have to wait days to get paid. It gives you fast access to your earnings through Square checking. They also have built-in tools like loyalty and marketing. Your best customers keep coming back.

And right now, you can get up to $200 off Square hardware when you sign up at square.com slash go slash how I invest. That's SQU-A-R-E.com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today.

Support for today's episode comes from Square. The all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business

without running yourself into the ground. It's actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out as fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together.

The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups, and everything stays synced in real time. You can track sales, manage inventory, book appointments, and see reports instantly whether you're in your shop or on the go. And when you make a sell, you don't have to wait days to get paid. It gives you fast access to your earnings through Square checking.

They also have built in tools like loyalty and marketing. Your best customers keep coming back. And right now, you can get up to $200 off Square hardware when you sign up at square.com slash go slash how I invest. That's SQU-A-R-E.com slash go slash how I invest. With Square, you get all the tools to start. run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today. You're quoting Professor Steve Kaplan, previous guess. He found that 52% of funds that in venture were in top quartile ended up again in top quartile. If it was completely

random, it would be 25%. Some would though say, yes, venture has been persistence, but now you have these mega funds, these 15, 10, 20 billion dollar funds. How do these funds continue to return venture returns? Or is it just a new asset class? it somewhere between traditional venture and public. When you say I invest in venture, I think the next question is, how do you invest in venture? And I think the asset class is bifurcating, right? And the profile of an early stage portfolio is going to look very different than the profile of some of these mid or late stage portfolios.

And I go back to this consensus piece. I was having this discussion with what I call the life cycle investor, the megaphone just the other day. If there is a fund that's targeting those hundred companies that are $10 billion to, you know, SpaceX is at the upper end at the $800 billion valuation. What is the mortality rate of those companies? It's much less probably than the mortality rate of the seed fund. So it's a different risk return profile. The investors taking on. I think the other thing you identify here is all these large firms used to define the early stage and then they became life cycle investors. So the

asset class has changed considerably. Is investing an open AI that's, you know, doing tens of billions of dollars in revenue at a, you know, at an $800 billion valuation. Is that a venture deal? The industry says yes, but we can debate that. But it's clear to me there's a ton of investor interest, whether it's coming from the traditional venture firms or other financial services firms to gain access to those types of companies. It reminds me, David Sachs when he started Kraft Ventures, he went to Bill Gurley and he asked him about this heuristic, every single portfolio company having to return the fund. Bill Garley told him it's a rule of thumb. Obviously, if you're investing in the Series D, you don't need it to return the fund, but it's been kind of

repeated as if it's gospel at every single round, every single situation. It's a really useful razor, and it basically teaches you never underwrite a company to a three or five X or you're going to have a bad portfolio, but it's more meant to be taken figuratively, not literally. I think that's right. Everybody, Bill Gurley is kind of the voice in the room here, right? There's a lot of wisdom there. One of the more recent discussions I've been having with firms, and it's with these scale deals, is it harder? If you're a seed fund and you say, I can return the fund with a $500 million exit versus one of these scale funds, let's say you have $5 billion fund size and you need a $50 billion or $100 billion exit to return the fund, if you're investing in a company, even at the formation stage, is it harder to find a company that's going to be the $500 million exit versus the one that's going to be the $100 billion exit? Because you know, the $100 billion exit is that big, big idea that's kind of changed the world where the $500 million could just be this little tuck in kind of nice to have widget that, you know, you know, Service now might go. Talking invariably about beta, what is the beta of the investment and is the

beta of an investment at different stages? Does it change different timelines? You do one of my favorite strategies and I think one of the most underrated strategies in venture. And it's a derivation essentially of the Stanley Drunken Miller Invest investigate, which is you go with your top managers and you help them preempt rounds in their best companies. Tell me about that. So that comes out of our direct co-investment strategy. And it's about being strategic like I referenced earlier. So as a direct co-investor who is generally perceived to be a friendly, you know, addition to the cap table by the managers that are leading these early stage deals, sometimes they need a third party to come in and price the round.

It may be preemptive because there's a bigger round that's down the road when a milestone is hit and they want to sure up the balance sheet and just make sure that the company doesn't need cash when that happens when it hits that big milestone. So, you know, in select situations, those are areas times that we've been brought in. And, you know, it's at the midlife stage of the company. These are valuations that might be $500 million or a billion dollars in value. So, their scale. But, you know, these companies are on their way to potentially become $10 billion companies. There's a C investor, a Series A investor that wants to preempt the next round and wants to put in some capital. How prevalent is that in industry?

In the example we just talked about where Harbor vests can play a role, it's probably a small minority of things that we do. I do think there's insiders who are in these deals when it is at the Series A or still very early on. They kind of have, you know, they're at the table. They see the things that. the outside investor doesn't have. So they will be very active with that preemptive round. And sometimes if their fund isn't big enough to speak for their pro rata that they might want to fully take, that's another way that, you know, having a friendly partner like us is a large LP in their funds, but also a source of direct capital. You know, we can be value added in those situations. The last thing I'll say, though, is with these funds getting bigger and having to deploy more at

scale, they're always looking for kind of what is my advantage to get into the companies that I really believe in when everybody else is trying to get into them. So there's tactics that are constantly emerging there that will allow them to do that. Today, you're $150 billion. In 1982, you started with $150 million, so a thousand X smaller. Tell me the story about how Harbor Vest raised its first fund in 1982. You had Yasmin Lackelaide on recently in one of your programs, and it was like demystifying the fundraising, but talking about how that first fund is hard, right? The founders need to work really hard to kind of build the confidence in that investor that's willing to take that first-time risk. So our founders, Brooks Zug and Ed Kane, pioneers in the industry, and I will say I was so

fortunate to spend 15 plus years of my life sitting alongside those guys learning the business. But they were part of the John Hancock Insurance Company, and they went out to raise a third-party dedicated fund to execute on this idea that wasn't broadly understood, this multi-manager strategy, which I alluded to earlier was a venture-focused strategy. And they were in the market. Brooks tells this story so well, It was probably over two years that they were in the market trying to raise that capital. And I'm not going to say who the anchor investor was, but it was a $150 million fund where there was a $50 million investor that anchored the fund. And if you go back to 1982, think about who are some of the top five companies that define the U.S. market who had the biggest pension funds. And it was one of those companies that took the leap of faith.

And they invested with us for a long, long period of time. But, you know, it took them. There was a never say die, kind of we're going to do this type. attitude that, you know, allowed them to just persist and keep going for 24 months or whatever it was. But that, the watershed moment was when that institution came in with their big check because it was the stamp of approval. In Peter Thiel world, that was the zero to one moment for Harbor Best, right? And I would tell any person at any organization that's now become scale, you have to look to those founders that did the really hard thing at day one and give

them so much credit for getting the enterprise off the ground. And you've been, not Harbor Vest for coming up 27 years. How has the organization grown? And more specifically, what exactly has compounded? 27 years. I can't believe it. What does that mean? I was like 31 when I joined. I made a three. I made a four of that joint. So when I joined, it was less than 100 people. It was, I think it was 75 people. We had just finished raising or we're setting out to raise our fund six program. And we had less than $10 billion of a UM at the time. But I'll be honest with you. period of time, our part of the industry kind of stagnated and we're flat. And then there were certain parts of the market that just totally took off. So today, our secondary strategy is the

largest part of what we do. And there's just tremendous interest in secondaries. If you look at fundraising in traditional private markets versus what's being raised in the secondary market, you can clearly see that strategy has gone mainstream. And it's taking share from other things that investors were allocating to in the market. We moved into other asset classes like private credit and infrastructure, which are both, you know, scale areas for investing. If I take a step back, you know, we're raising and investing between $20 and $25 billion a year now. So that's, think about a run rate number around that. We're talking venture today. We are a scale venture investor, but it is probably the most boutique of scale in what we do. So we're probably raising and investing

a billion and a half dollars of venture capital a year. And that puts us in a class that's very unique. There aren't too many peers of ours, but it's less than 10% of what HarborVest is doing across all private markets. And we have dedicated teams that focus on each of these areas. So the team, I sit in the venture team and it's a very sophisticated, long-term team. My colleagues, who are the senior members of that team have been with the firm. Not as long as I have, not 27, but it's, I want my Amanda, who runs the program, has been 26. And my colleague, Mack, is probably going on 20 years right now. been obsessed about this concept of things that compound versus things that grow linearly. Don't ask me

why. It's just an obsession. So I'm very curious what in your career or what in Harbor Vest has grown exponentially and what has kind of you start from zero January 1st and it's more of a linear positive. Yeah. So everything has a bit of a life cycle, right? So when we first came up with this multi-manager fund to funds model, that was kind of the new thing. And there was lots of capital that was being raised there. And that probably got us to the $20 billion plus of AUM. And that's in the secondary market was kind of invented. I think the first secondary deal we did was in 1996, but it was probably 2010 where secondaries really began to accelerate. And at the same time, co-invest, where investors recognize this opportunity to buy the asset class at a discount

because of the ability for a co-investor to get into a deal at reduced or zero economics and pass that benefit along to the investor. So that went through its own lifecycle. Honestly, today, which could be transformational for the industry, but something the industry, has to digest is this new thing called open-ended evergreen funds that are catered more towards the individual or wealth channel, but institutions are buying them as well. And if you think about that investor that's never had access to private markets that is now has it being made available to it, that's trillions of dollars that could come into the industry. And not only would be an exponential compounder for Harbor vass, but an exponential compounder for the industry. And that's

going to transform what private markets are, right? Like, private markets will not be the same when that amount of capital is coming in, than they were as they were 10 years ago. I want to double click on, you said something there, which is sophisticated investors are going to Evergreen structure. I was shocked to find this out,

some of the top pension funds, endowments, foundations. And the reason that they're doing these evergreen funds, and to be fair, they're typically not venture, it's typically buyout, is because the cash track that they're getting when their money is sitting in cash for two, three years,

actually significantly decreases the returns versus investing into an Evergreen fund where your capital is almost like a mix of a secondary and a primary, but you're getting primary type returns with no cash tracks. And I like to call it institution versus individual. I like to assume they're all sophisticated and they shouldn't be investing in the asset class if they're not. But the institutional investor has been investing in the asset class for 70 years and has never asked for the Evergreen structure. Or if they did, it was like corner cases where they did. But now they're marrying the two.

So as you noted, when you invest in one of these open-ended funds, it's fully funded or nearly fully funded. So all your money goes into the ground. If you do it through the traditional model to build to a target allocation, it might take you five, six, seven years to get to that allocation. There are nuances related to each of them, which investors need to understand and contemplate. So in the closed end, when call it, TPG sells its company, it sends that money back to the investor. And the investor has the decision of how they want to recycle it. In the open-ended, it gets recycled back into a new deal unless that investor wants to redeem as part of their contract and redemption right. And that changes kind of the liquidity model for each of those.

The way I look at a 10-year structure is you have no liquidity for 9.9 years. Obviously, you have earlier DPI, but just to simplify, you have no liquidity for 9.99 years, then you get 100% liquidity and force liquidity. And the odds of that lines up with the liquidity needs of the underlying investor, especially when you put in taxes, is basically zero percent or approaching zero. So having the ability to be more proactive about when you exercise liquidity, I think is an interesting feature, especially for taxable investors where they have to worry about tax drive. Yeah, but this is a good platform to just kind of educate that investor. Look, the redemption right in these evergreen funds is typically up to 5 percent per quarter, so think 20 percent per year. So even if you decided today,

I want out, it's going to take you five years to get out. You're not going to get out. in the next two quarters. You've referenced some of your competitors and some of the secondary funds out there and other LPs. You're obviously not the only LP in the world, but you do get the first look at a lot of deals. Maybe double click on first look alpha.

How are you able to generate first looks for Harbor Vest? And what's that sustainable edge? I'll go through three things. First, we're an institution that's informed and it's been around for a long period of time. And the people, as you kind of heard, I've referenced a few of my colleagues, myself, we've been at the firm for a long time. So we have not only institutional relationships

with organizations, we have personal relationships with organizations that just builds that word trust, right? And then because of our knowledge around all these different types of things, whether it's, you're starting a first-time fund, how you think about your term sheet, how you think about ODD versus you're going to do a continuation vehicle. You've never done it before. How do you educate yourself on the options? We become the educator in that situation. So even before the fundraising starts or the CV occurs, we've had an engagement. with that stakeholder, that counterparty, and we further kind of created that trust. And then finally, we need to be predictable, right? We need to be transparent and predictable. And this is

probably most obvious in how we co-invest. Managers bring us deals because we've educated them on what deals we like and what deals we don't like. And then if we don't like the deal, even though it's in the definition that we shared with the manager, we get back really fast. And I'm a fund investor. I'm not the one that's saying yes or no to the direct deal. I actually have a counterparty on my direct team, that this is all they do all day long. So we really put it over emphasis on communicating fast and why, whether it's yes or no. And I think these general partners really appreciate that, all of those types of behaviors. Funny because I sometimes, I used to have a naive view on this, which is, you know, my whole view was, well, it's all economics maximizing all this,

and then I would notice my own behavior, why am I going to this person? Sometimes this person even has worse economics than this person. And I started asking, questioning my own. And it's because that was an honest person. I could trust them. They got back to me in time. They gave me rationale, why or why not, not that they have to write a five paragraph essay. I just naturally gravitated to the person that was the best partner. Economics aside, obviously economics matters. But I think it's an underrated thing that you don't really realize until you're kind of in the game. Yeah, that's right. And then the value prop that I talked about throughout this call, just being strategic where we can intersect their business as a fund investor, as a secondary solution,

as a direct co-investor to fill an equity hole. They want to form relationships with all parts of our firm to satisfy each of those kind of needs that they have, right? If you look at these GP relationships, what pays the bills is the fund commitments, co-invest, secondaries, all that is nice. It's nice to get a $10 million carry check in 15 years on your winners. That's great. But ultimately, it's the LPs that pay the bills. And what GPs that are over-allocations are over-allocations, what they care about is stable capital. And there's actually two aspects to that. So a lot of LPs will go around say, you know, we're an endowment, we're a foundation.

This is very stable. We're 100 year, 200 year, 300 year, 300 year, 300 year. But that's only as stable as the relationship at that organization. Yale University, famous, I believe they had somewhere around a 17 to 20 year, average tenure. You've been there 27 years. This is highly underrated. But having stability on both the partner level and also on the institutional level is pretty cool. Yeah.

No, it's absolutely the truth. And as you noted, what that general partner values most is you're going to be there to fund their next blind pool fund. The reality is in the market, that's the hardest capital to secure. So to be able to secure that at scale from our investors allows us to fuel the rest of the. It's only getting harder. It's probably one of the top two trends in private markets. One is the rise of retail over the next decade. The second one is, I guess, people going away from blind pool funds, which has so many different things,

continuation vehicles, secondaries, co-invest. If you go to the buyout space, there's an entire, not even cottage industry now, entire big industry of independent sponsors. There's thousands of them from very high quality firms. They're just doing deal by deal. I imagine that's going to proliferate into venture as well, if I had to guess. But this like the, the blind pool fund is so important because it pays the bills. It pays for the infrastructure, the people they have to hire that are upstream of everything. It's great if you could be Elat Gill or Orrin Zev. That's, you know, an individual deploying a billion dollars. I think they're literally the only two people in the world. Everybody else needs to have a team. I think that's an important thing that people underestimate.

I agree. And there's another dynamic in which you talk about that. I'm not sure the market fully appreciate. So all of this new capital that is coming in, actually, the primary funds aren't purposely built for that type of capital because it's got to cycle money faster. And when somebody asks me, what is private equity? I give them two sides of the definition. It's taking economic interests in a private company where it's a privately negotiated one-to-one transaction, but there's also the expectation that you're going to deliver value at where public market investors generally more passive. But that value add tends to come in many cases from that closed-end, draw-down blind pool fund. And that that catalyzes the rest of this other capital

that's coming in that's just seeking economic interest. And so that's an area that we spend a lot of time focusing on the equilibrium between the two. I don't think it's crazy that you would see secondary firms actually build value-added capability so they can deliver both the economic interest and the value added capability. One thing is for certain things are changing. Scott, this has been an absolute masterclass. We just opened up a studio in New York. We're going to have to do it in person soon.

Thanks so much for jumping on. Looking forward to catching up soon. Yeah, thanks for having me. I really enjoyed that. Take care. If you found this conversation valuable, please click follow how I invest so that you don't miss the next episode with the world's top investors.