E158: How to Find the Right LPs for Your Next Fund w/Meghan Reynolds

As a general rule, is there a huge first movers advantage in alternatives and asset management as a whole?

That's a great question.

I would imagine there is definitely a first mover advantage, but track record really will rule the day.

There is a trail of tears that exists in asset management with firms that were there very early that don't exist today, that they don't withstand the test of time because the track record's there.

There's, if you could look back in history, there were very large buyout firms that were some of the mega buyout firms that existed in 2005, 2006, 2007 that literally disbanded and don't exist today.

When we last chatted, you mentioned this concept of a strategic investor.

I always thought that that meant the investor with the most money in their bank account.

What makes an investor strategic?

Capital can be flexible.

It can be consistent.

It can be

scalable.

Like that is very strategic.

Or capital that says, yes, you've been a $10 $10 million investor to me, and now I'm raising in $100 million fund.

I'm going to raise a billion-dollar fund.

That's super strategic.

What is the difference between capital formation and investor relations?

So, in the simplest terms, investor relations is everything to do with investors that are already on your platform.

So, working with your investors from an administrative standpoint, getting them everything they need to know from you once they are already invested in your products and and your platform.

Capital formation is primarily concerned with attracting and securing new commitments.

So that would be a sales process, that would be

identifying new prospects and bringing in capital to ensure the funds that you're managing have what's necessary to

pursue the investment strategies that you're trying to pursue.

So tell me about how these investor strategies change over time.

Investment strategies that a a firm

is managing may or may not change over time.

But in a private market context, typically you're raising a fund every few years.

You might, that fund, very few firms raise the same amount of capital every few years and just keep that consistent.

I can think of maybe one or two that do that.

consistently and successfully.

Most private funds, the fund sizes fluctuate.

So you might increase the capital you're raising over time.

You might form a new strategy to pursue a new set of opportunities.

You might expand into a new asset class.

You're a private equity investor and you're going to expand into credit or you're going to expand into real estate and become a multi-product firm.

When your strategy or your funds change, whether you're increasing your fund size or you're pursuing a new strategy, the investors who were invested with you historically may not be the right investors for you going forward.

And so you need to adapt that and identify,

adapt your strategy as it relates to capital formation and identify who's the right capital for what you're pursuing today.

So let's say you're a private equity fund or a venture capital fund that's looking to create a credit fund.

Tell me about how you go about doing that.

The folks that are your

investors, right, they might be endowments, they might be pension plans, they might be high net worth investors.

Most likely, if they're an institutional investor, the team that would pursue credit opportunities, like the actual people who decide, I am your champion, I want to invest in David's fund, are different than the people that would invest in credit strategies.

So, you might have to go to, while it's the same parent investor, you may need to have a conversation with a whole new set of people, the credit teams.

Yes, some organizations and some family offices or individuals, it's just one person making all decisions, but that's actually more rare when you're talking about institutional alternative investing.

And so you need to identify who are the right people, even if they're my existing investors, who are the right people at an organization that could pursue this type of strategy.

You also need to

canvas the universe of investors to say, okay, who invests in credit?

Where is capital being raised in credit?

Who might be the right investors for my strategy?

And it's, I really like to think that it's, this isn't about just finding all capital that's available to me, but who is the right capital, the right fit for the strategy that I'm raising.

So there's considerations around who you might approach for raising a new credit strategy.

Maybe a certain type of investor is expanding into credit and therefore you're more likely to get more capital from that base over time.

Or maybe there's a new geography that has historically underinvested in U.S.

credit strategies and you need to consider that

So, there is a whole strategy around campaign that's involved here that should be put into place when you're thinking about launching a new strategy.

And again, this is very different than investor relations.

You're just out, you know, keeping investors updated on how their private equity investment is doing.

If you're not well-versed in the capital formation side of things, then you're probably ill-prepared to expand your business.

I want to double-click on something very interesting that you said.

There's this implicit understanding there that the way that you really raise a lot of capital is in portfolios that are not fully mature.

People that are building out a specific strategy within their portfolio versus the largest pool of capital or the oldest pool of capital.

Talk to me about that.

It's pretty logical to say that if you're going to be raising a new, like raising a new strategy, where

you're out to find capital that's untapped.

And because none of the, by the way, none of these asset classes are brand new.

Like credit's been around a while, private equity's been around a while, venture's been around forever.

Like we're 50 plus years in these asset classes, and people are pretty well exposed.

So,

how do you find pools that are somehow doing net new today?

And like, that is so critical.

And by the way, different than when I started in this business 20 years ago, there was tons of net new.

We were still early in the evolution of alternative investments.

That's not, that's very different today.

People have very established and large exposures to most every asset class.

That being said, there might be factors that are causing them to increase exposures.

And again, I tend to think of like this tends to be generalized by

investor type.

It tends to be generalized by geography.

So, investor type, we call that channel.

Channel and geography, I think about a lot.

Because, look, are there dynamics to a specific geography that would cause new investors to come in?

Maybe they've been limited in the past somehow, which hasn't caused them to invest at scale.

Maybe the wealth of a specific geography, a specific nation comes from oil and oil prices are way up.

That would cause them to have new fresh capital to invest.

Maybe the regulatory environment has changed.

And this can affect channels and geographies, both the positive and to the negative.

And so thinking about those things and kind of establishing some generalization helps you

target certain markets, helps you focus your energies to be more productive.

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So another way, these geographies, these investors in certain regions or certain verticals haven't yet picked their horse.

They're still looking for their relationships to back in the space.

And because of that, you're not going, you're not trying to rip out an existing manager from their portfolio.

You're competing as a net new manager.

Yeah, yeah, absolutely.

You mentioned when you started

20 years ago, everything was net new, but the game was different.

It was probably convincing people to be in this asset class.

So talk to me about the challenges back then.

Yeah, it was a, it was a very different approach to marketing and fundraising at that time.

There was a lot of education happening, as you mentioned.

Like we were traveling around the world talking about what the role that alternative investments should play in a portfolio.

What is literally having conversations, having a marketing deck when I was at Goldman, like what is private equity?

I remember in I don't know, 2003, going to Japan and hosting a private equity university for institutional investors there.

And it was very basic elementary framework of what is this asset class?

What does it mean?

What is the difference between buyout and venture?

Today, those are organizations that individually invest tens of billions of dollars into the asset class and have fully built-out teams.

Like that, that didn't exist 20 years ago.

So,

and the number of funds that exist today and the numbers of sub-strategies that exist today just simply wasn't there.

It was a totally, totally different

framework that you were working on in terms of raising new capital.

And

it was great.

I mean, it was fun.

It was, I think, the education piece of it,

breaking down why

certain asset classes a role to play

is a very fun and interesting journey to be on.

We went through it again in

2010, 2011, 2013, 12, 13, 14 on credit.

Like what is the role, what should be the role of credit, private credit within a portfolio?

Where should it exist?

How does it behave differently than liquid credit?

How does it behave differently than private equity?

So we went on that education journey.

Again, I was at TPG then, not at Goldman, and we were building out a credit business.

Today,

there's really not a place where I see us on that educational journey.

Like

there's nowhere that I can identify in alternative investments today that's truly untapped.

Like until we as an industry create something that's completely net new, like no one's on that journey.

Again, that makes it hard to find like totally fresh,

untapped capital in the institutional environment.

The one place that that educational journey is still going on is in retail.

Retail investors are investing new money into the asset class, are understanding it for the first time in terms of the portfolio that they manage.

And there is a very untapped

opportunity set that exists there.

But everybody's rushing in there at the same time.

And that's getting solved in new and different ways.

And everybody's,

that's not a

secret.

So, my guess there is that it's going to become pretty exploited very quickly.

And it has the benefit of being in the institutional environment a long time too, you know, for people to look at and for people to understand.

You've had a very interesting vantage point educating people about private equity in the early 2000s and then about private credit in the early 2010s.

And it seems like, not coincidentally, the people that were there educating were the winners and the big winners and incumbents in the space.

Is asset management a space where you have to be there from the very beginning to really become one of these big players?

And as a general rule, is there a huge first movers advantage in alternatives and asset management as a whole?

That's a great question.

I would imagine there is definitely a first mover advantage, but track record really will rule the day.

There is a trail of tears that exists in asset management with firms that were there very early that don't exist today, that they don't withstand the test of time because the track record's there.

If you could look back in history, there were very large buyout firms.

that were some of the mega buyout firms that existed in 2005, 2006, 2007 that literally disbanded and don't exist today.

There's plenty of venture firms that went out of business that were very

or just wound down that were very successful in the 80s and 90s and even 2000s.

So I think, yes, there is a first mover advantage, but ultimately it's people like who's able who is able to deliver returns and scale in a super sustainable way that matters a lot.

I think about certain people that are raising massive firms today.

I mean, look at the capital being raised by an interest in Horowitz and venture and growth or a general catalyst.

Those firms didn't exist 20 years ago.

Venture's been around, venture and growth have been around for a long time.

So there's definitely room for innovation.

And

the success that those firms have had should be studied for sure in terms of how do you raise capital and

how do you scale.

When we last chatted, you mentioned this concept of a strategic investor.

I always thought that that meant the investor with the most money in their bank account.

What makes an investor strategic?

There's capital that can be passive and big, capital that can be passive and called, like just putting money into a bank account.

Like I think of that as passive capital.

And that's wonderful.

But I think more importantly, there is this idea of that the capital can be strategic to you.

And capital that is strategic is capital that allows you to take advantage of opportunities that you would otherwise not be able to take advantage of.

What does that mean?

Capital can be flexible.

It can be consistent.

It can be

scalable.

That's,

and there are ways that it plays out.

But that's how I think of capital that is truly strategic to you.

It's different than somebody that just shows up at the check.

It's like, hey, I've identified this new investment opportunity and something that I've never done before.

Do you want to come along on this ride with me?

Like that is very strategic.

Or capital that says, yes, you've been in a $10 million investor to me and now I'm raising in a $100 million fund.

And I'm going to raise a billion dollar fund.

And that person's like, great, I'm in for 100.

That's super strategic.

And there are lots of ways, by the way, outside of the checks that people write to be strategic to a GP, that those LPs can be strategic to you.

So outside of the check that you could write, how else can LPs be strategic?

A couple of ways.

One, LPs can be strategically generous.

They can be generous with introductions.

They can introduce you to other LPs in the ecosystem.

That's one of the most, I think, impactful ways that you can

help a GP is to introduce them to other great LPs out there, people that you think a strategy or team would resonate with.

That you know, warm introductions are 100% more effective than cold reach outs.

We know this.

Sometimes it's sharing insights.

Like often, there's LPs that have domain expertise that is not otherwise available to your firm.

And sharing those insights collectively is extremely helpful.

Maybe it's an LP that's a family office that's in,

that made their money in the consumer space or in the industrial space, and they're seeing really interesting data from their own operating businesses that might inform resident knowledge.

Maybe it's an endowment that's thinking about things holistically and they talk to you as a portfolio and they're thinking about macro and they're thinking about how they're shifting their portfolio and they're talking to you about what they're thinking.

That insight helps you plan your business.

Those two ways really stand out.

Another way an LP can be strategic is being,

what I would say is being a prepared mind.

Like knowing a GP really well, knowing a GP's portfolio, knowing the team, that allows an LP to react very quickly.

And sometimes being strategic is about like being, like I said, being flexible is, hey, and being providing capital when it's otherwise not available could say, hey, the markets have just gone off the cliff.

We want to raise a recovery fund because we see a huge opportunity to put capital work right now.

It's really hard for LPs to move fast, particularly when markets are bad.

But if they know you, they know your team really well, they know what you are all about, they can be a prepared mind to act quickly.

So those are some of the things that come to mind.

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You've been sitting between GPs and LPs and many different seats, and you've seen LPs double down.

You've seen LPs cut and switch.

When an LP does leave a fund, how much of that is based on performance or how much of that is based on LP relations and LP investor relations?

And that's a great question.

The two most common reasons that an LP does not re-up with you or in a public market context, a hedge fund context, maybe they redeem.

Number one is performance.

You know,

you're simply not performing to the level of expectation that they had of you.

And the second is transparency.

If people don't understand what they're doing, if they're not happy with the level of information that you're giving to them, if they've been surprised by events in the portfolio, that will cause them to not re-up.

That will cause them to redeem.

And I've seen situations more than once, more than a handful of times, where performance is a coin flip of you relative to another manager.

And they say, like, look,

your transparency is not good.

Like, I don't know what's going on in your portfolio.

I'm frustrated by a lack of information.

I'm going to choose this team over you, or I'm going to redeem from your fund relative and I'm going to stay in other funds, even though, you know, performance was actually, their performance was slightly worse, but it's just hard to be your investor.

So I'm huge on transparency, not transparency for the sake of transparency, but I'm like transparency with a level of empathy that just helps people do their job as an investor, helps them understand, makes it easy for them to be invested with you because they know what's going on.

There's other reasons that people could redeem too.

Like, look, look, team turnover matters a lot.

Are you

swaying your strategy somehow?

Strategy drift.

I think that's up there.

If people have a perception that you're doing something that's different from what they expected, there's a whole list of reasons why people, but certainly performance and transparency stand out.

That's so good.

Transparency, because it creates this risk.

LPs are looking at their their funds to fit a specific box.

They need it to be diversified.

They need to make sure that there are certain factors in place to make sure that they're not over-levered and taking too much risk.

Double-click on what does it mean for an LP to have transparency?

Does that mean that they understand every asset in the portfolio?

Or how can GPs be more transparent?

It's not necessarily understanding every asset in the portfolio.

It's not understanding all the ins and outs of a fund.

It's not looking underneath the hood and saying, I know the revenue and EBITDA of every portfolio company.

It really comes down to having a very clear understanding of what the drivers of performance have been and are expected to be going forward.

It sounds basic, but it's actually missed a lot, right?

People aren't necessarily don't often give the framework, particularly in a private portfolio context of like

what are the things that are really going to move the needle?

Like, what are the

companies that we expect to really drive value going forward?

Another is very, being very clear around problem areas.

Like, what are the problem children in my portfolio?

Where are

their, where could, is there real risk of capital loss.

If you just nail the, what's expected to be the big value driver, or what has been and what's expected to be in the future, and where are the problem children in my portfolio, you're good.

Like, you can, if you just nail those basics, everything else is, yes, there's other things that are helpful and that certain investors need to check the boxes for the job that they're doing, but that is really the most important thing.

Another thing there would be no surprises.

Like if you see something coming, good or bad, and can give some sort of heads up on that, even if it's two hours before that hits the press, that is helpful.

Because no one likes surprises in an investment context.

They like to know what's coming.

They like to get ahead of it.

You're generally dealing with professional investors who have bosses that they need to explain what's going on in the portfolio.

And being able to stay ahead of that is extremely helpful to the investors that are managing, that are ultimately responsible for managing the portfolio

in which your fund exists.

What does it mean when a GP is able to share something that's ahead of the press by a couple of hours?

What does that translate to practically?

Well, it could be an exit, right?

That could be a,

it's going to be announced that a our portfolio company has been acquired.

It's a huge win.

And you know as a GP that that's going to hit the press at 9 a.m.

And you can call, if you call LPs at 8 a.m., you're not going to break anything.

Like nothing's going to break.

Or if you get to them the night before,

it could be, look, we, we know there's something really bad that's going to, that's about to be out in the portfolio.

It's going to be announced tomorrow.

It's gonna be announced like there's fraud.

There's

operating performance has fallen off a cliff.

You're never, I think the thing that people get really sensitive about is like, oh, we don't want the, we don't want something that's otherwise confidential to be released out to LPs.

I never expect that to be the case.

But once you know that something's about to be public, getting ahead of that or as soon as possible answering questions around it and reaching people is really important.

Sometimes it's team-related, right?

There's nothing worse than an LP hearing about something from another LP.

Like, in my experience, in 20 plus years, there is nothing that pisses an LP off more than hearing that someone has left your firm from another LP or from the press.

Like, if there is team turnover, you have to communicate it and you have to communicate it early.

Chances are you knew it was coming.

Chances are there's a way to communicate it out to your LPs.

Get ahead of it.

So those are those are some of the things that come to mind.

Team turnover, are those communicated on LP by LP basis or what's the best practice there?

It depends.

Look, I think you have to be really flexible in your communication channels and you have to be practical too.

Like if you have to get, if it's something that's super sensitive and it's got to get out to everybody, like try to get out to everybody, then you're going to send the last email to your LPs.

If it's something super sensitive about team turnover, you're making a change, or something happens, then you have to go, you know, investor by investor and call.

Look, sometimes you're going to have to

prioritize your large investors first.

Small LPs get that.

You're going to do the best you can.

So you generally go with your largest relationships and you go down the list and you divide and conquer.

And look, I've been in situations,

unfortunately, where some really, really difficult things have happened

with funds.

I've been, when I was at TPG, the head of our social impact fund was arrested in the college bribery scandal.

And

that was the founder of the strategy.

We're in the market with our fund too.

There was a byline of massive hypocrisy involved because this fund, this social impact fund, was investing in education-related

companies that get access to education to those that need it.

And here's someone that's involved in the college bribery scandal.

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We were finding out information in real time about what was going on in this situation.

This person had been arrested by the FBI.

And

there were so many questions to answer.

It's all over the newsfeed.

And

we didn't sleep.

Our team didn't sleep for four days, like literally did not sleep.

We just committed ourselves to getting out information as well as we could, staying on top of it, be available for questions.

And people stayed in that fund and people committed to the next fund.

And like, I truly believe the dedication to just as transparency that could be allowed.

And we were dealing with sensitive information.

This is privileged and confidential.

There's legal processes going on.

You just, you're just doing the best you can.

And it's really just about

showing that you're there, showing that you have empathy, being available.

It's never about communicating something that you shouldn't be communicating.

So there's this nuance between

making sure that people know that you're doing your best to be transparent while not actually

you know, triggering any kind of legal or NDA issues.

Absolutely.

I mean, that's what trust is really all about, right?

That, you know, you have a trusted relationship that someone's going to do right

by me.

And for people to give you additional capital, there's just a tremendous amount, especially in a private market context.

These are tenure relationships.

There's a tremendous amount of trust involved.

These are, your investors most likely are putting themselves on the line for you.

They are, if they're an institutional investor, they are your champion.

They are your advocate.

They are making a decision that's going to reflect well or poorly on them.

And they just need to be able to trust that you're on the same team, that you actually are partners in the business.

You're not just there every two years to come and ask for a check, that you're making them look good.

You're making sure that they're successful in their career as well as allocators.

The irony is that the larger pool of capital, the less likely it is to be that person's.

capital.

There's only so many decca billionaires on the planet.

There's much more 10 billion plus pockets.

And typically those are people with families and careers and a lot on the line.

Absolutely.

I think one of the things to think about, too, is like, how do you think about small LPs versus large LPs?

Like a lot of people in those moments,

in the moments that really matter,

again, where things get really tricky, you will go just to their largest LPs or just to their LPAC or just to the largest LPs.

And I guess my advice in this, in those situations, were, you know, think about your whole LP base.

Like, just because it's a small check doesn't mean it's not meaningful, doesn't mean it's not important.

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you never know what that small check could represent to you

in in business maybe all your big checks go away and the small ones are there for you when you need it i have a friend who spun out and raised their own fund and and had a mentor that told him like you treat every lp with the same level of respect whether or not they're 10 million lp or a billion dollar lp and he had a very small LP.

I'm forgetting now if it was 5 million or 10 million that showed up with hundreds of millions when they spun out.

And it's such a good lesson that like, you know, you just, you just never know where the capital has come from if you treat it with care and respect.

And

that will, that will pay dividends.

And I've seen it time and time again.

And you mentioned that TBG, you went four days without sleeping.

Did you incorporate non-investor relations people into that exercise?

And tell me about how you commandeered the team in order to reach out to LPs.

Absolutely.

I mean, fundraising and investor relations is a team sport.

It involves every single person at an organization from front to back office, the back office supporting you with information you need, with data, with contact information.

I mean, everything, right?

To the investment team and the people that are running the organization.

And

one of the mistakes that I see GPs make is found, you know, it's kind of of farming out quote-unquote investor relations issues to the IR team.

And

that's really super short-sighted.

Like you can't do that.

Like you need the whole team involved.

That would be like saying, you know, if you look at a public company context, that the investor relations person does the earnings call.

No, obviously not.

Is the CEO talking to your most important or CFO talking to your most important investors?

Yes.

And so, yes, the whole team is involved and makes themselves available to answer questions, to make sure they hear from leadership.

We were lucky.

I mean, we had a very big team at TPG, so you can scale those communications very quickly.

You can, you had, you know, people around the world that are getting out information at the same time.

Like that, that is a very privileged place to be because it was a large organization.

But 100%, it involves, you know, people at the top.

top to bottom.

And I think you really have a culture of, you know, clients matter, customer first.

These are our partners.

Like that involves everyone in the organization really really being committed to the investor experience.

You're going to hate this question based on our conversation so far, but

I wonder what it is.

Obviously, you want to go out and you want to talk to every LP, whether they're smaller check or larger check outside of that context.

Are there tools that also streamline?

So maybe you could have a monthly video or what are some kind of investor relations or capital formation tools that could help you stay in touch with people even more often?

I don't hate that question at all.

I actually think it's a super important question because it's just not practical when you're a small team to be able to do like all things, be all things to all people, be available for every investor.

You may have raised capital from, depending on your firm, you may have thousands of $1 million investors that started your business.

And like, that's just really hard to communicate.

So you have to really think about all different channels and types of communication methods.

And my, you know, and I would say use them all, right?

They're, we are, it's so different today than when I started 20 years ago, where we didn't have the benefit of Zoom meetings and webinars and social media.

I mean, you can really use every type of channel, WhatsApp.

Like a lot of firms now are able to communicate business communications through WhatsApp.

Like you could, you could send a group text if you needed to.

Like all of those things are super helpful.

The most important thing is that people hear from you.

They often don't mind the format.

And I would say be super flexible.

I think of email right now as kind of asynchronous.

Like it's people don't necessarily

want to just get things in email, but it certainly serves a purpose.

And just think about all the different channels of communication available to you.

We last last time we chatted, we had an interesting conversation about capital that was bounded to funds and capital that was unbounded to funds.

So tell me about that.

What does it mean that when capital is unbounded to funds?

Yeah.

So many investors are just fund investors, right?

They participate in a direct, you know, closed-end fund, fund with many LPs, and they re-uppen that along the way.

But the other investors are able to invest more

flexibly.

The most common way you see that play out is through co-investment or direct deals.

People can support direct opportunities directly.

And again, that's some GPs see that as a burden.

My LPs want co-invest, and that's a burden to me.

Other GPs see that as super strategic.

Hey, I want to lead a deal.

I want to go in and

perhaps I have such high conviction in this opportunity that I want to invest even more and make that opportunity available to LPs.

So LPs that are unbounded and can do direct deals,

that's unique.

For some LPs,

SMAs, it could be a separately managed account, super nimble, super flexible mandate.

We saw that in,

I would say, June kind of 12 through 15, 16.

Like you started to see that emerge in large buyout land, multi-product land, where you saw these super big pension plans

writing checks for like a multi-asset class strategic account.

They got fee breaks, but it allowed those multi-product firms to perhaps have more capital into asset classes that they were just going into for the first time.

So

the fund investor is very important.

Like you want to have people that are just going to want the classic product, right?

But they're actually like having capital that is more flexible can be super strategic to you as an organization.

You mentioned that 2012 to 2015, it was around pension funds.

Today,

primarily single-family offices, where are these unbounded pools of capital?

Today, in in general, institutional investors are more unbounded than they were in the past.

I think people, particularly as it relates to direct opportunities, that's happening.

Actually, it's happening very, very quickly into

the high-net worth and retail market.

We didn't see that before.

That group, they're kind of skipping right from funds to direct deals.

If you look at what's going on in banks and RIA platforms and what they're offering out to their clients.

So, yes, I'd say investors today are much less bounded to funds than they were in the past.

But in general, I would say it's the largest pools of capital, sovereign wealth funds, pension plans, very, very large family offices that tend to be

the most

potentially strategic.

That being said, they often have governance structures.

Like those are very bit large organizations that are hard, that can be very hard to move.

So you could have smaller family offices that are just like, hey, I'm super flexed.

I could do whatever I want.

I can do, you know, I can do a new product.

I can do, you know, a direct deal.

I can be super, super flexible for you,

which is why when I think about building an LP base for a fund, like, I think it's important to have a range of types of investors, range of size of investors, range of type of investors, because

you never know what you're going to need and who might be able to provide something

strategic to you, to use the word that we were talking about before.

Sometimes these strategic investors come by category.

So you mentioned the pension funds in 2012 to 2015.

Sometimes there's some regulatory or returns-based reason why a specific type of asset class may become strategic, which is why you want to diversify across asset class for many other reasons as well.

Yeah.

Yeah.

I think that it makes sense.

You don't want to to overgeneralize.

No LP is

the same, but you generally do have like sweeping generalizations that you can make about specific types of investors.

And I was really lucky.

Like I started my career at Goldman Sachs.

And

because it was a big asset management division, but we have the small private equity group sitting within it, we had access to like these sales teams that were organized by investor type.

And so I was very lucky in that I learned the differences between different types of investors and how they might act differently, how they behave, how they're governed, regulatory environment, what a sales process looks like for one versus the other pretty early in my career.

And I think that's more well understood today.

But understanding that, even if you're just a small emerging GP, I think is very important

because it will affect your go-to-market.

It will affect affect how you think about marketing and fundraising over time.

You mentioned diversification and sovereign wealth funds.

One way to diversify is around geography.

If, let's say, you're not TBG, you're a smaller fund, do you really have to double down and pick a specific geography in order that the managers could travel to that geography every year?

And talk to me about how, you know, how you go about picking a geography and whether you pick one or two and how that strategy evolves.

Great question.

It's complicated.

It's complicated by the regulatory frameworks, which are pretty complex

in various countries, in certain countries.

So it's limiting to your, like, you're not, you can't be really flexible on this, especially if you're a small firm.

So most European countries are subject to something called AIFMD.

I don't even actually know what AIFMD stands for.

I probably did, but I know it very, very well.

As

like, because it actually means you cannot, unless you're registered in every single European country or most, you cannot go and proactively market there.

You can, however, take reverse solicitation.

You can have investors come to you directly.

So if you are a small organization, you might decide, okay, I know that this particular country, there are a lot of institutional investors there, and this situation has changed or they're really untapped.

So maybe I want to register there because that will give me flexibility to go and market openly

in that particular place.

The same frameworks apply to countries in Asia, like to countries,

really all over the world.

So you have to be very careful from a regulatory perspective and it can be very costly and very limiting if you're a small GP.

What's generally fine is reverse solicitation.

An investor knows about you and they come to you.

And so how do you approach that?

Like you got to be where the investors are.

Like investors need to know who you are.

Like you need to have a brand.

You can leverage conferences.

You can leverage

different

publications that know about you.

Like you want to be, and obviously your LP base is a really important place of introduction.

Like B, having a brand, being where investors are.

So you're not subject to like those rules.

It's not as easy of like, oh, I'm going to pick Korea and I'm just going to go over and be in Korea.

Like chances that you actually need someone on the ground in Korea.

You need to be registered there.

It's super complicated.

So, so, you know, that's limiting.

But in a perfect world, you should be flexible and you can have your choice and your performance is really good and you're an amazing brand.

And so like, I think it's, you want, I wouldn't go all in.

If you can, if you have the gift of being, of having a lot of demand, then I think picking a little, like having capital from all over the world, having capital from a couple different places, like having different geographies, like not just going all in on one, but having that diversification can benefit you because regulatory environments may change, macro environment may change, and you don't want your capital to be overly at risk based on that.

What have, what have you found to be the best way to access new LP relationships?

The number one best way to access new LP relationships is warm introductions from your existing LP base.

Like nothing better than that.

Nothing better than, hey, you know us really well.

Is there anybody else that you know that we should be talking to that is an excellent partner.

LPs are very well networked with each other.

They talk a lot.

They're like, they share ideas.

They share information.

So like the best way, and this goes back to the importance of investor relations and capital formation strategy is like the best way to get new LPs is be a really good partner to your existing LPs.

Like full stop, the capital will come.

If you are delivering and you're delivering well, like it will get out there.

And on the flip side, if you've not been a great partner or you're not transparent or you've had problems on your team or you've had problems with your performance, it will get out there and there will be repercussions.

So, I mean, that is, that is my, you know, my campaign for good investor relations

that I tend to live by.

But outside of that,

you know, it's doing your research.

Like, how do you find LPs?

Like, the best LPs, like, do your research, know who's out there, listen, what, listen, like, read the rags, understand what's going on with endowments, have a view on, you know, which pension funds are fully funded and therefore not as restricted in their investment programs as certain pension plans that are very underfunded and have liquidity challenges.

It's going to save you a lot of time if you do your work and do your research.

There are also, there are partners out there that can help you with this.

People have, I've talked about this in some other places, but like people have some, can have like a negative view on placement agents, but placement agents can play an important role in this.

They can help educate you.

They can help you understand certain markets.

They can help make introductions.

They can save you time.

And not everybody is, has the benefit of having a dedicated team internally.

So you may think about building a relationship, even if it's not just like a success-based relationship, but working with people out there that can help be a consultant to you in that way.

Yeah, absolutely.

I think the LP community is extremely small.

I come across many people, even just on the podcast, I've had four or five friends on.

It's extremely small.

And whenever you have a very small community, the network effect in your reputation becomes pervasive very quickly.

And that happens both for good reputations as well as bad reputations.

I think the best way to actually raise capital is from existing investors.

And of course, the bigger the pool of capital, the more diligence there is going to be in that process, which largely relies on reference.

There's only so much investor relations you could put on a GP that's not performing well, that's not communicating well to LPs.

There's only so much lipstick you could put on PIC.

Totally agree.

And the reference checkpoint is a really important one.

I think they often,

you know, you kind of think about that late in the process.

If you're raising a fund, like, okay,

who's going to be my reference list?

I think that's one of the important, most important things to think about in advance, right?

Like, and who's going to be my on-list and my off-list reference?

And, like, are those references prepared to give the context?

Like, do you know what your references are going to say about you?

And are those

references prepared with the most important talking points, with the most important context of your business to represent you well to

prospective LPs.

The other thing I'd say is I've seen this a lot where people early in their career, particularly people on the, like people on the investment side, are, you know, deal professionals in a firm and they've got their heads down and they're just working on deals and it comes to the time of the annual meeting and they're all sitting at a table on the side,

not, you know, not really like they not really focused on mingling or building relationships and being out there and talking to people.

And I always say to people earlier in their career, like, you may want to run in a fun, like run your own fund one day.

And here is your opportunity.

Go out there, like build relationships.

Like you just, you never know.

Like this is your potential customers one day, your potential partners one day.

Like go and network because the people that have those networks, when it comes time to going out on your own or starting a fund, or even just being more senior in the organization which you're in and you're raising new capital.

People remember you.

People have context on who you are.

Like they understand and enjoyed an interaction.

Like all of that will make them more inclined to support you down the line.

Not only are they potential customers, they're existing customers of your fund.

And

they should be the first places that you go to if you're ever to fundraise.

That's right.

That's right.

And I know it's hard early in your career to be like have that much foresight or even think that's important, but I would really encourage encourage people to think about that.

Your CEO, Brad Gerstner, spends a lot of his time on media, on social media.

In what ways does that help your fundraising process?

Listen,

having a voice that is known,

people understanding what you stand for, people understanding your investment views is very helpful.

And Brad does that, you know, there's there's podcasts or he might be on CNBC and our other team members have their own way of sharing insights.

That is a way to establish, like we talked about, be where the LPs are.

That is a way to establish your brand when you are not marketing.

It's not necessarily why.

The only reason why they do it.

Like

there is thought behind it,

not just LP driven, but really like touching and reaching all the constituents that matter to the business.

That could be founders who you might want to put capital into their company and they've seen you and they respect your, the way you talk about markets or they they you they're a subscriber to your weekly stub stack.

Like that, that matters.

It could be potential employees.

It could be potential LPs.

A lot of it is just like having a brand that stands for something, having a voice in the world about your particular

domain domain expertise.

And part of it is also like testing your thinking in the court of public opinion, like being willing to say something publicly.

Really,

you think twice before you're going to go out and do that.

So you better be rock solid in your views.

You better be strong in your convictions.

And that's really important to the culture of Altimeter.

I think there's this.

aversion and asset management.

It's always been super conservative, very secretive.

There's this aversion to going on media or even taking a stand.

But I think the worst thing you could do in any business is not to have a market, not to have a point of view.

And I think that's very obvious.

You would never have a software company that didn't specifically focus on a specific type of approach or a specific market.

But for some reason, asset managers look at it as you, not the best ones, but a lot of asset managers don't want to offend anyone.

They don't want to take a position on being long this or long that, especially publicly.

They want to retain all optionality so that they could be everybody, everything to everybody and end up being nothing to anybody.

I think that's right.

I think that

you're taking risk anytime that you put yourself out there.

You're subjecting yourself to

a lot of vulnerability.

Vulnerability that you may say something that turns out to be false, vulnerability that you might say something that people generally disagree with, that you're wrong.

People, like, certainly the culture at Altimeter is like, is develop of you.

And like, the more that you're pushing yourself to be vulnerable, the more work that you will do, the more deeply you will invest in your insights and your knowledge base before you say something out loud.

Now, the challenge could be, like, and this is real for just from an investor relations context.

The really difficult thing is like you want to make sure that someone's not saying something out publicly in the world that you haven't already communicated internally or to your investors.

Like, there's nothing nothing that people,

I would say, nothing that bothers people more than, like, oh, I heard this, Brad say this on CNBC, but why haven't we heard that?

Right.

Like, we didn't know where he was at.

So, we have to make sure that we've got a transparent process so that, like, all like constituents matter, timing of communications matter, making sure you're, you know, tight and available and that your communications are consistent.

Like, that there's a lot lot of work that goes on behind the scenes to make sure that, like, that we're really, we've got the machine very, very tightly.

How does that work with?

I know Brad goes on for current events.

How does that work?

Is there a blast in the email?

Is there an email that's blasted in the morning about Ultimate's point of view before he goes out?

No, not necessarily.

We don't have the time to do that.

Like some of it, and it's not always captured perfectly.

But there is, you know, we, I think a really good example is like we were reaching like the markets, the public markets have been an absolute train wreck over the last couple of weeks.

In real time, Trump just paused tariffs, so they're up again.

But like, this is a super volatile time.

And

while we're not able to reach people in real time, like Brad might decide, like, he gets called and he's going to give his market perspectives and market commentary on TV, but we reach people after the fact as soon as we can.

Like, here, here are sending out some emails saying Brad shared his views publicly in case you didn't see it.

Here are some of the, here's some of the context.

There's also an important compliance framework in sharing your views publicly that we could talk about.

And I think it's also been why a lot of asset management has been so tends to shy away from these things because you have to make sure your compliance framework is very tightly, tightly controlled.

You know, that we're reviewing things.

I think, you know, Brad was an attorney before he was an investor.

And I think that certainly helps that he's very, very versed and takes the commitment to the compliance pieces very, very seriously, that he makes sure he, you know, you're not tripping marketing rules, that you're not,

that you're speaking from your own personal opinion, not opinion of the firm.

Like all of that matters a lot

and impacts the way that we communicate.

So I think for a small firm, we have a very important overlay because we are a regulated investment advisor of like of a team that's dedicated to making sure that we are, you know, staying inside the lines.

And the media appearances, the podcasts, the X's or the tweets, these don't only serve, it's not literal necessarily.

There's people coming into you and saying, hey, I saw your tweet.

It's more when you meet with them, they're aware of Brad's point of view and they already have a preconceived view on the firm.

Absolutely.

Like we don't do this.

Like we're not sharing views into the world because we think that someone, it's going to reach somebody who's like, oh, I want to invest with Al Timmer, like a big institutional LP.

And then they call us and say, yeah, how do I send the money?

I mean, we do get some funny emails after there might be a CNBC appearance, like, where do I send the check?

We don't generally uh respond to that, um,

but I can't think of a single long-term large investor that's come to us proactively because of what we're doing.

We're doing it because for the reasons that I established before, and it does help.

Like, we are a known brand that is known for our thought leadership, our insights, a respected voice, and that matters to CEOs that

our analysts want to interact with or management teams, like they're listening.

People are listening.

Founders are listening and they're paying attention and just being on the platforms where those people are like really matters a lot.

And it's very helpful that people know and respect your work.

I mean, and it's not just Brad, it's our team.

I'm always

shocked, but not surprised at where I'll meet an investor in

corner of the world, right?

Like pick a, pick a country like Australia who says, oh my gosh, I read jam and substack every week.

And

that,

like what that does for your process

and just they already, like you've already got like gone way ahead in your marketing process when somebody already has a view that you are a thoughtful investor even before you've even taken a meeting.

Like that is so, so helpful.

How do you scale the insights that you deliver to your LPs?

We do that through

some of the things that I mentioned earlier.

We were talking about like good IR, right?

Like we

have webinars, we have an annual meeting, share, we try to share the things that we think are important

out

to investors.

We have a team, a team that works just with me closely, or like our little sealed team, three, three people who, you know, every single investor in our, in the platform, in the ultimate platform knows us, knows us by name.

They know we're available to them.

We really try to have a very strong

dialogue.

And some of that, like there's some people that might send me a WhatsApp daily, like they might, you know, check in and I'm responsive.

And that's not particularly scalable.

But like, what are the ways, you know, reporting channels and webinars and things like that emails out on good news and bad, like those are ways that we, we scale that.

Well, Megan, this has been a masterclass on capital formation.

How should people keep in touch with you and follow everything that you're doing?

I mean, I think Altimeter does put, as we talked about, put insights out into the world.

Like individuals on our team do that.

That does exist and

LinkedIn and other places, social media that like X, that we can, where it can be followed.

And I think those are very easy ways to, you know, get some thoughts and like from Altimeter on what we're seeing, what some of our research is.

We're also on Sandhill Road, and so stop by and see us.

A lot of people roll down that road, roll down that hill

every so often.

50, come see us.

Well, Megan, I may just do that, or we can meet up in New York City very soon.

Thanks for jumping in.

Thanks so much.

Thanks for listening to my conversation with Megan.

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