Backing the Best

🧠 Insights You Won’t Forget

Today's insights are inspired by a recent episode of Invest Like the Best w/ Peter Lacaillade

1. Institutional-grade wealth management can outperform by solving adverse selection

   SCS’s pooled vehicle model, run on a two-year cycle, allows ultra-high-net-worth clients to access the same tier-one managers as top endowments. This structure avoids the “eat last” problem in traditional wealth management, enabling consistent top-quartile returns in private equity.

2. Lower-middle-market buyouts remain a rich alpha source

   Buying smaller businesses at lower multiples, professionalizing operations, and selling to larger PE players with lower cost of capital creates a repeatable value-creation engine. This segment offers outsized returns versus large-cap buyouts dominated by financial engineering.

3. Due diligence edge comes from off-list references

   Relying on “on-list” LP references produces confirmation bias. The best allocators cultivate trusted off-list sources to uncover character risks and operational weaknesses that won’t appear in official diligence channels.

4. AI-powered roll-ups will reshape fragmented industries

   Firms like Long Lake and Thrive are building deep workflow automation tools for acquisition targets, reducing key processes by 90%+. Combining private equity operational playbooks with proprietary AI creates durable moats in sectors like homeowners associations and accounting.

5. Fund structure must align with strategy, not trend

   Permanent-capital holding companies work when cash flows, synergies, and long-term compounding justify them (e.g., Alley and River). Misalignment between strategy and structure risks lower flexibility and returns.

6. Early-stage venture is shifting toward concentrated, founder-facing models

   While mega-firms resemble asset managers, groups like Greenoaks preserve a high-touch model with senior partners leading nearly all first meetings. This differentiates them in a market where entrepreneurs increasingly sense “bait-and-switch” partner engagement.

7. Bootstrapped growth equity offers exceptional downside protection with asymmetric upside

   Backing operators who invest $5–25M into profitable, founder-led software businesses enables interim liquidity and high multiple potential when larger PE or growth firms buy in. Structures often deliver 6–10x on initial capital with strong capital preservation.

8. Scale is critical for alternative access in wealth management

   Firms under $5B AUM struggle to gain meaningful allocations to top-tier managers. SCS’s growth to $50B has created the credibility and scale required to compete head-to-head with institutional LPs for capacity-constrained funds.

Recall from last week

1. Fundraising as a Platform Capability

   Abstract’s unique pitch to founders is its ability to run highly efficient, tightly controlled Series A fundraising processes, generating more term sheets, less dilution, and higher valuations. They’ve proven founders retain significantly more equity with Abstract on the cap table.

2. Art Market as a Mirror for Venture

   Naimi draws striking parallels between blue-chip galleries and top-tier VCs. Just like art, power law outcomes exist even within an artist’s body of work. Identifying “masterpieces” (companies or artworks) requires massive frame-of-reference and discipline in selection.

💡 Eko Worth Remembering

⚡ Active Recall – Test Yourself 

Eko’s Top Pods

Answer:

 Implement a pooled vehicle model on a set cycle, such as every two years, to aggregate client commitments, negotiate access to tier-one managers, and diversify across vintages and strategies. Maintain scale to gain credibility with capacity-constrained GPs, and avoid fee-sharing conflicts that lead to inferior fund selection.

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