$70,000,000,000 plan. It wouldn't be out of the norm to put a $1,000,000,000 of capital to work in private equity over a 1 year period. And so because VC was a part of private equity, we would allocate, say, 15% to VC. You spent 13 and a half years at PCERS. What did you wish you knew when you started in year 1? How challenging it could be working with different constituents. You're dealing with not only staff and the different levels there, but you're also dealing with consultants.
You're dealing with the board. And a lot of times you're not dealing with them directly, but you could be dealing with the public as well through press or something like that. So there's a lot of potential things that can get in your head over the long term. I'm not a big proponent of pension plans that give bonuses to their staff as well because I think it's difficult to be able to incentivize staff in the short term with a long term asset class.
1 year return doesn't necessarily mean that you're doing a great job just because the market has gone up or down in conversely, a bad job. Tony, I've been excited to chat since our friend Arianna Thacker made the introduction. Welcome to 10X Capital podcast. Hey. Thanks for having me. You don't know how much of a benefit you've been on, long drives where I get to listen to multiple podcasts and listen to a lot of people's views and and certainly your insight.
I always appreciate the questions you're asking. Thank you for the kind words. So you worked at PCERS, which is a public school retirement system, in Pennsylvania, which today has over $70,000,000,000 AUM. Tell me about your experience there. So I started in PCERS as an accountant in the finance department.
About halfway through my career there, I moved over to investment, started off as an analyst, looking at, you know, working with infrastructure, absolute return, private credit, and then obviously private equity in VC. I then began working on co investments. So during my time there, I underwrote about 36 co investments worth $800,000,000 of commitment. And then I also sourced and wrote and recommended primary fund commitments to the board. And you had 36 co investments.
That's that's a prolific amount. How did you go choosing those co investments? The way that we were delegated authority from the board is that we could do co investments with existing GPs. So you had that underwriting process. You understood the GP strategy, and and a lot of the underwriting process was just making sure that the GP was staying within their lanes. I executed on 36. We had a lot more opportunities. We did turn down some from the buyout perspective.
It was almost you know, we could get into our own heads and overthink the co investments. And, honestly, if you have conviction in the GP, you should almost do every co investment from a buyout opportunity perspective. Do you find that as an asset class, private equity is less adversely selected when it comes to coinvestments versus something like a venture capital coinvestment? I think adverse selection when it comes to buyout is something that was pre GFC for sure.
You know, there was there was a lot of talk about that back then. I think in the present form, with most of the high quality GPs that you're investing in, you don't have very much adverse selection. They're doing good investments. It's just a matter of whether you want more exposure or not. BC is a different animal. You're talking about follow on rounds and things of that nature where you could have a little bit more conflicts there. So that is a little bit different underwriting process.
As it related to co investment, how did you position yourself as the partner of choice for whether buyout or venture capital firms? 1, you have to be able to execute on the deals. And so we we certainly executed on deals. You have to be able to, you know, respond in a in a short amount of time.
So a lot of times, we were given a week, 2 weeks to be able to perform the underwriting, get a yes, no. Because we had delegation, still didn't mean you know, it didn't mean that we didn't do an underwriting to the fullest extent. We still had a staff IC that we had to present to. So myself and someone else are you know, would likely underwrite a coinvestment, present that coinvestment as if it was a primary investment to the IC, and, certainly get their questions from there.
And it was nice to have that additional check. All that had to happen within a 2 week time period oftentimes. You know, sometimes we would get a little bit longer, but executing, being open to co investments, one of the feedbacks that we got when we were talking to new managers is, do you actually execute on co investments? Because LPs tend to say that they like co investments, But when it comes down to actually executing them, that whittles down to a possible universe.
From a governance standpoint, what allowed you to process co investments so quickly? Talk to me about that. It was really all hands on deck. So the way that private equity specifically was structured was that there was a director, and there were 4 portfolio managers or analysts that were reported to them. And so if I was underwriting a fund for a primary investment, the you know, I may end up having to put that aside for a week or 2 in order to work on the co investments.
The way that it was structured, the co investments, is that if it was my relationship, so I was overseeing xyz manager, I'm over I'm underwriting the co investment opportunity for that GP. Whereas, a colleague of mine may have a different relationship, he would only underwrite the relation no. He would underwrite the co investments to that relationship. So you have that familiarity with the GP, and a lot of times, it's not a surprise that, you know, the deal is coming forward.
Depends on the timing. Sometimes they were done at close. Sometimes they were syndicated deals post close. And so that certainly dictated, you know, the the amount of time that you needed to spend on the deal as well. You were decentralized in that. You organized at PCERS around the the GP relationship. When it comes to the economics of the co invest, what was the median terms that you would get at a pension fund investing with your GPs?
For the most part on buyout deals, there were no fee, no carry. And so that was the main avenue. We did have, some coinvestments that would have, say, an admin fee, so you would have a onetime charge at the front end. It might be 1% of the deal or 2% of the deal, and then you would incorporate that in the commitment.
But for the most part, there was no fee, no carry plus expenses, which is typically the the financial reporting and the auditing and things of that nature for that co investment vehicle. Is that a function of your check size? You were writing $100,000,000 plus checks into the GP, so you were able to dictate that. Were were all LPs getting the same economics? No. I mean, for the most part, the GPs that we were investing in, that was the common structure was no fee, no carry.
For other asset classes, real estate, for instance, it was more on a GP by GB basis, and a lot of times that they would have, you know, some sort of fee structure along with that. But for buyout, by and large, it was just market that it was no fee, no carry. You were a portfolio manager in the private equity group. You were at Piecers for over 13 years. Talk to me about the portfolio construction within private equity at Piecers.
It was something that was a little bit more of an art form than science. It was something I was working on, in my latter days as well to to try and refine that. But by and large, the the majority of our investments from the buyout perspective were middle market. So you would you would go from, say, a $300,000,000 fund at the very low end, and that was few and far between, and those were usually legacy portfolios up to $10,000,000,000 funds. We would have exposure to larger funds.
So kind of way that you looked at the universe or I looked at the universe was sub 1,000,000,000,000 to 3, 3 to 7, 7 to 10, and 10 and up. And you kinda bifurcate that buyout universe in that way. They all have different attributes. So a sub $1,000,000,000 fund is likely gonna be investing in EBITDA multiples a little bit higher. But from a total EBITDA, it's likely gonna be 15,000,000 or less. And so when you take a look at those smaller companies, it's just a different strategy.
It's very similar to VC in that small buyout. There are a ton of small buyout GPs. You can have a lot of volatility in return. So manager selection becomes that much more important for the small buyout than you do with, say, $20,000,000,000 plus funds. There's a very limited, universe of $20,000,000,000 plus funds out there. That's the kind of way that we kinda look at the universe was just from those size perspectives, and that was, information that we're getting from consultants as well.
That was kind of the way that they saw their universe, and so we just adopted the way they saw that universe and and attacked it the same way. Did your strategy around check size change by the size of the fund? You mentioned you had a small as a $300,000,000 fund, and you had a $10,000,000,000 fund. How would you size your checks in those cases? Yeah. Those $300,000,000 funds again were were pretty old.
In in the present day, I would say that it was likely not less than a $500,000,000 fund just because of the concentration limit. We couldn't be at LP that was greater than 30% of a fund size. And most times, we're writing $100,000,000 checks. And so if you take a look at it from a historical perspective, most of those commitments that we made were around a 100, 150,000,000. We had a couple that were a little bit less, and we had commitments and this is our, you know, this is public information.
You can see them out there, but there was one GP, that we made a $300,000,000 commitment to. Again, it was kinda more art than science. And so, you know, certainly, the length of the relationship, the familiarity with the GP all came into play when you're making a a $300,000,000 commitment to a GP. And your minimum investment being a 100,000,000, did that make it really difficult to invest in venture capital?
Talk to me about the challenges of having too much capital when it comes to investing into venture capital. When you look at portfolio construction and you take a look at the budget here, so $70,000,000,000 plan, it wouldn't be out of the norm to put a $1,000,000,000 of capital to work in private equity over a 1 year period. And so because VC was a part of private equity, we would allocate, say, 15% to VC. So now you're looking at a $150,000,000 a year, $100,000,000 check size.
Only looking at one commitment a year over a 3 year period. You might be able to do 3 or 4 if you're able to straddle budget years. Conversely, you take a look at buyout, and, you know, we were a lot more diversified on the buyout side than we were on the VC side if we're gonna be doing those VC investments.
It also limits the universe because, again, you would likely have to have a minimum, fund of 3, 4, or $500,000,000 because even though you can be a 30% LP of a fundraise, as you know, most GPs don't want one LP being 30%. So it's usually GPs don't want more than 10, 15% of a fundraise, and so that also dictates the fund size when you back into that.
From a pension plan perspective, if you can't properly diversify VC, which, you know, you should be diversifying, and we can get into early stage, late stage, multistage strategies, and things of that nature, Is your money better deployed, you know, to VC direct deals? Is it to fund a fund, or do you just eliminate VC in general saying, I can't get that diversification, so maybe my money is better spent than to buy out spectrum?
I had the former CIO of Calipers, and he mentioned that funds like Sequoia, at least historically, have shied away from pension funds. Did you come across that where venture funds did not want to take pension fund capital? Is that still something that goes on today? I've never personally had conversation with Sequoia. It is funny how much sometimes just that kind of sentiment dictates your investable universe.
So because I constantly was told there's no way Sequoia would take my money, it was like, okay. Well, why bother reaching out to Sequoia? Because everyone's telling me they're not gonna take my money. It could be true. It could be incorrect. It could be an antiquated thought. There was a GP that, you know, from our strategy here, our perspective was that there's no way that they even wanna have a conversation with us. And we reached out to them.
They were excited to have the conversation with us, and it's just something that I've I've learned from the past is don't don't go by market sentiment. Don't go by, you know, the rumor mill and things of that nature. Always talk to everybody that you can. Reach out to everybody, and it it'll be you know, it could surprise you, you know, where that conversation could lead you.
So to to go back to, like, Sequoia or Andreessen or, you know, some of the other names out there, I can't speak to that because I never addressed them directly just because it was just kinda pounded in my brain that they weren't gonna take our capital anyway. But it wouldn't surprise me if they are open to it. You know, I think the world has changed a little bit. FOIA laws being what they are, every state is different.
I don't know that there's still that concern that that information would get out there. I would think that the larger, GPs would want pension plans in there because it's larger checks. Do you have a, you know, fewer LPs in your LP base? On the surface, it sounds like you would want those larger checks, but maybe the headache's not worth it either.
You just spoke about some of the cons, but what are some of the pros, and what positions pension funds in a powerful position to invest into either buyout or venture capital? Well, first and foremost are the returns. You know? I mean, if you can get a top quartile GP on your roster, you're gonna be super happy with those those returns. The opposite side of that is, can you cover enough of the market to be able to identify those top GPs? And so that's where that rub ends up being.
For me, personally, I mean, I find BC exciting because it's, you know, very forward thinking asset class. It's a lot more forward thinking than, you know, obviously, buyout and, some of the other strategies out there. You can certainly help fund these change agents that are constantly finding founders that are changing the world for the better. Again, whether it's environmental, whether it's health, whether even software, things of that nature is just I don't know. I I find it super exciting.
You were at a pension fund, and you built out a great venture book. How would you advise pension funds in 2024 to go about building out a great venture book? You certainly wanna be intentional with how you're spending your time and building that portfolio. So if you take a look historically as to the outperforming asset classes, you know, it's gonna be health care. It's gonna be IT. It's gonna be financials.
Doesn't mean that you're not exposed to consumer or industrials or some other asset class within VC. You're likely gonna be concentrated in those asset classes, though, because those are the ones that have historically driven performance. Then you wanna take a look at from a stage perspective. You know, how much do you wanna be exposed to early, late? Do you wanna leave room for GPs that invest across strategies or across stages? Do you wanna be exposed to growth equity?
The the high upside is not there for growth equity, but, you know, you certainly have a, you know, a little less volatility, a lot less volatility from a growth equity standpoint. So being really intentional on that portfolio construction the way that you wanna see that manifested, and then you have to put in the time to be able to meet with GPs.
You know, that's the the the one thing that I found difficult from a pension plan perspective is that, you know, from a, you know, a very established pension plan, You have monitoring. You're approving capital calls and distributions, and and you're also doing, you know, monthly or quarterly reporting. You have all these other things that are coming into play. Can you cover enough of the market to be able to identify and select the top GPs?
You have to be intentional with that, whether it's, you know, a dedicated in house staff, whether it's using consultants. Whatever the avenue is, don't be satisfied with meeting performance from a VC asset class. And where did you find the sweet spot in terms of your entry point? I would say multistage. So take Insight Partners or, you know, Summit or OHCFT that are you know, they're all investing in early through growth equity. And so that's where we would spend most of our time.
From a pension plan standpoint, yeah, it's difficult to do a fund one, just because of the underwriting internally as well as, you know, getting that buy in from consultants. Some consultants will have focus on emerging managers, and therefore, the underwriting could be a little bit easier. Other ones won't recommend any fund 1, so that could be a difficulty doing that.
From a buyout perspective, I had just recommended before I left, well, in a end up getting passed on to someone else, but it was a fun 2. And so it was very different fun 2 because you had, you know, a really long established track record from a previous GP. You had 3 people coming together that you know, you already had that that buy in, that the team dynamics were really good and strong, and you had confidence in that.
And so those are a lot of the underwriting that you would have difficulty from a pension plan perspective is just surety of team. You always have to kind of you know, there is this outperformance for fund 1 dynamic out there. But what I don't think a lot of people appreciate is that fund twos can underperform because you have different dynamics happening in fund 2, before the team kinda, you know, wrangles together and then starts outperforming fund 3, 4, and 5. What's the reason there?
I've had some conversations with some GPs on fund 2 as to why their performance had lagged. Some of the sentiment was, you know, you had team dynamics. From a Fund 1 perspective, you had everybody coming together feeling really strong, very motivated, and, you know, all on the same page, and they just want to be the best that they can. And so they do that. They come together. It's a great team dynamic. And then 3, 4, 5 years into a firm cycle, you start getting egos that are coming into play.
People tend to wanna do this deal versus that deal, or you have different dynamics that are happening that can pull a team apart and then actually hurt performance. So what you would actually see is that from a fund 3, there may be a revamp of the GP. You know? So one one team member may leave. They may add someone else. Those are some of the things that happen at a fund 2. Absolutely. I've seen a lot of pension funds access first, second, vintages through programs, through fund of funds.
Did you ever consider that at Piecers in terms of instead of writing $100,000,000 checks, you know, being part of these programs at different, different fund of funds or consultants? Yeah. Definitely. It was something I was taking a look at, you know, in in my last year there was, possibly outsourcing 2, 2 strategies. 1, you know, I mentioned before, small buyout. So sub say, sub $500,000,000 funds, I can't access directly.
We're certainly looking for a solution there, and there's some really good providers out there that do that. Some have been guests on your show, And then certainly from a VC standpoint, now Piecers themselves didn't have a mandate for emerging managers or diversity or anything like that. It was just part of the process is that, you know, you may allocate to emerging or diverse, but it wasn't, you know, a dedicated amount of capital.
But from a VC standpoint, again, when we talk about, like, early stage, there are so many early stage VCs. You have the ability to cover enough in the market to be able to select those top tier managers. We spoke last time. Hamilton Lane put out a chart that bifurcated emerging versus established manager returns. Tell me about that. Yeah. Did you, I'm curious on on your thoughts before I before I get too carried away.
There's somewhat of a paradox that I found in venture capital where there is high persistence on return. I believe there's a University of Chicago study that showed that the persistence of top quartile performances roughly 5th in the fifties percentage, statistically significant. The paradox there being that emerging managers tend to be the ones that return in the top desk on the top 10%. So if you want to get top quartile, you try to get into the very difficult to access VCs.
But if you wanna get top decile, you do have to take some risks. What have you found in your data? I love the data myself because it it actually speaks to our strategy. So when I found that and came in my feed and then you asked the question, I was like, shit. We're all on the same page here. So I'm I'm happy you brought it up. But, yeah, I mean, it's done on a IRR basis. I was not surprised by the volatility.
You know, I would think that established GPs would have less volatile returns, and so that's what that's that's showing there. But what I was surprised is is that they had higher median and higher quartile for established EPs, because to your point, it's kind of contra what what people have always thought.
And I I do think that if you look at returns from a Fund Size perspective, and and oftentimes, people use Fund Size as a proxy for established or emerging because this is the first time I've ever seen established versus emerging, and certainly am familiar with the the persistence discussions as well. So I I found it interesting, and it was a bit of, you know, confirmation bias on on our end because, we're we're gonna be allocating to establish as well as emerging managers.
And so my thesis was that, you know, I would have less volatility. I think selecting the best emerging managers is tougher, and and you should be compensated for that. But if it's not necessary to your investment thesis, why not allocate some to established GPs? After working at Piecers for 13 and a half years, you joined as a partner for fund to fund called Cinefina. Tell me about the impetus for joining Cinefina.
My partner and founder, Yasmin, started a firm a couple years ago, and she when she left Drive Capital, what she wanted to do was was start something that was focused on women in VC. And so what that looks like today is, you know, having a fund to fund where we're gonna be dedicating capital to women led and co led VC firms. We wanna make sure that the GP, proportion is equal. And so if there's one woman on a 4 person GP, that she's 25%, she's not 5%.
And so it really started for me, if I were to take it to to why I joined, it started for me when I was at Piecers. I had a couple different investments. 1 was a top performing GP, and it was the first commitment that Piecers had made to a women led or or co led private equity firm. And so I found that interesting. It wasn't part of the investment thesis. It was, hey. This is an awesome multistage VC growth equity firm who happened to be led by women.
And so that was that was the first investment that I had made there, you know, regarding women. And then a couple years later, I did an investment with Insight. You had a couple of guests a couple weeks ago. So Insight Vision, I led our investment there. The thesis there was to invest in diverse and women led GPs. And, again, part of that fund to fund was that it was gonna be accessing GPs that we can't access because they're typically smaller. They're typically early stage.
They're typically, emerging managers. And as I worked with underwriting that fund level commitment, I had GP conversations, and then I really became enamored with the asset class. From that perspective, the opportunity set, the diversity that's embedded within the GPs, just the different lens that they were investing with. It was something that I thought was underutilized from an investment standpoint. And I was like, why not lean into diversity? Why not promote diversity?
This does drive returns. And so it was something that I had been taking a look into. And so, you know, I had a, you know, conversations with Diaz, and it just made sense for us to team up. For somebody to qualify as as investment to Cinefine, tell me about the criteria there. So it's really only one qualifier. The qualifier is at the GP level. There's proportional ownership at the GP level. Other than that, we'll be intentional with our portfolio construction.
We're gonna have, you know, a portion that's gonna be too early, late, multistage, possibly growth equity if the opportunity set is there. We certainly wanna be investing mostly in the US, but there are some good European opportunities that we find, possibly LATAM. But those are the only qualifications. We expect that half of our capital will be to establish GPs, and the other half would be funds 1 through, call it, 4. And it the way that we take a look at that universe is really by experience.
And so what you're doing from an underwriting perspective is, you know, trading qualitative information with quantitative data. And the more quantitative data you have, the better you can get an understanding of their strategy, the way that they have discipline, their investing style.
So the more commitment you have there, and that goes to, you know, what we're talking about with Hamilton Lane, I do see that there is a different return spectrum that from that allocation established versus emerging, but we definitely wanna be able to support both. Which vintage is the hardest? Fund 1, Fund 2, Fund 3?
You know, I've been talking to people, and and they seem to think that Fund 3 seems to be the hardest vintage because in the current environment so I I would say I would I would lean back to that, that it's probably more fund 3 if you don't have fund 1 DPI, because from a fund 2 perspective, it's still just making sure, hey. You know, we'd like to fund 1. Let's re up in fund 2 as long as things haven't changed.
And they've shown that that they're gonna be disciplined with their investing style, and they're doing everything that did that they said they were gonna do. So from a fund 1 fundraise, you know, you're telling LPs, hey. We're going to do x, y, z. And the reporting from them should just be, a, we told you we're gonna do x, y, z, and this is what we did. And then if you have deviations, that's where you end up running into trouble.
But if you did everything that you told, you know, your LPs, in fund 1, fund 2 raise should be fairly easy. Fund 3 is just I think in the current environment, fund threes are tougher to raise just from a DPI perspective. Absolutely. Similarly, could be said about, raising venture. Sometimes series b could be more difficult because series a, you could still still sell the story.
You invested at at Piecers, presumably mostly in male GPs, just statistically speaking, and now you focus on female GPs. What are the main difference between male GPs and female GPs in terms of how they source, how they provide, how they generate alpha? Tell me a little bit about the stylistic or qualitative differences in female GPs. I don't see that there's too much of a stylistic standpoint. They're still going to be alpha people. Right?
They're the ones that are going out there, and they're just driven from an internal perspective. They're not at least when they they start they're not in it for the money. They're not in it for, you know, the glory and things of that nature. They're in it because they think that they can outperform everyone else. It's a very competitive nature. And so they're just, you know, people out there that have that competitive edge, and those are the ones that you really wanna focus on.
They, you know, they don't give a shit what I think. They're they have an investing style. They're moving forward. They're doing everything they can. Now when you take a look back, and, you know, perhaps we'll we'll get into it, is from a different perspective, is that because that universe of women, and this can can go into other diverse GPs as well because there are so few women that when they're being promoted, you're almost always selecting the very best.
And so from a counterpart standpoint, from a typical white man, they're usually outperforming that typical white man because they've had to overcome a lot of possible stigmas, you know, in their process. And so they have, for lack of a better term, a lot of them will have a chip on their shoulder because they're like, I'm gonna show you. You know? And so, you know, that's that's just what I'm seeing.
But any outstanding person, you know, whether it's sports, whether it's, you know, from a founder perspective, they always have that chip on their shoulder. Absolutely. They've had to overcome more obstacles, whether it's a person of color, immigrant, or female. For them to even get to the point where they could be promoted, they have to be so exceptional just to just to get in the room. You mentioned something interesting around the daughter effect for male GPs and LPs. Tell me about that.
It was a lot of research that I'd done on bias and, you know, researching, sent me down this rabbit hole, the daughter effect. And so I started reading articles by Siri Chilazi from the Harvard Kennedy School. In her research, she often cited research from others. And the daughter effect was a discussion from Paul Kompers and Sophie Wang in a working paper in 2017. But more broadly, the daughter effect is as it sound.
It relates to when a man has children and what Gompers and Wang found or what they were trying to study there was the impact of VC firms and how, you know, it had a potential cascading effect. So, again, historically, VC firms have been run by men. When these men have daughters, they tend to reduce their bias towards women, leading to more female hires.
Since the pool of female investors are, you know, relatively untapped and it's a lot more finite, those hires tend to be of higher quality than their male counterparts. That higher quality of hires leads to higher returns because introducing people with diverse backgrounds reduces probability of correlated errors. You have diverse backgrounds that lead to wider deal flow, increasing the deal quality.
I will say that they do caveat the paper by stating that implementing, you know, blunt gender quotas may not have the same positive outcomes. These are things that just happen through genuine removal of bias. You're saying, oh, you know, I have a daughter. Therefore, you know, I see this whole other avenue that is is possibly open to me, and it has that cascading effect that I mentioned.
You know, some of the other bias behaviors I was I was, you know, looking at was homophily or the halo effect or the, you know, the opposite, which is the horn effect, confirmation bias, peak, and rule. These are all different biases that we have as allocators when we're, speaking to, potential GPs. Horn effect being the opposite of a halo effect? Yeah. So the halo effect is you have this initial positive impression.
This person is just awesome whether, you know, for whatever reason, the opposite is true, is that no matter you know, certainly on a political spectrum, you could you could say, no matter what, this candidate says, there's no way I'm gonna like them. It doesn't matter. The opposite is also true whereas you have this wonderful effect that you know, wonderful impression. No matter what anybody says, they're not gonna be able to sway you. Congratulations, 10X Capital podcast listeners.
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You mentioned that you invest in both emerging as well as established managers. How are you constructing your portfolio at Cinefina? I I'm I'm pretty focused on, you know, cash flow profiles and return profiles. So as you go through the modeling exercise, you know, there are certain benefits and, to to each of the stages.
And so when you're looking at that portfolio construction, you can certainly say from a return perspective, I only wanna do early stage because early stage, I had the potential to, you know, high upside. The problem with early stage is that there are so many early stage VCs out there. So how can you cover that market? And how are you understanding, you know, what is good, what is bad? And do you have the wherewithal of making genuine, great selection from a GP perspective?
And so when you take that into consideration, okay. How can I mitigate some of those factors? Well, 1, you can, you know, dedicate capital to established GPs with a longer track record. So that helps mitigate still allocating to early stage, but also mitigating that with not doing all emerging managers because, again, manager selection can be so tough, funds 1 through 3, that you wanna help mitigate that exposure as well.
From a early or late stage, I mean, certainly, you know, we've seen during COVID, the valuations have gone crazy. So you wanna be cognizant of your exposure to early or late stages as well. Late stages GPs, you know, there's fewer a number. So, again, I think you can cover the universe a little bit easier. You can have a better understanding of that investable universe and have better manager selection.
And so that's the way that we kinda see the world is we think that a 40, 45% is gonna be dedicated to early stage. 25 to, say, 35% is gonna be to late stage, possibly growth equity if it's really compelling, and then another 25% to multistage. How do you think about time diversification and vintage diversification? And another thing I I love talking about so what what we would wanna do is we wanna take a look at a 3 year investing period. We don't wanna take a look at a 1 year investing period.
I wanna select the best GPs that are coming to market over a 3 year period. So, say, 25 through 27, if in my funnel, I wanna look at all the early stage GPs and say, okay. Who's coming to market over the next 3 years? And then we'll take a look at industry exposure and have those GPs in each of those funnels. So we're making the best health care investment, best IT investment, best financials over that 3 year period from a stage and industry's perspective.
So while I want vintage year diversification and to the point that, you know, I would like it to be equal because I'm a very, we didn't talk about it earlier. But from a VC allocation perspective, I'm very much in belief that it needs to be an evergreen asset class. You have to dedicate a certain amount of capital consistently to be exposed to those outstanding vintages because you are gonna be exposed to bad vintages.
And don't compound the the issue by being under allocated to outstanding vintages when you've been exposed to a bad vintage. So we'll try to equal weight over a 3 year investing period to the best that we can. But if it means that we're overweight 1 vintage year because we're selecting the best GP and that vintage, then we'll we'll make that decision.
Presumably, if your investment period is 3 years and then VC's investment period is, let's say, 3 years, then you're really getting exposure to 5 vintages. Because year 3, you're getting exposure to year 4 year 5. You're absolutely right. I mean, we're gonna be exposed for, you know, 25 through, you know, what, 29, 30. And so from a deal level perspective, we're we're gonna have a good chunk of allocation diversification from a vintage year standpoint. You spent 13 and a half years at PSERS.
What did you wish you knew beef when you've started in year 1? That's a good question. You know, I think how challenging it could be working with different constituents. So we didn't get to talk to it too much. But, you know, you're dealing with not only staff and the different levels there, but you're also dealing with consultants. You're dealing with the board.
And a lot of times, you know, you're not dealing with them directly, but you could be dealing with, you know, the public as well through press or something like that. So there's a lot of potential, things that can get in your head over the long term. It's typically not any one issue that isn't is is a big problem. But over the long term, those micro issues could just say, you know, my quality of life may be better off spent somewhere else.
If you had to remove one friction as working out of pension funds and constituents check sizes, what what friction would lead to higher returns for the asset class? From a sourcing perspective, the way that most pension plans source their investments are through, like, what we had, which was if we had the relationship, we would manage to re up. If we had, you know, recommendation, we were the ones that end up monitoring that recommendation.
I think, actually and I I've talked to some pension plans that do this. They will have a separate sourcing and recommendation team than they do have for a monitoring team because you do have a lot of from a monitoring perspective, you could be too in love with the GP. You have that close relationship. You can have conflicts of interest there.
I think having a different sourcing team that is you know, you would have to take a look at that structure, because I'm not a big proponent of pension plans that give bonuses to their staff as well, because I think it's difficult to be able to incentivize staff in the short term with a long term asset class. You know, 1 year return doesn't necessarily mean that you're doing a great job just because the market has gone up or down and, commercially, a bad job.
But, you know, separating out the sourcing and recommendation team from monitoring team, I think, would add a lot of value. Just to double click on that, is that there's a bias to advocate for your own fund even if it may or may not still be a great fund? Absolutely. No. There absolutely is that possibility. You know? We're all humans. And while I'm doing the best I can right now to eliminate or at least be aware of my bias, not all people out there do the same.
How were you evaluated as a portfolio manager for private equity? Talk to me about how PCERS would go about evaluating how well of a job you were doing. Well, it was done internally. It just like any, any other structure, you have an annual evaluation by your immediate supervisor. So it was done from that perspective. The annual increase was actually done based on the fund total fund performance. So it was kind of, again, market driven than, you know, more than anything else. TVPI, earmarks.
No. I mean, I I think that would be probably a better way, but you would have to do it over the long term. But, no, the annual was just done on, you know, what was the total fund return from a performance perspective that was done by the general consultant. Is it similar to how GPs have their own attributable track record where you had your attributable track record in the funds that you sourced, or was there more of a pooled return?
Well, again, yeah, the the private equity team didn't have a separate compensation structure. It was the entire investment team, so it was based on the entire fund. So, you know, you would certainly make your case to your supervisor. I've done x y z over the past 12 months, and, you know, that would turn into, you know, whether you were on par with everybody else or if you exceeded expectations or whatever the the, the structure was there.
But, yeah, I mean, the the compensation was just completely differentiated from, you know, your actual performance, which I I found difficult. What would you like our listeners to know about you, about, or anything else you'd like to shine a light on? You know, we're here to to be value accretive to the VC Universe. So, hopefully, you know, if you're a GP or an LP, we're certainly welcome to conversation. Take a look at our website.
What we're trying to do is cover the entire women led and co led universe. So we have a page now that is listing every GP that we've spoken to. So now that's over 200 GPs so far this year, and it will continue to grow. So if you have a focus on women led or co led VC firms, you're not sure where to even identify who they are, certainly welcome a conversation. Always love diversity of thought and and everybody's perspective. Thanks for taking the time to chat.
Look forward to sitting down very soon. Thanks, David. Appreciate you having me. For more ideas on how to raise venture capital in this market, make sure to subscribe below.