Episode Transcript
[00:00:00] Speaker A: Opportunity set's really big. All the different sports leagues and it's growing and there's people doing stuff in golf, cricket and formula and racing. So the entire pie I think is, is really big.
[00:00:10] Speaker B: Welcome to the Institutional Edge, a weekly podcast in partnership with Pensions and Investments. I'm your 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 flu, 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. The private market landscape has changed for GPs and LPs. The advantages that once defined the asset class, strong returns, consistent outperformance and low market correlation. They're under pressure and forward thinking asset owners are expanding their vistas and allocating more and more capital to what traditionally have been called unconventional markets or what I would call sector specific or niche private market opportunities. Which is why I invited Eric Farles to join me to share his thoughts on what we're calling niche alpha finding value beyond traditional private markets. Eric is Senior Portfolio Manager within the Fixed Income Group at the Maryland State Retirement and Pension System where he focuses on private credit investments with a special emphasis on sector specific opportunities. Eric is also a member of the agency's ESG committee. Eric earned a Bachelor's degree in Business Administration from the University of North Carolina Chapel. Hillary, Eric, thanks for joining me.
[00:01:54] Speaker A: Thanks Angelo. Nice to be here with you.
[00:01:56] Speaker B: It's great. I know we spent a little time getting this together, but I feel good about it now and I appreciate the preparation you put into this. And hey, I appreciate the tie. Let me kind of jump in here and just ask you to provide some background on Maryland's private market exposure and why you and your colleagues have moved beyond a rather conventional private markets allocation. What I would call beta, but you don't have to to a more niche or sector specific exposure.
[00:02:24] Speaker A: So I started here lower 14 years ago, joined the organization or our private credit portfolio had already been established. I would say right now we're roughly 5 1/2% of planned assets right around 4 billion in the ground, which has grown significantly since I started. I guess the biggest change to the things you spoke about in the, in the opening when I first started it was more of a total return type lean in managing the portfolio there was a lot of Corporate mezzanine strategies, stress for control strategies, more of the traditional strategies that you would have seen early on in the past couple decades or whatever. Then I'd say shortly after our recently retired CIO joined us, the portfolio was moved out of all private markets and into fixed income. And that's where we, our approach changed to more of a cash return, cash coupon type lien, strong collateral behind loans as opposed to overall total return strategy. So it took a little bit while to kind of revise the approach. So I'd say starting in 2019 type area, most of the strategies there wasn't really much corporate direct lending. When we begin each year we have a budget and everyone on the team has some form of liquid markets experience managing portfolios, being an analyst either on equity or credit side. So a lot of experience helps, you know, think about these different strategies. And one of the things, you know, when the portfolio did move to fixed income, it's in a portfolio that also includes liquid strategies and high yield and loans. And so what we're trying to do is, you know, not, not, not put more money where we already had those economic exposures that kind of pushed us into different types of royalty strategies, different types of asset asset based finance. And then where we do have exposure on the corporate side, it's more corporate credit solutions versus traditional direct lending or traditional corporate medic. So we'll have for a health care sector manager that can move up and down the capital structure in more special situations and types of situations where banks or the large direct lenders may not lend.
[00:04:37] Speaker B: How big is the team? I mean you've always talked about how it's a collaborative effort. How big is the team in, let's call it in the private side. And if you want to segment, please go ahead.
[00:04:47] Speaker A: So there's two people have. Everyone has like their roles. Everyone has multiple roles. My primary role is private credit. There's another person works with me whose primary role is private credit. The team is seven. We have a managing director and several portfolio managers and a couple senior analysts. And everyone helps with all, I'd say all portfolios to some degree. With private credit especially, I'll get help from people on that manage securitized portfolios. Our corporate bond portfolio manager has a lot of experience in IT and healthcare. So I'd say no matter what sector it is, there's somebody within the group that has some form of knowledge or experience with it. But it's obviously really helpful.
[00:05:30] Speaker B: Absolutely. Let's talk specifically about where you focus in these sectors or these niche opportunities. When you and I did our prep, you talked about two or three core sector strategies that you focus on titling.
[00:05:45] Speaker A: Something as a core strategy or substrate that can be fleeting. If things change, it may not become a core. So good point. I guess our sub asset portfolios within private credit, for example, one is my mining finance. If that opportunity set would change significantly from when we first started or it became less attractive, we may like think okay we're going to get to or target like a 10 to 15% in the ground exposure to that sector. But if things change we may pull back. So we try to maintain quite a bit of flexibility in everything we do. Like when we come up with our thematic approach for the upcoming year, 18 months, what we want to do, what we want to exposure, you want to add. If the environment changes, that could change as well. So we'll start with mining finance.
[00:06:32] Speaker B: Educate me, I'll try it.
[00:06:36] Speaker A: I mean mostly high level. We have three managers now. Each one has kind of a different approach.
One is all royalties, one is senior lending, project finance and then one is senior lending and you just get warrants in the transactions. It's an attractive space to us because what we typically look for are lending areas where banks aren't aggressively lending. There's a plenty of need for new capital, more debt capital and able to earn some form of a spread over what's available to us in public markets. So those are the main drivers of the sectors that we or niche strategies which we tend to choose. The other one would be if it's a, a new opportunity where I could give some examples later. But if it's a new first mover type of a strategy that could also be included in what we try to.
[00:07:24] Speaker B: Do, which you've talked about. It's all finance when you're looking at for example the mining space. And it ties back to your focus on private credit. Correct. I mean there's a lot of ways to play mining but you're doing it in terms of financing, mining related activities.
Yeah.
[00:07:43] Speaker A: So if you look at the overall pension plan, I don't think there's a tremendous amount. Maybe there might be one manager on the equity side in mining finance and to me that's tougher to win there in mining equities. At least if you look at mining historically, the returns that have been available there. But there's such a need and such a lack of capital in the industry and things take so long to pan out that to us the debt side of it is the place to go along with the royalties which we Consider a form of financing that fits pretty well in the. In the private credit portfolio.
[00:08:16] Speaker B: What's the investment horizon like in that? Mining finance, space on the debt or the project finance.
[00:08:21] Speaker A: That's usually at least the funds we're in usually have a seven year term. Usually the, the. The loans are short of that, usually like three to five. Some get paid back early. The royalties have a much longer life.
Some of the managers will sell them at some point, but they are longer if the onset of acquisition of that royalty, if things change, they could find a lot more of the resource in the ground and that royalty could extend quite a bit, provide some upside return to the actual investment.
[00:08:53] Speaker B: Let's jump to the next sector because I know there's some overlap.
I'll say some commonality that, that we'll.
[00:09:00] Speaker A: Get to some commonality and perils. Yes.
[00:09:03] Speaker B: Yeah. So next sector, which one do you want?
[00:09:07] Speaker A: Sports finance. Let's. Okay, let's start there. So that's the.
[00:09:09] Speaker B: Let's do sports finance. Sure.
[00:09:11] Speaker A: So I would say and again this comes back to the collaboration and it's a team effort here. I would say probably close to eight or nine years ago my managing director wanted to saw something in an article about player transfer receivables.
And so this is something that there's probably a way for managers to benefit and attack this space from a factoring approach which there was, but it wasn't. There weren't really any funds that we could find that actually did it. And I spent I don't know how many years looking for a sports focused fund. I finally found one I guess was we invested 2020, it did sports but it also did need entertainment.
And what we did, we invested in this fund and created a sidecar for co investments where we'd try to skew that more towards sports. When co investments came up, I guess out of the other potential investments that would go into it, we also do have found some ways to gain access to player transfer receivables and other short term type financings within the sports finance area. With a couple of managers that's growing quite a bit here. But it is also related I guess somewhat to music. I guess our view overall from a thematic perspective why we went into sports and like music royalties, TV movie royalties because we believe they would be resilient and consistent regardless of the economic cycle. And one of the outcomes of it is also when corporate credit or public equities from poorly. I mean these, these investments should do extraordinarily well. And also relative to more corporate like strategies within Private markets, we built that out. I guess the overall exposure to all royalties, mining, media, and you know, we have pharmaceutical as well, is probably right around one third of the portfolio.
[00:11:08] Speaker B: I wanted to ask in that sports space, you know, there's a lot of activity now, but again, this is sports finance you're focusing on.
Give me an example of a possible transaction that might be part of that portfolio. I mean, to me, the first thing I think of is FIFA and soccer players, or European football as we call it. Is that where I should be thinking in that space?
[00:11:31] Speaker A: That is right. That wasn't where we started, but that's probably the past 12, 18 months. We have more exposure there now. But yes, like player transfer receivables, one club will trade a player, you do some money, want the money faster, a manager can step in, provide that money at a discount, and then once that money is paid back, our managers pay back and the system's paid back. One of the I guess attractive downside protection points in that I guess market is FIFA. So if, if club that owes the money for some reason doesn't want to pay or won't is late, then FIFA can get involved. And regardless of other debt that might be on that club's balance sheet, since FIFA may not let that club play, they're going to pay that receivable. I think that had loss raised like one basis point over the past 20 years. So it's shorter term. So the managers have to recycle capital to generate a multiple on the capital. But it is a pretty good IRR because the club wants some money now and is willing to, willing to discount from what they would normally receive.
[00:12:38] Speaker B: I would think this is a space that banks typically don't play in. They're not loaning in this space maybe because of Basel iii, Basel IV capital requirements.
So it kind of opens the opportunity up for gps.
And then of course you as an lp. Am I thinking the right way, Eric?
[00:12:57] Speaker A: Yes, there's different. Different ways to answer that. Different spots, I guess. Okay. So one of the reasons we could never really find a place to go within sports is because the banks were lending senior loans to the banks. There's also league rules that won't let clubs like borrow excessively or use private capital work. So all the league rules seem to loosened up over the past couple years with P going into like the NFL, things like that. But to your question about banks lending in the player transfer receivable area, they do lend there. There are some big banks in Europe, like they're really big teams in The Premier League, Liverpool, they trade somebody to Chelsea. If they want to factor that big bank like Deutsche bank or Macquarie will step in and be able to do it. And those will be like returns of like maybe 6, 6%. So it won't really fit our credit portfolio and our gps won't compete there. They'll compete where the banks won't do that type of lending. Maybe it'll be from Europe to South America or within South America or Europe to the Middle East. So our private capital capital gps will step in where the banks won't do it because of some additional complexity.
[00:14:10] Speaker B: Are you doing anything like this in other sports besides European football?
[00:14:15] Speaker A: We do lean towards senior in the capital structure being first in line for payments versus other situations within sports lending. Outside of player transfer receivables, we've had a tough time because insurance companies lend their, banks lend their on the senior side. So we've had the most luck in getting some exposure in junior capital. And I know on the other side of the plan they have some investments with some PE firms on the equity side as well. But in the private credit portfolio it's more junior capital where we've been able to get some exposure and it fits the return profile and is across not only European football clubs, but there are some US soccer clubs, basketball, baseball and we have some, a little bit of NFL exposure as well.
[00:15:05] Speaker B: You know, I was doing some research, which is always dangerous, you know, for my guests, but I saw some information that said the capital invested in the sports sector. So this is from I believe Pitchbook and I could put that in the show notes. The capital invested in sports sector so far this year has already surpassed 2024 and 2023.
Firms have spent over $12 billion across 95 deals, up from 9.9 and 9.8 in the previous two years. Does this, you know, this flow of capital where we're seeing sports finance become, I'll say a little bit more popular and you see that leagues and franchises are increasingly requiring capital for infrastructure, technology, global expansion and they don't want to give up equity. At the end of the day, if this is something beyond just this year, are you worried about deal flow and yield compression as more money flows in? Because we're talking niche here.
[00:16:06] Speaker A: Yeah, yeah. But Jefferson, opportunity set's really big. All the different sports leagues and it's growing and there's people doing stuff in, in golf and cricket and things like that and formula and racing. So the entire pie I think is, is really big. Anytime one of the big firms comes out and says they're going to raise $5 billion. That's always like they're going to ruin it for us or something like that. But I don't, I don't think we're there yet because the debt just started growing. The debt opportunities just started growing fairly recently. Private debt opportunities. At some point we'll probably worry about yield compression or excess return availability for these types of strategies. We are what we think is more of a first mover in the area. So hopefully that build their brand there and they build the relationships with the leagues and the teams. So there should be some protection because of that. And they're in their understanding of the, of the, of the business and they tend to help people do exactly what you said these sports teams want to do.
[00:17:08] Speaker B: I appreciate you giving me the education about how there may be money flowing in, but the opportunity set is also expanding. You know, like, I hadn't thought about Formula One. I mean, I'm not a guy that watches Formula one, even though I'm of Italian descent and I probably should, but I hadn't thought about that. So money's flowing in, but it's still niche enough that you can still find the return and the diversification that you're looking for. And not worried about the compression yet. Like we're seeing perhaps in leveraged buyouts or one of the more traditional spaces.
[00:17:44] Speaker A: People do still pay a lot of money for equity in these teams, it seems, but they keep attracting fans and keep growing the. So we'll see, we'll see what happens 10 years from now.
[00:17:53] Speaker B: Yeah, I mean that's kind of one of the beauties of, of this type of investment is that it's, it's really tied to a different set of economics. I mean, I'm not going to make a big forecast here, but I mean, so many people watch sports. I doubt there'd be a diminution in interest and value in these clubs. But you know, I'm not giving any investment advice here, Eric. I'm just thinking out loud that either.
Yeah. Oh, of course not. It's sort of countercyclical.
[00:18:21] Speaker A: Yeah. And to your point, like I remember speaking with one of our music royalty managers and talk like they, they'll do some things like in their list of artists they have copyright IP too. So I haven't really heard of any of these. And they said, well, just keep in mind like just because you don't listen to it doesn't mean nobody listens to it. And it's. Yeah. The truth. It's the truth. Yeah.
[00:18:44] Speaker B: That's a good point.
[00:18:45] Speaker A: I don't watch Formula one racing either. And then one of our management, quite a bit of money in F1. So yeah, people have what they enjoy and they're going to consistently watch it or participate.
[00:18:55] Speaker B: I had read something there was even sports finance occurring in a sport I know nothing about but cricket.
[00:19:01] Speaker A: Oh for sure, sure, yeah.
[00:19:03] Speaker B: I mean just because I don't know about it doesn't mean there's no, not an opportunity. Which takes us to the theme here again about niche opportunities where you're, you know, you might be able to squeeze a little bit more return out. And I like the way in the sports example, just going back to that for a second, the way you talked about the risk mitigation strategy with those, I guess would be FIFA and UEFA have these enforcement provisions in place for non payments.
Never even thought about that. But you know it kind of gives you the risk mitigation you need when you're making those loans.
You know, you're financing those deals so.
Well, you mentioned music royalties. This is an area I'm always interested in. Why don't you tell me what's going on there? And in terms of the three of music, sports finance and mining finance, is music the largest of those three allocations or are they co equal and then go into music? I'm just trying to get a sense of the portfolio.
[00:20:00] Speaker A: I would say in the ground music would probably be the largest of the three.
[00:20:05] Speaker B: Okay.
[00:20:05] Speaker A: And that's. That started a little earlier when we made our first investment, our first GP. We can only, I think we only found like three. This is back like 20, 18, 19 ish I guess. I mean not that there weren't more than that. Those are the only ones we could find that were raising at the time and we're big enough and things like that. Now we have three managers and they're all, they all do something a little bit different. One does tv, film and music. And it's probably of the three there'll be the most recognizable properties. One does surely copper rights and probably has at least for me, the the least recognizable properties and artists. And there's one that's in the middle that'll do a lot more transactions versus the one that does the most recognizable one. So there's diver diverse set of strategies and approaches within music.
Then we'll also co invest with these managers as well. So you mean it used to be a good investment. Then Napster happened and it was a terrible investment. Then streaming happened and it's been a really good investment.
But kind of as you alluded to problems with a lot of people become interested in will, will the returns stay where they've been for us over the past, you know, three to five years? That's tbd. But if you pay the right price and you're able to forecast the cash flows appropriately, still seems to be good opportunities.
[00:21:30] Speaker B: It seems that if I understand it right, you're basically getting these ongoing cash flows from.
Again, I'm out of my depth here, but I'm going to think streaming radio, public performances, maybe licensing.
And there's some durability to that cash flow through economic cycles.
[00:21:52] Speaker A: Surprisingly strong discoverability. Yes, yes, those songs can be used elsewhere. If a song pops up in a. Is used for. In a movie or in a commercial or like I said, performance form live, there's could be. It could be a growing cash flow and then all of a sudden you have a portfolio and three or four properties have unexpected bumps in revenue. So it's a very interesting space.
[00:22:15] Speaker B: Stepping back, you've talked about investing through funds, so you'll work with a GP that may specialize. I'll just stay with music royalties for a minute.
And you'll invest as an lp. But you also mentioned co investments. Are you doing any co investments in this space?
[00:22:35] Speaker A: We have. I've done two fairly large ones, both in the music space and one of our gps, actually it is a JV of. I mean it's essentially co investing. So we do co investing which helps a lot with blending down fees and keeping things less expensive for us as a whole in the portfolio. We do co invest when we have a GP where we think there will be co invest opportunities. A lot of times we'll set up a fund of one, a Maryland fund of one to do this because it's a lot easier to close on deals. If something's vehicles are separate, we can put them as opposed to going through the legal every time. And it opens up other possibilities as well having that having a vehicle alongside of our main fund commitment, I guess.
[00:23:21] Speaker B: Let me ask again, staying with music, but we can also talk about the other two sub asset that you were looking at. But just in general, when you're thinking about investing in a fund for music royalties, do you look at like how the manager will diversify by genre, maybe by rights types in sports, I guess, you know, is it by sport revenue type geography? I mean do you look for that kind of diversification in a portfolio?
[00:23:51] Speaker A: When we see something that is really a really attractive property to maybe like a trophy property, which can be Acquired at a really reasonable price, we would go larger there and we would think our managers would as well. I'd say we do.
Of our three managers, like one focuses specifically on the copyright as opposed to the mass recordings and music, which maybe it's a potentially lower return, but it does have probably lower risk against like a RE recording hard and fast. Diversification rules, you know, we haven't assigned those and I don't think the funds do either, but. But then again, there is some. There ends up being diversification depending on the strategy, the size of transactions and the types that the GP is looking for.
[00:24:37] Speaker B: I appreciate you trying to make the host look good given that diversification is really not the issue here. I was thinking about it in a very traditional sense.
[00:24:45] Speaker A: Well, if you look at our entire portfolio, it's a very diversified set of strategies.
So having the different strategies and then if one particular strategy is more concentrated, there'll still be diversification benefits, not like equity or fixing portfolio, but. And then when you think about the plan itself, how big it is, and we're five and a half percent. So the plan is like ultra diversified.
[00:25:14] Speaker B: What I've heard, because we're like at our sweet spot here of about 30 minutes is, and I'm going to try to summarize this and remember I'm a public equities guy, I'm actually a futures guy. I started trading corn in 1983.
So you know, this is. This private side is I'm still cutting my teeth on in some ways. But what I'm hearing is that when you look at these sector, these niche investments, you've got the possibility of kind of a stable, recurring predictable cash flows. That's attractive, especially for a pension fund that's trying to deal with liabilities. Right. That's one of the benefits. You agree with that one?
[00:25:51] Speaker A: I do, yeah.
[00:25:52] Speaker B: These cash flows should not look like public equity. So you have diversification and ideally some low correlation associated with these versus the rest of your portfolio. So. And then the third piece I'm kind of reaching here, but that's my show, so you can't stop me. Is there an inflation hedge element to some of these sectors? It doesn't have to be all of them, but would you say there's an inflation hedge? I would think mining, for example, is linked to commodity prices somehow.
[00:26:23] Speaker A: So mining royalties. Absolutely, there's definitely. And we actually have a shipping leasing strategy where there's an inflation hedge there as well. So yeah, some of these will have that component of the strategy for sure or characteristic.
[00:26:39] Speaker B: The other Piece that comes to my mind is this idea that we can talk about an inflation hedge in some ways, but overall they have kind of a defensive characteristic and a certain resiliency to downturns in the market. If you think about entertainment, sport mining might be a little different. I don't know mining that well, but it seems like another attractive feature.
[00:27:01] Speaker A: I'd agree 100%. I would say two years ago, your exclusion of mining from your commentary, I'd say that is accurate. Maybe it's less so now or maybe more resilient now because of all the governments that are interested in critical minerals and lack of capacity and the capital requirements to grow, the capacity to meet all the energy transition goals, defense, security, AI. All these factors are positive for mining, which we didn't really consider when we made our first mining investment three or four years ago, whatever it was.
[00:27:36] Speaker B: Again, to a public markets guy, to me, these are exposures that you've talked about and there are others you mentioned shipping Marina, I'm sure we could talk about. I've heard people doing fertility clinics.
I don't know. But at the end of the day, these are all exposures that cannot be replicated or easily replicated with liquid markets, with public markets. Right. That's kind of like the moat that surrounds these.
[00:28:02] Speaker A: In each one of our investment recommendations. That's part of our portfolio construction. This is not easily replicable in the public markets.
[00:28:10] Speaker B: Okay, so it's got all these benefits. What are the risks?
[00:28:13] Speaker A: Absolutely, there's risks, but it's more idiosyncratic risk as opposed to, you know, broad risk, broad market risk. Mayan could shut down Covid. A lot of our. Not a lot, but there were certain companies that our GP went to where shut down production. So delay in that, you know, through Covid. The only really resilient. The most resilient, I guess was music royalties because TV royalties because people, you know, couldn't go anywhere.
[00:28:41] Speaker B: Yeah.
[00:28:41] Speaker A: Sports probably not as much because there was a stoppage of play and then there was play where there were no fans. Yeah. So each one has its own idiosyncratic risks. And it's all, you know, middle market. There's a large mining company can borrow in the public markets. These are smaller companies versus the big players. So there's, you know, that type of risk as well. But that's why you're able to generate excess returns versus public markets.
[00:29:08] Speaker B: And I assume the GPs face the usual private market challenges of illiquidity, valuation, complexity. There could be some regulatory issues.
I mean, that goes across really all private investments. I don't think there's anything specific there.
[00:29:25] Speaker A: Absolutely, yeah. Yeah.
[00:29:26] Speaker B: If I were an asset owner and thinking about getting into this, these sub assets, these niche spaces, what advice would you give to me?
[00:29:35] Speaker A: You know, it's really important to, you know, get to know the JP and the strategy and is this is just an exposure that makes sense for your plan or your portfolio and not, not, not be, you know, we try our best not to again in sports and media relatives, not to, you know, okay, there's a, there's a trophy asset. We should pay whatever for it. Still stay disciplined to your, to your pricing and valuation.
[00:29:59] Speaker B: Could I expect, if I'm new to this space, to work with gps that will provide some education and knowledge transfer since they're the experts in this space?
[00:30:11] Speaker A: Absolutely, yes. So, you know, for us to do the work that our GP does, we would need a lot more people. We would definitely rely on them to understand the businesses, to understand the legal environment, to understand pricing and valuation and how not to, you know, overpay for a transaction, making sure there's downside protection.
You know, there's so many different transactions and so many different strategies.
You really have to rely on a solid relationship with your general partner in particular if you're doing some co investing as well.
[00:30:40] Speaker B: Yeah, especially in the co investment space, I assume. I'm going to do a podcast, record it next week where one of your peers is going to talk about how they underwrite co investments and the approach they've taken. Instead of just relying on the GP's diligence, they do their own diligence. And it's kind of an interesting know discussion because it's really an empowerment of the CIO staff to take on this responsibility and not just accept the diligence that's been done, which is often very good. But I think it's more of like an empowerment move. So it's kind of cool.
[00:31:15] Speaker A: We don't do direct investing, at least at this point. We do our own work on top of the GP's work. Whether it's a fund investment or a co investment, everyone has a different approach. And you have resources and you have objectives and you try to match it up to what you're capable of doing.
[00:31:31] Speaker B: You've made the case in terms of why go into this space?
And again, you offered mining finance, sports finance and music royalties as examples. There's more to it, but we have a limited amount of time and at least I want to have a limited amount of time and not have you talk for another 45 minutes, which I'm sure you could. We've seen the benefits, you know, in terms of return diversification, resiliency.
The risks, as you pointed out, are idiosyncratic. You access these opportunities through funds and an occasional co investment.
And you made a compelling case, man, I gotta tell you. I mean, and you gave me a good education here. I'm not gonna jump into this space, but I kind of like music royalties. I see the Weeknd is looking to sell his portfolio of music for about a billion.
I'm a big weekend fan and if I could use his music to kind of take us, I would, but I can't do it because of fair use issues.
So there's just a lot going on here. And I could see the reason for moving from the more traditional into the more unconventional. And I don't mean that in a bad way, but you know, if you're talking about sports finance, mining finance, and music royalties, that's a little different than kind of mid market buyout, so.
[00:32:49] Speaker A: Sure, for sure.
[00:32:49] Speaker B: Yeah, I get it.
[00:32:50] Speaker A: Keeps things interesting around here.
[00:32:52] Speaker B: So before we leave, I gotta ask you my one question. You know what's coming, man, the worst investment pitch you ever heard. You've been doing this, at least at Maryland, I think you said, since what, 2011, I think. Is that right?
[00:33:04] Speaker A: That is correct. 14 and a half years.
[00:33:06] Speaker B: So, man, you must have heard a lot of really good pitches and then a few stinkers. So what do you got?
[00:33:14] Speaker A: I try not to. You know, people have jobs to do, and people try to do the job best they can.
I'd say like, you know, the ones that are not very useful is when you have a pitch book that doesn't have historical performance or if it. There was a time from. Probably for. Probably for like five years. And when direct lending grew extraordinarily fast. When it worked, direct lending, every pitchbook had this funnel and something just became. It was really boring. I don't know if it's like. It was like I did. Wasn't necessarily bad, but it was boring. And yeah, I can't think of a worst investment idea because usually once they get through, you know, and they have people working on it, it's probably not a harebrained idea, but it might just not fit what we're trying to do.
Yeah.
[00:33:59] Speaker B: You know, it's interesting you mentioned pitchbook and how much time managers will spend on those and do so many iterations of those, and yet suddenly you're looking at a certain uniformity in the pitchbooks at the time where they've got the funnel and, you know, you know, we're always looking for best ideas and high quality. It's like, yikes. I mean, tell me how you're going to solve my problem is what it comes down to, right?
[00:34:25] Speaker A: Yeah, yeah. It's like. Like sometimes you go into a meeting and they want to hear more about what we're doing. Whatever we're doing doesn't really help, you know, your case that you should be in the portfolio. It's. It's fine. We can talk about it. But why. Why should we invest in this fund?
[00:34:41] Speaker B: Exactly.
[00:34:41] Speaker A: That should be the main part of the. Part of the conversation. Yeah.
[00:34:45] Speaker B: I mean, you've got liabilities to meet. That's your fiduciary duty, you know, and you go through your process to find asset managers or opportunities that will allow you to have a high probability of achieving, you know, that liability target. So how can you help me solve that problem is what they should be really focusing on.
And I'll tell you just. You were mentioning Pitchbooks. I did a presentation back in the day, and I'll mention British Petroleum, and their CIO was a guy named Marv Damsma here in Chicago. And I was going in with a large asset management firm that I was working with, and I told the cio. I said, guy doesn't like Pitchbooks. I'm just telling you. He goes, no, no, this is what we're doing. We always do it. So we're sitting around, there's maybe six or eight of us. Before they came in, I put the pitchbooks down. You know, good form, right? You know, you're the. You're the. The asset owner. You walk in, there's the pitchbook. Marv went around and picked up every pitchbook and threw it in the recyclable. And he said, it's my meeting.
Here's what we're gonna do. I don't want your book. And after that, it basically is, right. It's his meeting, and if the manager wants to reference something to show performance. But really, in that first meeting, it's all about thinking about what the manager can do for, in this case, Marv at bp, to help him solve, really, an alpha problem he had. But he just picked them up. And I remember my CIO looked at me. I said, I told you.
[00:36:11] Speaker A: Yeah, I'm not sure I have the guts to do that in one of my meetings. Maybe somebody else here would.
[00:36:16] Speaker B: Well, you're such a kind guy, and, you know, you're a UNC grad, so, you know, you've got the pedigree, so. And you wore the tie today. Now that we're finishing up, you could take that tie off, but not until we're done recording.
[00:36:29] Speaker A: Remember that in 10 minutes. Yeah, yeah.
[00:36:33] Speaker B: So, Eric, I'll just say thank you. I appreciate the preparation you put into this, the thoughtfulness in your remarks, and I guess working with me to educate me on stuff that I'm just not that familiar with. And I'm sure our listeners will benefit.
[00:36:46] Speaker A: Thanks a lot, Angelo. It's great, great talking to you.
[00:36:48] Speaker B: Thanks for listening. Be sure to visit P and I's website for outstanding content and to hear previous episodes of the show. You can also find us on p and I's YouTube channel. Links are in the Show Notes. If you have any questions or comments on the episode, or have suggestions, questions for future topics and guests, we'd love to hear from you. My contact information is also in the show notes and if you haven't already done so, we'd really appreciate an honest review on itunes. These reviews help us make sure we're delivering the content you need to be successful. To hear more insightful interviews with allocators, be sure to subscribe to the show on the podcast at app of your choice. Finally, a special thanks to the Northrup family for providing us with music from the Super Trio.
We'll see you next time. Namaste.
[00:37:41] Speaker A: The information presented in this podcast is for educational and informational purposes only. The host, yes, and their affiliated organizations are not providing investment, legal, tax or financial advice. All opinions expressed by the host and guests are solely their own and should not be construed as investment recommendations or advice. Investment strategies discussed may not be suitable for all investors, as individual circumstances vary.
