Episode Transcript
[00:00:00] Speaker A: Maybe the short summation of all that is on a long enough timeline. It may not be wrong that most of the money is going into AI over the next two years. Is there risk that it's overcapitalized right now for the capabilities? Probably.
[00:00:13] Speaker B: You think that's going to. That'll manifest itself in valuations?
[00:00:17] Speaker A: You know, I've been wrong about this for two years running as they continue to go up at an exponential rate. I mean, arithmetically exponential.
[00:00:26] Speaker B: Welcome to the Institutional Edge, a weekly podcast in partnership with Pensions and Investments. I'm your host. Host Angelo Calvello. In each 30 minute episode, I interview asset owners, the investment professionals deploying capital, who share insights on carefully curated topics. Occasionally, we feature brilliant minds from outside of our industry, driving the conversation forward. No fluff, no vendor pitches, no disguise marketing. Our goal is to challenge conventional thinking, elevate the conversation, and help you make smarter investment decisions. But always with a little edginess along the way.
Hi, everyone. Welcome to another episode in our series on private markets. In this conversation, we're adopting a slightly different format because my guest is Brad Brindle, senior Managing Director at Huizinga Capital Management, a family office in the Chicago area. I've had the privilege of knowing Brad since we worked together at Man Group, and I have been consistently impressed by his approach to investing. He brings an original and. And unconventional perspective. I hope that's okay, Brad. I say that he demonstrates a willingness to challenge the status quo, and he actively seeks out opportunities in areas that others might overlook or simply dismissed. He was early to crypto, he was early to direct, he was early to AI. And these characteristics and his track record make him an ideal guest for our series. Given Brad's independent thinking, I anticipate this discussion will explore unexpected territory. Unexpected to me, because I know I have very little influence today over the direction this conversation's gonna take. Which is precisely what makes Brad such a compelling guest. Brad, welcome to the show.
[00:02:06] Speaker A: Angelo, it's a honor and a pleasure.
[00:02:09] Speaker B: Please, you're too kind.
[00:02:10] Speaker A: And thanks for the kind words.
[00:02:12] Speaker B: Yep. And by the way, that was a nice note from your son I got yesterday. That was kind of him. Okay, I appreciate that.
[00:02:18] Speaker A: Yeah, we had a great visit to that endowment and appreciate you facilitating it. And what a school. What a school. What. What a great.
[00:02:26] Speaker B: Yeah, pretty cool. Brad, I want to. I want to warm you up a little bit with a little rapid fire questions here, just to get you loose, but you are usually pretty loose. So, number one, what's your favorite spot to vacation?
[00:02:38] Speaker A: Well, I'm just going to say where we have been planning a trip for two years and we're really excited about going is Japan. Okay, so we haven't been there yet. But. But why? I've been there, but the kids haven't and the kids are really into it. So like we, we're looking forward to that.
[00:02:50] Speaker B: Cool. Fiction or nonfiction?
[00:02:53] Speaker A: Nonfiction. Who's got time for fiction?
[00:02:57] Speaker B: All right, what piece of tech has changed your life?
[00:03:04] Speaker A: There's no one piece to pick out. There's just an ever changing tapestry of ever increasingly rapid innovation and it keeps changing. So we are students of it here and I can't pick one.
[00:03:18] Speaker B: Okay, I'll let you go on that one, but I'm not letting you go on this one. Favorite Halloween costume? What is it?
[00:03:24] Speaker A: Yeah, so I have a Guy Fawkes mask that I was wearing today. We had a little Halloween party and it lights up and maybe at the end I'll get run and get it.
[00:03:33] Speaker B: All right, well, let's get to the meat. Let's get to what we want to talk about today, focusing on private markets. I'm going to try to keep a Q and A format going if we can, because I know I asked you a question and you're like that famous Frankie Lane song, my heart goes where the wild goose goes. So I'm just going to let you go, man. Starting off with private equity.
Did a little research.
Looks like there's about $2.6 trillion in dry powder. We're not seeing a lot of IPOs, we're not seeing a lot of exits. They're kind of sluggish. Morgan Stanley came out and said that capital calls have outplaced distributions by about 1.5 trillion since 2018.
Do these dynamics signal we're approaching or maybe in a PE bubble.
[00:04:20] Speaker A: So I'm not surprised by those stats, although I didn't know those numbers. And I would say we probably need to define bubble, which is hard to do until afterwards, until it's obvious in hindsight. And private equity for us as a firm almost is bifurcated between venture and private growth and sort of traditional buyout and operating businesses. So I'm going to speak specifically to the, to the growth side which is where we spend most of our time.
[00:04:49] Speaker B: Okay.
[00:04:50] Speaker A: And there are elements of, and have been for years running now, maybe even mid single digit number of years that feel very much like there are bubble attributes. And that's in some, some of the valuations, which is not a no secret.
There are some characteristics in the, in the way that the venture industrial complex operates that feel a little overextended to us at points. But with that said, broadly speaking, venture for us has been the best returning activity of ours for two decades and we don't think that's going to change. And it varies from cohort to cohort and there are ebbs and flows, but it's still an area that we think is capturing some of the most there where there is the most significant value capture from an investment perspective relative to anything we do and that's relative to liquid markets and also investing directly in companies. So the short answer is that we like others participating in venture would love to see more liquidity events. But when we've gone back and looked at historical epochs in venture investing, exit periods tend to be bunched together.
This one is definitely extended relative to history.
But there we think, and I have come to this view more strongly over the past year or two, there are self correcting mechanisms which kick in at a certain point. So we could talk more about how this kind of resolves or potentially how it resolves, but we aren't overly concerned by the lack of an IPO kind of window right now.
[00:06:36] Speaker B: Are you concerned at all? Staying in the venture space with what appears to be AI is everything and we're seeing 40% of VC capital is going from many regions into AI. Is that a concern? And I know you were early to AI. You've been, I guess I'll say an advisor to me as we were building Rosetta with Julia.
[00:06:57] Speaker A: I would say the same thing.
I have very much appreciated the input of you and the Rosetta team over the years as I guess there's pre chatGPT4 and post chat chat GPT4 and those are two very different worlds from an investment and valuation and economic perspective. Even though a lot of that methodology runs back at least years prior to the OpenAI kind of watershed moment. And so I don't know how to quantify 40% of all VC capital going into AI. It's such a broad label. It's almost like saying half the money goes into software because very few, you know, you could probably rough math substitute all the folks that were doing enterprise SaaS startups several years ago are now doing AI startups. And those two areas are, you know, meeting in the middle. And I think I am continually surprised by the number of guys that are close to the coal face, I guess would close to the frontier labs. These are the venture folks in Palo Alto that spend all their time in this space. Serious people that, that, that tell me and tell Us that software, it's done enterprise software five years from now, it's just not the same model. Yeah. Conversely, yep, I do make a personal, I have a personal interest in kind of tracking developer chatter. So these are just regular senior software engineering folks that are using Claude, that are using Cursor, that are using Wind, you know, Surf, and I get nothing kind of on the, at the grassroots level that says that we're anywhere close to that. So maybe the short summation of all that is on a long enough timeline, it may not be wrong that most of the money is going into AI over the next two years. Is there risk that it's overcapitalized right now for the capabilities? Probably.
[00:08:59] Speaker B: You think that's, that'll manifest itself in valuations?
[00:09:03] Speaker A: You know, I've been wrong about this for two years running as they continue to go up at an exponential rate, I mean arithmetically exponential. And so I'll reserve a comment there because, and I don't mind being, being wrong about it. And, and I certainly do think that on any traditional metric other than you're going to eliminate a third of your workforce and therefore the margin impact is so significant that things like multiple of revenues, multiple of cash flow, let alone long term terminal value, those conventions that have been around and still are still predominant in traditional markets may not be relevant if the impact is that great. So that's kind of on one hand, on the other hand, but I will say, and maybe I'll just add this and I'll stop here. The degree to which the haves and the have nots in the AI space relative to the venture investment complex is so great.
And so the deal flow associated with the best entrepreneurs, the most capable teams, and the infrastructure that goes along with that is really more skewed than I've ever seen any other kind of like arena or backdrop that venture competes in historically.
So the guys that have the best brands have built the most durable venture firms are definitely advantaged over the smaller players when it comes to finding their way into the AI investments that seem to have the best kind of, you know, potential Runway.
[00:10:42] Speaker B: Okay, so let me just take the AI theme a little deeper. One area that's been pretty hot is defense tech. We're seeing a lot of AI in defense tech and I'm a big fan of that space for personal reasons. And just to be clear, I'm not an investor in that space, but I have a son in law that works in that space.
But we're seeing a lot of flow. And that's where AI is really kind of manifesting itself away from kind of the app space, I'll call it. Everybody's talking about agents and I'm not a believer that these agents are quite there yet. But in the defense space, when we're dealing with critical technologies, it seems like AI has a place to play there.
And it's separating kind of the wheat from the chaff when it comes to, as you mentioned, those founders, those portfolio companies that the VCs invest in. I mean, what's your thought in that space? So defense tech in general and AI in defense tech.
[00:11:40] Speaker A: So that's an interesting question. And we have been spending a lot more time on defense tech. And so Anduril clearly is the. Maybe it's loosely analogous to the OpenAI in the defense tech world, but what is largely an oligopolistic sort of cartel of big primes appears to us and we have a decent amount of information flow. But if you were just to base the observation on the proliferation of folks that are able to raise a meaningful amount of capital to invest in defense companies is a step function change, it's an order of magnitude change versus even five years ago, let alone 10. So Anduril clearly turned a key in a lock that is now rapidly proliferating as a model. That model being broadly speaking, there are lots of components to Anduril's success. One of which though is we'll rapid prototype these weapons. We'll build them, we'll build them with our own balance sheet capital and, and we'll show them to you and you can opt in or out. You know, it's very different than the long lead time procurement cycle of the, you know, past decades.
[00:12:49] Speaker B: Yeah.
[00:12:49] Speaker A: And so that, that's a transformational change.
There's enough capital that it appears that there are, there's enough capital to go around that. In kind of my view and our view, there's room for several Anders and for each Anderil there's probably room for five to 10, you know, mini Anders and then a whole, a whole ecosystem below that. So seems like there's plenty to do there. The budgets which kind of the three letter agency spend in the space is only going up. And back to your question about AI. I don't have an informed view about whether it's AI or AI like applications that are changing the game.
But we do have a lot of evidence that the reason why Silicon Valley is now taking so much mind share and increasingly market share. Although it's early, some of these companies haven't fielded a single system is because of software and the increasing importance of software at the heart of the functionality of the system we're talking about.
So AI drone swarms and AI kind of autonomous loyal wingman program and autonomous applications. You know, there's a lot of stuff going on there, but I don't think that Lockheed and Raytheon and Boeing are in a position to incentivize the software engineers that the Anderols et al can with equity. And so they're losing the race to some degree on the programming side. So part, some of which is AI.
[00:14:23] Speaker B: Okay, so just staying with defense tech and marginally AI, is dual use important when you're looking at this space?
[00:14:30] Speaker A: I.
[00:14:33] Speaker B: From an, from an exit perspective, it's got to be attractive. From a valuation it's got to be attractive. But it depends obviously on the opportunity. So. I'm sorry, go ahead.
[00:14:41] Speaker A: No, no, I, I, I was trying to, I was kind of thinking through like trying to think of a good example as to where, where and when that would matter or where we've encountered it in a way that matters because we, we hear about that all the time and, and it's, you know, only so many people can go to work directly on hypersonic engines which have very little, well, even those maybe have some commercial applications other than, but so we see it as a tagline in a lot of pitchbooks. We get it in principle.
It's not clear to us that the winners and losers both from the venture investing side. So the venture folks or the winners and losers, at least so far in terms of funding on the company side. So these are the startups.
The dual use has been determinative for either side of the, of the table yet. But that could just be that we have a, you know, our vantage point is too narrow to have, have really seen it play out clearly. If you go directly at Defense and only at Defense, it takes a certain type of founder, often somebody who's come out of the public, you know, out of the military, out of the dod, out of an agency who's already read in and already, you know, got the clearances, etc. So we're very interested to find out who kind of where the next Andrell is. And we've been tracking Andrew and talking to that company and the, and the folks, they're the founder and the management team for lots of years and they're so far ahead of everybody else. We kind of sense that there may be some elasticity to that and that we're getting close to where there, there may be, may be a second Third and fourth diversified Neoprime, if you want to call it that, that that are, are getting ready to break through. And I think we'll know more about how the business model actually works a couple, you know what business models are optimal a couple years from now.
[00:16:45] Speaker B: Brad, I have to say disclaimer. From a compliance perspective, I am an investor in Anderal. Just to put that on the record, not to get your blessing, but just so the compliance people know. Yeah. And just speaking on Anderal a bit more, what I've been seeing and talking to some of your peers is there are people matriculating out of Anderal that are now founders themselves and they have the imprimatur of Anderal and not just the imprimantur, but the skill set. If they were good enough there to be senior and they've got a new idea, it's kind of how would. I mean, we had a term for this back in the day in hedge funds and I can't remember what it was, but people would spin out of the turtles and they would be little turtles or something. It's kind of the same thing.
[00:17:28] Speaker A: Yeah, it is kind of the same thing. And yeah, I'm glad you brought that up because that's maybe one of the things that's the most exciting to me.
So it's kind of Marc Andreessen's group A16Z that coined this phrase, American dynamism previously was being referred to as re onshoring reindustrialization.
American dynamism is a nice term and because to me it captures what you just described, which is something that is a unique superpower of the United States, which is that that alumni network that builds as an industry starts to succeed is so powerful and those people are mobile and they leave and they start new things. Yeah. And so Blue Origin and SpaceX and Anduril, this isn't, you know, this isn't a bunch of neophytes walking around. These are people that have, to your point, years of, of real world, go fast and break things in a real way, like real engineering, hard tech, stuff that they have learned and turn around and you know, find a new area to reinvent. And that's, that's like, that's just awesome to see. And that, that, that is another, you know, if you were to put legs in the stool of why defense tech feels like more than just a little bit of a blip on the, you know, at a period of heightened geopolitical tension, that's one of them because there's a lot of real world experience that's getting capitalized now.
[00:18:58] Speaker B: Yeah, no, I think that is the dynamism and the resiliency we need. I mean, it's hard to do this stuff if you don't have the technical background. The bonafitis coming out of an anderal type place and as you mentioned, some type of defense or military background. I mean, those are, it seems to me, as a guy that doesn't do what you do, but those are key ingredients because if you don't know the procurement process, you don't understand the critical technologies and you don't have the pedigree. It's just like you're developing an app. I mean, that's not going to do it.
[00:19:32] Speaker A: Yeah, totally. And it's like one of those. It should be, you know, maybe it'll be a Michael Lewis book at some point. Like the untold story of how some of these guys from SpaceX all the way through, some of the venture folks had to sue and fight and battle their way to kind of break into what is now becoming an open arc appears to be becoming from. And we're not experts here, so like I. But, well, at least from, you know, kind of observationally, what we can at least glean from from the sidelines, much more open architecture than, you know, some version of, I don't be unfair, but, you know, no bid contracts amongst, you know, three or four players.
[00:20:13] Speaker B: Got it. I'm going to, I'm going to move away from defense tech and AI. And there's another issue that's kind of coursing its way through private markets and that's the secondaries boom. We see this historic growth in private market secondaries, whether it's PE or private credit infrastructure. Hedge funds are in the space, real estate. I mean, well, how do you see this historic growth in secondaries? I know we shifted, but I want to shift a little bit away from defense tech.
[00:20:42] Speaker A: So secondaries, I guess could be secondary LP interests in a commingled fund or they could be secondary market transactions in a private company that, you know, arguably, you know.
Okay, so here's an example in answer to your question directly. So we just conducted a secondary transaction in a very large payment processor. And that transaction happened a lot more quickly and a lot more fluidly, a lot more dynamically than it would have several years ago.
Also, it was an incredibly painstaking and frictional process.
So maybe embedded in a little bit in what you're asking, or at least the way I kind of think about it, is some of these companies where there are a lot of so if you looked at the secondary market in terms of individual companies, preferred equity stakes in private growth companies, some of those companies should be public. And there's a, I'm sure you could have larger, longer, broader discussion about that has not been the case or whether it will be or what some of the gating factors are there secondary markets. So I think more is happening than it ever has in terms of secondary market transactions. The ability for sellers to find buyers is definitely better than it was years ago. The ability to get those transactions done with some form of a rough template. So you're not re engineering an entire legal structure to do it.
Also much better. It's still incredibly inefficient. Chews up a lot of time and overhead to get it done. And then you don't have guaranteed success of transaction management teams at the companies and the cap tables can approve things or not approve things. There's a whole bunch of stuff you got to thread around in terms of LP interest and funds. I'm shocked personally that that hasn't gotten, and I, I mean I have some, I, you know, some theories on maybe why it hasn't become more efficient than it is. But it's still amazing that there's not a more structured market for people to consensually transact at a price in a secondary share in an ELP where there's not even any, you know, there's, there's the bid. Ask me, you know, maybe that's the, you, you, you know, maybe there's a, a bit of a, a wide bid ask on some of these. But why you can't, you know, somebody who wants to exit after years of being invested in a, some form of private equity deal go can't just electronically go and match, you know, with a, with a buyer at some price the way you do in, you know, so many other markets is, is surprising. And there have been a few forays into that endeavor, but I don't think anybody's been very successful. What are your thoughts on that? Are you?
[00:23:26] Speaker B: I, I, I'm not a player in that space, so I don't have thoughts. But I want to pivot and go to something. A different topic here. It's one that you and I have talked about kind of tangentially and that's this whole tokenization of real world assets because that tokenization may solve the problem in the secondaries, right? And it may solve other problems in terms of price discovery and liquidity. I mean this is still in a very early stage. I saw yesterday JP Morgan is Tokenizing a private equity fund on its blockchain platform. They're coming out with a whole new platform next year for tokenization. We know about BlackRock and Fidelity and others. So high level, what's your thoughts on tokenization?
[00:24:09] Speaker A: I'll just say right up front I'm super excited about it. Super excited about it. I'm prepared to be disappointed in the timeframe and the degree to which it doesn't actually become a meaningful mechanism at a, let's call it at a sort of national best bid and offer level for things like secondary interest or other illiquid assets. Could take longer. But what's different now than two years ago? Maybe three. Let's just say pre Bitcoin ETF and post Bitcoin ETF is that man, I don't want to put too much on anyone but when Larry at blackrock says we're going to tokenize everything, I don't think he's kidding. And, and so that's like I, you know, you, you wouldn't, you wouldn't want to be short that and you, and, and you actually would try to figure out ways to belong it which we incur a lot of brain damage in it relative to crypto trying to do that. But if you, if you look forward and say, you know, what is the. What you know, put a rough number, put it, put it, put a, tell me the number of zeros on the assets which now exist on chain which would previously have been either dealer driven or market based. It's trillions five years out in our view. And so if you kind of roll stable coins and sort of real world assets which don't have a preexisting well established mechanism for exchange. Blockchain does solve that. And so it's almost. There's a, to me just speaking for my own personally, it feels like there's a certain inevitability to it and that's pretty exciting.
[00:25:53] Speaker B: Yeah, and I appreciate your comment about how you're prepared to be disappointed in terms of your time expectation because you're always early. I'll say that.
And being early is like being wrong in our game, man.
[00:26:06] Speaker A: That's the problem. Yes, it is. Yes it is.
[00:26:09] Speaker B: So I mean do you think this tokenization will really be as transformative? I know we're still in the early stages but it's going to be that trans. I do, I mean I'll tip my hand. I mean this seems like it's going.
[00:26:20] Speaker A: To be, this is an area you've spent time. What, what, what would be the Most transformative component of this in your mind, if it, if it. Yeah, yeah.
[00:26:27] Speaker B: I think it's basically putting everything on chain, providing the valuation, providing the liquidity. And I mean we're talking about real world assets, we're not just talking about funds here. I mean, do you see people doing this in real estate? You've probably seen that. I mean people are doing it in gold right now. They're tokenizing gold. It's, you know, I started in the game in 83, it was a completely different thing and I've seen it evolve this to me with AI because AI is a part of this is going to be what transforms our industry. And you talk about losing jobs with, you know, agents and the like. This is going to change the whole administration and back office from net. And that's what we're seeing the most of this play out. We're seeing it play out in administration, in custody, in record keeping. That's the easy stuff in my view. It's not easy. I mean, I don't wanna trivialize it, but that's really where it's gonna make a material difference initially and then we'll see people figure out how to invest in this. Because I haven't talked to a lot of asset owners that are prepared to pull the trigger in this space. They're still very tentative and I don't know if they're worried about covenants or they're worried about agreements, but that's my thought. What do you think? You're the guest and that's all that matters.
[00:27:36] Speaker A: I'm interested in your I and I agree with everything you said. I think some meaningful percentage of the financial services industry, which includes all the operational elements that you just described, settlement, escrow, all the kind of shorty of transaction finality, a lot of that's obsolete and may not even be aware of it yet. On some timeline. On some timeline. And so that means if you extrapolate from learning in other industries where some technology has compressed the human involvement, it means tighter spreads, it means lower fees, it's a windfall gain. And so, you know, figuring out where that value accrues durably, that's kind of the challenge. We do spend, we exert a certain number of CPU cycles on those questions. I would say tokenization relative to the, the backdrop is still highly uncertain. And so I, I think what the genius acted for. Stablecoins.
This is my sense, you know, kind of naive, not a domain expert sense. The clarity act is even, you know, is, is meaningfully more significant relative to tokenization because the rules aren't clear right now. And even though there's a much friendlier posture from the administration and the sec, overtly friendly. If you're going to start to put real money into to have real money players engage at the level of strategic initiatives, but it's not clear what the laws are around securities, commodities, tokens versus then I just think that feels like an unlock to the extent that that legislation does get passed, market structure, clear rules of the road, that's when you would probably, I would expect you would see a sort of a big bang for tokenization of many traditional assets.
[00:29:39] Speaker B: Okay, so I mean putting on the asset owner hat and thinking not about the investment but how it may change your hiring practices.
I guess my point is do you think that the move to tokenization is going to change how asset owners in general, whether it's, you know, the guys at Wake Forest or the guys at Arizona, is it going to change their hiring and how they think about things? Because you're going to need different skills.
[00:30:06] Speaker A: Maybe the answer to that or you know, my best guess at an answer to that is embedded. Maybe you might have. Just within your question would be my answer which is different skills but not necessarily no people. So I'll give one very like super brief high level example of if you went back three years launching a token on an established blockchain, non trivial, there's a lot of technical know how there was a bunch of.
There are all kinds of considerations and it is now push button easy. So these are the, the launch pads, so called so to speak like launch pads, like pump fun. So you have thousands, tens of thousands, sometimes tokens launched today by people that know nothing about the underlying technology. My assumption for tokenization would be that the legal structures are still going to require until they have been bulletproof through workout processes where things go wrong. There are going to be different structures, there are going to be varying levels of asset certainty and ownership dynamics which need to kind of be hashed out trial by fire wise. So that's going to take a lot of people in terms of the back office piece, in terms of the operational piece. It wouldn't be worth doing if it didn't obviate some meaningful portion of what right now is some version of sending Excel spreadsheets back and forth or having API calls from one SQL Server to another and then having a person after, you know, I guess the on chain nature like so I would just kind of roll that all together to say like I, I don't know that this eviscerates the need for technically skilled, professionally serious operational like workforce. But some of the functionality should by definition replace the need to have manual intervention. So that's not super satisfying. I just don't, it just doesn't, it hasn't felt and it still doesn't feel like there's a cliff function in front of us in terms of mass layoffs from, you know, the belly of the clearing beast.
[00:32:20] Speaker B: You know, I'm not arguing for that. I'm thinking in terms of just hiring. You want people that'll understand tokenization and I'm not talking about the legal side. You're right, that's got to be bulletproof.
That's still an independent skill. But just in terms of your back office, I would think if you start moving into tokenization and buying and selling real estate on the chain, you're going to need people that have that skill is what I would say.
[00:32:46] Speaker A: Yeah, clearly. But I couldn't have launched a token two years ago. And my two sons and I have launched three little meme tokens as experiments just messing around on a Saturday night. So there's some meaningful, you know, there's a modularization of that technology which, which I would hope would happen, you know, at a broader level.
[00:33:07] Speaker B: You got time for one more general topic? Okay, sure. This one is slightly different, but it does go back to the genius act and that is this democratization of alternative investments. You know, the expansion of private markets and crypto in the 401k and 401k plans. I could just ask you good or bad.
[00:33:27] Speaker A: I'm all in. All in with garden.
[00:33:29] Speaker B: Yeah, guardrails. Safe harbors is a better term.
[00:33:32] Speaker A: I mean. Well, yeah, safe harbors. Also some curation. I, you know, it doesn't mean I like I, I think it's a terrible idea to let the average 401k person, you know, throw all of their savings into some, you know, ephemeral to no terminal value token. That's not it. That's not going to help anybody at the, at the level of, of what the systems, you know, should be trying to accomplish.
So the administrators of those, the fidelities, the, you know, the folks that like there's some role for curating and, and whitelisting like.
However, I cannot believe that, you know, most of the world is boxed out from participating in investing in private companies in their most, you know, tax advantage, long term savings, the best match from a liability duration perspective. That's where you.
[00:34:28] Speaker B: Suitability and accreditation. Now we're lowering the standard of accreditation. I'm not Arguing for or against. But it's always been suitability, right? That's what's kept out what we could call retail investors.
So now I guess if you bundle it in a Target date fund, you're kind of putting some guardrails. So they're only going to get 5 or 10%, you know, but I'm not going to give an opinion on it. I have a different view than you, Brad.
[00:34:52] Speaker A: So I haven't yet heard a good argument for why it should be presumed that private investments are likely less suitable than public market tickers. Full stop.
There are no disclosure rules in private investments. You could do, you know, and I get that transparency is lower.
The degree to which the investor is truly informed about the risks is not without meaning that there need to be ways to maybe templatize. And I think the crypto industry is even making some small halting progress around disclosure. So if you're going to tokenize something, you gotta, doesn't mean you can't. You gotta can hide the football and not disclose what you know, is the token actually does or mean. But it also doesn't, you know, can you get the proverbial clean sheet of paper to do this?
And so let's, let's make it, you know, efficient and effective. But I think, you know, 401ks and maybe it's broader than 401ks that think that individual investors shouldn't need to be multimillionaires to participate in some of the best investment opportunities.
[00:36:02] Speaker B: But if you think about retail, last point on this, if you think about retail, if I go to Fidelity, open up a retail account and I want to trade options, I've got an additional risk disclosure that I have to fill out. And I assume they would do the same thing here if it were going to be private investments.
I think one of the challenges with private investments in the 401 space is really going to be on the sponsor side because there have been more litigations in the last few years than we've seen for the last decade in terms of participants suing 401k sponsors because people are worried. And I think sponsors are going to be gun shy because there has to be a really good safe harbor for them. I mean that intel lawsuit has been going on for 15, 16 years now. When Stuart Odell put alternatives in there and he was sued, I think a lot of firms are going to be gun shy. The sponsors, you know what I mean? I don't want the litigation into reputation.
[00:36:59] Speaker A: And I would just, I do, I hear exactly what you're saying, and you certainly that empirically seems like it would be an empirically true statement. There are a lot of risks for the sponsors. I would say maybe offsetting that is if you are able to provide access to invest in, I don't know, SpaceX or pick your generational private company via your 401k because the sponsor has done the work and has made it available. That was a big economic and competitive incentive to want to do it, too.
[00:37:34] Speaker B: All right, I'm going to wrap it up and I'm going to ask you a question I ask everybody. You've been in the game since it two decades at least. I'm not going to date you too much. But what's the worst pitch you ever heard?
Worst pitch and no names. Of course. You know, you're too professional for that. But, man, you must have heard some stinkers in your day. And don't say Rosetta and blame me for that. Royce Fish.
[00:37:57] Speaker A: That's the best pitch that we.
Amongst the best that we've heard. What like, so I will.
Man, that is. I didn't. I have heard so many good pitches that have not. So I'll just, I'm going to dock the question a little bit. I'll try to come up with an example. But what we do is the opposite. So we try to hear a lot of pitches and our ethos here is we are generalists and we've been around doing this stuff for a long time, but we know that we are on the wrong side of information asymmetry at all times, you know, except for in a few areas where we have some, some real built up. And therefore we try to look at a lot of stuff, do relatively little and really wait for the proverbial fat pitches. And so we assume that pitches are going to play out less well than, than. Than they seem at the time. And so I was going to try to translate that question into like, what. Are there any. Are there any things that we shouldn't have done where we, you know, any investments we've made where the. Or are there any things that we've missed that we really. That really sting? Poly Market. We missed Poly. We could have invested in Polymarket earlier. We knew about it. It's a great company, it's a great founder. We know a bunch of the investors and we just. We missed that one. We airballed it.
[00:39:21] Speaker B: All right, well, Brad, I'm going to wrap it up so you can go home. And, and I know you live in a wonderful neighborhood. I'm sure you'll be handing out Cougarrans to all the kids today. I mean, most of our most of our listeners don't know what a Cougarrand is, but we do because we were there for that. But this was great. I appreciate you taking the time and as always, thank you, Brad. I enjoy the conversation.
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[00:40:32] Speaker A: The information presented in the this podcast is for educational and informational purposes only. The host, guest and their affiliated organizations are not providing investment, legal, tax or financial advice.
[00:40:40] Speaker B: All opinions expressed by the host and guest are solely their own and should.
[00:40:43] Speaker A: Not be construed as investment recommendations or advice. Investment strategies discussed may not be suitable for all investors, as individual circumstances vary.
