YouSaid · the spoken record

Erik Serrano

lines on the record: 96
first: 2024-01-02
most recent: 2024-01-02
sittings or episodes: 1
sources: podcast

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“I think about that a lot because there's like a lot of blue lights around. And in investing, because you also think very highly of yourself, it's a high confidence game. People assume that just because they're good at doing one thing, they're going to be great at doing another thing. And I think that portability of skill and alpha is something you have to be very careful with. So I think when we are evaluating a founder, if we get the sense that they're going to be all over the place, that would probably be another red flag”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Then unfortunately, most people won't penalize it because it went well. I think really good investors are like, okay, this worked, but not for the right reasons. And I don't think this was a good idea. But structurally in the industry, there's this permission that if things are going well, you get to do it. So I always say, even if things are going well, if they're not going well for the right reasons, it's probably not a good outcome. And they tend to deviate away from what they were doing. you invested in something that had a certain mandate. And with things like crypto or something that was quite rife, people would be attracted by this blue light. I think it's ants or one of the cartoon movies that's awesome. There's like two mosquitoes, one mosquitoes. Like, no, no, whatever you do, stay away from the light. And the other mosquito is like, oh, but it's so beautiful. And I guess I electrified on the light.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Expectations of the capital. One thing that I see GPs doing wrong comes back to this, wanting to do different things than what they say they would do. So I always tell my founders, losing money is inevitable. We all make mistakes. There's going to be good investments and bad investments. But you need to lose money the way you said you would lose money. Don't lose money in you in wonderful ways because that gets penalized. Ironically, if you start doing different things and investing in a new market and new structure or something like that, and it goes well.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sometimes I call it organ rejection. When you start a new firm, everyone typically takes a pay cut, right? The asset base is smaller. My advice to some of the founders that are having organ rejection from team is you're working really, really hard. And in your prior incarnation, a lot of people were trading off that pain with money. Now you have to reset this pain equation in your mind and you have to make sure that you're creating an environment where working a huge amount of hours, getting calls at 7 a.m. on a Sunday on a deal is sort of okay, acceptable, or at least expectation set with the people you're hiring just because they know that's what they're signing up for and they're trying to build something with you, not because you're going to pay them to take that pain. It's almost like a recruiting filter. And if you get that wrong, that's also something that goes wrong pretty quickly. And another thing is also back to this managing.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Partnering with a founder who they might not always take your advice but seeking advice and being aware of the things you don't know is very important. I'm always reminded probably apographly attributed to Mark Twain, but it's this, it's not what you don't know that gets you in trouble, but what you think you know for sure that just ain't so. And I think one big red flag for a bad GP is one that thinks that they know everything. And particularly in that framework sort of portfolio versus business, they think that just because they're very good at managing capital, that they're also going to be good at managing a business. And that's where they fall. So some symptoms of that when you're building your own investment firm or maybe thinking about building one, a lot of it is team cohesion. So attracting good talent and retaining it, we see that a lot. Sometimes we see quite excessive churn at the beginning of a firm.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Referencing is super important for us because there's less data for us. You've often been in a firm where you had a boss, a risk manager, a big deal team, sourcing structuring. So it's hard sometimes to allocate responsibility for returns to you on a quantitative basis, but qualitatively you can understand, okay, who sourced this investment? Who talk to the management team about it, et cetera? And I think the referencing is also quite powerful around is this someone who is open to advice? Is this someone who's open to feedback? Are they self-aware? Like we ask people, what is a piece of feedback you've got that surprised you? I think that's a really interesting question because it starts to dig into this outside perception versus self-perception. And when referencing, we're trying to determine that we're”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, when I look back at things that have gone wrong, we try to filter it out. But one bad signal is just wanting capital and not the advice and support that we hope and believe comes with it if you work with us. And it's a bit like getting married, you know, that old saying that as soon as you get married, people change. They kind of got the commitment. we were discussing earlier i think that commitment to marriage is decreasing and the commitment to serving your capital is also decreasing in some way and by that i mean a gp that just wants to get some capital and then forget about being open to feedback or being self-aware that for me is consistently what has driven bad outcomes for our investing and we try and filter that out by both asking you as the founder but also”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“To stick with it when it gets really hard. And that for me is really interesting. So when I talk to founders, I'm really trying to understand, are you in this for the money or do you just love investing? And money doesn't bring happiness, but it definitely is important to make enough money that you don't worry about money. But a great answer there from a GP is that they just want freedom from thinking about money. They have a great business and they might want to deliver amazing returns, build a great business on the way, build a great culture. Those answers to me speak volumes as opposed to, hey, what's your five and ten year plan? And if the first answer out of your mouth is, I want to be five or ten billion, that just doesn't feel like the right answer.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Hires sensation seeking, higher risk seeking, and you don't get banged for your buck. But the second order insight, which I thought was really interesting to have a way to prove it data-wise, was that fund managers who had flashier cars went in a drawdown used to give up sooner, which basically means if you do the sort of third derivative order, if you're in the business of investing because you love money, which is probably correlated to you buying a flashy car because it's a material objective, means that you probably love what you do less. So then when you're so far from the high watermark and the bonus is running away from you, you don't keep at it. And I thought that was so beautiful that someone had come up with a way to define a statistically significant and sort of academic study around for what is probably a relatively commonsensical heroism, which is like if you're motivated by the wrong thing, you probably won't have the result.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Follow your passion in this and that. And then you ask him, like, oh, how did you make your money? It's like iron smelting or something like super not glamorous. But I think in investing, you need to have a passion for investing. And there's a really cool study where these academics map what car you drive to your performance. And they do this with publicly available sources. They sort of map, okay, car ownership. And then they say, okay, cars that are flashy, they tend to be more expensive. Maybe they have bigger engines. And they map that to the performance of the fund managers. There's two really interesting conclusions. One is fund managers who drive faster flashier cars, they return a bit better, but not commiserate to the increased risk. So on a risk adjusted basis, they're worse investors. And that, in our mind, has all to do with sensation-seeking, with a psychological concept that often people are talking that you're kind of born with it, but generally speaking,”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“On specialization in different sectors, certain things that, and again, it sort of commonsensical to some extent, but it's things that are highly complicated, highly technical, like healthcare. That has probably the highest alpha to specialization, whereas things like consumer or other energy utilities has less so. So I would also advise a founder to, again, find that narrow domain expertise, but tie that to your own talents and passions. Often great healthcare investors are doctors by background. We have a founder, a trained doctor, and has become after that a fantastic investor. And not only that, he's still the doctor at his hospital one week and a month just to stay in touch with his craft and see the front line. That's amazing. Even during COVID, he's running super successful investment firm and he's just a doctor helping out on the ward once a month. And that's really inspiring. And it doesn't have to be glamours. A lot of financially successful people will go to university campus and they're like, oh,”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“The platform they're building around them within that designs and investment strategy that extracts that by understanding what the players at the table want, but then also make it long lasting. Because I think life's a bit of a repeat game. So I think people need to want to come to you for that. And they want to need to think, oh, this is a problem that only Patrick can solve, or he's the best place, or we want him involved in the cap table. And in private markets, it's easier to think about. I think Publix has like a complexity of the speed of the game and the unknowable potentially participants in terms of scale. So it's easier to conceptualize in private markets, I think. But the same rules apply there. I think some of our better founders display in public markets very deep domain expertise. So there's interesting studies in public markets to make that example come alive. There's different return.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“We can use public or private examples, but I think one thing that is common to the perfect GP is that they're very good at identifying what the agenda of each stakeholder in whatever their strategy might be and understanding what each party wants, and then they can design a structure to the deal, evaluation, compensation structure, something that extracts value from each stakeholder but makes them feel like they're getting what they want. And so a lot of the great investors we find have this incredible ability to understand what does each stakeholder in this want out of it? And how can I be the solution for that? And sometimes we talk about capital as a service. It's like, what service am I providing? What am I getting paid for? And so I think designing the ideal GP would be someone who matches their skills, compulsion to”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Really amazing and then hard work and hard effort was like anyone can do that. And now it's the opposite because I think talent to some extent you sort of inherit and I'm not sure you're deserving. So I actually admire people who work really hard and show up every day. So that over time has changed. But I think back to the perfect GP, I think it comes from following your own path and following your own path means design things that make you the best don't necessarily get normalized by society or by what people want on designing your firm. So if you start with that, first find a market that you think there's some inefficiency or”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think that's a good question to put a framework together. I will say that what I have discovered, and this is also with age, I think when you're younger, you say like, there's the best school and there's the best place to live and there's the best that, but it's all contextual to some extent. So I think you have to match your talents and your compulsions to a design of a firm that will make you be your best. And I just caveat that by saying if you're thinking of building your own investment firm, I don't think there's a recipe for success generically speaking. I think there's a recipe for success for you. And so the starting point, if I had to design the perfect GP would be for the founder to think about themselves and think about what do I love doing, what's my superpower, and somehow design a firm and an investment strategy that leverages that talent, compulsion. When I was younger, I thought talent was.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Last dollar, where people who are more likable, it's like, let's think bigger pie and split that as opposed to more zero sum. They're kind of more positive sum people. And I think that in private markets, if you combine this likeability network, that seems to be a recipe for success when we look at all project legends.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“People they think are going to be the absolute best returners give money to people they like. And I thought that was super interesting because in our industry, everyone tends to focus on dollars and percentage returns. And again, we're not looking at the person, we're looking at the numbers. And it's all about money and it's quite transactional. But actually when you look at the returns to likability are quite high. And I don't mean likeability and you're super charming and you tell jokes and you're funny. I think likability is a proxy for something very monetizable in investing, which is that you're reliable. You will probably act in a way that's not going to be offensive. You're going to behave in five and ten years in the same way you do today. Because disagreeable people are less predictable. They act in ways that might be contrary to a common goal. They tend to be people who at the negotiating table, they just want to negotiate every single.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Find the investment opportunities, need to source the deal. So return on age is higher. And what's interesting in privates, actually, that we discovered is that there tends to be this dual act. So if you look at some of the legends here with Blackstone, you have Schwartzmann and Peterson. At TBG, you have Bonderman and Coulter. And the pattern is repeated with Ruben and all the bigger private equity firms where I think you have one person who is slightly older. They have the network. They're the door opener. They have a bit of gray hair. They're making sure that the management team or founder of the portfolio company you're buying feels safe. And then there's the younger hustler, hard worker, C-Round Corners person. And this is something actually that I learned from Schwartzman. His insight into that was actually quite revealing was people don't give money to the”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, some of them are common sense ago, and again, heuristically, the younger age on publics made sense, but if you sort of double click a bit, in public markets, when you invest, you don't necessarily need to know the other side of the transaction. You can sit in front of your screens and with your Bloomberg and just transact. In private markets, the other side of the transaction needs to want to transact with you. And so I think there's more returns to experience, network, and to some extent likability as well, which is something that would be interesting to talk about. So from Project Legends, in public, it's a bit younger, but it also tends to be that on the public side, founders can get away with being less likable and less able to build relationships and potentially lower EQ, lower empathy. In private markets, the age is a bit higher, because again, you need network and you need”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“And value add, and whatever you're ascribing that alpha from. But yeah, I think a significant amount of return you can expect in an investment firm is the returns from building a fantastically run business, not just from investing it. And I think when you look at the examples of these legends, you'll probably see quite quickly that they became very successful, at least financially, not necessarily from being the best investors, but being the best business builders.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Come from the excess management fee and carry over the lifetime. And then on the back end monetizing that stake, typically back to the founder. So we think it's important to have an aligned structure with the founder as well as with the asset owner. And for the founder, I think it's an important attribute that from the beginning we say as you succeed and we get rewarded for all the hard work and trust and risk we took, you can buy back our minority stake in your business. And then in private markets, it's a bit different because they're obviously your capital is locked up for the whole first fund and they take longer to grow because enterprise value is step function as opposed to open-ended. So the maths is a bit different. There's probably a bit more waiting to the LP side also because the multiples are probably higher. So you have to normalize for return. Private markets you're expecting to have somewhat of a premium on the return for the illiquidity.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that hasn't adjusted, surprisingly, as much as the industry has grown. Like 15 years ago, the private markets industry was $1 trillion. Now it's 12. That's wild. And yet there hasn't been this evolution and alignment improvement to correct for that growth. And so, yeah, if I look back, when you're looking at on the public side, it depends for how long you keep your money in the fund. But for us, our model is we give founders a three-year runway. So you have three years, you can hire people. We're locked up. And that's a huge value of partnership with us is you can actually plan for the future. You can attract talent. You can get that lease on the office for a few years. And just assuming that at the end of the three years, you're not invested just to create an example to answer your question. It's about a third, a third, a third. So a third came from that performance, a third would...”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of those GPs, which is something that 15, 20 years ago when I started, people weren't even thinking about. And then these amazing founders and business builders have taken their firms public. Now when you look at these integrated alts managers like a Blackstone or an Apollo or a KKR, the amount of wealth created in monetizing the EV is amazing. We do some calculations, but when you look at the wealth of these founders, we would argue the majority of their wealth, which actually created monetizing the EV. And a big chunk was created with the excess management fees and not that much from Carrie. And I think that misalignment is something that we love correcting because when asset managers were small, that 2 and 20 model made sense. But the management”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, great question. It depends a lot on the strategy in terms of what is the risk return profile. So we invest across asset classes. We started on the public side, and then now we invest across private markets as well. To recap your framework on income, absolutely there's return on the capital you're investing. Then there is excess management fees, as well as carry. And then there's monetizing the enterprise. Oh, sure, there's EV.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not that the founder has forgotten how they're investing, it's that they're spending a lot less time on it. So that means that all the distractions are creating that poor performance. So if you can be a true partner helping them with run the business, I think that's one of the more powerful roles you can play to maximize those returns.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“In terms of how they structure their decision making, their process. And I think my realization that potentially drove a bit better outcomes was that we need to focus on the person as well as their strategy. And we need to provide help. I focused a lot on helping founders initially think about on the business side what things can we do to set it up for success so that your investment strategy maximizes its returns. And a lot of it is minimizing distraction because what's interesting in backing investment firms and backing emerging talent is that when you're in a bigger firm, a lot of the things are done for you. So you may be spending 90% of your time investing. But then you're becoming an entrepreneur, you become a founder, and you might be down to 40% investing and then 30% operations and 30% asset rates.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Way to get help with setting up your business. And then when I looked at the case studies, there were some firms that were starting to think about this in a more systematic way. But often the people that were seating tended to come from more of a allocator, a fundafund seat, where, again, they were very focused on the strategy, a bit less on the person. And critically, I think we're not focused on the business side. So I was lucky to spend a bit of time with Gil Cafre, who worked with Julian Robertson at Tiger. Julian became very famous for seeding on the public side. And there I learned that distinction between the portfolio and the business. So investing is actually two very different things. But everyone's just looking at the portfolio and they're not looking at the business, which comes back to my surprise that there just aren't many people who are studying what makes a great investment firm.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“A pool of capital knew the person. And I think the key aspect of that relationship is that there was less principal agent problem. So the principal agent problem in investing to me is that a lot of the decision makers who write a check to an investment firm aren't the principal or the agent. And a lot of firms actually do a good job at aligning incentives. And I think it's moving in the right direction. But generally speaking, probabilistically you can assert that In terms of LP types, it's typical that an individual or a family, the principle is making the investment decision. And so historically, they would be able to take that career risk because in a sense it's their own career. So they're taking their own career risk on a new founder of an investment firm. And some of them worked well and some of them didn't. But generally speaking, there wasn't a professional.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, thank you. We're all unique Snowflakes. No, I think to look at the history of seeding or how investment firms came to be quite illustrative. And this is something I did early on setting up stable. I tried to find as many people as I could who had been involved in that day one, that first, because someone gave Steve Schwartzmann his first dollar and someone gave Bonderman a culture the first dollar. Someone gave Ray Dalia their first dollar. The history is that it was typically very wealthy individuals, families who knew an investor somewhere, maybe was even an operator on the private side, and they were impressed by their capital allocation, essentially. And this founder said, oh, you know, well, why don't I make it into an asset management firm? Why don't I launch a private equity fund or a hedge fund? And so really the history of seeding comes from these high trust relationships where”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“For long periods of time, like the world changes, you can't So, my advice for founders would be be really good at one thing, do that, but also know that to keep your edge, you'll have to evolve over time, but also be prudent and also be very transparent and communicative to your investors about that because you almost have to earn that license and trust to evolve. And that's actually something very interesting about how that traditional GPLP relationship works. I love what I do because when my founders have an issue, they come to me with the issue. So I'm like a special LP, a special investor, you know, providing capital to them. And I think it's super healthy to be on the same team where it's encouraged to speak and communicate about how you can improve things. So one of the things I love about my job is that a limited partner is limited. I don't like limitations. I want to be a full partner with you.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Correct. And so I think the best founders find a way to do that within their strategy where they're testing and changing without it being wholesale change of the strategy. And then they're good at evolving that and more than anything communicating that. And communication is something that is really underrated in investing. I think most GPs just want to focus on investing. And they see their LPs as this necessary evil. And I tell my founders, you got to change the paradigm. Your capital owners are allowing you to do what you love. Not only is it your passion and it makes you happy every day, it happens also to generate huge amounts of wealth. You should be grateful to these people. And if they have questions or things are not going so well, be proactively communicative. And if you do that well, I think that builds that trust for you to also evolve your strategy. Because if someone has money for”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think managing evolution as an investment firm founder is difficult because the audience interprets that as, oh, you're extending your mandate or this or that. Whereas in tech or the other industries we're comparing to that's a plus, like pivot is like a good thing.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Parents did, and we find a lot of great founders just have different points of view. And I think there's a point when varian perception converts into complete stubbornness and it's negative. So there's sort of diminishing returns to variance at some point and then maybe becomes negative where you believe something outlandish or completely counter consensus and maybe you were wrong. And in my investing, I found that it's hard to tell where that point is. Some of the investments that have gone less well have been where a founder just sticks to their guns in a way that doesn't let them live to fight another day. I've kind of corrected a bit of my strategy there of like I used to look for extreme variant perception, but at some point is actually negative to be too stubborn. I think just correcting your thoughts with new data is important. And that's one of the sort of not so secret secrets of the industry that I think.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“And when you really get to the core of what drives them, it's this adversity that they channeled in a very positive way to become what they are today. And I think adversity at a young age is unfortunate and sad. But if you think about it as something that's giving you a superpower, that's really cool. So those are the kind of things we look for resilience-wise. In terms of variant perception, that's really seeing things other people don't see believing things other people don't believe it's essentially being contrarian because in investing if you're the average your beta in your market and you're you need to have a different view and to be contrarian you need a a point of view that's coming from a life experience or analysis that's different from the herd and again that tends to come from people who in childhood younger years are just looking at things a bit differently that can correlate to the household you grew up in what you're”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of being an expert in your field and contribution when you look at the data, there's huge relevance, for instance, of losing a parent young. Something crazy like two-thirds of British prime ministers until a couple decades ago had lost a parent before 18. It's about a third of U.S. presidents. But also when you double click into these legends of the investment world, and again, I'm really privileged because often with project legends, my day job is forecasting forward which investment firm founders are going to be great, but I'm really lucky to come across already legend investment from founders. And if I get to get an hour with them, I run them through this questionnaire that we called past, present, future, sort of an abridged version that we use with our founders and our day job. I run the legends through it and I try to pattern recognize back. And you'd be shocked at how many of them say, you know, is that financial insecurity in my childhood or not seeing my dad succeed?”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so that's less fun. And so resilience needs to come from a place where you love what you do so much that all this discouraging news and obstacles in the way and things going wrong and blowing up all the time are not going to discourage you from remaining focused on your investment strategy. There's many variables that bring this resilience, but there's a few fun ones maybe to talk about. I think it's not particularly fun, but adversity at an early age. I always think that we are the product a bit of our childhood and our parents and a lot of how we interact with the world, our values, our chips on shoulders actually come from a relatively young age. So just exploring how you got here is something that I spent a lot of time on. And the data is very consistent. We always try to start with data because you're also tempted to use heuristics of like who's successful and did they go to the right schools and are they good at explaining things. But in a broad definition of success,”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Entrepreneur has that. Everything goes wrong all the time. And the bad news and difficulties actually flow upwards. People think it's great to be the boss and to be a founder, but actually all the hard problems go up to you. So a high percentage of your day is just dealing with problems and hard things.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“But most limited partners, you know, most capital allocators will not have the opportunity to really get to know the person. So they tend to focus on the investment strategy. But for me, it's really important to get to know the person because you're really underwriting this person's decision making 10 years into the future. Like the markets will change a lot more than the person will change. And yet we focus a lot on the market and the strategy, but less on the person. And so I have this really fun and privileged access to getting to know the person. And the characteristics that show up repeatedly about what makes a good GP, what makes a good investment from founder is that they have attributes that create two things. One is resilience and one is variant perception. So if you double click into each of those in turn, resilience is never giving up. It's just getting up when you're knocked down, when you're feeling like you don't want to get out of bed in the morning and being an entrepreneur.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Whereas in investing, it's the intellectual capital of the humans that are part of that team. And so they just have a shorter lifespan because we live less. And so I think that building an investment firm is difficult because you're really dealing with humans. And so the focus of my work is centering on what makes this person a great investor, like what makes them tick. There's this great saying, which is chips on the shoulders, put chips in pockets. And so I'm always trying to discern, Okay, here's a founder that wants to build an investment firm. What's really driving him or her? What is their edge? And a lot of that tends to correlate with personality traits, but also your life journey. And I think that's something that most investors underappreciate or have less access to in a way. I'm really privileged because when I'm meeting a founder, I can actually get into the nitty gritty of who they are. I spend a ton of hours with them.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot to unpack there. I think on the investment firm, it tends to have these oligopolistic tendencies. So scale begets more scale. And I think a lot of that is almost to do with the asset owner side of the equation. There's sort of no one got fired for investing in IBM, where at some point the career risk of the allocator investor tableau and our asset owner is an important decision factor. So once an investment firm has been de-risked, it just tends to scale. So when you look at asset raising, it tends to be quite concentrated in the larger firms. But another thing is that bringing it back to people, you're actually really investing in people. And I think people underestimate how the life cycle of a firm follows the life cycle of a human in investing in a way that in other industries like healthcare or tech, the product is more the code or it's the molecule recipe for the medicine.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Because if you can say, hey, here's the framework of how I'm going to invest, people can underwrite that as opposed to saying, oh, I have this strategy that extracts alpha in this way or this arbitrage. Like it's more about this is how I'm going to set up the mousetrap. And that's what started getting me interested in can I actually back founders of investment firms in a way that I'm also a partner with them in their firm. So the returns isn't going to only be, I give them 100 million, they generate some returns. I'm going to give them 100 million, but I'm going to be a partner in the GP. And then to scale that GP and turn it into a great business is going to be the objective of what I'm trying to do.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's still quite old, right? And I'm like 10 years away from this at the time. Not that I had the data points. But I was thinking, okay, how can I convince people to trust me? And then it became more about the mousetrap, so the shape of the firm or what I was trying to do.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Made lots of money. So there is a reason why there is that market failure behind trying to start a firm young. And so I went into doing a bit of research on that. And at the firm, we do this thing called project legends. And Project Legends is figuring out, okay, who are the best investors in public markets and private markets? And it's sort of defined as lifetime P&L. Because when I think of people, it's often the case that they make a lot of money on small amounts. And then as they scale, they lose a ton. So there's ways to triangulate this. And it's hard to get both data series, people tend to talk about returns, but not about AUM. But if you get both and multiply them together, you can get to this lifetime P&L. And on the public side, the average age of launch is 33. On the private side, it's about 37, 38. Although on the private side, and we can talk about this, it's often a duo. It's like the younger and older person, which is interesting in itself.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“Quite a good communicator. Let me try and start a private equity firm. And I start talking to people in my network, typically that have a lot of money because you're thinking, okay, capital first. And they all kind of laugh me out of the room. They're like, you're 23 years old. You just started this job. You have no idea what you're doing. And there are actually good reasons for why you don't start an investment firm young and now looking back. One of those is that when you're investing your product in a way is your performance. But to generate performance, you need time to elapse and to discern luck from skill. Time has to elapse. And unless you have a time machine, it's going to be difficult for you to prove like, no, this is going to be great. Like we're going to look back in 10 years and it's going to be.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, yeah, when I was that young, I was working at Maine, and I really wanted to set up my own private equity firm. But for me, I wanted to be a student of what's the best firm that I can set up. And because I wanted to start my own private equity firm, I went around asking people kind of how they got started. And that got me thinking about seeding acceleration and investigating the history of how do people start investment firms. And that's what got me thinking, okay, what are the frameworks that I can use to build? And also an investment firm, why aren't there more younger people that start investment firms? Because you mentioned tech, right? So if you want to start a tech firm, a healthcare company, there's all these VCs, but if you want to start an investment firm, there's no firms that start investment firms. And that's super weird, right? And so I was thinking, okay, why? And it's probably this youthful arrogance of daring to ask questions. And I was thinking, hey, I think I'm quite smart.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm still amazed at how in the business of investing most of the focus is on the investment strategy, how you make returns, but people don't think about what is the machine or the platform or the process that enables you to generate those returns. There's a Spanish saying, which is the cobbler's son has no shoes. And I think it's a really neat concept that the people that are dedicated to their craft often overlook that same craft when applied to themselves. And you find this in a lot of investment or professional services that you meet. Investors who spend their time maximizing their craft of returns, but when you ask them about what they do with their own money or do they give advice to their friends, they just don't apply it to themselves.”
2024-01-02 · Invest Like the Best · Erik Serrano - Investing in Investment Firms - [Invest Like the Best, EP.358] · IDENTIFIED FROM THE TRANSCRIPT · source