How to Find, Vet, and Invest in Private Funds with a SDIRA (ft. Bridger Pennington)

WEBVTT
00:00:06.559 --> 00:00:08.720
Welcome everyone to the Directed IRA podcast.
00:00:08.800 --> 00:00:13.039
This is Matt Stornson and I have a special guest with me today, Richard Pennington.
00:00:13.119 --> 00:00:15.919
I've been following him for a while and excited to have him on the show.
00:00:16.160 --> 00:00:20.719
We're going to talk about how to find and analyze private funds.
00:00:20.879 --> 00:00:26.960
I know so many investors out there are bored with the stock market, hasn't been performing great this year so far.
00:00:27.199 --> 00:00:32.240
You're thinking, how can I invest in private assets, maybe a private fund?
00:00:32.399 --> 00:00:35.520
I happen to have an expert on that here, Britcher Pennington.
00:00:35.679 --> 00:00:39.039
He is uh founder, CEO of Fund Launch Live.
00:00:39.119 --> 00:00:41.600
He has his own private fund as well on top of that.
00:00:41.759 --> 00:00:47.359
But he actually teaches people how to raise capital, how to optimize, and start a private fund.
00:00:47.439 --> 00:00:51.119
So, Britcher, thank you for coming on this show today to share your expertise.
00:00:51.439 --> 00:00:52.560
Yeah, Matt, that should be fun.
00:00:52.640 --> 00:00:53.439
Thanks for having me on.
00:00:53.679 --> 00:00:54.880
All right, well, let's get started.
00:00:54.960 --> 00:00:58.079
And I think a lot of people are kind of familiar with the private fund.
00:00:58.159 --> 00:01:01.039
We're not talking about a mutual fund or an ETF.
00:01:01.200 --> 00:01:03.840
We're talking about a non-publicly traded fund.
00:01:04.000 --> 00:01:11.519
And so many people here like to invest either with their private dollars or with their self-directed retirement account, as you know, a directed IRA.
00:01:11.840 --> 00:01:15.280
Many of our investors here are actually using their IRA to invest in a private fund.
00:01:15.439 --> 00:01:16.799
Um, but what would you say?
00:01:16.959 --> 00:01:21.920
Like you get that conversation a lot, probably, Bridger, of people like, well, what the heck is a private fund?
00:01:22.239 --> 00:01:27.920
Um and like, what should someone know as an investor that's that's never done it for the first time?
00:01:28.159 --> 00:01:30.560
Yeah, let's let's start high level.
00:01:30.799 --> 00:01:33.280
Uh, you know, why why even approach a private fund?
00:01:33.359 --> 00:01:34.079
Like, why even do this?
00:01:34.159 --> 00:01:38.079
So there's public offerings, like a stock market, like you mentioned, bonds, stocks, these are public assets.
00:01:38.159 --> 00:01:39.359
There's a lot of private assets as well.
00:01:39.519 --> 00:01:42.719
So like think about buying into anthropic or stripe.
00:01:42.879 --> 00:01:44.239
These are privately held companies.
00:01:44.319 --> 00:01:46.000
You can't buy into anthropic.
00:01:46.159 --> 00:01:46.640
You just can't.
00:01:46.799 --> 00:01:56.159
It's a private company, but there are sometimes vehicles or funds that have bought in in the past or will buy in the future that you could sometimes come through that vehicle into these.
00:01:56.239 --> 00:02:01.359
That's one example, into a business or into real estate, into a private credit or these alternative assets.
00:02:01.519 --> 00:02:05.280
Uh, I think uh let me say as a good ex couple good examples there.
00:02:05.359 --> 00:02:08.719
I think the news just released SpaceX is going public now.
00:02:09.120 --> 00:02:13.120
It's official, but a lot of people had already invested in SpaceX, right?
00:02:13.439 --> 00:02:15.919
And they probably did it through a private fund.
00:02:16.639 --> 00:02:17.840
Yep, they got in early.
00:02:17.919 --> 00:02:20.960
And then then it's gonna, what the IPO is gonna be, what, a trillion, 1.5 million?
00:02:21.120 --> 00:02:22.319
Right, it's gonna be an insane amount.
00:02:22.479 --> 00:02:22.879
It's crazy.
00:02:22.960 --> 00:02:23.680
It's an unreal.
00:02:23.759 --> 00:02:28.879
It's like, well, that's a lot of equity value if you invested at a 100 billion evaluation or 10 billion, right?
00:02:28.960 --> 00:02:31.919
So now my background, I run two of these private funds right now.
00:02:32.000 --> 00:02:36.879
So to give context, I run a about$25 million crypto private investment fund.
00:02:37.120 --> 00:02:38.719
We do uh investments in crypto.
00:02:38.879 --> 00:02:40.879
We also have a GP stakes fund.
00:02:40.960 --> 00:02:44.639
I can break that down a little bit later, but we do investing into private markets.
00:02:44.719 --> 00:02:49.439
Then through fund launch, we've helped launch about 450 of these private investment funds.
00:02:49.680 --> 00:02:56.879
So typically what's happening when we go and help someone launch a fund is they are an expert in multifamily real estate.
00:02:57.120 --> 00:03:00.319
And they have bought all the deals they can do with their own money.
00:03:00.479 --> 00:03:04.800
And they said, We have, man, we have 50 deals we could do in the southeast of the United States.
00:03:04.960 --> 00:03:14.879
Let's go raise a fund of$200 million of investors' money, sometimes coming from IRA accounts, and let's go buy$200 million in multifamily real estate.
00:03:15.120 --> 00:03:19.120
As that portfolio grows and does well, we'll split the returns with these investors.
00:03:19.199 --> 00:03:29.759
And so, what you were doing with private investment management, you are selecting usually experts in a field, like multifamily real estate in the southeastern, you know, quadrant of the United States.
00:03:30.000 --> 00:03:33.840
And they are, they live, eat, sleep, and drink that asset class.
00:03:34.000 --> 00:03:36.000
You come and invest in that, and that's what you're getting access to.
00:03:36.159 --> 00:03:41.599
And so most asset managers are very specific, they're very niche, they're very narrow, they're experts in a field.
00:03:41.680 --> 00:03:45.280
And so we can talk more about how to manage your selection, it's a great topic.
00:03:45.439 --> 00:03:51.039
How do you find because there's lots of them out there, which ones are good, which ones are bad, but that's the idea of a private investment fund.
00:03:51.520 --> 00:03:54.159
Yeah, and I think a lot of people are attracted to that.
00:03:54.319 --> 00:04:00.479
One, I think, you know, publicly traded companies have gone from 8,000 down to 4,000 over the last 20 years.
00:04:00.719 --> 00:04:02.879
We have decreased the opportunity to invest.
00:04:02.960 --> 00:04:06.479
It is cut in half because nobody wants to go public anymore.
00:04:06.639 --> 00:04:11.599
And this is real estate businesses, this is technology companies, this is across the board.
00:04:11.840 --> 00:04:14.719
And so, how do I get access to these other investments?
00:04:14.800 --> 00:04:16.480
I don't want to go run the business.
00:04:16.639 --> 00:04:24.480
Like, I'm not gonna go do a multifamily deal or own a mobile home park or buy a commercial office building, but I want to participate in that asset class.
00:04:24.639 --> 00:04:28.319
And I think that's how the private fund lets you get in.
00:04:28.480 --> 00:04:30.560
And someone else is doing the work, right?
00:04:30.639 --> 00:04:33.199
So so if explain how that works, though.
00:04:33.279 --> 00:04:36.160
I'm an investor, I don't really have a say in what's going on.
00:04:36.240 --> 00:04:37.600
I don't have a job either.
00:04:37.839 --> 00:04:40.000
So how does that work for the investor, though?
00:04:40.240 --> 00:04:40.560
Yeah.
00:04:40.800 --> 00:04:44.399
Well, this is, anyways, and the actually the the great thing about private funds.
00:04:44.560 --> 00:04:47.199
So there's the the general partner limited partnership relationship.
00:04:47.279 --> 00:04:49.759
You would be a limited partner and investor into these funds.
00:04:50.000 --> 00:04:52.560
You are limited on your liability.
00:04:52.800 --> 00:04:55.199
You're also limited on your decision making.
00:04:55.360 --> 00:04:58.160
So, like for example, I'm an investor in two real estate funds.
00:04:58.319 --> 00:05:00.639
Like I run two funds and I also invest into funds.
00:05:00.720 --> 00:05:01.600
I don't know real estate.
00:05:01.680 --> 00:05:04.639
I want to, I don't want to deal with term termites, tenants, and toilets, right?
00:05:04.720 --> 00:05:05.519
The three Ts, right?
00:05:05.680 --> 00:05:06.800
The terrible T's.
00:05:06.959 --> 00:05:11.519
And so I give them, I give them a quarter million dollars into a multifamily investment fund.
00:05:11.920 --> 00:05:14.079
Uh, I don't make any decisions.
00:05:14.319 --> 00:05:16.480
They make all the decisions, they do all the leverage.
00:05:16.639 --> 00:05:19.439
The most I can lose is$250,000.
00:05:20.000 --> 00:05:26.399
Even if they get a lot of leverage on the business, it goes like goes under whatever, I only can lose$250,000, which is good.
00:05:26.480 --> 00:05:30.240
I'm limited to my liability, but I also get participate in the upside as well.
00:05:30.480 --> 00:05:42.079
Now, fees, most funds are using like a usually a two in 20, which would be a 2% management fee, charge 2% per year, 0.5% per quarter, and then 20% of the gains.
00:05:42.240 --> 00:05:49.360
So again, take my I put a quarter million dollars in, they're gonna charge me 2% per year to as a management fee.
00:05:49.519 --> 00:05:53.920
And then as that money grows,$250,000, let's say doubles.
00:05:54.079 --> 00:05:58.800
They're gonna take 20%, which is called carried interest, and that's how fund managers make fees.
00:05:59.040 --> 00:06:05.519
So fund managers make a two and 20, 2% management fee, 20% carry, and then I make the rest as the investor, but I didn't have to.
00:06:05.600 --> 00:06:12.319
I honestly, all I have to do is get a K1 at the end of the year and just file my taxes, which is a pretty, anyways, it's a it's a good symbiotic relations.
00:06:12.399 --> 00:06:16.879
It's why funds, private funds is one of the most popular business models in the world.
00:06:17.040 --> 00:06:21.519
It's the number one asset class of Forbes, the Forbes billionaire list is people that run funds.
00:06:21.680 --> 00:06:23.199
Um, it's a great way to get exposure.
00:06:23.279 --> 00:06:25.600
I actually read a report from Goldman Sachs.
00:06:25.680 --> 00:06:29.360
Uh, they surveyed all these family offices that work at Goldman Sachs.
00:06:29.519 --> 00:06:37.360
Umly 4% said they would decrease allocation to private funds.
00:06:37.759 --> 00:06:42.399
48% said they were going to increase allocation to private funds in the following year.
00:06:42.560 --> 00:06:46.480
So, and then that would be 96% say they would stay the same or increase.
00:06:46.639 --> 00:06:53.839
Right now, about 50% of family office portfolios are in private investments, just like this private funds, private investment vehicles.
00:06:54.000 --> 00:07:00.000
So it's a huge piece of family offices and large families' wealth because of the amount of alpha that is generated from them.
00:07:00.319 --> 00:07:06.000
Yeah, and we're starting to see kind of more of the mainstream Americans getting into private funds.
00:07:06.160 --> 00:07:12.079
It did used to be more traditionally, like the ultra-high net worth people, the family offices.
00:07:12.240 --> 00:07:16.639
And there's some securities rules on why that has traditionally been the case.
00:07:16.800 --> 00:07:24.879
Um, but you're starting to see even the funds, even a lot of the bigger funds are coming down and saying we want to get money from what they call the retail investor.
00:07:25.040 --> 00:07:26.959
That means, you know, not Uber rich.
00:07:27.040 --> 00:07:31.600
That just means you have some money to invest, you know, in like, you know, Wall Street speak at least.
00:07:31.839 --> 00:07:36.480
And so um, what are you seeing there in the opportunity of like I'm an individual investor?
00:07:36.720 --> 00:07:49.920
I'm I don't have a family office per se, um, but I'm accredited investor, make a couple hundred grand, a few hundred grand a year, got a or I got a million dollar net worth, which is one you got to do one of the two to be a an accredited investor.
00:07:50.240 --> 00:07:52.879
And um, and you know, I'd say 70%.
00:07:53.199 --> 00:07:56.959
We've surveyed our audience at directed IRA is accredited investors.
00:07:57.279 --> 00:08:00.079
So, how do I get access to those private funds?
00:08:00.240 --> 00:08:02.480
Like, can I get into any fund?
00:08:02.720 --> 00:08:06.399
And and also I want to talk second about like how do I find these funds?
00:08:06.720 --> 00:08:09.600
Yeah, so a couple of questions bucketed there.
00:08:09.759 --> 00:08:12.079
Uh no, yeah, you have a credit investor rule.
00:08:12.160 --> 00:08:13.759
So let's say everyone's accredited here.
00:08:13.920 --> 00:08:17.279
Some funds only take qualified purchasers, which is the next tier up.
00:08:17.360 --> 00:08:22.480
You have to have a five million dollar net worth, not just the 1.1 million, which is a credit investor.
00:08:22.560 --> 00:08:24.319
But let's say regardless, you qualify for private funds.
00:08:24.399 --> 00:08:26.560
I'll just, I'm not giving financial advice, I'll just tell you what I do.
00:08:26.720 --> 00:08:29.600
Even when I had like no money, I was just starting out, like just getting going.
00:08:29.680 --> 00:08:32.559
I tried to treat my own family like a family, like a mini family office.
00:08:32.639 --> 00:08:34.159
I'm like, I agree I got all the time.
00:08:34.240 --> 00:08:34.480
I love that.
00:08:34.720 --> 00:08:36.000
I got 10 grand to my name.
00:08:36.080 --> 00:08:38.559
I'm gonna treat it like a 10 grand family office, right?
00:08:38.720 --> 00:08:42.080
And so I over time I said, I want to get allocation of these private funds.
00:08:42.159 --> 00:08:43.279
So how do you do that, right?
00:08:43.360 --> 00:08:46.240
How you mentioned like how do you actually number one find these funds?
00:08:46.720 --> 00:08:53.279
There's a rule from the SEC for 506B funds, they cannot publicly advertise their funds.
00:08:53.679 --> 00:08:58.720
This is why you don't see, you know, commercials for Blackstone or KKR or Sequoia.
00:08:58.960 --> 00:09:02.159
Like they actually legally cannot advertise their funds.
00:09:02.320 --> 00:09:09.600
Now there's some new rules that have come out, 506Cs, that allow new funds to advertise a little bit, but most funds do it through a more private offering.
00:09:09.759 --> 00:09:09.919
Yeah.
00:09:10.320 --> 00:09:14.080
That's called the the PPM, private placement memorandum.
00:09:14.480 --> 00:09:15.360
Yeah, they used to say it.
00:09:15.440 --> 00:09:16.480
So, anyways, it's a private offering.
00:09:16.559 --> 00:09:17.279
That's besides the point.
00:09:17.360 --> 00:09:18.639
How do you find these deals, right?
00:09:18.720 --> 00:09:21.519
So, what I'll first tell people about, there's a lot of deals.
00:09:21.759 --> 00:09:29.360
Like, just because you don't see them every day, don't just say, Oh, my I found one real estate deal in Arizona and it must be the best one.
00:09:29.519 --> 00:09:32.960
Like, go do a family office approach.
00:09:33.440 --> 00:09:37.679
Family offices or big institutions, they'll look at a hundred deals to do one.
00:09:38.000 --> 00:09:44.480
Like, literally, our fund, Fun Launch Partners, we had 2,000 inbound deals we looked at and we did 14 of them.
00:09:44.799 --> 00:09:46.080
That's our funnel.
00:09:46.399 --> 00:09:46.720
Okay.
00:09:47.039 --> 00:09:48.399
You should do the same thing with you.
00:09:48.480 --> 00:09:54.399
So if you're like, I want to get access to crypto, which is like my fund, don't just invest in Bridger because he's a nice guy.
00:09:54.559 --> 00:10:04.799
Go, let's like go on social media, find, go on the internet, find 15 crypto funds, and then distill it down to one or two that you want to allocate to or name the asset class.
00:10:04.879 --> 00:10:07.279
Um, that's how a family office would approach it.
00:10:07.440 --> 00:10:08.720
So sorry, I'm getting back to it.
00:10:08.799 --> 00:10:09.440
There's lots of deals.
00:10:09.519 --> 00:10:10.399
Just put that in the back of your hand.
00:10:10.480 --> 00:10:11.759
There's lots of deals, there's also lots of money.
00:10:11.840 --> 00:10:13.360
You got to start telling yourself that.
00:10:13.519 --> 00:10:18.480
Uh now with like perplexity, Claude, there's lots of tools that actually can find these deals faster than others.
00:10:18.559 --> 00:10:22.399
Um, there's certain tools like Pitchbook or others that find asset managers.
00:10:22.639 --> 00:10:30.879
Sometimes it's, but if you're the investor and you just start telling people, like I have money, I want to invest, I promise you, deals will start finding you.
00:10:30.960 --> 00:10:35.200
Just start telling people I am looking to allocate$100,000 into real estate.
00:10:35.279 --> 00:10:37.200
Let me know some operators in the area.
00:10:37.440 --> 00:10:40.559
I promise you, some money will find or some deals will find your way.
00:10:40.720 --> 00:10:42.559
But again, be slow to invest.
00:10:42.720 --> 00:10:43.600
Look at a lot of deals first.
00:10:43.679 --> 00:10:47.759
And I can I can undergo a little bit how we underwrite deals if you'd like, but that's how that's how it's gonna start.
00:10:48.000 --> 00:10:56.240
Yeah, no, I think um to kind of distill what you said there, how I think about it is if I'm out there trying to find deals, I got to go big funnel at the top.
00:10:56.320 --> 00:10:59.919
I gotta freaking talk about it that I'm actually wanting to invest.
00:11:00.080 --> 00:11:03.679
You're gonna start attracting things and people and conversations.
00:11:04.159 --> 00:11:09.440
Um, use all the tools available to you on the internet, AI to help find those deals.
00:11:09.600 --> 00:11:20.320
Go to networking events, like, right, get a get a big enough funnel so you can get the inbound and start to learn about these things because they're not like it's not like a ticker you're gonna go to at one broker dealer website.
00:11:20.480 --> 00:11:23.120
It's not like on the shelf you're gonna go pick out somewhere.
00:11:23.200 --> 00:11:23.519
All right.
00:11:23.600 --> 00:11:24.799
You got to do a little bit of work here.
00:11:24.879 --> 00:11:29.039
I was gonna say, like, investing in private assets is kind of like hunting, not farming.
00:11:29.279 --> 00:11:31.279
Most people in the stock market are just farming.
00:11:31.360 --> 00:11:34.879
They're just like, it's just there, you pick it up, you harvest it, you know, you plant seasons.
00:11:35.279 --> 00:11:39.440
But like private funds and private investing, you got to go hunt and find this stuff.
00:11:40.080 --> 00:11:49.519
And but then I like how you said, and because this is the diligent stuff I wanted to ask you anyways, is you got to distill it down then to be like, well, I'm not gonna invest in all of these.
00:11:49.679 --> 00:11:51.919
And I'm definitely not gonna invest in the first one I find.
00:11:52.080 --> 00:12:05.279
You got to start having some conversations and then distill it down to your in this funnel concept to all right, now I might allocate to one or two of those where I actually throw some money in, whether it's personal funds or funds for my IRA.
00:12:05.600 --> 00:12:10.720
And and I think you're gonna have a better success rate in that approach.
00:12:11.120 --> 00:12:13.519
Um uh, but what's your experience?
00:12:13.600 --> 00:12:15.440
I know you said you've invested yourself.
00:12:15.679 --> 00:12:20.399
Like, I'm just curious, like, what do you think like the amount of investors that you guys talk to?
00:12:20.480 --> 00:12:30.720
And maybe you track this, I don't know, or even in your community, fun launch live of like how many people do they need to talk to to get an investor, like an interested person versus invest money?
00:12:31.759 --> 00:12:33.519
Uh for from the fun side.
00:12:33.679 --> 00:12:34.000
Yeah.
00:12:34.159 --> 00:12:35.039
Yeah, you're talking.
00:12:35.120 --> 00:12:38.159
I mean, each, you know, it's a it's a funnel as well, right?
00:12:38.240 --> 00:12:39.200
Of closing investors.
00:12:39.440 --> 00:12:41.679
I think, you know, we have a pretty high close rate between my funds.
00:12:41.759 --> 00:12:51.600
Like, most people we talk to actually invest, which is kind of what there's I don't know, I would say 75 of people that we pitch end up writing a check, which is kind of crazy.
00:12:51.759 --> 00:12:57.600
Um, some funds maybe it's 50-50, some it's 25%, but that's who we're pitching, like doing a formal pitch to once they see all of our stuff.
00:12:57.679 --> 00:12:59.759
People that we're talking to, it's a wider funnel from there.
00:12:59.840 --> 00:13:05.279
Yeah, back to the original question of you know, if you're the in the investor shoes now, distilling this down.
00:13:05.440 --> 00:13:09.279
I so many people, and myself included, but I'm in the funds space, I get to see this a lot.
00:13:09.440 --> 00:13:18.799
Just invest with their brother-in-law because he's a nice dude, and that's the only deal they looked at, and then there's a scam or the money isn't managed right, or whatever.
00:13:18.879 --> 00:13:23.360
I'll give a tip of just this has saved me from so much trouble.
00:13:23.600 --> 00:13:30.720
Because once you start telling people, oh, I have money I want to invest, you're gonna have every great deal and bad deal come your way.
00:13:30.879 --> 00:13:36.799
And how like a simple litmus test that I do that has saved me from so many scams.
00:13:36.879 --> 00:13:38.799
I actually had a friend, he's actually an investor of ours.
00:13:38.879 --> 00:13:41.679
He came to me and he's like, Bridger, I've he had a bunch of money he invested.
00:13:41.840 --> 00:13:48.000
He goes, I've done 11 investments, all 11 turned out to be not what they promised.
00:13:48.720 --> 00:13:51.759
And I was like, Wow, that's a bad hit rate, right?
00:13:51.840 --> 00:13:54.559
Like he's like, and he invested, he's like, You're you guys are number 12.
00:13:54.639 --> 00:13:59.279
You guys are the only one out of my I did 12 investments, sorry, you did 12 total, 11 were not good.
00:13:59.360 --> 00:14:01.440
He's like, Your guys was the only one that was like stand up.
00:14:01.679 --> 00:14:03.360
And he and then he was like, How did you guys?
00:14:03.600 --> 00:14:05.679
Because we got pitched the same deals, those 11.
00:14:05.759 --> 00:14:07.919
He goes, How did you guys avoid these 11?
00:14:08.159 --> 00:14:10.639
And I was like, Oh, that hard.
00:14:10.879 --> 00:14:12.720
Like, there's two main things.
00:14:12.960 --> 00:14:16.320
Number one, do they do annual audits?
00:14:16.799 --> 00:14:19.200
Do they have audit financials annually?
00:14:19.360 --> 00:14:20.639
And is it part of their process?
00:14:20.799 --> 00:14:23.919
And can I review last year's audit and the year before that's audit?
00:14:24.159 --> 00:14:29.039
If they say no, or we don't do audits yet, or hey, I'm I'm passed.
00:14:29.120 --> 00:14:29.919
I'm a hard pass.
00:14:30.080 --> 00:14:31.200
You're too early for me.
00:14:31.360 --> 00:14:34.480
You know, it's like, oh, we we're too small, we're just doing a little deal down the street.
00:14:34.559 --> 00:14:35.679
You we don't do audits.
00:14:35.759 --> 00:14:37.919
Well, sorry, if you don't do audits, I don't work with you.
00:14:38.159 --> 00:14:41.360
Bernie Madoff 30 years never did an annual audit.
00:14:41.679 --> 00:14:42.159
Ever.
00:14:43.120 --> 00:14:47.759
And it took another firm to turn him into SEC twice before the SE looked at him.
00:14:47.919 --> 00:14:54.559
Uh, you know, and then after Bernie Madoff, about it was like 10% of firms did audits, 90% of firms did audits after Bernie Madoff.
00:14:54.639 --> 00:14:56.480
It's a it's a standard practice, you can pay for him.
00:14:56.720 --> 00:14:58.639
Make sure the people you're working with do audits.
00:14:58.720 --> 00:15:00.159
It's an easy litness test.
00:15:00.240 --> 00:15:04.159
All these scams you hear about, 99% of the times they do not do annual audits.
00:15:04.320 --> 00:15:07.919
Second one, do they have a fund administrator?
00:15:08.799 --> 00:15:12.080
So this is not just a software like App Folio or something.
00:15:12.159 --> 00:15:14.320
It's an actual full fund administrator.
00:15:14.399 --> 00:15:19.679
Yeah, these are people on the back office that help manage and cross-reference money, checks, wires, everything.
00:15:19.919 --> 00:15:21.919
So those are my two, like right at the beginning.
00:15:22.080 --> 00:15:23.360
Do you do annual audits?
00:15:23.519 --> 00:15:25.600
And do you have a full fund administrator?
00:15:25.679 --> 00:15:27.840
Not just a software, a fund administrator.
00:15:28.080 --> 00:15:28.240
Yeah.
00:15:28.480 --> 00:15:30.720
If the answer is no to either one of those, it's a hard no for me.
00:15:30.799 --> 00:15:31.279
That'll save you.
00:15:31.360 --> 00:15:33.440
I don't know why I got balloons on my screen, but there we go.
00:15:34.159 --> 00:15:34.879
That was awesome.
00:15:35.200 --> 00:15:38.879
That'll save you from a lot of headache of just a simple due diligence.
00:15:38.960 --> 00:15:40.720
And then we can get into manager selection from there.
00:15:40.879 --> 00:15:45.919
But man, that saves so much time uh when sifting through good deals versus bad deals.
00:15:46.159 --> 00:15:46.720
Yeah, I love that.
00:15:46.799 --> 00:15:48.240
That's good, that's really good advice.
00:15:48.399 --> 00:15:54.720
And, you know, I I go to a lot of institutional events and where there's a lot of private funds there, people in industry.
00:15:54.799 --> 00:15:58.639
I was just at two, Alt LA and Fact Right, that was here.
00:15:58.720 --> 00:16:00.720
One was in LA, one was in Scottsdale.
00:16:00.960 --> 00:16:06.159
And these these are private funds that go and raise capital from the wealth channel.
00:16:06.240 --> 00:16:11.200
So they're going to financial advisors saying, hey, put your clients into this.
00:16:11.440 --> 00:16:19.600
And those two things are like bare that you can't even get in the room to talk about your fund if you don't have an audit and you don't have a fund administrator.
00:16:19.759 --> 00:16:21.279
They are not even going to talk to you.
00:16:21.519 --> 00:16:27.440
And because they know what you know, Bridger, they they know that that that is some third party trust.
00:16:27.600 --> 00:16:34.480
I shouldn't know maybe trust is the wrong word, but it's it's a third-party check that you know someone else is looking at this.
00:16:34.639 --> 00:16:49.679
Um, and also it shows a little bit of professionalism, I think, and commitment to what you're doing, that you're gonna have these professionals there um uh that that are that are looking at things and giving investors back information that's that's um unbiased, I should say.
00:16:50.000 --> 00:16:54.879
So yeah, I would say that's the bar, like the first bar to just leap over if you're selecting managers.
00:16:55.120 --> 00:16:57.440
From there, okay, we're over the bar.
00:16:57.519 --> 00:16:59.679
Yeah, we do annual audits, we have a third funding share.
00:16:59.919 --> 00:17:00.320
Great.
00:17:00.480 --> 00:17:02.240
Uh what's your motives?
00:17:02.480 --> 00:17:04.160
How much skin in the game do you have?
00:17:04.240 --> 00:17:06.079
How much capital are you guys putting into the deal?
00:17:06.240 --> 00:17:09.599
I want to see where are we aligned with incentives?
00:17:10.160 --> 00:17:19.279
Are they running three other side businesses and this is like a fourth business that they're kind of doing on the side, or are they this is their career and they have millions of dollars of their own money in it?
00:17:19.359 --> 00:17:21.039
Okay, great, we're aligned, right?
00:17:21.119 --> 00:17:23.440
I want to see true alignment uh with managers.
00:17:23.519 --> 00:17:24.799
Now, you can do a lot of things.
00:17:24.880 --> 00:17:29.759
We've on our fund, we do uh we look at previous track record, the team around that person.
00:17:29.839 --> 00:17:32.000
Do they have dead bodies in the closet from previous things?
00:17:32.160 --> 00:17:34.480
Or are they, you know, pretty clean cut in their past?
00:17:34.720 --> 00:17:36.480
We do this is just this is crazy.
00:17:36.640 --> 00:17:38.799
We do personal balance sheet reviews with these managers.
00:17:38.880 --> 00:17:47.200
Now, I don't know if you would, they would allow you to do that, but what since we're partnering with them, we actually go through their personal, we want to see how leveraged of a person this manager is or isn't.
00:17:47.440 --> 00:17:49.119
I want to see their process.
00:17:49.359 --> 00:17:51.680
Okay, uh, you're looking at multifamily real estate.
00:17:51.759 --> 00:17:53.759
Show me your investment process.
00:17:54.559 --> 00:17:58.559
Are are they looking at 250 deals and selecting one or two?
00:17:58.640 --> 00:18:00.000
And why did you select the one or two?
00:18:00.079 --> 00:18:05.200
And can you show me an investment memo and the process and the team and the notes from the meetings you guys had?
00:18:05.359 --> 00:18:06.240
I want to see all of it.
00:18:06.319 --> 00:18:10.480
Can I come to one of your investment committees and actually sit in and hear how you talk about deals?
00:18:10.640 --> 00:18:14.240
Now they might say no to some of those requests, but those that's the level like that.
00:18:14.319 --> 00:18:16.400
I'm just giving you a few things you could do.
00:18:16.559 --> 00:18:18.720
These are sharp questions that you can ask.
00:18:18.799 --> 00:18:23.279
Uh, walk me through every fee that you guys collect and make.
00:18:23.519 --> 00:18:25.680
And when is it collected and when is it made?
00:18:25.839 --> 00:18:27.519
Uh, do you make all the fees up front?
00:18:27.680 --> 00:18:28.799
Do you make them over time?
00:18:28.960 --> 00:18:30.640
Again, I want to see, are you aligned?
00:18:30.720 --> 00:18:32.000
I saw a fund manager.
00:18:32.079 --> 00:18:34.880
Um, they they pitched a two and 20 fund.
00:18:34.960 --> 00:18:38.720
Yeah, we're 2% management fee, a 80-20 split, which is standard.
00:18:39.039 --> 00:18:46.240
If you go read their docs, what they were doing was a 2% management fee front loaded five years.
00:18:47.200 --> 00:18:52.720
So they would take five years times two, which is 10%, and front load it into year one.
00:18:53.200 --> 00:18:59.519
So when you joined the fund, you paid essentially a 10% fee when you joined the fund.
00:19:00.160 --> 00:19:00.480
Wow.
00:19:00.720 --> 00:19:02.799
Which was pretty interesting, right?
00:19:02.960 --> 00:19:04.880
Yeah, it's a nice way to say it.
00:19:05.119 --> 00:19:05.599
Yeah, it was.
00:19:05.680 --> 00:19:07.920
I mean, I I did not like this at all.
00:19:08.160 --> 00:19:09.920
And they pitched it as a two and 20.
00:19:10.079 --> 00:19:14.559
But and I had friends that invest in this thing, yeah, and I was like, Did you guys read the documents?
00:19:14.799 --> 00:19:15.440
Like, oh no, no.
00:19:15.519 --> 00:19:19.519
And I'm like, Did you guys know it's a 10% haircut when you join this thing?
00:19:19.920 --> 00:19:20.880
Like, oh, we didn't know that.
00:19:21.039 --> 00:19:22.640
I'm like, uh, just read the docs.
00:19:22.799 --> 00:19:26.559
I mean, nowadays we have Chat GPT and Claude that'll read the docs for you, right?
00:19:26.640 --> 00:19:31.680
And point things out if you want, but uh, so I'm getting I'm giving you ideas if someone's listening to this.
00:19:31.759 --> 00:19:36.480
I'm just you get over the bar and then you're asking these kind of follow-up questions, motivations, how are we aligned?
00:19:36.720 --> 00:19:37.920
Show me your process.
00:19:38.079 --> 00:19:47.279
I want to see every little level of detail that proves wow, these people are absolute experts in this field.
00:19:47.440 --> 00:19:47.680
Yeah.
00:19:47.839 --> 00:19:51.119
And they I show up to their wow, I listened in on their caller, I saw their meeting.
00:19:51.279 --> 00:19:52.960
These guys are meticulous.
00:19:53.279 --> 00:19:57.680
These are true professionals that I could trust a large chunk of my money with.
00:19:58.079 --> 00:20:04.400
Um, they're not making a bro bro hang out, like they're really, you know, doing a great process.
00:20:04.640 --> 00:20:04.960
Yeah.
00:20:05.200 --> 00:20:06.559
Wow, so many awesome tips there.
00:20:06.640 --> 00:20:12.079
Okay, I want to try to flesh these out more because these are great tips that, you know, I mean, I've been doing this for a long time.
00:20:12.240 --> 00:20:13.359
Bridget, these are awesome tips.
00:20:13.440 --> 00:20:16.319
And I as a lawyer, I've read so many documents.
00:20:16.559 --> 00:20:25.519
Um, and the devil's in the details, you know, and and I kind of don't, I think it's a red flag for me when they say, oh, it's two and 20.
00:20:25.599 --> 00:20:31.680
And if they like front load fees like that and they didn't communicate that to you, like I got to go do the work to find it.
00:20:31.920 --> 00:20:36.079
A lot of times, if I'm like reviewing something for a client and I'm like, they didn't talk to you about this.
00:20:36.240 --> 00:20:42.000
This wasn't like in their executive summary about some weird fee that I found or some way that they're charging it that's not normal.
00:20:42.240 --> 00:20:44.240
I'm like, that's bad form on their side.
00:20:44.319 --> 00:20:46.559
That's we're kind of partnering a little bit here.
00:20:46.640 --> 00:20:50.640
I'm giving you money, you're doing work, and that's like bad form on your side.
00:20:50.799 --> 00:20:55.680
I think another one I've seen is um this is more in real estate funds.
00:20:55.759 --> 00:21:09.759
It could be in a, you know, uh private equity fund too, but they'll do like an acquisition fee or development fee that if they when they acquire an asset, they're gonna get 1% or 5%, or they're getting some fee.
00:21:10.000 --> 00:21:16.799
And they may also be like, and also we're a real estate broker, so our agents, so we're gonna take the commission on the buyer's side.
00:21:16.960 --> 00:21:23.920
Oh, we're gonna have we have our property management fee that's gonna manage the property and we charge the, we we assess property management fees.
00:21:24.079 --> 00:21:31.519
Those things can be okay if you know about it and it's disclosed and and you understand like the why.
00:21:31.599 --> 00:21:33.279
Okay, they need to hire a broker to do this.
00:21:33.359 --> 00:21:35.119
Yeah, are they the right person to do that?
00:21:35.440 --> 00:21:37.359
Are you aligned on property management?
00:21:37.440 --> 00:21:44.319
I can see reasons why that could be the case, but I still like to have that disclosure of how are they making money?
00:21:44.640 --> 00:21:45.759
Yeah, it's the best question.
00:21:45.920 --> 00:21:48.319
Walk me through every single way you guys make money.
00:21:48.559 --> 00:21:49.759
Yeah, that's the good way to say it.
00:21:49.839 --> 00:21:50.960
That's like that's like the email.
00:21:51.039 --> 00:21:52.720
That's the cut through everything.
00:21:52.799 --> 00:21:54.079
It's like, and I need to see all of them.
00:21:54.160 --> 00:21:59.200
And I I'm gonna compare your docs with Claude or something of is this lineup?
00:21:59.359 --> 00:21:59.839
Exactly what you said.
00:22:00.240 --> 00:22:00.960
Matt, spot on.
00:22:01.200 --> 00:22:01.359
Yeah.
00:22:01.440 --> 00:22:09.519
And I think too, I another way I kind of have told a lot of investor clients is I want to be making money with you.
00:22:09.680 --> 00:22:12.160
And I want like if I'm an investor, that's what I want to do.
00:22:12.240 --> 00:22:13.440
I want to be making money with you.
00:22:13.519 --> 00:22:15.759
I don't want you to be making money off of me.
00:22:16.480 --> 00:22:29.359
And if there's someone who's in that fee structure, like front loading the a asset under management fee, or basically if they can still make a lot of money off this fund, not on the carry, just through fees.
00:22:29.680 --> 00:22:38.640
So if this thing just goes flat for 10 or 20 years, or it goes down a little bit, or even crash, and they still make money, uh that that's not good.
00:22:38.799 --> 00:22:48.400
I I want them to make some money to stay in business, but they really you want them to be hyper motivated to make money with you, which is on the carry.
00:22:48.720 --> 00:22:49.039
100%.
00:22:49.279 --> 00:22:49.519
Yeah.
00:22:49.599 --> 00:22:50.720
Are we aligned, right?
00:22:50.880 --> 00:22:52.559
Are our incentives aligned?
00:22:53.119 --> 00:22:54.799
Um to branch onto this as well.
00:22:54.880 --> 00:22:56.079
So again, we got over the bar.
00:22:56.160 --> 00:22:57.519
Do they do at you know audits?
00:22:57.599 --> 00:22:58.640
Do they do admin?
00:22:58.799 --> 00:23:02.079
What's their alignment, their incentives, all the stuff we just talked about?
00:23:02.319 --> 00:23:16.480
Another consideration, which is out, these these guys, these guys or gals could be great managers, sharp, all those things check off, and still lose or still have poor performance because of just global macro events.
00:23:16.720 --> 00:23:19.920
I love the quote macro trumps micro.
00:23:20.160 --> 00:23:25.599
So what we just talked about was those are the micro details, but macro trumps micro.
00:23:25.759 --> 00:23:39.200
Meaning, if you know, real estate in the southeastern portion of the United States just for some reason has a terrible decade, even the best managers are gonna have probably a subpar decade.
00:23:39.359 --> 00:23:44.240
Um and vice versa, even bad managers can perform in a good market.
00:23:44.559 --> 00:23:52.160
And so a part of being a good allocator is understanding the global macro scene of what's going on in the world.
00:23:52.319 --> 00:23:58.480
And in the, you know, okay, I'm a big believer that robotics is a huge wave that is hitting right now.
00:23:58.880 --> 00:23:59.200
Right.
00:23:59.279 --> 00:24:05.440
I want to now invest into robotic companies that are in this asset class that'll that'll ride this wave of robotics.
00:24:05.519 --> 00:24:10.319
Okay, I'm gonna go find some managers that then are gonna attack that wave, um, is one example.
00:24:10.480 --> 00:24:23.200
And so when you think about a macro wave, and again, this this is where this is why institutional allocators get paid big bucks, is they go read all the tea leaves and what the waves is and what's going on in private credit or venture capital or whatever to see this.
00:24:23.279 --> 00:24:24.160
I'll give you one example.
00:24:24.319 --> 00:24:37.359
So there's a great study that's been now been duplicated by multiple firms, which is the vintage year of venture capital funds greatly determines the performance of that fund.
00:24:37.759 --> 00:24:39.039
And what I mean by that is this.
00:24:39.119 --> 00:24:47.119
So they went back, I think back to the early 1990s, and they looked at every year uh venture capital funds that launched in that year.
00:24:47.200 --> 00:24:57.599
So every venture capital fund that launched in 1995, then 1996, and then all the way up through 2012, 13, 14, 15, all the way, I think their most recent data was like 2021, 2022, because you have to see how long a fund is.
00:24:57.839 --> 00:25:06.480
And there is a distinct correlation between the year you start your venture capital firm and the returns of that firm.
00:25:06.720 --> 00:25:22.000
For example, uh, venture capital firms that launched in 2001 at the peak of the dot-com bubble in 2000 greatly underperformed venture capital firms that launched in 2003 or four because they bought at the bottom of the curve.
00:25:22.160 --> 00:25:23.279
Evaluations were much lower.
00:25:23.440 --> 00:25:26.640
Same thing with 2021 and 2022 venture capital firms.
00:25:26.720 --> 00:25:29.359
That was a peak year for venture capital valuations.
00:25:29.599 --> 00:25:34.960
The top decile of those funds are still at break even right now, what five years later?
00:25:35.200 --> 00:25:37.920
And so as an investor, these were great managers.
00:25:38.000 --> 00:25:39.200
These are really sharp individuals.
00:25:39.279 --> 00:25:42.960
They just we just invested at the wrong time, 2021.
00:25:43.119 --> 00:25:49.839
Uh, but investing in 2023 or four probably would have been the right time or 2019 or 2017.
00:25:50.000 --> 00:26:03.440
And so something as an investor, the uh I'm getting to is the macro Trumps micro, seeing the global macro sense, is it a good time to start into venture capital or crypto or real estate is an important note to see.
00:26:03.519 --> 00:26:07.200
And that takes just a lot of study and time and thought process, but something to consider.
00:26:07.440 --> 00:26:09.200
Yeah, I mean, I I love that.
00:26:09.279 --> 00:26:12.559
That's a great tip because you've got the person managing the fund.
00:26:12.720 --> 00:26:18.880
And I think you got what is their asset class, but then also like the strategy that they might have within the asset class.
00:26:19.039 --> 00:26:31.440
I know a lot of real estate guys, very successful people, have made a lot of money in multifamily, actually aren't guys that lost money because a lot of multifamily funds have struggled the last few years, but they just pivoted because they knew the deals were overpriced.
00:26:31.599 --> 00:26:33.599
They pivoted over to industrial.
00:26:33.759 --> 00:26:42.480
Some of them are moving to office now because it's significantly discount and have the thesis there that they're buying way below replacement costs and they they think there's a there's a premiere.
00:26:42.960 --> 00:26:47.920
Also, there was all that activity into multifamily and a lot of competition driving up price.
00:26:48.160 --> 00:27:01.279
And so a lot of times I think you have to have a little bit of conviction for what asset class you're investing into, whether it is in real estate and the various subcategories you have there, plus the different markets you can have.
00:27:01.519 --> 00:27:06.720
Even another one that that we've seen quite a bit that's been getting more and more popular has been oil and gas.
00:27:07.119 --> 00:27:18.160
And that's when I knew a lot of the people that were doing oil and gas funds, they at first were like, man, drill baby drill is killing us because it was creating oversupply and they they make money on a certain price of barrel.
00:27:18.319 --> 00:27:25.680
Now there's war, and they're like, and we've got, you know, all the issues in Iran and oil's up, and they're like, all right, we're crushing it now.
00:27:25.920 --> 00:27:32.960
But those are those macro trends that you take a position on, and there's a manager that has to execute on it.
00:27:33.039 --> 00:27:33.759
I get that.
00:27:34.000 --> 00:27:38.400
But I do think that's good too, is it as you're thinking about investing in a private fund?
00:27:38.559 --> 00:27:42.000
Like, where do you think is an opportune time to invest now?
00:27:42.160 --> 00:27:42.480
Right?
00:27:42.640 --> 00:27:44.480
Buy low, sell high.
00:27:44.640 --> 00:27:46.480
Where is good timing here?
00:27:46.640 --> 00:27:49.119
The vintage on venture capital is a great example.
00:27:49.440 --> 00:27:50.720
Yeah, oil and gas was interesting.
00:27:50.799 --> 00:27:53.279
We actually had a deal in our portfolio last week.
00:27:53.440 --> 00:27:54.559
We bought the dip.
00:27:54.640 --> 00:27:58.160
We thought like oil was at$55 or$60 a barrel.
00:27:58.400 --> 00:28:01.200
And he's like, Yeah, he he showed, he's like, I'm a great manager.
00:28:01.440 --> 00:28:02.240
He's done two of these funds.
00:28:02.319 --> 00:28:04.400
We're we're joining a second and third fund.
00:28:04.720 --> 00:28:08.319
But he's like, if oil jumps to$80 a barrel, we're gonna be rich over.
00:28:09.119 --> 00:28:11.279
And we were like, well, we kind of we kind of took a strategic bet.
00:28:11.440 --> 00:28:16.480
Like, yeah, and then now, right now it's at what a$100 or$190, it hit like$119, then went down to 90.
00:28:16.559 --> 00:28:18.880
Anyways, he's well in the money right now, done well.
00:28:19.039 --> 00:28:24.000
Things that are so sorry, as of filming today, what is it, March 31st today, uh 2026?
00:28:24.160 --> 00:28:25.680
Things that I am seeing at least.
00:28:25.839 --> 00:28:29.839
Uh venture, it seems to be pretty priced high right now.
00:28:30.079 --> 00:28:35.839
I think good we did a lot of venture deals uh the last two years because venture valuations were very low.
00:28:36.079 --> 00:28:39.359
I we are seeing valuations very high, getting high.
00:28:39.440 --> 00:28:40.880
Now, can they go higher for sure?
00:28:40.960 --> 00:28:44.240
But we're seeing 20, 30, 40x multiples pretty darn high.
00:28:44.400 --> 00:28:47.440
The PE ratio on the stock market, pretty darn high right now.
00:28:47.599 --> 00:28:52.000
Um, so those are things that I would I at least as a macro sense wouldn't get into.
00:28:52.160 --> 00:28:54.000
Um real estate.
00:28:54.720 --> 00:28:57.119
We have a new Fed share starting hopefully in May.
00:28:57.279 --> 00:28:59.599
Uh seemingly we're gonna have major rate cuts.
00:28:59.680 --> 00:29:01.440
I mean, that's the whole Trump administration's push.
00:29:01.599 --> 00:29:04.559
Scott Besson, they spent seven months selecting a new Fed share.
00:29:04.640 --> 00:29:06.880
I would think they're gonna have significant rate cuts.
00:29:06.960 --> 00:29:08.160
Now, the market's not pricing that in.
00:29:08.240 --> 00:29:12.640
I am pricing that in, but I think we're gonna see significant rate cuts, which greatly benefits real estate.
00:29:12.720 --> 00:29:23.119
There's a huge bid ask spread right now in real estate, which means maybe there's more to fall in real estate, but I think rate cuts could turbocharge our economy uh come in the summer, but that's a bet you would make.
00:29:23.279 --> 00:29:27.839
Um the uh private credit right now, major cracks in private credit.
00:29:28.000 --> 00:29:32.160
Uh, there's withdrawals being limited from the largest firms on earth right now.
00:29:32.400 --> 00:29:38.960
Blackstone, uh, excuse me, Black Rock, and uh a number of major limited limited with withdrawals.
00:29:39.039 --> 00:29:45.599
Meaning if you're an investor in private credit fund, they are limiting your withdrawals to pull money out, or you're they're selling it for 50 cents on the dollar.
00:29:45.839 --> 00:29:51.279
Usually a decent time to enter a market when everything is cracking, or you can buy secondaries of the scraps.
00:29:51.440 --> 00:29:52.960
So that's the things I would look for.
00:29:53.039 --> 00:29:54.079
Again, I don't know though.
00:29:54.160 --> 00:29:54.720
Who knows, man?
00:29:54.799 --> 00:29:55.680
Who knows the future right now?
00:29:55.759 --> 00:29:58.799
We have AI and blockchain and all these different things coming out.
00:29:58.880 --> 00:30:03.680
I mean, we are centering a new world of technology, which is very deflationary.
00:30:03.839 --> 00:30:04.720
So that could be interesting.
00:30:04.880 --> 00:30:08.400
Crypto right now has been down what 60% in the last six months?
00:30:08.559 --> 00:30:08.720
Yeah.
00:30:08.960 --> 00:30:14.400
Crypto, I mean, could go lower for sure, but man, there is some compelling cases for crypto right now.
00:30:14.480 --> 00:30:17.279
And it's you're buying at a historically very good price.
00:30:17.440 --> 00:30:21.920
So that's the kind of stuff I'd look at uh when entering a new market or uh alternative asset.
00:30:22.559 --> 00:30:25.920
Yeah, I think that's really good, really good advice.
00:30:26.160 --> 00:30:33.039
Um, and you know, just on crypto, kind of working backwards is you know, people like crypto is on sale in in many ways right now.
00:30:33.200 --> 00:30:38.240
A lot of people were like, Oh, I wish I could have got in, you know, Bitcoin's at 100K plus, you know, per BTC.
00:30:38.559 --> 00:30:39.680
I wish I could have gone in.
00:30:39.759 --> 00:30:44.720
And then when it drops, those people like are like, they're like, ah, oh, what's going on with crypto?
00:30:44.880 --> 00:30:48.640
I mean, weren't you the one that wanted to get in on this was it below 100K?
00:30:48.799 --> 00:30:49.039
Yes.
00:30:49.279 --> 00:30:51.359
Um, now's your time, you know, for example.
00:30:51.519 --> 00:30:58.640
And that's again not advice here, it's just like just like trying to get some investment perspective and have conviction of what asset class that you believe in.
00:30:58.880 --> 00:31:05.599
And and I think it's hard though, because as you're looking at what to invest in, this could be in a private fund or not.
00:31:05.759 --> 00:31:19.440
I just think like, you know, that the advice from I think it's Warren Buffett was, you know, is is uh be greedy when others are fearful is kind of tough, you know, and but I think it it's proven to work out over time.
00:31:19.599 --> 00:31:31.599
So if you think about that, investing in private funds is where are some of these managers going where there's real value right now and um where you can find good opportunities in deals.
00:31:31.759 --> 00:31:36.079
Uh you don't want to go where everybody's already excited and it could be overvalued.
00:31:36.240 --> 00:31:38.559
And private credit could be that example.
00:31:38.880 --> 00:31:48.480
Venture might have got a little too much money, private equity in general, leverage buyout type businesses, they're start they're feeling pressure um from interest rates too, just like the real estate market.
00:31:48.640 --> 00:31:58.160
So it's tricky other, but I think that's that's what being a good investor is is finding that fund that hits that asset category you believe in.
00:31:58.400 --> 00:32:04.079
And then also the being able to diligence that manager that can actually execute on that.
00:32:04.319 --> 00:32:06.480
Um and I'll add one more thing, Matt.
00:32:06.559 --> 00:32:09.359
It's incredibly hard to predict the future.
00:32:09.599 --> 00:32:14.240
And so there's always a bull case and there's always a bear case for every like right, literally in this moment.
00:32:14.319 --> 00:32:18.240
There's bull cases and bear cases for all of those asset classes we just brought or brought up.
00:32:18.480 --> 00:32:24.160
If you go back to great advice from great investors, they will tell you be greedy when others, fearful, right?
00:32:24.240 --> 00:32:28.319
With things drop, but also you can dollar cost average into these types of asset classes.
00:32:28.480 --> 00:32:30.319
So, okay, I like venture capital.
00:32:30.400 --> 00:32:31.839
I want to be in venture capital.
00:32:32.000 --> 00:32:32.480
Great.
00:32:32.640 --> 00:32:40.400
I'm gonna do an maybe I'm gonna do an allocation this year, and I'm gonna plan to do one next year, and the year after that, and the year after that.
00:32:40.559 --> 00:32:47.039
So I'm gonna cover four vintages, knowing I don't really know which vintage will be the best, but I'm gonna do a spread bet.
00:32:47.119 --> 00:32:49.599
I'm gonna dollar cost average into venture capital.
00:32:49.759 --> 00:32:53.519
I'm gonna dollar cost average into private equity or credit.
00:32:53.599 --> 00:32:56.960
Uh, and because I want to have exposure to this asset class.
00:32:57.039 --> 00:33:02.559
Now, certain times you can you can see big drops and big swings, but most of the time it's pretty dynamic.
00:33:02.720 --> 00:33:05.039
And there's bull and bear cases for everything.
00:33:05.200 --> 00:33:08.079
Take real estate, for example, is a great moment right now in real estate.
00:33:08.160 --> 00:33:10.400
It's there's a great bull case and a great bear case.
00:33:10.480 --> 00:33:10.720
Yeah.
00:33:10.880 --> 00:33:17.599
And so, okay, I'm gonna dollar cost average into real estate or real estate funds for that matter, and that's how I'm gonna approach this asset class.
00:33:17.839 --> 00:33:18.160
Yeah.
00:33:18.319 --> 00:33:18.799
Awesome.
00:33:18.960 --> 00:33:26.000
Final question I had, and I really appreciate your time sharing all your wisdom and thoughts, Bridger, is um, what about the new manager?
00:33:26.240 --> 00:33:27.839
You know, we see those quite a bit.
00:33:27.920 --> 00:33:31.200
And I've I've seen them, I've invested in funds that are that are new.
00:33:31.279 --> 00:33:33.200
Um, it's their first even fund.
00:33:33.440 --> 00:33:38.400
Um, because a lot of people I know are like, well, unless you have a track record or, you know, I'm just not going to invest.
00:33:38.559 --> 00:33:41.920
Um, this is your first fund, you know, I don't want to roll the dice on that.
00:33:42.079 --> 00:33:45.279
Because I know you're working with a lot of people that might have their first fund.
00:33:45.680 --> 00:33:47.759
Um, how do you approach that?
00:33:47.839 --> 00:33:54.799
And those people raising capital, it's their first fund, or even like thinking about that investor and their concerns coming into a brand new fund.
00:33:55.119 --> 00:33:56.400
Yeah, that's where we specialize.
00:33:56.480 --> 00:33:58.640
Most of again, we did we've done 14 deals.
00:33:58.799 --> 00:34:00.799
Most of those were first-time fund managers.
00:34:01.039 --> 00:34:05.200
So again, uh, we we go a lot more into the manager, the person.
00:34:05.599 --> 00:34:07.279
So where are they aligned?
00:34:07.359 --> 00:34:09.440
Is this are they going to be around in 20 years?
00:34:09.599 --> 00:34:10.880
Is this their full out business?
00:34:10.960 --> 00:34:13.119
Now, most of them also have track record.
00:34:13.440 --> 00:34:14.639
They just weren't in a fund.
00:34:14.800 --> 00:34:16.320
They had done previous deals.
00:34:16.480 --> 00:34:20.800
They've worked on multiple deals before, and now they're formalizing into a first-time fund.
00:34:20.960 --> 00:34:22.960
So we can underwrite those previous deals.
00:34:23.280 --> 00:34:27.039
Um, so you're underwriting previous deals, previous team, the market they're entering.
00:34:27.280 --> 00:34:34.719
But what's cool about early managers, they have statistically a unique advantage against larger funds.
00:34:34.960 --> 00:34:40.079
So uh there's a great study that came out was funds under a billion dollars and funds over a billion dollars.
00:34:40.320 --> 00:34:47.440
Funds under one billion dollars of assets under management greatly outperformed funds over a billion dollars.
00:34:47.599 --> 00:34:54.400
And it makes total sense because smaller funds can operate in smaller niches that are less efficient.
00:34:54.639 --> 00:34:59.039
And because they're less efficient, they can drive more alpha in those less efficient markets.
00:34:59.199 --> 00:35:04.800
Once you get over a billion dollars of you're trying to deploy that much money, you have to go to more efficient markets.
00:35:05.039 --> 00:35:08.400
The most efficient would be like the stock market, the most efficient market.
00:35:08.559 --> 00:35:10.639
And it's much harder to drive alpha from them.
00:35:10.719 --> 00:35:24.800
And so you'll see actually many venture capital funds or other, they actually they limit their fund sizes sometimes to 75 million or 50 million or 150 million on purpose because they can drive way more alpha from that fund size.
00:35:25.039 --> 00:35:30.320
And what and then over time they grow and maybe get to one or two or three billion, but the return profile goes down.
00:35:30.400 --> 00:35:32.880
So there's actually a lot to be said about early managers.
00:35:33.039 --> 00:35:34.639
Now, again, do they do annual audits?
00:35:34.800 --> 00:35:35.760
Do they have a fund administrator?
00:35:35.840 --> 00:35:36.320
Are they a great team?
00:35:36.400 --> 00:35:37.280
Are there incentives aligned?
00:35:37.360 --> 00:35:39.360
All the stuff we talked about earlier need to still line up.
00:35:39.519 --> 00:35:49.679
But there's actually a lot of alpha to be had with emerging or young fund managers or new funds one, two, and three, because those are the funds that tend to pop off more than others.
00:35:49.920 --> 00:35:55.760
Yeah, I I saw that report too, and I I like how you explain that about the efficiencies of the market.
00:35:55.840 --> 00:36:00.960
And and because that's where if you're a fund trying to make money, you want something inefficient.
00:36:01.119 --> 00:36:06.480
You want an area of value that you can add that's gonna increase the assets that you bought.
00:36:06.639 --> 00:36:09.039
I know a lot of private equity firms that target that.
00:36:09.119 --> 00:36:16.079
There's been so much interest in the quote unquote lower middle market because they know they can't go buy companies 100 million plus in value.
00:36:16.239 --> 00:36:18.800
They know they're gonna compete with blue chip names.
00:36:18.960 --> 00:36:21.199
The companies are a little more institutionalized.
00:36:21.280 --> 00:36:26.800
And if you think about them going and buying smaller businesses, they know they can add more value to those.
00:36:26.960 --> 00:36:28.960
They can do buy and build strategies.
00:36:29.039 --> 00:36:30.559
There's so many things that they can do.
00:36:30.719 --> 00:36:35.679
And that they've seen a ton of success in that lower middle market and private equity.
00:36:35.840 --> 00:36:37.760
And I see the same thing with real estate.
00:36:38.000 --> 00:36:44.559
I know a lot of like commercial real estate um investors that are like, I invest over 2 million and below 10 million.
00:36:44.719 --> 00:36:52.079
That little bracket right there is the mom and pop can't buy the 2 million plus deal, and the institutions won't even look at the deal below 10 million.
00:36:52.159 --> 00:36:59.599
But right in that window is like a sweet spot for me to really, I've got less competition and I can find more value.
00:36:59.760 --> 00:37:05.280
So um, and that's where apparently these these emerging funds are uh are winning.
00:37:05.440 --> 00:37:08.400
So um, well, how do people learn more about you, Bridger?
00:37:08.559 --> 00:37:12.000
I know you've got events, you've got a pretty active social profile.
00:37:12.480 --> 00:37:13.760
How do people reach out to you?
00:37:13.920 --> 00:37:18.079
Or I'll just do this there's two free ways that people can just learn about funds.
00:37:18.239 --> 00:37:22.400
We we want to educate and help more people understand this game of investment funds.
00:37:22.480 --> 00:37:28.559
And so uh one of them, we actually built essentially a full masterclass on private investment funds, and it's completely free.
00:37:28.719 --> 00:37:31.760
So we filmed it just like masterclass the company did.
00:37:31.920 --> 00:37:35.280
Uh we branded Altstreet, ALT, and then ST.
00:37:35.360 --> 00:37:37.199
So altstreet.com.
00:37:37.360 --> 00:37:42.079
It has uh eight full masterclass courses on private funds with eight different investment fund managers.
00:37:42.159 --> 00:37:43.280
You can hear how they think.
00:37:43.360 --> 00:37:45.199
Uh, one of them is a former NASA engineer.
00:37:45.360 --> 00:37:48.639
He now runs a$2 billion quant fund to give you an example.
00:37:48.800 --> 00:37:50.639
And he does an eight-part video series on this.
00:37:50.800 --> 00:37:52.800
Anyways, AltStreet.com, completely free.
00:37:52.960 --> 00:37:56.239
We want to help more people understand funds, democratize Wall Street, etc.
00:37:56.480 --> 00:37:59.440
So, and then the second one is my YouTube again, completely free.
00:37:59.519 --> 00:38:01.199
Uh Bridger Pennington's my name.
00:38:01.280 --> 00:38:05.920
So look that up on on fun or on YouTube, uh BridgerPennington-fun launch.
00:38:06.079 --> 00:38:08.800
I've got hundreds of videos that just teach investment funds.
00:38:08.880 --> 00:38:14.480
I I really care deeply about people understanding what funds are, not being scammed by funds.
00:38:14.639 --> 00:38:17.920
They understand the terms, how it works, because funds are so beautiful.
00:38:18.079 --> 00:38:18.639
They're amazing.
00:38:18.719 --> 00:38:20.480
And I actually help people launch funds as well.
00:38:20.559 --> 00:38:21.920
So we teach everything for free.
00:38:22.159 --> 00:38:24.480
If you want help implementing it, that's where you pay our company.
00:38:24.639 --> 00:38:25.280
That's how we make money.
00:38:25.360 --> 00:38:27.440
We help implement this and help people launch funds.
00:38:27.519 --> 00:38:28.639
But bunch of free stuff.
00:38:31.679 --> 00:38:32.000
Awesome.
00:38:32.159 --> 00:38:33.760
Well, thanks, Bridger, so much for being on.
00:38:33.920 --> 00:38:35.440
Really appreciate all your insights.
00:38:35.519 --> 00:38:38.960
Thanks everyone for being on the Directed IRA podcast and tuning in today.
00:38:39.039 --> 00:38:40.000
We'll see you next time.
00:38:40.079 --> 00:38:41.280
Until then, stay calm.
00:38:41.519 --> 00:38:53.039
Self direct on the