00:23:22 · Michel Del Buono, Molly O'Shea
[00:23:22] S0: Oh, really? [00:23:22] S1: They just took the money themselves. [00:23:26] S0: Remember, whenever you're doing a private investment, the contract, you're sort of excluded from the regulatory oversight by saying that it's a special contract only for qualified people that meet certain income thresholds. So those contracts are custom. It might strike you as unfair or not right in the way it's structured, but that's irrelevant because these are private contracts. Whatever you signed and agreed to, that's it. And your notion of what's fair or right doesn't really matter. You know what I mean? You've raised your hand. You said, Look, I'm a qualified purchaser, I'm a qualified person to do this, therefore I don't need regulatory support. Because these things happen with specialized exceptions to the regulation, but only available to people who self certify that they are okay with that. So you can't say I'm, you know, a big person, a big boy, big girl. I understand what I'm doing. And then turn around and be upset at the outcome. You have to do your legal and operational diligence.
00:23:26 · Michel Del Buono, Molly O'Shea
[00:23:26] S0: Remember, whenever you're doing a private investment, the contract, you're sort of excluded from the regulatory oversight by saying that it's a special contract only for qualified people that meet certain income thresholds. So those contracts are custom. It might strike you as unfair or not right in the way it's structured, but that's irrelevant because these are private contracts. Whatever you signed and agreed to, that's it. And your notion of what's fair or right doesn't really matter. You know what I mean? You've raised your hand. You said, Look, I'm a qualified purchaser, I'm a qualified person to do this, therefore I don't need regulatory support. Because these things happen with specialized exceptions to the regulation, but only available to people who self certify that they are okay with that. So you can't say I'm, you know, a big person, a big boy, big girl. I understand what I'm doing. And then turn around and be upset at the outcome. You have to do your legal and operational diligence. [00:24:33] S1: What are you most concerned about? In the overall macro, I guess this is a complete wide ranging macro question. Every category that you're seeing, whether it's the volume liquidity happening in secondaries, impending IPOs. We're gonna talk about credit in a second, but there are all these different markets that are doing funny things, whether it's because of the war, whether it's because of, I don't know, AI causing little sasspocalypses here and there. What are you most looking out for?
00:24:33 · Molly O'Shea, Michel Del Buono
[00:24:33] S1: What are you most concerned about? In the overall macro, I guess this is a complete wide ranging macro question. Every category that you're seeing, whether it's the volume liquidity happening in secondaries, impending IPOs. We're gonna talk about credit in a second, but there are all these different markets that are doing funny things, whether it's because of the war, whether it's because of, I don't know, AI causing little sasspocalypses here and there. What are you most looking out for? [00:25:04] S0: I think for every space there's so many arcane, idiosyncratic details to think about. There's a potential for making a mistake in any asset class. It's just about really being informed and knowing what you're doing. So what worries me is the rush into all these different things by people I feel sometimes have not done their homework. And then if you have not done your homework, you may be unpleasantly surprised at the outcome. So whether it's private credit where people sort of didn't realize that these BDCs have gates, I'm surprised to see that because it's very clear in the documents that they will redeem up to X percent of the fund, and after that they don't have to. [00:25:50] S1: Explain that more.
00:25:50 · Molly O'Shea, Michel Del Buono
[00:25:50] S1: Explain that more. [00:25:51] S0: So there's a whole concept of an evergreen vehicle. An evergreen vehicle, so traditional venture of private equity is in something called a closed end vehicle. So it's got a specific start date and a specific end date, and along the way, you have no right to redeem. Right? You just get your money back towards the end date. In these evergreen structures, there are some of them. Not all evergreen structures are like this, by the way. I've noticed that people conflate semi liquid structures with evergreen structures. But anyway, some evergreen structures have what's called this sort of semi liquid character so that every quarter, the company that's running this structure will say, hey, if 5% of the total investors redeem, we'll meet that, but if it's more than that, we won't. And often, even the 5% is subject to our ability to do that. We're not gonna jeopardize the fund because 5% of the people wanna get out and we have to fire sale things and everyone that's in the fund. Right? So even the 5% is not always guaranteed. But but and so people suddenly started asking for the redemption. The things hit the limits, and the manager said, well, sorry. You know? And this surprised people, even though it was very clearly written out in the documents. And that's what I'm telling you when I say worries. People sort of rushed into these things without realizing all these details. Right? [00:27:16] S1: Why did all that happen at once, though? It was it was like a huge headline for a week.
00:27:16 · Molly O'Shea, Michel Del Buono
[00:27:16] S1: Why did all that happen at once, though? It was it was like a huge headline for a week. [00:27:21] S0: I think people started looking underneath the hood at these things and realizing that, hey, it's actually more complicated than I thought. Maybe I should get my money out. So now I think there's sort of what's the word, a narrative around it that I don't know actually maps to the underlying at all. And so people just want out now because they're worried that they didn't understand what they were getting into. Right. So is there an opportunity to maybe even buy these things? That's a good question. You have to sort of look at how much they've sold off and try and understand what's inside of them. Every one of these, because these are custom pools, every one of them have different mixes of assets in them. So you can't just sort of make a general statement about BDCs because every one is going be different in their underwriting, the types of loans, do they accept a PIK loan or not? All these things are in there. And so you need to really you can't sort of brush everything with stroke. And if you've gone in there not even understanding the sort of the semi liquid nature of things, you've clearly not done all your homework on the underlying underwriting and structure of the different BDCs. It's very, very hard to do these. And I guess this is going to sound very trite and self serving, but expertise matters, especially in these niche y, strange markets. Right?
00:28:38 · Molly O'Shea
[00:28:38] S1: You mentioned this in our last conversation, but on portfolio construction, how you weight them out, whether it's credit, venture, which is a small portion, real estate, so on and so forth, cash, all these kinds of things. How has that strategy evolved over time, especially with these super volatile markets?