[REPLAY] Private Equity Masters 1: John Toomey – HarbourVest Partners (Capital Allocators, EP.200)

27:54And then you have the right to call 100 or 150 from us for the next six or nine months and to see this as your first investment. And of course, if somehow the world goes upside down, we have the right to put some of that directly back to you so that we're not alone and that the manager is aligned and incented to review that. So when you do that, it creates this incredible affinity and depth of relationship with the managers. And in those cases, we may take a board seat. We may have more active rights around some approvals. It's really situation -specific, size -specific, and manager -specific.

28:33How do you think about exit strategy on Coinvest? Our anchor is alignment with the manager. And that's true going in, too. We want to align with what's their entry point, what's their entry value. Sometimes, though not often, there are some economics that exist within that market. And do the economics exist in a way that deviate enough from the alignment with the lead sponsor? That's something we evaluate closely. So if we get that alignment right, then for the most part, some managers will say, hey, it's like a limited partner. It's tied into the co -investment partnership. And the general partner, the lead sponsor will decide.

29:10So in which case, we don't really have a choice. It's as if we're investing as a limited partner. When that doesn't exist, then we often, even though it's not structural, we often will align with the general partner around that. they want to know that they can deliver a clean solution to the next owner of the business, right? So they often will have a drag. We have likely no desire to remain an owner of those investments after the lead sponsor has exited, other than what's been interesting is sometimes you go from one lead sponsor to the next lead sponsor to the next lead sponsor. And so that's been an interesting dynamic because we often have relationships on both sides and then can evaluate, wait, do we want to stay invested with the business?

29:53We've been with it for four or five years. It's performed extraordinarily well. And yeah, this is a great business and there's more returns for our clients. I'd love to hear about a success story and maybe a not so successful story from the Coinvest program. One of the great success stories is it was a company called CSN Stores, which not a lot of people know what that is, but you will when I tell you what it rebranded as. And so CSN Stores was this Boston -based e -commerce business in household goods. And they had a whole variety of brands. Every kind of household good had its own website. And they wanted to do a private round to begin to consolidate its operations and to rebrand.

30:38And we had a clear intention of going public. It was a $200 million round. And there was a couple of Boston -based general partners that were organizing this. And they were going to max out what they could reasonably do within their programs. And so they wanted to bring other people in and they didn't want to bring just anybody in. They wanted to bring somebody that is a limited partner in their funds. They wanted to bring somebody in that they've known for, in one case, 20 years. So we were invited to evaluate the opportunity. We saw the attractiveness as well. And so we invested 50 or $60 million out of that 200 into CSN stores, which became a rebranded as Wayfair and a couple of years later went public.

31:22And so that is a great example of how the vantage point, the relationships, look, the dedicated teams, it was substantial capital. It was a dedicated team that evaluated and my partner, Ian Lane, joined the board. And so that's a great example of that dynamic. How about one that didn't go so well? Oh boy. Yeah. No, look, nobody bats a thousand, right? So I try to black out the places where we have not returned investor capital, Ted. So I'm thinking a little bit. And it's important to learn from the mistakes, but I don't try to relive them every day. If I think about just the various times, you know, 99 to 01, 07 to 09, there are examples of where the challenges of the co -investment market when the market turns can be, particularly if there are multiple co -investors is you need to make a down and dirty financing, or you need to invest additional capital to buy some relief from the lenders.

32:20You need to buy covenant relief for four quarters, eight quarters, whatever it is. And the lead sponsor, this again, back to alignment. If the lead sponsor is 20 % of the capital and co -investors are 80 % of the capital, that's not very good alignment. But inevitably, even if it's 80 -20, we could be 10 % if there are other co -investors. Now you have this decision and it's impacted by the capital availability and the decisions of the other co -investors, which is why this alignment question is real tight. We certainly have had investments where we've had to make the tough call to walk away from, where we had a different view than the lead sponsor.

32:56We generally follow the sponsor in those situations, but we are fiduciaries. And so if we think that the risk reward isn't there and there's a good chance of throwing good money after bad, we walk. We walk and we have to. And so we certainly had some of those back in the 01 timeframe, the 09 timeframe. With all this information you're gathering at the experience of the company level, both through the due diligence process on co -invest and your actual investments, I'm really curious, how does that talk back to your primary evaluation? So you're on the primary side of the business, just investing in the funds.

33:33How do those two talk to each other? So on the co -investment side, it really comes through. Of course, there's an insight on the underlying company level that gets fed back. But the real insight that our primary team captures from our co -investment business is really through the manager effectiveness, the manager leadership on the underlying company level. And that was invaluable in the part of our industry's history where club deals had become prevalent. And you'd have three, four managers come in. And what was interesting is, because oftentimes with our size and scale as a co -investor, again, you're a minority investor, but you often get information rights.

34:19You can attend board meetings. You actually get an upfront row seat on what the manager is actually doing. And interestingly, in the club deals, you have the advantage point of, well, who's actually doing the work? Who's actually just a financial investor? And who does management call when they have issues? Who does management defer to in the board meetings? And so that is invaluable. And then you can bring that back to your primary analysis. I'd say at the company level, because it's more broad than just single co -investments, that's where the secondary business comes in. Because we're evaluating all of the manager's prior funds.

34:57We have underwritten forecasted outcomes for every fund that we track every quarter. And then you can see how that changes. So when a manager shows up raising their next fund and they're giving you forecasts in the more recent funds, we can actually calibrate that to the forecast that we've been tracking for each of the last 10 or 12 quarters before that. And that to me is where the insight really comes in. And we've actually sourced primary relationships first through the secondary business because we got to know somebody and said, wow, this person said X, they delivered X plus 10%. And as a result, Insight Ventures is a perfect example.

35:352003, our first investment was in a secondary. And Jeff Hoaring said, hey, listen, I'd like to get to know Harborvest a bit more. And they've been just a wonderful partner. I'm really curious about these examples where you have a relationship with a manager in the primary business, you start to see things through the co -invest business that either you're just repeatedly passing on their co -invest deals, or maybe you do one and their behavior isn't quite what you thought. Where do you draw those tensions between that information and how you would just underwrite the primary fund manager without that additional information?

36:13Managers generally aren't doing anything nefarious, but there are times I'd say it's more the the shade of conservatism or aggressiveness with which they view the world and which they communicate what they're doing. That to me is the real, the real value. We've had some experiences on the co -investment side where the general partner treated the other co and us and the co -investors as an afterthought. And it wasn't a good experience. And that becomes part of the discussion becomes part of the discussion, of course, with the manager. But it also becomes part of the discussion around this. Our business is we have commingle funds, we have separate accounts, we've got some other ways that investors access our expertise.

36:55We have to and we do run each of those independently. So it's still the information informs your decision. But there is never any other criteria on an investment decision other whether that fits in that program. Is that the best opportunity that we can invest in a client's program. So let's turn to the secondary business. I know you've been at it for a long time. How do you think about the strategic advantages just for an investor in your funds of participating in secondaries versus primary or co -invest? I'd say the classic view of the secondary market was a great way to start a private equity program, right?

37:38All the way you can invest capital more quickly. There's no J curve. You get early performance, early liquidity. It was a great, you know, you're ramping your target allocation. What a great way to do it. That actually still exists today. Another reason why I've seen investors invest in a secondary is they actually just like the returns. I mean, the returns are actually quite good. And so as part of your program, why not have a part where it is broadly diversified? The downside of secondaries is you can't always be so precise the way you can on primaries or co -investments around picking your portfolio construction, X percent Europe, Y percent venture.

38:14The founder of the secondary business used to say, you can only buy what someone is selling. So there is a bit of a diversification element that benefits the returns and the risks, but makes it hard for precise portfolio construction. Amazingly, I remember back in 2000, the secondary market evolved like a lot of markets. The early returns were spectacular. Capital followed the returns as it always does. And then people followed the capital. There was more opportunities. Every market has developed that way. And the secondary market is no different. What has been different though is the market has shown a remarkable ability to have just another gear in terms of the investable opportunities.

38:58And what has, in my opinion, counterbalanced what should be an inevitable reduction of returns as markets mature, if you follow that cycle, is the increase in the investable opportunities. And for 20 years, it was largely a distressed seller market. For the most part, the secondary market existed only because an owner of a limited partnership interest decided it didn't want to own that asset anymore. And what has changed in the last, say, five to 10 years is all of a sudden the general partner community has become alive to this market as, well, wait a minute, I actually can use this for my own portfolio management tool.

39:45I'm not limited to a corporate buyer, a financial buyer, an IPO, or now a SPAC. Now I actually have this other market. And so for me, that has been remarkable because the size of the market has grown dramatically. So those use cases from a GP perspective at the individual company level, at the fund level, how are they thinking about working with the secondary market? It's all over the place. So it could be either, right? Is it a portfolio level deal or an asset level deal or is it a fund level deal? So the different examples are a manager gets to be, I don't know, seven to 10 years into the life of the fund.

40:23They have three or four companies left. They can decide, do they just sell them off one by one? Or do they realistically have investors in the fund who maybe they're actually not current with that manager anymore? And so can you actually offer an LP tender and say, look, if a third of my investors have moved on or they're thinking about the world differently or they've invested with other people, why don't I refresh my limited partner base? There you can do a limited partner tender and have secondary capital like HarborVest come in and replace a lot of investors who aren't there. You can do an asset level deal where they could do the same transaction in concept and say, look, we're going to sell these four companies to a new continuation fund and manage that out.

41:04And we'll give investors the option to roll for those who want to stay invested. But we really want to reset the timeline. And of course, with all those transactions, alignment is critical and just understanding how you're treating the existing investors and how your new capital is aligned. How's the pricing environment changed on all these secondaries? It ebbs and flows with the cycle. Where we are in the cycle is a lot of transactions will run in the 90s or at par. What's interesting is if you look back at our history, and we've committed $30 billion to secondaries in our history, and you look at the total returns we created for clients, the misconception of this market is like, oh, it must be all about the discount.

41:47So an asset purchased at 60 must be a better return than an asset purchased at 95. And the discount is the only predictor from the discount is the likelihood of the seller selling because it's always easy to convince somebody to sell something at 100 or 101 or 99 than it is at 70. So to me, that's the only predictor. And if you look at our gains, our returns over our history, yes, there's a benefit that comes with buying an asset at a discount. but you get that discount once. And if you buy the right asset managed by the right manager, that manager and those assets can create gains year after year after year until they get realized.

42:31So some of our best returns have been investments we've made at par or at 105 because it was with exceptional managers and they were great assets right at the point of their portfolio where the gains were really about to explode. You mentioned a couple of different vehicles, continuation funds, managers looking to extend duration. This is sort of this common problem as private equity firms, particularly, I don't know, maybe a decade ago, were flipping companies back and forth with each other. Where is the industry sort of taking this concept and structure of owning good assets for longer without that frictional cost in between?

43:14It's a great question because what's happening, and I'll use the word atomization, but it's not quite what's happening, but I'd say the access points into the underlying investments are changing. So for the beginning of the industry until the last 10 years, if you really wanted to invest in private equity, your choices were generally a 10 -year limited partnership. You would make an investment upfront, and then the manager would invest and create liquidity and send the capital back over time. And you basically had to wait. And what has changed is there's now multiple ways for institutional investors and non -institutional to get access to the underlying companies.

43:54They could access it through co -investments. They could access it through a continuation fund that the manager is doing in year seven, or maybe there's an LP tender at some point. So you don't have to actually wait till the end. You can both exit and enter at different points in time. And so what's been incredible from our standpoint is our business, primary, secondary, directs, credit, real assets, in many ways, the game, the market is changing. It's almost like it's kind of, we're at a soccer game and the pitch, and it's all the actions happening right in front of us from a co -investment opportunity, from a secondary opportunity.

44:32It's grown dramatically because investors are desiring more access, more exposure to this asset class, and they don't have to just only do it through the 10 -year limited partnership. And you can avoid some of the friction costs that come with selling the company. So the longer holds, for those who want it, can be quite attractive to allow the returns to compound. So I want to slice your business in a couple of different ways. You mentioned early on China venture capital, and I know it's a global business. What are you seeing, let's say, outside the US in other geographies across these different product areas?

45:10I think it would be a misconception to think that a market outside of the US is just X years behind the US or Y years. I mean, these are developing in their own ways. They're developing in a much faster pace than the US private equity markets have. I mean, we've been international for a long time. We opened our first ex -US office in 1990, 31 years ago, and our first office in Asia in 1996. Now, we have 10 offices today. And a lot of those markets have continued to grow. So for many years, the depth of the market was nowhere near it was in other markets. Europe, of course, has been deep for a long time.

45:51But outside of the US and Europe, the depth of the market wasn't there. And so over time, just this is one of the amazing things about the private equity industry is you have a firm, it's like the story of TA, you can almost go through, it's like the Belichick coaching tree. And you can just see all the firms that have come out of that. Now it's taken decades for that to happen in the US. But the same thing is happening in Asia, individuals leave, and they start new firms, and they're great investors. And so those markets continue to grow rapidly at a fast pace. And look, the private markets, like all financial markets, they're also influenced by, of course, the rule of law and the structure and the maturity of the financial markets.

46:32So how you finance a buyout in different markets in Asia are quite different than how you would do it in other developed markets. And so you need to have dedicated people. We've We've got four offices. We've got 60 people on the ground. You've got to just be in the market to be able to evaluate and get access to those opportunities. And how about some of the differences between buyouts and, say, venture, your two core areas investing? Yeah. So from our vantage point, again, I would take Asia, for example, split it between developed markets and developing, very different. The developed markets, North Asia, Australia, they are predominantly buyout.

47:14Predominantly buyout markets. There's mature managers there. A place like Japan, where the private equity as a percentage GDP is probably the lowest of any developed market in the world. As you see some of the daily headlines, that is changing. That is evolving. And so that's a quite attractive market today. On the venture side, for us, it's predominantly China. We've made some investments in places like Vietnam. but it's predominantly China where for all the reasons that we all know about the size of the China market, the growth of the China market, we've had some of the largest exits that we've ever had across the history of our firm come out of our China venture portfolio because the numbers are just so unbelievable.

47:57And if you look at the venture industry, the growing number of the the Midas 100 list, the number of unicorns, number of decacorns. It's growing and it's slanting more and more towards China as becoming a peer with the US. And look, I don't know why it wouldn't be the biggest market someday. I want to turn a little bit to how you think about your own business. You've had these relationships with lots of 100, 150 terrific private equity firms broadly defined. What have you learned from the best practices of how they've gone about running their business and applied them to HarborVest? Yeah. So, I mean, hundreds of manager relationships.

48:36I think our culture is a culture of continuous improvement. So I wouldn't want to leave you with the like, look, HarborVest has it all figured out. We've got a great business. We have incredible people. I'm proud of the work that we do for our clients and for our managers. But we are in a constant state of improvement. How can we do this better? And so you pick things up along the way. And whether that's succession planning, seeing firms who botch that over time, and they end up kind of losing the next generation or made it a financial transaction over anything else when it was just fundamentally a partnership among group individuals versus those who adopted the stewardship model the way we have, which is we're a partnership and I'm a steward of this business today.

49:22Pete and I today lead the business along with all of our partners. And when we retire, we will sell our share back to the business. So we picked that up from managers over time. Look, I'd say on the IC front, years ago, one of the things we picked up from our friends at TA Associates is like a lot of managers, we had a binary voting system, right? It was either yes or no, and you needed three out of four votes at the global IC to approve something. What we heard from TA was they adopted a numerical rating, one through five, and you had to have a collective number across the total voting members.

49:57And the reason why is what they were trying to do was control for what I'd call the, I'm willing to go along with it investment. So you might have three of four yeses, but it's kind of three mediocre lukewarm. And when you put a numerical rating on it, and then collectively it doesn't make the bar, boy, maybe you shouldn't make that investment. So that's a great example of just, you know, you just have all these relationships, you absorb and evaluate what they're doing, and you do take a little bit of the best of what you see and how you can make your firm better. Are there any other nuggets like that decision -making process that come off the top of your head?

50:36We actually have a conference that we run every year for our managers, which is how to manage the firm. And we convey a lot from our experiences and what we've learned over the years. But they convey a lot to us. And I'll just never forget. I mean, we had, it was the mid -2000s. And we had a topic of managing senior talent. You have great type A personalities that everybody wants to be in the C -suite and they want to be autonomous and lead the business. And everybody can't all do that. So you always have to manage great talent. That's something I think we've learned over the years to do to cultivate talent and bring it along.

51:13And we're fortunate we've never been in this situation, but there was a venture manager who said, let me tell you what happens when your funds go from 800 million in size to 400. And we talked about, how do you fire a partner? And you just see the looks in the room, like nobody thought about it because the industry's only gone in one direction. But the notion of like, well, how do you decide? Is it track record? Is it just the most expensive partner, which isn't always the case, right? Is it the most junior partner of the partnership? Because they might be at the higher priced yet lower contribution relative to the other seasoned tenured members of the partnership.

51:54And so you have that discussion of like, how do you do it? And that was a remarkably raw and candid discussion led by somebody who had lived it, went from 800 to 400 after the 9901 timeframe. Curious to touch on opportunities and risks as we look out. So on the opportunity side, you recently brought in Vanguard, clearly has, at least from the outside, this opportunity to bring scale in ways that we probably haven't seen. And I'm curious how you're thinking about that going forward. I'll answer this two ways, Ted. First is, let's talk about scale of the industry, because that's been an age -old question.

52:34And then I'll talk about scale at Harvard. So look, scale of the industry, if you look at the size of the global public equity markets, this is not a current data point, so don't hold me exactly to the hundredth of a million dollars, But it's about, I don't know, $80 or $90 trillion just around the world. When you look at the total private equity market capitalization, again, around the same time, it's like $8 or $9 trillion. So it's big, right? And it's bigger than it has ever been. That's what we always hear. Capital overhang, look at how much people are raising. So it's true. All right? I can't.

53:11Like, the data is the data. But when you compare it to the size of the public equity markets, tell me why it can't be 20 % relative to the size of the publics or 30%. Because I think what has happened in the last couple of decades is almost a complete development, and you're seeing this on the credit side, of a completely independent private capital markets that has developed. And so personally, well, yes, if I'm driving my car at HarborVest and I look in the rearview mirror and I say, wow, there's been more capital raised in the industry than ever before. And it makes for great headlines for those that publish that.

53:52But I don't just look in my rearview mirror when I drive. I look in the windshield. And where we're going is just still an incredible amount of opportunity and room to run from an industry standpoint. That's my perspective on the industry. On the opportunity at Vanguard. They've been great, great partners. They are great people. And we are fortunate to be selected by them. I'm sure they went to everybody in the industry. And I think there were few people who can do what we do with the scale that we do. So of course, you need to have scale to have a partnership with Vanguard. And what's important about scale is as long as we have visibility into it.

54:35And we do given the tight partnership of how they intend to bring this to their clients and how we will support them and do that with them. But as long as you do it deliberately and you have visibility and you can invest into it, then you can manage that growth. How do you think about the pricing environment? So you touched on earlier, one of the ways that some of these firms have made money is this multiple expansion. And now we're entering this period where it's always possible, but multiples feel pretty full? They've felt pretty full many times. So I think if anything, what the industry has done, I think a lot about the first generation of the industry, the industry pioneers, the names that we all know, extraordinary entrepreneurs versus the second generation of the private equity people that we work with every day today.

55:26And I think what has changed in the industry is not to take anything away from the pioneers because they built incredible businesses, incredible returns for investors around the world. But I see the level of expertise and sophistication in the people making the investments today. You have to be better today than you were 20 years ago because there's much more competition. Some of the parts of the markets have become more efficient. You need to have a very clear strategy and thesis. You need to have exceptional execution capabilities to actually make that happen. So yeah, the pricing is high. But what we see is managers who, when they're underwriting a company and going in at 12 times, they're not underwriting to exit at 15.

56:13Actually, they're underwriting to exit at 10. Because the market does go through cycles. And all that does is to get to your underwritten returns, it raises the game for those managers to execute on the plan that they have to get from A to B so that they can still generate the returns investors deem acceptable at an exit of 10 times. Are those acceptable returns from investors recalibrated to a pricing environment that's higher? So we've had this period of time where if you look backwards, returns have been extraordinary and you're now entering at higher prices. Do the investors expect those same level of historical returns or in your sense, are people recalibrated?

56:53It's interesting because people would look at, say, private markets, private equity, you know, three to 500 basis points above the publics. And if the public market returns are coming down over the long run, then we shouldn't private markets as well. And we have this debate all the time internally. It is shrouded in what I describe as this is a great risk reward opportunity because you, of course, have to evaluate the risk as well. But when I hear that, I actually believe that's a euphemism for this is a below the bar return. Like if you're selling me on this is a good risk reward, we are in the business for delivering outcomes, for delivering those returns to our clients so that they then can ensure that they secure the pensions of policemen and firemen and teachers.

57:40And that's why we exist. So I would like to think that client expectations do come down because it's calibrated to the equity markets. Unfortunately, I think they still held us to the higher bar. And if anything, it's the only place over the last decade that has contributed the excess return when they're trying to meet their 8 % or 7 .5 % or 7 % total asset return, they're not getting returns in a lot of places. And it's requiring us and our industry to up our game to make sure that we meet those objectives. What do you see as the biggest concerns that you have other than that mismatch expectations going forward?

58:24Honestly, ESG has been on our minds, has been part of our firm for many years. I serve in our ESG council and it is growing in visibility, which is great, but it's growing in visibility and importance at different rates around the world. And so that's hard, right? You'll have a European investor say, I want you to screen every deal and I want you to only do the best through the ESG criteria. And we have some US state pension funds that say, hey, I'm a fiduciary over people's pensions. I can't trade returns. Now, what's interesting is there's an implicit assumption there that there's a cost and that by aligning ESG with your programs somewhere, it must be more expensive or you must exclude certain opportunities.

59:11So of course, the returns must be lower. Our data suggests that's not the case. There's actually a positive correlation between managers with great ESG programs and the returns that they generate because they think about this. And it is good for the business. It is good for the underlying companies long run. So that's one. It's the uneven application. And let's say the non -standardization, because it'd be a lot easier if it was standardized. The other is, globally, we're ending a new era, if you will, around this long journey of globalization. So 20, 30 years, we've just been on this same trajectory.

59:46The world has become more global. and look COVID is a important reminder of some of the risks and consequences that come when the pendulum swings the other way and so we're dealing with what's happening in Japan right now and our team on the ground and our clients and are we going to be able to fly to the EU in order to meet clients again face to face and then not the least of which is you know what are the regulatory changes that are happening so operating a global business not just for HarborVest, but for everybody, it's become harder and it's required us to rely upon our scale and breadth more and more because it's not getting easier running a global business.

1:00:31Well, John, it's just a fantastic tour of all these activities. And before I let you go, I want to ask you a couple of closing questions. So what's your favorite hobby or activity outside of work and family? My favorite hobby. So I don't think a lot of my partners even know this, but I actually almost attended to get a PhD at the University of Hawaii for meteorology. And so I love the weather. I like a bunch of weather apps. I just, when there's like a storm, I'm in front of the television. I'm just, I'm all over it. I've got some weather instruments at home. I'm a complete weather geek, so much so that my kids actually have nicknamed me Tank Weathersfield.

1:01:14So whenever it's like, oh, hey, Tank, what's the weather outside? Because it looks like it's sunny from my window. And so I'd say anything related to meteorology is one of the things that interests me outside of work. What's your most important daily habit? So I have three dogs. And I would say the morning walk and the evening walk are the two most important things. A morning walk is a help me think about the day, what's important, who do I want to speak to, what do I want to achieve that day. Then you go through your long day. And then the end of the day, it's just another opportunity to decompress a bit and reflect upon the day and something to be said for the unconditional love of dogs.

1:01:53What's your biggest pet peeve? I guess I would frame it as maybe deflection of accountability. And what I mean by that is we set high goals, right? I mean, our clients demand that from us. And so we do that all the time. And sometimes you fall just short, you get close, you can get to exactly where you want it to be. And one of the things I think is real important for our business and our culture and why we've had the success we had is this honest assessment of like, what went well, what didn't go well, and how can we improve? You know, never make the same mistake twice. Something Pete Wilson, So my co -CEO says all the time, never make the same mistake twice.

1:02:33And so I think there are times where if I begin to hear though, well, we didn't because that to me, it's like, well, hold on. Right? Like it, was it in your hands? Like, what did you actually do? And so for me, I think, and I think our team knows that they kind of laugh. They're like, oh, okay. The deflection of accountability, like just own it, own it and make it happen. So along those lines, what has been the biggest mistake you made and what did you learn from it? I don't want to be too specific because I don't want to reveal exactly when it was. People are like, oh, I remember that. There was a moment in my career where we had a really important meeting for the firm.

1:03:09And again, I don't want to go too deep to reveal what it is. But I would tell you is every indication leading up to the meeting was that it was going to go our way. It was just like, oh, it's so obvious, the internal chatter, the dialogue, the feedback we got, even some explicit discussions. And it's amazing, Ted, because when 20 people tell you the same thing, what happens, you actually begin to believe it. And I remember going into the meeting expecting that we were just going to win. And we didn't. And we didn't. And it was humbling. and as a result i have committed as all of our partners that experience that never to be unprepared again never to be unprepared again and if i think about my one of my college football coaches he would always tell me so the game's not won on saturday it's won on monday and tuesday and when you ever it's not the will to win it's the will to prepare to win what are you doing on Thursday before the game.

1:04:14And so for me, that's a cultural element of the firm as well, which is be prepared, don't assume anything, and run hard through the tape. What's your favorite book? Well, you'll laugh at this. I actually don't read a lot of books. You say like, wow, I don't know if anybody's ever answered it that well. It's true, right? I mean, I love what I do. I love who I do it with. And I've been reading investment committee memos for 20 years. I just, I love them. I just have a voracious appetite of them. The one thing that is not, it's not quite a book, but I'm an Aspen Institute finance fellow. And in that, you read a bunch of philosophical books and excerpts and readings.

1:04:52And you just talk about how do you go from just kind of being successful with your business to really being more impactful in society. And so for me, the story that I reflect upon often is the story of Plato's cave, which I don't know if you know it, but it's an example of like, so Plato. trying to explain, as he often does in his readings to some other character, some context. And he created this allegory of the cave where individuals are in a cave and they're chained so that their heads can only see the back of the cave. And what they see in the back of the cave is shadows. They see shapes and they see shadows.

1:05:31And in many ways, that's all they know, right? That's the world that they see. And what they don't realize is one of them breaks free from the chain and they look behind them. And what's behind them isn't two -dimensional black and white shapes of the world that they know. It's a different world. And it's somebody actually creating the shadows. And it's three -dimensional. And it's colorful. And it's kind of the way life should be as opposed to the way life appears to be. And I think about that all the time, right? What are the chains that are holding us in? If you break a chain, how would you convince others there's a better world, better opportunity?

1:06:09Think about our ESG and DSI initiatives. How do we be a better citizen in the world than what we do and we do for our clients? What teaching from your parents has most stayed with you? Talk to the lunch lady. I mean, seriously, right? I remember it was like third grade and she's like, do you say hi to the lunch lady? I'm like, oh no, nobody does. And she's like, well, why not? And then the lesson was, look, it's how your day goes is in your hands. And you choose, right? Do you say hi to the lunch lady? Do you say hi to the bus driver? Do you say hi to the front door receptionist in the office?

1:06:42Do you say hi to the analyst sitting in front of your office? Because if you do, and it's not a big effort, it's a small choice to invest into. And the return on that investment is enormous. And I was intimidated by Mildred until I started talking to her in third grade. And she was a very nice woman. All right, John, one more for you. What life lesson have you learned that you wish you knew a lot earlier in life? I'd probably tell my younger self, life's not a straight line. I mean, everybody thinks their career is planned out. I'm going to do this first. I'm going to do this. And I'm going to go to business school.

1:07:14And I'm going to do this. And it doesn't always play out in a linear way. And oftentimes, there is a J curve to it. And you get to a point in the middle of your career where you say, wait a minute, I'm contributing a lot. but I'm not actually receiving a lot in return, right? I mean, that's a common. People get impatient and they take a view that, hey, there may be there's a better opportunity. I would be rewarded better somewhere else. And I think by and large, and we've had some people in that ilk that take the view that maybe the grass is greener on the other side. But I think by and large, those with whom I've had that conversation in our organization that have stuck with our organization, exceptionally talented people, I think to a person, it's all worked out for them.

1:08:01And so my encouragement to people is, hey, it's not linear. It's not a straight line. If you're a math person, it's not Y equals X. It doesn't go straight up to the right all the time. So that would be something I've learned along the way because it takes a little bit of the anxiousness and the concern or stress or eagerness out of the picture and focus on what's right in front of you. Great. John, thanks so much for taking the time. Hey, Ted, I appreciate it. Thanks again. It's good to see you. You too. Thanks. Bye -bye. Thanks for listening to this episode. I hope you found a nugget or two to take away and apply in your investing and your life.

1:08:37If you'd like what you heard, please tell a friend and maybe even write a review on iTunes. You'll help others discover the show and I thank you for it. Have a good one and see you next time.

1:08:52Thank you.