[REPLAY] Rahul Moodgal - Master Fund Raiser (EP.87)

29:40And I don't care how everyone else does it. I do it my way. and people still haven't learned from those times. It's incredible to me. But more than that, I will also say most investors I deal with are world class and they're phenomenal. But there's also a handful of people who still haven't learned from the allocator side who are still doing crazy things like asset liability mismatch, investing in managers they shouldn't be investing in, not understanding the structure of the returns that those managers are giving them, where the returns are coming from. Is it coming from stock picking? Is it coming from leverage?

30:09Is it coming from concentration in one specific name? People don't look at that. they don't look at the correlation between the manager and their portfolio. And all of a sudden, they wake up and they're like, oh, wow, I've got 10 managers that have all got the same stocks. No wonder I'm down. So it made me realize also what I needed to do, but also what investors should be thinking about. And that, again, goes back to the point I made about Seth, is sort of really trying to sit in those people's shoes and understanding what they're doing and what they're thinking. So now I spend a lot of time with investors when I meet them, understanding who they are, how they invest, what makes them think, what makes them worried, how they're thinking about the world.

30:43Because then you can sort of get into their mindsets. Are these the right people for us to work with or not? Do they really get what we're doing? Are they long term? Are they patient? And the key for me is actually when you have a tough time, are those people going to give you more money or not? And if they're not, then they're some of the right people. So let's roll forward through the financial crisis. What happens with your career? I have a tough time. And then I sort of think March, April time, 2009, what am I going to do longer term? I thought well this has been great but I want to kind of do this choosing who I want to work with ultimately I worked for Chris and Chris chose who was on that platform and so I sort of started thinking about it but the first thing I needed to do was to step away from that and think what's the future so I stepped away and I was lucky enough at that time for Parvis guys to come to and said we still want to work with you so it was continuity for me it was great and they were open to me working for other people as well as long as there was no conflict so that's really what i've done today and i know i've actually worked with parva since 2005 first with chris and then separately from chris since 2009 it's been great and so the post -crisis environment for raising capital different completely different completely different if you put it in a time spectrum i would say what used to take six weeks now takes 18 months the intensity the level of information the due diligence i've had to learn about the managers that i worked with before to a level that i never had to because i'm getting asked questions i've never been asked and even today 15 years on people the amount of work they're doing the quality of the work they're doing is incredible i love that because that's they're investing in a relationship okay The longer that someone takes, the longer they're going to be with you.

32:34There's one firm that I went to meet in 2009. They didn't invest until 2013. They took five years. But they invested heavily and strategically and they're long -term. But that's great. Because in the old days, it was pick up the phone. The money would come, boom. Then something goes wrong, the money's gone. So I fundamentally believe in long -term. And now duration is even more important to me than anything. What types of firms have you worked with in addition to Parvus post -crisis? So I worked with a long -only manager in Asia. She's been investing in Asia longer than anyone, 25 years. We built a great business and she retired earlier this year.

33:10We gave all the money back to investors. It was great. And it was nice doing it in a different way, doing it in a different regulatory authority. We're based in Singapore. We did only managed accounts. So it's great. And actually being there, beginning designing it all and doing everything was fantastic. Hadn't done that for a while. That was great. and then I've helped a number of guys pro bono on the requests of investors, prime brokers, all those people reach out to me. And there's a huge amount of talent out there, huge, huge, huge. I feel quite excited actually because for the first time in a very long time, there's a lot of good guys coming out.

33:42There's a lot of younger guys who've worked their way up an organization or been the number two for a long time and people feel they're ready now to sort of go out there. So there's so much to do. But there's also a lot of the bad habits coming back. I can see that people are worried about short term. The market is so myopic. So people have FOMO big time. So if you go back to 1999, 2000, if you didn't own the tech stocks, you weren't going to perform. And it's the same thing today, where people fear, if I don't own certain stocks or certain sectors, even certain geographies, you go back three years, people worried about investing in the US.

34:19They want to diversify. But today, the US market continues to do well. And everyone's like, well, I need to stop doing active international and do passive US because it's going to do better. But they're being short term about it. You have to think longer term. And if you put your eggs in one basket, that basket's going to break. So it's really interesting. So all those bad habits are coming back big time. And I sometimes feel that people are becoming more momentum, more short term, and just missing out on the bigger picture. So you've had such a wide spectrum of different types of investors and a number.

34:52what are you hearing when say there's some younger up and coming talent you want to invest with and depending on the box it might be a higher fee box and there's this big question of the value of active management and the price of active management what are you hearing i've had less discussions about fees than other people have because i think let's take a step back i think in the old days everyone talks about strategy okay and i think people focused on the wrong thing it was never about strategy certain today it's not about sure it's about structure and we talk about fees people don't mind paying fees as long as they're structured the right way okay so the old two and twenty charging every year forget it that game's over but if you charge two and twenty but you pay those incentives over three years or over a hurdle or over a benchmark well that's fine and if you deliver the returns that's great now there's people who are coming out with all sorts of different ideas management fees going down as assets grow which is great and i think that's good but the key thing we've got to remember is that if you pay peanuts you get monkeys and i think it's really important that people are incentivized to work hard to deliver good performance to do good work for you and if the money's not there they're not going to do that they're going to find shortcuts and i think people end up resenting actually working the way they're working so i think we've got to be really careful there in terms of making sure that the right people get paid and i'm sure people deliver performance they'll get paid you make your money from incentive fees anyway not from management fees management fees are just they don't mean anything but i think people are really good at being thoughtful about where those management firm doesn't need 200 million dollars of management fees what are they doing with that money okay so it's absolutely correct to make sure that people don't continue to charge the fees in that way but incentive fees are charged differently now.

36:40So in the old days, a long biased manager would charge from zero. But today they are the charge over a long term time horizon or over a hurdle or over a benchmark. And it's the right way to do it. Because ultimately, we're here to make money. But the interesting thing I think is now you're seeing this huge, huge conflicts of the merging of long short, long only private equity. And the number of the people I speak today, equity is equity. They just have a bucket for it. Because in the old days, the differentiation between them was duration and fees and structure. And today they're saying, well, actually, I'm quite willing to do long only that's more illiquid if it delivers performance or hedge funds that have a hurdle.

37:23And so the whole world's changing. Everyone's thinking about these things. There's a lot of people for the first time I've seen a long, long time that's saying, I don't know what to do. I don't know how to think about things. Where do I go from here? What's going to happen to the world? So they'd be much more thoughtful in different ways. So when you get a call from an institution or friend that said, hey, there's this new fund, can you talk to them? What advice do you give a new fund manager? So let's say it's not someone who's likely to launch with a billion plus. So I had such a call earlier this year from someone I really respect who emailed me and said, hey, I just met this guy.

37:59I can't tell if he's brilliant or naive. Can you meet him for me? I said, fine. At the same time, I got introduced to the guy by two prime brokers and said, can you meet this guy? I met the guy. I put 45 minutes in my diary. I spent two and a half hours with him. And I think he's naive and brilliant. But just the passion he spoke with, he'd been thoughtful in every way about his structure, about his fees, how he's going to build a team out and everything. I spent two and a half hours with him. And then I've just helped him raise. He only took $300, but he raised $1 .2 billion. Who's the manager?

38:32It's called Black Sheep, Alex Fortune, based in Ireland. Comes out of Ennismore, between small and mid -cap Europe. And we sat there for three hours just a few weeks ago, deciding which investors he should take and which investors he shouldn't. And it's a great situation to be in. And I've said to him, there are two types of investors. There's asset owners and asset allocators. And you always want to work with asset owners, because you're speaking to the people whose money it is, who have final say. The asset allocators, it's not their money. They're investing it for someone else. So they're vulnerable to what that end investor's thinking.

39:04And then you're the third leg in that cog. And so you always have to wonder what they're thinking and then what the people behind them are thinking. You never really get to the end investor. We sat down, we went through this and thought about him. I got him his COO. And I was tough on him in terms of how he was thinking about stuff. So you're not thinking about it the right way. You need to do this, you need to do that. And it's been great. And we got some of the great ENFs invested in there. And he's going to be a rock star. Really feel good. So my advice, I say three things when I look at a presentation and say, really distinguish about how you're different.

39:36Because people always think they're different and they're not different. The second thing is, talk about the mistakes you've made and the lessons you've learned. Because that has had an impact on how you think about investing. And the third thing is, have a business plan. Because when investors invest, they're not just investing in a fund, they're investing in you and your business. And they want to understand what your vision is, right? You know this from Protégé, the stuff that you did, you're always looking about people's businesses. It wasn't just about the manager. What's their vision? What do they want to build?

40:03And then I say to people, the three things that will kill you are ego, speed, and leverage. And always remember that. Don't have any ego because as much as you can feel like you're taking over the world, it goes in a second. Why are you in a rush? You're early 30s, early 40s. You want to do this for 20, 30 years. So just wait for the right clients. Build it the right way. Do it slowly and you'll be fine. And leverage. It's fine to use leverage, but understand what that means, okay? What are the impacts on that? Whether it's leveraging the companies or leverage at the portfolio level. And people don't think about those things.

40:38So those are the pieces of advice I give to everyone. So a situation like this is probably atypical in that there's a rapid degree of success that turned out in raising money, even if you didn't know. How do you advise people that are struggling with the tension of making a business work economically versus trying to play the long game. In some cases, it's never going to work. And I'm quite honest with you about that and just say, listen, it's just not going to work. You just forget it. And there's other guys who are really good. There's another guy recently who just came out of a big shop. He needed an anchor investor.

41:13I helped him get an endowment on the West Coast, give him money. But it's a long, slow process. And understanding to him, investors don't think about what's their break even when they're starting, okay? Where are you spending that money? why do you need 10 people? You don't need 10 people. This again goes back to the point about thinking about building your business plan. Think about your assets, your infrastructure, your people. And over time, as they grow, what are you going to do with those? So I think people have a lot of misconceptions about what is the right thing to do. Anyone who leaves a big organization is a refugee, right?

41:42And when a refugee starts their life, they start with a lot less than they had before, okay? Whether it's financially, in terms of possessions and things. So the same way I think about these guys, well, you don't need that whole huge infrastructure and bureaucracy you had at your old place. You're leaving for a reason. OK, it's to do it your way and to do it simpler. So don't get bogged down in all the nonsense that goes with all of that. So I think people, it's fine to have big ambitions longer term, but start small and start simple. The biggest issues, I think the two biggest issues for startups is they overcomplicate everything and they don't take enough risk.

42:19Right. it's quite ironic now you see people saying the guy's great but he needs to perform he's not taking enough risk obviously you have the extremes of people take too much risk but I think if we think about all the big launches in the last 10 years people have raised 1, 2, 3, 4 billion at day one how many of them are still around? not that many so I kind of explain that to people time and time again just go slow think about these guys who launched they don't even exist anymore there's no rush take your time do it properly with the right people That's the only advice I can give. You need to have a passion for doing this, and it's about investing.

42:54And if I see people that don't have that passion, then what's the point? There's a couple of guys I met recently. They're smart, but they don't have that passion. They're too focused on what investors think and trying to say the right thing to those people, trying to say to them what they want to hear. It's the wrong way to think about it, right? So how about somebody in your shoes where you've had some great success that allows you to be patient to meet with people, maybe you're going to help them, at what point in time do you start navigating, okay, I want to get compensated for this, or I'm just taking lots of meetings and I'm happy to share my wisdom because I'm a teacher and that's what you are?

43:32Well, the regulations stopped me from getting compensated. But I think, look, the thing that everyone forgets about is if people are successful, it's good for our industry. I think everyone believes that, but so many people are so focused on themselves and it's about the greater good right so when i see bad news about hedge funds or investments in the newspaper i think it's a good thing why do i think it's a good thing because the people who really understand it won't run away from it but the people who don't they run away from it and the kinds of headlines that you see are people are scared about volatility they're scared about lockups they're not doing concentrated managers they're not doing this not doing that if you really dig into the headlines about who's saying that it's not the great and the good investors it's not the asset owners okay it's the asset allocators because they're trying to protect themselves and so I think I really really am conscious when people run away from this stuff is actually quite often the best time to invest I was just with one of one of the family offices that I work with in New York and he was telling me they have money with a manager they've been with since the beginning for 15 years he'd annualized 15 but he said his investors that only received nine percent annualized return I said how's that?

44:40He said, because people give him money at the wrong time and they take it at the wrong time. And I think that's the thing that people forget about this. This is a long game. It's a duration game. If you're not willing to think long -term, just don't do it. From the perspective of all the meetings you've had, everyone wants to know, you know, what are the smart people ask, the better investors? What are some of the best questions you've heard ask of managers from the investors, asset owners that you respect the most? there are so many i think there's two ways to look at it it's the questions and it's the process of the questions so i think some of the best questions have been about someone's personal life and background what's made them the way they are what's motivated them what what gives them the mindset that they have and i think people don't understand that they spend too much time focusing on the results rather than the process that's made someone become the way they are and how they've thought.

45:34The second thing is actually spending time with the individual team members and saying, especially for a day one startup, okay, this guy's going to run the firm. Do you trust him? Do you know that he's going to pay you the right way? Do you really feel he has the ability to take risk? Do you feel he's going to listen to you? And people don't cough and don't do that stuff. Third thing is really, really spending time on the business side of things. And people quite often don't spend time on that. Investments can blow up, but the firm gets things wrong in terms of operations, you're dead. And people don't spend the time doing that stuff.

46:07So I think it's really, really important to sort of look at both sides of that and people don't spend enough time doing that. But I think the psychology part of it is really getting inside someone's brain to understand what they're doing. And for me, post -crisis, I will say to everyone, only invest with someone who's blown up or been at a firm that's blown up. Because unless they've been through a tough time, you won't know how they're going to handle it, how they're going to treat their investors, how they're going to treat their team, are they going to stick to their strategy and i think the right investors ask those questions and say right tell me about this i've sat in meetings with a manager for example who said he wasn't invested in a certain stock that blew up and the investor was so smart he did the background said but you were invested you told me you weren't invested there's no hiding if good investors do their work they'll find out so that's why again i go to the point tell people about the mistakes you've made because if they understand what you did wrong and you've learned from it and you won't do it again then it's huge what are some of the worst horror stories you've had to deal with how long have you got i mean it's it's there are so many that i i can't even start i can't even begin to tell you stories about people leaving that i know are leaving but i can't say are leaving the market finds out they're leaving before they've left and all the rest of it investments in the portfolio that shouldn't have been in the portfolio.

47:31People claim they're not there. You know, I had one firm I worked with where the manager refused to put the top position in the portfolio, just forgot that it existed and just sort of talked about the rest of the portfolio, even though it was a big position. But that top name was something, it wasn't an equity position that they were investing, it was something else and they shouldn't have invested that. There was one manager I was helping in Asia who put his whole business at risk and he had a 63 % short position, which could have completely, luckily it worked for him, but it could have blown his whole business up and his fund and killed his investors.

48:07That's a new one even for me, 63 % short. 63 % short. So people take huge amounts of risk, huge, but there's some point where you've just got to step back and go, hold on. Look, from my perspective, it's just always being honest with people and telling them and helping them understand these are the risks for investment. It's managed, you've got to understand that. and I always try and like spend the beginning part of a meeting saying to people these are the reasons people don't invest with us right because that way they understand what are the things that people have concerns about and what are the things that people don't like about a manager and if you do that then straight away you've told people look this is the situation and if you want to do it do it great story I'll tell you 2006 I'm sitting in a meeting room I do two group meetings of 12 the first meeting I go in I talk about a manager everyone may as well have been asleep I even heard myself talking this is so boring I went to the second meeting I thought I'm gonna do it different I said these are the reasons people don't invest in this manager because of this this this this this and out of the 12 investors in that room eight of them invested because they understood it I took a pm eight years ago to a group a prime brokerage event and I told him to do the same thing and he said really and I said yes there were 20 people in the room at the beginning There were seven at the end who really had a good fruitful discussion with.

49:20Again, it's not a volume game. It's a quality game, right? I'd rather have five meetings in a day than two groups of 20 because the five one -on -ones are going to be much more fruitful and interesting than sitting there with 20 people, half of whom are asleep. People just forget that it's not about that. What's the most frustrated you ever were with a potential investor? oh i i you sit there and you you can hear from my voice the frustration in it you've done everything you can to that investor and you even said it doesn't matter if you don't invest just please tell me if you don't invest why you're not going to invest or let's stay in touch and they just disappear from the face of the earth and they don't return and it's fine but i've learned now i'm old enough and ugly enough to deal with that and it's fine the biggest frustration is this is all about relationships this whole industry is about relationships and people still forget that they think it's manager specific but it's not manager specific it's relationships and people just walk away in a heartbeat without thinking about things and it's everyone's invested time in that process so it doesn't make sense to just walk away and leave it because they've invested as much as i've invested in it it's fine if it ends up in nothing but don't just walk away and say hey we invested all that time and nothing happens it's fine but think about that i wish there were rules around that but there are no rules around that and it's fine and again for me having learned from that frustration there's one endowment i've known since i started in 1998 and i knew the cio we had great dialogue we talked about lots of ideas and just coincidentally we were speaking about her portfolio she wanted two types of managers and i gave her two managers she invested in both, 300 bucks in one go.

51:10And she said, Rahul, it's taken 15 years, but we got there. And I said, it didn't matter ever. What mattered to me is I could call you and you could call me and say, I'm looking for this. And do you know anyone? And that for me is when I put reality on that frustration, say, do you know what? It's fine because sometimes it takes that long. I'm going to turn to some lessons from another side of fundraising that you've done. We have gone back and forth over the years writing some small checks to each other for various charities. I know you've been involved in a lot. So why don't you talk a little bit about what you're passionate about on that side in the organizations, and then also similarities and differences in fundraising for a nonprofit organization from what you've been doing.

51:52I've been involved in charity fundraising as I was eight years old. I've always had a thing for it. I think the biggest peeve I have in the world is that people are not compassionate okay I think it's such a huge thing that us as a society forget about we're all about us and about now and it's just not the way the world works right I think my parents brought me up to be compassionate and I think that's one of the greatest things they gave me I studied development and that was one of my passions and that came through and when I got the job with Chris it was really utopia for me because my academic side of development along with working in finance all culminated in one place so it was a dream okay the guy was giving all this money to great development projects all over the world and I was working doing what I love doing and so I learned a lot from that and then over time I've become involved in a lot of charities all of them actually specifically which I didn't realize someone pointed out to me recently are all involved with kids so in UK I deal you know Friday night I had a fundraiser for the Marlborough Bush School which deals with the most severely traumatized kids that you can imagine there's 31 kids with 120 staff and on entrance six percent of them are involved in full -time education on an exit 100 of they're involved in so it's incredible work so they do amazing work so i've worked with them i worked with whiz kids which i'm a trusted which deals with disability and provided mobility equipment to disable kids from the moment they can move up to the age of 25 getting them jobs all that sort of stuff i work with the oldest playground in the UK which sits between three estates but what you call in the US projects and it's been incredible for taming relations in that community and stopping rivalry and really helping people grow up in a harmonious community together.

53:35I am chair of the board of a charity in California called Scientific Adventures for Girls which promotes STEM for girls in Oakland. Been incredible. Melinda Gates even wrote about us and the work we're doing. It's incredible because it makes little girls believe they can achieve anything they want to achieve which in that environment which is the bedrock of innovation it's so male dominated and people forget that actually girls can do a lot so we bought all of these girls that participate in those classes hidden figures movie and they all are just so inspired so it's really really important i'm now getting involved in a charity that deals with mental health for young people which is the issue of our generation so So there's tons and tons.

54:16I think last count was 12 different charities. And it's been said time and time again, if the elevators comes up to you and takes you up, you need to send it back down. And I think it's so important. There's only so much we all need. And it's really important to give back. And that's a good thing. And I would say that, again, I spend so much time with guys who are doing what I do, who are much younger, who are starting up. It's really important to help people. Because, again, if you all think the same way, it's just good for our industry. All nonprofits have a need to raise capital. So where have you seen lessons that, from your experience, were applicable to helping these nonprofits raise money?

54:53I think the difference, the key difference between nonprofits and profits is the ethics side of things. So I've been asked to be involved in a number of non -for -profits, but when I do the digging, there's a lot of ethical governance issues. So I think that's the first thing that I'd say that separates the two. The second thing is when you invest time with a non -for -profit and try to help them fundraise, you really need to find people who believe in that cause. But you have to try and find where there's a relatable story. So if someone's had an illness, then it's easier to raise for that cause from someone who's had that illness, that has compassion for that.

55:33There's other causes like disability which are harder because it's a minority group in society. people have misconceptions of what it means to be disabled how much government help they actually get what they have access to what they don't have access to so each of them is really really different but it's much more about a personal approach but i think it's trying to get people to have compassion and realize they're actually very lucky and they should give to causes so you're trying to approach it from both the cause point and the personal point whereas if you're fundraising for a manager like well here's an interesting idea that you want in your portfolio it's black and white it's much more black and white but a charity again you've got to just really help people understand what that charity is doing how they're spending money what the governance is like are they really achieving what they should be achieving is the money going to where it should be going and so spending a lot of time with that i think it's more intense to do charity fundraising than it is to do fundraising for asset managers.

56:35And if you flip it around the other way, have you learned anything from the intensity of raising money for the charities that helped you think about raising money for managers? It's made me longer and longer term. Because sometimes when you're trying to fundraise for a cause, you can apply for a grant 10 times before someone helps you. Same way when you're speaking to someone about investing in a manager, it can take 10 years it's fine doesn't matter so it's made me longer and longer in terms of my time horizon all right so you're working with parvis you're meeting with all these people we got 12 chariots how in the world do you spend your day i don't sleep a lot that's true i don't sleep a lot parvis takes a lot of my time and i have twins so they take a lot of my time so yeah look it's balancing and it's a lot to do but we've got one life and i want to do everything that i can do So that's always been me.

57:30I've always been like that. That's fantastic. All right, Raul, let's turn to some closing questions. What's your favorite hobby or activity outside of work and family? Traveling. Because you learn, you see things you'd never see, and you see things that you hoped you'd see. But I love meeting people, tasting different foods, seeing things which have an impact on you, not just physically but emotionally, spiritually. And when you learn, it just makes you a better person. I think it questions everything you've believed. So I love traveling. So what was your most recent trip that had an impact on you?

58:03Probably South Africa, where, you know, as a kid, I learned a lot about South Africa. We did a lot of studies on it at school. But actually going there and seeing this history and what happened and going and seeing and touching everything was incredible. 20 years ago, I wouldn't have been able to do that. So going there now and seeing it all was amazing. So understanding that struggle. And I have a lot of South African friends, but I walked away saying to all of them, I understand your psyche. Now I understand how you think, how you think, the way you think, why you think like that, which I never understood before.

58:34What's your biggest pet peeve? So personally, I think people that are not compassionate. Professionally, I think people are just too short term. Everything's about execution and life's just not about that. What reading do you almost never miss? it's really hard to say because i don't think i'm a consistent reader i almost get bored of reading the same thing again again because i think you almost fall into a mindset where you believe everything that comes from one source if you read it all the time whereas if you're constantly changing what you're reading then it broadens your mind so let's say there's x source of news that i follow every day you get into a mindset you're always going to believe that but if i'm following channel A one day, channel B another day, channel C another day, then I'm getting different perspectives on things.

59:22The same way if I read magazine A, then magazine D, then magazine C, it sort of changes. For my kids, I want them to be as broad -minded as possible. And I can't teach them that unless I believe that myself. So that's kind of how I think about it. What teaching from your parents has most stayed with you? Three things I say. Always be a good person. Okay. Always go with your gut instinct, because nine times out of 10, it is right. And be the best that you can be in whatever you do. It doesn't matter what you want to do with your life. Just always give it 200%. And just even if you don't come out on top, but you're giving it your best, that's all you can do.

59:56And if you can be the best, amazing. So those three things really. All right, last one. What life lesson have you learned that you wish you knew a lot earlier in life? Be rational. I think I spent a lot of time early in my life being emotional about things. And when you're emotional, you focus on execution. And when you're rational, you focus on duration. And I think that's really helped me in terms of how I think about things. So just think about it. If you're trying to fundraise for someone and you're emotional about it, you get really head up if they don't invest with you. And that means you're short term.

1:00:33But if you're long term and you're rational, you actually understand why people are thinking the way they're thinking. You're like, okay, the time may not be now, but I'm going to have a long -term relationship with this person. You're much more rational about it. And I think that sums it up in a nutshell. Terrific, Rahul. Thank you so much. Thank you, Ted. Really appreciate it. 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. If you'd like what you heard, please tell a friend and maybe even write a review on iTunes.

1:01:03You'll help others discover the show and I thank you for it. Have a good one and see you next time.

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