E188: The CAZ Way: Alignment, Access & Asymmetric Upside

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Tell me about where CAS is today as a business.

(00:02):
We have kept to our roots of how we started asan investor of our own capital.
So this firm was founded back in 2001 to investon behalf of Christopher, who's the founder,
and a a select number of shareholding families,primarily here in the state of Texas, still
with a focus on what we wanna do with ourpersonal capital, but also bringing in other
investors, investment advisers, institutions,and the like.

(00:25):
And so today, we're about $10,000,000,000 or soin assets under management.
So you work with RIA channel.
So you have these 500 firms, and theirunderlying investors are investing into CAS
instruments.
We started primarily working with directinvestors themselves, high net worth
individuals, family offices, institutions.
And we still do.
We still have a lot of those investors.

(00:46):
But but more and more, the focus has shiftedfor the firm on cultivating strategic
partnerships in the investment advisorychannel.
We feel like we have an advantage there becausewe are those investors.
This is about what we want to do with ourpersonal capital.
We are high net worth individuals or actinglike them.
And so we feel like we understand thechallenges that they face.

(01:08):
We feel like we understand the opportunitiesthat lie in front of them.
And we feel like we're uniquely equipped tobring in a differentiated offering to them.
What keeps RIAs up at night today?
I think it's about differentiation.
And if you follow that logic through, it'sabout either growth or survival.
And you could look at it either direction whereyou could say, okay, as an investment advisor,

(01:31):
if you're not growing, you're dying.
And so I think a lot of those investmentadvisors are thinking hard about how do I
protect the relationships that I have?
How do I get more business from them as thosepies expand?
And how do I go out and acquire the new clientthat I've been working on that I've never been
able to get in front of, never been able todifferentiate myself for?

(01:51):
And so I think it ultimately comes down todifferentiation.
The reality is, for most investment advisers,the way that they differentiate are
relationships because most firms are investingin a lot of the same things.
I mean, everybody owns the Mag seven, right, inthat regard.
So you can't differentiate yourself saying Ican help you buy Tesla stock.
That's not the way it goes or Facebook orwhatnot.

(02:12):
But an area of differentiation would bealternatives and private markets.
And so I think a lot of investment advisors,particularly those that are focused on growth,
particularly those that are trying to go outand do something different than what they've
done in the past.
They are they are very focused on curatinginteresting opportunities in the private
markets for their clients.
How much of this is driven by the high networth, which is typically defined as 5,000,000

(02:36):
plus asking for this differentiated productversus kind of advisers pushing this product to
high net worth?
I I think it's definitely both directions.
It's never all one thing or another, so I'd putit on a spectrum.
They're very rarely because this isn't a directto consumer market.
Right?
I do think eventually we'll probably see, like,a black stone ad on the Super Bowl or something
like that, which would be kind of funny.

(02:57):
But we're not there yet.
So most individuals, an entrepreneur who sellstheir company, but they do come in and they
say, what do you got that's different?
What's something else that I can invest inother than, you know, the traditional markets,
which most people are familiar with?
They follow public companies, they followpublic stocks.
And so they're familiar there, but they're notfamiliar in the private markets.

(03:19):
And so they're not being ultra selective fromthe investor side of this thing.
This is what I want to invest in.
They're saying, I'm looking for somethingthat's different.
I'm looking for something that's unique.
What what can you offer me in that regard?
And then and then, again, going to going to theadviser side of the equation, from a top down
perspective, those advisers that are being verythoughtful around what they're curating for

(03:41):
their for their clients, those are the ones whogo out and find them search the market, find
those opportunities, and bring them proactivelyto their clients saying, hey.
We think this is something that fits in yourportfolio for these reasons.
That's when the relationship, I think, is mosthealthy.
The part that would concern me would be if ifI'm an investment adviser, and I assume because
my clients aren't asking me for this, thatthey're not asking someone else, and they don't

(04:05):
want it.
I I don't think that's the case.
I think I think typically speaking, you know,clients are always looking for unique and
differentiated investments.
They just wanna understand more about why theyshould do something different than what they've
done before.
And if they don't have a point of view, ifthey're at a cocktail party and then other
advisers telling them something and teachingthem about a new space, that's a way for them

(04:26):
to potentially lose their client.
Yeah.
Ultimately, it's about conviction.
Right?
For most clients, the investment advisor is theinvestment committee.
It it it is the the decision maker of what theywanna invest in.
And so clients are looking for advisors to cometo them with conviction.
And in order to have conviction, as I mentioneda moment ago, you have to do the work to really

(04:46):
understand what the market looks like, what theopportunity set is, why one versus another.
But conviction conviction is the is the part ofall that I think a lot of people are lacking
because they just don't know.
They don't they don't spend
their If only that's where all conviction camefrom.
You're in a very different financial ecosystem.
Yeah.
I wanna talk to you about the trend of theindependent advisers versus the wirehouses, the

(05:11):
JPMorgan, Goldman Sachs.
Yeah.
Tell me where that stands.
Are independent advisers still growingconsiderably faster, or are wire wirehouses
somehow coming up with new products in order tocounteract that and potentially even take back
market share?
Look.
This isn't a static market, and I think bothsides of this equation are gonna continue to

(05:31):
grow.
So I I think that there's always gonna be aplace there for private banks because they do a
good job in that regard.
Otherwise, people wouldn't hire them to do so.
That said, when you think about those thelargest, most sophisticated advisers,
particularly those that are focused on the nexttwenty years as opposed to the next maybe five
to ten, it's really a one way path for thosepeople from leaving wirehouses and going into

(05:56):
the independent channel and working forthemselves, or doing a partnership with some of
the staking firms out there or some of theplatforms that will help them set up their
business.
And I don't think that's gonna change becausethey wanna have control, and they wanna have
they wanna have independence.
They don't wanna be told what to do, where todo, and how to do it.
They wanna serve their clients.
Let's say I'm a high net worth individual.
Is there a certain use case where it's highlyrational for me to be with a wirehouse?

(06:20):
And is there something that the wirehouse areproviding that independent advisors simply
cannot provide?
I see it a lot where when people are hiringtheir first financial advisor, they end up
going with, you know, one of these largerinstitutions because they're brand names,
they're recognizable.
And it's not just your wirehouses, but also I Ithink of that, think of, you know, Merrill and

(06:43):
Goldman and Morgan and whatnot, but but there'salso your AmeriPrizes, your Lincoln Financials
and and and of the like.
I put all those together where you can havesimplicity.
I mean, you put yourself in their position.
If you've run a shipping company in yourhometown for the last thirty years and your
family sells it, and all of a sudden you comeinto money, and it's 10 to $20,000,000, and you

(07:03):
have no experience with this whatsoever, butyou understand that there's a level of
complexity around investing the money,borrowing money, getting mortgages, managing
trusts, all that sort of stuff.
You know, the the wirehouses and the privatebanks, they do a pretty good job of wrapping
their arms around that client and giving them asolution to all of those questions.

(07:25):
But especially if you're put in a situationwhere you don't have any experience with this
beforehand, I think that's a great mechanismstep into.
Now there's a lot of RIAs that we know that doa great job of that as well.
I don't mean to say that they don't.
But I think that there's a brand recognitionthat goes along with these big institutions
where when you have that first moment of aliquidity event, you're very protective of it.
You're gonna go more likely than not with abigger name.

(07:48):
And then as you go along, you might start torealize, hey.
It it might make more sense for us to do someaspect of our business with those banks, some
aspect of our business without them.
Kind of like a twist on the you don't get firedfor hiring IBM, except it's you're hiring
somebody for yourself.
So you can only do so poorly hiring a wellknown brand, so it's kind of like a safe

(08:09):
choice.
So when I asked wirehouses or independent IRAs,you said both are growing very fast and the
entire space is growing fast.
Alternatives is growing extremely fast.
What are the confluence of factors?
Maybe you could double click on why arealternatives growing so quickly.
I think it's a general awareness.
They've gone from being in the backgroundassociated with, frankly, like esoteric ideas

(08:36):
into, like I said, we'll probably have a SuperBowl commercial commercial here of one of these
big publicly traded companies.
Maybe Kaz will have one by Blackstone.
Who
knows?
So I think it's this movement from thebackground to the foreground.
And I think it's because the educationalprocess has really improved, first to the
financial advisor so that they understand a lotmore, and then from the financial advisor to

(09:00):
the clients themselves.
If somebody doesn't understand something,they're not gonna invest in it.
Right?
And historically speaking, the understandingand the knowledge base was concentrated in
institutional investors.
You're talking endowments and foundations andpension funds and insurance companies,
sovereign wealth funds, and then certainfinancial institutions.
Right?
I mean, all it's been around for a long timeand and private banks and investment advisory

(09:22):
firms, multifamily offices, and whatnot havebeen investing in them for a long time.
But we're talking about a proliferation at ascale that hasn't happened before.
But but it's really only just begun.
I mean, there's a lot of statistics about thisout there, so I'm not gonna try to claim one
specific number.
But most of the data that we've seen indicatessomewhere between three to 5% of global wealth
on the wealth channel is in alts.

(09:44):
That number is gonna go higher simply becauseit's easier for them to invest in it from a
regulatory standpoint, which is something wecan talk about today.
But more so the structures that are availablefor investors to be able to access have really
improved, to solve for some of the questionsthat investors have.
They're not perfect solutions, and then there'sthat educational process that's more robust.

(10:04):
The returns, that's the easy part, right,relatively speaking, because people look at
these returns that they see and they're like,man, I'm I can accomplish a much higher rate of
return by taking a private illiquid version oflargely the same type of an investment by just,
you know, going into the private markets.
There's the awareness, there's the pipes andrails, the different platforms.

(10:26):
There's also the regulatory aspect, which youbrought up.
What exactly from a regulatory aspect is makingit easier for high net worth, not non
accredited, but high net worth specifically toinvest into alternatives?
I think it's a general disposition by theadministration, and and the current
administration here in 2025 has been veryactive in this.

(10:47):
But I wanna give credit where credit's due.
There was an element of this that was startingbefore the current administration took over,
where there was an effort to start opening upthe aperture for more investors here in America
to be able to access private markets.
But it's really taken off in force, where nowit's a regulatory issue of like what

(11:09):
constraints and what rules are going to be putupon private fund managers, how to to run their
business, you know, which are good.
We we need rules.
We you know, freedom is not the absence ofrules, but it's the presence of the right rules
at the right place to allow for all parties toflourish.
So we're a big believer in freedom here.
So that's our that's our stance.

(11:29):
That said, unnecessary burdens around reportingand and what what you're asking people to do by
nature of investing in a private fund, you'reassuming that people are doing additional work
in order to invest into And so you you can'tyou can't require private fund managers to do
the same thing that public companies have todo.
Otherwise, you end up with the same type offriction, the same type of administrative

(11:54):
burden that public companies have.
And the reason why people don't go public isbecause they don't wanna deal with all of those
things.
One of the things I really like about CAS isthat you guys invest your funds and your
clients' money the same way.
And the way that you frame that is you'retrying to solve different types of problem.
What are the different types of problems thatyou're trying to solve today?

(12:15):
The first
I'll say is access.
And I don't mean access to some generalizedprivate equity fund.
I mean access to the best opportunities thatexist out there.
The way I describe it to folks is thatsomewhere in the world right now, somebody has
the best investment idea that's gonna generatethe best returns over the next three, five, ten

(12:38):
years, whatever timeline you wanna think about.
Somebody somewhere has it.
The objective is to be the first call that thatperson's going to make to finance that
opportunity because that means you're gonnagenerate the returns for yourself.
Right?
So there's a proverbial list.
Now it's not a real list.
It doesn't actually exist.
But there's a general list out there of ofsomebody says, okay.

(13:00):
If I am looking for capital in a given type ofan investment opportunity set, well, who am I
gonna call?
Well, generally speaking, you're gonna callsomeone that has the most amount of money.
Right?
Because you need, you might need a lot ofmoney, can move the quickest, not gonna, you
know, yank you around and put you on some longdiligence process for two years and then not do

(13:21):
anything.
And then finally, it's gonna be a good partnerto you along the way.
It's those three things, have a lot of money,move quickly, and be a good partner.
And the more of those three things you have,the more attractive a source of capital you
are.
And as CAS has grown larger and we've becomemore sophisticated and frankly learned some
things along the way, particularly in the lastten years, then then we've moved up that list.

(13:43):
And so our access to opportunities is as goodas anybody else out there, if not better.
And in certain circumstances, like GP stakesand maybe sports and and maybe a couple others,
we are the first call.
We are the we are the first people that getcalled with a given idea because they know CAS
has a lot of money in those areas, is verysophisticated.

(14:04):
We can be a good partner to them because weunderstand that space, And we can move quickly
because we don't need to go through some wholenew massive underwriting process around what's
a GP stake and why would a GP want to sell astake in their firm and, you know, how do we
exit and how do we get our money back, all thattype of stuff.
We've done all that work already.
So the first is access, but I don't just meanany access.
I mean access to the things that you reallywanna get access to, not just the things that

(14:26):
come find you.
That's a that could be a negative selectionbias type of a dynamic there.
So the first would be access.
The second would be around things likestructure, and that that that's an all
encompassing word as it relates todiversification, perhaps, liquidity, cash flow.
We've pioneered some leverage structures, whichare pretty interesting when you think about how

(14:46):
can we dial up or dial down exposure in a morecapital efficient way.
So those the structure is is part of it.
And then fees, right, and compensation.
Nobody likes to pay fees.
Nobody wants to pay fees.
We all wanna try to pay as low as fees aspossible.
The reality is it's hard to do that in privatemarkets because from a supply demand dynamic,

(15:06):
we talked about this a moment ago, but there'sa lot more demand for the best quality
investments.
So there's a lot more capital that's trying toget into them than they're looking to get.
And so the supply demand equation still largelyfavors the fund manager.
But when you can write a billion dollar check,you have a different type of a negotiating
ability.
And so we we take all that together and wepoint that apparatus at individual investment

(15:31):
themes that we're most convicted about forourselves, and then we bring in everybody else
with us.
You mentioned leverage.
You deploy leverage within some of your fundsand within your structure.
Give me a simple example of how you useleverage in order to improve returns.
Without getting into, like, some of the detailsthat are more proprietary and confidential,
we've got we've got a a variety of creditproviders that allow us to go out and use NAV

(15:57):
based loans is the way to think about them.
They're quite common in the industry.
But we can borrow money at relativelyattractive rates, even in a higher rate
environment like where we're at now, and investthose dollars on behalf of investors to to
either dial up the exposure in a more capitalefficient way or just generate higher returns,
higher cash flows, those sorts of things.
So let me throw out numbers because I don'tactually know these numbers, so they won't be

(16:20):
proprietary.
Let's say GP stake might be returning 30%, yourcost of capital is 10%.
Then if 50% of your money is levered, you'reessentially paying 10% and getting 30%, so
there's a spread there.
That's exactly right.
Math is a really easy thing to understand.
There's there's various considerations that gointo levering these investments, you have to be

(16:44):
very focused.
This is probably a good opportunity to insertwhat is one of our core maxims here at our
firm, which is we have to understand thedownside.
If we can get comfortable with the downside,then the upside will take care of itself.
And so in this situation, anytime you'reintroducing leverage into play, well, you're
increasing commensurately the risk profile ofthe investment.
And so how does that change the downside?

(17:05):
We feel like certain assets can accommodateleverage in a much more conservative fashion
than other assets can, right?
We're not alone in thinking that way.
Real estate pushes out sixty, seventy, 80%LTVs.
We don't go that high.
But if we can find a great asset that generatesregular cash flow that can support a debt
service with modest leverage levels, thinksomewhere between 050% LTV, then why wouldn't

(17:31):
we wanna do that?
Why at least, why wouldn't we wanna give theoption to investors to do that?
Again, so much of what we do as a business isputting ourselves in the seat of the investor
and say, what would we wanna do?
How would we wanna build our exposure here?
Of the frustrating things in private markets isthat the structures are fairly rigid.
The the the fund managers themselves, becauseit's complex, because it requires a lot of work

(17:56):
that they don't wanna do, they build astructure.
They say, this is the structure.
Here's our PPM.
Take it or leave it.
There's no tweaking it.
There's no altering it.
There's no different way to kind of move aroundinside of that structure.
You're kind of shoehorned in there, and that'swhere you're gonna live.
Being on the opposite side of this, it could beas simple as they don't wanna pay the fund

(18:16):
admin or the controller to basically take takeadvantage of leverage.
They wanna keep their costs low, so they'vedecided not to implement a lever.
People think there's these, like, verysophisticated strategies where sometimes it
just comes down to, don't wanna pay for this ormy half of my LPs don't value this, so I don't
wanna I don't wanna charge them for it orthey're not gonna invest my fund.
And our view is that might be the case.

(18:37):
Half of them might not want to, but half ofthem might.
So why not create a structure that allows thehalf that do, that value it to do so, and the
other half that don't, they don't have to, andyou give them the option.
That's that's the kind of the the controllingidea there is it's about flexibility.
And the reason why advisors like working withus at CAS is we give them more flexibility than

(18:58):
they're gonna get anywhere else.
And private equity style vehicles are famousfor these drawdown style commitments where you
commit over three years.
Are you able to line up the NAV loans with thedrawdowns or are you is there significant drag
on those?
This is where art and science come together.
Right?
Because managing a portfolio of privateinvestments, there's a simple way to do it, and

(19:22):
then there's the right way to do it.
The simple way to do it is to say, I'm going tocommit to the next fund when I get a dollar
back from the fund that I'm already in.
Right?
That's how that's how some people do it whenthey when they just wanna check a box and kinda
take the easy way out.
At the portfolio level, that that's their ideaof reinvestment.
Well, anybody who's actually modeled this stuffout will know that you're gonna have a

(19:44):
significant cash drag if that's the case.
You have to pace these commitments out, and youhave to do some modeling in order to understand
timing of and magnitude of cash flows from thedistribution side and the reinvestment side.
And so that's really the service that we do fora lot of our investors in the form of some of
our evergreen funds is we do all that modeling,and it is extensive.
And it takes a lot of people, and it takes alot of time, and and takes a lot of focus in

(20:08):
order to manage those models.
But done done properly, you allow your capitalto truly compound in a compounded annual growth
rate and not just an IRR.
An IRR and a CAGR, they're not the same thing.
They're not at all the same thing.
Not just us, but other firms are understandingthis and saying, okay, if we can package this
thing in a vehicle together, that instead ofgenerating a 20 IRR generates a 16 CAGR, but

(20:31):
you get the money deployed today, five yearslater, if you compound at 16% for five years
versus having an IRR, that's 20%, but yourweighted average time deployed is might be
three years.
Well, might be better than the other.
Oftentimes, the IRR could be a vanity metric,which you could actually eat the keg or you
actually get that return versus IRR could begained.

(20:54):
Yeah.
And and our view here is, again, it's aboutflexibility.
When we invest some of many of the investmentswe make, we we give investors an option to do
so via an evergreen structure, but also atraditional drawdown structure.
Because some people value the attributes of theevergreen fund, but some people prefer a closed
end drawdown vehicle.

(21:14):
And we're not here to tell you how to manageyour clients' money.
What we're here to do is give you options thatyou don't have otherwise to access these
opportunities in a way for your clients that'smost suitable for them individually, not just
what's the most convenient thing for CAS.
Let's say somebody wants to get into yourevergreen fund.
They basically commit, then they could getliquidity over 20 quarters, or how does that

(21:38):
work?
There's been a lot of press about evergreenfunds and tender funds and interval funds and
the notable issues that have happened with someof the other vehicles out there.
I think the first thing I'll say here isinvestors have to really understand how these
liquidity structures work.
They're not there to be a perfect liquiditymechanism.
That doesn't exist.
If it were, you would immediately start to losesome of that illiquidity premium that we think

(22:02):
that we're getting.
Okay?
So that's a really important concept to startwith.
From there, understanding how much of the fundcan come out on which period and planning for
that.
And in the case of our vehicles, we're nottrying to over promise anything.
We're trying to give investors an off ramp in anormalized market environment that allows them

(22:23):
to have liquidity.
And we're not trying to say, hey, you call meanytime you want and you get your money out.
It doesn't work that way, unfortunately, atleast not yet.
What we're trying to do is help investors solvefor the normalized environment.
Because it's important to note that doesn'texist otherwise.
If you invest in a traditional drawdown fund ina normalized environment, you don't get to call

(22:44):
the GP and say, send me my money.
They'd say, no, thank you.
But that's not how this works.
Right?
We're going to sell the assets and maximizevalue, because we're not going to jeopardize
everybody else because you need your money out.
So these innovations are just that they'reinnovations, they're improvements, but they're
not they're not meant to be an allencompassing, you know, resolution of the

(23:04):
liquidity question.
One of the crazy things about evergreen fundsis a lot of people think it's just a high net
worth product, but in some cases, have pensionfunds investing into evergreen funds because
they don't want their cash to have drags.
So typically, private equity calls about twothirds of their capital, which means a third of
it is basically just sitting in cash.

(23:25):
So significantly, it could draw down yourreturns even at high interest rate environments
where with an evergreen structure, you get todeploy your money from day one.
I I think that's a really interestingobservation, David, because in taking it even a
step further than that, pension funds andinstitutional investors have been investing in
evergreen funds for decades, decades anddecades and decades.

(23:48):
They've just been doing it in the publicmarkets, not in the private markets.
Because in large part, these evergreensolutions were not there in the private
markets.
But some of our largest and most convictedinvestors in our in some of our evergreen
vehicles, convicted in the sense of they haveconviction and why they own it and how they own
it, are institutions in our evergreen funds,because they recognize the difference between a

(24:13):
CAGR and an IRR, right?
And they want to see that grow.
And especially when you think about some of theother widgets, as we call them, or structural
advantages that we bring to play with some ofthe things we've talked about.
So why would somebody ever invest in a drawdownfund if these advantages exist in a evergreen
fund?
Let's start with a defined pool of capital.
When you invest in a drawdown fund, you areinvesting at a given point in time in a given

(24:36):
asset class with a given manager that's gonnaown a given set of assets.
And that's not going to change, right, barringsome type of big GP removal clause or some
anomalous event.
In large part, you have a very defined pool ofcapital where you know who your partners are,
you know who the manager is, you know who theteam is at selecting those investments.
And sometimes you can even get a good look atthe portfolio before you invest where you know

(24:58):
what those are gonna be on the front end.
But more importantly, you don't have to worryabout what's this GP gonna go buy five, six,
seven, eight years from now, like you mighthave to underwrite as part of an evergreen
model.
Now the trade off there is if you don't like aninvestment that a GP makes in an evergreen
fund, you just pull your money out, right?
So you can solve for that.
But that's why people like drawdown funds isyou have a defined pool of capital that you've

(25:21):
underwritten that risk at that point in time,and then you can set it aside.
You have to come back to it from a monitoringstandpoint, but there's not an ongoing
management of, okay, what is the GP buying?
How are they buying it?
Are the returns being good?
At that point, it's done.
So it's simple.
It really is simple in that regard.
I don't mean to say it's easy, but it's asimpler sort of underwrite.

(25:41):
There's also the dynamic around with somedrawdown funds.
You you might, as I mentioned, you can, youhave visibility to the portfolio, Maybe it's
performing well, maybe you can still come in atcost down the road before a fund final closes
and get a little bit of an arbitrage.
But that's it's largely about specificity ofstrategy.
They they they're they're not they're lookingfor a more targeted bet as opposed to give me

(26:04):
an allocation.
That's why you see a lot of evergreen funds,historically speaking, have been in public
markets.
They're like, look.
You're gonna be my large cap value manager.
You're gonna be my large cap growth manager.
I'm gonna let you tell decide how you wannabuild the portfolio.
I'm not gonna I'm not saying I like 20% FAANGand 80% everything else.
You know, it's a more specific bet on thedrawdown funds.

(26:27):
With the Evergreen Fund, I think one of thethings that people need to really wrap their
heads around is that it's marked by the fundevery quarter.
So there's basically a new mark.
Is there ever incentive for the fund manager toundervalue the assets?
In other words, if I'm cashing out in yearfive, is there a chance that I'm cashing out in

(26:49):
a deflated price?
You're talking to a skeptic here.
And so especially when it comes to thefinancial services world.
So I I think that this is something you have toreally understand with an evergreen fund is the
really is the valuation policy.
That's what we're talking about here.
How is the fund going to be valued?
What are the inputs?

(27:10):
How do you go into the fund?
How do you come out of the fund?
Are they similar?
Are they different?
Etcetera, etcetera.
I personally think that if someone's going tobe a bad actor in this regard and undermark the
portfolio and somehow or over market for thatmatter, right?
Because there's incentives that could be inplace for a GP to overmark their portfolio.
To get their carry quicker.

(27:31):
To get their carry order or typically the fees,right, will go up as as the value of the fund
changes on an evergreen vehicle.
So the the better the performance on paper ofthe fund, the higher the management fees might
be.
So there's there's there's always conflicts ofinterest, And it's not about does one have a
conflict of interest and the other one doesn't.
It's understanding what those conflicts ofinterest are and figuring out which ones are
you more comfortable with.
Right?

(27:51):
Again, that's why people invest in drawdownfunds or tradition or evergreen structures is
because they might be more comfortable with theconflicts of interest in one versus the other.
The conflict of interest on the on thetraditional drawdown side is, well, a GP gets
to control when the fund exits, right, and whenthey sell the assets.
And so they might have an adverse, you know,interest in extending a fund and keeping it

(28:14):
going because, A, it gives them more time maybeto rescue assets and generate carry for
themselves, and the LPs want to be done.
B, they get to extend, you know, the managementfee income off of it.
The conflicts of interest are frankly, they'rethey're everywhere.
Right?
It's it's about understanding what they are ineach bucket and figuring out which one are you
most comfortable with, which are you not, andchoosing accordingly.

(28:38):
Why would a GP want to want to undermark?
If they had some let's say they had some wiggleroom in their valuation policy, why would you
want to under
Generally speaking, GPs are pretty conservativewhen it comes to marking their their their
assets.
And they're conservative because the one thingthey don't wanna do is they don't wanna mark
something up and then sell it below that markafter the fact.

(28:58):
That's just a that's a bad look to LPs.
That that that and and look.
We've seen it happen, right?
We've seen it, and the way it kind of comes upis a GP is they raise their first fund, they
deploy it, it's successful.
They raise their second fund, they deploy it,and you're not really sure how it's going.
And you see marks on paper, but maybe there'snot a lot of cash coming out of it for various

(29:22):
reasons.
And they go back to market with their thirdfund, and they're marketing their third fund.
Well, what they don't want to do is mark down abunch of stuff in the second fund if that's
going to impact their ability to raise theirthird fund.
So that would be the conflict of interestthere.
And it exists, right?
And then lo and behold, they have their closeof their third fund, and a quarter or two after

(29:42):
that close, what happens?
The assets in fund two get marked down andeveryone's like, well, wait a minute, what
happened here?
Right?
So that would be like an incentive that a GPwould have to over market.
To under market, my thought would be if they,is particularly if it's an evergreen fund, if
you're trying to go out and raise new moneyinto that vehicle and bring in new capital and

(30:08):
attract that capital, If you are able to showthem how like, hey, there's unlocked, I mean,
there's value here that hasn't been unlockedyet, and we're holding it at this value, and
we'll hold it there.
And then after you come in, we think a yearfrom now, it's gonna go up.
That feels like that would be the conflict ofinterest there.
I don't really worry as much about that one,and I don't really worry as much about either

(30:30):
of these, frankly, when it comes to evergreenfunds.
It's not to say that we don't worry about them.
But from a conflict of interest standpoint,ultimately, if a GP chooses to play these
games, that's gonna come out in the long run,and that's that's kind of a golden goose killer
as we call it here.
Right?
That's a reputational compliance
That's why I wanted to actually double clickon, which is essentially these are I would

(30:52):
frame it not necessarily as a conflict ofinterest.
I would say it's short term versus long termconflicts.
Yes, So something that may make you look alittle bit worse in the short term and, you
know, neutral or good in the long term.
It's kind of like a legal agreement, there's aninfinite amount of ways to screw someone in a
legal agreement.

(31:13):
It's theoretically infinite, so you can'tlegalese over an untrusted party or it's
extremely difficult.
People try to do this all the time.
Bring that analogy to conflicts of interest isyou need to look at the best predictor of
whether someone's likely to act in the shortterm versus long term is how they have acted in
their career.

(31:33):
The behavior would likely be consistent, allthings being equal.
That's also where reference checking can bereally helpful, of talking to other LPs in the
fund and understanding like, what's yourexperience been?
How have they handled issues that come up?
Because issues always come up.
I mean, this is not a static business thatwe're in.
It's a challenging business.
Things change, things go differently.
You know, a set of assumptions you had aboutthe way a situation would emerge and be handled

(31:59):
have to change because the circumstances thatcause it to emerge were different, right?
And the key there is transparency, integrity,acting in the interest of your LPs.
Somebody asked me one time, how do you developtrust with someone?
And my initial response was time andexperience.
Right?
The more time you spend with someone and theexperience you have with them will help develop

(32:21):
trust.
I think that's true.
This person's response back to me was, yes.
Alignment of interest, though.
If you align your interest with somebody elseand you're truly aligned, then trust is very
easy because you're not really trusting them todo anything other than act in their best
interest, and they will carry you with them.
Right?
So it's understanding, are you truly aligned?

(32:43):
And in that regard for us, I mean, we are, as afirm, the largest investor in our vehicles.
We've got more money invested in our funds thananybody else does, right, any other individual
investor.
I think it's about 700,000,000 of our totalcapital is internal money, shareholder money,
partners, team members.

(33:04):
I mean, we and and that's not just like thepeople at the firm who make a lot of money or
or who are the higher wage earners.
I'm talking about analysts and associates whowanna put a few thousand dollars into an idea.
We love it.
We welcome them into it.
We want them to do it because it helps createthat alignment all the way through the
organization.
It's very different when an investment personwho has money invested in that fund, a junior

(33:26):
level person, not just a carried interest, butactual risk capital in the fund who's invested.
When they come to you with an idea, it's theirskin in the game.
And that's very important for everybody to knowabout our firm is that we lead with alignment
of interest.
We what what we're doing with these funds isabout our personal capital, and people can know

(33:46):
and rest assured that when we make a decision,we're making a decision on behalf of everybody,
not just what's in the best interest for theGP.
Because we are investors in our funds as LPs.
Like, we we do do that's our our investmentmechanism for us individually as LP investors
in the funds.
I've always been a big believer in in lettingjunior people invest in a lot of firms.

(34:07):
I don't know why or I I have an idea, but theytry to gate this as some kind of, like, thing
that you get when you become a partner.
But that alignment that you get from havingreal skin in game to your point, we are
evolutionarily wired to be much more sensitiveabout losing money than about the potential to
make money.
So having people have actual dollars at play isextremely powerful.

(34:27):
Yeah.
I I had a conversation with one of ourassociates about a year ago.
He was about a year into the firm, and he waslooking at buying a house.
And he's like, Mark, well, they bought thehouse, and they were gonna do a a an
improvement to the house.
Right?
Put some money in, redo the kitchens orsomething like that.
And, he said, Mark, I can put this money intomy house, or I can put it into in a particular

(34:49):
fund.
He's like, which one should I do?
I'm like, I love this conversation.
This is great.
Right?
Guy's 26 years old, and he wants to have thisconversation.
And and and it it wasn't a huge sum of money,but it was huge to him.
Right?
I mean, when I joined CAS ten years ago as a asan associate at a business school, I can
remember signing that sub doc for the firsttime and and committing to that first GP stake

(35:10):
vehicle that we ever did and thinking tomyself, man, I hope this goes well because this
is a new idea.
It almost enforces a greater standard.
It's the equivalent when I invest my own money,I don't think about it as much when I invest my
parents' money or my friends' because money ismoney, but if you you don't wanna lose a
friendship or you don't wanna hurt yourparents.

(35:32):
So junior people somewhere in the middle, maybenot not like your parents or your close
friends, but you certainly seem to if you'renot a terrible person, you seem to value it
more than your own money.
We we really look at it as a as a collectivegroup.
Right?
I mean, we we it's just what we're trying toaccomplish here is bring people together to

(35:52):
accomplish what they couldn't otherwise do ontheir own.
That's the premise of CAS, ultimately.
It's it's each of us individually.
Some people have extensive resources, financialresources, extensive relationships, extensive
access, extensive knowledge, all that.
Right?
They have it in spades, but they don't have allof it.
Right?
And they certainly don't have as much as andand what could be accomplished if they team

(36:15):
together with another person similarly.
Well, how much more so is that true when youcould bring together I think we have over 7,000
investors in all 50 states and 36 countriesaround the world, maybe more now at this point.
And so when you can harness that ecosystem Imean, we're talking about institutionalized,
like, cat herding is largely what I feel likewe do here sometimes.

(36:35):
But when you can do it and you can harness thatecosystem, that's a very powerful ecosystem
because it's not it's not an ecosystem that isnot operating with a focused manner.
It's very focused.
It's very organized.
What are some practical benefits that you getfrom having 7,000 stakeholders in gas?
There's a few.
Right?
For the sake of the business, we have a verydiversified LP base.

(36:56):
Right?
So we're not contingent upon any one investorbacking us to do any one thing because, you
know, nobody makes up any kind of a largepercentage basis.
Now we have some corporate relationships thatare bigger than others where we certainly value
those and we would be very sad to see them go.
Thankfully, I think they're pretty happy atthis point.
But a diversified LP base is very helpful.

(37:19):
Nobody does everything that we do, but somebodydoes something, and that's valuable.
Inside of that ecosystem, are some very, verysmart investors and business people that we can
lean on.
So we have some partners, many partners who aresome of the most successful investors that
exist out there, right?
And having them in our ecosystem, having themas investors in our funds, gives us access to

(37:45):
information, access to resources that we mightnot otherwise have, because they have a vested
interest in what we're doing here.
And it's very powerful in that regard.
So when we're looking at an energy investment,we can pick up the phone and call the founders
of the most one of the most, if not the mostsuccessful energy private equity firm that's
ever existed right here in Houston.
Well, that that's a very nice phone call to beable to make in addition to investing with

(38:07):
them, but maybe we're looking at somethingoutside of our relationship with them, and
they're happy to help us with Same thing intechnology, same thing in healthcare, same
thing in real estate.
So that resource base is quite large, and it'sgrowing.
It's also helpful to touch that many parts ofthe market because you get feedback from them
and understanding what are they focused on,what are their primarily, what are their

(38:27):
challenges, what are they trying to solve for,both with your own business and your
relationship with them, but outside of it.
That's helped us in and really in us inform alot of the the new vehicles that we've launched
and the new structures that we put together hascome from direct feedback from those investors
around how do you do this?
How do you do that?
Help me with this issue.
Help me with that issue.

(38:47):
It's funny because I wanted to ask you abouthow do you actually get real references?
It seems like calling references is such aconflicted process.
Obviously, you do off list references, but eventhere, it seems like people are so reluctant to
give good feedback.
Is that your hack on getting good references,calling your partners?
And absent of that, if somebody's not apartner, how do you get to the essence of a

(39:12):
real honest reference?
Are you asking in the context of us looking atinvesting in something or talking about
somebody investing with cash?
Oh, it's actually because it's it's essentiallythe same thing from different angles.
Yeah.
So when we're looking at making an investment,this is something that we we have really
ratcheted up in the last probably six to twelvemonths at CAS is institutionalizing this

(39:33):
partner base and understanding where to go foradditional information.
The world's a small place.
It's far smaller than any of us probablyrealize.
We you're you're never really more than one totwo phone calls away in the in the private
markets world from from getting pretty goodinformation.
We use it hiring decisions.
We use it for investing decisions.

(39:54):
Let me let me give you an example.
So we'll talk about energy for a moment.
We invest a lot in energy.
We we have a number of different relationshipsthat we deploy capital with in the energy
sector.
We brought an idea to investment committee, andthat this happens to be my my kind of one of my
primary areas of focus.
So I'm I'm sort of the lead analyst in thatregard.

(40:15):
And we're talking about the deal, and we'retalking about the specifics of it.
And and Christopher, who's the founder of thefirm, looked at me and he said, Mark, have you
called such and such out in Midland about this?
And and and I thought to myself, well, no.
I actually hadn't done that.
And he said, well, why wouldn't you?
Like, Midland is the center of the oil and gasuniverse.

(40:36):
Universe.
Right?
That is like if if you think you have a greatoil and gas deal and and it's in it's in the
Permian Basin, it doesn't get out of thepetroleum club of Midland.
I can promise you that.
Wolf Camp Grill.
Right?
I go out there once a month.
We have a lot of great relationships inMidland.
And because of that, I can pick up the phoneand call one of the most successful family

(40:56):
office entrepreneurs in all of the oil and gasbusiness and say, hey, guys, we're looking at
this.
Do you wanna invest with us?
But help me with the diligence here.
What your you guys they've they've forgottenmore about energy investing than we ever will.
Now the people who are bringing us that deal,they don't know that we have that relationship.
They don't know that we know those people.
They don't know that we can make those phonecalls.

(41:17):
But that's a big part of this whole ecosystemand the power of the ecosystem as we describe
it, is having these resources that are onephone call away, who are investors with CAS,
who have an interested party affiliation withour business, who are gonna help us make the
best decision possible.
It's very, very powerful.
We'll get right back to interview.

(41:37):
But first, we're looking for the next greatguest.
If you or someone you know is a capitalallocator and would make for a great guest,
please reach out to me directly atdavid@whispercapital.com.
Just to double click on that, there's twoaspects to that.
One is they're already aligned with you, sothey have a high incentive to tell you the
truth and to give you real reference, realinformation.
The second one is you're essentially forcingthem to align with you in a nice way with a

(42:01):
carrot saying you can invest potentially, youknow, without fees or some favorable economics,
and if they're not investing, that itself isthe feedback.
The lack of investment is the feedback, is thereference.
Yeah.
It's an interesting dynamic, but in in thisfamily office in particular, they have invested

(42:22):
in our energy vehicle.
So I am calling them as the not as the the theperson who manages the relationship, who has
them invest in CAS funds, but as the analyst,the lead analyst on the investment that they're
an investor in.
And I tell them that.
I say such and such, I'm calling because I havethis opportunity.
We're looking at it.

(42:42):
I want your feedback.
I don't need to remind them that they're aninvestor in that fund.
They know that.
Right?
They have not forgotten that.
And so immediately, they're thinking about thisfrom the standpoint of, okay, if CAS makes this
investment, we are making this investment,right, by default.
And so the trick is you want to bring peopleinto your ecosystem.

(43:05):
You have to attract them in a way so that theythey actually have a vested interest, and
there's a number of ways that you can do that.
But then once they have that, you have toengage with them, and you have to talk to them.
And and that's what I love about our businessmodel is that it's never a one way street.
Some of our very best ideas that we haveinvested in, period, have come from our

(43:27):
partners, our our our limited partners in thatregard, the investors in our funds.
And we love that.
Right?
Nobody has a monopoly on great ideas.
We're happy to hear that feedback.
Now a lot of times we get shown something andit's just not a fit.
And so we have to say no quickly.
But sometimes sometimes it's a great idea.
And we ended up deploying as we have.
Sports is a perfect example of that, investingin professional sports franchises.

(43:49):
That came about from another family office inanother market who alerted us to it, and this
was six years ago.
You know, we'll we'll put to work a billiondollars by the end of this year in those last
six years in professional sports franchises.
That was a pretty good phone call to get inhindsight.
You guys have matured roughly 10,000,000,000 inassets.
And the what makes you successful going fromzero to a billion or one to 10,000,000,000

(44:13):
evolves, and that once you're already10,000,000,000, once you mentioned you're the
first call on interesting opportunities, yourjob almost evolves from finding the next best
opportunity to knowing which ones to say no to,so by default, could find the next best
opportunity.
In other words, it's more about shot selectionbecause all the insight kind of comes to you in
some form.

(44:33):
I understand the question.
One of my great fears is is complacency, isthat organizational complacency sets in.
And because because we are an attractive sourceof capital and because so many opportunities
come to us that you just sit back and you letthem as opposed to pursuing them and running
them down.
I really enjoy our business model where we canmake investments as small as 3 to $5,000,000,

(44:57):
and we do that with a high degree of regularityand as large as a billion.
There are very, very few number of institutionson this planet that will operate across that
entire spectrum.
There's just not a lot.
Those who can put a billion dollars to worktypically are not writing a check for less than
50 to a 100,000,000.
Those that are writing a $5,000,000 check, veryfew of them can scale to a billion dollars.

(45:18):
So that flexibility is very important to us.
But inherently, it creates a challenge, whichis if somebody shows you a really awesome
$5,000,000 investment, my insides, like, Iwould cringe if I said, oh, that's too small
for us.
Well, if it's a great investment, let's makeit.
Let's do it.
Right?
Why wouldn't we?

(45:38):
And so so the trick is, okay, how do we how dowe build a machine that can process the deal
flow, as you mentioned to, to understand whatdo we need to say no to quickly so we can spend
more time on it?
We have I think we've built that machine prettywell.
We look at somewhere between 1,502,000different investments in a given year, and very
few of those actually make it through to deepdive diligence, as we call it.

(46:02):
And then from there, it's how do we stillmaintain bandwidth, mental headspace to go
after the things that are not coming to us, butthat we're still thinking about because of
things we receive, because of this information?
Sometimes it's not the thing that's shown toyou, but it's something similar to it in a
tangential space that you need to go run after.

(46:23):
We we do quite a bit of that as well.
But it's it's attention.
Right?
It's very much attention, and and it's it'ssomething that we have to manage and be
thoughtful about on a daily basis.
One institutional investor, roughly a100,000,000,000, off the record told me that
the way that they look at the sizing ofinvestments is by relationship size.
So if you could get a $5,000,000 investment andyou know that the next deal might be 50 and the

(46:47):
next one is a 100, that's much more scalablethan doing a $20,000,000 investment once, and
it's a one off, and it's not within theircircle of competence, so it's unlikely to to
scale anymore.
Once we have a track record going with aninvestor, I I give you a live example.
One of the energy private equity firms that wetalked about, you know, we've invested hundreds

(47:09):
of millions of dollars with.
We've got a twenty year history with them.
We've done we've done a number of thingstogether.
We we are we're very close with them in kind ofevery way that you could think about being
close, you know, personally and professionally.
They had a really unique asset that was comingup in a fund that was at its end of life.

(47:30):
That was a great asset that they didn't want tosell.
And they basically had to figure out asolution.
We had a very limited amount of time to do thework to understand it and to and to invest.
And we ended up writing a $25,000,000 checkinto that relatively quickly.
Why?
Because of that relationship, as you talkedabout.
If somebody else that we didn't have thatrelationship would have brought us the same

(47:52):
thing under the same timeline, we probablywouldn't have gotten there, right, just because
of that relationship's not there.
The fun part about it all is as you build thattrust through time and experience with
alignment of interest, you can build a reallyinteresting partnership.
And that's really how we focus as a firm is wethink about having strategic partners in given

(48:14):
sectors of the investing landscape, that whenwe're doing something, we're probably gonna do
it with them because we think they're the bestat it and because we think that we have the
most scalable, you know, path forward into intosomething more than just a one off type of a
deal.
I would actually argue that you did much morediligence than the average person in that case,
and I'll explain why.

(48:35):
I think investing, especially in a domain thatyou may not be an expert in.
So let's say the best oil and gas investorcomes to me on the planet.
My own diligence in that asset class willbasically have zero value, especially if you
consider game theory and people pitching me,like, generalist knowledge that most people
would agree with, but that would be differentoil and gas.

(48:56):
What I'm looking for is what we've been talkingabout, which is how much money, how much
alignment, and what's their track record.
If they have done a 100 oil and gas deals,they're top decile, and they're putting in a
large GP commit, I would argue, at least withmy own money, I don't need to do a lot of my
own diligence.
If anything, my own diligence in the space thatI don't know about might actually be detracted

(49:18):
from the process.
It may actually come to the wrong realizationin both directions.
I might become excited about something that'sterrible, and I might think that's something
that's really good is actually not good.
You're you're touching on a subject that I Ithink is an interesting philosophical, like,
question, which is how much humility are yougonna bring into the investing world?

(49:38):
Most people don't bring a lot.
Most people think they're the smartest person.
They think they know better than everybodyelse.
And I don't think that way, personally.
I don't think I'm stupid.
But I think if you're not gonna bring a measureof humility to a conversation about investing,
you're gonna end up in some very deep watervery quickly.
And unless you get very lucky, you're gonna getyour face ripped off.

(50:01):
And a lot of this comes back to what are youmore worried about in the investing landscape?
And for us, it's, as I mentioned, the downside.
But in that scenario, if if this trustedpartner, to you said, is bringing us this
opportunity, if they are investingsubstantially in it personally, well, then what

(50:21):
would I have to see?
A of this goes back to to touch on anothertopic of, like, the whole co investing model.
Right?
And how do people think about co investments?
Well, we do a we do a lot of co investing.
I mean, a lot of co investing.
We we tell every strategic partner, as Imentioned, if we're gonna get into a
relationship with a fund manager, we're say,we're gonna invest in your fund.
We're gonna be a material investor in yourfund.

(50:43):
Maybe we'll even be your biggest LP in thefund.
But we but but we really won't do that unlessyou are gonna bring us consistent co investment
opportunity set.
And there'll and and a lot of LPs talk aboutwanting to co invest, and they don't ever
really do in a big way.
We do it in a very big way.
And sometimes, especially when we're goingthrough a diligence process with a prospective

(51:03):
investor with CAS, they'll say, like, how doyou guys think about the coinvestments?
Do you do every one that that sponsor showsyou?
And my answer is, well, we don't have to.
We're not obligated to do so.
However, if I've underwritten this fundmanager, if I'm if I approach that relationship
with a measure of humility as we've just talkedabout, which is that person actually knows

(51:25):
better than I do, Unless we see something inthe underwriting of an individual transaction
that is a massive red flag to us from acompliance standpoint, a regulatory standpoint,
just whatever.
Well, what do we know if they're putting thatasset in the fund where they have an incentive
and they have a carried interest, which is thatalignment of interest we talked about?

(51:45):
What am I gonna know to say that I'm better atunderwriting that asset than they are?
If I can buy the same thing at no fee, nocarry, well, why wouldn't I do that?
Right?
Help me understand that.
And, like, well, you increase risk.
Do I?
Am I actually increasing risk by making theinvestment, or I'm actually increasing risk by
not doing it?
Because now I'm saying that, like, all of asudden, I don't trust that fund manager
anymore.

(52:06):
That's the that's actually a bit of thedisposition that you're taking in that regard.
So I think you're right.
Like, I think it's about from a diligenceprocess, I think a lot of allocators of capital
get ahead of themselves because they don't havethe humility to say, hey.
I I'm really I'm I'm really actually trying tooutsource this.
My job is to I'm I'm reminded of that, the themovie, the biopic about Steve Jobs.

(52:30):
I think it was Michael Fassbender who playedSteve Jobs, that one, where, he was he was
talking to Waz before the launch of one of theproducts.
I can't remember which one it was.
And Woz is kind of complaining to him aboutwhy, why isn't Woz more featured?
Why doesn't he have a bigger, bigger positionin the company?
And Jobs looks at him, and he points down atthe chair right in front of me.
He goes he says, that's your chair.

(52:51):
That's the chair of the first violinist.
Right?
You are the best violinist in the world.
You're the best at what you do.
He's like, but I play the orchestra.
Well, being an allocator of capital capital,you are playing the orchestra.
If you think you're gonna step into that firstchair violinist role and be a better violinist,
then go be a violinist, but you're not aconductor at that point.
Right?
And and our model is as a conductor.

(53:13):
We wanna we wanna play the orchestra.
We're not trying to put ourselves in the seatof anybody in particular.
And one of the interesting things I foundacross asset classes is that the top decile
investors are not just doing the same thingsbetter than the median or the top quartile.
A lot of times they're operating under adifferent paradigm.
A lot of times they're seeing trends early andthey're truly thinking from first principles.

(53:37):
So you have basically industry standard bestpractices on one side, which is like just being
diligent, checking all the boxes.
And then you have first principles, which isoftentimes is just a different paradigm.
There are no top decile investors across manydifferent domains.
The same individuals do not understand multipledomains to top decile.
Part of that top decile is that ten thousandhour rule.

(53:58):
It's spending the ten thousand hour in yourasset class, maybe twenty, thirty thousand
hours, whatever it is, and going deep in orderto understand the paradigm and the new
paradigm.
So for a generalist investor to be interestedin investing, that alpha is almost not there
because that's just a kind of existingparadigm.
And many would argue this is only a ventureparadigm, but it's also anything where there's

(54:20):
a new way of investing that's better.
That's where you get a lot of the returns.
So I would argue that is the definition ofalpha, which is what do the top managers see
that the average or even top quartile do notsee, and backing behind those managers makes a
lot of sense, even if it's not intuitive toyou.
Yeah.
I think that's an interesting way to thinkabout seeing operating under a different

(54:41):
paradigm where you're you're just you'replaying a different game.
Right?
You're you're really playing a different game.
We all my my background is largely athletics.
That's why I spent a lot of my youth doing.
And I'm reminded of this when I go play golf.
I took one of our younger guys out who is aplus golfer, meaning he's a very, very good
golfer.

(55:01):
And we went and played around together in acharity function here in town.
And I'm probably a 15 or 16 index.
Right?
So I'm I can get around, but I'm not very good.
We're playing golf together.
He is playing a completely different game.
I get up to the tee, and I'm saying, please,god, let it go straight.
Right?
That's it.
Don't slice it.
And and he's thinking about, well, this one hasa slight dogleg left, and so I wanna land on

(55:24):
the right side of the fairway because thatgives me a better shot into the green.
And I'm like, I just just go straight.
Right?
They're they're playing a different game.
So finding those people who are who are trulyplaying a different game, I think you're right,
that's critical to generating alpha.
A lot of times people think people are justlike working harder or just smarter, but
oftentimes it is just a different paradigm.

(55:47):
It's a different way of looking at things.
It's a different data set.
It's something fundamentally nonlinear.
It's a new insight or new way of doing thingsthat's leading to their success.
Not that they're working sixteen hours andyou're working twelve hours.
It's not gonna really lead to 10 x returns.
I agree with that.
Tell me about the CAS case, and why is that socentral to how you guys invest?
Because this is our money.

(56:07):
Because this is my money, Christopher's money,Matt's money, Clark's money, our our partners,
our team hold team shareholders, because it'sour money.
Goal number one is don't lose it.
Right?
Don't lose it.
Like like so avoid cases where you're losingcapital.
We're not we're not afraid of taking risk, andwe've made investments that that that have the

(56:28):
risk to go to zero.
But if we're going to do that, we need to seean upside that is highly asymmetric.
But the CAS case, as it's become known, isreally focused around mostly in our GP staking
business and what we do there.
You ask a GP to show you a downside scenarioand somehow in their downside scenario, a
business still grows, you know, they're stillgenerating some revenue growth and some EBITDA

(56:53):
growth.
And that to me is not a downside scenario.
A downside scenario is thinking about all ofthe variables that could go wrong, and then
they all go wrong to a very large degree.
And in that scenario, what happens?
Right?
And it doesn't mean that if it's the businessis zero, that we don't make the investment.
It just means that's really the downsidebecause no GP most GPs out there don't don't

(57:17):
actually put forth a real diligenceable modelon the downside because they don't want people
to think about that.
But that's what we think about.
That's very important to us.
And so there are people who are gonna watch thewho have been put through the CAS downside
case, and they know exactly what I'm talkingabout.
Largely what we assume there is that businessesthat have ten, twenty, thirty year track

(57:42):
records of making money, of doing well, neverdo that again after we invest in them.
And and in that scenario, what happens?
And so we and that's that's that's really theCAS downside case and understanding those
dynamics as it relates to, well, if things gowell, then what
happens?
When I interview a lot of asset managers,oftentimes, their biggest gripe, especially in

(58:04):
venture, but other asset classes, they don'tprice in the upside.
So they thought this might be a 20 x that endedup being a 200 x and that they were overly
conservative.
But if you took a step back, the reason theywere able to compound their businesses succeed
for twenty, thirty years is because they wereconservative.
And that conservative nature of certain assetmanagers and protecting the downside gives you

(58:28):
the right, gives you the shots on goal in orderto make that 100 x or whatever that
outperformance in your asset class.
It gives you the right to survive, compound,improve as an organization, get more LPs.
Said another way, if you do have a blow up,well, it's great that theoretically, you know,
you got unlucky or the next year you would havedone well.

(58:48):
Doesn't really matter if LPs have lost interestin you, if you've hurt your reputation.
So sometimes actually protecting against thedownside leads to the upside, maybe not in the
same deal, but very soon after.
If I invest into NVIDIA with some thesis andthen they pivot and then they become a
4,000,000,000,000, I didn't cause that tohappen as investor.

(59:09):
But the reason that did happen is because I hadthat shot on goal.
If I had enough shots on goal, something crazywill happen to the upside.
So that downside is very closely related to theupside in a way that I think a lot of people
underappreciate.
That's a that's a very good insight, David.
I and I'm gonna steal that from you and use ituse it in the future.
The the if you don't go backwards, it's veryeasy to keep going forwards.

(59:36):
It's like the simple idea of that.
Right?
It and I I think about examples in our owninvesting, you know, right now where where
things didn't go the way that we thought thatthey would, and you end up with a mediocre
outcome, right, in a variety of of of, youknow, I was talking to one of our LPs about it,

(59:57):
and I was kinda telling him, I'm like, look,this isn't this isn't a good outcome.
It's fine.
He said, Mark, he's like, this is he's like,this is good.
He's like, this is like, we'll take this.
He's like, this is like, this is what we're,this is not a bad outcome for us.
Like we have other investments that we makewhere we're in that case, we're losing money.
He's like, you guys got all of our money backand then some like, you know, like you survive

(01:00:19):
to live in, like to your point, like you getanother shot on goal, right?
You get to play the game again, Right?
If you don't lose money for people, you get toplay the game again for the most part, unless
you really mismanage the situation, and thenyou might you might get your find yourself
fired.
But if you if you don't lose money for people,then then then they'll they'll probably you
know, they'll they'll they'll take your callthe next time you call them with another idea.

(01:00:39):
If you lose money for somebody, well, like, putyourself in their situation.
Would you listen?
Right?
Probably not.
It takes a disciplined investor to understandcircumstances.
And they're out there.
Right?
We have some folks who are like, look.
This wasn't your fault.
This went against you guys, and and weunderstand that, So we're not holding it
against you.
You know, call us with the next idea type ofthing, you know, but that takes a pretty

(01:01:01):
disciplined investor.
I think a lot about game selection, not that Iplay video games or sports.
I'm a workaholic, but there's these trades thatinherently call options, which is you lose a
bunch of money many times, and then you make alot of money.
Yep.
And then there's put options where you make alittle money or you make some money for many
years, then you lose everything.

(01:01:21):
Yeah.
Call those bonds.
We call those investment grade bonds.
It's always clear in retrospect, but it's notalways clear at the time what what managers are
playing, what games until there there's reallya blow up.
Yeah.
Yeah.
We we see, obviously, you wanna target the calloption side of that.
Right?
That's what you're looking for.
You're looking for you're looking for asymmetryto the upside, but it's quantifying that that's

(01:01:46):
what's hard to do prospectively.
Right?
In in retrospect, you're like, well, yeah, ofcourse, we now we see that that was possible.
It's one of the reasons why we love GP stakes,just to speak directly to that specific asset
class.
We feel like it is a in a scenario where thingsgo wrong, they don't go that wrong.
They really don't.
From a return standpoint, you still get backmost, if not all of your money in what we call

(01:02:11):
that CAS case, that CAS downside case.
We really like that attribute to it.
And if you get it right, you get it reallyright.
I mean, it's an incredible business.
I mean, there's some GPs that we've invested inthat have gone from $4,000,000,000 under
management to $2,000,000,000 or $1,000,000,000under management.

(01:02:32):
That's not great.
But but you don't lose all your money in thatregard, you still actually get back a decent
chunk of it.
But that same firm that managed four, well, tento fifteen years later, they might have 40,
right?
It like the way the asset management businessworks and the way alts and private market
managers work, when they kind of catch fire,they are they are the in demand fund.
Everybody wants to be with them.

(01:02:53):
Your right tail risk I mean, if you look at thestatistical dispersion of our returns, just to
kinda nerd out on it, and my my college mygraduate school data science professor would be
very surprised that I can use these termsbecause I was struggling that first semester.
The dispersion of returns and, like, of of GPstakes, it's very concentrated, right?

(01:03:16):
It looks very much like a bell curve aroundvery attractive returns, but there's really
interesting positive skew.
That right tail that goes out has some reallyinteresting data points in it, and there's not
a lot to the left.
Right?
Like, there's there's nothing that's a zero, atleast for our for our portfolio.
And and so that that that bell curve withpositive skew, that means if you can see a

(01:03:39):
dataset like that of an investable opportunityset, if somebody looks at that data and says,
that's a game I don't wanna play, I would askthem in return, what game are you playing that
looks better than this one, right, on paperfrom a from a return standpoint?
It's it's really attractive.
You have a vantage point seeing all thesemanagers also being aligned with them because

(01:04:02):
you become a shareholder in these managers, andboth on the smaller side and on the large side,
most notably with firms like BlueOwl.
If you had to choose in five to ten years, dowe see mass consolidation behind a few large
manager, call it a 100 large managers, or do wecontinue to see fragmentation of private

(01:04:24):
assets?
Yeah.
I this is a is a very long arc of consolidationthat's happening in the industry.
But it has accelerated in the last three orfour years compared to the ten years behind
that.
And so I think two things can be true at once.
I think the first thing is that you're going tosee consolidation in private markets, because

(01:04:46):
this is the natural evolution of every market,right?
As markets grow, as they mature, they movetowards consolidation.
But what makes Alt different is that there'senough niches of the market for somebody to
play in that it's very hard for a Carlyle or aKKR to be very good and have it be meaningful

(01:05:10):
to their business to run a biotech venturefund?
What do they care?
Right?
Like they raise more in BREIT in one quarterthan that fund has raised in their entire
twenty year track record.
Right?
So like from a materiality standpoint, they'rejust not going be interested in it.
So you're going to continue to see a very largenumber of niche managers in niche strategies of

(01:05:36):
private markets.
The consolidation is gonna happen in the biggerareas, right?
The kind of 5 to $10,000,000,000 plus.
The things that are frankly easilydistributable.
That's why you see a lot of secondaries thatare being acquired.
Real estate firms are being acquired.
Niche private equity buyout, not so much.
Right?
It's it's not it's not really a you know,you're not gonna wanna scale that business up

(01:06:00):
from a billion dollar fund to a $20,000,000,000fund very quickly because LPs are probably not
gonna wanna support that.
So I think two things are gonna be true at oncethere.
You'll see consolidation, but there's stillgonna be room in there for those that have a
very specific sector focus.
And some of those buyouts are also equivalentto majority stakes where the existing team

(01:06:23):
sometimes stays on or there's a generationtransfer and the next generation stays on and
continues to manage that strategy for theparent company.
So it's not like they're continuously they'renot taking them over and disbanding the team
and bringing in their own team.
They're oftentimes integrating them into theorganization.
Yeah.
Yeah.
That's happened a number of times in the lastyear or two, And I think it's healthy.

(01:06:45):
You have to think about it from a customerstandpoint.
Right?
Who who's the customer of a of a private equityfirm or private credit firm?
Well, it's their LPs.
Right?
There's certain LPs in the world that arelooking to have larger scaled relationships.
They're allocating large dollars across a verywide range of investments.

(01:07:05):
It's become very hard to manage a private bookwith two or 300 managers inside of it.
They're looking to streamline that.
Well, in order to do that, you need to havefirms that have all those different strategies.
And so large allocators trend towards largerfirms that have more different products
underneath the one roof that they can say,okay.

(01:07:26):
We've got Blackstone.
We're gonna do this Blackstone fund orwhatever.
That's the trend there.
But the opposite is true as well, right, whereyou have a lot of smaller allocators or more
nuanced allocators that understand, look, we'renot trying to put $2,000,000,000 to work every
year into private markets.
We're trying to do 200,000,000.

(01:07:47):
We wanna do it with those that are that aremore sector specific, and we don't mind having
having, you know, more relationships because,you know, we we we value that that
diversification.
I've been watching closely the CAS podcast, andI watched the one that you did with Michael
Reese and Tony Robbins, and seen Tony Robbinswith Robert Smith and Christopher.

(01:08:10):
Tell me about your relationship with TonyRobbins and the firm's relationship with Tony
Robbins, and how has that been strategic foryou?
That was an interesting one.
So so Christopher, our founder, has been hashas been very vocal about the impact that Tony
has made on his life personally.
I mean, our firm actually exists because backin the nineties, Christopher went to a Tony

(01:08:34):
Robbins event, and he was listening to thetapes back then about goal setting and that
sort of thing.
And he wrote out a goal that says, wanna starta firm in ten years.
This is back in 1991 called CAS Investments.
And so it's an interesting dynamic because it'ssort of a full circle thing.
Tony became an investor first with CAS a numberof years ago, just as a, what we would call a

(01:08:59):
partner or a client, focused around a few keyareas that we were active in.
And once he and his team kind of got to knowour business, Tony's a very active financial
services professional, right?
He's a very good investor.
He's he's owned and been an investor in anumber of financial services companies.

(01:09:21):
He looked at what we were doing and how we weredoing it and said, this is a really unique
business model, and I think I can help youguys.
Our team I think our team can help you guys.
And so we were not looking to take on a GPstake, but the firm that was very well known
for GP stakes ends up selling a stake in GPstakes.
Right?
So it's kind of an interesting kind of ball ofyarn.
And and so, obviously, provided some growthcapital to the business to help us grow the

(01:09:46):
people and to grow our footprint and whatnot.
That was very helpful.
More so than that, it's understanding how tothink about positioning ourselves in the RIA
community, in the wealth manager community.
They have a lot of experience there.
There's a gentleman named AJ Gupta, that's beenTony's partner for a long time, who himself was
in the wealth management business, verysuccessful entrepreneur there, recently was a

(01:10:09):
chief investment strategist for a very big RIA.
And so having their perspective on how toretool our business and think about the
challenges that we were gonna face as we madethe pivot to focus on the investment advisory
community, they've been invaluable.
They're on our board.
They sit in our our quarterly planningmeetings.
They beat they're great friends.
They're great partners.

(01:10:29):
We love it.
We really do.
It's been it's been a lot of fun.
I I personally was a little bit of a skepticbecause I didn't really understand what was
under the hood there on their side of thingsbecause I just didn't know, and my ignorance
was quickly proven wrong.
They're very good at what they do, and andthey're and are even better people to be
involved in business with.
If you could go back over a decade ago when youstarted at CAS and give yourself a principle or

(01:10:54):
a lesson that you learned the hard way, whatwould you tell yourself?
It's not necessarily something I've learned thehard way, but I read a book called The Go Giver
series.
Maybe you've heard of it.
It's a book of fables.
It's a series of fables, like teaching lessons.
It really made an impact on me that if you'retrying to be in the business world, business is

(01:11:17):
ultimately about providing value to thecommunity around you, right?
Nobody is forced to buy your product orservice, okay?
They have to perceive value in what you'redoing.
But beyond the value that your product orservice is delivering to whatever market you're
operating in, it's about helping people.
It's about helping people accomplish thingsthat they cannot accomplish on their own.

(01:11:41):
And so when I had went through a perspectivechange around how can I move into my community
and help the people around me in a way that isfar above and beyond, frankly, than they would
ever be able to repay back to me, youcompletely change your paradigm of how you're
thinking about every day?
You go from a scarcity mindset saying I need toget as much as I can for me.

(01:12:02):
I need to take as much as I can out of everysituation and thinking, David, okay, how can I
help you?
How is Mark Wade uniquely positioned in theworld?
Not saying I know everybody, not saying I haveall the resources in the world, but I have the
resources that I have, and I have therelationships that I have, and I have the
knowledge that I have.
Well, how can I use those for your benefit anddo something for you?

(01:12:24):
With nothing expected in return.
Not a thing.
Say, hey, I'm here to help you.
When you have that perspective with people, theworld completely changes.
Frankly, the world opens to you and the worldcomes to you, right, in a very beautiful way.
At least that's what I've observed.
And so I wish I would have told 28 year oldMark Wade that when I started here ten years
ago that, hey.

(01:12:45):
Don't don't think about things from a scarcitystandpoint.
There's actually abundance out there, but youhave to be willing to step into that
uncomfortable moment where you enter into arelationship not thinking about what's in this
for me, but what's in it for them.
Listeners of the podcast will appreciate thisis a very David question.

(01:13:06):
Is that a capitalist way, a rational capitalistway to look at it, which is if you don't think,
transactionally, you will end up moresuccessful, or is it just a philosophy and a
feel good way that makes you more grateful,more present, and just live a happier life?
Well, I I think, as I said before, I think twothings can be true at once, right?

(01:13:28):
I I think going back to your comment beforearound short termism versus long termism, I
think that's the perspective that I justarticulated is playing the long game.
Right?
There are relationships that I've built that Ihad and I did them in a way that, was self
interested and was about me.

(01:13:48):
And I think that's come back to haunt me,right, in certain situations.
And it still does to this day in large part,right?
Things that happened ten years ago, twentyyears ago, where somebody has a view of an
interaction that I had with them.
And they're like, I, you know, I don't likethat.
Right?
They don't like they didn't like the way thatthat went.
Maybe it was too one-sided.
Well, that that's that's that's not good in thelong run.

(01:14:09):
As opposed to, you know, I I remember I was ata high school reunion of mine and and some guy
came up to me that I hadn't seen literallysince we left high school.
And that's that's twenty years ago.
And he says, you know, you the way you treatedme and you interacted with me, like, it really
changed my perspective on people like you.
And I was like, well, I don't know what peoplelike me are.

(01:14:30):
We'll save that for another day.
Right?
But it was but it was positive.
Right?
It was a good and and so and because of that,it unlocked a conversation that we had about
something that he was doing that was aninteresting idea, interesting business idea,
and we didn't end up pursuing it, but maybe wewould have.
Right?
And so to your point around is this is this aphilosophy or is this capitalism?

(01:14:50):
It doesn't have you don't have to choosebetween these two things.
Right?
Ultimately, I think that, you know, getting abit to my personal beliefs here, I think that
there's a system that we operate within in thisworld where if you if if you play by those
rules, good things, generally speaking, aregonna happen.
That doesn't mean bad things won't happen.
But in business in particular, if you operateby those rules and you operate under the under

(01:15:11):
that paradigm where you where you think aboutother people first and not about yourself, I
think ultimately, you're gonna have a lot ofsuccess in the long run as as we all define
success, which is more relationships, you know,better better investment outcomes, better
business success, better better home life.
At least for me, that's how I define it.
I've evolved a lot in the subject.
I I've always one thing, maybe I came out ofthe womb with this idea or maybe I probably

(01:15:34):
learned it from my parents.
I never actually engage in relationships whereI can't bring value myself.
Yeah.
Not I'm not trying to virtue signal or say I'ma good person.
It just doesn't feel good to me, and I I justdon't enjoy it.
Drains my energy as much as on the otherone-sided.
What I have done, though, I have evolved whereI am very giving after I decide to bring

(01:15:55):
somebody into my life, and I do, you know, usedto v I VIP rule.
I I do have kind of a bouncer to get into myVIP, and then once you're in that VIP, I give
as much and as often without reallycalculating.
But I have evolved because before I would justget make everybody a VIP, and that could be
extremely draining and very difficult and notscalable.

(01:16:17):
I like that idea of a bouncer.
I'd be curious.
We don't have to talk about it here, but I'd becurious to to know what that criteria is.
Right?
Where do you how do you how do you draw wherewhere's your velvet rope?
You know what I mean?
Yeah.
I'm happy to answer that.
There's different criteria.
One is I have an energy journal, and I I writeone to 10 every gen every conversation I have.
Like, how does that does that bring me energyor not?

(01:16:40):
Because I actually believe in energymanagement, not time management.
I think there's a reason people come home everyday at 6PM, and they don't work four hours on
their business.
It's not because they don't have those fourhours, it's because they're emotionally
drained.
Mhmm.
And so one is an energy aspect.
The other one is this is truly a compoundingrelationship.
To double click on that, it's, is this somebodythat I want fifteen, twenty years of my life?

(01:17:03):
That's the main criteria.
That's actually, that's the razor.
Then after that, then there's almost no youknow, there's almost nothing inefficient you
could do.
The way that I distill this is you can't spendtoo much time on a billionaire, whether that's
with money or a billionaire that's very giving,that's a great friend.
It's very scalable to spend time with somebodythat's really good at something.

(01:17:26):
Yeah.
Yeah.
I had I actually had lunch today.
He's one of our investors, but he's a veryclose personal friend of our family, and he is
a a leading nanotechnologist.
And and we're like minded in our beliefs, andand and we and our families know each other.

(01:17:47):
And so it's this, like, I seek out the timewith him, and I go out of my way.
I drive I drive down to the university here inin Houston, and I I I take a lot of time out of
my day to sit with him during my workday, notbecause he's invested a lot of money with us,
and he self admittedly, he hasn't, but becauseI can sit with him and he he is so

(01:18:07):
knowledgeable about things that I'm interestedin.
And I told him, I said, look.
Like, I'm here not because, like, like, I'mhere to serve you.
I I look at him as an example of what makes mylife so full and why I love what I do is
because it's not just like the investing, it'snot just the financial upside, it's the ability
to build very deep, multifaceted relationshipswith other people.

(01:18:32):
That's awesome.
Like, that's so life giving to me becauseotherwise, it's just transactional.
And that's fine.
It's like, there's a lot of investors who giveus money who I will never meet, and they will
never meet me.
And I love you.
Right?
I I wish I I wish I could meet them, and I'mvery grateful for it.
But how much more so when you can share lifewith people, all aspects of life?
And I know some people when it comes tobusiness and personal, they don't mix it.

(01:18:52):
But for me, those are always the most rewardingrelationships.
It goes back to game selection.
It's if you are truly a long term thinkerrelationship person, you have to find the right
market for that skill to flourish.
Yep.
And if you don't, which there's been times whenI haven't, you end up getting really bitter
because it's a short term nature, and you'rebeing handicapped because long termism is a

(01:19:14):
form of handicap in the short term market.
So you could become very bitter very quickly.
But if you now realign yourself and find thosecompounding markets first of all, they're much
more lucrative.
There's almost no short term markets that arelucrative, know, at least that I'm aware of.
And secondly, you just you're able to have thatfounder product employee fit where you're

(01:19:37):
naturally able to be yourself and succeed.
Yeah.
Yeah.
That's well said.
Should be writing notes down right now.
Well, Mark, I wish I could say that I was I wassurprised by this, conversation, but I knew it
was gonna be a good one.
I'm look you're a new relationship, but I'm I'mlooking very much to this friendship.
Certainly, to twenty years at a minimum, and,appreciate you jumping on the podcast.

(01:19:59):
Hey.
It's my pleasure.
Thanks, David.
Appreciate the opportunity to visit more, andand, I'm I'm sure I will see you soon.
Thanks, Mark.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episode's analytics.
Thank you for your support.

All Episodes

Episode Transcript

Popular Podcasts

Stuff You Should Know

Dateline NBC

The Breakfast Club

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}E188: The CAZ Way: Alignment, Access & Asymmetric Upside

Episode Transcript

Popular Podcasts

.css-r6mb8g{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:1;overflow:hidden;}Stuff You Should Know

Dateline NBC

The Breakfast Club

All Episodes

E188: The CAZ Way: Alignment, Access & Asymmetric Upside

Stuff You Should Know