Jacob Miller and Matthew Rubin emphasize manager selection and incentive alignment in private markets.
Jacob Miller: Hi, I'm Jacob Miller, co-founder of Opto Investments.
Matthew Rubin: Hi, I'm Matthew Rubin, chief investment officer of Cary Street Partners.
Incentives are critical, and aligning incentives are critical. And that's something that we spend a lot of time thinking about to make sure our incentives, our clients’ incentives, are as well aligned as they can be with the manager.
These asset classes are highly selective as far as the types of managers to allocate to—whether it be private credit or private equity or private real estate. The dispersion in return is very, very significant. So manager selection is key. And a big part of that manager selection is making sure that we’re aligned as far as incentives.
Jacob Miller: Yeah. I mean, the data behind that is very clear. Yeah, it depends on the year, but on average, difference between top and bottom quartile for long-short public managers: 3 to 5%. For venture capital, it's almost 20%.
You really want to make sure: I would not end up in that bottom quartile. How do I maximize my opportunity of being in the top quartile? And so much of that comes down to alignment through diligence. And as the number of options increases to lower and lower brackets of wealth, you know, having a guide like Cary Street becomes more and more important.
Unless you live this every day, it can be hard to really dig into that and understand the incentives. What's the—how does the sponsor relate to the fund? You want a partner who's looking really deeply and saying, like, the setup here is such that this manager wins only if you win.
Matthew Rubin: We look at private markets as being able to allocate the private market beta and looking at managers that are going to get you that access. And I think that's an important part of many client portfolios. But as we curate portfolios for clients, we also look for managers where we can be able to get alpha.
And often that alpha comes because of an alignment of a particular incentive with that manager—whether it be better fees, whether it be a share in the profits with that manager. There are things you can do to further align your investment, your client’s investment, with that manager's outlook.