Jon Zehner: Day Three

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Jon ZehnerHaving tucked my head under my wing last night, I have shaken my body and puffed out my feathers to get prepared for the new day. My leg is now stretched: it is hard to sleep while standing on one leg! Yesterday, I had the chance to participate in one session with many long-term investors. Although Wandering Albatross doesn’t conjure up an image that bears any physical resemblance to the people involved, it does seem to be the right bird to associate with some of these investors.

Issues that were discussed were less to do with the current investment environment and more to do with the relationships between LP’s and GP’s. The issues on the mind of the LP’s were:

  • The importance of succession planning in investment managers as talent management is the key to long-standing investment performance and there are a limited number of players who can generate true alpha. This is otherwise known as paying close attention to how to raise your chicks.
  • As alternative managers become publicly listed, how do they maintain their longer term investment horizons? Otherwise known as how to plan long trans-oceanic flight plans when analysts are demanding frequent stop-overs to check on your health.
  • How to manage re-investment risk in the current risk-on low interest rate environment? In the ornithological world this translates into how to save energy resources for a future that likely includes leaner times.
  • More diversity on boards was a clear theme. Diversity was defined as more women and more international members, particularly for GP’s investing in multiple regions of the world. I can only translate this into more pens as well as cob swans, more black as well as white swans and more migrating swans (Trumpeter and Whooping Swans), not just local swans (Mute and Black Swans).
  • Relationships of Trust are important and these are built over time. This comes from working together closely in multiple types of opportunities and is particularly important as the lines between GP’s and LP’s blur. It is not a substitute for poor investment performance, but it compensates for less than stellar performance. Secondments were discussed as one way to accomplish this relationship building. This translates into sending your albatross chicks to live with a snow goose family during their gap year to better understand how snow geese think and to help the snow geese better understand how albatrosses live.
  • Co-investment was discussed and how the oft cited reason of lowering fee levels was probably misguided as it reflected a loss of focus on overall investment performance on a risk-adjusted basis. I struggle with how to translate this, but it is probably a snow goose sharing some of its grass with the albatross for free, and the albatross being grateful even though albatrosses don’t eat grass.
  • LP’s focusing increasingly on using GP’s for more specialised investments/deals that the LP’s don’t have the internal capacity to originate and execute. This translates into the albatross hiring the snow goose only to find food that they can’t otherwise find on their own.

Until tomorrow.


One thought on “Jon Zehner: Day Three

  1. Paul Guest

    Thank you for the insights Jon, and thanks to the other authors as well. It’s very interesting to read.

    On your note – the issue of coinvestment is a big one, particularly for a group like LaSalle who’s balance sheet is much more limited than many of our competitors. In the discussion was there any recognition that the value of coinvestment can differ depending on a GP’s source of funding – i.e. our 5% might be worth a lot more to us than the 20% put up by a bank-, developper- or government-backed fund?

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