#19 - Michael Bego: Secondaries, Private Markets

29:05But a seller is coming with a package of funds that they want to sell. They're going to have picked out, say, 20 different funds. And so in one go for one transaction, you're going to have to understand 20 managers and all of those companies in that whole portfolio. And so that's a huge barrier, not just for a firm to enter, like we were just talking about, but also just for the industry to provide simple liquidity when you have very complicated buckets of assets. And then the fourth thing, which today is complicated, is maybe more easily fixable, is that the transfer process is complicated because each of these funds that you're looking to transfer is operating under different contracts and different agreements.

29:49And so you actually have to hire lawyers and spend thousands of dollars for each fund that you want to transfer. And typically, those transfers are limited to the end of each quarter. What about the sellers of the funds? you know that if you're buying at a discount they're selling at a discount the same discount is is the the rationale for selling so significant that they're willing to give up that discount or is it because the market is just not that competitive so i think in terms of selling it's a couple things so one is they understand that it's the market rate so let's say it's a 15 % discount.

30:31No one wants to give up 15%, but they understand that's the fair range of where prices are and that's the cost that they have. Second is I think the pricing is close enough that for portfolio management, it's an acceptable loss that sellers are willing to take. And so, Alex, I think another big thing that drives this is if you look at the pricing over the last few years. Currently, discounts in the industry could be into the high single digits to say like 15%. So if you're going to sell, you'll get 85, maybe up to 95 cents on the dollar. At the higher end of that range, you don't have a very big discount.

31:14When the pricing is high, you'll see massive volumes. And so I actually think this could be a record year for volume, say$150 billion. If you go back to say 2022, the second half of 2022, the volume was maybe a third as large. And that's because the prices were larger. So you definitely see a big swing in volume based on the pricing. That makes sense. And if you take it to the extreme and you have public markets where the discount is almost zero, you have 100 % average turnover in private markets. It's like 1%. So obviously, the less the discount, the more interest there is in selling. One big thing here, Alex, so to understand in the industry is that the discounts are relative to the marks that a fund puts on the portfolio.

32:05And some managers are so some managers carry assets very differently. So we see different companies where the exact sorry, we see different funds where the exact same company is held by different managers and literally one manager can hold the same company for twice as much as another manager and so there's very big differences in terms of the pricing and so perhaps if liquidity did pick up enough that you could use it as a signal for how assets could be valued like in the stock market you could have the secondary market driving valuations whereas today valuations are all driven by quarterly processes at the funds where they underwrite their own assets.

32:47So the question is, you're calling it a discount, but really it's an optical discount to where the GP has decided to mark an asset. And so if you consider intrinsic value, maybe the intrinsic value is the secondary price. That makes sense. Would you talk about the different approaches that secondary managers may take in managing their strategy? Absolutely. So So look, there are a number of different approaches. So one of the most common is that some is about half of the buyers in the secondary industry advertise that they have a primary platform and that they have a set of managers that they know very well.

33:27And another half of the industry does not have those and they're more asset buyers and they'll have different elements of their strategy. At Klein Hill, we do have about 30 managers that we back who are helpful to us with regards to sourcing deals and evaluating them. However, you have to understand that there are 6 ,000 different private equity funds in the industry. And so if you look at people with these primary platforms, maybe they have 40, 50, maybe 100 managers at the highest end, but you're nowhere near the 6 ,000. And when you're buying these portfolios from sellers, you're going to get diverse portfolios where you might cover a few of the managers.

34:07You're not going to cover all of the managers out of the 6 ,000 possible ones. Second thing is that you're not the only one that has these primary platform investments. So if you pick a high-quality middle market manager, there may be five different secondary funds invest in the same manager. So you're not going to be unique with that strategy. But anyway, so that but we do see value in that we see higher value when you have a very niche focus with regards to your primary strategy. So, for example, at Klein Hill, we've partnered with Sandana Capital, which is one of the top quality, one of we believe the best seed fund of funds in the industry.

34:48So Sandana does is they go through and they invest in the best seed managers. And so what a seed manager does is it's a venture fund that gives very smart people capital to start businesses. And so they started doing that in 2012. They're in 3 ,000 companies today. And based on this huge portfolio of underlying companies, we can work with our partner, Sandana. We can pick the best of those companies. So out of the 3 ,000, we'll pick the top 30 and we have a top 100 list and target those specifically. And it's a little bit more of a rifle shot where we have a differentiated approach. So I think there can be values to the primary approach if you're focused.

35:32So one is having a primary platform. A second one is size. So you have some firms out there who have$20 billion funds and they claim because they have the largest pool of assets, they can buy things other people can't buy because no one else has their scale. But now there's a lot of people with$20 billion funds. On the flip side, there's Client Hill. Our thing is that we buy lots and lots of small transactions. So Client Hill will do deals much smaller than the industry. So on the limited partnership side, most LP deals are between$100 million and$1 billion. At Client Hill, we're doing deals under$30 million and even a lot under$10.

36:12So last year, we did over 120 deals in that scope. And so we're by far and away the volume leader and the firm to go to if you're looking to sell those types of interests. And on the GP-led side, most of the GP-led deals are over$400 million. At Klein Hill, we're focusing on deals in the$100 to$250 million range. Again, when there is a lot fewer other firms in that space. And then also there are firms, Alex, that focus on sectors. So you have groups that specialize, they'll only buy venture or they'll only buy a credit or they'll only buy real estate. You'll have different funds and different groups that focus on specific sectors.

36:55Are there specific segments within secondaries where you generally tend to find the biggest discounts? And maybe there are segments where you find the highest quality companies like the trophy assets. And how do you think about that spectrum? Absolutely. So in terms of large discounts today, as you know, the venture industry went through some very challenging times post 2021 when valuations were extremely high. Since then, quarter to quarter, the assets continue to get written down. We believe there'll be a bottom in terms of venture valuations around Q2, probably Q3 this year. But there's very large valuations there, very, very large discounts there.

37:44And there's different there's different there's different sort of like just lower quality portfolios where you have challenged assets and they could be lower, like weaker managers. They could be pools of assets and very old funds where you'll find larger discounts. You'll tend to you'll tend to on average have lower quality assets. On the flip side, there's a lot of very high quality pools of assets that are out there. And so we tend to think of those as buyout or growth buyout assets, especially ones where the funds are a little bit mature that may have been paid down a bit. And those can be more expensive, but you can also do extremely well.

38:24And so I think in the second example for the highest quality assets, those will be the most expensive. they may do well. There could be a tighter band of returns for secondary funds going to buy those assets. On the flip side, for the lower quality assets, you have to be very careful with regards to how you might approach those pools of assets. And so, for example, when we think of the venture arena where discounts could be 20 % to 70%, 80%, we think that there is a great hunting grounds for deals in that space. But you have to be extremely careful. There are thousands of venture companies and you could waste years trying to go one by one to figure out who will be the winners of tomorrow.

39:10For us, what really helps cut through the haze is our partnership with Sandana. And so we can go through, we have this target list that it's very, very heavily curated based on relationships they have with the seed managers and specifically work on portfolio construction from an approach like that. So it goes back to what you said earlier, which is you really have to understand the real value of these funds. It's not, you can't just go off the NAV because there's different pricing methodologies. And if you, you know, if you go in there thinking it's a 70 % discount and the seller has a very different valuation, real-time valuation, then you may not be getting exactly what you think you're getting.

39:55We have 56 people here at Klein Hill, which for our fund size is an army. And the vast majority of what, like, especially our deal team focuses on is valuation work. So we have tons of inbound deals sourcing and deals just coming into us, but we need to be super careful with what we're buying and what we're paying for it. And do you generally find bigger discounts on smaller deal sizes because of perhaps less competition or less worry on the seller side about the discount? So we tend to buy the same assets that you might see in large auctions at about 10 to 20 cents cheaper than you'd get for the bigger deals.

40:34And if you think about it, let's say you're buying shares of IBM stock on the internet, at scale, you're just pressing the button and buying, and there's obviously market clearing prices. The difference is, let's say you had IBM stock on a piece of paper and you had to walk around and sell like 10 shares here and there. So we're buying the same IBM stock, but it's something that's not a subject to the highly liquid liquid auctions. And look, part of the issue here also is that because of the small transaction sizes, we're not coming up against the same competition that the big firms provide because they're, you know, someone who's managing 10 or$20 billion doesn't want to do a five or$10 million deal for 30 different funds.

41:17They also don't want to lead a GP-led deal that's $100 or$200 million. So sellers and sponsors will come to Client Hill as the group that will lead these types of transactions. And the same token, if you think about from a seller standpoint, they're also not as economically motivated as they would be for a large deal. So let's say there's a$50 billion pension fund. If they're going to sell a billion dollars of private equity and interests, that's a board level decision. They'll have very precise pricing they're looking for. They'll focus on that very closely. However, if they're doing a smaller cleanup of 10 or$20 million, they don't care about the price so much.

42:00There's some non-economic reason they're doing this cleanup. and they're much more willing to transact at a large discount. So fewer buyers and the sellers aren't economically motivated. And so does that give you, generally speaking, the opportunity to find higher quality assets at a pretty material discount? Yes. So in terms of from a portfolio construction standpoint, we were sourcing about 35 to 40 deals per week. We filter out not only for deals that where we find there are reasonable sellers who have price expectations that we believe we'll be able to hit, but we're also filtering for decent quality assets that we want to hold.

42:41And so if you look at Klein Hills returns, we do get very large discounts, 25 to 35 % discounts at time of close. However, 60 % of our deal level returns come from appreciation. And so for us, it's important. Yes, we do like the discount, but it's in some ways almost even more important that we're acquiring high quality assets that are over time going to be creating more value. That's actually like a fairly important part of our approach. Do you think of that as two different sets of returns, meaning the return of the underlying assets from the time you buy it until it's sold and their closing of the discount gap?

43:21Do you think of those as two distinct returns that are perhaps uncorrelated to one another? 100 percent. And so if you think of the discount, Alex, we're locking in an immediate accretion of value when we sign up the deal and close. And that's something that will immediately accrue to the buyer, even if the cash pays out later. And the only slight tweak I'd make here is to not only think about it as a discount to the GP stated NAV, because as we mentioned before, the NAVs, the net asset values, the valuations, the GP's place on the assets can be a bit all over the place. but we're still buying these assets at a very large discount to current intrinsic value.

44:00So what they actually should be worth. So yeah, so, and that will correlate different to the appreciation of the assets over time. One thing to also mention here is that from a strategy standpoint, the reason that we want to acquire assets with a strong appreciation is A, it tends to correlate more to healthy assets. So assets that are generating cash, that have organic growth, that can execute on M &A strategies. Those are all assets that if we think we're going to hold it for two years, then we end up stuck with something for five years or six years or seven years, we want a company that's going to create value and it's going to help continue to give us a strong IRR over time if we're stuck with it longer.

44:48Second is if you're buying assets that could have just flat performance and you're hoping it comes out quickly or forbid something that loses value over time, I think that's when you can really get into trouble if things go the wrong way. So it builds in a buffer. How do you think about the risk reward or the return to risk ratio of primary investments and secondary investments, even if we're talking about the same assets? How do you think about that? How do you compare the two? So look, if you look at the statistics, it sort of stands for itself a bit. So secondaries do have higher net IRRs on average than primary investments do, whether you're talking about buyout growth venture.

45:31So one thing is they tend to have higher return. Second thing is if you look at the volatility of return, it's actually much tighter for secondary funds. So whereas there are pockets of better performance within the secondary industry that may perform a bit better. But on the flip side, the firms that underperform, the gap is much smaller than you'll see for other areas. So not only in secondaries do you have higher returns, you have a tighter band of returns. And the third thing, Alex, is the cash return for secondaries is much quicker than for primary funds. So when we're going through and doing these investments on the GP-led side, we're expecting our cash back in a two to five year window.

46:13If you're investing into a primary fund, you're probably getting your cash back in 5 to 10 or even 15 years. And so, whereas we do believe it's higher returns, the quicker cash also A, D risks that investment because you're taking the cash off the table, but then it provides the allocator more opportunities to update their portfolio construction or whatever they need to do strategically for their portfolio with the quicker returns of cash. And all that makes sense. If you're buying at a discount and you're buying, let's say, over time, similar assets, you should get a higher return with a tighter band and less risk because you're buying effectively the same assets at a discount.

46:57And so if you think about it, a primary manager comes in and on the buyout side, They're putting leverage on these deals, often seven times EBITDA is the current average. And that's very high. And if things go wrong with the company or the economy, you do run a lot of risk that that company could hit covenants, that the debt could take over the company. It could end up being a zero or could be very impaired. But that same company, as it performs over time into years five, six, seven, that debt gets paid down to say three or four times EBITDA. And so when the secondary fund comes in five or six years later, that asset is heavily de-risked because secondary funds are buying more mature companies and the debt gets paid down over time.

47:48On the same token on the tech investing side, if you're buying tech assets from a secondary basis, venture investors are going to companies that may have product market fit issues or might need multiple rounds of financing. As you're coming in years five, eight, 10 into these funds, a lot of the early losers are already gone. And so we're buying into much more stable, diverse pools of assets. So on that note, is your general sense that the quality of the remaining assets is generally higher than younger funds? Look, I would say that the risk is much lower with regards to a secondary portfolio than a primary portfolio, especially in the early years.

48:34And another thing I'd mention, Alex, in terms of the secondary industry, if you think about it, part of it is the portfolio that you have on the ground and how it's going to perform. The second part of it is how the commitment you've made to a secondary fund or how the commitment you've made to a primary fund is going to perform. And a big part of what may drive that is when the capital is called. And so if you think of 2000 or the financial crisis or 2022, times when there was lots of market turbulence, when you commit to primary programs, a lot of times their investing can really dry up for a period of time.

49:14In fact, in the financial crisis, LPs told those funds, don't invest. We don't want to see your capital call notice. We're going to shred it up and mail it back to you. Like they said, that was pretty common. And that also happened more recently. I think with secondary funds, we get a lot more leeway by managers. And they're actually excited in times of turbulence. And they want secondary funds to go deploy capital. And so if you think about it from your committing to assets, you'll see more capital being deployed in times of crisis when pricing may be better. And so I think you'll also find, you know, then that will happen at lower prices and you'll tend to be screening out the biggest problem companies.

49:56So you'll actually be acquiring like relatively high quality assets. And so I think that's another way to look at risk, but the dry powder, I think, can have advantages with secondary funds. So maybe this is taking it too far. But if you're an investor and you're allocating capital and you want to have some target allocation to private investments, private markets, let's say limited to private equity in this case. Is there a reason to not to or is there an argument for not having any primary investments and just wait for this for these investments to become available in the secondary market and just build your portfolio that way?

50:32Is there an argument against that? No, look, I think you can completely do that. I would say that you would want to do it through a secondary manager. We've talked about a lot of the reasons it's not so easy to just do your own secondaries. But yeah, I believe if you had a secondary only portfolio, you could A, be highly diverse. You'd cut out a lot of the first year potential issues with funds. I think you could do quite well. Yeah, it's interesting that you don't see that approach commonly used. but perhaps it will be over time as the market grows and there are more opportunities available. So we actually do have some smaller community foundations that might have$100 or$200 million where I believe Klein Hill is their only allocation to private equity because what we're giving them is in one commitment, we're giving them, A, we do a lot of deals.

51:27So every year, Klein Hill is doing over 120 deals per year in diverse pools of assets. Those assets are diversified by vintage. So you're getting assets in different maturity stages across number of types of industries. So we actually do have people where we're their only private equity exposure. And it's interesting because, you know, some time ago you had fund of funds and a lot of those didn't work out because there's multiple layers of fees. And so in effect, this is sort of like a fund of funds, but at a pretty significant discount. I think that's fair. And actually, So there's one time we were going to have an LP who was going to make a fairly small commitment to us.

52:07We, from time to time, offer co-invest. And instead of giving us their commitment, they just went into our co-invest as their only private equity strategy. And one deal that had 28 funds and probably well over 100 companies. Is there a reason you focus on private equity and venture as opposed to real assets or real estate or credit? We definitely believe a fair bit in portfolio construction and portfolio allocation by these strategies. And so the highest returning area that we found over time for these is both buyout and tech. And even within buyout and tech, sometimes we overweight one, then we will do another.

52:48So, for example, in the late 2010s, Client Hill had a higher percentage at that point of tech investments that were allocated to the portfolio. When 2020, going into 2021 came along, we saw valuations from revenue multiples and EBITDA multiples go through the roof. And we actually drastically cut down our allocation to venture. So, first of all, at Client Hill, we do buy out in venture, but not always at the same ratios. second is there are areas that we have seen perform not so well in the industry so if you look at real estate over the last 20 years real estate secondaries across the industry have underperformed by a bit at client hill we've kept them to under one percent of our portfolio that could change if there's a huge crash but right now we've kept it small for example we don't believe in investing in china so client funds are less than one percent china If you know the top China managers that are launching today and they have amazing CFOs and there's different risks that you're comfortable with, that's great.

53:51But I don't believe secondary investing in 10-year-old Chinese funds is the right way to get access to China. So we don't do China at all. Similarly, if you think about diversification, there's also recent asset secondaries and older secondaries. and at sometimes the dry powder in the industry can be very attractive when multiples are very low and new deals are getting done at great pricing at the same time sometimes old assets can be very attractive where exit multiples are really high and people are getting tons of cash out for their existing investments and liquidity is flowing great and so client health over its history has invested about a third of its capital into vintages in the last six years, a third of its capital in the vintages, I call it like seven to 12 and a third in older vintages.

54:43But as we go through time, we may adjust that based on relative value in the industry. And so we're very fortunate that our investors gave us sort of a broad mandate, but we're constantly looking and twisting the dials for the best value at any point in time. Let's for a moment talk about what happens during very difficult market environments. In my experience, a lot of investments do poorly at the same time. How do you think about secondaries in this regard? I have to admit, Alex, I felt really bad during COVID because it was an amazing time to invest, but people are dying and we're like hunkering down.

55:23and we're seeing these amazing deals. But it was a time like when it was great to deploy capital. And so if you think about it, not just during COVID, but anytime there's a market dislocation, there's a large crash, what happens is the price of secondary assets tends to roughly track the public stock markets. So even early in 2024, as far as January, February, the stock market went up 5%. Within a week, secondary prices were going up a similar percent. And so there is a fairly close tracking to the prices. And if you think about these large secondary sales that drive the industry, the$100 to billion deals, what will happen is if there's a market crash, like in the second quarter of 2020, when interest rates went up and the markets crashed, secondary pricing maybe dropped 10 % or 15%, depending on the types of assets.

56:21these sellers of multi-hundred million dollar deals, they had very precise price expectations. When those were clearly not going to be achieved, they pulled their processes. And so the liquidity evaporates during a crash. And so during COVID, when the market tanked, pricing dropped by more than 90%. And in these different periods of time, the markets go away. What's fortunate, though about the smaller deals, these smaller transactions, is that at Cline Hill, we're not buying so much from individuals. 85 % of our sellers are large institutions. And so when the market crashes, they will pull their$500 million deals, but they tend not to pull their$5 million deals.

57:06And so what actually happened during COVID was in deals that we sourced in the month of May, we did over three quarters, almost a full year worth of deals by transactions we sourced in a 30-day period. In Q2 of 2022, we did two quarters worth of deals. In the fourth quarter of 2018, there was a market wobble. We did a very large amount of volume. And so we tend to go very contrarian to a market crash in terms of our deployment of capital. And assuming you can accurately assess the underlying intrinsic value of those assets during those market dislocations, is your sense that the discounts generally increase during periods of market distress?

57:53Yeah, so absolutely. So the discounts increase a ton. And so like I was mentioning before, they may increase with the stock prices. So during COVID, maybe they went up 15 % to 25 % in terms of the extra discount you're getting for something. But COVID was a very interesting time, Alex, because if you think about it, it had a very material impact in different ways and different types of businesses. And so you can't just close your eyes, see a discount and go buy lots of assets. And so what we developed was the Klein Hill Partners COVID Index. And so we rated every company on a one to four. some companies like zoom or different healthcare companies or things where you deliver to home would be a one because they actually were better off with covid but if you think if you're a movie theater or a restaurant or some other industries where people were not going to be going to you and giving you their dollars those industries were a four and they were hurt and so we a took advantage of the bigger discounts but then we indexed all the companies by almost like a factor if you think of hedge fund factors.

58:55And so we overlaid the discounts with these factors that were a sign of that time to acquire a targeted portfolio at the bigger discounts. Same thing with interest rates. So when the market tanks, because interest rates are going up, you don't want to blindly just buy a pool of assets at a bigger discount, but you again can look at factors that will drive the value and performance of companies based on the times. And as competition grows with time, how do you maintain your information edge? That's a big part of buying things at a discount. Well, you know what, Alex, you can't wait for competition to grow at the time because the competition was already picking up last year and two years ago.

59:39So unless you're worrying about that constantly, you're already behind. And so, look, a couple of things. So one is for like and depending on which focus you are in or your niche, the answer is different. For us, it's a few things. So one, I think it's very important for our small deal space to have scale. And so, look, we're buying over 120 deals a year. That's an awful lot. We need a huge team. So we have 56 people rapidly growing to be able to provide good valuation services, to understand the assets, to do a good job with those. A big part of that, though, also, Alex, is that we've already done over 550 deals.

1:00:24We're in about 2000 funds. And as you go to buy funds again with team members who we've been very fortunate, very low turnover, who have bought these time and again, we can be not just more accurate with our valuation work, but also quick and responsive to sellers. And I think, look, I think in our industry, customer service and white glove service to sellers is very important. So we also try to be a great counterparty and easy to work with. We provide project management services as we're closing deals to provide very clear transparency to timing and progress as we close deals. So customer service is a big part of it.

1:01:03Customer service scale. Look, we're also investing in new information processing approaches. So in the secondary industry, you'll see that a few of the very largest players have been investing a lot of money in machine learning and AI. and we believe that that's an opportunity that we're also investing in. I don't think we're at the point at all where you'd press a button and pricing comes out or they'll make your investment committee decisions for you. But I do believe that information, that we're sitting on tons of information based on all of the buying that we've done is becoming more accessible.

1:01:38And also you can have more productivity from the information that you have by overlaying technology. That's another podcast. I just wanted to ask you just a couple of questions about your outlook for private markets and secondaries. What do you see going forward? We've had pretty significant growth. How do you see it playing out? So look, private equity has been growing 12 % a year for a very long period of time. and I don't see any reason that would not continue. Part of the thing is the overall industry, GDP continues to grow by a little bit, but I think the private markets are a little more attractive than public markets in general.

1:02:24The costs of being public, if anything, are increasing and becoming more difficult. If we look at the secondary industry, turnover right now on the limited partnership side is just over a percent, and it's just over a percent on the GP-led side. given that it provides more value to the industry to have a higher rate of turnover. So we're talking about like if you can never sell a car, the car is worth less to you than if you could sell your car every few years. And if you're on a lease, even better, you can get a new car every three years, like clockwork, every two or three years. So we provide value to the industry.

1:02:59We increase the value of assets. We provide value to sellers. Sellers, I think, look, will benefit from having better liquidity. So I think it's hard to argue that a status quo turnover rate of assets in the industry should be much higher than the current 2%. Should it be 5 % or 10 %? Should it be public stock market level 100 %? I don't know the answer. But you could also tie into there some deeper questions, Alex, on the structure of the private equity industry. So today, from the very beginning of this podcast, we talked about how individual private equity funds will bring in investors and you'll get pooled into a group of 15 to 25 companies.

1:03:38And then you're stuck with that vehicle for 10 to 15 years. Is that the right construct for the next 20 years to have everything pooled this way? It may be. I don't know. But maybe those get broken up into smaller pieces. Maybe there's different ways to do that. I don't know. But look, I think if anything, I've seen a tremendous amount of innovation on the secondary industry over the past number of years. I think the private equity industry is always looking to innovate. So I would expect to see lots of change and growth for a while. Are there any major risks that you're thinking about that you'd like to share?

1:04:15So look, unfortunately, the risks that actually scare me, I don't think there's a lot you can do much about. So if there was a situation of hyperinflation, think of where in other countries where they start adding zeros on bills because you just can't keep up. if the bond markets were yielding 100 % a year, we'd be very challenged to keep up with that. And that would take all the capital. And it'd be like, so like hyper, like, so I think the scary areas would be like hyperinflation, you know, government regulation. If like, look, it's created increased costs for public companies. If it's done the right way in privates, could it help a little bit?

1:04:55Maybe, could it cause harm potentially? But I think as long as we really focus on doing an extremely good job at what we're doing, we'll provide good value to the industry, good value to our investors, good value to sellers. So I think the big risks are sort of out of my control. Mike, the last question I have for you is, do you have a unique insight that you'd like to share with investors, perhaps something they may not have considered before? Look, when you're looking at investing, whether it's investing in a fund or a deal or any type of transaction, one thing I like to think about with regards to whether it might be a good deal or not is why me?

1:05:41So if you're going to invest in a private equity fund, why are you the right allocator to pick that fund over other funds? If you're going to invest in a public stock, why are you the person who could be smarter than a hedge fund or a mutual fund in picking that public stock? If there's not a compelling reason for why you're the right person, it might not be the right approach. So that's, we talked before about going into index funds. I believe in indexing. I don't see how I could possibly beat the market on picking a public stock. So I think the question of like, why me? And then like, look, we look at a lot of deals where there could be one or two other competitors.

1:06:17I want to know why Klein Hill is the right firm to buy that asset at the right price. And you want to understand what that is. And then that helps you learn where you may have advantages and to grow those advantages. But I think it's always good to ask, why me when investing? And that obviously works a lot better in private markets where there's less competition, less availability of information. A lot of it is relationship-based. There's oftentimes a lot more answers to your question of why me in that arena. Mike, you've been very generous with your time and I appreciate you sharing all your insights with us today.

1:06:53Thank you. Hey, Alex, thank you so much.

1:07:24This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of Evoque Advisors, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. and listeners are reminded that securities trading, commodity trading, and alternative investments are complex and carry a risk of substantial losses.

1:07:59As such, they are not suitable for all investors.

1:08:05Listeners should be aware that guests featured on The Insightful Investor may have current or past associations with Evoke advisors or the host, including as an investment manager of a private fund opportunity by Evoke or access through an affiliated Evoke fund or as a client. Participation as a guest on the podcast should not be perceived as an endorsement or testimonial with respect to Evoke Advisors, the podcast host, or their services. Similarly, the inclusion of a guest on the podcast does not imply that Evoke Advisors or the host endorses the guest or any company with which they may be affiliated or employed.

1:08:45Evoke has neither paid nor received compensation from guests for their participation.