Invest Like the Best with Patrick O'Shaughnessy
01:01:51 · Vlad Barbalat, Patrick O'Shaughnessy
You think about your parents a lot less than they think about you. That will forever be true. It's true of your kids. It's true of the way you probably interact with your parents, but your parents probably think about you much more than you think about them as just reality. [01:02:08] S0: I'd to close asking about two concepts that I think are so powerful. You've alluded to a bunch. One is just permanent capital, like what it's actually like. Everyone talks about this as like a nice thing to have, but what it's actually like managing it, you're not permanent. Nobody's permanent. Ideally, if you do a great job, this thing will go far beyond you. So careers are not permanent. They're transitory. And then the second thing is this notion kind of related to the question on where you came from and where you grew up of pragmatic optimism. These two concepts are interesting to me in combination and I thought it'd a fun place to have you riff as we wind up.
01:02:42 · Vlad Barbalat
[01:02:42] S2: The downside of permanence is people change. Even though the capital may be permanent, people come through the organization ultimately and you're always dealing with some version of, but another team made that investment or there was a decision made in the past and you can dwell a lot on that. Usually, the ones you're discussing are the difficult ones and not the good ones that people are happy to absorb into their window of time. What I have found about managing your own balance sheet as opposed to managing third party capital, which is inherently not permanent, it completely changes what you think about. Because when you're in a fund cycle, when you have to deliver returns to a fund and to your investors, and then think about the next one, you are consumed by the business that you're running. Investment outcomes are kind of a product that you sell, but you are ultimately running a business. And so your business strategy is gonna always dwarf your investment process. No matter how many times you can talk about your long term horizon or whatever else, Ultimately, the time comes when new funds need to be raised. If you're a public alternative asset manager, you care about how the market will give you the highest multiple, which will then drive a certain way you will structure your business. The craft of investing is inherently diluted one way or the other. It just is. It doesn't mean that there aren't excellent investors, but they have to think about other things. In some case, that really does take the business away from the bespoke nature. In some cases, people stay small and many examples of that and ultimately try to just deliver truly outsized returns because of how they approach that problem. When you don't have to think about any of that, and all you're thinking about is how do I take my capital, deploy it into the world, get the right rate of return on it, and see the fruit of what that capital does, it's just inherently different. You are able to sustain what I describe as much better investment hygiene, you don't have to react, you don't have to worry about doing an investor update where some of your investors may have circumstances or priorities that differ from other investors in your fund, and therefore creating tension, polluting your investment process with the nature of the business, we just don't have that.
01:05:02 · Vlad Barbalat, Patrick O'Shaughnessy
We are singularly focused on being in the service of our policyholders, in the service of our balance sheet, and doing the best we can to deploy capital for the right opportunity, for the right rate of return, and seeing the fruit of that come to the organization. The other part that you mentioned is very real. There's a downside to having that permanence because you can make the argument that it makes people a little bit more complacent about this notion of the long term, and I mentioned that before, I always am careful with saying we can make long term decisions that others can't. I think when people say that for the most part, what you end up with, I do mean the most part, is some form of excuses as to why, sure, this is not great, but it will be if you wait long enough. [01:05:49] S0: Especially like you said before, the volatility, the rising uncertainty.
01:05:52 · Vlad Barbalat
[01:05:52] S2: I've always almost had like this strange fixed income version of my thinking around long term versus short term, it's like the ten year rate is just a series of shorter rates that build up to it. Yes, you can talk about the long term, but the long term is constructed of a bunch of short terms, and so you have to actually hold both truths. The ability to make long term decisions and focus on the long term is really valuable. But if it becomes a crutch and an explanatory variable as to why you're either inconsistent or things are not going the way that you'd like them to go, then it's not very useful. In fact, that's an impediment. I think all businesses have a constraint of an annual calendar. That's just the way we've structured ourselves. Some have it very acutely, have quarterly constraints. The annual one is important for everybody. Everybody has some notion of a financial plan or objectives they try to hit on an annual basis. But very few businesses actually have those horizons. This is another one where you have to hold both truths, when you're responsible for the organization. Your business is not a one year business, we know this. Anything can happen in a one year window. And yet you know that that one year result has importance to your stakeholders. The way I therefore try to navigate that is to one, be cognizant of the one year, of the calendar year, but try to establish some three, five year targets. And do put yourself on the hook for those in a much more meaningful way than the one year, or at least say, more people in this organization really are on the hook for the three to five year and be explicit about what that is, it is for the one year. The other part is, all businesses that have this dynamic, they require a great degree of transparency from all your stakeholders in order for you to ride those waves. Because if your business is opaque, not understood, and volatile, that's a recipe for ultimately not being supported through difficult times. I try to always remind myself and my leadership team that transparency is what allows you to have autonomy. No transparency, no autonomy. Critically important, difficult to deliver, and people don't always focus on it.
01:08:12 · Patrick O'Shaughnessy, Vlad Barbalat
[01:08:12] S0: I love doing this with you. I love your story. I love the way you built this thing. I think it's extremely distinctive. It certainly is one of those 10 referent branded capital LPs that I think everyone out there wants. It's so interesting to me. Maybe I should make this a series or something to really help the world understand how each of these huge pools of capital thinks and works. I think you know my traditional closing question for everyone, what is the kindest thing that anyone's ever done for you? [01:08:36] S2: This is the one question I knew was coming. I've thought about it. I had so many thoughts on who I should describe, I've been fortunate to have many. I'm gonna come back and maybe do something that I haven't seen others say on your podcast, I'm gonna come back and say the kindest thing is this group of people that have fought for constructed pathways for legal immigration to The United States. So my gratitude is to America and my gratitude is to the people that for reasons they didn't have to, allowed people like me to come to America to have a very very very different life than I would have otherwise had. To allow me to have an impact on people that are in my vicinity and surroundings, hopefully a positive one, and to find a way to learn from that gratitude and continue to have pragmatic optimism that America is essential to the world. It is still the shining city on a hill and I want to do whatever I can to remind people of that, to contribute to it, and every single day be grateful for being an American citizen.
01:09:43 · Patrick O'Shaughnessy
[01:09:43] S0: Beautiful. First answer of its kind, which is hard to do 500 of these in. Thanks for the great answer and for your time. Awesome. Thanks. If you enjoyed this episode, visit colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at colossus.com/subscribe. You know how small advantages compound over time? That's true in investing, and just as true in how you run your company. Your spending system is your capital allocation strategy. Ramp makes it smarter by default. Better data, better decisions, better economics over time. See how at ramp.com/invest. As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at vanta.com/invest. Every investment firm is unique, and generic AI doesn't understand your process. Rogo does. It's an AI platform built specifically for Wall Street, connected to your data, understanding your process, and producing real outputs. Check them out at rogo.ai/invest. The best AI and software companies, from OpenAI to Cursor to Perplexity, use WorkOS to become enterprise ready overnight, not in months. Visit workos.com to skip the unglamorous infrastructure work and focus on your product. Ridgeline is redefining asset management technology as a true partner, not just a software vendor. They've helped firms 5x in scale, enabling faster growth, smarter operations, and a competitive edge. Visit ridgelineapps.com to see what they can unlock for your firm.