Navigating Asset Classes: Insights on Venture Capital, Private Equity, Real Estate, and More

In this session at our Family Office Club Panel Discussion with investors on the Preferences and Strategies of Ultra-Wealthy Private Investors, Ken shares his expertise on a variety of asset classes including venture capital, private equity, real estate, public stocks, bonds, and private credit. He delves into the current challenges in venture capital, the growing influence of secondary markets, and the crucial role of private equity firms in having a clear exit strategy. Ken also highlights emerging trends in private credit and real estate, offering valuable insights into what sets these asset classes apart. His advice on sourcing investment opportunities and understanding the differentiators of top-performing firms provides essential guidance for investors navigating today's complex landscape.

Transcript

- I've had a long career in corporate finance just so you know, really my experience
has been as a CFO of a number of companies, including Yahoo, Seable, Fournet, and
taking a view of companies public. I also ran the family office for Eric Schmidt
for five years until recently, I called Hillspire. So I thought I'd put a couple of
comments to think about various asset classes.
I'm going to break it up into venture capital, private equity, real estate,
public stocks, bonds, and private credit, and sort of growth equity in tech.
Let me talk the first one, which is the easiest one. I've been doing venture
capital since the late '90s. It's a very, very tough asset class. I was looking at
a couple of stats. The last year, the top 30 funds raised, 75 % of all capital and
venture. It is becoming more of a who's and who's not. Very little DPI,
distributed proceeds to investment. You know, that's been the case for the last
couple of years, maybe the case for this year. A lot of reasons for that, including
a tepid M &A market, a very, very tepid IPO market, almost no IPOs.
Last feels. Last couple years, the problem in the venture capital, and I don't
recommend it for people unless you really know this space really well, and you get
access to the very, very best funds. The trouble is the sort of adverse selection.
The best companies are not going public anymore. Think of Stripe, SpaceX, Canva,
Databricks, and so forth, and The insiders can continue selling in the private market
and don't have to go public. I got a good example as reading this today. Yesterday,
actually, CoreWeave. Everyone's excited about CoreWeave. I get one of my secondaries
interested telling me how excited he is. Market cap of 35 billion. The three top
folks took 500 million out as inside rounds. So you have to look at,
and by the way, they can sell up to 20 % on the first year. So the alignment of
interest and venture, for the most part, has changed because of the secondary market.
And so I am much more concerned about that asset class takes forever and ever.
On the opposite side, and tell me when my five minutes is over, opposite side,
private equity, I think, you Well, some people disagree with me, but I just listened
to Leonard Green, which they're based down here, LGP. I've listened to TPG recently,
and these guys are all putting together 20 % net IRRs doing 2X your money back.
Difference in private equity versus venture, they have a strong point of view of how
to get money back. How to get money back in five to seven years, even some some
money, three to five years. When they go into an investment, they think of the
extra strategy, which are the VCs. I think they go for the prey and spray, a spray
and primer, maybe a better way of saying it. So I think the private equity and the
major firms, I could have added Blackstone, a whole bunch of other firms that I'm
involved in, GenStar, they really have a point of view of how to get money back to
the LPs. They talk about a lot, I was in a call today with Leonard Green, and
three quarters of the call was related to getting distributions back. It's just a
whole different mindset in private equity. Private credit is an interesting area.
A lot of people in debt was going up. It went into that, I think, is still an
interesting area. But the problem with private credit is you do have to hold your
money from a liquidity point of view. And The last thing I'll just say is real
estate. I think it's challenging. I don't tend to do much real estate. I do it in
funds. The thing I heard actually yesterday and today a little bit is one of the
funds I'm in. They're doing well in multifamily so I think that's a pretty good
asset class. Office is actually okay in many regions, not so good in some of the
major cities and maybe given, I think five minutes, I'll stop there. We can take Q
&A a little later. - Thank you, Ken. And what are some type of investment
opportunities that this community can help you source today and what's a million
dollar insight that you've learned and all of this time that you've had in
investing? - Well, let me tell you what not to do.
I get probably 10, 15 emails a day and I hear this from other folks,
unsolicited. Here's my great deal. Everyone loves to talk about deals, deals, deals,
deals.
I think the most important thing is figure out how you're differentiated. Show me
instead of your IRR. Actually, I heard another firm call it NVPI, net value to
patent capital, which is net of carry, which I like as a term. But show me the
DPI, don't show me IRR and all the other, TVPI and MOIC, all these other terms,
everyone loves to talk about. Tell me how your firm has differentiated. Tell me how
you distributed cash back in the last few years. And tell me how you're going to
go forward and continue to do what I just said going forward. Thank you so much,
Ken.