YouSaid · the spoken record

Bruce Ou

lines on the record: 70
first: 2023-10-30
most recent: 2023-10-30
sittings or episodes: 1
sources: podcast

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“When I was growing up, one of my idols was Bruce Lee. And so when I was 16, 17 years old, I watched this interview of him where he said, fighting is a game with which I play seriously. So I've taken that as advice to almost anything worthy of a challenge in life. So a game with which you play seriously means that if it's a worthy challenge, I'll give it my 120%. In other words, play it seriously, but I will try not to let the outcome bother me because it's ultimately a game, a journey.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“My partner, Catherine Crockett, in the early days of Grove Street, she was a great mentor to me and we've worked as partners for a long time now. Her level of dedication to clients has impacted me deeply and extends throughout her company, something very, very special. And the second person is Wendy, my wife. She teaches finance. So it's just a natural thought partner to me when it comes to investment theories and we have a lot of debates and discussions. But more than that, she just has a deep love for humanity, as do I. And I think that has helped attract fundamentally good people in our businesses and in our life.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we talked a little bit earlier about going to Sunni Oswego, realizing that was not New York City and getting myself over to Williams College. And what I didn't mention in that, of course, the people that helped me make that transition happen who put in the kindness and the support and take faith in someone who was trying to make that change.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“As a first generation immigrant to America, my journey has had some twist and turns that a person born here may not have, and I've tried to work hard in every situation. And in hindsight, I think those experiences have given me a great appreciation for just how many wonderful opportunities and wonderful people we have in this country.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yours are really quite high quality, so I do actually find myself listening to not only the new ones, but sometimes go back to the old ones. I like radio frequency, which is a healthcare-focused podcast quite a bit as well.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“This might sound like pandering, but podcast. So I love taking walks whenever I can, and I love reading. So enter podcast.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Corrects. So this dates back, I think, to those foundational values we talked about, alignment, intimacy, compound, our own capital, working closely with the clients. So we decided a long time ago that we don't want to be managers of armies of people with offices around the globe and turn our daytime job into full-time fundraisers. Over the last 15 years, a lot has happened in our industry. historically private partnerships have gone public, large GPs routinely sell GP stakes now, and many of our peers have been acquired by large AUMs. So we cherish our independence, we think that we can continue this measure growth pace by adding one or two clients every one, two, three years with important. Filtering for the right kind of partners that can be with us profitably for a long time.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“We approached it with an opportunistic high selectivity strategy, so where we, let's say, have a mature venture fund where the value drivers comes down to two or three companies that we know intimately and conform good opinions that are different from the seller's opinions and where maybe we have a bit of an edge with a GP. So we've done things like that quite successfully over history with primary like multiple return in addition to the IRR. So not an IRR game in this market, I think we would expect that those opportunities could be a little bit easier to find, but they're not quite showing up yet. We have our shopping list.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because Clavio has consumed in total less than 20 million of venture capital in its life. It's incredibly efficient business. So in theory, that should be loved by the market. And we'll see. There's no net change to the investor behavior. If anything, most investors probably were expecting the window shut longer. Again, I worry about the bad behavior of return too soon, but I think there's enough issues to sort out in existing portfolio that will still command a lot of attention for a while.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Six months ago, I think the prevailing market view was probably that we would have to wait until second half of 2024 for the IPO markets. People were pegging the close of the market maybe to two plus years. Is the upper end of historical window shut? Now you're right that it seems like with Instacart ARM Plavio, all have filed and there are others too that the market may be reopening. So I think we'll see a sorting of different companies. You know, Instacart, for example, at a price that significantly less than the peak valuation. Now, in the venture portfolio, they have been marked down because in between there have been prices already paid to it. And some might argue there was a buy-in opportunity just about a year ago. On the other extreme of it, companies like Clavio is going to be a really interesting discussion.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“I try to look at the industry level exit values, which of course is not a perfect, right? But just total exit values 2023 scale to historical averages. Private equity is tracking about 56% for buyouts compared to our 90% and venture is tracking, I think, 17-ish percent from memory to the 37% we have. So now it could just be law of small numbers. If my conjecture is right, and that is in this market, I think our funds are still able to sell their companies, which doesn't require as much debt to get the deal done and they can sell to their bigger private equity brothers. And so if that's true, that would be very neat because that would mean the portfolio is rebuilt could actually bring some diversification benefits in terms of liquidity timing to a large cap dominated. Portfolio.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Zero distribution in 2023, 2034, and half of 25 to get back to the average historically. The interesting thing with 2023 so far is that so total distributions for us is tracking almost 60% in the first three quarters to that old seven-year average. So with Q4 usually being a stronger quarter, we actually have a chance to get within that range of 15% lower than the average, I think. And if you peel back the onion within that number, that 60% tracking, buyout is tracking 90% and venture is tracking 37%. So one question that I'd love to find out is how does it compare to industry? It's hard to get the data anecdotally, I know a lot of investors are not happy with the distributions they're getting this year so far.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the slowdown in fundraise has been more notable so far in venture than biots. So we haven't seen a noticeable It's taking them on average a little bit longer to close the fund, which is fine. The interesting thing I would, one thing I might notice is on the distribution side, this is kind of an interesting trend. So if I take a 10-year view from, say, 2013 to 2022, I would second them into probably two segments. The first seven years, 13 to 19, and the last three that other pandemic and zerp years. So for us, for example, the first seven years average distribution year to year is a very healthy number. And with a modest variation, so the lowest year is only 15% less, one-five than the average. It's a very tight band. And of course, that average went to 50 plus percent higher in the next three years. So we kind of put forward two and a half years of distributions. We could have”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“To have made sense going on with the investors. It's comforting. There's conventional wisdom. You should just stick to your knittings. I think on the margin and in some corners, maybe even more than just the margin, rethinking how you deploy it and what portfolio you build for the next decade is something I don't think a lot of investors are doing.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“One behavior I do observe is that investors sometimes or boards the executor are influenced by a rare view mirror of returns. So in 2009, 2010, for example, you look back the 10 years of venture return was pretty bad and people are saying we would never do that again. And now it's a time where you look back 10 years looks pretty good and you probably will look good for a while just because the stickiness of returns. Yet underneath that, I think there are just important changes happening across the platforms, from large ones that are going through succession and team transition to the small ones that try their hands and now saying maybe this is not something I want to do anymore. I think that there's a lot of, we'll just do what seems”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I'm not talking about just putting in a new CRM or new accounting software system, new financial dashboards. I mean, that's table stake, right? These are very foundational level transformations. We've backed a few teams that have done this. And so that's an area where I think it's a threat coming from new technologies, new modalities to existing business models, competition. And so it's a risk to the managers who are not paying attention or understanding deeply, but likely an opportunity for those who do. It's a bit of an insight, I think we're drawing from investing both venture and buyout.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we talked about the investor FOMO in venture growth, perhaps in buyouts, our managers historically were not heavy users of debt. As I said, our portfolio average debt is about three to four times. The higher interest rates will have an impact on them, but I think it's limited. It had to generate returns from non-financial engineering sources. They just have to continue to do so. We always worry about too much capital in general overfunding, but there's not much we can do about that other than controlling our own pace and holding the bar high. This is maybe a risk, but also an opportunity, I would say, where I have a particular interest in finding BioGP's teams that are exceptional at using technology to transform their companies.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have not really done much in the venture site at all. It requires a very deliberate different strategy to do venture co-invest in our opinion. Idiosyncratic risk is far greater than buyouts. And therefore you have to approach it with a diversified enough of a portfolio, which then gets you to the, do you get back to the average return or you better off picking the funds and then as is well documented, the verse selection inventure is very high. So we haven't really focused on venture co-infests.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, from a business fundamentals perspective, they check a number of characteristics. These are all, for the most part, strong good businesses, mission critical product services to customers, hard to replace, resilient, pricing power, high margin cash flow characteristics. The capital structure dynamics is also, I would say, more consistent than different. They tend to be anywhere between three to four times in leverage and in three. So when we see a deal that's four and a half times or more, we tend to raise our eyebrows. And then the last thing that's characteristic across them is that there's some obvious, but they have a very strong alignment with the strength of the GP. That's an area we pay a lot of attention to trying to tease out. Is this the... Deal led by the right partner out of a fund”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Three is that maintain high selectivity. There are different approaches to invest. You could index and do more or most deals have shown to you. But for us, see a lot of deals force rank even a month. Your best choices and only pick a subset is a very good formula.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of aspects we could talk about, but maybe three brief comments. Number one is a strong fund portfolio serves as a strong foundation for Coinvest. It sounds very obvious, but it's something that should never be forgotten. So we don't accept the idea that you could do a good enough fund and think that you could pick the better part of the deals out of a good enough fund. That's not something we do. Number two is alignment is critical. So we construct our co-invest as organic parts of a SMA, meaning the co-invets performance is netted and pulled together with the fund performance in determining our net performance, something different from industry practice. And that has, in my mind, led to very good mitigance against divergent incentives in selection. It's a very important part.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“I always remind myself that there is the danger of knowing too much. It is a society and a culture and a country that is amazing and have unbelievable entrepreneurial drive and resilience dating really thousands of years. On the other hand, it's sort of a river that can twist and turn in ways that might shock a non-native mind. It is one where I think worth for large institutional investors seriously think about their long-term exposure, but do with extreme care.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say today the risk associated with China investments in general are very reflected in the price premiums in terms of asset valuation or lack of bid for any assets in the private markets, for example. So the question, therefore, for investor is that if you believe that the risks are where they are and they're not getting worse, one could argue there is a premium that you can get paid for taking those risks now if you, however, believe that the risks could get even worse or has to last a very long time, then it could more difficult calculus.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we have been a pretty long-term investor in China venture dating back to 2005, first China dedicated venture fund commitment and actually a bit earlier than that if you think about the drivers for first GGV fund, for example. They were a series A investor in Alibaba. So it's been a long time. On the other hand, I have always approached, along with my partners in making commitments to China as I used to joke, every commitment we make is both full enthusiasm, conviction, and full level of scare. And that has resulted to a very modest total of exposure. So we have consistently invested, picked carefully our managers, but never went up in the ways that some of our peers have.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“We just went through a period where the music was so loud that not just one chair was missing. This time a couple chairs were missing. And so just as we are feeling better about the music quiet down, there's a new DJ entering the house in the name of generative AI. And so one risk I see is the investor FOMO behavior again. On the other side of it, the flip side of it the opportunity in tech innovation and growth TAM in general build valuable businesses continue to increase. in terms of penetration and then there are new sectors that historically untouched by venture or growth that are becoming prime Areas for company building. Think about defense, trillion dollar global industry.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“We approach every vintage, I think, with some views, but we're cautious that the true nature of a particular vintage is, of course, never knowable as we live through them. In the extreme sort of years like 2021, it was easier to call that, wow, this is a repeat of a movie from 2000 and we shouldn't be reaching for dessert. So I think our view is that we try to stay steady from vintage to vintage, but invest with some degree of bias that's appropriately a contrarium.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Each pool is a fund of one. So each SMA is a funder one, where a client commits capital and the senior members of Grove Street commit capital alongside that client. So there's no commingling between the client's capital. And that fund has a defined life. We typically invest that for in the first two or three years, and then we manage that until the end of the vehicle. So they're not evergreen in that sense. But as we talked about earlier, we have enjoyed some great repeat loyal clients over the years that have given us second, third, fourth, fifth, sixth programs.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, consistency plays through the cycle to begin with. So during COVID, for example, it was a crazy period for fundraising in venture. People were coming back twice as fast and raising twice as much. So we tried very hard not to dance to that music. So on average, we're averaging about 10 to 15 venture funds per year and six to eight buyout funds per year.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a Makase menu we're trying to build for each client where every dish has to delight and then they have to come together as a smartly diversifying way. So a buyout portfolio, for example, will, as you would expect, target both vintage diversification, we typically target a three-year commitment period. We then seek to diversify strategies within buyouts from turnaround to buy and build. and target the core segment's GDP. So the portfolio is diversified price industries. And in venture, we're typically targeting, I'd say, 80% in information tech and the rest in healthcare and biotech. And then 60, 70% in the US and the rest in proven parts of venture centers around the world. In addition to those general rules, we use A number of quantitative tools as well, including a Monte Carlo simulation tool that we developed with Josh Lerner.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“The latter will nod's compromise. If the situation is such that we are not allowed the full ability to really get to know each other's partners, then we probably are not meant to be together. And one of the lessons I have learned by observing broadly is that there are always amazing opportunities and we don't need to get too attached to any opportunity. Just wait for the fat pitch. And ironically, the ones where we had to sell ourselves are the ones that I think want you to do real deep work because they want us to fully understand what we're buying into. And so that we have a chance of having long-term relationship.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“With Grove Street does not have to come with the ugly parts of bureaucracy, painful circular processes, inefficient decision-making or hygiene turnover. As the funding partner said to me towards the end of this process, he said, you know, I like the fact that you guys are also business owners, just like us. You get us. And I like your record of stability so that I know the chances that I'm going to deal with the same people you as the LPAC member 10, 15 years from now is high. Just not something you can say about a lot of institutions.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“European families exclusively, and over a dozen year period generated exceptional returns and demonstrated that this was a team that could have a lot of potential ahead of them for many years. So we caught wind of them before they decided to raise their next fund, reached out directly, and they included us in their outreach. But on the day of the scheduled call, they emailed and said, sorry, we have to cancel it because we've decided that we're not going to take any non-family investor. We're not going to take no for an answer. So wrote a letter from one entrepreneur to another, had one of our GPs call them directly, and had a CEO of a co-invest portfolio company called directly after that. We got the call back and then through interactions, they started to realize and appreciate that institutions”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is true, as you say, oftentimes really compelling opportunities tend to attract more capital than needed. It is, of course, however worth remembering that sometimes the contrarian views can be correct, and even the consensus views, even when they're right, can still be diluted if a amazing fund that should be raising $1 billion ends up raising $2 billion because investors pile in the risk return profile may have changed, that they're not as compelling anymore. But yes, in those situations where the opportunity is truly amazing and competition for it intense, part of our special power is to sell ourselves as preferred investors. So a recent example that comes to mind is a European lower mid-market buyout team. They had been backed by a number of prominent”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Once you've done the work, found someone that you think is great, it's rare that you're the only one who's done that. And in a market where everyone is trying to find the next great manager, how do you think about this concept of your reputation so that you can win over a GP in the event that there's scarce capacity?”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Source their best ideas when we come down to a subset of those to do, it's not just one or two or three deal team members. It can be the full team that spend time. So the result is, I would say, a very strong set of clarity around the key questions for each investment.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fully baked diligence process includes the elements that we talked about a little bit earlier, lots of psychos together, lots of references, lots of modeling work, and lots of internal discussions and debates. The result is a strong set of views emerging within our own team, not always consensus, but a strong set of pros and cons that have emerged that each key members of the investment team of Grove Street are fully aware of. One of the things we try to do is to have for the high priority opportunities is to have an all-hands-on deck approach where while everybody is encouraged to”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“And projections, and gather different facts around it, there is a lot more qualitative pooling different sources of insight and facts and context when it comes to venture. To understand, for example, who is on the rise in terms of reputation, who is maybe dying on a vine, may I say that's oftentimes not obvious to the broad investor base, but we're trying to get to that.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think underlining process of diligence is quite consistent. The process itself has to be bottoms up, detailed. We always, for example, spend a lot of time with the manager. We always do deep references, including lots of offshoot references. We always do independent modeling work on the important unrealized investments. So we have our own low medium, high views of the trajectory of unrealized investments and always have multiple internal discussions where everybody shares their views and votes. So those core elements of the process don't change. The specific questions related to each investment can change. So inventure versus buyout, for example, while you can analyze the emerging driver companies that are unrealized and build models.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So they can be fun to one or they can be fun four. Now, even for fun ones, we will never invest in first-time investors, as we say we'd invest in first-time funds, but not first-time investors. There needs to be teams that have demonstrated track records in their prior pre-fund careers, whether spin-out situations or bootstrapped deal by deal. What we're really trying to look for, I would say, is that really exceptional, high quality field choices that we can find every year out of literally thousands in this market, as you know.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't use a lot of leverage, then the odds should be that a real wipe out a bad deal should be lower. And that is not necessarily a trade-off for lack of upside.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“This was added, I would say, after the financial crisis period. So we went back and looked at our bio portfolio. In that sample, there were funds that generated very strong total fund level returns while having a higher degree of portfolio variability. But countering that is that there were a lot of funds that generated equal, if not better, total fund returns while having less variability in the outcome. So our conclusion from that was if we have teams that can control the trajectory of their companies, there's exogenous factors that could always hit a company and the portfolio that we can't control for. But if they are truly experts in the sectors or the strategies that they execute, they are really careful investors.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“You mentioned running low loss rates. I love to pull that thread because on the one hand the way to get no loss rates is have a new fund that's never done a deal before. So they have no loss rates, which probably isn't optimal under that lens. But there's also a degree of assessment of risk reward that goes into loss rates. How have you thought about the importance of having low loss rates?”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe I'll mention an example so I fund that space to here in New York called in tandem. It's a healthcare specialist in buy and build healthcare services businesses. The team came out of another well-known private equity firm where they were acting as a contracted management team running deals. And they did that for close to a 10-year period with an exclusivity during certain periods with this one fund and other times bringing other investors. So they were literally acting as the CEO, the chief marketing officer, the chief legal officer, the M&A officer for each of those buy and build platforms. They did it sequentially. So in that particular case, when we talked about their experience, we spoke to the CEOs they worked with. The level of engagement”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“And quantitatively, there are things you can look for too. For example, it is usually the case that an operational intensive team tends to use also less leverage at the beginning. So if we see a team that tends to use higher leverage at the beginning, that is a bit of a warning signal to us. Because if you are trying to really impact the trajectory of a company operationally, you don't want to compound that with high financial risk, certainly not at the beginning.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again astute observation because nobody at least now comes to market without saying they are operationally focused, even though that was maybe less the case dating back ten, fifteen years. There was a period of time investor focus on where the source of return may not have been front and center about operational. There's a lot of things we look for, as you said, to really tease that out. One would be looking deeply into the core members of the team's prior records. So we like, for example, teams that have members that have been not only investors, but also true operators. And there are many examples of that. We look for demonstrated evidence where they have truly changed the trajectory of companies, including sometimes near failures that were able to be saved.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to dive into the diligence process maybe on each of them. And so I'll start with a mid-market buyout. You mentioned teams with operational intensity and helping their companies. How do you tease that out? Because it's something that oftentimes you would expect many of the managers would say, oh, we do all these things to help our companies.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, in both buyouts and venture, I would say there's a set of clear criteria that define the attributes of something we look for in buyout, for example, we look for operationally intensive teams with a well-defined strategy, a set of expertise, low loss rates, a demonstratability to generate upside and strong alignment. And in venture, we're looking for teams led by partners who have invested in a meaningful way, not just the casual joint in the club way, the most important technology companies, including those that are becoming tomorrow's is part of the judgment we have to exercise to call which ones are that execute a thoughtful strategy in terms of portfolio construction, stage focus, and raising funds that are appropriately sized for the team in the”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Four other LPs, including several prominent university endowments. So that's an example of marrying a carefully cultivated reputation, the right relationships with proactive work.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“Say the guiding principle relates to sourcing is that to pick well, we believe that we need to map the universe of opportunities, triage quickly to filter out those that do not meet your criteria, then seek to meet with as many options that meet your criteria as possible and proactively approach the best teams. And we do that through cultivating a reputation in the marketplace, building informed networks as you expect, and a lot of just daily hustle. One example that comes to mind, although I cannot disclose the name of it, a venture fund, for example, came to us from one of the most respected venture investors in the valley who we asked who he most respects. He had a pretty high bar, so he didn't have a lot of ideas. And then we ended up backing this incredible team along with owning four.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, our targets have remained quite consistent over the 25 years, and those are venture capital, growth. And we do them through commitments to funds and co invests. These are areas where, generally speaking, we observe higher degrees of inefficiency. We observe higher dispersion return. Those are places where a student investors go for return, although people tend to forget the caution label, the obstacles to getting them are very significant. And something often unfortunately ignored. But those are the areas where we tend to focus.”
2023-10-30 · Capital Allocators · Bruce Ou – Private Market Investing at GroveStreet (EP.347) · IDENTIFIED FROM THE TRANSCRIPT · source