Investing Billions - E416: Why the World’s Biggest Investors Are All Investing in Data Centers

Episode Date: August 14, 2026

Why do the largest investment firms keep getting bigger? David sits down with Joel Holsinger, Co-Head of Ares Alternative Credit, to discuss why scale has become one of the biggest competitive advantages in investing, how Ares evaluates multi-billion-dollar opportunities, why data centers and AI infrastructure are reshaping private credit, and how great investors think about downside protection. Joel also shares the leadership principles behind building world-class investment teams, why reputation compounds like capital, the power of Kaizen, and how Ares' Pathfinder funds have connected institutional investing with large-scale philanthropy through Promote Giving.

So why are the biggest investment firms getting bigger? A lot of it is scale matters. As you go up larger in transactions, as you go up the ability to do deals, what you happen is there's less people you're competing with. So at the bottom part of the market, you have a ton of players that you're competing with, and sometimes they'll do things that are uneconomic, and they're based on that. What you'll see is that scale kind of drives itself in multiple ways. One is investors, when they're looking at funds or other things, want to invest in

larger platforms and larger funds. They want to know that they are not taking platform risk. They want to know that you have the operations. They want to know you have the back office, legal compliance and other things. But they also know if they're a large investor, that they're going to invest a large check that they can actually put it into a fund and not be a significant portion of it. So that's on the input side. If you go to the actual investment side, it really does go to the larger capital you have, the bigger moat you're building around the investments you can do. because you can do things that nobody else can. Why are firms like Aries and many of your peers investing into data centers and data infrastructure?

It's the scale of the opportunity. What are your largest capital consumptive areas in the world? Energy, infrastructure, real estate. If you think of data center by itself, what is it really? It's a net lease asset. If you own a data center, you've built the data center, you own it now, you're leasing it back to meta, you're leasing it back to Google, you're leasing it back to Amazon. In the end, what you have is actually a pretty boring investment because in the end, you have a counterparty that's an IG and above counterparty that's paying you that lease payment for 15 to 20 years.

And so that contractual cash on cash is what's taking care of you. And so as much as we think of these sometimes as equity related because they're development, they're really credit profile because of that structure of that lease. In full disclosure, I'm investor in Anthropic. That being said, I'm also self-aware. I realize that it's such a new market, such a fast-growing market, whether or not you have a 15- or 20-year lease, is that not increased the risk on investment backing a cyclical trend that may or may not sustain, at least at its current stage? Well, first, congrats on being an investor in the tropic.

I think that the thing we've seen is how quickly things are changing and you're right. Like, these are long-term assets and long-term portions. I think the thing that is always going to be true is that computing power. that ability to have that computing power and that ability to drive that. We've seen this with Cloud. We're on our third iteration of what a data center is today. The main thing that's changed is really the energy consumption and the drive the way that those work. And so I look at data centers is what do you want to invest in?

You want to invest in diversity. Everything we do in asset-based finance is portfolios. Portfolios alone, leases, receivables, royalties, music streams, whatever they may be. The reason we do that is diversity gives you the protection, but allows you to do that. So from an ABF standpoint, I'm not saying that other parts of areas or other areas don't invest in single. We want to invest in those portfolios where there's that diversity, not one data center, but multiple data centers.

What else do we want? We want contractual cash flows. The contractual cash flows, as I structured, I talked about are in the leases. But I do think there's areas you have to be careful with. Me and Lucas Swisher, co-head of Growth at Co2, went through the five different layers. of AI, power, chips, data centers, LMs, and then that application layer and have, they're all idiosyncratic. You sit between power and the data center layer.

And maybe you could talk about how those two things interplay with each other. I mean, one, they're both massively capital consumptive. I actually think that we're investing across the energy side as well as we're investing across the data center, but all in larger portfolios. And the thing that's different from five years ago is you're not talking about deals that are hundreds of millions of dollars. There are times now where we're one of four or five groups that can write very, very large checks that are flexible. And normally you sit there and go, I can do almost anything. I have this huge checkbook that others don't have.

So I do think this time is different that way, just on the sheer scale of it. And what's happening now is you're starting to see that catch up on the energy side. you're starting to see the earlier stages on the energy of that same development across renewables, as well as across Nat Gas and other opportunities that are there. That's sitting where you were sitting at the CIO and a bottle of capital. And he told me that there's only so few firms that could make more than $10 billion check into one or two on the equity side, on the buyout side. So he was always getting the first call. He was always one of the first couple parties that got the first call.

Is the same true in credit? It is true in credit. I think that there's been a consolidation that's been going on for a long time period. And I think it will actually consolidate more than in private equity. Because in private equity, you have smaller teams, and you're doing one to three deals per year often. You're not doing as many transactions. Credits about infrastructure. If you think about the scale and the velocity of credit, whether it's direct lending, whether it's ABF, whether it's others.

It's really about systems. It's about infrastructure. It's about scale. and that ability to liability providers, if you are bringing any sublines or other leverage, you're already seeing banks consolidate who they're kind of lending to and where those relationships are. But it also goes broader to the opportunity set. If you have the ability to do those deals, eventually you're getting those calls nobody else is. And it's really important where the brand is so important.

Your best sourcing comes from branding, which is being established and known that if you say you're going to do X, you're going to do it. What I'm always telling the team is all we ever want is it's yours if. I want you to call me at the end of a transaction and there might be two or three parties that are working on it. And I want to get the call that says it's yours if. If you do this, doesn't mean we can always say yes. Because often it's like, hey, I just can't do that. But if we get that call, that's a good at bat. That's an amazing.

I love that because sophisticated parties aren't going to call you and say we could do an exclusive deal with you. they're saying, well, if you fit this criteria, I'd rather deal with you than everybody else. It is truly the sophisticated, first poll. It is, it's reputation. It really does go to the brand and the reputation, which is, I think often in finance, especially, and I will be the first to say in my early 20s, I was definitely in this category. We treat it like a game of poker. When you're early in your career, you're trying to win every single hand.

You're sitting there negotiating to the end. And you grow up and you're working on loan documents, you're working on agreements, and you're working on other things, and you're negotiating every last thing like it's the end of the world. And what you realize is by the end of it, congratulations, you structured a great deal, and you are never going to do a deal with me ever again.

It's really important to balance those things. It's really important from a reputation and branding. It's why, in the end, deal-making, especially if you go, liquid markets is much more about information. It's much more the science of investing. If you think of the private markets or the illiquid markets, It's much more art. We have to do the work.

We have to do the analytics. We have to do that follow through. But there's an art to it. And there's an art in multiple ways. You know, the art is one, you need to want to do a deal with me. And you have to trust me and you have to like me. And which means that doing deals is the same as it was 10,000 years ago. Does my handshake mean something?

When I say I'm going to do something, am I going to follow through with it? Because every time I retrade you, every time I negotiate to the nth degree, in the back of your mind, you're saying, I never want to deal with this person ever again. And I think most of the market misses that, especially on the privates. The other side, though, is the art is how you get to your returns. What's often missed is we all solve to this IRA, we all solve to this contractual return, especially in credit. But the art is figuring out a way when you're trying to, when I try to figure out

what you're solving for, you're looking at a deal, what the first thing you should be asking is alignment. How do I look at what you're doing? and how do I try to put myself in your shoes, and we do this all the time on team, what are they solving for? Because once I know what you're solving for, then I can structure something that works

not only better for me, but better for you. And when I do that, I create better risk. I create a better investment, but I also probably create something that you're going to choose me over the other party, even if I might be technically more expensive. This thing that you said about, is your word, your bond,

can somebody rely on your money? your word. Sounds simple, sounds not even difficult to do. It's much more difficult when there's significant money at stake and even more difficult when the money's in your bank account. Yeah. And now you actually have to execute on your word. There may not be documents. It might be an edge case. And you don't technically owe the person $5 million, but you're going to send them $5 million on your word. It's one of those things that sounds extremely simple as a construct, but just internalizing in this and doing this over and over is a skill of itself, and it's something that's harder to execute than most people realize.

I agree, and I'll be the first to say I wasn't great at it early in my career. I really had to learn as an investor, which is if you act that way, your world gets really small because there's only so many people, but if you go the other way, your world actually expands because what happens is every good deal I've done with you, where I've done what I said I could do, you're talking to three or four people. It is the brand. And you're telling them, actually, you should work with Joel. You should work with All Credit.

You should work with Ares on these situations. And it expands it. And I think from the firm standpoint, make sure that you have people that you want to work with, that you like, and you're actually following through. And I think that that's the way to really grow an organization. Because when you're dealing with counterparties, because if you go to a world of, I only win if you lose, it's the whole adage of everybody. ends up blind, you know, end up in the situation where it's self-losing proposition.

Your co-head of your group, which basically means you co-run the group, one of the things that I find difficult and that I'm trying to solve around is how do you get other people to care about your brand as much as you do, being that you're all in, you're aries, you represent your group, but for other people, it may just be a step in their career. One is, as a leader, you have to be authentic. Like, in the end, I think everybody can read BS and I think they can sense it. So when you're going through tough times, when you make mistakes, you have to own it. And we do that with our investors. We do that with our team.

One of the exercises we do that I would highly recommend to everybody is we do lessons learned. And not only do we publish our top lessons learned on our newsletter in the gaps and other things, but every single year, and I've been doing this now for almost 20 years. Personally, but I've been doing it for seven years at Aries, is we put together questions. And we put together questions that are kind of, some of them are the same. What was your top lesson learned this year in business? What was your top lesson learned in life? What was your favorite thing you did this year personally in our own life? What do you think is one thing we can

improve upon? How can we be better on X? The reason we do those isn't because the questions become the end all is because you have to stop and take a step back and think about what you're doing. because I think often in what we do, and I think it becomes harder and harder in this world, I think it's just as important or more important to take a step back and sit there and think, all right, what's really important? What did I learn from this?

Because if you don't write down your lessons learned, you don't learn from them. When investing is, in the end, it is that learning curve, it is that pattern recognition, but you only do that if you actually take a step back and you say, hey, where this is going. So if you're authentic with your team, if you're authentic with yourself,

and you have that self-reflection. And then the other part is you have to have a purpose. You have to be able to tell the team, and we've talked about it prior to this. But if you think about what we've done on the charitable side or philanthropy side, that gives you not just a purpose, it gives you a true purpose. It's easy to talk about things, but when you're sitting there and saying,

hey, we're going to donate 5% to 10% to 10% of our promote out of these funds to philanthropy, to global health and global education, there's no BS to that, right? There's no, you're doing something that's very real and has a very real outcome and has a very real impact. And what you find is those that resonates with, they'll never leave.

They're in an atmosphere where you have a good culture already, but you're doing it for a real reason and for a real purpose. I guess what I'm getting to is in finance, specifically in investment banking, probably less zone private credit. You oftentimes have individuals leaving groups, So the brand of their bank is not as important to them as that deal as the next bonus. How do you align yourself?

Because clearly you're Mr. Ari's. So you're already aligned with your brand. But how do you align the rest of your team with your brand and your brand promise? There's a big difference between being an investor, buy side and sell side, to your point on investment making. If you're going to the buy side, the funds are long duration funds. You have long lockups. You have other things. And so in the end, you have to be making a commitment that this is where you're going.

going to be, not for three years. You can't do two or three years skips. You have to do something that's going to be five, ten, fifteen years. The incentives are more aligned with long-term thinking. You are. You're more aligned with long-term thinking. So I do think it changes on that. And you want that because you're making investments that are five to ten years sometimes. You don't want people thinking about one or two years. Because in the end, you want them to live with that investment. You want them to go through that entire piece. And so I do think the mentality changes. I think you have to align people's incentives that way to make sure that they're thinking. from that standpoint. And I do think it also goes to, we call it Kaizan investing with purpose.

You need to have this idea. We're trying to create a DNA, right, a credit DNA and a way we go about it, where every year you're getting better. It's like math, right? It's the building blocks where every year you're layering on that and you're improving as an investor and every year those people are with you, they're improving. And those that get it, they'll stay forever. I ask every person who joins our team 90 days in, I do a conversation. meeting with them. And I always ask the same exact question. What has been better than when you're expected when you interviewed? What's been worse than you expected when you interviewed? 90% of the answer on better than you expected than interviewed is culture, which I always kind of

laugh at because it's like, oh my gosh, we talk about culture all the time. But culture is like having somebody who comes from another planet and describing water to them. You can't describe it. You got to jump in. You got to live it. And honestly, you know in a week. You get a real feeling no matter what was told to you beforehand, you get a real feeling because all of the filters go away and you really get to see how people are on the inside. But I think a culture changes when you have that purpose, whether it's philanthropy or that's other reason. Because I think on Wall Street, we have this tendency to focus on the number. I always like to go back to my favorite investor, which is Charlie Munger. So Charlie Munger likes to talk about the number

is not that what is the thing that you have to accomplish or go for. The number is freedom. In the end, the financial flexibility, that net worth, that number you can to be able to do it, is the freedom to be able to do what you want to do. And in the end, if you love what you're doing

and you're really good at it, you're going to do it for a really long time because you've got the freedom, but you're going to do it in a place where you're actually enjoying it every day. It's what I always say what's similar between a seven-year-old and the great first principles thinkers,

they always ask why. Yeah. They never stop asking why, why, why. You have to have a learning curve. You have to have intellectual curiosity. And if you don't get energized by it, then you're probably in the wrong field. Everyone I talked to on the show is chasing the same thing,

an edge. And more and more, the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of the information gathering for you every day, and most tools are very good at sounding right. The summary reads clean, but can you trace it back?

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competitiveness and this desire to win. What's underpinning that? I think it's an internal thing. Look, if I play cards with you, I want to win. If I play Caton with my daughter, I want to win. I think it's an internal drive. Is it a towards motivation or away from? I don't know. It's a good question. I actually think that most people, it's a born. Like, I have two kids. And in the end, they came out very different by age two. So in the end, I do think that a lot of it is much more, as much as you can screw up a kid and there is environment and there are other things. I do think so much of it is genetic and it is born. And I think that that inner piece is there.

Whereas my son is that ability to just work harder than anybody else, he's a coach's dream. He wants to continue to do it. He played tennis and he'll do anything a coach wants to do. If there was one flaw was that sometimes he'd get on the court and he was trying to hit perfect instead of just win. My daughter is the opposite. She didn't want to do the practice. She didn't want to do the warm-up. But when she got into the match, she would do anything she could to win.

And I do think that you need both in life, because from a team standpoint in the building, but I think that inner competitiveness kind of is just born within you. I kind of think about this as a team. So to use a sports analogy, I think of Erlin Holland from the World Cup from Norway. Yeah, yeah, yeah. He is one of the most interesting players because he conserves his energy. I think he scores a goal every 14 or 15 touches. So he's just like walking around the field.

And then when the time is ready to strike, he strikes. He's the most extreme version of that. And maybe the opposite of that is somewhat underrated on his skill is messy. A playmaker. He's a great assistor. Everyone knows him for scoring. But he's always kind of bringing it down the field. But on a team, you kind of want.

Do you want a haul in, but you also need people that are moving the ball down the road, people that do boring things. You also want relationship managers. So it doesn't necessarily require all these skill sets in one person. I agree. And I think that's the thing. I probably took me a little bit in management to learn over time. And early on, it was more of trying to basically form everybody to be the same version of you wanted them to be good at this than this. You wanted to be good at everything.

And I fully believe now. and I believe this for probably 15 years, that you're supposed to play to their strengths and offset their weaknesses. Like in the end, it is about a team. It is about those skill sets. And it's about that ability to take somebody who's really good at something and say,

you're supposed to do this and you're not supposed to be doing this because that's not what their strength is. And so I think that you have to manage every single individually separately. Because every single individually comes from a different set of experiences. Every different person has a different strength than a different weakness. And as much as we're Kaizan, as much as we're continuous improvement, the other thing we do every year, one of the questions we ask and lesson learned is what's the one thing we need to continue to do and not stop doing?

Because if all you do is focus on improving the things that you want to improve upon, you actually lose the thing that got you there. In the end, it is. Messy's walking 60% of the time, but who cares? Because when the ball's on his foot, you see what can happen. that ability to kind of play to that strength, but then the key is putting together the team. It's the chess board, right? It's making sure that you have all the pieces on the board

to offset the other pieces on the board. How do you put a culture around such diverse array of people? Shared purpose. I really do believe that. Shared purpose is always where are we going and why are we going there. I think everybody wants to be on a team that's achieving to be the best at something. So in other words, values, consistent. execution, diverse.

Yeah, and I think it's entrepreneurial is really important. It's one of our key pillars from an area standpoint. Let people continue to be entrepreneurial. Let them continue to do what they do best. Let them continue to drive new ideas and other things. The other is making sure that you are sitting there and the goal is you're very clear on what that goal is when you're kind of establishing it. That's the real goal of a leader is.

It is. Creating a North Star. It is. It's creating the North Star and you know why you're going there and you define where you're going there and you get there. And I think that if you do that, then there might be some skepticism at the beginning. But if you continue to accomplish, then eventually you've built this unity across the team where everybody knows where they're going and why they're going there for that reason. And I think that everybody might have slightly different personal motivations for those things. But I think the thing that is true is we are tribal, right? We do have this ability and this wanting from the standpoint of we want to do something that has meaning. And that meaning can be being the best of something.

That meaning can be driving returns to your insurers and your health and education across pensions and other things. It can be across the philanthropy. But in a lot of ways, it can just be the scoreboard can be the IRA and Mike. It can be driving those underlying pieces. Sometimes winning as a team could be the meaning as well. It is the meaning. It is the meaning. When it is a team, when you have the right team, it's just a beautiful thing.

I started working at nine and I started really full-time working basically at age 14, washing dishes, working in restaurants. I paid for college by selling refrigerators at Sears to pay for my college and going through that. And the thing I remember very specifically is I had an interview and this is, I'm aging myself here, but 1994. And I was getting a promotion at Sears. And they said, well, wait a minute, you're the youngest person that's ever kind of gone into this group and they're this thing. And I think I was immature. I was still learning a lot about myself. But the one thing that I do remember very specifically is I was getting pushed on

Y, Y, you, Y, you, Y, U. and because everybody else in that group was like 40 or 50 years old, and I was a 19-year-old and all the others. And I think the quote that I said was something the offend of, if you give me a tote board, I'm going to win. And I do think that in the end, that drive, that ability to work harder, that's grit. You're the striker. You're the Erlin-Hawin.

No, no, I'm not to Erland Holland. I think you want people where they want to win. You want that ability. You just have to define what winning is. Shared purpose often is what is the win? Is the win IRAs and Mike? Is the philanthropy tying we have with promote giving and other things? That can be the win across that.

I think what you can't do is AUM can't be a win. You know what I mean? Like in the end, it has to be as an investor. Because it becomes hard to continue being motivated by $220 billion, $220,000. 20.5, 220. It doesn't seem something that gets you riled up to wake up in the morning. Our chairman has a great quote, capital follows performance. If you focus on the capital performance drops, you focus on the performance capital comes, right? Is that where you focus your team? How do you deploy this guy? Is that kind of the game on the board? And so in the end,

if you have to focus on the performance, you have to focus on driving those returns. Frankly, you have to focus on the downside protection because we are credited investors. If you do that, the other parts happen. If you create really good investors that are sitting there doing downside protection with upside optionality, the other parts of it come to you. How do you go about motivating people in finance that are not primarily driven by money? If you look at ours portion of it, the amazing thing is we've already accrued with our Pathfinder Family of Funds over $50 million to charity. And if we do what we could do, it could be hundreds of millions of dollars that we'll end up going to philanthropy just by performing what we do. And the reason I say that is it's interesting to

the non-money part of it. Because I look at it as for me, I did it so I wouldn't retire. I've always loved investing. I've loved the learning curve. I've loved the other portions of it. It took till my late 20s to realize this was my calling was to be an investor. So I stopped reading fiction. I only started reading nonfiction history and finance and other books. And I kind of evolved from that standpoint. But I will say that when you look at that from a motivation standpoint, The other part of it is you have to have a reason you're doing it. And in the end, it does go to, I'd already set it up with my wife and I years ago that we're going to give all of it to philanthropy across that.

But when I took that step back, I took that year off. I did this trip to India with Path Global Health. I joined their board. I'd been giving money to them for a while. I'd been doing money across global health and education. When I took that step back and got real perspective, When you're sitting in a slum and Jaravi and Mumbai, you get real perspective on how lucky we all are to even be able to do what we do and to be able to be born where we're born and all of those things that got us. Because anybody who has success, if they're not honest with themselves and they don't say that a lot of it was luck, they're wrong.

We're all very lucky. But then there has to be this, why am I doing this? What am I driving? And so for me, it was my personal motivation of, hey, I get to do what I love to do on investing, but how? the reason I'm doing it, which is why I'll never retire. Like I know why I'm doing it. I know what I'm doing for. And frankly, when I had the idea, I was like, I'm going to regret this the rest of my entire life if I don't do this. Because once that idea popped in my head, I was like, this is something that will give me the reason I'm doing it. I never imagine, frankly, we'd be

already where we are. My dream was much lower than where we already are, which is the amazing part. And when I give, frankly, I've had issues of internal analyzing it and appreciating the giving, how do you build that connection with the giving that allows you to get more meaning from it? So we have committees, we have groups that are done, and it's all done on a volunteer. We do have some full-time people coming on that are doing some of it also. But that team is volunteering their time. We do do trips in country. We do go see the work that's actually getting done. But the coolest part is... How critical is that? It's very critical because I look at it as you don't know until you can touch it and see it. Because it still feels not transactional,

feels like just a number. I agree. And here's the thing, when we talk about it on team, the tens of millions of dollars, the hundreds of million dollars, when you actually drive it back to a transaction, the cool thing about what we've done with the Pathfinder of Family of Funds, and then the broader initiative on the industry initiative called Promote Giving,

where we've gotten now 15 other groups to give 5% of their promote to philanthropy, and they get to drive it wherever they want to drive it. The cool thing is it's just math. When you drive it not to the high level, But you drive it to we just did this investment. And if this investment drives the moik that we said it was going to drive, here's the dollars that we'll generate.

When you tell the team that just worked on that deal, especially when we tell other people, counterparties that we just did the deal with, they're like, that's amazing. Million dollars will go to charity from this one large transaction we did. That's pretty cool. And for me, at least a few times a week,

I end up getting on a call with a charity, with a philanthropy, somebody we've done a grant with or we're talking to. and the team joins on those calls, nothing fuels you more. Like you know why you're doing it. Because otherwise you go through the roller coaster of the deal business, right? And altruism aside, on a net-net basis, do you feel that you're financially better off giving? I'll say two things.

One is no matter what your background is, no matter what you grew up, whether you breathe a little bit, it'll be a religion and other pieces of it. Here's my basic in life. There's only three things that matter. In the end of life, it's your close friends and family. family. Your LinkedIn context, go bye, bye. Yeah. Support for today's episode comes from Square. The all in one way for business owners to take payments, book appointments,

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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, 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. 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 to 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, staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running 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 as fast, receipts are instant, 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. That's S-Q-U-A-R-E dot com 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 or square. Get started today. Right? The second thing is your experiences.

The cars and the houses don't matter. It's the memories, right? It's what did you do? So it means... Although sometimes those are in your houses. Sometimes. But it goes... It's often in the cars.

It goes to go on the trip, right? Go experience. Experiences matter more than goods in that part. The third is giving back. And it doesn't have to be philanthropy. It can be parenting. It can be teaching. It can be mentoring.

I realized I've been an adjunct professor at Emory's MBA, and I've done stuff at NYU, and I've done stuff at Northeastern. I realized I considered being a teacher, being a professor. And I realized I actually don't like teaching. I like mentoring. Right? I like the mentoring part of it.

You like when people apply it. I like people who apply it, and I don't really want to grade papers. But then the other side on giving back is it can be philanthropy. It can be giving time. It can be giving money. But otherwise, why the hell are we here?

Jeremy Collar, who's one of our signatories on Promote Giving from Collar Capital, He has a better version of this, which is he says 95-year-old self. He says, I negotiated some extra time. When you're 95, you want to be able to look at two things. One, is your 13-year-old self proud of what you did? And then the other is when you look back at the 95, are you proud of what you did on the look-back? So look forward, look back as a 13-year-old self in the 95.

And I think that really is what matters in life when we get down to it. And I think everybody realizes it. Sometimes people just realize it too late in life. The second part is less altruistic, right? The less altruistic side is it does mean you stand for something. So in the end, if you think of fundraising, fundraising in many ways is do I think you're really good at what you do and are you going to drive great returns?

And do I believe that you're going to drive the performance and the alpha that I want you to. The second part of fundraising, though, is do I trust the person? Do I trust the team? Also, I aligned with you. Are you going to make money when I make money? and how much do you believe in your own? How much does the promote matter to? That's where the alignment is so good,

which is, so from a trust standpoint, the thing that's probably missed is if we have 15 signatories of promote giving now, and we've built this community, we've built this collaboration, we built this network of those who have shared purpose, we're all looking to give at least 5% of their promote of a single fund or fund series,

I've done over transactions with those parties because it's a different relationship you formed with them. You're now having high-level conversations and saying, wait a minute, why don't we work together on this? I've done deals with parties where we won the transaction, because in the end, if I have the same bid as you and were the exact same cost, who would you rather partner with? Wouldn't you rather partner with the person that you think actually has shared purpose and is looking to do what you want to do? So there is a benefit to it. There is a branding portion to it that kind of does that. And I'm also wondering from the

self-motivation, but that's where I'm thinking about it. Does it motivate you more than 5% so that it ends up being? I think it motivates you more because I think the thing that's really important that's often missed is there's no sacrificing of returns. There's no sacrificing of anything. You're actually fully dual purpose. So what I mean by that is, and what's often missed in our industry is what is our real purpose? We're driving returns. We're driving alpha to pensions, to sovereign wealth funds, to insurance and others. So what are we really doing? We're driving retirements, we're driving health, we're driving education. That's who our investors are on the institutional side and even on the retail side. That's often missed. We remind our team of that all the

time. So that's one purpose. The second purpose, though, is when we drive those highest returns to those investors, we're driving the biggest dollars to philanthropy as well as to the team. So the team is winning, obviously, because they're participating in a long-term incentive and the promote and others. You've used this term Kaysen. Yeah, multiple times in the interview. You Kaizen is the self-improvement concept, a Japanese word for just constant improvement. Yep. One of my theories on how great organizations are built are not these huge one or two events. It's this constant improvement day by day and the most minute and simple things that just compounds

over a year, over decades. How would you further refine that model? I think everybody's growth is an investor. Like, it does go to the building blocks of math I mentioned earlier, which is that building blocks, you have to kind of learn and you have to kind of do it. But it also goes to infrastructure. Like we've been, if you look at asset-based finance, we have a 15-year track record. That's 15 years of building infrastructure.

How do you build infrastructure? You put your fingers in dikes, right? You find mistakes and you fix them. So in the end, you can't have somebody who's just come into a space for two or three years. They're still figuring out where the holes are. They're still trying to do that. They're still learning that. It's the same thing as investors.

We have nevers. We have things that we will never do and we list them publicly. We have industries, not because they're horrible investments to do because life's too short. And frankly, all of those lessons learned came from me and others learning those lessons, taking the pain and saying, you know what, there's better places to make investments. Because relative value is just supply and demand. Relative value is going and finding those areas where you can play that others can't because of scale, because you can bring flexible capital. Because all capital in this world is in a box. Banks have a box. Insurance has a box. It has to be IG or others. Even funds have a box. I would argue 95% of funds or more that exists in the world are very defined on their box. They can do real estate in this region.

They can do private equity in this sector. They can do, even within credit, you'll have relatively defined boxes. The ability to play in the gaps, the ability to not have that box is something that really actually just makes you a dramatically better investor. I love this analogy of finding the holes and plugging them. One of my favorite philosophers is Carl Popper. And he has this theory of falsification, which is a theory on how people learn things. They don't actually learn things from the bottoms up, but learn it from the top down. You think that you know something, and then you make a mistake, and you further refine your model more and more.

And that's why the 10,000 hour rule. Yeah, yeah. So I go to become a credit investor. I kind of know what the general ideas are. And then I see all these, like, nuances. And then over decades, you get better and better through making mistakes. falsification is just a fancy word for mistakes. Is that how you've seen people learn and get better at their craft?

Yeah. And what we're really trying to do is we're trying to expedite their growth, right? I call it the credit DNA, right? It really is how do you form their credit DNA and how do you help them learn from what we've learned on an earlier basis? It's why we have open ICs. Everybody's invited to the IC. We have weekly whiteboarding sessions with a small group of people.

because if you do whiteboarding with too many people, it kind of becomes not that productive, where we're just strategizing across sectors and relative value and other things. We update our relative value. We have like in focus, not in focus, monitoring that we update on a monthly basis. We do junior ICs where they kick us out of the room so they can ask all the questions. They don't want to ask in front of their boss. They can have a real discussion. So you're the junior deal person that worked on the transaction.

They get to grill you on all those questions so they can kind of learn without kind of having that scrutiny piece of it. We do our lessons learned across that. We do what we call Pathfinder Dinner series where we bring 10 to 12 really smart people into a room with no agenda, just kind of an idea of let's have one conversation. Not this, I talk to the person my right and my left, one conversation around the room, and it's almost a virtual whiteboard. All of that is to create a DNA. All of that is to kind of create that where you're learning from that.

And everybody kind of ends up having that ability to kind of learn together. but what it really does is if you've worked with us for five, six, seven years, you're like somebody else who's been doing it for 30 years because the transactions you've worked on, the variety of industries, the types of asset classes, but then also that environment. Because I think so often, especially if you go to the street and the dealers and others,

it's like you work on this, right? You work on that one thing and that's what you do. We try purposely not to expertise at the junior level. We let them get a lot of experiences at all. a lot of things. And then as they go to that next level, they start focusing a little bit more on certain sectors versus others. And then they go to the next level. Then they're expertized in a couple things. And they're more focused on those that they kind of find their path. But we want them to get that full base. Because what's the value in that? Well, the value in that is

and I've had people who have 25 years experience. They've joined us as partners. And they've come on and they said, I thought I learned everything. I realized how little I know now. I was very lucky my career that I always had this very wide set of experiences. I was able to invest across real estate and corporates and asset base. You name it, I invested across it just because luck, frankly. But what happens is, the problem is, if you have somebody who say a residential mortgage investor, and that's what they know better than anybody else, and they're looking at and they're like, this is the best relative value, the most overused term in the world, relative value. We use it all the time also. But relative value can't be seen in that monolithic sort of way. Because if you look at it

from that standpoint, you're looking at relative value with blinders on. You're sitting there going, well, how is most capital raised? Even if you go back seven, eight years ago in asset-based finance, you have a litigation finance fund, you'd have an aircraft leasing fund, you'd have all these funds. Most people have now gone to what we've done, which is a bigger pool of capital and flexible to go across. Because what happens is if you look at that, and they might, you might, you know, be right, that is absolutely the best relative value. But then if you compare it to two or three things over here, you'd say, why the hell would I do that if I can do this? This does not stand up with regards to the downside protection and the contractual returns I'm going to get on a relative

value basis. Whereas if anybody who's taking a step back and looking at it across a whole bunch of sectors, you go, wow, that's kind of crazy. If you think about what you're getting paid on an attached, detached basis, if you think about what you're getting paid on an implied downside, side, you're just not getting paid for the risk. And so if you train people to have all those experiences, they start seeing real relative value. They start seeing that ability to kind of look across those asset classes. As someone who's developing talent, younger talent, you talked about these younger ICs, how do you balance wanting to have your younger talent learn with also trying to have them

avoid as many mistakes as possible? Teams. I mean, you always have deal teams. So you always have a multi-layer deal team with regards to work. working on it. So they might have the flexibility to propose deals or propose structures, but they're not necessarily signing off in their own work. I would say early on in a career and even in your 20s, you're generally just working on a transaction. So you're not proposing transactions at that stage. You're just working on them and you're kind of going through. It's like

in every career at the beginning, you're task oriented. I'm dealing with this my own kid. At the beginning, you do the thing that they told you to do. And then eventually, you're kind of running the entire show, but you're not creating anything. You're not a chef yet. You're just sitting there executing your line cook, right, saying, I'm going to do this thing and I'm going to do this. As you develop is where you start to become a chef and you start to look at it on the broader picture and go through. I've been thinking about this thing that you said earlier around putting down your learnings. Talk to me about that. How do you operationalize that internally? The old red and black notebooks that we've all had, I got hundreds of them. And I think it's one of the,

I only started a pen and paper. Pen and paper. I really do believe that. I think that I'm a visual learner, but if I visual learn and I write things down, then it does it, but not writing down everything. It's not journaling for journaling purposes. It's not writing notes for notes purposes. It's the older I get, the more I'm doing this. As old as I look, I'm 50. I've had this silver head pair for 20 years. But the thing that's interesting is the older I get, the more I realize it's those broad themes. It is, if you think a monger and you think a Buffett and you think of those things, you think of those sayings, well, there's a lot of truth to them. It is those big picture things. I'll give you one great example, and this is something I think every investor should do, whether you're an LP or a GP.

And this is something we only started doing five years ago. So I've been investing now since 1997, so almost 30 years. And the thing I started doing only five years ago was what we call visualize the cash flows. It's one of our top lessons learned. But what we did was every single memo now has the same page in it. The part of the page that's called Visualized the Cash Flows is this. If you take any investment and you show the base case or you show your underwriting, you show your scenarios of how you get your cash flows over the life of the investment, how much of that is contractual, how much of its terminal value, and how does it come in? Does it come in front-loaded like this?

Does it come in episodic like this? Does it come in like this in terminal value? If you look at the donut chart, how much the percentage is contractual, how much is terminal value? That simple analogy has so much meaning. because what you realize is that in investing often, we sit there and we don't realize all of our values coming from terminal value. So what we're looking for is where can we get contractual cash flows, where can we get that money back?

Because if I'm in venture, if I'm in private equity, and if I'm in investments that are very big terminal value driven, it means the V is the only thing that matters, right? That valuation, that multiple, which is very dependent on rates, and it's very dependent on multiples, it's very dependent on market, The more I can get that it's a combination of contractual with terminal value, the better downside protection I really have. Because I think often we lie to ourselves that that value is there.

But if in the end all I did was get money back at the end from terminal value, I didn't actually do that. I'm very, very dependent on that V and the underlying components of V. Data visualization is so underrated for a couple aspects. Absolutely. One is even if you're Einstein, if your entire team is the smartest people in the world, it's just cognitively less expensive to see something visually than is to see a long memo. And secondly, perhaps downstream of it being less cognitive expensive,

it becomes easier to visualize data on a page. And it becomes, to your point, extremely obvious. Well, why is all the cash flow coming in the last year? Clearly, yes, there's like 5% coming in every year. But it forces you to confront reality in a way that a graph or a memo is not able to do. That's the thing. We get lost in Excel. We get lost in the models. We get lost in the pieces. And we missed that portion of where am I really. The other visual we do is I think this is where people in structured finance or ABS are generally better at risk. Because risk isn't linear. We like to think of it that way sometimes, but it's really not. It's really exponential. And in ABS or structured, you have different tranches of ratings and you have different tranches of risk. And so you think of risk that way. Whereas if you go to other areas, they're not necessarily thinking about where they are on attached, detached. They're not thinking about where they are in the cap stack.

And so in the end, I'll use a simple example. We can all understand that if I only have a 5% equity check and I'm massively leveraged, I better be getting huge returns because I'm taking huge risk on the company. If I have a 50% equity check, then clearly I'm taking much less. But the problem is the market doesn't solve for that. Whether the check is a 5% equity check or a 30% equity check or a 50% equity check or a 50% equity check, they're all solving for the return. They're not looking about what the risk is they're really taking. Well, the same thing comes from the credit side of it. If in the end,

I'm zero to 50, 50 percent advance on the underlying value, and I decide that, okay, I'm going to get a percent return on that underlying investment, that's very different than if I'm zero to 70. But it prices the same in the market. The market price is linear off, honestly, because they're sitting there pricing to the box that they end up being. And so what we do is one of the other things we do is we always show the cap stack, but we show attach, detach, detach of the securities and where we're playing. Because in one second, you can look at that visual, and you can see where you really are on risk,

and then you can argue over the V, you know, with regards to that valuation, but you at least know where you are, because often it's so easy to get lost in looking at the output. You're getting lost on what's the returns I'm making, where is this underlying piece. And if you look at that, visually, you're like, oh my gosh, we're so deep. Or the other side, you're looking and you're going, oh, my gosh, we're basically sitting

here in this crazy safe investment with the last pieces maybe got a little bit of risk. So if you think of like a mez or second lien as an example, if I have my last dollar on a mez or second lien is it six X times, EBITDA, and I have another one that's six X times. But one starts at two and one starts at five. the market prices those within 50 basis of each other. One is dramatically safer if they're the same thing. They're oversimplifying. They're oversimplifying because you have to see that visual.

You have to see that visualization with regards to where your real risk is and what your unit of risk is. You have to think of everything on that unit of risk. You've now been investing for nearly 30 years. If you could go back to the day before you started as investor, you could give yourself one timeless piece of advice. What would that be? I'd say patient.

In the end, it's too easy to focus on the next destination as opposed to enjoying the ride and seeing how it works. I even got this advice and I totally ignored it when I was about 25, which was one of my old mentors said, in the end, you're going to be really successful. You're going to do really well. You need to get to this. I'm like, yeah, that's just your way of paying me less. So you're at that stage of life. I use that analogy to talk to people now from the standpoint of everybody focuses on two, numbers. They focus on the number they're getting paid that year and they focus on their net worth.

That's the things that people naturally focus on. I would argue, though, the thing that everybody is 25 especially because you have all of those years of compounding in front of you from your own personal net worth as well as your own personal growth as an investor as a person as an individual is what you should be focusing is on your own intellectual property value, which means where are you working, who are you working with, what experiences are you getting, who is your mentor? What growth is it? Where can I go to a place where I can expand and grow? Because in the end, there's two numbers. There's a number you're getting paid today, and there's a number I see on your head. And the number on your head is your intellectual property value. And if you think about it in

life, we're always getting paid this, but in the end, we finally catch up to what our IP value may be. And then near the end, you're probably getting overpaid for it, right? From that standpoint, That's the cycle of life. But what that experience is, why that person, we know they're going to be making it a lot of money in the future and they're going to get everything they want to. If they focus in the IP value, well, I'll still see some people who make just the dumbest career decisions because they go to that next job for $30,000 to go get a bonus or they go to this other thing because of a title promotion. And you know what they've done? They've often destroyed their IP value. And so I think the patience is so important because as a 25-year-old, I think we focus too much today in this world of AI, of social media, on those that have these crazy success stories that come out of nowhere.

To be very clear, that is somebody who went to Vegas and they bet on a single number in roulette five times in a row, and it hit. For every story we talk about, there's 99 stories where the person just went bust. And then it gets distributed to 8 billion people. So that's why you see so much of it because the TAM is every single human being. Well, and I think that what happens is we focus on the one, the guy you hit the roulette number five times in a row. But in the end, if you focus on your career and your experiences and you do those things, you're going to end up being successful because you have time. That compounding of your intellectual property value is what's going to lead you to your success if you just devote yourself to kind of taking that right path and it will take care of itself over time. Those two numbers, salary and net worth is such a good example of Goodhart's Law,

which is we optimize on the things that are quantified. Yeah. It could be framed as a bias. It could be summed up as you optimize on things that are quantifiable and you undervalue the things that are not quantifiable. The way that I also give this advice is as quickly as possible, be around excellence. If you could see your gap between good and sometimes even very good, an excellent in a space.

As soon as you could become aware, you can't unsee the gap. Yeah. I got so excited early on on the media side when I met Jason Calacanis. I think it was in the first teen number of episodes and just that gap was so great. Or when I met Eric Anderson 16 years ago, which has now started four billion dollar companies. At that point, he only had one billion dollar company in biotech. But he was just so exceptional. I'm like, okay, this is world class.

And just seeing world class as quickly as possible. If you could bring that to the beginning of your career, it's so valuable because part of the reason why people choose salary or title is because they don't actually know the opportunity costs. They don't know how mediocre their next position is because they haven't seen that gap yet. I think you also have the opposite problem, which is I think that we often look at it as itself, right? And so they sit there and say, oh, my successes because of where they are and they don't necessarily value the seat that they were in. They don't value like in the end. This happens a lot in spinouts. They don't realize how much the brand.

They don't realize how much the brand and how much that portion was there. Because in the end, it kind of goes to if you have the greatest investment returns in the world and you're running a $50 million fund, you're only getting paid so much. In the end, there is a scale portion of it that ends up happening. And what happens is that advantage of brand, that advantage of scale, that advantage of that seat you were in. That seat gives you the experiences. That seat gives you that opportunity. it gives you that flywheel, right, that it kind of creates that output.

And I think often people look at it as I'm that seat as opposed to looking at that team concept and where you end up sitting. I took a lot of time thinking about where I was going to go next after my, as I call it, sabbatical. And I chose Ares because I thought they were going to win because of what I thought was going to be a consolidation in the industry. And I thought that there would continue to see that because I was a student of history and a student of finance. To me, those two things are totally intertwined with each other.

And if you look at it, consolidation has always occurred. This evolution has always occurred. And frankly, I think what we underestimate, I often overuse Kaisan. Sometimes you should use Darwinism. In the end, it does go to the world's going to continue to develop and you have to continue to evolve and you have to continue to improve. And you need to be a place that's flexible and ability to improve and kind of take advantage of that. And so that, I think, is so important to your comment of it really is really understanding that it is building that IP and then the rest of life is amortizing that IP, right? It's getting the value out of what you've created because of those experiences. And I fully know that we'll have people that will leave our team and they'll go on.

And I think they'll go on to do an amazing things. But that is something that you're hoping you can as long as he can. You can hope they're growing. But you also have to be proud of that. You have to be proud of that ability and what they've been able to do. And I think that there are special places. I try to tell a team, like, this isn't normal. Like we've had success. We've continued to grow. Appreciate it because you're going to remember these experiences the rest of your life from that standpoint.

I was at a startup in 1998 to 2000 for the top five of us and ended up running Fortress for a decade plus. The group was 30 people. One of the guys who didn't join us ended up being the CFO of Wells Fargo. I still look back and we all talk together, we all get together, we all have those shared experiences across that. And at the time, it was just a grind because we were working so hard. But there was a lot of laughter, there was a lot of fun, and you don't realize how much it formed you. That set of experiences had so much impact on my life and so much impact on others. Well, Joel, I think I only got through about 20% my questions.

This has been absolute masterclass. Thanks so much for jumping on. No, thank you for having me. I thoroughly enjoyed this. Thanks very much. If you enjoy this conversation, want to hear more conversations with many of the world's leading investors. Subscribe below.