Investing Billions - E77: Justin Pollack on PineBridge’s ($168 Billion AUM) Investment Thesis

Episode Date: July 16, 2024

Justin Pollack, Managing Director at PineBridge Investments, sits down with David Weisburd to discuss PineBridge’s investment thesis. They also breakdown the secondary markets, discuss the structural differences between private equity & public market investing, and ways to analyze spinouts.  The 10X Capital Podcast is part of the Turpentine podcast network. Learn more: turpentine.co -- X / Twitter: @PineBridge (PineBridge Investments) @dweisburd (David Weisburd) -- LinkedIn: Justin Pollack: https://www.linkedin.com/in/justinpollack PineBridge Investments: https://www.linkedin.com/company/pinebridge-investments David Weisburd: https://www.linkedin.com/in/dweisburd/  -- LINKS:  PineBridge Investments: https://www.pinebridge.com/en  -- NEWSLETTER: By popular demand, we’ve launched the 10X Capital Podcast newsletter, which offers this week’s venture capital and limited partner news in digestible news bites delivered straight to your email. To subscribe please visit: http://10xcapital.beehiiv.com/  -- Questions or topics you want us to discuss on The 10X Capital Podcast? Email us at [e-mail] -- TIMESTAMPS: (1:12) Introduction of Justin Pollack and PineBridge Investments (1:55) Evolution and growth of the private equity market (4:39) Secondary market dynamics (12:02) Differentiating strategies in secondary investing (15:33) Emphasis on downside protection in secondary markets (19:12) Fund of funds and emerging manager strategies (22:29) Adapting private equity strategies to fund growth (26:18) PineBridge's approach to venture capital (27:26) Evaluating spinouts  (30:31) Identifying traits of top-performing fund managers (34:05) Closing remarks

There's type A personalities that we're very happy to get behind. And when I say get behind, it's like give them the money and stand out of their way because we don't get to run over. That's okay. To the same degree, there's type B personalities who are a little more quiet, but you can kind of see how they manage in a more discreet way to have the same kind of influence. It doesn't matter how you do it. Just describe to us how you do it and kind of demonstrate why your style works. When one or multiple people announce they're spinning out a brand name firm, you certainly know based on the firm they're coming out of it. They say they're there for

10 years or 20 years or something like that. That's an automatic positive. Most of these firms aren't gonna tolerate someone for that long who wasn't generating a lot of great returns. And there's always usually very logical reason why they're leaving and wanna do something on their own. There's no exchange. You can't go to a website and type in the name

of a private equity fund and find out what it's worth instantaneously. You have to do the work of trying to one by one find investors who are interested in buying it, find out what they'll pay and hopefully negotiating off of that basis. And that process, because it's so clunky, stops it from becoming a more trading market. And that's kind of the value in being a secondary specialist is a pretty wide bid aspect. How much of that growth and how much of private equity returns is because of financial engineering

versus really business optimization, business building? The short answer is... Justin, I'm really excited to chat today. Welcome to 10X Capital Podcast. Thank you. Thanks for having me. Pleasure to have you on. So tell me about Pinebridge. Sure. Pinebridge is a global asset manager across fixed income, equity, and alternatives. And our firm has existed for decades, but up until about 15 years ago was part of AIG, the insurance company. So it was formerly known as AIG Investments, but has been working on investing globally

for quite a long time. Despite the spin out, all the investment teams have stayed together. And its really focus is on best of breed investing in each of these areas. So we get very deep into interesting areas of fixed income, different equity strategies, and then alternatives, heavily private equity, which is my area of focus. And you've been in private equity for quite a while. What have been your learnings over the last several decades? I started my career at Bear Stearns in the late 90s as an investment banker focused on financial sponsors and then in 2000 moved over to the buy side.

So that in itself was quite a long time ago. And I've been able to observe the market develop fairly significantly. And it went from being kind of a cottage industry that occasionally got noticed, usually when something went wrong, to becoming a front page of the newspaper. That in itself is a dated term, kind of a prominent thing where people are taking notice of the wins and the losses in private equity. The one thing that's held true throughout all of that, regardless of the exact strategy, is that owning a business in a private fashion versus being in the public market, it gives some opportunity to make changes to that business, try some things a little differently without the scrutiny of hundreds, if not thousands of

investors, questioning management, asking why they're not doing things differently. That value has shown it works. And it's one of the reasons why private equity, I think, has gotten so much larger in the 25 or so years that I've been working. And that span is about 20 times as large. And that's a function of consistent growth at about 15% asset growth per year for two and a half decades, which is pretty astounding. How much of that growth and how much of private equity returns is because of financial engineering versus really business optimization, business building?

Yeah, and that's a good question. It's something that we look at when we just had new analysts start. And part of our training materials is the question of if you bought the S&P 500 or something else and levered it just as much as a private equity, and that's roughly maybe twice as much leverage. So you borrow 50% as part of your package, what happens to your portfolio? Because the short answer is when all things go well, you get very similar returns to private equity, to be honest. So leverage is really key. The one difference though, is if you hit a financial crisis or even the period in 2020

March, February type timeframe to COVID, when the markets drop 30% or more, you get margin called when you own the S&P or a NASDAQ or any other kind of similar index. And that puts you on a very rapid downward spiral. If you own a whole series of private businesses with similar heavy borrowing, there are not daily margin calls.

It stretches out over a much longer period of time. And as well, your lender doesn't want to take back a private business. They'll happily, a broker will take back securities and flip them in three seconds to somebody else. You can't do that with a business. That's a structural difference. I think it's true in private equity, which is it can avoid margin calls. That's part of the value of private equity. A separate question then is how much did you pay for that? But it's a structural advantage that existed for private equity 25 years ago, still exists today. What we see private equity firms of varying strategies from early stage ventures straight through distress type groups, you can layer on operational expertise and hopefully enhance the value you've already started with, with the structural advantage.

Not everyone does it, but we think that combination is pretty powerful. You spend a lot of your time in the secondary market. So how big is the secondary market? Today, the secondary market, which involves buying assets from an investor, typically institutional investor who owns private equity, whether it's a fund interest, multiple fund interests, or equity in a single company or multiple companies, trading with them and taking it over in a secondary trade. And in private equity today, it's about 125 billion, or at least last year it was, probably going to be a little bit bigger this year. But to put that in context, $125 billion is maybe two or three hours in the NASDAQ in terms of secondary trading. There's just much less of it because it's such a sticky type of enterprise. It's much more opaque. It's what is any individual private company worth to say nothing of multiple companies that are inside a fund or multiple funds on top of that. And there's specialists like myself and I have many peers who focus on this narrow area, but the difficulty in trading it, that opaque nature tends to suppress prices.

It leads sellers to kind of be more reluctant to sell because it's also hard to get a reference as to what's this worth. You can call a few people and find out, but you can't find out instantaneously because the one thing we've seen and put it in context, when I started doing secondaries in 2000, the whole market was maybe $2 billion in size. No one really knows because it was so opaque. Now it's obviously colossally larger. Way back when, there were a handful of buyers.

Now there's certainly over 100. The one thing that's remained the same, though, is while there's a bigger secondary market, there's no marketplace. There's no exchange. You can't go to a website and type in the name of a private equity fund and find out what it's worth instantaneously. You have to do the work of trying to one by one find investors who are interested in buying it, find out what they'll pay, and hopefully negotiating off of that basis. And that process, because it's so clunky, stops it from becoming a more trading market. And that's

the value in being a secondary specialist is a pretty wide bid-ask spread. So opaqueness is the feature as an investor in the space. Absolutely. Yeah. And it's just the lack of information that's shared. Private equity firms like to be private with their investments, keeping in mind that several larger firms, Apollo and Blackstone, Carlyle are publicly traded entities. The funds they manage are private and they like to keep it that way. And they don't want to give broad access to what's inside inside those companies because at the end of the day, one of the advantages of being a private business is your competitors don't know exactly what you're doing, whereas a public company puts it all out there for everyone to see. As well as if you have any hiccups, no one can take advantage of that on a competitive basis. And that results of which, if you're trying to value private businesses like we do, it's a lot more difficult. You have to have a lot more domain expertise.

You have to have your own resources to find out what you think those are worth, how they're trending. And that's a more complicated process that we think leads a lot of potential buyers of assets like this to just shift towards other assets that are easier to buy. How much is reputation competitive advantage in the secondary market, given that most of the companies, most of the funds have a rofer on who they allow to transfer the shares? Yeah, what we found is the value of reputation, of course, in all businesses is helpful. You don't want to have a bad reputation. But I think generally speaking, most private equity sponsors, while they can, you're right, they can stop anyone from buying into their fund. Most of them look at secondary trades as just a financial transaction. As long as there's someone credit worthy coming in, they're broadly willing to allow it to happen.

And then there's the but. The but is how private equity sponsors across all kinds of strategies look at who's a good neutral party. It tends to exclude groups like hedge funds, who rightly or wrongly tend to be looked at as somehow they're going to agitate for change. They themselves are opaque, so we don't trust them. So it cuts out a whole class. Groups that are highly regulated, which includes oftentimes banks and insurance companies, we don't want someone highly regulated coming in on a secondary basis that we can't control whose regulator make demand documents. Groups that are public pensions often have Freedom of Information Act requests. Some sponsors don't really particularly care to

have their information being shared, so they'll block those from transferring unless they can pre-bake something so the information doesn't get shared. And what results is a lot of very high quality financial investors actually aren't allowed to buy via the secondary market, just out of that fear that somehow the trade is going to go wrong for the fund manager. And what that leads to is, as a secondary manager who's very active, we know a lot of fund managers, it's been much easier for us. We don't think we're alone in that because we know we're user-friendly. The last piece of that, though, from reputation is also on the seller trusting who they're

selling to. And this has been one of the elements as the market's developed. Anyone with an email address can claim that they're a secondary buyer. You don't really know how much money they have. Anyone can put a number on a website. Not to accuse anyone of anything I'm toward, but what tends to happen though is plenty of groups may puff up their chests and say, if you ask them, hey, would you like to buy some assets? I own venture funds, buyout funds, positions in companies. There's no value in saying no. It's like, sure, what do you own?

Let's kind of dig in a little more. You never quite know if they're going to be able to actually fulfill the bargain at the end of the day. And that's something that in most neutral markets, you can figure it out pretty quickly. But it even happens among some institutional investors who are set up to sort of, they retrade on everything. Again, things in the public markets are more rapid value trading, where you have a sort of a handshake agreement, but secondaries take a while to document. There's a lot of paperwork involved. And that in and of itself can negotiate for weeks, if not a month, in the interim of which they all of a sudden want to retrade the price. So what we've seen as part of the value, certainly at Pinebridge, is saying, if we give you a price, we'll stand by it, even if

the markets change on us over those few weeks of negotiating the paperwork. And rarely does it actually happen in a market. But having seen COVID, having seen the financial crisis in my career, and even going after the internet bubble where the market's off by 20% in a few weeks, it's valuable for a seller to know that they can rely upon that handshake. And it's up to every institution to kind of prove out that you can trust us and we have the capital and we're not going to change our minds. And it's something that a reputation you gain by virtue of doing it for a while, where you have enough sellers who say, you can trust them and they can be a reference. Very curious, this reputational benefit, how small is your community and how quickly does your reputation become known in the community? Well, I'd say I look at our community. If you go back to the

early 2000s, we once had an informal dinner that one of my peers arranged and there were eight of us at a steakhouse just kind of trading notes because secondaries are such an obscure profession. We kind of all laughed at how none of our parents understood what we did for a living. And certainly at that time, my father thought I was a stockbroker and I couldn't convince him otherwise. If you fast forward, that dinner is still going on, organized by one of the same peer who started it, and that was probably 20 years ago. They limit it to one person per firm. That's an active secondary buyer. And last year, there were 150 invitations. So we know ostensibly there's at least 150 competitors. They have different strategies

and otherwise, but I'd say all of them have a good defensible reason to say that they're all quality group with defensible reputations. What tends to happen though, again, is over time we've seen occasional bad actors. I'm not talking about a firm, but an individual who may have gotten it out over their skis and making promises or tried to think they'd be clever in renegotiating a deal when everyone else thought it was final. And what I've generally found is the firms survive that, individuals don't necessarily. And we're certainly not trying to, I think there's a friendly enough industry, no one's trying to point out another firm and saying

they're bad. I don't think that's good business practice in general. But I think the industry itself, private equity is ultimately, if we've got secondaries, private equity is not that big of an industry. So reputation gets around. So you have to be kind of careful. But again, to me, that's also basic business sense of just don't, if you act properly towards everyone, people will appreciate that. This is a competitive business. So someone wins, someone else loses, that's okay. But you have to be careful because everyone's going to wind up going to the same conferences, the same meetings and seeing each other. And rumors spread quickly when there's something that seems untoward going on. Absolutely. We spoke offline about how secondary buyers, you mentioned 150, there's several

hundred, how they differentiate from each other outside of price. How do secondary buyers differentiate from each other outside of price? Yeah. And it's funny because we certainly have our own investors who sometimes say, I can't tell you guys apart, which is one way of telling me that I haven't done a good enough job distinguishing how we look at things. But there is, I'd say the most basic is there's enough activity in secondaries with $125 billion of activity, and that's thousands of individual transactions. There's groups that are differentiating being big or being small, which in and of itself, there's different economies of scale or diseconomies of scale, depending on how you look at it.

There's regional specialization, only North America or Europe are going deep in Asia or even some other emerging markets. By strategy, there's certainly a whole bunch of venture capital specialists versus those that only focus on buyout versus credit, even into real estate and energy. So what we find is sometimes when you're selling an odd mix of assets, it can be hard to trade because some buyers only want fund number one, others want fund number two, and yet others want number three. And we say, well, buy everything and the ease of use to sell the one group. Again, when thinking that you're going to have to spend a month negotiating paperwork, maybe on the margin, that last penny isn't worth it just to trade to one group.

That said, there's a lot of overlap. The reality is this is a competitive market. And my view is that ultimately everyone's competing on showing that there's some kind of good equity analyst. You're buying assets that you think are growing. You're buying an appropriate price for them. It's no different than trading stocks in that regard. And then it's just a question of how long it takes for you to prove whether you're right or get evidence that you were wrong. And then you have to defend why you leaned into a certain area, an industry, a sector, a geography, a strategy. It's something you have to defend. I think the groups have been doing it a long time where we have the history and say,

we focus on these things because we've done it well before, and here's our track record. And that's something we do at Pinebridge. The secondary space is a space where you have certain structural tools that might not be available towards primary LPs. What are some of those structural tools that you like to use in your toolkit? It's right, because our primary investor is going to give capital to a general partner, a fund manager at the inception. They're a limited partner. And then you sit and wait. They put the money to work. They eventually sell the companies and you get it back. And there's very little else you can do with that. As a secondary buyer, the difference for us is

multifold. Number one, we can pay cash and take the assets over right now. And then that's a simple trade as per any other. However, the tools that have been introduced and used, none of them are revolutionary, but they can certainly affect returns. It starts with telling an investor, you want more, I want to pay less. I'll pay you more, but delay the payment. I'll pay you half in a year or something and variations on that. Optics can rule the day there. And there's other variations though. We can share upside. We can say, hey, if you think your portfolio that you're selling is so great that you don't want to give it up, but you have better use for your capital, well, we'll pay you a certain amount of money. And then when those great things happen, we'll give you more money. But if they don't happen, we'll

retain it. Sort of an earn out type of scenario. Again, typical in selling companies, but you can also do it with assets. We as a buyer can also use a variety of forms of leverage. Because the assets are identified, it's easier for a bank to lend against them than it is a primary investor who you don't even know what you're investing in, whom you're investing with, but you don't know what they're buying yet. So you can use a variety of forms, either lever the assets you just bought, lever your whole fund. That's something we typically haven't done at Pinebridge, but it's certainly a tool in the toolkit. And there's a variety of variations in that. All these are fairly basic financial wrinkles. So I'd say secondaries have not been

driven by doing radically new things in finance. It's just that when you start with an opaque market, you can take really basic tools and add them on, and that's enough complexity to create some interesting returns for investors. It seems like to me, when I talk to secondary buyers, they're so much more focused on downside protection than they are on the upside. Is that a function of the LP base for secondaries? It seems like there's a much more tighter band in terms of return profile. Yeah, no, that's absolutely true.

It starts with our investors who often are interested in secondaries because of the notion that you know what you're buying. You're buying into companies that are several years into the life of the investment, if not more than that, as opposed to a total blind pool. So that's de-risking, presumably. That starts driving in definitely a concern about loss of capital more than upside. The second piece, though, is the amount of upside we think we can often get is more limited. We have to acknowledge that depending on what you're buying into, the opportunity to make

the most amount of money is early, oftentimes when it's the highest risk. Whether it's a venture capital investment or a levered buyout, it's early days when it's hope springs eternal and there's lots of upside. As that investment starts aging, if the value is increasing, we can't go back and buy at a cost as a secondary buyer. We're buying it in its journey where it's already increased in value. To say nothing of it, if it's rapidly increasing in value, we're not going to wind up purchasing it and make 10 or 20 times our money, even though the original investors might, because you already identified that it's a fast-growing business that has great opportunity. Well, acknowledging that, if we can't participate in the uncapped upside that you see in more traditional private equity,

we might as well cap our downside. And ultimately, what we're trying to do in secondaries, and certainly have done in the past, was create a value that resembles the strategies that we're investing in on a secondary basis. So get buyout returns similar to buyouts and venture and venture and so on, but shortening the holding period. So you're getting equity exposure to each of these strategies, but for a shorter period of time. And what that can lead to is you may get less multiple of invested capital because you held it for less time, but you can get a very competitive IRR, if not an IRR that exceeds what was already in, what's being done by primary investors. Now, this has been the history of secondary is people like it because broadly speaking, the industry has produced better IRRs

per strategy they're investing in than the primary, lower multiples though. And that's the trade-off. And we think investors like that and kind of get a sense that that's because there's a reduced amount of risk by duration and knowing what you're buying. There's a lot of gamification that goes around IRR in venture. Is that the same in secondary or is this a more accurate IRR? I don't know if I'd call it a game. I think fund managers will tell us how much work they put into determining the precise measurement of their private companies. The benefit on the buyout side is there's certainly bigger companies have more reference public comps or M&A comparable positions. That said, we do see variance and we've seen some groups that are more aggressive, some that are more conservative.

From our view as a portfolio manager, we have literally thousands of companies in our fund. We have done the exercise routinely over the years, valuing everything in our portfolio at a point in time, usually year-end, just to see how that compares to the individuals, what the fund managers are telling us. So this is our view from the outside versus they themselves are arguably in the weeds and know what their companies are worth and why they're great. The one conclusion we draw from that every time we've done this is the whole portfolio aggregated together winds up being within a few percentage points of what it was articulated book value. So it works on average. It actually makes a lot of sense. We feel that it all kind of washes out over time because the one value for private equity is managers are generally only paid when they sell a business in some fashion. So even if you play a game of saying you've unrealized create a lot of value and ergo your IRR is really high,

it's not necessarily going to make that much difference to your existing investors. You're not paying yourself. Yes, you can go out and try to market how great you're doing, but I think investors are able to sort through that. So at the end of the day, it's really about actual performance. And investors can kind of look through what they think is good or bad or spot where they think someone's being too aggressive. Absolutely. Let's talk fund to funds. You sit on the IC for your fund to fund business. Tell me about the strategy there. An area that we've focused on for a long time has been more into emerging managers. Those are groups that are not first-time investors, but who are

trying to raise their first institutional capital, either because they only had friends and family money or retail money, or they're spinning out of another franchise and trying to go on their own for the first time. We'll often be the first large flagship investor in a fund like that. Help them put their flag in the ground. Also help them start making investments because now they have capital. We find that's clearly a higher risk kind of area because otherwise if everyone thought that was automatically an obvious choice, they'd lean towards it. We think it can be higher performance in large part because groups that are willing to go out and entrepreneurial enough to start their own buyout fund or other private equity fund,

oftentimes we find, number one, excluding those that may just be overconfident and deluded, there's some reason they think that they can perform and they've been in the industry long enough to know what it takes in terms of performance. And our view is they oftentimes have kept a couple of things under their hat at their prior firm, some great relationships, not necessarily a deal, but a CEO they used to work with that they want to call to propose a new idea or a business they've been kind of trying to get to know better. They wait until they're on their own to try to launch the like, please sell your business to me, or please work with me. And they're staking their whole career at that moment. Oftentimes they're investing almost all their net worth at that moment in

their own fund. They're putting their neck on the line in terms of their professional reputation. That doesn't guarantee success, but we think that's a really interesting inflection point. And we spent a lot of time looking at those kinds of opportunities. Speaking of these spinouts, how much of their success is just based on fund size? Inventor fund size is your strategy, but other in other asset classes, how much of a competitive advantage is it to have a small fund? We definitely see some advantage, smaller leading to better outcomes, but there's a self-fulfilling element of smaller funds almost always get bigger.

So they add more people, they slow down. We do think there is some bifurcation of opportunity set as you get into smaller companies. It comes with more risk though. And so then it's a question of, are you just sorting through the winners out of this and there's more losers as a result? And to put some numbers around it in the buyout space, there's probably 200 larger cap funds with funds that are over say $2 billion in size, consistently raising that. And then there's many thousands that are below that size. So there's a very different competitive set. What we see in the smaller end, you can be too small and not have enough resources to be able to buy companies that are more than just really a single person, a founder, CEO, slash head of sales,

slash plumber when the toilets overflow. You have businesses like that that are very, very fragile that are dangerous to buy because they're built on one person. It could be a very good person, but it doesn't mean they can add more people. That person only has 24 hours in a day. The flip side is you get very large. You have institutions that are so large that the CEO can't possibly know it. It has to rely upon 10 other people to implement plans and so on down the road. Our view is somewhere in between. A private equity firm can really implement value kind of working directly with several executives who can really get their hands dirty in fixing things, improving things, building things, working on client relationship, customer relationships, suppliers. But that

eventually times out as you get bigger and bigger and bigger. But as you get bigger, a different world opens up in terms of financing and investment banks that want to help you much more than they do smaller businesses. So there is some trade-off. It's always a question with any given manager, what's your strategy? How does your size interrelate to your strategy? And then as you get bigger, how is that changing? And if you claim you're not changing, that's probably not the right answer. It's acknowledging that as you get bigger, something has to bend and maybe it leads you into a different category. That can be good in and of itself. Absolutely. I think there's obviously supply and demand dynamics within each subsector.

So it's not just how good of an objective strategy it is. It's relative to the competitive set of the current fund managers. A lot of times you see these being counter cyclical. Something gets really hot and everybody chases it. Then now the performance goes down and you kind of have these interesting cycles within different sectors. On the fun of fun, you mentioned that you actually like to be on the first close, first check and first large check, which is a little bit counterintuitive. Why do you like to do that? We've done it. It's

not just because we love helping birds leave the nest. It's sort of a view that it's also for us a great inflection point. If we can get behind a first-time institutional manager who needs the institutions to actually start managing, we can take our share of discount on fees. Most firms have some level of maximum amount of capital that they agree they're going to raise, and you can get cut out. Typically, the groups that know they're going to be that hot don't have any interest in taking any kind of discounted economics when we put capital to work. But there's a lot of groups in between where it's,

they just need someone to kind of get them started on that. And then it becomes kind of rolling down the hill, picking up momentum. And we think we can be that perfect kind of group. We're all arm's length. We're not trying to take a piece of their business. We're not, you know, we're not trying to manage them. We're a passive investor. But we've found that having that kind of joining them at that inflection point can really help because the opposite is we've also seen groups that I think have very nice track records. They themselves, of course, know that, are very confident in their ability to fundraise. And if they time it wrong, an example being groups that launched in, say, January of 2020

got hit by a COVID wall that no one had obviously expected, and no one could do in-person meetings, and Zoom was much harder, and everyone was waiting for several months. We'll meet in person once that comes back. And they lost six months by accident because no one knew how to predict that. And then all of a sudden, six months later, it's like, why haven't you raised any money? No one wants to hear excuses. They just assume something's wrong with you. There's variations on that for a lot of funds where it's very attractive to just get started even at some kind of discount than to hope that everything will be fine. It just depends on finding the managers who kind of understand that. Again, there's a lot of high quality groups out there that feel that they don't need any help. But once you, by the time you realize you do, it might be too late.

You've kind of set yourself off on the wrong foot with a lot of institutional investors. We'll get right back to interview, but first to stay updated on all things emerging managers and limited partners, including the very latest data on venture returns and insights on how to raise capital from limited partners, subscribe to our free newsletter at 10xcapitalpodcast.com. That's www.10xcapitalpodcast.com. You mentioned expense ratio. Are co-invest and management fees interchangeable when you look at it and when your clients look at it? Yeah, we've done everything together. So when we're talking about total expense ratio, they're really looking at every element of cost for how we manage their funds or portfolios. And that ranges from the management fees and carry we're paying or get paid

to every dollar that's paid to a lawyer, an accountant, or what have you. So co-investment, that's really great. It's putting capital to work at a 0% rate, maybe a little bit of expenses caked into that. If we can get a discount on the management fee, that helps lower it. We're aggregating it all together. And our view is if you can put all that together, we can find a compelling package for our investors that they can't do on their own. But at the same time, their managers are being able to execute their business plans of investing capital. They can hire the right people that they want to at more junior levels. And if it all works out, our assumption is when they go back and raise the

next fund, there won't be any discounts. They'll have too many admirers who want to put money in early on. That's why it's sort of a moment in time. And we've had a nice history of capturing, I think, fund managers who are at that point, and they rarely feel like they somehow gave it away. They're forming a relationship with us and everybody wins. And that's the ideal for us. Let's talk about your venture strategy. Where does Pinebridge play in the venture ecosystem? Yeah, on the primary side of investing in new funds, we've tended to tack towards later stage. We tend to be more comfortable on later stage with groups that are, and again, we're not doing it directly, we're doing it with venture managers, but you can kind of see the trends already emerging and that's what we're

investing into. And then the next layer though is on secondaries. We'll buy anywhere across the spectrum in venture. The but is that we'll rarely buy an early stage venture fund early in its life because again, we don't really have our senses. Our ability to conduct due diligence is more limited because of our limitations, not because of what the assets are. But we'll often buy a venture fund that's 10 years old. It's had some successes already, has a handful of value drivers remaining. And these businesses now resemble late stage venture growth equity. They may even be so mature that they're cash flow positive and they're much easier for us to get our hands around them and back them.

And there's an advantage for the original primary investor to get out because it's been so long, they'd love to kind of, we don't say cut their losses, they want to cut their gains and just take them and move them on to something else. That's a good trade for us. So the venture ecosystem is a smaller part of what we do, but it's still very relevant because it's constantly generating some interesting ideas, perhaps years after they were originally conceived. How do you think about these spin-outs from these top firms, the Sequoias and the entry-sins of the world? Is that something that's compelling to you? Yeah, it's one area. While we back emerging managers, it's been harder for us to do that in the venture side out of those top name groups, just because we don't interact

with them. I think the advantage of the groups like Sequoia and many of their peers, they have no interest in interacting with us. And I say that politely. For their investors, they spend their time in the areas they're really supposed to be focused. They're not focused on whining and dining large institutional investors who maybe someday could back something they're doing. They're focused on investing in venture capital, mostly in their home markets. When you move into growth equity and buyouts, there's a lot more firms, as I mentioned, up and down Park Avenue, near our office in London, our office in Hong Kong, that we just interact with more professionally. And it's a lot easier to have reference points to them. So that makes us a little more comfortable. For the spinouts

from the large. For the spinouts, that's right. And it's, yeah, so someone's spinning out with a high, I think that's the key for us is regardless of strategy, when one or multiple people announce they're spinning out a brand name firm, you certainly know based on the firm they're coming out of it, and they say they're there for 10 years or 20 years or something like that. That's an automatic positive. It's like most of these firms aren't going to tolerate someone for that long who wasn't generating a lot of great returns. And there's always usually very logical reason why they're leaving and want to do something on their own. That's fine. But that's kind of where our reference ends. We want to be able to, outside the references someone gives us,

be able to, outside of that, kind of know people that they know to kind of find out, are they a good boss? Are they a reasonable person? Are they still hardworking? Because we know they were 10 years ago. We sort of ask questions that, where do they vacation? Because a good answer so oftentimes is, well, I don't think they take vacation. That's fine with us. But if you hear anecdotally, well, they spent a lot of time in foreign countries during the summer and doing skiing in Vail, how much energy they really have to start their own firm, other than other people doing the work. We know a lot of people, we can reference them that way, coming out of some of the bigger venture funds. We just don't have the network to be able to kind

of make those reference calls. Whether it's venture capital or buyout, some of the most successful people have the sharpest elbows. How do you look at that from a reference standpoint? Yeah, that's a funny question because there are multiple people in this broader private equity world who I won't mention, who I've always said, I'll happily invest with them, but I'd never work for them. And that to me is the difference is very rarely have we seen anybody who's sharp elbowed and unethical. And that's a line we wouldn't cross. But usually someone who's sharp elbowed, you can get talking about what does that mean? And they'll tell you their negotiating strategy and they'll give you anecdotes.

And it's stuff that maybe I wouldn't necessarily be comfortable, not because someone would be angry at me, but because you're fearful of losing a deal. But we've seen people who are willing to stress hard enough. And then even when they bought something, willing to ride a CEO, like someone who's certainly self-important and feels like they're in charge and ride them into like, you're not in charge. I am. I'm the chairman of the board.

That kind of mentality. I don't know that I'm the person for it. Yeah, but that's okay. There's type A personalities that were very happy to get behind. And when I say get behind, it's like give them the money and stand out of their way because we don't get run over, but that's okay. To the same degree, there's type B personalities who are a little more quiet, but you can kind of see how they manage in a more discreet way to have the same kind of influence. For us, it's just a question. It doesn't matter how you do it. It's just describe to us how you do it and kind of demonstrate why your style works. I'm very curious. You've seen hundreds of managers, the top decile or even the top quartile.

Is there a pattern in terms of their personality? Some would say that the top performing and the lowest performing people in finance are nice people. That's what Adam Grant would say in his book, Give and Take. Have you found that? Or is it the top 10% you have all sorts of different personality types and they all work if they have the right strategy? I'd agree in as much as the upper 10% are all nice to their investors. They're able to be nice if they want to. Yeah, absolutely. They're able to be charming to an investor. If you can be nice to an investor, presumably you can be nice to a CEO or a bank who's trying to loan you money or what have you.

And it's not always that they're back-slapping, let's go smoke a cigar type of picture of Wall Street days gone by. It can be that they know how to take their personality and make other people comfortable. Oftentimes, they're actually as vocal as they can be and type A in terms of talking. They're often good listeners, which is really the critical factor I think people miss. Some of the best fundraisers who've also been very good deal execution people actually know when to stop talking and hear out because part of it is they won't waste time with someone who's going to tell them no. And you can feel it out rather than just thinking you're the best marketer. I'll just keep talking until you say yes. They know when to stop. And that to me is a really critical difference. But there are a lot of different personality types. The one thing that I think connects a lot of them is they don't give up. And that can be through difficult fundraisings, through

difficult investments. They're just continually charging and they're spending time in those investments. And you can really see it come out when they're telling stories about investments they made in days gone past. There's a difference between telling a story about an investment, this company did this thing and introduced this product versus my firm and I did this thing with the company and with the management team. And here's how we did something together. You want the latter. People would talk about what their role was, not just identifying the investment, but seeing it all the way through. I think a lot of the bigger managers, these are multiple people in each of the institutions, have people who are like that and just they like what they're doing and they want to talk about it. And they're very proud of it. And that's someone you want to get behind.

Absolutely. What would you like our listeners to know about you, Pinebridge or anything else you'd like to shine a light on? Well, I think the one thing, you know, having been doing private equity for now over two decades is it's a really interesting, broad ecosystem that supports a lot of it kind of gets back to personality types of leaders. Lots of different types of people in private equity today. When I started, it was almost all former investment bankers, certainly almost entirely male, you know, wearing a suit and tie and mostly being on Park Avenue. And now we have, you know, well more than 10,000 private equity firms across all strategies all around the world, certainly plenty still on Park Avenue, but they're also in London and Hong Kong, but there's firms in Detroit and Hamburg and you can go on, Manila, you can go on and on around the world. There's lots of different kinds of people and there's different roles. There's people who gravitate towards venture, gravitate towards

buyout, gravitate towards geography, towards being more operationally focused, more financial, in the weeds, strategy level. And I think that's been great for the whole industry is that diversification and diversity of people. And then knowing if you wind up being interested in the industry, there is a place for you in it because it requires a lot of different skill sets that wasn't the case when it was closer to its infancy a few decades ago. The evolution has been pretty dramatic, both in venture as well as all alternatives. Well, it's been really great to chat. It's many years in the making.

We met about half a decade ago. So it's great to get you on the podcast and hope to sit down in Park Avenue or downtown New York City. Well, you have the better views. So I look forward to coming downtown and I appreciate you having me on. Thank you, Justin.

Appreciate it. All right. Thanks. Good talking to you. Thanks for listening to the audio version of this podcast. Come on over at 10X Cavill Podcast on YouTube by typing in 10X Cavill Podcast into youtube.com and clicking the subscribe button. On the YouTube version of this podcast, you could see the graphs, visuals, and key takeaways that accompany every episode.