Invest Like the Best with Patrick O'Shaughnessy
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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01:01:12 · Jeremy Giffon, Patrick O'Shaughnessy
[01:01:12] S2: There is this funny notion that it's sort of specific to the labs but it's a broader thing as well I suppose. We're sort of recreating the feudal system from first principles where there are the Lords, Elon, Zuckerberg, Dario, Sam, they can sort of make landed gentry by giving out allocations because these allocations are sort of these best example of generational wealth. You get this allocation in SpaceX or in Waymo or whatever, you get to charge huge fees on it and it's sort of this like wholly synthetic product which is someone gives you a sort of arbitrary number, they know you don't have the money so they know you're gonna go fill it and then you get to go out and basically say I've been given a deed, the king has given me 500 acres in this country and Elon has given me a $100,000,000 to allocate in SpaceX and you get to go out and charge fees and make a bunch of money from it. Do you have allocation? And I guess I'm interested in it because it's sort of this purely relational wholly synthetic thing that I'm not sure has ever existed before, certainly not at the scale and magnitude, you can go due to your relationship, basically get this like landed estate and then take it to a sovereign or a foundation and they will pay you for that access, like a pure paid for access. But maybe where it's different is that's just brokering, but the difference is obviously that brokering is sort of like a one time transaction but these allocations sort of, you know, they live on forever. [01:02:31] S0: What's the most egregious fee setup you've seen in one of these?
01:02:31 · Patrick O'Shaughnessy, Jeremy Giffon
[01:02:31] S0: What's the most egregious fee setup you've seen in one of these? [01:02:34] S2: No GP commit, ten percent one time upfront fee with some carry structure generally, where you're just demanding basically that you get paid life changing amounts of money with zero risk and then you also get a huge amount of upside. The other thing is I've seen a few that don't have a term limit. I know there was like famously some a lot of SpaceX ones. I think people were doing that ten years ago. I know there's certainly some that just collect the fee forever. To Capital's credit, you're very happy to be paying that 2% on the SpaceX thing that you did fifteen years ago. So it's sort of a win win. It's not to say these are all bad, it's just it's sort of funny because it's not investing, it's not strictly brokering, it's this very different thing that is like a wholly insider access game. And then of course, there's all the fraud and bad behavior that I think comes with all the bubble and stuff. [01:03:22] S0: How do you think about your own productivity, for lack of a better word? We talked before about how content is really just entertainment, not learning. We shouldn't kid ourselves about that. Therefore, it is largely unproductive, which is fine. It's entertainment. How do you think about, to the extent you care about yourself personally being a lot more productive with all this insane tool?