Invest Like the Best with Patrick O'Shaughnessy
00:55:54 · Patrick O'Shaughnessy
[00:55:54] S0: I wanted to ask the LP's perspective, what you would do if you were an LP, what you'd be looking for?
00:56:00 · Jeremy Giffon
[00:56:00] S2: I get asked a lot by LPs where they should put their money, what managers are good or should they invest in this fund. You have to take a somewhat cynical view of these things as, and I maybe it's not actually cynical, just maybe the more realist view of these are businesses first and and you know their product is returns but like their business. You have to recognize what sort of customer you are. The question of where should I put my $500 check? You probably shouldn't put it into like marginal $5,000,000,000 growth fund, but I actually get asked that a lot. Should I put some 1 or $2,000,000 into this fund? It's probably gonna be a good fund, but could you find something much better to do with that million dollars? Probably. It sounds obvious, but in reality it's not and I think what people don't understand is that basically if you're a principal, let's say if you're a principal that can't write like sovereign or institution size checks, you're a totally different customer and the businesses are not designed to serve you as a customer. The growth fund is probably a great place if you have to park a $100,000,000 somewhere. It's probably a very very good place, but it's not a good place to park like a $500 check. If your business is set up to service sovereigns and large endowments and stuff, your product is just so different from what you're gonna serve for someone smaller and this gets into the like well okay if you have a small check what do you do? And I think this is where the emerging manager stuff is really underrated and looking for places where the managers actually most tightly aligned to returns either because returns are critical to future funds or that's actually how they're gonna make all their money.
00:57:32 · Patrick O'Shaughnessy
[00:57:32] S0: Are there features of the emerging managers situation that you find interesting or attractive one way or the other?
00:57:40 · Jeremy Giffon
[00:57:40] S2: It's probably similar to how I look at everything but I think especially for an emerging manager when you're truly just sort of underwriting the person, people still fail. They probably overweight the investing thesis and track record and stuff and underweight facts about the person. I think you and I are both big believers in the idea of how you do one thing is how you do everything and so the personal financial situation of a manager is an incredibly underrated thing to ask about. If you have a couple $100,000,000 in the bank account and you're raising a $30,000,000 fund, that's very different than someone who has a million dollars in the bank who's raising a $100,000,000 to go do a thing that they're trying to make the most money from. There's like two very different places to start from underwriting. One notion I have about this is whether someone is looking up or looking down at something and the idea is take the same $250,000,000 funds, one is from someone who has $500 in the bank and one is from someone who has $500,000,000 in the bank. Those are just like obviously gonna be treated very very differently. For the latter, for the $500,000,000 person, the $50,000,000 fund might very well do better because it's held with a looser grip, it's less on the line, you're gonna be less paralyzed by the sheer like quantities of dollars. That is generally not super recognized and you see it all the time like in new ventures, if you're helming something that is two or three zeros more than you have, there's just a sort of monumentalness to it that is a bit intimidating. You can scale this all the way up, be the husband who's worth a 100,000,000 with a $10,000,000,000 fund, it's just a big scary thing and I don't care who you are, when you're taking bets that are an order of magnitude larger than any amount of money you've ever had, there's just a psychological factor there versus when you're taking bets that are maybe sort of negligible to you.
00:59:28 · Jeremy Giffon
Part of the reason I think it's easier for people to outperform individuals is it's easy to take a flyer on a stock with a marginal fraction of your net worth that you don't feel you need to explain and you're not gonna be judged on later than it is to do with maybe a dollar amount that's more money than you have, gonna affect your track record and you're gonna have to explain it and all these other factors that are not related to like, do you think this is a good investment or not?
00:59:56 · Patrick O'Shaughnessy
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