00:32:18 · Molly O'Shea
[00:32:18] S1: Yeah. Yeah. It is interesting to see. I think AngelList just came out with their private market fund that you can buy into for just $500 today. And then there's some other ones that have popped up. The closed end fund going public trend is still going strong. VCX, who is a sponsor of Sorcery, I will disclose. They went public and their stock shot up 15x. There was just so much demand because they had big names like OpenAI, SpaceX, Anthropic, and so on and so forth, Andoril even. And then Robinhood also came out with theirs. Think they actually just added opening eyes to theirs. So how do you feel about, would you take the same advice that you have for the other don't rush into it kinds of asset classes with this? Or is this different? How do you view these different types of vehicles?
00:33:09 · Michel Del Buono, Molly O'Shea
[00:33:09] S0: It's the same thing. How did these vehicles acquire that position? Are they straight on the cap table? Are they going through SPV? If they're going through an SPV, what's the characteristics of that SPV? Why are you paying for that? If the stock shot up 15x, what is the implied valuation of your OpenAI position inside of that? Is it trillions and trillions? So these are all the questions that you need to sort of there's been a lot of momentum to your point. These things sort of jump up in price, and you wonder the implied return that's required inside. Those things actually meet the implied return inside to actually make the stock a good price? So it becomes like any other stock investment at that point. You just have to look at the underlying pieces and understand them, except that there's the additional complexity. How did they get this thing? Is it through an SPV? Is it through an L2 SPV? What did they pay for that? How much of the return is going to be taken away along the way from the carries and the fees before you get it? I just don't know the details of these different things, but these would be the questions I would ask. [00:34:15] S1: Yeah. I do know that VCX is direct on the cap table and it did wade back down to a normal price. [00:34:20] S0: It did come back down to [00:34:21] S1: normal price. It did, but the crazy part was I think more so the validation of how much people wanted that. I don't think the float was quite high, but people wanted that.
00:34:21 · Molly O'Shea, Michel Del Buono
[00:34:21] S1: normal price. It did, but the crazy part was I think more so the validation of how much people wanted that. I don't think the float was quite high, but people wanted that. [00:34:31] S0: This is why there's a proliferation of all the SPVs start with. And this is another manifestation of that demand. I think a lot of people, they have a fear of missing out on this. Truth be told, AI is an incredible transformation of the economy in a way that it's hard to fathom. And so I can understand how people are feeling, the urgency to take part in this. But if you pay so much for these things that there's no way you make your money back, that's, you know, that's that becomes complicated. [00:35:08] S1: Has the race to A. I. Reoriented portfolios? Like, has that struck wealth management of orienting towards [00:35:18] S0: 100%. [00:35:19] S1: Different types of managers, different types of private credit, all that kind of stuff, people that are utilizing it?
00:35:19 · Molly O'Shea, Michel Del Buono
[00:35:19] S1: Different types of managers, different types of private credit, all that kind of stuff, people that are utilizing it? [00:35:24] S0: More and more people want access to these directs. They're clamoring for it. And they'll come and they'll say, oh, I've got these six different things I'm looking at. What do you have? Let me compare across this. It's a complete fever around that right now. So it's it's very interesting to watch. And, you know, when when one structures these things, you know, again, be really I mean, I'm I'm sounding very repetitive here, but do your operational diligence. Do your legal diligence. And just saying this is such a big thing that the return is so great that I don't need to worry about that stuff is not true. I think that's the shortcut people make in their head. They go, well, it doesn't matter. Those are details. I need to get onto this bandwagon. But if you're paying 15 times or whatever you said it was, the underlying value, you may not benefit from that. So that's the problem.
00:36:19 · Molly O'Shea
[00:36:19] S1: Yeah, I'm thinking a little bit more specifically, whether it's private equity AI powered roll ups, whether they're applying AI to their roll up strategy and their companies and then their portfolios, whether it's real estate and some real estate funds and managers have shifted their commercial focuses to data centers entirely and just going after data centers. But I just had Hanan Hopi from ExoWatt on, and he was really clear because he's right on the ground. He's providing I think ExoWatt is an a 16 portfolio company, separate. But they are providing energy, renewable energy, sustainable solar powered energy to data centers, hyperscalers. And what he's seeing on the ground is a lot of these announced data center projects are not happening. Wouldn't say a lot, I won't be dramatic there, but how are you seeing this within your portfolios? I know that there could be a blanket statement there, but I'm just really
00:37:20 · Michel Del Buono
[00:37:20] S0: curious No, if you so I think it's really early days. A lot of private equity companies have operational teams that go in and help companies. I think they're only starting to use AI at this point, so I think it's very early still. The hope is obviously that you can AI, it really allows you to do is develop sort of customized software very cheaply, effectively, right? Simplify processes, automate them, turn them into natural language. All those things should have huge benefits for a private equity backed company that's trying to get more efficient. But I'd say and I'm making gross generalizations, I'm sure there are exceptions but most PE firms have yet to sort of fully and it's a new technology, so have yet to fully build that into all their operational improvements. And so I think the firms that are successful at that will really be able to improve the profitability of their underlying companies, so it should be a huge benefit. And I think the benefits will accrue to those who really embrace this, you know, but large organizations are slow to move. They have their processes, their formulas, their things that they've done successfully in the past. And so, you know, people just sort of abandon all that and immediately jump to a new thing. That's on sort of like improving the performance of your private assets. The data center is an entirely sort of different question, which is, can we actually build these things in time? Can we come in on budget? Is there power available for these things? And that's more difficult. That's, again, look at the details. Some of them happen to have power for whatever reason. They're on a brownfield site that already had power and they just sort of hook up a new building to it. Others don't have the power. Some have contracts with hyperscalers, others don't. So it's very difficult, again, to just say, it's like saying I want a BDC, it's like saying I want data center. Look at what you're doing. Now, the beauty of the recent tax changes is that for a taxable investor, you have accelerated depreciation on data centers. So you can depreciate 100% of your CapEx immediately and get a huge tax benefit. So there's some tailwinds to the sector because of the sort of tax code.