E420: Why Infrastructure Is a $40 Trillion Opportunity

27:55So it has definitely moved into the mainstream. That has, I think, come as it always with a pressure on long term returns, especially at the larger end of the market. What we've observed is that market has been incredibly dynamic. It's found other ways to add and create value. And to some degree, it's matured over time. So one of the biggest developments has been the rise of the secondaries market within private equity. We made our first secondary investment in 2003. So we've been at it a long time. We've watched that market develop tool and a portfolio management tool that has moved from being something that was done at the margins, highly opportunistic, episodic activity, to now something that is just part of the ongoing sort of liquidity consideration within private equity.

28:45So that's been, I think, a significant development and one that's here to stay. So the market's matured. There's more capital in that's put pressure on returns, but it continues to generate some really interesting term options for people, again, providing both the diversification away from the public markets and over time a return premium. Private equity has gone from this niche asset class to this huge asset class today. You mentioned also secondaries has gone from a niche to this huge asset class. What's driving why secondaries are becoming such a large asset class? You have to think, in our view, you have to look at secondaries really as being a derivative of the primary market in private equity.

29:28And so if you take a 20-year look at the growth in secondaries, they have historically always represented some percentage, generally single-digit percentage, of overall private equity activity. And it's still in that range, which would suggest there's still significant room to grow. But the real thing that's happening is secondaries, as I say, has moved from being an opportunistic activity when we first started it, where you had sort of specific idiosyncratic transactions being done, largely driven by the character of the seller. So you had a seller who'd gotten themselves into liquidity issues in another part of their portfolio, and you were able to do something on a bilateral basis.

30:10And those were terrific transactions where you were buying a high-quality asset that had a weak owner. That was a good dynamic. Those types of opportunities continue to exist, but what's transpired as the market's evolved and matured is the CIOs routinely looking to the secondary market, not as a way to manage either liquidity stress in their portfolio necessarily or to jettison distressed assets, but just to rebalance. And so I think there's now a baseline of secondary activity, which is just ordinary course portfolio management, rebalancing, retooling portfolios. And then what you get is from point at time, you get increased activity where people are looking for interim liquidity more broadly.

30:59And that's the type of situation we're in now where the flywheel of regular distributions and regular M &A activity continues to be slow. And so you're getting people looking to the secondary market more aggressively as an opportunity to find interim liquidity so that they can either reinvest in other parts of their portfolio or reinvest back into private equity. And that's creating a really interesting dynamic for our secondaries business. But it's a different dynamic than where we were 20 years ago. And the nature of secondaries themselves, they've gone from this practice that was looked down upon into an acceptable practice.

31:36Very much so. So yeah, the stigma, if you will, of being either a seller as an LP or the sort of embarrassment factor that some GPs felt if they had an LP who was selling, that is completely gone. Is that just because it's gotten bigger and it's just become more commonplace? Yes, I think it's just become more accepted and more commonplace. What hasn't changed, and this is, I think, quite interesting, is especially in the mid-market where GPs still routinely think about curating an investor base, not just taking all the capital they can raise. In those mid-market situations, the relationship still does matter.

32:14And so in many situations, we benefit because we have a longstanding primary investment program, because we're an active co-investor. We benefit from that relationship angle with a general partner who is often thinking about what their investor base will look like after the secondary transactions happen. They still care about who their LPs are. They still want to make sure that they understand the relationship. They understand if the LP can add value. And so there's quite a lot of influence that GPs can exert even in a broad secondary process, the type of information they provide, the access you get to the individual deal team.

32:57And in many cases, GPs will be quite restrictive in terms of who they will share information with or who they will allow to buy a secondary interest in the funds. So for all of the growth in the market, for all of the fact it's become much more routine in the middle and smaller end of the market, it's still much more of a, I wouldn't say fully bilateral, but those bilateral relationships still do matter and prove to be a competitive. Growing up, I thought managing money meant paying bills and balancing a checkbook. But as you know, that is only a small piece of the financial puzzle. Managing your money takes more than just checking your bank account every once in a while.

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34:35Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one place, making it much easier to understand where your money is going and whether you're actually on track to achieve your financial goals. What I like most about Monarch is that it doesn't just tell me what already happened. It helps me plan ahead. The AI system lets me ask questions about my finances in plain English. And the AI weekly recap highlights spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket.

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36:05Use code invest at monarch.com to get your first year of Monarch core half off at just $50. That's 50 % off your first year at monarch.com with code invest. advantage. The best way to think about it is as a percentage of the primary. If primary has gone up to a trillion dollars and secondary is still, call it$10 billion, let's say just 1%, even if primary has grown by 10x and secondary has grown by 10x, it's still relatively small. Yes. And I think there's some interesting analysis that would suggest that secondaries are still undercapitalized relative to the primary market. And so people do overhang analysis to try and determine, well, how many years worth of investment activity is represented by capital that's been raised.

36:53And in the secondary market, it's still well below the long-term average, which would suggest that the growth in the primary capital, to your point, continues to outstrip the availability of secondary capital. And that's true even as the secondary market has continued to evolve into continuation vehicles and other forms of other transactions where that liquidity can be provided, there's still a lot of room to run for that market. This concept of being a preferred buyer and GPs being able to share information with the buyers that they want as part of their franchise is such an underrated point.

37:29Can GPs literally restrict LPs from selling or is it more about being able to influence a transaction? So in most limited partnership agreements, the GP's consent is required to a transfer. So it's not just soft and fun. I think there are very few situations where a GP will let someone go fully through the process of completing a secondary deal and then say no. What they are doing, though, is recognizing they have that hard power. They're using it much earlier in a process to influence who participates in the process for their asset, how they engage, if at all, what type of information they share.

38:13And don't forget, even if you've got a situation where a GP is saying, look, I'm not going to share information with any prospective buyers. If you've been an LP in their fund for a decade, you're already sitting on a treasure trove of information, right? You've been tracking individual companies, you've been tracking the portfolio, you understand the valuation policy, you understand not just the track record of the firm, but the track record of the individual deal partner who led the largest company that's represented in the secondary. That is a proprietary informational advantage that you as the LP have built up over the years.

38:48That's not going to be replicated by a secondary buyer looking at it through an intermediated process and running their numbers for the basis of the quarterly report. As a private equity secondary buyer, are you trying to get information about the assets from multiple funds? Are you trying to create this mosaic of information? Yeah, it's all about proprietary information and the angles that you can get on that. So multiple funds, if they exist, are credit business, which lends to the exact same types of sponsor-backed businesses is hugely important. infrastructure sector specialists and operating partners.

39:25Again, anything you can find that will either give you a leg up in terms of your conviction around pricing and thinking about future value, or equally importantly, anything that gives you a red flag or some reason to be cautious and careful and discount your assumptions on either side of the equation, that incremental information, the off the list reference call you can make the former CEO of a competing business that might be available to have a conversation. You've got to mine all of that. And to do that, you have to have an established network. You've got to have a team on the ground and you have to have been doing it for a while.

40:05As I get now sort of into 25, 26 years of doing this, you start to realize all of that benefit that's been built up over the years. Exactly. the compounding and that's really hard to replicate when you have 31 billion dollars does it become easy to cold email other gps as well i don't know that it's ever easy to do that i mean part of what i think we've built our brand and our reputation on is being a good long-term partner so the best calling card for us is another gp speaking to one of their peers and speaking to one of their competitors. Exactly. And so we also get the benefit now of having been at this for long enough that we get a lot of inbound.

40:46I mean, we'll do 400 meetings a year with prospective GPs. Our private equity team will tell you it's typically three to five years from the first interaction to actually making a primary commitment. So these are long courtships, but there's still no better way to get to know a prospective partner than having one of their highly respected competitors talk to them about the fact that they've had Northleaf as a long-term investor. They've lent to two of our businesses. They've co-invested in three of our businesses. They've been in five of our last six funds. Those are experience-based and a relationship-based that's really valuable.

41:26One of the things I guess I'm trying to figure out is why there's not more capital going into secondaries. I mean, the industry is working on it. That growth has been pretty significant in terms of both the amount of capital. Is there maybe a sexiness factor to it? It's just not as exciting? I don't know. I actually think boring is good when it comes to investing. I think the boring means you've got a well-structured investment that's been carefully vetted. You've understood the risks. You've got good visibility on the long term. So I don't know that it's a sexy versus boring thing. I think it just is part of the broader maturation and development of the private equity business.

42:06And secondaries has been growing rapidly. I think it will continue to grow. It's also, as I say, taking different forms now in terms of it used to be, it was just the purchase of LP positions. We're starting to now see more direct company acquisitions. We're seeing continuation vehicles. We're seeing other sort of forms of structure that provide that interim liquidity. And we're also starting to see secondaries extend into credit and into infrastructure. That's been slower and I think will reflect the relative maturation of those asset classes. So I think there's still lots of room to run. And I think people are understanding that there is a real value to having secondaries as a component of your broader portfolio.

42:52I think from inception, secondaries was a very conservative industry. It was meant to give this kind of banded approach. And I would argue it was overly diversified. In other words, you couldn't invest into a single asset exposure because what if that asset goes down, which is very likely there wasn't this portfolio approach to building a secondary portfolio. Today, that's one of the evolutions I've seen over the last three, four years. No question. If I go back 20 years, secondaries was about solving the seller's problem. You had a seller who had a problem on their hands. Generally, it wasn't related to the individual asset they were selling.

43:27It was some other problem in their portfolio that was creating a liquidity crunch. They were selling what they could. They had some high quality private assets, and they were prepared to take a discount to net asset value in order to generate some liquidity. That was then. You still have some of that today, but what you have is a much broader use of the secondary market, as we talked about, to just provide more routine portfolio management, to trim positions, to reallocate portfolios and other things. And so I think what you're describing is in part just some of that evolution. And so people are building more diversified portfolios of secondary investments that does enable you to then in certain situations buy individual company positions.

44:13And now we see a range of things from single company positions to fund interest that may have one or two companies still left in them to much more broadly diversified funds. And part of the underwriting then is looking at what type of return do we need for the risk that's represented by those different deal types, because they do, some come with high degree of diversification, others are much more concentrated. So the whole market has become more discerning in terms of the underlying risk profile and we're pricing things accordingly. Is there also a packaging aspect to it where a lot of these secondary transactions almost had to stand in of their own versus inside a portfolio?

44:59I think that's true. And I also think the market is becoming sort of more sophisticated in terms of how it's packaging up portfolios and bringing them to market. So what was 20 years ago, individual LP, talking to individual LP, probably introduced by the GP, you now have sort of sophisticated investment banks and intermediaries running processes. And what we've really seen is the growth of the so-called Mosaic solution, where the banker will recognize that it's unlikely that they're going to get top dollar from a single buyer buying a broad portfolio. And so what they're much more focused on doing is identifying three or four buyers who will have particular views on sub segments of the portfolio, you put all of that together, and they can go with a comprehensive solution to their client.

45:55What it allows us to do is to really play the advantage of being able to have views on single GPs or single line items within a broader portfolio. We seldom spend a lot of time on very large, broad, diversified portfolios. That's going to attract capital from people whose competitive advantage is able to write a big check. We actually really like those mosaic situations where we're able to say, okay, of the 20 GPs or the 20 funds in the list, we've got a particular angle and view on four of them. And here's how we will price those. Here's the direct relationship we have with those four GPs. We will be the best buyer for those four line items.

46:39And increasingly, that's been quite effective as a process tool. That might be the most shocking thing, investment bankers earning their keep. Well, I'm an ex-consultant and an ex-lawyer, so I shouldn't cast a spruce. Talk about private credit. It was once the hottest asset class. Now there's this meme in the market that it's overheated and some funds are having problems. Where do you stand on private credit? So we've got a terrific private credit program. We built it up over the last decade continues to have a really solid value proposition for institutional investors looking for predominantly floating rate exposure.

47:21We do it both from a corporate direct lending perspective, lending to private equity-backed businesses in the mid-market and the lower mid market. So very consistent with our broader platform themes. We also have a very active asset-based specialty finance business that invests in what I would call more niche areas like music royalties and healthcare receivables, litigation finance factoring. In both of those areas, we see very strong continued institutional appetite for diversified, well-structured private credit exposure. There's no question, especially here in the US, the BDC market and the sort of more retail-oriented funds have had a well-publicized sort of challenges with investor sentiment.

48:07But that's a pretty small part of the broader private credit market. And interestingly, through all of the noise of the last six months or so, we've actually seen institutional investors continuing to invest and in some degree sort of feeding us the opportunity set of presumably this is going to improve market conditions for your underwriting, give you the opportunity to buy positions on attractive terms. And that's exactly what's played out. So So I think from a retail perspective, think of this as probably a growing pain as people understand better what they've purchased. But for institutional investors like Northleaf, it's been more of an opportunity than anything else.

48:50I almost wonder whether these narratives could be a great buying opportunity, kind of putting my master's psychology hat on. Private credit has almost been waiting for this bubble to burst. There's been a narrative. It's going to happen. It's going to happen. kind of like with the tech boom for 10 years, people predicted that the next quarter it's going to happen. And then once there's one or two pieces of information, everybody, there starts to be this contagion of fear and everyone starts to say, well, look, as I predicted, there's now a bubble. And like any bubbles that burst, there's always the baby in the bathwater.

49:23And sometimes the best opportunities are finding where that baby is in the bathwater. Certainly the history in the private markets over the last 25-30 years had been exactly as you described. That when there is dislocation, when there is sort of this sense of fear in the market, it generally is a good time to invest. We don't participate directly in the BDC market, so I can't comment specifically. But what I can tell you is, as an institutional participant in the market, we've certainly observed that where people have had challenges with their sources of capital, they've had to adjust their investment activity, they've become sellers in certain circumstances, or they've just become less aggressive buyers.

50:08And both of those dynamics have been to our benefit and others who are sort of participating as institutional investors in the market. This goes back to when you spun out in 2009, obviously on the heels of the global financial crisis. How did that affect Northleaf? It was a really good lesson in the need to stay very close to your investors and really understand sort of what they were looking for. We were very fortunate to have as our largest investor the Canada Pension Plan Investment Board. They started a program with NM in 2006. I remember the conversation I had with them when we were spinning out to become an independent firm in 2009.

50:48And they said, look, we liked you well enough to invest with you when you were part of the bank complex. We were part of Toronto Dominion Bank. We like you even more as a potential independent. So get your spin out done, come talk to us, and we'll look at reinvesting and re-upping in the mid-market private equity program that we run for them. And so that was obviously a huge advantage for a small firm that was just setting up as an independent. And I've never forgotten the support that they provided. And it was a very good lesson that you stay close to your investors, stay close to what they're looking for you to provide for them.

51:24And you can co-create opportunities and co-create partnerships. And that really did set us on the path to the success we've had over the last 20 years. Perhaps an odd question, but why do you think Canadian Pension Plan made a bet on you? It was a combination of they had a specific objective that they were looking for. They wanted exposure to mid-market private equity. They wanted exposure to Canada. and they recognized that the scale with which they were growing was going to make it really hard for them to invest efficiently at scale in mid-market opportunities. So they needed a partner and they wanted somebody who they could rely on as being in their domestic market, an extension of their team.

52:09And I think over the years, we've built that trusted relationship with them. We've co-created the program. We've evolved it as their needs have changed. And that really has become not a transactional every four years we raise a fund, but a much more integrated, much more partnership. We're now on our sixth iteration of that program. It's grown to be almost$3 billion. We just celebrated our 20th anniversary of that partnership earlier this year. But each step of the way, the program's mandate has evolved, the areas of focus have evolved, in part to respond to how the Canadian market has changed, but in many ways, it's evolved to reflect the changing objectives and the changing portfolio construction approach of the client, of CPP.

53:01And so the ability to work with them and build that kind of customized evolutionary partnership over the years, that's been the root of it. We're not offering them the same thing that we started with in 2006 because they're not looking for the same thing that they were looking for in 2006. Is that a push and pull or a dance of sorts? For sure. And it's true. We have similar programs with others on the infrastructure side and in credit. And in every case, it truly is a collaborative co-creation exercise where you really need to understand what they're solving for. And then you need to set up the regular cadence of reviews and discussions so that you stay close as things evolve.

53:44And that's the beauty of working on a more bespoke basis with larger pools of capital is you can evolve and adjust and be agile as you go. And that's what creates the permanence of the relationship is the fact that it is dynamic, it's organic. And we continue to stay very focused on, we are an extension of their team. We are a representation of their investments philosophy and their investment strategy. And it's worked out exceptionally well. A lot of GPs struggle with this theory of mind of the LP and understanding the LP mind. What's one of the most underrated aspects about understanding how LPs think?

54:24For us, a great example is if you think about how the business has evolved. So we started, as I mentioned, with private equity, secondaries, co-investments. In 2010, we launched our infrastructure business, and in 2016, we launched credit. In each case, that was an investor-led expansion. So in 2010, we had a number of our existing private equity investors approach us and say, look, we're starting to think more about infrastructure as an asset class. Our asset consultant has just left the building and tells us we need to be 5 % in something called infrastructure. Could you help us think about that?

54:59And so we did. We spent almost two years working with them to really understand what was it about infrastructure that they were looking for? What were they not getting from the number of opportunities that were in the market? And so we designed something that today has turned into a$10 billion infrastructure program with the support of some of those same investors, as well as now investors from more than 20 countries around the world. But it was very much an investor-led expansion of the business, and private credit was no different. That, again, was a situation where you had a number of our core investors saying to us, look, we're seeing what the big pension plans on the large capital allocators are doing in private credit, what's North Leaf's approach, you seem to have a number of the intrinsics here, what's your plan.

55:46And so that again, is today, again, almost a$10 billion business for us, but that's on the back of listening to investors. And if you have a investor approaching you with an idea, you're able to develop something that fits their solution, that goes a long way to ensuring success of the ultimate new fund launch and the ultimate build is because all you're really doing is reflecting what your investors are asking you for. So your investors came to you originally with private credit, then with infrastructure, with this demand. How did you assess your right to win the market? Well, that was a large part of it was saying like what for, so for infrastructure, for example, it was a question of what is the market missing?

56:29And we identified pretty early on that there was this inevitable trend of the early movers, just adding more and more scale, growing more and more quickly and in many ways growing out of the mid-market space where they originally generated the strong returns and the track record. And so part of our thesis and ethos really has been staying focused in the mid-market. Yes, we've grown a lot in terms of capital, no question, but we have never grown out of our sweet spot. And the importance for us of making sure that our growth is sustainable in terms of enabling us to continue to generate a premium return, continuing to generate all of the other advantages of being a mid-market specialist.

57:17I think that's been a really important element to it. And we've seen that gap emerge and be reinforced in all of the different asset classes that we invest in. Being a global player with resources, but a commitment to staying at a size and scale that makes us an agile mid-market player. That's been at the guts of it. So in infrastructure, you saw this gulf of capital between mid-market and the very large projects. There was just not enough capital going after that. Well, you look at the, if you pick the great names in infrastructure today, if you go back 15 years, they weren't raising$30 billion funds.

57:55Goes back to what you said before, all the capital going to those. Precisely. So that, their success, and they've had huge success, right? But they have taken that and they have translated that into funds that are now$15,$20,$30 billion. And if you're managing a$30 billion infrastructure fund, you are not competing with Northleaf for a$250 to$300 million check, even in the most attractive asset. The math just doesn't work for you. That's not how you're building your business. And so the recognition that their growth was going to leave a really interesting segment of the market, not uncompetitive.

58:32It's always competitive, but the competitive dynamics are fundamentally different in that middle market space. There's more inventory. There's less efficient processes. They're not translating the SIM into 35 languages and sending it globally. Like all of the dynamics around the acquisition, the sourcing, the relationships with the management teams, all of those are in relative terms much more advantageous in the mid-market. And then you get to the point we talked about earlier where you do a good job with those assets. All of those large cap funds are looking to buy mid-market assets that have grown enough to be relevant to them.

59:12All of the large sovereign wealth funds and pension plans have direct infrastructure teams that are looking to buy mature, well-structured assets that have achieved sufficient scale. The big industrial operators, the developers, like there's just the universe of interested buyers just is magnified. And so that's the role that we play is we'll take that small asset, we'll do the hard work to bolt on two or three complementary projects or assets, and we'll get it ready for prime time, if you will. And by prime time, we mean a competitive sale to a large pool of capital. Such an underrated point is a lot of people are looking at the retail capital going into the large managers.

59:56And a lot of institutional investors are scared by that. What happens when$10 trillion go into large buyouts? is there going to be still alpha left in that asset class? But they don't think of the second order effect, which is now if these funds have trillions of more dollars, they have to deploy them into something. What are they going to be deploying it? They're not going to deploy in the public markets. They have to be buying mid-market assets. So those assets are actually going to get a bit. You asked the question earlier about sort of being boring or whatever. I think boring is a skill because if you think about it from a process perspective, I don't want to be engaged in an exciting auction.

1:00:30I don't want to be in a best and final offer round with a high stakes assessment of whether we can pay the top dollar or not. The only time I want excitement is when we come to sell. And when we come to sell, I want an enthusiastic buyer group. And for all the reasons you mentioned, that's exactly what this market is producing. in between buying it well, hopefully in a less competitive process, and working hard to de-risk and to build and to develop the asset. I want all of that to be drama-free, boring, consistent, predictable, and then we can have an exciting sale. But between acquisition and sale, the more boring, the better.

1:01:14This fascinating three-and-a-half-hour dinner with one of the Chairman's of the largest investment banks here in Midtown. And he's delivered over 20 % compounding returns over three decades. He's done two deals with Warren Buffett. He's one of the top investors really of the 20th century. And he defined his strategy as looking for things that are boring or hard and ideally both. That's a good way to put it. I always often think of infrastructure as being something that's relatively easy to describe. It's relatable. People understand a toll road. They understand a wind farm. It's not a trading strategy.

1:01:47It's not a complex algorithm, but it's hard to do well. And it's hard to do consistently. It's hard to do patiently. It's hard to do proactively. But if you do those things well, you end up with exactly what he describes, which is a pretty interesting investment proposition and one that has a lot of runway in the current environment and the secular tailwinds that we talked about of the big investment themes that are going to play a lot of money. out, not just over the next 12 months, but over the next 10, 12, 15 years, those are all really positive from an infrastructure perspective. Let's talk about something not boring, venture capital.

1:02:23You're deploying roughly a billion dollars into that strategy. You have a very unique approach to it. Tell me about that. So our venture program is predominantly focused in Canada. That's been again, predominantly a result of having a number of large investors, the Canada Pension Plan in particular, who are looking for domestic venture exposure and looking to take advantage of the fact that the Canadian venture market, by and large, has been relatively underserved and overlooked compared to the obvious success that's been had in Silicon Valley. And so for the last, it goes back down to 2008, we've been an active player in the venture space.

1:03:02We invest in third-party funds. We're an active buyer of venture secondaries. And then we'll invest directly as a co-investor into later stage and growth stage businesses. And that's proven to have been a very attractive part of the market for us to participate. Just to play devil's advocate, isn't venture all about finding the next Anthropics, SpaceX, OpenAI? There's no question that venture lends itself to a higher dispersion of returns, certainly than buyout and definitely than infrastructure. It's hard to argue with the historical stats of you've got to make sure that you've got 10 % of your outsized winners.

1:03:41I think that's true at the very early stage. As you get later on, as you do more late stage and into growth, I think that moderates a little bit. But there's no question, you have to take a diversified approach. You have to think about placing your initial investments more broadly to ensure that you're getting enough signals back about where the outsized winners are going to be, and then making sure that you've got your funds structured in such a way that you've got capital available to support those winners as they emerge. At this 25-year prolific career in the private markets, what is compounded the most for your career?

1:04:17If I think of the thing that's sort of compounded the most, it's been people. And that's been true, not just in terms of the broader relationships that I've been fortunate to develop, but the people that I've been fortunate to work with. I mean, when we started, there were five of us. There's now over 300. We were in one office. There were now 10 offices globally. And it's the compound effect of the contribution of a lot of really talented people who've chosen to commit a good chunk of their career and their professional growth to Northleaf and to building what we built today. That's been the most dominant theme, I think, of my career.

1:04:59and one that has had the largest success on the firm has been just the caliber and the quality of the people and the relationships that we've been able to build then with the investors that we serve. How have you been able to retain your culture as you've gone from five people to 300 people in 10 offices? That's a great question. And it's one that we actively discuss and debate as a leadership team. The biggest factor has been, we've been intentional about it. One of my partners and co-founders always reminds us that you're going to end up with a culture. It's either going to be the culture that you want to have or the culture that you allow to happen.

1:05:39And ours isn't perfect by any means. It constantly has to be improved and nurtured and developed. But the fact that we actually aspire to a specific culture, that we strive to maintain and preserve that culture that we do talk about it, both when it's working and when it's not working. I think it's that mindfulness and that long-term commitment to making it better is at the crux of it. It's kind of like a marriage. You have to constantly work on it. You can't just get it to a good place and just let it. No, the minute you do that, it starts to erode. And I think that's part of the exercise as well, is as we have been able to recruit so many good professionals over the years, part of the exercise and part of the success is putting the culture on display during the recruiting process so that people have a very clear sense of what they're getting and they can opt in or in a small number of cases opt out.

1:06:39Like if you're looking for the what you kill aggressive culture, then you'll end up going somewhere else. And the sooner you recognize that, the better for everybody. If you're looking for something that's hardworking, meritocracy, but done in a way that's respectful and collaborative and has a real partnership dynamic to it, you will see that in the people that you meet. And you will inevitably opt in or out, as I say. But putting that culture on display during the recruiting process is, I think, a really important element. Something I see across all the great organizations I interview is this maniacal focus on what is the culture and maniacally focusing on polarizing people against that culture.

1:07:20In other words, standing for something means that you also don't stand for anything else. And you could argue there's no real good culture or bad culture. There's just you have cohesive culture and it has to fit the market that you're going into. It has to fit the way that you want to do business. That's the critical piece. It's like founder culture fit. A little bit, yeah. And again, one of my partners always reminds me, if we don't like the people that we work with, we only have ourselves to blame. We've been fortunate to build the business now from five people to 300. And there's been an awful lot of people who have come in and had huge impact on building out the business and generating a positive and successful shared outcomes with our investors.

1:08:04And I think that's another piece of the culture that's really important is the ability for people to have impact and the ability for everyone to understand that their impact matters. That every one of us as a day-to-day contributor can either tilt the culture positively or negatively. And everyone has a responsibility from the time they joined Northleaf. They are now part of that positive culture. That's what has attracted them to the organization. Now it's on each of us to continue to build and foster that day in, day out. Do you find this left tail in bad hires that one bad hire could truly wreak havoc in an organization?

1:08:41Yes. Yeah, there's no question that even... What's an example without giving me names? Well, I mean, fortunately, I think we've been able to screen a lot of that out during the interview process. And it doesn't, it sounds pejorative to say bad hire, but I would say even something that's not an optimal fit. somebody who comes in and has a different investment style desire for example to take more risk in their investment activity than where the firm's positioned even though sort of misalignment can be a good person can be a good performer but if there's a misalignment in terms of their vision and where they want to take their career in their firm those are just hard it takes a while to truly put your finger on that.

1:09:25And then it generally takes a long time to extricate the individual from the role. And then it takes time to backfill. The opportunity cost of redoing that takes a while. So there's no question that the old marry and haste, repent and leisure. There's an element of that, I think, from a recruiting perspective. It's one of those things that's hard to internalize until you've done it that higher. We always say we make lots of mistakes. You try not to make the same one twice. If you go back to 2001, when you have first started the group within TD with your partners, what is one piece of timeless advice you'd give a younger steward to carry through your career?

1:10:00That's a good question. I would say the biggest thing you have to do is you have to be patient. And it doesn't mean you have to be slow. It doesn't mean you're unambitious. It doesn't mean you don't have aspirations. You have to recognize that, especially in the private markets, you build success one step at a time. And you can't push investors to a timeline that they're not on. You have to be patient and react. You can't force investment outcomes. Things take time to build. We are in a long-term asset class. any time that I've gotten impatient and I've tried to force things you end up with a suboptimal outcome maybe patience comes easier as you get older but certainly when I was younger and earlier in my career I was in a rush to get everything done and that lesson of patience the lesson of being really thoughtful about what types of businesses you get into what types of people you hire the way you serve investors.

1:11:04I think that's a critical bit. And there's a terrific quote that was attributed to Churchill, which I've adopted for the use in the private markets. It says, I'd far rather go through life wanting what I don't have than having what I don't want. And if you think about that as a long-term investor in the private markets, I'd much rather have missed out on something than have bought something that I regretted, that underperforms because the time it takes back to your point about hiring, that takes even longer to work through a difficult asset or an asset that doesn't fit with your program. And so being patient and never sort of falling into the fear of missing out is, I think, a really important career lesson.

1:11:47Reminds me of the Jeff Bezos framework about there's some doors are one way doors where you come in and you can't go back. And there's some doors that you come in, you could come out and you should go fast in the decisions that you could reverse and go slow in the ones that are one-way doors. That sums it up. It sums up the private markets pretty much. For sure. And most private markets investments, they're not always one-way doors, but it's not an easy, it's not, you can't trade out of it the next morning if you have second thoughts. Well, Stuart, this has been an absolute masterclass. Thanks so much for jumping on.

1:12:18Thank you.