YouSaid · the spoken record

Sarah Samuels

lines on the record: 62
first: 2024-08-12
most recent: 2024-08-12
sittings or episodes: 1
sources: podcast

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“Thank you, Ted. Thanks for asking. So, Braving Our Savings is a children's book, and it's designed to inspire and teach kids of all backgrounds to invest and be brave. And we are sold out. We're doing a reprint, which will come out in the fall. And we've taught 1,700 children live about investing and about how to take these risks. And we've given the book away to about 1,500 kids. So we've had great support from institutions and individuals alike.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Five years ago, it was very firmly on my radar. We viewed it as one of the largest risks in our portfolio. So just put things in perspective. A lot of our analysis was done on that. And especially at a particular point in time. So five years ago, we were really seeing this increase in founders who were in their late 50s, early 60s, mid-60s who had done very little thinking about that next gen. And it's so interesting. I remember this one GP that came into our office five years ago, six years ago. And we said, you're still doing an awful lot. You're the face of the firm. You're running all the portfolios. How are you doing it all and who's next? And they said, kids these days, they just don't work the same way that we did. And they're not ready. And the CIO challenged this person and said, were you ready when you were given your chance? He's like, absolutely not. And so I think it's just understanding that you need to take chances on people. If you want it to be a sustainable firm.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Never thought about it 10 years ago. It wasn't even on my radar. I didn't appreciate the fact that it could have meaningful implications for performance and turnover. And it was really a quantitative process that I was using 10 years ago. And it was sophisticated quant. It was something that experimental physicists that we hired who worked at GMO came over and taught us about how to use data in a different way. So it really did help us. And we still use a lot of those tools, but it completely overlooked many of these more soft. And so that's one of the things that I think is most overlooked by many allocators.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would like to see more firms engage with a coach and engage with outside counsel to learn more about their options for transitioning to that next generation. And I would say nine times out of ten, that next gen has no idea what the firm's plans are for them. So forecasting, lighting them know if you have top talent, you really need to tell them what you imagine for them for their future and how that might play out and involve them in these discussions.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, there are so many things to think about with smaller firms versus larger firms. When you're at a small boutique firm, you wear a lot of hats. So you need to be able to be facile and creative and have a lot of stamina and the ability to try new things, take risks, and be entrepreneurial. And so you might be a portfolio manager who's putting together a marketing slot, or you might be going to the back office to see how the operations team has valued a security, whereas at a large organization, there would be a lot of support to do that. So you've got to get your hands dirty in more ways and open your eyes to what it means to work at a boutique. It's very, very hard, not only that, but the cost of data and the cost of regulatory compliance has gone up tremendously. So I think in a boutique firm succession not only means managing the portfolio, but all these other things that there isn't necessarily a team for.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“You think about the differentiation between a boutique most VC firms probably fall into that smaller public equity firms or hedge funds compared to much longer standing, maybe traditional long-on-ly to mutual fund organizations, Wellington Capital Fixed Income Organizations in terms of how you calibrate that succession in a smaller firm.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Elbow to elbow mentorship. I think portfolio construction is one thing, especially in the ventor side, where newer funds, founders on the GP side who haven't done this before have very little idea of how to construct a portfolio, whether it's having reserves or position sizing, the pace of investing and monitoring those. What we like to know is, is there some sort of a mentor and many of the best firms that we've seen, especially with those newer founders, newer entrants to the VC space? Maybe there were founders who exited a huge investment on a portfolio company side. They've made a tremendous amount of wealth and they want to try their hand investing. We want them to have mentorship from a really seasoned venture GP. And we see that all the time. There's actually quite a bit of training that VCs are willing to give to one another, which is great.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, it's a great question whether it's a small number of deals being done in a private equity fund or whether it's a low turnover strategy fundamentally driven on the long only side or anything in between. So I just did a podcast with Gene Hines myself a couple of weeks ago, and she talked about this exact point. And she was trained by Ed Owens. And she said that, number one, he was a gardener. So he would trim and he would rebalance. And he did a lot of work not necessarily putting new positions on and taking them off, but managing the portfolio over time. So that's a really important thing to remember that there's not just the big decisions, there's lots of little ones along the way. And then she talked about how it took a long, long time and that he brought her into every meeting. He gave her some training ground after a few years to see how she'd do. And she had some big risks that she took and they didn't necessarily pan out. And that's how the lessons are learned. And so having the feedback mechanism and like I said,”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Across different strategies, there are certain strategies like a quant firm or a platform hedge fund where there's a lot of chances to make a decision. And then you have others that are by design long-term nature. There are fewer opportunities to make decisions change around portfolios. How do you think about training someone or having someone trained properly to take over a portfolio in a strategy that doesn't lend itself to many decisions to be able to make those portfolio management mistakes?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it needs to be elbow to elbow and mentorship and training and apprenticeship. You want to make sure that the person has had an opportunity to manage their own portfolio, to learn about risk, to make some mistakes. My belief is that it takes a tremendously long time to be good at managing equity portfolios. So portfolio construction and risk management, if the person is inclined to be a risk taker, they might overdo it and really step in it. And if they're risk averse, they might overdo that. And so there's a lot of cycles that need to be had, so it can't happen quickly.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Across the different types of investment strategies, how do you think about the grooming for someone to take over running a portfolio? I think it's probably particularly the case in the public market strategies.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“And this is an interesting story of one where there was some turnover in a senior position recently. And we said, hey, this is probably concerning. Let's see what's going on. When we look back at our framework from last year and the year before, they had been grooming all sorts of people to run this strategy and to be in a position of decision making authority, which it's on the succession front in terms of managing portfolios, not necessarily ownership. And so they had really groomed and spent a lot of time. And we realized that they were super well positioned and thoughtful. So that's a firm that's done a really good job, but is not super transparent.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't think that there's any real way to get this information if they don't share it with you, especially with the private market GPs. It's not going to be necessarily laid out in a Form ADV or anything like that. So I don't think there's a lot of transparency. I'll give an example of a firm that I think is protects their intellectual property very well. And there's a reason for it. And it spills over into how they communicate their succession and their ownership, but they're doing a great job of managing it. And so this firm is Arrow Street. They are a quantitative strategy that has a very, very definite edge in terms of how they manage their quant process, but they view it as IP and don't share every single bit of the model. I would say that they're similarly not as open about the ownership structure, but we have seen very, very thoughtful succession planning over the years. So owned by a number of partners.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“The situations where managers are trying to keep some lid or some opacity in the information that's forthcoming, what's your sense of, let's just call it how efficient the market is for that information that eventually you're going to find out what the story is underneath the hood?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Speak with us, and they just opened the kimono and told us everything, every gripe that was going on between individuals at the firm about lack of mobility. And so these can be really helpful discussions to understand the texture of the organization.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Generally speaking, most firms don't want really to engage on this topic. When you think about why would that be, it makes us think about our own humanity and mortality. Nobody wants to think about that. I have thought in the past, oh, and I'm in my 40s, I'll slow down. And it's like, no, you don't. You don't ever slow down. You don't ever feel your age. It takes a special person to be able to think about that proactively. When we're meeting with managers, oftentimes they don't want to talk about the details, but when we speak with that next generation, that's where we really get a lot of the information and better yet a junior person who really can fill in the holes as to the culture. So we've had a meeting with the person who runs the firm, this is a venture manager in New York. And we went in and said we were supposed to meet with the founder and they weren't available at the last minute. We got a junior to mid-level person who hadn't been trained in terms of how to.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's not black and white. It is very nuanced. And a third of our investment framework is what we call analyst opinion, which is our instinct and our gut based on spidey sense. So based on our experience, where can we reflect just how we generally feel about this? But on the more formal side of how we incorporate this, it's into the firm and organization section, and it's but one component. So it's probably a sub 5% rating, but I would say it heavily informs how we're going to structure our analyst opinion. And it's something that I think working at a private partnership here at NEPC has actually really helped to be a part of the inner workings of understanding how economics are passed down. Because we're in our third generation here and it's been successfully transitioned from the founder, but we've learned a lot of lessons along the way. So that helps.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you take all of these inputs that you're gathering, how do you incorporate where a manager is in their succession planning into your rubric of your assessment of whether you're going to recommend a manager to clients or not?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a story of one manager here in Boston 50 50 ownership of the co founders who founded it when they were in their 40s and they were in their early 50s. And we said to them, you're obviously young and your firm's doing great, but what have you done to think about your succession? And they said, we haven't. And we said, well, you should engage with outside counsel to help you understand how you could begin transitioning ownership and when you want to and then create a management group to bring this next gen in. And three weeks later, they had done both of those things. It's a fantastic story. Now, unfortunately, they stopped there. They didn't do any actual transition of the ownership. But recently, one of those two co-founders announced that they had to take a three-year unexpected leave. Only now are they thinking, what should we do with his ownership? But because they had created that management group and planted the seeds and worked with outside counsel, they were set up.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's so interesting. It tells a lot about somebody's personality and degree of self reflection and introspection and maturity. So one of the firms that was at the top of our list of firms with high succession risk, we went in to visit with this founder and we sat at the table and said, tell us about your plans. You're approaching mid-60s. You've told us yourself that you want to play some more golf and spend time with your family. So who are your MVPs? Tell us about them and what you're doing and what their role is at the firm. And he sat back at the conference room table and he thought about it and he said nobody. He said, there's nobody that I want to hand this over to. When the time comes, we're going to shut down. I was grateful that there was that degree of candor and transparency, but sometimes you have to suss it out for yourself. So many firms say we don't share that information. We can give you directionally plus or minus 30% ownership. And some say, please tell us what you've seen. And those are the ones that we absolutely love working with.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was just because people were buying and bidding them up. So that was not a sustainable situation. And sort of exactly what not to do when it comes to bringing in that next generation and just skipping over all the talent and naming your son.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's one firm that I invested with in my prior life, it is a public market equity strategy. And performance was amazing. It attracted a lot of inflows. So a track record belt on friends and family money attracted institutional capital and they really weren't set up at all for the institutional side of the business. But on the succession side, this was a firm that was founded by a gentleman who was in his 60s and the talent was fantastic, people with huge ability to create value and add alpha. This founder's son came to work for the company, 24 years old, becomes the CIO. So he's directing all sorts of stuff in managing people who are 20 to 30 years his senior, of course, we saw turnover. We saw cultural issues. We saw redemptions. And turns out the positions they had were highly illiquid and the stock performance.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've got Northwestern and Colgate and Northeastern. They all have degrees available now in managing through family business dynamics. And I have a friend who runs and is the great-grandson of somebody. He runs a very large family-owned business that we'd all know about, sort of an outdoor equipment company. And I've heard a lot of stories from the inside. And if you can imagine how challenging it would be to manage a family business, imagine sitting at the Thanksgiving table talking about these things or telling your sister or brother that they need to be off the board.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are replaced by VC firms who've invested in the company by the time they reach the third round of financing, and that 75% of founders have been replaced by the time a company IPOs. So why are founders replaced? There's a couple of different reasons. They're different from the succession issues at GPs and at asset managers, but outside capital and minority investors on behalf of the venture capital firms means that there's pressure to scale and grow. As my coach Sloane Klein often tells me, when we're working together, what got you here won't get you there. And so these founders may have been amazing at getting the company to where it needs to be today, but may not have the skills to scale it, to run a much larger organization or change strategy. So oftentimes there's going to be some sort of pressure point and friction regarding strategic vision. And they are going to get replaced. And then when we think about family-owned business.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is a really interesting thread to pull on. Asset managers are not the only ones who are struggling with managing succession. There are so many similarities with founders of venture firms. And why do we all struggle with this? It's really because as we talked about, there's a great deal of personal identity wrapped up and really one sense of self, as well as just a passion for the company that they've built. So when we think about a couple of analogs, one would be comparing this succession analysis in the asset manager context to succession analysis in terms of founders of VC-backed portfolio companies, so entrepreneurs. And then the other is looking at family-owned businesses. They're very, very similar issues. And we can certainly, I'm sure we've all seen the show succession and seen how that plays out. But when we think about venture-backed companies, there's one study that found that about half of found”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“And sure, you can do a secondary sale. They're really expensive, and it took a ton of time. So it's not really something you want to plan on.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think private equity has this mystery around in terms of how to allocate capital. What do people think about? What do they do? Such an advanced skill set required to commit to private equity. And it is. But all the work is front-loaded, really. Once you've made that initial decision to commit, it's kind of like a marriage, a short marriage. But 10 to 12 years or to 14 years, and you're buying that team. And so this is an analysis that you need to have done at the very outset to understand are you willing to underwrite this firm for the next 14 years?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“For sure. So that's where the risk of investing in public markets and hedge funds is very different. So in public markets, you can vote with your feet tomorrow or at least the very longest, probably next month with a hedge fund. You just want to be careful of the risk of you being the last one holding the bag. So you want to look at the underlying securities, their liquidity, what types of demands are there if you needed to sell. And with any hedge fund, we want to make sure the liquidity of the underlying matches the terms of the fund.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do you think about, say, particularly that second firm, there's also an experience curve where, say, someone in their 70s might know a lot about the markets, have climbed this curve, is still super passionate about investing. So how do you think about, okay, this doesn't look like a firm that's going to have a significant long-term succession, but it might be a great place to invest until there's an event and then you take your capital back and you move on to the next one.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“To be the face of the firm. And for all intents and purposes, it is considered to be a key person by the GP and by us. And so now the firm, just like the first one I mentioned is over 30 years old. And if one of the founders goes, whether it's voluntarily or involuntarily, the firm is done.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Based on poor performance or culture, they probably don't see that there's a potential for them to have a leadership role in the firm long term. Key person age. So the founders are approaching 70 years old in the next couple of years, and they're very involved in the business. That's a red flag for us. And then the degree of next generation grooming a bunch of red flags. So the management company is owned 50-50 by two co-founders who are approaching 70. They own 50-50 for 30 years. If they're unexpectedly incapacitated, their ownership will go to their family estate. The firm has partners, but all the equity is controlled by the founders, and this firm just recently did sell a stake to an outside minority owner. They didn't use this liquidity event to distribute or offer ownership to that next generation. They still own 50% each of the profits of the management company that they still own. They appointed a co-CIO a few years ago who's now CIO, but the founder can”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“This really equipped the firm to begin to be fully self-reliant and be able to be sustainable in the long term. And just as importantly as transitioning the economic ownership, they begin to transition their decision-making authority to the next generation. And they formally named people to be CIO. And in decision-making roles, the founder still sits on the board. But the next gen has been elevated to a co-CEO structure. So now the firm is nearly 30 years old, and it's very clearly going to be able to continue to run. We can trust that with another one. This is a large hedge fund that was founded also in the early mid-90s. This firm is not as evolved in terms of thinking about its succession plan. So taking the situation through our framework and those three parts, performance, we've seen large outflows of assets. And we've seen a lot of senior professionals leave, whether it's based on fewer dollars being managed or whether it's”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have so many stories of both really well run succession and very poorly run and everything in between. And so I'd love to tell a story about compare and contrasting two founders who handled their succession stories very, very differently. So the first one is Oak Tree, very well managed. This is a large private markets GP, you know, focused on all sorts of things and founded in the mid-90s. So been around for a while. They thoughtfully saw the need to begin transitioning ownership and they had a number of liquidity events, including selling a percentage to clients and then to institutional investors via private placement and then ultimately via an IPO. And they floated 6% of the company. So at this time, the co-founders were in their mid 60s and mid-50s, respectively. They reduced their ownership in the company to sub 15%, which is really meaningful. And it's something that we like to see, that small ownership.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“What have you seen across different strategies? So you think about long only, maybe hedge funds, private equity, venture capital, in terms of the ways they've gone about succession and lessons they can learn from each other.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that can make a lot of sense. There are a lot of public funds out there who, their argument is if we're paying these fees, we might as well participate in some of that and get it back, whether it's a perpetual investment or if there's some sort of exit. The question is, have these LPs got the experience and are they equipped to make these types of investments and value them appropriately?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“IPOing is a lever for sure to pull, and it can make a lot of sense. It, of course, puts a whole new set of regulatory burdens on an organization. And it puts that quarterly earnings pressure on the organization. So again, it's going to be ripe with potential pitfalls. And it's something that we in our investment framework, we don't say there's one ownership structure that's better than another, but we have an awful lot of questions if something is publicly held or portion of it is floated.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“That base. And oftentimes there's pressure to scale and diversify the revenue streams, which can be a big distraction for folks if they have to manage a smaller fund, lower middle market bio pool when they've only been doing megas for their entire career, or if they branch.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“GP stakes are super, super common, and it's happening at an increasing pace. I've seen research that suggests that 60 to $70 billion has been raised for GP stake funds. The uses of that are going to be varied. So it's not just going to be used for buying out the founder and providing a liquidity event. It can be used for that, but it could also be used to invest in technology and infrastructure. It could be used to fund new types of strategies and new geographies or seed new investment strategies. But essentially, that GP stake GP, the fund that's underwriting this firm, has a return expectation. And they've done their analysis on what they believe the return could be. There's two components. There's the stable management fee, and then there's the more variable carry, and they have different ways to evaluate that and come up with a projected return for themselves. But they're going to want to grow.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's not a pitfall so much as something that really is a catalyst for potential big change in the organization, which is having an outside owner come in. In the form of GP stakes or a strategic investor or going public and IPOing.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have 50 partners. Wellington has well over 100. And those are the stable firms that can live on because they've got a broad ownership base and they've said over time, we're going to reduce the founder's stake by some pace. It could be a big transaction that gets them from 100% to 50% and then down 5% each of the next number of years until they're done.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Or looking at those types of things. And then the other way that we've seen is that next gen buys the ownership directly from the founder with capital that they've accumulated in their personal wealth. Eight times out of ten, I would say they don't have enough money to do that. So the firm can provide a loan to the next gen to buy in. Or there could be an equity participation agreement where you come in and you get an ownership percentage and you're stake in the firm. You participate in the valuation increase from that point going forward. So it costs zero dollars, but you also come in with zero dollars in equity and you participate in the future equity. There's a lot of legal work that can be done on recycling provision. So when someone retires, how their ownership gets distributed through the organization. So the really successful firms that we've seen have a decent amount of partners and distributed ownership. You can't get there right away. But at any”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So there are lots of different ways that this can be constructed, but I think the most important thing to recognize is that there it's going to be tension and that everyone is going to feel as though they're leaving something on the table. So there needs to be a price at which the founder will sell and at which the next generation will buy. And the challenge is that you're going to continue working together. This isn't like doing a deal with an outside organization. There can be real cultural damage done if it's not handled extremely carefully because the founder will likely feel that they're leaving something on the table and they might need to in order to provide an accessible ownership entry point for that next generation. So you really need a solid third party valuation provider that has lots of transparency so everyone can see what's going into that. And that's going to be what are the comps that you can look at that are available. Multiple valuation approaches, whether it's a DCF or transaction”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you get to this period where, let's say, the economic side of a succession, maybe they've groomed the next generation, they're ready to take leadership, but there has to be some economic transaction. What are the different ways you've seen that flow through an organization?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are some strategies where you eat what you kill can make a lot of sense. So something where people can operate in a fully autonomous way. More often than not, we're looking for a team-based approach. And so we want to see alignment there because there can be some real perverse incentives when you're motivating people to operate in a siloed way.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“The carry piece that's the year to year, you have the spectrum of some firms who, let's say it's an eat what you kill model, the people who are generating the profits in that year or some period of time get the economics. And then others that say, no, these are longer term. Everyone has to buy in on some version of shared ownership. How do you think about what works best?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Formal internal succession who are they training up to be their backup. And then we want to understand if something happens unexpectedly and their incapacitated or gone, where will their ownership go? And oftentimes it's going to go to the family and to an estate. And we've actually seen situations where you have a daughter or a son who has no idea what the investment industry is owning this firm and lack of clarity in terms of who's going to run it and how.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the economics, we can break them down into carry ownership of the management company. Of course, we want to see carry distributed among the people who are doing the deals. That's table stakes. We're going to match the attribution, who's doing the deals and creating the value, and are they getting appropriate compensation? Because they're going to leave. We see it all the time if they're not treated fairly. So we want to make sure that carry distribution is there. And then when we think about ownership of the management company, that is a bit of a puzzle where we're tying it back to the investor age. If they're in the early 50s, late 40s, if they own 100%, that's fine. We want to make sure that it's on their radar to be thinking about transitioning that ownership. Another soft indicator is the naming convention of the firm. If it's somebody's last name, it's a bit of an indicator that perhaps there's maybe going to be some difficulty in imagining a firm without them. And it has happened, the name can stay, but oftentimes it's more difficult. And then when it comes to the succession plan, we want to understand what is the...”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“The other key part of this is always going to be the economics. If you're looking at an organization and just trying to see how the current economics are shared, what rates as good in terms of your assessment of a manager and what's on the other end of the spectrum is bad?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that's a great point. And I think it comes from both mentorship one-on-one, elbow to elbow within the organization, because every organization has nuances. But it also, in my mind, should include having an executive coach because this is unlike any other area of our jobs, we don't go to school for years. We don't sit for CFA exams. We don't go to grad school to learn how to manage people necessarily. Oftentimes it's the person who has a zone of genius in doing deals, and then they're asked to manage people and they have no idea what to do. They throw spaghetti against the wall to see what sticks. And a lot of damage can be done in the meantime. Wellington has a wonderful program where they are basically providing in-house executive coaching and a leadership program for managing directors and even some partners to learn about these skills and other organizations support a coach.”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, this is very hard for many investors out there, especially founders. There's a huge tie to one's personal identity and value in running a firm. You've put blood, sweat, and tears into doing this. And I use the term ego not in a negative way, but it's one's value, one's sense of worth. It's very difficult to hand that over and to think that the next generation could do it as well as you are. So the first is surrounding yourself with team members who you believe can do your job someday. As I always say, I want to be surrounded by people who are smarter than me and much more capable than me. That's not easy for every person. So that's the first thing. The next is thinking about engaging with outside counsel. There's a lot of different ways to do these types of things. And we want to make sure that if you're the founder and the owner that you're forecasting to that next gen, what's coming and that you have plans for that?”
2024-08-12 · Capital Allocators · Succession - Sarah Samuels on Generational Transitions (EP.400) · IDENTIFIED FROM THE TRANSCRIPT · source