I cannot stress enough just how important incentives are. When we look at an alternative asset opportunity, we always start there.
Who is paid what? Why?
Is there information asymmetry and could this be an adverse selection at play?
Is there a principal-agent problem at hand?
Who is paid what? Why?
Is there information asymmetry and could this be an adverse selection at play?
Is there a principal-agent problem at hand?
Where are we in the capital stack? Is there alignment of interest between us & other parties? What about a conflict of interest?
What’s the fee structure? Are there hidden fees?
“Everywhere there is a large commission, there is a high probability of a rip-off.” — Charlie Munger
What’s the fee structure? Are there hidden fees?
“Everywhere there is a large commission, there is a high probability of a rip-off.” — Charlie Munger
As an LP it has been very difficult for us to find the right partners.
Whether we are talking about one-off syndications, alternative funds, JVs or even contracting GC for construction work.
While you cannot blame them, most people seem to be self-centred & short-term oriented.
Whether we are talking about one-off syndications, alternative funds, JVs or even contracting GC for construction work.
While you cannot blame them, most people seem to be self-centred & short-term oriented.
Nevertheless, one shouldn’t be discouraged. Like minded people do exist but it takes a magnifying glass & patience.
E.g. our PE partners in the UK have a chance to do 10s of deals annually, but they choose to do 2-3 of the best ones their own significant skin in the game.
E.g. our PE partners in the UK have a chance to do 10s of deals annually, but they choose to do 2-3 of the best ones their own significant skin in the game.
Once you hear phrases like “fast growth of deals” or “targeting to double AUM” you should run away from such GPs, 9 times out of 10.
It’s very rare, if impossible, to provide quantity & alignment of interests at the same time.
AUM is a code word for maximum fee structure.
It’s very rare, if impossible, to provide quantity & alignment of interests at the same time.
AUM is a code word for maximum fee structure.
Once you do find the right partners exercise honesty, integrity & above standard business ethics.
Don’t forget how long it has taken you to find this rare partnership.
In one podcast Naval Ravikant suggested to play long-term games with long-term partners.
A win-win outcome!
Don’t forget how long it has taken you to find this rare partnership.
In one podcast Naval Ravikant suggested to play long-term games with long-term partners.
A win-win outcome!
One more e.g. we financed a law firm in the UK via a litigation finance structure.
They have no fees upfront & no fees throughout the litigation process. Zero fees!
If the legal process results in a win, the law firm is last in line when it comes to the cash flow waterfall.
They have no fees upfront & no fees throughout the litigation process. Zero fees!
If the legal process results in a win, the law firm is last in line when it comes to the cash flow waterfall.
That means a 3rd party funder (us) is paid principal + interest first, followed by the plaintiff & finally the law firm.
There is an enormous incentive for the law firm to perform & win cases, and a clear alignment of interest in regards to what benefits them benefits us too.
There is an enormous incentive for the law firm to perform & win cases, and a clear alignment of interest in regards to what benefits them benefits us too.
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