Beyond Public Stocks: Unlocking Private Market Growth Secrets

Eric Chemi 0:05
Welcome to Wealthion, I’m your host, Eric Chemi. Today we are talking about the mystique, the myth, the magic, the mystery of the private markets and our ability to get access to those private markets. Because a lot of companies, they’re not going public as frequently as they used to in the past, if you want to get access to some of the highest growing companies in America or in the world, you got to look at the private market. So today, we’re joined by Bob Long. He’s the CEO, the CEO of stepstone. Private Wealth, Bob, I know you’ve been on wealthy on last year. So thank you for coming on and joining with me today.

Did I get that right? Is that the general framework, though, that that a lot of companies that would have gone public in the past, they’re not going public now. So the normal person, if you want to get access to them, you have to find them in the private markets, is that right?

Bob Long 0:53
That’s absolutely true. The universe of public companies has shrunk by about half over the last last 20 years or so. And maybe a more interesting way to think about it. Think about companies of size and scale. So let’s say $100 million of revenue. 87% of those in the United States are private today. And in fact, the private markets are deep enough to support enterprises that require a tremendous amount of CapEx of investment. Whereas when I started in this business a 30 years ago, they simply weren’t. So the option to stay private, build a substantial business in the private markets are privately owned, is there today, that just wasn’t 20 or 30 years ago,

Eric Chemi 1:37
So say that again, 87% of companies with $100 million or more in annual revenue 87% of those are privately held right now.

Bob Long 1:48
Yeah, that it’s about 18,000 private companies, versus about 2800. Public companies of that size, or greater.

Eric Chemi 1:58
That’s a massive scale, right? When you think about oh, the Wilshire 5000 are a total market index, even someone who says I’m just gonna invest in the whole market and be really diversified. You’re not that diversified, because there’s 18,000 other companies that you don’t have access to your invested $0 in them.

Bob Long 2:14
And as you know, well, and your audience knows, well, at times over the last four or five years, to seven public stocks and one sector, the technology sector have tended to drive most of the movement in the payment market. So it’s not only access to a number of companies, but sectors. And in fact, I would argue this would be a provocative that the public markets and the private markets have switched places, in terms of what they finance. So when I started in this business, it was the upstarts, the unproven technologies that were financed primarily by the private markets. But he looked today, many of the companies, the leading companies in the public markets are technologies that are evolving, are businesses that are frankly, hard to understand. And a tremendous number of tremendous portion of companies that have gone public over the last handful of years, aren’t even profitable, whereas 20 years ago, call it 80% of companies that went public were profitable. So in some ways, the bread and butter economy is now financed by the private markets. And the public markets are more beholden to a handful of high profile sectors, particularly in information technology.

Eric Chemi 3:25
That’s a good point, they’ve switched places, because a lot of public companies don’t make money. But in the past, you had to make money first before you would go public. Right? It was the private industries that took a chance on unprofitable companies. So what it makes me think about though, are these historical charts, right? You have a lot of these experts, authors, financial guys now just, you know, invest in the long run and the s&p 500. Because, you know, look at these 150 year charts, and if you’re in the long run data, but I’m thinking well, but that environment doesn’t exist anymore. The rules have changed, right? Like you just said, look at all these companies that aren’t even public, they’re not even going to be in the s&p 500. So it makes me wonder about someone who’s obsessed and focused on doing the right thing. Hey, I’m DIY. I’m doing it myself. I’m doing low cost funds. I’m paying five bibs because I’ve got the s&p 500. But all of a sudden, are you skewing what you’re invested in? Because like you said, it’s a lot of unprofitable companies. And it’s skewed in terms of the sector’s

I

Bob Long 4:29
I can’t give you a statistic to back this up, but I can share my personal experience interacting with ultra high net worth individuals. Many of those follow the exact strategy you described for a barbell of their portfolio. And then the other side, they seeking their alpha from the private markets they go Loafie beta on one side, and then private market exposure would maybe some unis mixed in depending on their tax situation and where they live so on Again, I can’t back this up with a stat. But I can tell you, that is my experience and observations from interacting with my peers and in our business, which is to serve high net worth individuals and to package for them private markets in an accessible way private market assets and accessible way. That’s the feedback that we hear.

Eric Chemi 5:18
What is the your definition of ultra high net worth? Because they feel like everyone’s got a different definition. I’m just curious.

Bob Long 5:23
They do. So um, you know, my definition of that would be 10 million and up. But to be clear, the products, where you see the growth in the private markets, for individual investors is that the accredited investor level, so 1 million of investable assets, as opposed to the qualified purchaser level, which is where historically access has been limited to that’s 5 million for individual investors a difference for institutions. But it used to be that you had to be a qualified purchaser to invest in the private markets, you would do it through a traditional drawdown fund, a limited partnership managed by a general partner with you, as a limited partner, you would go into those funds, they would have a 10 or 15 year life, you would make a commitment, you’re not actually even invested, you’re committed to a fund, they draw it out, they call capital from you on a somewhat unpredictable basis over a period of call it five to seven years, they invest in a series of companies, and then they harvest those companies to send the money back to you on an unpredictable way. And so that alone, that logistical mechanical challenge prevented many individual investors, even at the ultra high net worth level, from accessing the private markets or certainly accessing it in the ideal scale they’d like to, because it was simply hard mechanically logistically to do it. And unlike your other exposure, where you know, how much Muni exposure, how much us large cap, equity exposure you have, you’re making commitments drawn over time, getting valuations on a quarterly basis on a lag. We back to your Do It Yourself investor who’s smart and disciplined and trying to know what he or she owns. That’s hard. That’s hard with a drawdown fund.

Eric Chemi 7:15
I’m listening to that and thinking, Oh, my gosh, if you’re telling me like, if I was in that position, okay, I’ve committed to something. And let’s say, you know, Bob is gonna call me up, or someone’s gonna call me up and say, Okay, we need the money, and we need it, you know, soon

Bob Long 7:30
10 business days. That’s the standard.

Eric Chemi 7:32
That’s quick. Right, that’s quite quick, that means you have to have saved it somewhere, or not invested in something else. But you never know when the calls coming. So it’s kind of just sitting there wasting away a little bit or to the money market fund or something. And then then you got to give it away. And then you have no idea when it’s coming back. And it may not be good for you in terms of tax timing, it may not be good for you in terms of, you know, other lumpiness, but because you’ve committed it, it’s not like you can do anything else with it. So I’m listening to that and thinking, that would be a headache. And I can see why people would want to shy away from that. But but so just for mine, so accredited, would be the $1 million level qualified purchaser is higher bar $5 million level.

Bob Long 8:14
Yes. And there’s a qualified client level at 2.1. Or a few funds. That’s a that’s a distinctive category that a few funds access.

Eric Chemi 8:24
Where does all this money come from right now in the private markets, right? The way you said that it’s switched. There’s the 18,000 companies, private 2800 public, but where’s the money coming from? We know publicly that’s the stock market, you buy your equities, you’re in there, institutional funds, all of that. Where’s it in the private?

Bob Long 8:42
So historically, the financing for the private markets came from family offices, ultra ultra high net worth individuals, you know, the people you read about in the newspapers, and also pension funds and endowments. US pension funds were early movers. My father was a North Carolina State employee. And the state of North Carolina was an early innovator in investing in private markets. And I’m happy to say he benefited from a very secure pension. That was about 25% invested in private equity during his time he drew through the money he’s passed now. So those pensions were big, but of course, pensions are shrinking. We move to a defined contribution world to topic for another conversation, where today in the US, and I am personally working on this. If you’re in a 401 K plan, you don’t have good access to private markets. But to answer your question, more specifically, the money today the rapid growth is from the accredited investor, the individual investor accessing the private markets, and they do that primarily through a newer structure called an evergreen fund. That solves many of the challenges that we’ve talked about earlier, making it easier for individual investors to access in a convenient way. The profit Mark

Eric Chemi 10:00
So what about the idea that when I hear the word private equity, I think leverage, I think borrowing I think, you know, like this, this idea that it’s, you’re doing a lot more you’re, you’re sensitive to interest rates, and all of a sudden interest rates are at 0%. anymore. Now they’re thought. And maybe that was the glory days of private equity. Maybe that’s behind us. Now, what’s your point of view on that? Because I’ve heard a lot of conversation along those lines.

Bob Long 10:28
But certainly low interest rates did benefit private equity. And when we were world of zero interest rates, the premium returns of private equity weren’t particularly attractive. There’s no question about that. But I think your question goes to durability, what’s the durability of the returns? So first and foremost, private equity takes on today and then in the modern world, call it 40% leverage. So it’s not as the companies are not as levered as they used to when I got in this business. You saw some 80%, levered deals, so you don’t see as much leverage today. Secondly, a lot of that leverage is fixed rate. Third, the people that run these funds are very good at financing. And so they’re very smart about hedging, fixing their cost where they can, that all said rising rates certainly does affect do affect existing investments. And what you see there is often an inflationary environment, the private equity companies that companies purchased by private equity funds, also have the ability to raise their pricing. And so it’s a push and pull. Maybe more relevant to the near term, though, periods of higher rates or higher rate, they weed out the weak deals, if there weren’t transactions, and they certainly were across the private equity landscape, if there were transactions that succeeded or were done, primarily because of debt was really, really inexpensive. Well, those those don’t happen in today’s environment. And so net net, have you that as a positive thing. But importantly, private equity has proven it can create value, not just by leverage, by operational improvement, growing revenue, cutting costs, expanding markets, in fact, you know, people, people ask me, Why private equity in answer, because that’s where the growth is. The growth in private equity backed companies, it’s been about 4% in revenue, not just cutting costs, you know, private equity is known for cutting costs, and I think unfairly characterized that way. But the cold hard reality is, private companies have grown revenue by 4% or more per year compounded more than the public company. So they are investing in growing these businesses. And that’s what’s driven the returns to a large extent.

Eric Chemi 12:53
You mentioned the 401k, right, obviously, you know, 401k, it’s got whatever 10 to 20 options in there. And that’s pretty much it, you can just pick whatever you want, and their mutual funds, index funds, nothing like this. Where is the access then? Is it someone just got to go into the regular brokerage account? They have to do it through an IRA? What’s the access to getting getting a private, your private companies in a public way?

Bob Long 13:22
In the defined contribution market today in the United States, it’s dominated by target date funds, right? These are blended funds. You know, I’ll take my children who are 30. So they’re investing in the 2050 target date fund, right. And then a manager like a fidelity for it that are at row manages that with a mix of risk and return toward an expected retirement date, right. So what you see today is a number of the most forward thinking of those target date phones are starting to look at it and in fact, in some case study incorporate a modest allocation to the private markets within that and speaking for myself, I think that is, as opposed to on behalf of our firm. I think that is the most rational and safest way to introduce private market exposure and Georgetown University has done some research on this where they show a modest allocation. In a professionally managed target date fund a modest allocation of private markets highly diversified, selected and tailored exactly for the 401k market can meaningfully change over a 40 year working career can meaningfully change your retirement outcome. And so I’m part of an industry group called Find contribution alternative association that has lobbied Congress and has worked with the Department of Labor to make it easier for companies to pick 401 K plan. menu options that incorporate a lot Little bit of private markets because we believe it enhances returns. But that’s on the call like that’s in the future today, you can own private market assets in your IRA. Without getting into all the details, they they meet the various tax tests to be owned in an IRA. And so, Evergreen private market funds are a particularly interesting solution, in my opinion, for your IRA, because your IRA is a, it’s a pool of capital as an individual that has a very long investment horizon, typically, but you expect to hold it for a long period of time. And if you are able to achieve the premium returns, which we believe are there, in high quality, institutional caliber private markets, doing that in an IRA IRA, letting it compound for decades or more, it’s just a really, really interesting way for individuals to access the private markets and benefit over the long term.

Eric Chemi 15:55
There’s a lot you said that I wouldn’t want to get into tell me the defined contribution alternatives, association or alternatives. What is Say that phrase again

Bob Long 16:04
defined contribution alternatives association.org encourage you to go there. So we stepstone helped found that group. And a number of the leading private markets firms, along with the custodians, the law firms, all the the record keepers, all the key people around the 401k market, we came together, we actually had a meeting last week, we meet on a quarterly basis, we put out research. And our goal is to enhance the ability for regular people like your audience, to have a choice not to make them but to have a choice when they go to their 401k menu. Yeah, I want the enhanced target date fund that has a modest allocation alternatives, because I believe that will enhance my retirement outcome. And again, we our research and research We’ve accessed shows that it does. So that’s it, it’s not forcing or requiring we don’t advocate for anyone to be able to choose to put all their money into a stepstone product or anybody else’s private market product, but simply to work it into your asset allocation, like you were up endowment or foundation, in fact, at a smaller allocation than your Endowment Foundation, but some access to it, because it improves diversification, in our view, reduces correlations and enhances long term returns.

Eric Chemi 17:24
You know It’s funny, the endowment searching because they last forever, right? They just go on water. If you’re a college, we’re going to be here in 100 years, you and I are not going to be on 100 years, right? So the timing and the different terms of how you invest, but when we know we’re gonna die,

Bob Long 17:39
you know, that said, retirement for most individuals is a long dated pool of capital. No, it’s not the capital, because private markets do not have instant liquidity. And we should probably talk about that and how liquidity works. They don’t provide you instant liquidity like your stock and bond portfolio does. So that’s why I believe it makes sense to line up your long dated pool of capital, your retirement assets with long term investment horizon where private markets, particularly private equity has demonstrated historically a premium return that you can compound, you kept saying the phrase evergreen fund, yes,

Eric Chemi 18:17
I know you’re saying it on purpose for reason, what is the difference between when I think you know, normal investment, I go to my IRA and say, okay, you know, I can buy an ETF or I can buy a mutual buy, get in or get out, I can do whatever I want with that. My guess is something’s different with the Evergreen fund. So how does that work?

Bob Long 18:34
Well, a mutual fund is an evergreen fund.

Eric Chemi 18:37
But I can get out today, if I want to, is there something about like, Are you stuck in there? Or? Or is it is it does it look like a stock the way it gets a mutual fund or ETF? It looks like you can just put a ticker in and trade what’s going on with these evergreen funds? And how do I how do I trade it? How do I access it?

Bob Long 18:53
Really good question. So an evergreen Fund is a hybrid, it sits between your daily traded exposure that you talked about, for these drawdown funds that we talked about. I don’t think we noted those are typically 15 years from first cash flow to last cash flow. And as an individual, you have basically no liquidity and those there’s you it’s not realistically for you to go sell that fund. Now if you’re the

Eric Chemi 19:20
We’ll call you when the money’s ready one of those kinds of deals right? Right.

Bob Long 19:23
Right So you’re basically locked up for 15 years so an evergreen Fund is a hybrid it sits in between and they take money in and say they we our funds and others take money in on a daily or monthly basis a fewer quarters Minister daily or monthly, like a mutual fund. And they close overnight at the latest net asset value or the monthly funds close at month end, you know overnight at the next at the next value. And then they provide liquidity on a regular basis typically quarterly typically 5% of the fund important Only not 5% of your investment, but 5% of the fun on a quarterly basis and 100% of nav. So that’s the way they work quarterly or daily and monthly or daily in, quarterly out, they provide regular valuations daily or monthly, you get statements like you would on a mutual fund. And so they do give you the convenience of being accessed frequently to get in, and then exit on a quarterly basis.

Eric Chemi 20:29
Okay, I was gonna ask you how, how quickly can you get out to quarterly make sense? So it’s not like I can just get out tomorrow, get out today? Because there needs to be some sense for, especially with private investments, what they’re doing with that money. And what happens if everybody, everyone decides to get out there, they’re gonna live it.

Bob Long 20:47
It’s prorated. It’s prorated. So if that’s never happened, by the way,

Eric Chemi 20:53
Or if too many people want to get out this quarter, and they can’t get out of their actual private investments in time.

Bob Long 20:58
Yeah, exactly. So we you would prorate. So if 10% of your investors, which will be a lot wanted to get out in a given quarter, then everybody would get half of their investment. And then presumably, they come back the next quarter and submit a redemption request and get out a pro rata portion the next. So it’s not perfect liquidity and everybody that goes into these funds, should have at least a medium term, you know, three to four year two to three minimum, preferably longer investment horizon, they should go in, they should go in knowing they will not always be able to get all of their money out immediately, in particularly in a period of tremendous financial stress, you may not be able to get all your money out. But you will have much more liquidity than if you’d invested in a drawdown fund where you essentially have no liquidity. So what we found is the this hybrid, this compromise on liquidity has gained a tremendous amount of traction you asked earlier, where’s the money coming from? So pension plans, you know, very, they’re very, they’re fewer and fewer of them and admit most of them are closed, and you’re not taking new new people. And so it’s the individual investor market is growing at a tremendous pace, providing capital primarily through evergreen funds to the private equity industry. So that’s where the growth is, in the private equity, limited partner base. It’s from Evergreen funds to a meaningful extent.

Eric Chemi 22:29
How much can people trust those private company valuations? Right, the idea that public companies you see quarterly there are a lot of analysts are supposedly right, that’s a whole other issue. There’s not an analyst covering these companies. But but the idea that it’s out there, that people can decipher it, they can go through it, they can look through 10 ks and all this private companies you don’t really know. And then the valuations can be a little bit fuzzier. So what do you what would you say to people who are concerned about that?

First

Bob Long 22:57
First and foremost, it’s a really important concern, and you should focus on it if you want to invest in private markets. So let’s first describe how it works. You described well, the way public company valuations work, although you do have phenomenon like the mean stocks, which sort of defy the efficient market hypothesis that both of you and I were taught in school, you have flash crashes. So public stocks are not immune. And frankly, I would argue those public markets aren’t, they aren’t as efficient today as they were. When I got out of school, it just seems there’s there’s more subject to market breaks. But in the private markets, the funds managed by general partners or sponsors put out valuations on a quarterly basis. And there’s a lag 30 to 60 days after quarter end, the general partner publishes to its limited partners of which you might visit individual or we might be as an evergreen fund, to its limited partners, the valuations. And those valuations often come with a fair amount of backup and specificity. But it’s not the full level of disclosure you’d get in a public company 10k funds absolutely true because that information is confidential and proprietary. And to be clear, those companies are planning to sell. Right? You know, they are they’re bought with a view to be sold. But here’s how I think about it. First and foremost, valuations in a diversified portfolio are much easier to predict and are much more stable. So if you’re investing in one fund that has 10 companies, but we in the Evergreen funds are investing in 1000s of companies managed by dozens, if not hundreds of different general partners.

Eric Chemi 24:42
How do you do that? How do you get some 1000s of companies? How does that even who’s doing the due diligence on that?

Bob Long 24:48
Well, don’t bring a knife to a gunfight. We’re stepstone we’re one of the largest allocators to the private markets globally. We manage or advise on over $650 billion of assets. primarily for the world’s largest institutions, we’re committing about $80 billion a year to 550 separate transactions. And we have 1000 people in 16 countries 25 offices focused on it. So we have the machine to source, evaluate, execute track monitor value, those investments. So that’s, that’s how we think about. But to get to your point, for any product market investor, valuations are ultimately confirmed by realizations. And since for our evergreen funds, and they are registered companies, like evaluations only confirm what you sell that’s like at the end of the cash flow. And so we have a tremendous amount of data and analytics, one of the things stepstone is known for that helps us confirm and validate valuations along the way. But then, in addition to that, every six months, Evergreen funds filed their financials every six months, every quarter, I look at our exits. So as I said, you know, in our three portal our three strategies we own 1000s of companies, even in week m&a markets, and in strong m&a markets. We have a number of round trips, realizations, companies sold over the course of a six month period. And I look at those to see where was where were we holding the asset, what was our mark, versus where it was sold. And what I consistently see is a very tight band around actual realized value versus where it was held. And but there are aberrations that are few. And in particular, across a diversified portfolio. That actual realization gives me great confidence as the person who signs the Sarbanes Oxley, that our valuations are fair and accurate, they’re not perfect, are never perfect. But they are fair and accurate, particularly on an aggregate basis. Because you know, you’ll have a couple of companies that are low and a couple of companies are Hobbit. But the last time I looked at this, we had 31 round trip exits over a six month period. And 28 of those were at or above the last more than three that were below or super tight. I think they were a percent and a half a half percent and 3% below. So sorry to get geeky on you. But I focus on this like we are very carefully looking to make sure when the realization occurs, that it actually matched where it valued.

Eric Chemi 27:26
That’s that’s helpful to understand. You mentioned Sarbanes Oxley, and it was getting to one of the questions I was going to ask about are there so many private companies because they don’t want to go public, they don’t want to deal with these hassles. It’s way too much regulation now than it would have been 20 years ago. Like you said, it’s half the universe now public companies, do you think it’s a government overstepping regulation type of thing that is permanently changing the game, in terms of why we see so few public companies

Bob Long 27:56
I’ve been a public company CEO twice, and I’m very familiar, like a traded company with those with those regulations. And they are burdensome, and you know, beyond my level of expertise to necessarily say too much or too little, although the actual results would suggest that they have limited the desire of executive teams to go public. I think that the data certainly supports that. Again, I think it comes back to companies didn’t go public, for the press and the fame, they went public, in most cases, to get access to the amount of capital you needed to build. So let’s use a recent example. So SpaceX, can you imagine a company that requires more capex than building rocket ships, I have a hard time. It stayed private, by accessing over $10 billion of private equity capital in more than a dozen rounds of financing. Because you can do that today, when I started in this business, the private markets were really not deep enough to support enterprises of that scale, unless you were able to access every significant pool of private capital in the world. You just couldn’t, you couldn’t do that. And you can do that today. So access to capital doesn’t force companies to go public. And I’d say net net. That’s a good thing. net net, that’s a good thing.

Eric Chemi 29:20
Except for investors who want to get more diversity, then they’ve got to go through these other ways to get that type of company, right? Because, hey, if these companies don’t ever need to go public, you may never see that right, you may never get a piece of their growth, you may never be able to defer to diversify your portfolio with them. They’re just like, they’re they’re cut off from you all together unless you go through one of these routes, but then it seems like it’s like a loophole, right? It’s sort of, oh, well, they’re not public, but anybody can still get them because there’s now these public facing vehicles that allow you to get them but in a diversified way. Aggregate water,

Bob Long 29:54
That’s right, and maybe it’s loophole, but I would say what the Evergreen funds ours have a $50,000 minimum, most of them are available to accredited investors. So a million dollars or investable network,

and

Eric Chemi 30:11
and they can’t pick and choose, right, like, you can’t pick and choose, which are the companies, if I put 50,000 in, I’m just gonna get the 1000s of companies that are in that portfolio. So it’s, it’s a basket, let’s say there’s a SpaceX in there, for example, it’s just one of 1000s of companies. So I’m not really going to have as much risk, let’s say, by putting it into one company.

Bob Long 30:30
Yeah, so that’s a pro and con, you know, in what we design, and most of our quality peers are doing our diversified portfolios, because we think that is what’s best for the individual investor, what you’re talking about, can be done through, say, crowd funding sources, for example, which do not access the same institutional caliber companies in general, that what we what we are doing, and what we seek to do, and do deliver is it’s the same investment content that stepstone delivers to 150 of the world’s largest institutions. You’re an MIT guy, I won’t say whether MIT is a client. But if MIT was a client, the endowment, the same deals going into MIT’s private equity portfolio managed by stepstone are going into that sprung spring, structure our funds, it’s the same. It’s the very same deals, and I would encourage anyone who looks at this, when you’re looking at our phones or otherwise, that’s the first question to ask, is this evergreen fund you’re considering? Is it investing in the same investments, as the sponsors, other funds, you know, our institutional clients going into the same deals? That is the gating question, I think, when evaluated an evergreen fund, and it doesn’t need to be 100%. But you need to ask yourself, are these really institutional caliber assets? Are they getting the same pricing? Are the fees similar to what the MIT endowment would pay? Am I getting transparency? All those things are critical to ask, when you’re trying to access the product markets?

Eric Chemi 32:10
You answered the question I was gonna ask you, I was gonna say, What about the fees? What about transparency? Are these different different classes of what these investments are? So just talk a little bit more about that? Because I think there’s not as much, let’s say, familiarity with how this works, compared to I think we’ve spent a couple of decades now with ETFs. And people have a good sense for what fees they should expect and how they should evaluate, you know, hitting your benchmark, or who’s managing it or their proxies. Here it is this question, what’s the fees? Transparency? who’s managing it? How do you evaluate, you know, let’s say your fun versus another fun? Yeah, talk a little bit about that.

Sure.

Bob Long 32:47
Sure. So organized around three principles. And it happens to be the three that we present our business around, convenient, efficient, transparent, so convenient. It’s easy to do business. You know, as we’ve discussed on this this interview, it’s generally hard to access the private markets. So we have focused as have our quality peers on making it as easy for the individual investor as possible. Two of our three funds can be bought with a clip does not mean they’re tradable. But your financial adviser can go to his terminal and buy on a ticker symbol and access put you into if you’re accredited investor into into two of our three funds, S prime and structure. Spring is our venture and growth fund. That is not doable. That way. It’s not executable that way. So convenient. It’s really important. Along with that all evergreen funds are the vast majority offer 1099 tax reporting like a mutual fund those drawdown funds, I don’t think we spend a lot of time on this. They provide a k one a partnership tax return, it comes to you in October. So you’re amending and extending your tax returns. That’s particularly inconvenient. Plus, of course, minimums are high in these drawdown funds. So for evergreen funds, 1099, low minimums, little paperwork or no paperwork, that’s first efficient. That’s another word for cheap. So are you been charged fairly for the investment strategy. So fees generally come in two flavors, first, the management fees, which is like a mutual fund management fee. And then some evergreen funds charge a performance fee or carried interest or incentive fee. Those tend to be on performance and only earned if there is performance, you certainly should look at your target rate of return and recognize that if the fund has an incentive fee, you know, it’s got to come that’s taken into or taken out of the fee. So you need to look at an overall fee pack. Now some funds charge acquisition fees, disposition fees, and that sort of thing. We don’t do that. But you need to consider that so you need to read carefully to understand all the types of fees and then ask yourself and you can research This is similar to what an institution would pay and I believe funds we offer offer fees comparable, they’re they’re a little higher, because you’re individuals and smaller tickets, but comparable to institutional fees. The last thing is transparency. So evergreen funds publish the net asset value daily or monthly and fewer quarterly. So you know, the value of your asset on a regular basis as opposed to waiting in a quarterly for a drawdown fund, capital account statement, you know, on a lag. In addition to that, the posting this specific some of those information, like one of the things we do is we publish a quarterly commentary where we describe the components of our return there just like you think about a public stock, how do they make their money. So efficient, convenient, transparent, I think those are the pillars you use to evaluate an evergreen fund.

Eric Chemi 35:55
Very good. Appreciate it. This is super helpful, Bob, this opens up my eyes to a different side of the investment ecosystem, a different side of the world here. Thank you so much for joining me today. And then appreciate the time.

 

Eric Chemi 36:09
Thanks again to my guest, Bob long. And thank you for watching. Of course, if you liked that episode, please share it like it, comment forward, subscribe. All of those things help get the content out to as many people as possible so they can learn and invest better, as well. And of course, for all things Wealthion go to the website, Wealthion.com. There you can see all of our other episodes, the other shows that that you might be missing out on. And of course, if you’re trying to figure out investment advice, you want to talk to a professional, you’re trying to figure out what to do for your family’s investments. There’s a short form on Wealthion.com You can fill it out, we can get you in front of advisors that we endorse that we work with that we vetted that we think you might kick it off with, there’s no obligation, there’s no commitment. This is just a free public service that we provide if that’s something that you’re interested in, of course, thanks again for watching for sharing for enjoying. I’m Eric Chemi. We’ll see you next time.