Invest Like the Best with Patrick O'Shaughnessy
00:51:02 · Gabe Stengel, Patrick O'Shaughnessy
[00:51:02] S1: So I would say there's definitely problems where domain expertise is increasing in value and product intuition and having more of a GM like mindset versus an engineer like mindset is super super important. There are also parts of our product surface area where it's like you just need raw gritty engineering talent because you're scaling things up so aggressively. But if I look at the folks on our team who have been so excellent, a lot of them are former founders. They're folks who started businesses, persevered, ate glass, had a lot of product intuition, figured out how to channel it, and then the business maybe petered out. And to the point you made, there's been a lot of companies trying to tackle financial AI. There's been a lot of really smart product minded, engineering minded domain experts who have tried to tackle finance AI, and we've acquired six different fledgling financial AI startups. And so those former founders who can be galaxy brained about the future of the product and navigate a course on what the UX should be, but also have engineering chops so they can constantly make the right decisions is super important. [00:52:02] S3: You said earlier to me before we were recording that this is the first time that we have like a major innovator's dilemma in this category. Can you describe what you mean by that?
00:52:02 · Patrick O'Shaughnessy, Gabe Stengel
[00:52:02] S3: You said earlier to me before we were recording that this is the first time that we have like a major innovator's dilemma in this category. Can you describe what you mean by that? [00:52:12] S1: Yeah. Well, I I think for a lot of investment firms and a lot of high finance financial services, the last ten, twenty years have been pretty good. You can make a lot of money being a capital allocator, being an investor. It's a very hard industry to enter. And then especially if you're in private markets, your businesses have some natural momentum because when you raise a fund and another fund and another fund, it's hard to mess up the business after that. And I'm sure there's a 100 people who have started funds who know it's a 100 times harder than I just described. But to be fair, there hasn't been a moment and a shock to the market where every investment firm, every bank is saying, oh wow. I need to completely rethink what I'm doing. And now there's gonna be an opportunity for hundreds of disruptors, AI native investment firms, AI native investment banks to attack my business model and I need to figure out what I'm gonna do now. And there has not been an innovator's dilemma for private equity firms, for hedge funds, for investment banks in a long time. AI native. [00:53:09] S3: What does that term mean to you? Like what is the definition of that?
00:53:09 · Patrick O'Shaughnessy, Gabe Stengel
[00:53:09] S3: What does that term mean to you? Like what is the definition of that? [00:53:13] S1: In some ways, think it just means willing to constantly reinvent everything you're doing and being so AI pilled that you don't worry about what's possible or what might seem completely far fetched, but you were just charting a trajectory towards integrating this alien fundamental technology into everything that you do. And it's showing up in every part of the business and there's no part of the business that you hold sacred that is immune to being revolutionized. [00:53:37] S3: How do you do that? Is it like so you're a leader in a company that's very AI pilled that wanna make sure to... Yeah. Do you wanna do everything you guys said in rogo? And yet I'm sure there are areas that you're unhappy with the status of how much AI is used to do x y or z. How do you do it as a leader?
00:53:37 · Patrick O'Shaughnessy, Gabe Stengel
[00:53:37] S3: How do you do that? Is it like so you're a leader in a company that's very AI pilled that wanna make sure to... Yeah. Do you wanna do everything you guys said in rogo? And yet I'm sure there are areas that you're unhappy with the status of how much AI is used to do x y or z. How do you do it as a leader? [00:53:53] S1: Like how do you make sure that your company keeps doing this as a practice and habit versus like a one time or So I'll give you a very simple thing which is every month I have a report that gets sent to me that shows me every one of the company how much are they using the various different AI tools we have. Both the ones we've procured, the ones we've built internally, all of these different things. And I have a stack ranking within every division of the top five power users and the bottom five users. And we post that everywhere, and the bottom user in each division gets a printout with a dunce cap and we post it around the office. And it's hilarious, but people know it's coming. And by the way, as we get bigger and fewer people know me and know it's kind of a joke and I'm funny, they're actually terrified. And I hope they're not terrified, and I hope that changes. But it's a strong incentive function to actually make sure you're using these things. [00:54:44] S3: If you were to list questions, let's say there's someone sitting down that runs one of these firms that's been a great business, hard fought, but a great business.
00:54:44 · Patrick O'Shaughnessy, Gabe Stengel
[00:54:44] S3: If you were to list questions, let's say there's someone sitting down that runs one of these firms that's been a great business, hard fought, but a great business. [00:54:53] S1: And these businesses tend to be quite simple from an organizational and technical standpoint. It's mostly humans. Right? There's not a lot of overhead in lots of these businesses. Maybe they buy a lot of data or something. [00:55:04] S3: What questions would you encourage them to ask of themselves, of their business to stand the best chance of navigating this transition effectively?
00:55:04 · Patrick O'Shaughnessy, Gabe Stengel
[00:55:04] S3: What questions would you encourage them to ask of themselves, of their business to stand the best chance of navigating this transition effectively? [00:55:12] S1: If you knew for sure that right now 90% of your enterprise value is in your people. Your best investors, your best bankers are the people that bring in deals, bring in revenue, and actually that's what accrues enterprise value. And in ten years, the world's best investment firms, best banks will have 90% of their enterprise value, not in people, but in software and data and systems. What would you start doing? You would start trying to figure out how do you take all of what lives in the latent minds of your best people and putting it into a system that you own and operate autonomously. So that's a big one. The second thing I would think about is unpack every part of the deal life cycle. And in each one, try and chart where do you think you are invaluable or you have data or you have domain expertise that no one else has. And then be diligent about saying, okay. Do I actually have something that no one else has in this market? And is it a relationship? Is it context that no one else has? Or do I just think I'm smarter and better read on the subject area in the market? In which case AI is gonna obviate that. [00:56:11] S3: Have you seen anyone be the most cutting edge exemplar of this attitude in a big firm? Like is there a favorite example of a person that's just Oh yeah. There's a racing of the There's a...