Invest Like the Best with Patrick O'Shaughnessy
00:31:31 · Vlad Barbalat
[00:31:31] S2: At the highest level, you're not given permission to dream. You're born to survive. You're born with an attitude and a notion of I need to navigate these ways of life so that I can survive. I don't think it's worth getting into all the other components. Like I said, I experienced really difficult persecution being Jewish in The Soviet Union. That looked like being called out in school. I was a nine year old kid and I still have memories of that. My parents experienced that in much more stark ways where as a Jew you were not allowed to pursue certain professions or there would be hard quotas on how many people would be allowed to be in those professions. You would be assigned where you live. There'd be university quotas and so on and so on. I didn't experience obviously those things, but I experienced a society where that was normal. Jews were persecuted, many other types of groups were persecuted. The point is that was normal behavior. It was overt, explicit, persecution, bullying, all those things were part of the social fabric. So when you're born into that, you are consumed by this notion of this is my reality, how do I navigate it and survive? Never mind iterating on innovation, I'm just trying to survive. My experience is at the same time, I was a reasonably happy kid because when you accept those things as part of your life, don't dwell of them, you don't think of yourself as a victim, you just accept them as they are, and you form the rest of your life around them as constants. I have both kid happy memories, as well as some of those stark moments of grayness of just a society that has no spirit, a society that has no real art, and that's not a statement on the people, that's a statement on the way society is constructed and suppresses those otherwise natural human, I think, traits. When you come to The US, you experience literally the inverse of that, this notion of individualism. It's the opposite of what you would experience in a place like the Soviet Union, but I would argue many other societies as well. Like everything else taken to its excessive corner, you would probably find all sorts of issues with individualism as the way to construct a society, and we wrestle with those in The US.
00:33:41 · Vlad Barbalat, Patrick O'Shaughnessy
But what it does do is it frees a person to pursue their talents, pursue their interests, pursue a network of friends they want to be associated with in a way that's just impossible elsewhere. [00:33:52] S0: I'm sure it all shaped your worldview to like a huge extent seeing the contrast. How does that all then map back onto this activity of investing? How does it affect the culture you wanna build, the types of people you wanna partner with, the types of deals that you're interested in? I'm sure there's a connection.
00:34:08 · Vlad Barbalat
[00:34:08] S2: First I would relate it to this notion of risk taking, not assuming and not taking anything for granted. Not being entitled to anything. This is a fundamental trait that immigrants share. When you come with nothing, just looking for a life, you don't think of yourself as entitled to anything and I think that carries. No matter how your life in The United States ultimately evolves, you know you're not entitled to anything, no one owes you anything. And that permeates the spirit of the way I go through my life. Now we talked about entrepreneurship, a culture of why do this at all? Well why not? Why wouldn't you want to make something better? And I think we've tried to have that culture at LMI where we don't say this is good enough. That's not a good way to live. If you're passionate about your work, and you're really interested in what you do, and you care about your craft, you're gonna continue to iterate because it's what you do, and that leads to better results. It's no different in my mind than that silly act of trying to create a better croissant. It exists in current form, it's great, but you can make it better. We do that culturally at LMI. We try to make things better whether it's our internal process, whether it's the way we engage the world, whether it's the way we are willing to experiment with technology and move fast, all that is part of our culture. In terms of the investing activity or this notion would we back at certain type of investor, We look for traits of entrepreneurs, of people who are eager to make the world better through the lens of whatever it is that they're doing. The best investors are obsessed with their craft, not because they're financially driven. I think we look for that in our partners, we look for people who are incredibly passionate and good at what they do, are able to communicate it and make it come across, and who are clear about what is it that they're trying to accomplish. Because if you can't communicate a brilliant vision, it stays in your head and unfortunately doesn't get realized. Lots of different things that go into it but passion for your craft is a really important component.
00:36:12 · Patrick O'Shaughnessy
[00:36:12] S0: Going back to the composition of the portfolio that you've built, how much of that ends up being you invested in a specific company versus you persistently backed up GP that you're just a constant investor in versus a one off partnership with a GP? How does it then break down once you get down to that granular level?
00:36:29 · Vlad Barbalat
[00:36:29] S2: Well it has evolved. Through time we've created much more of those options. Historically, depending on how far you wanna go, the primary way would have been to back a GP. That's a pretty narrow path, perfectly good one, but I'd say we've been very very focused on that same thing I described before. We want to have as many ways we can engage and help our business partners asking the first question is what's the exposure, How do we best get that exposure? The mix today is dramatically different than what would have been five years ago. That's both expressed in the types of exposure. So for example, we used to have a meaningful amount of exposure in natural resources. We have much less today. One could have looked at that and said, well, natural resources is a way to get exposure to energy, let's say, or perhaps inflation hedge if you wanted to put that lens on. But the way we were getting it was not serving us well both because of our capabilities, we just didn't have the capabilities to be operators of some of these energy businesses. The second part was they were quite narrow. The second you're focused on an operating business, that can be swamped against the backdrop of macro that says, okay, well energy prices are up, why is this thing not providing me with what I thought it would? Instead today I mentioned one of the verticals we have is energy and infrastructure, which is both a credit and equity business, where we in many cases choose to own certain assets or have ownership in certain assets but not operate them, provide capital across the capital stack and provide solutions which allow us sometimes to do things like provide credit but have upside exposure via warrants or things like that. Certainly back partners where appropriate in parts of the industry that are quite technical, where we would never seek to reproduce that kind of insight and that kind of capability. That is an example of do we have diversification in our portfolio? Are we benefiting in the moment from that exposure to energy? Absolutely. Would we have gotten the same level of exposure and benefit from our previous way of expressing that? No. That is really really important. Having that diversity of different businesses and different exposures, but keep coming back to how do you acquire that exposure?
00:38:45 · Vlad Barbalat, Patrick O'Shaughnessy
That difference can mean the difference between it actually being effective versus not. [00:38:50] S0: Do you find yourself selling yourself as a differentiated partner to GPs because of all these ways that you can support them to try to win more allocation to their funds or whatever up against other partners that they might choose? And if so, what's that like? What is your pitch to GPs?