Transcript: David Conrod


The transcript from this week’s, MiB: David Conrod on Raising PE Capital, is below.

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BARRY RITHOLTZ, MIB HOST: This week on the podcast I have an extra special guest. David Conrod, what a fascinating career in the world of capital raising and private equity from Guggenheim Partners to FocusPoint Capital, he really has seen just a little bit of everything and is very, very knowledgeable about how that side of the investment world works. If you’re at all interested in a variety of diversified and non-correlated strategies, what it’s like raising capital for both emerging and existing managers, and playing in the world of credit, leasebacks, music industry, royalty funding, as well as traditional private equity, you’re going to find this to be absolutely fascinating.

With no further ado, my conversation with FocusPoint Private Capital Group’s David Conrod.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is David Conrod. He is the co-founder and CEO at FocusPoint Private Capital Group and LANDC Investments. He played a key role in sourcing six separate Guggenheim-sponsored strategies. Collectively, those raised over $6 billion of limited partner money. He also helped to establish the Guggenheim Private Fund Group with more than $7 billion in fund allocations.

David Conrod, welcome to Bloomberg.

CONROD: Barry, thank you. Glad to be here.

RITHOLTZ: So — so let’s start in the middle. You’ve been working in the asset management industry for a long time, but let’s start with your role at Guggenheim Partners. You were there when the firm was formed in — in 2000. Tell us about your role and what you did for them.

CONROD: Sure. I left HSBC Group at the end of 1999, and some friends of mine that I’d known a long time had came on — came out of the fixed income side at a number of investment banks, generally, top II-rated (ph) mortgage research and more — traders, fixed income salesman, and to raise third-party capital broker-dealers required. So, I established a little fundraiser group at this small broker-dealer, and with the knowledge that we were going to try to create a financial brand out of a museum name.

And one of the founders of the broker-dealer was very close to the Guggenheim family, the father and the son, that were owners of this brand. And we spent a little bit of time during 2000, and in October 2000, we merged the broker-dealer with the — the Guggenheim brothers, created Guggenheim Partners, and then also in the same month closed on — I believe it was $28 million in working capital. And then we — and then we had a reverse merger also in the same month with a commercial paper conduit in Chicago by the name of Liberty Hampshire. And the CEO and Founder of Liberty Hampshire Mark Walter is still Guggenheim CEO today.

RITHOLTZ: That’s quite interesting. How did being at Guggenheim, when it was founded, affect both your career and the way you think about private equity.

CONROD: I — I was exposed to private equity when I was at HSBC Group after business school. And that’s where I was exposed to it in the early 1990’s when I — HSBC was on an acquisition binge in the late 80’s, early 90’s and inquired some asset management businesses in the U.S. And when I graduated business school, I join — joined them, and I was generally calling on institutions raising along on the Southeast Asian equity mandates.

And at that time, only the largest pension funds and institutional investors would make an allocation to such a narrow strategy. And so, it got me — it allowed me to start a dialogue with some of the largest institutional investors in the United States marketing those products. And through that, I was introduced to an individual that owned 25 percent of a management company and HSBC owned 75 percent of where he had two small $35 million private equity funds focused on Southeast Asia and China.

Performance look pretty interesting and his goal of 1992 — I believe ’93 was to try to raise some capital for the United States. And …

RITHOLTZ: Was that your entrée into the …

CONROD: That would — that …

RITHOLTZ: … world of private equity?

CONROD: That — yeah, that was my entrée into — and we went down to — I think it was Merrill Lynch — to talk to their fund placement. My boss was the CEO. There were six of us, and the CEO told the general partner, a guy named David Patterson, you know, take myself down there, and I saw the fees that were — that Merrill Lynch would earn on raising a private equity fund versus the fees — you know, I was getting raising the long-only, and that was an easy decision.

From my standpoint, this looks really interesting. If I can raise, you know, $250 million at a two percent fee, that looks — that looks pretty interesting.

RITHOLTZ: Not too shift, right?

CONROD: And, you know, maybe I — I know some of the people that might take a look at this.


CONROD: And so, that’s how it started.

RITHOLTZ: And you raised a little more than $250 million.

CONROD: A little bit. We saw — we — we raised — I think it was the largest Asian private equity fund ever. We closed it in, I think, December 22, 1994, and we raised $250 million. And then we raised the sixth fund in India in the mid-90’s. HSBC sponsored the team to invest in India and South Asia. This is probably one of the earlier ones then.

I remember a drive with an advisory board meeting from Agra to Jaipur. I think it took eight hours. It will be the equivalent of driving from New York to Hartford.

RITHOLTZ: Right, took eight hours. So …


RITHOLTZ: … not exactly a smoothly paved road.

CONROD: It was a hideous change quite a bit from the …


CONROD: … the mid-90’s. And then we raised the successor fund for Asia after the Thai baht crisis in Indonesia. The rupiah went from, I think 2,000 to 20,000 overnight. And then the U.S. firms came into Southeast Asia, you know, and saw that as a big opportunity. And …

RITHOLTZ: How — how did those funds do phones do because my — when I think of Asia, I can’t help, but think of the peak in Japan in ’89, and that’s subsequently done poorly. I guess when you’re doing private equity, you don’t care about those mark-to-market.

CONROD: (Inaudible).

RITHOLTZ: You’re working off of working business.

CONROD: A lot of the funds that were fully invested by the time with the Thai baht crisis and the currency crisis in late ’97, early January ’98, we’re really hurt. You know, they were generally borrowing in U.S. dollars, and their revenues now were reduced by, you know, 10 — 10 times.


CONROD: And so, it was — it was tough. So, once we raised the successor fund, the — all the U.S. private equity firms started coming to Asia forming groups, all — all the big names. It started to hire teams to take advantage as they’re there trying to expand their footprint. And HSBC stayed in the, I would say, the lower mid-market, raised another fund in 2002 to 2003.

I was at Guggenheim at that time and they became a client. So, it worked out well that not only the group — the group in Asia that we raised capital for, but HSBC had a group in Latin America, and also a group in — in Europe that spun out and has later rebranded themselves Montague. But we — we raised a little over $2.2 billion …


CONROD: … with Montague in early 2000’s.

RITHOLTZ: So, you — you start FocusPoint Private Capital in 2010. How was this different from what you’ve done previously in your career? And what services does FocusPoint shall provide?

CONROD: Yeah. So, we learned a lot at HSBC. We had — it’s — a minority shareholder is an — is an insurance company, and that — that seated a number of the funds that we raised at Guggenheim.

So, in addition to using the — a broker-dealer at Guggenheim to raise third-party capital, Guggenheim was a principal in a number of different strategies. And we — we would identify the — the management team. The insurance company would — would provide some seed capital to get some investments completed, and then we go out to the market and — and raise the initial fund. And — and then we would generally raise a follow-on Fund 2 or Fund 3 and number of credit-related strategies, as well as — well as some equity.

Following the financial crisis in ’08, Guggenheim — I would say less interested in — in seeding new managers and more using the balance sheet that they were building to act more as a direct investor. Middle of 2010, a lot of us on the — the capital raising private fund group inside Guggenheim independent. We’re still — still very close with a number of the people that were there when we — we were there. And FocusPoint raises capital for private funds and direct transactions.

And I would say it’s similar to what we’re doing at Guggenheim and that we were — we’re continually meeting with investors and general partners. One dynamic I’m noticing is increasingly the capital raising business were acting almost like a search firm because we’re continually meeting investment talent, whether it’s talented investors inside a private equity firm, other — other independent sponsors that are more comfortable or confident in their ability to find profitable transactions. And I’ve been unable to convince them to do a fund or talented limited partners that have been, you know, investing in the asset class for a number of years. And we continue to see it evolve but, you know, looking back, you know, we’ve probably raised capital for over 20 first-time funds and — which requires a lot of work, but the reason you do it is for the successor funds.

RITHOLTZ: So, let’s talk about that because I tend to think in terms of venture capital doing a seed round and then a follow-up A round or a B round or C round, when you talk about successor funds, are you going back to the same funds you seeded or is it different projects, different investments?

CONROD: I’ll give you an example at — at Guggenheim, for example. So, we — following early 2000’s after — after 9/11, low air traffic was way off. And a lot of the airlines went from widebody to narrow-body. You notice that when you fly cross-country now, it’s a single aisle, not a double aisle.


CONROD: And we were introduced to a group that spun out of British Aerospace, and they had buying commercial aircraft on their own account and engines that power them. And they were backed by a big high net worth family on the West Coast that would — was the equity partner. It would be impossible to go to a bank to borrow money to buy a 747 without, you know, revealing who the source of your equity was. So, they had to institutionalize their business.

And so, Guggenheim did that. And by committing some initial capital, we went out, and the team went out, got some investments completed, and it was — as the load factors were off, they were buying a lot of widebody 747s and converting them into freighter to take advantage of the global supply chain moving from just — to just the time delivery, so component parts and things like that coming out of Asia to the west wanted — you know, there is a demand for a 747.

So, we — the team recognize that opportunity and did it. And it’s actually a big job to convert.

RITHOLTZ: I would imagine.

CONROD: You know, you have to cut a hole in this — drill a big hole in the side of the aircraft. It’s got to be structurally sound …


CONROD: … strengthen the floor, but we were pretty successful with that. Raised — I think six investments completed, proved out the thesis, and we raised $277 million for Fund 1. And the successor fund get around to answering your question is — was 737.

We — we got the 741. We couldn’t quite get the 747 in capital, and so we backed it down to 737.

RITHOLTZ: That’s funny.

CONROD: And — true story. And — but, you know, the — so …

RITHOLTZ: And now what did the — the successor fund investing?

CONROD: They — they did more — they — they — the market changed, and so they — they started doing some new aircraft. Boeing came out with a new 747-8, and so they put in an order for some new ones. And the existing Fund 1, the entire portfolio was sold to a — another private equity firm, had a listed vehicle to do aircraft leasing. And they — they needed to grow, so they just bought the entire portfolio.

So, we had a …


CONROD: … we — we generated a nice return in a very short period of time, proved out that it had a nice track record, which enabled us to raise Fund 2.

RITHOLTZ: Let’s talk a little bit about some of the asset managers you work with and help raise money. Through — walk — walk us through that process from due diligence to investing. What is that process like?

CONROD: It’s — it’s a lot of detail and it’s a lot of work, but it’s also, you know, having done it a lot, it’s pattern recognition. And so, we’ve met thousands and thousands of general partners looking to raise — looking to raise capital, whether it’s a — a new team that’s spinning out from a — a larger investment firm or it may be a — a team that’s proven themselves and they’re looking to raise capital, and they like to meet some new investors.

On the due diligence side, there’s a number of things to do. We — we make a lot of reference calls, talked to the CEOs of the companies that they’ve backed to verify the track record that they are presenting. The — the reason we do that it’s almost a triangle, to see if they actually do have a story straight.

These GPs are all smart, clever guys and they’re going to tell us about all the great deals that they’ve done, and their track record, and all that, and then verifying that by speaking to the CEOs to confirm that these are the guys that actually did the deals. And then we try to look at their files, do the files track with what the CEO told us and what they told us. And if those three things match up, they probably do have a process, and it’s probably — it’s probably okay. And then …

RITHOLTZ: And when you — when you say G.P., you’re talking about the general partners who are running the fund …

CONROD: Correct.

RITHOLTZ: … as opposed to the LPs, the limited partners, the people putting the capital into the fund.

CONROD: Yeah, that are investing.


CONROD: That’s — that’s exactly right. And so, you know, I tell — we, one of the things we do is we tell the GPs, the general partners that, you know, they’re in the automobile industry, they’re selling cars.

Every — every G.P. that comes into C.S. is a smart, very clever guy. And these LPs can buy any car they want, you know, and they’re probably going to do fine. And …


CONROD: … and so …

RITHOLTZ: So, the question is, why should they buy your car?

CONROD: Correct. Our job is to try to identify that investor that is looking for a differentiated strategy, where it’s additive to their portfolio to bring in another middle market buyout firm. Right now, everybody — or a lot of growth equity and these software firms are doing very, very well.

Most funds are doing well over 3X, right, and …


CONROD: … and eyes glaze over almost with these limited partners to try to convince a limited partner to do more work. And you know what? I need you to substitute your existing manager for this new group, and I want you to take six months of extra work on your end to get the same return is a tough …

RITHOLTZ: They’re not interested. Right.

CONROD: … that’s a tough one. You know, I need to have a manager that’s got a differentiated strategy that is additive to their portfolio because that’s what a lot of what a limited partner is thinking about how can I improve, diversify …

RITHOLTZ: Makes a lot of sense.

CONROD: … my portfolio.

RITHOLTZ: Sure. It makes a lot of sense. So hypothetically, you run these managers through your process. You check off a lot of boxes. Once the LPs put capital to work with these GPs, what are your responsibilities? Do they end at that point or is it an ongoing relationship?

CONROD: Generally, it’s — you know, they’re handed off to the G.P. You know, our job is to manage the process from the initial contact with a prospective investor.

I think they’re a — they’re a suspect before they’re a prospect, right?


CONROD: And so, we — we go out to several thousand investors probably initially to try to identify some prospects. And then once we have an initial meeting or an initial video call, we — it’s our job to help manage that process and move the investor through the different stages that they’re going to be thinking about, you know, towards making a positive decision, and that could be a second meeting to meet other members of the management team, getting access to a data room to look at due diligence files, look at the portfolio performance, make some reference calls. Probably we’ll do a — a visit onsite to visit — visit the offices. You know, that was an issue during 2020 when people were traveling.

You know, how does an institutional investor modify their investment policy procedures to make a commitment to a fund when they’re unable to visit the office, if that’s part of their policy? So, a lot of those policies were amended and were replaced with more reference calls and things like that.

RITHOLTZ: So that raises an obvious question. During the lockdown, were you doing everything by Zoom or — or …


RITHOLTZ: … people going out and actually meeting the — the GPs person-to-person?

CONROD: The GPs were — of course, you know, they have one — one objective, which is to get funded.


CONROD: And so, they will go — ready, willing and able to go anywhere.


CONROD: But a lot of the limited partners — the institutions were generally in the first six months of the pandemic, you know, not really willing to meet …


CONROD: … or they weren’t going.

RITHOLTZ: There’s an age gap there, right? The GPs tend to be a little younger and hungry, and the LPs are a little …


RITHOLTZ: … older and more seasoned. Am I – am I …

CONROD: That’s — that’s …

RITHOLTZ: Is that a fair stereotype?

CONROD: That’s not bad.


CONROD: Yeah, I think your — you know, the — the younger guys would — you know, we had some meetings in — and so — Miami, we had some family offices. We had meetings outside.


CONROD: We did convert some in — I think in middle of the year. It was tough though …


CONROD: … April, May …


CONROD: … April, May was — you know, everybody was on adrenaline, not really …


CONROD: … knowing what was going to happen.


CONROD: But a lot of Zoom. It was very exhausting but, you know, it’s getting — people are traveling again and taking meetings.


CONROD: So, it’s …

RITHOLTZ: So, this raises another interesting question. Were there any lasting changes to the industry or how you do business because of what we learned during the pandemic. So, lots of people still working from home, lots of people are being more selective in their travel. Do I really have to go to L.A. or can I just make this a Zoom call? How has this …


RITHOLTZ: … impacted your business? How has the pandemic impacted the way you operate today?

CONROD: I think it’s making — I think it’s making it a little bit more efficient now with annual meetings. There’s always going to be a remote option. And so, these limited partners were before in — you know, months of May, June, and September, October, November.

You know, most of the time, 50 percent of those, let’s say, six months they would be out of the office, yeah, spending a day or two days traveling cross-country to attend an annual meeting. Now they can watch it on Zoom for an hour and be much more efficient sitting at their desk.

I think that development, the fact that there is a remote option has allowed general partners and — and capital raising firms like ourselves more — more — a better probability of getting to a perspective investor that’s in the office where they’re not wasting time traveling or wasting a half a week traveling to annual meetings. So, it’s …

RITHOLTZ: So more efficient.

CONROD: … improve the efficiency.

RITHOLTZ: Yeah. Does that give everybody a wider net they can cast? Your — your geography isn’t limited to your local city or even your local coast. You could pretty much go anywhere.

CONROD: I think that — that has helped, but these limited partners are probably being bombarded by more and more emails …


CONROD: … incoming. And so, it’s still more valuable to have the one-on-one in person. But when that is not available, we — we definitely try for the video call. And, um, I’m curious as to these GPs, why come to a firm like yours as opposed to just hiring a team to raise the capital themselves?

RITHOLTZ: To hire a team, train a team, you know, it’s — it’s a big expense and …

CONROD: Makes sense.

RITHOLTZ: … it’s — you know, it’s people. And that’s management cost, and overhead, and time and …

CONROD: Yeah, yeah.

RITHOLTZ: … and lack of expertise.

CONROD: Correct.

RITHOLTZ: So — so you mentioned people are looking for strategies that differentiate from everything else they have. What are some of the newer differentiated strategies or fund types …


RITHOLTZ: … that you’re seeing more and more of that aren’t as widely held as, let’s say, commercial real estate or structured notes or things like that? What’s the new thing these days?

CONROD: Right. I think one thing we’ve seen the last couple of years is music royalties. Almost every month there’s a new group targeting that. And, you know, that emerged because these song — these artists were unable to tour. And so, that was a big source of their income is to being able to tour, and now they are looking to sell some or all of their copyrights to cash out.

RITHOLTZ: That’s really interesting because the old days people would tour to promote an album and they made the money from album sales. Now, it’s the opposite. They put out an album in order to tour. Once that shut down, they had some trouble, there’s not a lot of money in streaming, is there, for most — most stars?

CONROD: No, streaming saved the music business.

RITHOLTZ: Saved the business, but how much of that falls to the artist?

CONROD: The artist, I — I think — I don’t know the exact number, but I think every time a song is downloaded on iTunes, the songwriter gets — I think it’s $0.11 or $0.12.


CONROD: And — but Spotify, with the streaming, you know, so the — the younger artists are doing well because the people listening to Spotify are not my parents, right?


CONROD: And so, the new classics are probably performing much better and — than some — than Louis Armstrong …


CONROD: … is being downloaded or streamed.

But I think we see music royalties. We’re working with a group that not only does music, but they’ll be coming out — they do — they specialize in film and TV royalties. And the TV now, you have a lot of series that are picked up over and over, you know, for multiple seasons.

RITHOLTZ: So, another — if something goes the Netflix or HBO and …

CONROD: Gets picked up, those — you know, those royalties behave in a similar fashion to a film library, the — the TV series. And so, that — that’s self-liquidating mezzanine debt, and so there’s no capital markets event required for an exit. And it’s generating a nice low to mid-teens net return to investors and a zero-interest rate environment. And that …

RITHOLTZ: So — so let’s talk about that a little bit because that’s kind of fascinating. I know Dylan recently sold this catalog. Taylor Swift …


RITHOLTZ: … allowed streaming, which we had …


RITHOLTZ: … previously, Pink Floyd. What does this look like when an artist said — says, “Here’s a dozen albums I’ve created over 30 years. I want monetize this.” Tell — tell us about that.

CONROD: Yeah. I think a — a song hits at steady state after about — I believe it’s about six years. You know, a good example, we worked with a — a music royalty group. We’ve raised three funds for them since 2010, so we’ve been at it for a while. But — and I think it was the — during the Olympics in the — in London in 1990 — no, 2012, Call Me Maybe was on the radio …


CONROD: … every five minutes. Now you never hear it.


CONROD: And so, it took about — a song hits its steady state after about six years, and they — they can monitor. You know, they collect those revenues globally now. So, whether it’s played on — on the radio, whether it’s played in a bar, at a skating rink on, you know, its set list at a concert by a musician, those artists receive those royalties every quarter. And it’s, you know, basically just doing a cash flow analysis to see how it’s going to play out, but you probably would be interested in — it’s a little risky prior to six years because you don’t know where it’s going to …

RITHOLTZ: So, in other words …

CONROD: Where that song is going to hit its steady state, so to speak.

RITHOLTZ: … so after six years it’s almost like the coupon on a bond, the yield on a bond …

CONROD: Correct.

RITHOLTZ: … you have an idea, hey, at this point, it should yield X going forward and not all songs are created equal, not all artists are. Some are (inaudible) 2X or 3X, but you don’t know that until six years in.

CONROD: Correct.


CONROD: Something like, yeah, more or less.

RITHOLTZ: And so, you’ve done three funds that …

CONROD: We — we did — we’ve done three music funds with a group, and we’ve done two funds with another group that focuses on film and TV royalties. But their most recent fund, there wasn’t a lot of new films being produced in 2020 and 2021. They — they dipped their toe into music, and so a little more diversified. I think there’ll be some good interest in that next year when they come out with their successor fund.

RITHOLTZ: How — how large can this space to get? There’s only so many songs …


RITHOLTZ: … that that could produce each year. It’s only like 10 million songs, but not all of them make money. How much room is there in this little niche as a potential investment sector.

CONROD: Music, it’s — I don’t know how big it will ultimately get to, but there’s certainly long ways to go. And I think the film and TV — the TV is really taking off whether you see the number of series created, and — and they are — they’re picked up from multiple seasons. So — and film is, you know …

RITHOLTZ: Similar.

CONROD: Yeah. And, you know, once it’s released theatrically, you know, in the — in the — in the theaters in the U.S., then it goes to Europe, then it goes to pay-per-view on demand, you know, and you’re still seeing the Godfather every …


CONROD: … every Christmastime. You know, it’s on more different channels.

RITHOLTZ: Right, a classic Christmas movie.

CONROD: Yeah, yeah, right, yeah.

RITHOLTZ: Huh, quite — quite fascinating.

CONROD: Another interesting strategy that we’ve been — we’ve done three funds with a group focused on the sale leaseback, and — and that …

RITHOLTZ: Of — of real estate, of real estate.

CONROD: … of commercial real estate.

RITHOLTZ: So, I’m a — I’m an Old World company, I own all my real estate, all my buildings, and I’m tired of depreciating them over time.


RITHOLTZ: I sell the building to you and then do a 50-year lease.

CONROD: Not — not quite 50 years, but yeah, that’s exactly it. So, you have the headquarters of a big pharmaceutical company, and they — they’re looking to raise some cash, maybe not a pharmaceutical company, but some other business. It’s a great nonbank source of financing. You can sell the asset and simultaneously really sit back for 15 to 25 years.

You’re protected against inflation, the manager is because the rent increases are built-in contractually, and you own the asset. So, you’re actually in a better position than the bondholders that own the same credit.

And we’ve done three funds with the — this group. I think sale leaseback — the investment banks haven’t been promoting it because they probably — this is just me, a theory of mine, but the investment banks would rather convince the CFO of these corporates to do a bond offering or — or an equity offering because the fees …


CONROD: … are higher right, then suggesting, you know what, if I look at your balance sheet, you know, property, plant and equipment is your largest line item. Why don’t you — why are you in the real estate business? Why do you sell that? Really sit back and reinvest back into the business.

Another advantage for the company is to do it is by entering into a long-term lease. They’re going to get a below market rate.


CONROD: And the manager gets to buy the asset at a below market price. And …

RITHOLTZ: Huh, interesting.

CONROD: … so we’ve worked with a — a group. It’s been a little difficult raising capital for it because it’s a hybrid. It’s not quite credit because it’s real estate backed, and the credit guys don’t understand corporate real estate, and the real estate guys don’t understand credit. The real estate guys think the market’s going to take — is going to continue to go up, and they’re not looking at the — the importance of the credit.

RITHOLTZ: Right. But that’s the opportunity when …

CONROD: Right, right. So …

RITHOLTZ: … when nobody …

CONROD: Correct.

RITHOLTZ: … really understood.


RITHOLTZ: When the players in the space — it’s — it’s adjacent not dead center (ph) …


RITHOLTZ: … of what they do, so they don’t really get it.

CONROD: Yeah. And so, our job is as a capital raiser for that is to identify the prospective investor that might be a little more thoughtful or is looking for a product like this, which is generating, you know, 10, 11 percent cash-on-cash with — with credits.

RITHOLTZ: But without a lot of volatility and fairly, safely.


RITHOLTZ: And during the pandemic, they — they — actually, this group collects their rent quarterly in advance versus monthly. And so, they never had an issue all during the pandemic. So, let’s talk a little bit about FocusPoint. What’s its specialty? Where do you really put your focus into FocusPoint?

CONROD: Sure. We — we raise capital for private funds and direct transactions. The typical fund strategies we are focused on are – I would — private equity managers in the mid cap space from $250 million to say $202 billion in — in fund size. Growth equity managers, minority or managers focused on control, some software, but all — all throughout the tech sector, tech-enabled services, software, some hardware. And we’ve lately done a little bit in the venture capital world, and we do a lot in credit and income-related strategies.

RITHOLTZ: Right. So, who hasn’t done a little something on the venture capital world these days?


RITHOLTZ: It seems like there’s just a ton of cash flowing into that, but you mentioned equity growth. Are those private or are you talking about hedge funds that are in the public markets?

CONROD: These are private equity firms that are not seeking control of the businesses. So, they’re generally — it’s a — generally backing a management team, bootstrapped, and they’re the first institutional money going into the business.

RITHOLTZ: So is that a …

CONROD: And that companies are growing, you know, 30 to 50 percent annually …


CONROD: … and they — they need some equity capital to get to the next level. These growth equity managers provide that with their guidance, get them to $100 to $200 million in revenue for (inaudible). And then they show up on the radar screen of the larger private equity firms that are looking to add on — you know, looking for a portfolio company to add onto an existing platform. And so, it’s almost a food chain that …

RITHOLTZ: Make sense.

CONROD: … we’re starting to see developed, which wasn’t as apparent three to five years ago. But with the — what’s happening in the world of technology, it’s — it’s — it’s increasing rapidly.

RITHOLTZ: Huh, quite interesting. Let’s talk about LANDC Investment.


RITHOLTZ: It almost sounds like land and sea …


RITHOLTZ: … but it’s land and the letter C. First, what does that name mean, and then we’ll talk about …


RITHOLTZ: … what it does.

CONROD: I’ve got a son named Lucas, I’ve got a son named Alex, I’ve got a wife named Nina. My name is David, and my last name is Conrod.

RITHOLTZ: So, there it is.

CONROD: And that — that’s the entity that owns the FocusPoint Private Capital Group. And we — I’d say, since 2016, 2017, we’ve been through the capital raising business. We meet some — we — we started meeting some talented independent sponsors that were confident in their ability to get a transaction done where they — I was unable to convince them to do a fund. And so, we would raise equity for them, and we started to participate in the promote structure with them. So LANDC owns a portfolio of ownership interests and some direct transactions. And on occasion, we participate in the promote structure with some first-time funds as part of our compensation.

RITHOLTZ: So, when you say you participate, you get a slice of the G.P. Is that right?

CONROD: Of the — of the G.P. economics, correct.

RITHOLTZ: Oh, not the control, just the economics.


RITHOLTZ: Just the cash flow from them.

CONROD: That carry – part of the percent of their carried interest for raising the equity. And, in some cases, we have invested in their G.P. One — one — I think we noticed is with the independent sponsors, when they do have a direct transaction, the lenders want to see — a fund that — that G.P. commit is generally two percent minimum. The lenders on a direct transaction for a sponsor who does not have a fund are asking for a 10 to 20 percent for a G.P. commit. And they don’t always have that lying around.

RITHOLTZ: It’s a lot of money, right.

CONROD: And so, being able to help them solve the G.P. capital problem helps improve our economic sharing …

RITHOLTZ: Makes sense.

CONROD: … for example.

RITHOLTZ: And that — and that sounds like those are potentially lucrative investments over time.

CONROD: Yeah. That’s — that’s our — that’s our — that’s the object to the exercise, I guess, right. The …

RITHOLTZ: Well, as opposed to saying I want to put money into this fund that’s going to yield eight or 10 percent.


RITHOLTZ: When you’re putting money into a direct investment, my assumption is those are …

CONROD: Looking for a higher return.

RITHOLTZ: … extraordinarily attractive opportunities.

CONROD: Yeah, the — the investors are looking for a higher return. And we’ve — we’ve done some things in the real — real estate related in the hospitality sector focusing on the extended stay in the select service market with the — the former head — former principal on — at — at a large investment bank. He had a $20 billion portfolio he oversaw at one point. He’s been operating at a — as an independent sponsor for 10 years.


CONROD: And we’ve done — completed now six transactions with them. And we have, I guess, ownership in, you know, north of 60 of those types of hotels.

We recently identified a — a New York Stock Exchange-listed insurance company to invest in eight large shipping container vessels. That $170 million is now worth north of $0.5 billion in only nine months …


CONROD: … as the — the container market is red hot right now.

RITHOLTZ: To say — to say the least.

CONROD: And this insurance company was pretty savvy in — in recognizing that end of last year. And these are all end-of-life ships, so they go to scrap at the end of the charters that they’re currently on, so there’s no exposure or risk of re-chartering them at the end of these.

And the investor at that insurance company, clever guy.

RITHOLTZ: Sounds likely.

CONROD: Actually, ex-colleague at Guggenheim.

RITHOLTZ: Oh, really?


RITHOLTZ: Really, really interesting. So, I mentioned LAND. Coincidental, it’s really an anagram for you and your wife and your kids, but let’s talk a little bit about triple net leases in real estate. Explain what that is and — and what’s the investment opportunity there.

CONROD: Yeah, if you look at most balance sheets of most corporates, property, plant and equipment is the largest line item. And we — there’s an opportunity there to — it’s another non-bank source of financing, so a corporate could — looking to raise capital could unlock some of that real — get out of the real estate business, sell –sell the asset simultaneously, really sit back for a long period of time, 15 to 25 years, and have the use of those proceeds to reinvest in their business.

I think it’s — has it been very popular. It hasn’t been promoted a lot by the investment banking community because I think the — the cynical side of me says they are making more — more money on a bond offering or issuing some more equity than suggesting a sale leaseback for an asset. We came in contact, I guess, over 10 years ago with a very talented team from — a guy who came out of a listed company called W.P. Carey. He built their international business, sold his share. He had a shareholding in that business, sold it back to W.P. Carey and formed his new firm 10 years ago.

We’ve raised three sets of funds for them both in North America and Europe. And I — I believe that firm probably is pushing $7 billion or $8 billion …


CONROD: … in AUM. It’s a great — yeah, it’s another non-bank source of financing in a low interest rate environment.

RITHOLTZ: Really interesting. And I’m curious about something. In the public markets, ESG has become really such a buzz word: environmental, social, and governance. You — do you see anything like that on the private side or is it much more blocking and tackling, less marketing and, you know, value-based investing?

CONROD: It’s — it — yeah, I would say most institutional investors definitely have an allocation to ESG, and it’s — it’s really increasing significantly …

RITHOLTZ: On the private side as well.

CONROD: And that’s a big part of their due diligence to go through. You know, there’s ESG consultants now that — ESG standards definitely in Europe. It is probably further ahead than the U.S., but it is — most of the managers have to be aware that, but I think it’s going to make their portfolio companies ultimately better because it’s all focused on innovation. And — and, you know, innovation is technology, and these companies will just — will be better, and it’s going to bring about a better international standards that these companies have to operate under and same with these GPs.

RITHOLTZ: Quite, quite fascinating. So, let’s talk about the state of private equity here in New York. It seems to be hot as a pistol. What do you see going on in the industry? And how has it changed over the past couple of years?

CONROD: I think if I looked at our roster of general partners, we were working with back to say 2016, 2017, probably — we probably only had one that had a technology element to it. Now, everybody does, even — even distress for control manager that we’re about to go to market with — with a — with an assignment. And this is an individual that led the creditor group to gain control of Cirque du Soleil last year.

Every — every strategy has to embrace technology to improve their businesses and take advantage of the innovation and the — and the competition is — is becoming increasingly fierce.

RITHOLTZ: So, these are tech components to non-technology companies. We’re not …


RITHOLTZ: … necessarily talking about investing in semiconductors or software, these are more traditional businesses, but technology is a key part of them.

CONROD: Yeah. And I’d say absolutely software to make them more efficient. You know, previously you may have had a financial services investor that was providing balance sheet capital, now they’re focused on payments and — and its strategies.

RITHOLTZ: And there’s a lot of software involved in that.

CONROD: Yeah, correct. But you’re seeing that in specialty industrial managers, health — healthcare managers. You know, obviously, in venture capital, it’s obvious, but any type of strategy there’s a technology element that they — they need to be thinking about it because the competitive intensity with their competitors is only going to increase.

RITHOLTZ: Really, really interesting. So, I don’t know if that’s an opportunity or a strategy. I don’t know how to think about that.


RITHOLTZ: What else are you seeing that’s different than five years ago besides the impact of technology?

CONROD: I — I think the — in this low interest rate environment people are looking for yield and income, and how do they — they have a — they have a benchmark. And when zero — when bonds are returning zero, you know, they need to look at other income-related or alternatives. You know, we’ve talked about sale leaseback, we’ve talked about music royalties, talked about film and TV royalties, asset-based lending in addition to just casual lending and leverage loans. People are starting to see litigation finance strategies. You’ve seen some of those.

Last week, I ran into two new income strategies I had never thought of. I don’t know if they’re scalable or we would do it, but one is liquor license lending in California, apparently in the state of California. There are no new liquor licenses. You have to buy an existing one, and 15 percent of the purchase price has to go in escrow while their due diligence is completed on the new buyer, and that’s a 10 percent business.


CONROD: It’s small. We’ve seen a tax lien finance, you know, in different states, people buying no tax lien. And, you know, people are — a lot of creative people out there trying to come up with strategies that will generate, you know, an attractive, you know, financial return. So, we try to work our way through that but, you know, it’s got to be scalable, and the management team has to be credible, and where there’s a process in place, where it’s systematic and repeatable.

RITHOLTZ: It might be a little early in the growth cycle of this, but are you hearing anything from clients about things like cryptocurrencies, blockchain, NFTs. That’s the flavor of the month. What — what are you seeing on the private equity side there, if anything?

CONROD: Yeah, absolutely, people are looking at that and allocating resource to it. And when you see the consultants also spending time and staffing up to do some research, yeah, it’s — it’s probably here to say. Some of the large — some of the larger endowments have already made some allocations in — in the crypto and the digital currency world, so it’s …

RITHOLTZ: Really …

CONROD: … it’s happening.

RITHOLTZ: … really, really interesting. So previously we talked about Zoom calls and the efficiencies that took place during the pandemic lockdown when there was less travel. When COVID first was beginning, it looked like a distressed assets cycle was going to begin, but it seems to be the distressed asset cycle that never happened. How are you looking at those sort of opportunities in the first and second quarters of 2020?

CONROD: We were thinking the same thing. We are — we — we saw an individual that we know well who let the creditor group in March, April of 2022 to get control of Cirque du Soleil, right? If you think about that business, their sales stopped overnight …

RITHOLTZ: Dead, right.

CONROD: … globally. Done.

And he — he — there was a $1.2 billion of debt on that business and …


CONROD: … this guy created the company for $300 million. And it — actually he’s relaunched it just prior to Thanksgiving all over the world. And — but we — we thought the same thing.

He’s launched this fund. He’s got four positions completed, you know, since I’d say 2Q, and he’s probably up 1.6. If you think about the stress, you’ve got a management team that’s on a treadmill, and the — and the private equity sponsor every quarter is telling them make the interest payment. And every quarter, the tilt is going up and the speed is going up on that treadmill. And these distressed investors are just waiting for that amortization schedule to kick in. And at some point, that’s going to happen and they’re going to lose the company. And so, I think there’s a number of positions being built on these potential targets, but we haven’t seen the carnage that everybody anticipated a year and a half ago.

RITHOLTZ: Really, really interesting. We haven’t really talked about deal flow. You’ve been doing this long enough that, you know, so many people in the space, but what is it like — how — how do you find either the GPs you want to invest in or the specific deals that you might want to …


RITHOLTZ: … directly invest in?

CONROD: Yeah. The — the — we have been doing — I have been doing it a long time and some of my colleagues at FocusPoint were also at Guggenheim from the beginning or early on. We — we all have a pretty good network of people. We — our sourcing comes from some of the experienced investors that we’ve known a long time that maybe it’s the large endowments or foundations that’s (inaudible) have a good relationship with the group. And maybe some of that team is spinning out to start something new.

Some of our deal flow comes that way. Direct approach where we go out, introduce ourselves and a general partner may have been working with another capital raise partner for a number of years and might be thinking about, you know, maybe I should try somebody new and meet a new — get introduced to some new investors that I may not have met that are not in the network of the existing capital raiser that I’ve been working with.

So, some of that, and a lot — we get emails all day long of new groups looking to raise capital. So, it’s — it’s — I think it’s a combination of all of it, some incoming, some proactive. Definitely, we’re always speaking to limited partners, what groups you like, have you seen any strategies in this area.

You know, if I look at the market, there’s three components to it, I — I call it, the trilogy. You’ve got the limited partners who are the investors. You’ve got the general partners, and — and you have the intermediaries, which are the consultants and the gatekeepers that work with a lot of the limited partners.

And we’re constantly hitting the limited partners and they’re — they are meeting the sales force. They’re seeing us at conferences. They’re getting newsletters. They’re reading about you in the press, and call calls, whatever it may be. They’re constantly getting introduced to products that we have. Same with the intermediaries and — and also with the — the general partners, we’re trying to get them.

But the intermediaries are going to influence the limited partners. The limited partners may tell the gatekeeper or the consultant, “This looks kind of interesting. I’d like you to do some work on it.” So those three things are constantly moving. And we — it’s — we — we say we try to do it with rhythm and repetition, each one of these market participants, and how we spend our time.

RITHOLTZ: So, we’re used to the two and 20 fees with …


RITHOLTZ: … either VCs or hedge funds or private equity.


RITHOLTZ: You guys are in a somewhat different niche. What does the fee structures …


RITHOLTZ: … look like relative to — to regular …


RITHOLTZ: … or alternative investing?

CONROD: Yeah, that’s – that’s about right. So, the rack rate for raising up the capital for an established group is probably 2% percent on — on committed capital, and then you’re protected on the successor fund with, say, half fee on the — 50 percent of the fee that they paid last time up to their level, and then maybe something a little more on the incremental.

Generally, an investor is underwriting to do two funds with a general partner. And then they’ll re-underwrite them seriously on Fund 3. There just won’t be enough to come through by the time they’re back in the market, especially today when they’re back every 18 months.

On the credit side, the fees are a little less because they’re charging a little less because …


CONROD: … the returns are …

RITHOLTZ: … much less.

CONROD: Yeah. And so, you know, I’d say rule of thumb if it — it’s — if a credit strategy is returning say a net — net return of between eight and 10 percent, the managers probably can’t charge more than one percent on invested capital versus committed capital.


CONROD: And maybe it’s a 10 or 15 percent carried interest versus 20. If the return is say, 10 to 12 percent net, the credit manager might be able to get 1.5 percent — one to 1.5 fund invested, you know, maybe a 50 percent carry and then north of 12. They’re working their way closer to two and 20.

RITHOLTZ: Is there the same sort of fee pressure on the private side that we see in the public side? You know …


RITHOLTZ: … you have Vanguard driving and — and others driving …

CONROD: Race to the bottom.



RITHOLTZ: Which is great when you have scale, but everybody else, it definitely pressures them and they don’t have the same sort of economies of scale that BlackRock or — or …

CONROD: Right.

RITHOLTZ: … Vanguard have. What are you seeing on the private side with that?

CONROD: Definitely — definitely that on the fund of funds managers, right? The fund of funds generally, you know, 10, 15 years ago could get away maybe with charging one percent and 15 percent.

RITHOLTZ: On top of, right.

CONROD: Yeah. And now — now on — on a — they’re all moving it to — trying to make money with co-investments, right?


CONROD: And so, that’s where they’re going to make their — that’s their bread and butter, and they’re almost giving away the primary investment …

RITHOLTZ: Interesting.

CONROD: … and the fees that they charge on that.

Another interesting development, right, I think we’ll see a lot of fee — fee pressure are the private equity secondary managers. They — they’ve raised incredible amounts of money, tens of billions of dollars from large — large LPs. They’re paying a slight premium versus — you know, following the financial crisis, they were paying — they were buying a lot of these limited partners were out of balance. When they rebalanced their portfolio, when the stock market declined, they are way over their targeted allocation to private equity, so they had to sell. And these secondary managers did very well. They were buying — buying those positions at steep discounts.

Now they continued to raise money, but they’re — they’re probably paying a slight premium. And I think investing as a secondary manager, when there’s a lot of liquidity, doesn’t make a lot of sense to me. You know, I think investing in a secondary manager when there isn’t liquidity, they’re going to be buying in at steep discounts.

RITHOLTZ: Really …

CONROD: And — and — and another dynamic is you’re seeing these continuation funds being formed where general partners now are basically creating their own secondary funds themselves. So, a G.P. will have their best asset. They’re taxpayers and …


CONROD: … they’d rather just continue to compound. And so, the …

RITHOLTZ: Without having to pull it out and (inaudible), right.

CONROD: Without having to sell it, correct. And so, they’ll take their best asset, put it into a — a continuation vehicle, redeem out the LPs what their capital back …


CONROD: … bring in a new — new capital provider and keep going.

And so, …

RITHOLTZ: Interesting.

CONROD: … I think — we’ll see what — we’ll see how that shakes out with — with some of these secondary managers that have raised a — a lot of capital. And …

RITHOLTZ: So — so that raises a really interesting question. We seem to hear every couple of years a lot of chatter about doing away with the carried interest loophole. What do you think happens with that? And — and how significant is it?

CONROD: I — I think it’s going to stay — stay where it is, and it is significant though. But that’s what motivates these, you know, very talented investors and …

RITHOLTZ: Especially on those secondary funds where you don’t have to redeem and cash out, you can keep it running.

CONROD: Yeah, and correct and …

RITHOLTZ: Really interesting. So — so we — we — you mentioned liquidity. When I look at the venture side, there’s just so much capital around, and we’ve certainly seen a similar growth spurt in the private equity side. What does that do when you see all this cash and capital coming into the space?

In the old days, $2 billion, $3 billion, $4 billion Wall Street was happy to participate in that space. Now it seems they’re going further and further up the size — going further and further up the deal size scale, and what we used to think of as middle market continues to expand. What’s the result of all of this capital rushing into the space?

CONROD: I — I think in the mid-market — in the mid — in the — let’s call it the lower mid-market, $250 million to $1 billion is probably — $250 million is the lower end. You know, mid cap would be — I’d say between $500 million and $1.5 billion or $500 million and $1 billion fund size. There’s more exit opportunities when you have a company at that level than a — you have a $5 billion company, right?

And so, there’s — there’s more — there’s more options in terms of exit. You could potentially IPO it. It might — might fit for a SPAC or there’s a lot of a larger private equity firms that have raised, you know, significant amounts of capital and they have platforms, and they are looking to grow. And I — I think there — maybe some of them overpay for some of those assets. And …

RITHOLTZ: Is that valuation issue ongoing? Is — is all that cash leaning people to pay inflated values even on the private equity side?

CONROD: I think — I think that some of the larger firms are feeling the weight of the money, and they have to get the money invested. And so, over …

RITHOLTZ: And they can’t turn it down.

CONROD: … over — overpaying a bit — yeah. They might — you know, one anecdote for you is I know a — a tech investor, you know, probably sub $1 billion, a large, you know, 10 plus billion-dollar firm was buying one of their portfolio companies. The smaller firm was going to roll their equity overall 30 or 40 percent of their equity, you know, into the new — new company.

The larger firm came to me and said, “You know what? If we pay a little extra, can we just take all of it?” I said …


CONROD: … yeah, sold to you.

RITHOLTZ: Yeah, right.


RITHOLTZ: Sold to you, one of my favorite lines of all time.

CONROD: Yeah. So, I think you’re seeing some of that.

RITHOLTZ: That’s really — that’s really interesting. All right. So, let’s jump to our favorite questions that we ask all of our guests starting with what are you streaming these days. Give us your favorite Netflix or Amazon Prime. What — what’s keeping you entertained?

CONROD: My wife watches more than I — more of those than I do, but one that I definitely liked was The Serpent.

RITHOLTZ: The Serpent.

CONROD: The Serpent. That was — I think it was a BBC series about a — a French serial killer in the 70’s in Southeast Asia. And …

RITHOLTZ: Interesting.

CONROD: … it’s amazing. They finally — they finally caught him. And …

RITHOLTZ: Right. Well, spoiler alert.

CONROD: Yeah, but …

RITHOLTZ: Interesting.

CONROD: … it’s a — that one I liked. You know, I’ve seen a few — few series like that, but …

RITHOLTZ: Interesting.

CONROD: … that one — that one …

RITHOLTZ: Stood out.

CONROD: … stood out.

RITHOLTZ: Who are your early mentors who helped to shape your career?

CONROD: Yeah, I would say it would be David Paterson who ran HSBC’s Private Equity business in China and Southeast Asia. He was based in Hong Kong, and that’s who introduced me to private equity in 1992 when he showed up at our offices in New York with two $35 million funds that he had invested in Southeast Asia and looking to raise a fund in the U.S. with some U.S. investors.

RITHOLTZ: Tell us about some of your favorite books. What are you reading right now?

CONROD: What am I reading right now? I just — (inaudible) 01:04:10 gave me Red Notice. I came at it a couple of years ago, Bill Browder’s book, where he had — I think he was the largest foreign investor in Russia at one point.

RITHOLTZ: That was his first mistake, yeah.

CONROD: Yeah. And it’s an amazing story. Once — once Vladimir Putin, you know, seemed to cut is deal with the oligarchs. And …

RITHOLTZ: Interesting.

CONROD: … you know, a strong-willed guy. And it’s an amazing story. I think it would be a great movie. And I just recently read the Elon Musk — I read a couple of rocket billionaires, you know, and then Elon — that led me to recently read Elon Musk biography and, you know, incredible — incredible what he’s doing, you know? Simultaneously trying to disrupt the three most complex industries in the world: aerospace, financial services with PayPal, you know, when he got involved there, and — and automotive with Tesla simultaneously.

So, it — you know, — he he left South Africa, I think, you know, at 18. I think a distant relative of his — of his mom, you know, had — had some — or some relatives in Canada and he went for it.

RITHOLTZ: It’s an amazing story.

CONROD: The rest is history, yeah.

RITHOLTZ: Yeah, to say the least. What sort of advice would you give to a recent college grad who is interested in a career in — in private equity or capital raising?

CONROD: I — I would say definitely get an internship where — where you can. We’ve — we’ve tried to take in two or three interns every year, and that certainly helps them when they graduate, getting a — getting a position in — in an investment firm. It doesn’t necessarily need to be a capital raising firm.

I also think getting experience in credit, I would recommend that to anybody coming right out. I think that is a good foundation that you — that can be very valuable.

RITHOLTZ: Interesting. And our final question, what do you know about the world of private equity, and capital raising, and credit today that you wish you knew 30 years ago or so when you were first starting out?

CONROD: I would say patience and perseverance to use — come up with a couple words. Raising — raising capital is — you can — you can never stop, you just have to keep moving forward. Just like I — I — I ski race. I still do the masters. And one of the coaches always tells me at the beginning of the gates, you know, for practice run, keep moving forward. And I think just raising — things — things are going to always happen. There’ll be a key main event. Somebody will leave. A — a portfolio company will blow up. You know, it could be some other — you know, the Asian crisis, a — a pandemic can hit, but you can never stop. You just have to keep moving forward. And I would say you got to be patient, and you just continually have to persevere.

RITHOLTZ: Really good advice. How are your knees? I got to ask if you’re ski racing still.

CONROD: Knees are good. I — I had my reconstructive surgery from a soccer — from a soccer incident in 1990, and they’ve — it’s still …

RITHOLTZ: Healed up.

CONROD: … it’s still good. So far so good.

RITHOLTZ: Thank you, David, for being so generous with your time. We have been speaking with David Conrod. He is the Co-founder and CEO at FocusPoint Private Capital Group.

If you enjoy this conversation, well, be sure and check out any of the previous 400 such discussions we’ve had over the past seven years. You can find those at iTunes, Spotify, wherever you get your favorite podcast.

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I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohamad Rimawi is my Audio Engineer. Atika Valbrun is our Project Manager. Paris Wald is my Producer. Michael Batnick is my Head of Research.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.




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