Investing Billions - E379: Why Great Investment Firms Eventually Stop Performing

Episode Date: May 29, 2026

What if the biggest problem in asset management today isn’t investment performance—but misalignment between managers and the investors they serve? In this episode, I sit down with Luke Sarsfield, Chairman and CEO of Ridgepost Capital, to discuss how incentive structures shape long-term outcomes in private markets. Luke explains why Ridgepost leaves most carried interest with underlying managers, how alignment creates better LP relationships, and why middle market specialists can offer diversification that many large-cap private portfolios lack. We also explore long-term thinking, public versus private market pressures, culture, mentorship, and why compounding relationships may be the most valuable asset in investing.

Today's guest is Luke Sarsfield, the CEO of Rich Post, a publicly traded company. Luke was a global co-head of asset management at Goldman Sachs for 23 years before becoming CEO of Ridgepost. And Rich Post solves a very big problem in asset management, which is how can managers continue to perform, despite this incentive to always be raising more and more capital. Today we go deep into how managers can be incentivized to continue performing for our limited partners, what breaks as managers scale and what the market is today for GPs that are looking to sell. Without further ado, here's my conversation with Luke. Luke, your chairman and CEO of Rich Post, which owns some of the most prolific asset management firms in the world like RCP,

Truebridge, Bonacord. Before we get into the business, maybe talk about exactly what you own in these firms. We collect 100% of the management fee stream, the fee-related revenue, and And typically then we own just a little bit, just a small percentage of the carried interest or the incentive fee. But we leave most of that behind with the underlying managers. We think that obviously is a great tool to incent the wonderful investors that we have at each of those franchises. But it also creates great alignment between them and their limited partners. And that alignment is really critical to the models. When I heard about the business, I had to get you on because I think it solves the biggest issue in asset management today.

maybe outside of liquidity. And the second biggest issue in asset management today is what LPs disparagingly call asset gathers versus investors. Number one is we exist to serve our LPs, right? We want them to have a great investing experience. We want to generate consistent, persistent, durable alpha in whatever strategy we're executing for them on. We stay zealously focused on what we do.

We want to execute for our clients in a world-class way. and we will only embark on a strategy or capital raise if we think we can absolutely positively deploy that capital in a way that is consistent and persistent alpha generative. The second order effects of this are so fascinating. So if you go to a manager and you say now you're being compensated almost entirely in carry, if you go to them and you say the incremental dollars you make with carry, what's second order effect of that? Well, the second order effect of that is now they focus on where they could actually get. a return. The word I would use is alignment, right? Alignment is what we focus on and what we try to create at every level, right? As a public company, we want to be aligned with our public shareholders. But importantly, we are fiduciaries on behalf of our LPs, on behalf of our clients. And so our investors need to be aligned with those LPs, and those LPs need to see and feel that alignment.

And to your point, I think a very pure expression of that is, our investors only do well, when our LPs do well, right? And so if you work at one of the companies on the Ridge Post platform and you do outstanding job of investing the money on behalf of your LPs, you will do well because of that alignment of carried interest. And the LPs see that, they feel that, they manifest that every day. And I think that's why they're so embracing of our model. One of the interesting things about your strategy is that you have several niche asset managers. Some of them have scaled more than others. But RCP, which is in lower middle market, Truebridge, which is venture capital, Bonn Accord, which is GP stakes.

Middle market focused. Middle market focused GP stakes. How is it that the LPs sign up for all these different strategies, and what are they coming to you for? Increasingly, I think what's going on is you're seeing a lot of LPs who are saying, when I look across my portfolio composition, particularly the private part of my portfolio, by dint of some of the things we talked about, there are a lot of large managers in the world and some of them have gathered an awful lot of assets. And I notice when I look at my mixology

in the private part of my portfolio that even though I may have it spread across several of those larger managers, there's actually a fair bit of inherent correlation in my portfolio because they all play in the same place. They focus on the same things. They may co-own assets or trade assets back and forth between one another. So even though I've diversified from a manager selection perspective, I may actually have a lot of return correlation because a lot of the underlying portfolio assets, companies, credits, whatever they are, are the same or very similar. And one of the things we're seeing a lot of LPs say is that I see a lot of reasons why I think the middle market is fundamentally differentiated. The return profile, particularly if you can

execute against it in a world-class way, is superior. And so I as an LP want to have some exposure and some real diversification in the private part of my portfolio away from this kind of conglomeration of the large cap stuff that I'm getting naturally. And the way I can get that is in the middle market, but the middle market, it's more complex. It's much less transparent. It's much more complicated to act in. You really need somebody who can do that in a world class way on your behalf. And that's what we can be as a collective or we can be as an individual point solution within your portfolio under the umbrella of rich post capital. One of those brilliant parts of your model, and I rarely use that word, you're solved around a

big conundrum in the GP stakes space. What is that conundrum? It's that public markets, private markets seem to almost give a zero value to the carry in funds. Unfortunately, that is the case. And particularly in venture funds and higher risker assets. So instead of bemoaning that part, you said, wow. let's make a business around that, which is if the market's not valuing it and good GPs are valuing it,

the ones that actually believe and are willing to bet on their own skill, why not leave that with the GP and focus on the management fees? And the more I interview world-class asset managers and investors that have scaled and that have continued to deliver Alpha over many decades, there's one thing that's in common is they have a simple strategy that's easy to communicate and that people get. very quickly. I think you're exactly right. It's about putting value where people actually recognize and reward that value. Public shareholders generally have viewed incentive fees or carry as somewhat sporadic, somewhat opportunistic, not predictable, maybe subject to clawback. And so they're just not willing to capitalize that kind of on a run rate multiple basis. On the other hand, are investors who are close to the investments who understand the economic power.

of that. I think there's a lot of value there. They're right, by the way. I agree with them, but they see that value, and they recognize that value, and they embrace that value. And by the way, as we talked about before, that actually creates this real alignment with the LPs who want them to be thinking about how they drive great economic outcomes by investing the portfolio. And so you have a world where, on the one hand, you're creating the right kind of alignment, right? You're giving the public shareholders what they want. You're giving the LPs what they want. and you're creating value for the system. I wonder if paradoxically, that actually helps grow the management fees.

In other words, if you truly have GPs that are totally incentivized by Kerry, they should, in Leeson Theory, produce significantly better than those that are trying to grow their assets. And a second order effect, if you produce good returns over time, there are some managers that should grow more than, ironically, the ones that are trying to be asset managers. Do you see that all? Yes, but I think the key phrase is over. time, right? Because it's not going to happen in the moment and it's not going to happen in a single fund cycle. But ultimately, remember, I always say this, we're in the business of delivering

great economic outcomes, great risk-adjusted returns for our clients. If we do that, they will entrust us with a greater and greater share of their wallet because they say, you can execute on our behalf and you'll drive great returns. And we see that happening. That's one of the virtuous cycles of the model over time our clients come back to us. Our client retention rates are incredibly high. They want to stay with us. They want to stay in the ecosystem. Our clients who started as clients of a single strategy, but now want to become clients of multiple strategies for all the alignment reasons and all the talent capability reasons we just talked about is very high. And we're seeing the benefit of that. And generally, when our clients are coming back to us, they're coming back

and investing more in subsequent strategies or more in other strategies that we execute on their behalf. And so, yes, I think if we do our job right, and you've always got to start with that, are we doing our job right, are we executing in a world-class way by generating great risk-adjusted alpha for our clients? If we do that, our success will follow. But I think you can't lose focus of the order of those two things. We've got to deliver the outcome. Then the good things will happen. It's not the other way around. I'm curious, and excuse me for the frank question, but have you always been so long-term in your thinking and thinking in this compounding? Or is this something that as you get older, you've embraced more?

Look, if you're asking a personal question, what did Einstein say? The most powerful force in the universe is the power of compound interest, right? And obviously he meant that in a very literal way. But everything, if you do it right, compounds over time. The value of relationships compound. The value of data compounds. the value of your insights and your network will compound over time. I worked in a place at Goldman Sachs for many years that sort of really preach that mantra in so many ways.

And so I learned that. I think I got it at a relatively young age. You saw it succeed, not necessarily in your career, but I watched it on an organizational basis, but I also watched people who I viewed as mentors and friends who were a step or two or three steps ahead of me, have it be kind of, you know, central to their success in the organization. organization in their careers, frankly, in their lives. And so when you see that, you're kind of influenced by that and hopefully you pick up a thing or two along the way from that. I have this theory on asset management and the financial markets in general. The asset management

world is suboptimal on long term and focused on the short term. And why is that? I believe that early on in your career when you go back, you were at Goldman Sachs, but you go to ABC Investment Bank. The first three, four, or five years of your career, short-term thinking and zero-sum thinking is what dominates. So the people that end up making it through that five years, a large majority of them are going to be short-term thinking because those are the only people that can deal with this crap for five years. And then as a matter of fact, the industry downstream of that,

asset management, private equity, they tend to be more short-term focused, even though if you took people from outside the system, if it didn't have to go through this funnel, there would be much more long-term thinking in the industry as a more efficient strategy. What do you think? It's hard to argue the point, right? We live in a world that in many ways is set up for a certain element of short-termism.

You report results on a quarterly basis every three months. And then you're judged, you know, oh, my gosh, your EPS was a penny above or your EPS was a penny below. And either all trees are growing to the sky or the world's ending as a corollary of that. And so we do live in a world that that has a certain element of short-termism. And I think, you know, people in their careers, you know, particularly when they start off, they, you know, they are engineering to an outcome or they want to get the next promotion or they want to do well in the next comp cycle. And so in many ways, the systems are set up to put a certain focus on short-termism. But I do think over time, and maybe it's the benefit of being in a long cycle business, right?

Private markets is a long cycle business, definitionally. A fund lives for 7, 10, 13, 15 years. And specifically, the carry is extremely long cycle. A hundred percent. The management fees are today. The carry is at the end, right? And by the way, all our carry is set up in a European waterfall way, so it's really at the end, right? You have to pay back to one.

We pay back all our investors. We pay back, you know, them, hopefully in spades. And only then do we start to capture and collect that carry. Our investors start to capture and collect that carry. But I think this is a really important. point you're on more broadly, right? And I think one of the things we try to, you know, work on is how do we get our people to kind of take that longer term view to say, look, you know, I may do something today that is not necessarily in the immediate short-term interest of whatever it is,

but I think by doing it, it will pay real dividends. It will help me grow in my career. It will help the organization flourish. It will help our LPs do better in the long run. But you really need to focus on getting people to think long term because to your point, a lot of the systems, a lot of the world we inhabit is set up to kind of promote a certain amount of short-termism. 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 and lets the AI interviewer get to work.

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dot com slash how I invest. And you, Luke, are the CEO of a public company, Rich Post. How do you manage the quarterly reporting versus the decade-long outlook? On the one hand, you've got to have a vision and you've got to have direction, right? There's this old saw. If you don't know where you're going, you're certain to get there, right? You've got to say, what do we believe in? What are we trying to accomplish? Where are we going? And one of the things I did early on in my tenure as I was assembling the new team and the new kind of strategy and structure was to go out very publicly. We did an investor day in 2024, and we laid out what were our long-term growth drivers, what were our strategic imperatives, what did we think that plan was going to yield from an

economic perspective. And so we were very transparent about that with our shareholders. We said along the way, we're going to give you quarterly reports. We're going to focus on how do we execute against those longer-term goals, and we're going to report out on our execution. And we're going to give you KPIs and other indicators that hopefully will support the fact that we're progressing against those long-term goals, maybe frankly also at different times identify places where we're falling short and then what are we going to do to remediate and accelerate against those long-term goals. But I think it's really important to lay out to people, whether it's to investors, and to our people internally, what is the long-term vision?

What do we seek to be? What is the aspiration? And then how do we work from where we are today to get there. And sort of, I think that's really important as opposed to what sometimes creeps in is the incrementalism, right? If I do this this year, well, the next year, if I just do five or 10% better, that's all I need to do. But it's not necessarily in pursuit of an end. It's not necessarily with the view of what's the end goal, what's the end state, what do I ultimately want to accomplish and what do I believe that this platform and this franchise can be. Have you had a churn of your LPs from short-term holders to long-term holders? or were you messaging this kind of strategy from the very beginning?

We have not had the churn, is what I would say. We have very long-lived, very loyal LPs, and we are very lucky to have that. The strategy is the same. Ultimately, we exist for what I would say is a very simple reason. It's to deliver world-class risk-adjusted returns on behalf of our LPs, right? There's a lot of ways you manifest that. The customer comes first. The customer always comes first.

and the shareholders benefit as a virtue of the customer. But you've got to serve your clients. If you're not serving your client in the long run, it will be to the detriment of your shareholders and to others. Shareholders are incredibly important. We value our shareholders. But the way we manifest and drive that value on behalf of our shareholders is by doing a world-class job on behalf of our clients.

And if we do that, the employees will benefit and the shareholders benefit. The reason I'm double-clicking on this is I have a world-class job. have a huge bias against the public markets. I'm early investor in Anthropica. I was in the $4 billion valuation. Congratulations. I told the team, thank you. I'm jealous. 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. I was actually thinking about this other day when I

stop by a local cafe here. They use Square and everything just works. Check out is 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 stay 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 sale, you don't have to wait days to get paid.

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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.

I was actually thinking about this other day when I stopped by a local cafe here. They use Square and everything just works. Check out is 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 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 sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square check. They also have built-in tools like loyalty and marketing, so 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. The Square, you get all the tools to run your business with none of the contracts nor complexity. Run your business smartos, 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 it with two,

or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this other day when I stopped by a local cafe here. They use Square and everything just works. Check out is 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 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 sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built-in tools like loyalty and marketing, so 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. Square, you get all the tools to run your business with none of the contracts nor complexity. Run your business smart or square. Get started today. So I've told the team try to avoid going public as quickly as possible. But I have a huge bias against going public for the very reason.

The way that I would define it is this default short-termism that sets in unless you actively go against it. The amount of firms that have actively messaged against it, you could live. literally count them on your two hands. Jeff Bezos, when he took Amazon relatively early, especially in today's standard public. From the very beginning, he said we're going to focus on the long term. And he attracted these investors in the public markets. Obviously, Berkshire Hathaway, Warren Buffett and Charlie Munger. The other new phenomenon, which is almost two decades old, is Google originally created these founder shares and these double. But all

things being equal, unfortunately, I've seen the public markets be much more destructive of long-term value creation than maybe they were intended to be. We live in both worlds a little bit. So it's an interesting dichotomy at some level, right? We are a private asset manager by definition, right? All of our investing activity that we do on behalf of our clients is in this private sphere. And so we see the value of compounding over a long period of time, of making the right long-term decisions, and of really focusing on how do we create value across a period of time. On the other hand, we also exist as a public company, to your point, and we are subject to the vicissitudes of the public market

and obviously the reporting and headlines and news flows will matter in the short run. You've got to focus on what you can control, and you've got to separate yourself from the thing you can't control. What you can control, you can control your strategy, and you can control your execution against that strategy. And over time, if you have the right strategy and you execute against that strategy, one hopes and one expects that that will be rewarded in the market. But you can't control the day-to-day volatility in your share price. You can't control the exogenous news flows.

You can't control what competitors or other participants in the sphere do. And you've got to stay clear-eyed about this is the sphere of what I can control. And I'm going to control that in the best way I know how. And I'm not going to get too focused on the other stuff because, I believe over time, if I control this and I execute against the stuff I can control, it will yield a good outcome. Speaking of value, we have thousands of emerging managers that listen to podcasts, hundreds of so-called emerge managers, many of them are still independent. What's the market today when it comes to somebody selling their asset management from?

This is still a relatively nascent industry. The alternative space has only existed for 30 or 40 years, right? This is not something that's been around for, you know, 100, 150. 50, 200 years as many, you know, august institutions have been. And so the industry is maturing, professionalizing, and growing in many ways. And one of the ways it grows is new business formation, right? Somebody works at a large asset manager, learns their trade, becomes excellent at their craft, and then says, I want to go do this on my own. Maybe I want to be independent. Maybe I'm an entrepreneur. Maybe I didn't like the bureaucracy. And so there is a lot of new business formation,

new franchise formation that goes on. And then I think you have the other phenomenon, right? And the other phenomenon is what do LPs want, thinking through the client's lens? And I think there was a period of time where LPs were really on the lookout for every great niche manager that could exist who could execute in a very narrow kind of area or sphere of influence. Increasingly, as the LPs were looking at their roster of managers and that roster was just getting longer and longer and longer. They said, oh my gosh, this is, you know, too much, right? And so we need

a group of partners who can execute in a world-class way, but can execute in a broader-based way, because we don't want to have that long tail of managers that we need to monitor and our staff has to go visit and go to the AGM and spend time with three or four times a year. We need franchises who we can trust, who can execute. We're comfortable that they're going to invest in a world-class way. But they're also, they have the scale. they have the throw weight, they have the heft that we know that they're going to be there and they're going to succeed in the long run. You talk about elements of our model. This is a really important element of our model, right, where you have what you'd think of as folks who are really

the best of the boutique manager in whatever they do, but they exist under this broader umbrella. So if you're a large allocator and you're looking at Ridgepost, you can say, I kind of get the best of both worlds, right? I get these great managers who've done this for a long time, who can generate consistent persistent alpha, but I get it under the mantle and in the rubric of a stable institution that I know has sort of staying power, that I know will be there, that can help kind of with all the other things that exist. And I can really think of as a partner. And in our case, that partnership often is around, I want to be a bigger kind of participant in this middle and lower middle market. And I need a partner to do that. It's not transparent. It's hard to do. I

don't want to build the team and I don't want to expend the resource to do it myself. And so, hey, look, I can partner with rich post capital to accomplish that. I'm going to put you on a number. What is the market today for asset managers that want to sell? If I am a GP and I want to sell my GP, how might somebody think about value? Is that what you're asking? I'll give you the honest answer. It really depends, right? And I don't think that's a wishy-washy answer. If you're a real estate manager, that's going to be different than if you're a credit manager. That's going to be different than if you're a private equity manager. And why is that?

Because the management fees are not seen with the same duration across the industry. Everything may not have the same duration. Everything may be in different structures, right? If it's long-term committed capital, that's probably going to be different than if it's shorter-term capital, right? And so that's going to matter.

Your longevity as a franchise is going to matter, right? If you've invested one fund and you're raising fund too, that's going to get valued very differently than if you're investing out of funding, eight going on Fund nine and you've built the whole kind of ecosystem around it. That'll matter a lot. The stability of the team will matter a lot. If this is a team that's been together a long time versus an organization that's kind of seen a lot of turnover and while the organization may have been around, the team is new. That matters. And so there's a lot of things that go into it.

But if you're looking for just sort of where is, at least for the private managers, where's probably the vibrant middle of where a lot of these things have happened, they've probably happened in the range of 10 to 15 times on sort of, you know, an EBITDA or an FRI basis. But that'll be influenced a lot by, you know, stickiness of asset, type of asset, performance of the institution, growth trajectory, stability of the team. All of those things will massively influence the outcome. 10 to 15 with a lot of variation, these asset managers that are in the lower middle market, what are their profit margins typically?

Again, really depends based on asset type, right? and depends on size and evolution, right? So generally a few things are true. This is generally a scale in operating leverage business. So the longer you've been at it, the more scale you have, you know, there is operating leverage in these models, right? And so over time, you will have more operating leverage. Also depends based on asset type, right? Typically, for the same amount of assets, a credit manager, all things equal, might have a higher margin than a private equity manager as a for instance. And time matters too, right? Because usually you tend to scale the infrastructure up front to get LPs to trust you with the money. And then over time, if you're successful, the good managers do that. The good managers do that, right? And so it's all over the board. But I would say, you know, the margins can go from, you know, at the low end, 20, 25 percent once you get to a certain critical mass, up to 60 plus percent, depending on where you are on that continuum.

You've now seen eight amazing asset manager scale. What are some patterns that you see? across these A managers? Ultimately, this is a people business. And so the most important thing is the people, and I mean that many ways. They obviously have to be great at what they do. They have to have great investing judgment, great investing instincts. Secondly is longevity. The people staying for a long period of time really matters.

One of the things that is very hard in the asset management business in particular is generational transition. And so having longevity of senior people who've been there 10, 15, 20, 25 years is really, really important. That judgment is hard to replicate. And the training they can impart in the next gen is also very hard to replicate. Culture matters a lot. We talk about having this culture of collaboration, coordination, partnership, whether it's with our LPs, whether it's with our public shareholders, whether it's with the institutions that we invest in and behind. but really thinking about it as a partnership in the long run is very important.

But ultimately it comes back to having the right people. On the one hand, that sounds very trite, but on the other hand, that could be very profound. Before me and my partner, Curtis, started the business. We spent two weeks writing down our values, probably even more trite. And if you told me this 10, 15 years ago, I would think it's the most absurd thing to do. You need to come up with a strategy. You need to come up with a buy box, fundraising strategy. We spent two weeks thinking about our values because what we had seen in the business, different firms, is if you really think about it from first principles, the things that really sustain over time are culture and brand.

Absolutely. And brand, you could say, is downstream of culture. And by the way, they're the, unfortunately, they're the easiest things to impair if you don't act in the right way, right? One of the things that we've laid out is our statement of mission and values, and we use an acronym pipe, right? There are four things that we hold to be true. The first P is for our people. We're really focused on our people. The I, that's integrity, right?

Always comporting ourselves with integrity and any interaction we have. The third P is partnership, as I talked about. We want to be a great partner to the people we invest in. We want to be a great partner to our LPs, and obviously we want to be a great partner to our public stakeholders. And the last, the E, is about excellence, right? It's about driving excellent investment performance and investment returns. in a world-class way on behalf of our clients.

And to your point, it's really important to know what True North is, right? And for us, that's True North. My suspicion is, as you laid out those mission and values, it really reinforced for you what True North was. And so when you're in the tough times, when you're making the hard decisions, you can look back and reflect on what those mission and values are and say, is what we're contemplating doing in alignment with those? If yes, proceed.

If not, reconsider. I've had multiple guests in the last couple months that are men. by Charlie Munger, James Montgomery from March Capitol, as well as Nico Bonatzis, who just spun out of General Catalyst. And they both said the same exact thing that Charlie Munger told them, his thought experiment, which is to think about everything on your calendar, down to literally meeting by meeting, what the 80-year-old version of you would think about, that very meeting. As I've started to internalize, there's a lot of second-order effects of those things, and a lot of them are quite dramatic.

For example, I just had drinks with Danielle Polly from Oak Tree. She's amazing. She's somebody, there's no clear way to do business with her for the next five, ten years. But I imagine at some point, there's going to be a lot of business we could do together. And the counter to that is there are other relationships. We have an associated broker dealer. Sometimes we do some banking business. There's other relationships that I know that this is purely transactional.

There's a zero percent chance that I might do more business with somebody. and even though the fee might be big and the short-term incentives, it doesn't compound. It's dramatically changed how I think about everything in non-trivial ways. Very much in line with what Charlie Munger was saying. There's the old saw about, tell me how you spend your time and I'll tell you what you care about, right? And if you're investing that time in things that are long-term, as we talked about, the risk is short-termism, that's going to accrete and create value over time, and that value will be manifested in terms of relationships in so many ways. The problem is, I think for most of us, right, that the day to day runs the risk of intervening in that, right?

And you look down at your calendar and it's this little thing here and this little thing there and all of a sudden those little things add up and they take up a lot of your time. And I think the discipline is to say what are the things that really matter, whether it's relationship value, whether it's, you know, sort of, and by the way, this goes beyond just work. It's true in your personal life. It's true in everything you do. what are the things I like that that are going to matter to me when I'm 80? And then am I really being disciplined about devoting the right amount of time to those things and not letting all the little day-to-day issues, annoyances, inconveniences, so impede how I spend my time that I'm not progressing in the right direction?

Inherent in having other people solve some of these problems is the tolerance to have them make their own mistakes and learn and develop as you earlier in your career learned and developed. I think that's a big bottleneck in many leaders as they transition from doer to then manager to then leader. These are some predictable things that come in the way. I mean, look, generally you get to where you get to at every level because you're really good at this set of tasks, right?

And you become really good at this set of tasks and they promote you and give you a broader set of tasks, right? And so your instinct is, well, look, the reason I got here is because I was really good at those tasks. So if anything comes up on those tasks, I need to dig back in. But ultimately, that's not going to create the leverage you need to do the higher order things that now you're required to do in the new role. And that every step up the leadership rung or leadership ladder you take, that gets amplified. And so you've got to find great people.

You've got to empower those people. You've got to trust those people. Sometimes you've got to teach and mentor those people too, right? If they do something that you look at and you go, I can't. possibly see why you did that, given that set of facts and circumstances, you need to have a conversation and understand why they didn't. Maybe there's something you're missing, but maybe that's a coachable moment. But ultimately, you need to create a team where people feel both a team with great judgment, with great instincts, with high character, and then empower that team to help you

succeed. Does it change how you go about recruiting people that you're building for the long term? And if so, what are some tradeoffs? really important is you need to find people you can trust and you need to find people that have good instincts and judgment, but it also can't be a team of group think, right? The risk you run is that every leader, their instinct is we generally like people who are like us. I think there are a lot of psychological studies that would support that. And so I think there's a probably inherent instinct and maybe an inherent flaw in interviewing that if you're hiring everybody who's like you, who acts like you, who thinks like you, you're going to get kind of group think at some level

because there's not going to be anybody to step back and say, hang on a minute, like let me, let me play the devil's advocate. You're going to have the same line spots. Right. And so you need to consciously find people who you say, look, they don't think exactly like me. And not only am I okay with that, I want that, right? And I'm going to consciously seek out some of those people. They can't be disruptive, but you need the people in organizations who are willing to say,

I actually disagree. Here's how I'm thinking about it. And let's have a debate around it. But also completely agree on the value side. 100%. So skill set, even method of thinking, all of that could be very diverse and probably should be diverse. But value side should be completely. Obviously, they need to be high integrity.

They need to be high character. But they may say, look, I disagree with that strategic business decision you're making. Let me tell you why I think we should do it this way and not that way. and let's have a debate around that. Luke, if you could go back before you started at Goldman Sachs, you were there for 23 years, and you could give yourself only one piece of timeless advice that would have either accelerated your career

or helped you avoid constant mistakes. What would that be? Your selection of people that you affiliate with in your life, some you have a choice on, your mentors, your friends, some you don't have a choice on, your family and others, it's the most important thing. It will frame and shape who you are. And so if you're entering a career, I was very lucky at my career.

I sort of fell into Clover. I found some great mentors who took me under their wing, who gave me great advice along the way. Probably with the benefit of hindsight, I wish I had been more purposeful about, you know, cultivating that mentor network that, what do they call, personal board of directors, I got lucky. I will be the first to acknowledge that. I got very lucky with the people who picked me and took me under their work. wing. And obviously, relationships are hard, right? And it takes two sides on any relationship. But I think

really being conscious and purposeful around the people that you surround yourself with, you're going to start acting like them. It's human nature. And so really, really think about who those people are, what they can help you with, what they can teach you. Are they willing to invest in you in the way that you're willing to invest in them? But creating that network, the value of those relationships is the most important foundation of not just your career, but your life. When I talk to people in their 20s, early 30s, it's always about investments. 30s, 40s, it's about frameworks and in ways, strategies, and then 40s, 50s and beyond. Everybody converges into people.

And I think that's only going to- 50s, so there you go. And I think that's only going to accelerate with AI because it's really the final thing that can't be disrupted. I was going to say, look, and we have the benefit. I've always lived in what are fundamentally people businesses, right? Whether it was a Goldman or we don't manufacture anything. We don't produce anything, right?

It's all about the network of relationships that you have and how those relationships can be really important, whether it's in advising a client, whether it's delivering a tough piece of feedback, whether it's in, you know, making an out of consensus investment decision because you have conviction that it will pay off over time. You need to have the people in the right frame with the right set of values who are willing to do those things. And if you surround yourself with those people, dare to say you'll succeed over time. Well, Luke, this has been an absolute masterclass. Thanks so much for stopping by.

Appreciate it. Really enjoyed the conversation. Thank you, David.