Earnest Sweat 00:13
I was so fascinated with, like, all the things you’ve done in our pre interview call. Could you just walk the audience through, kind of your journey through private banking in New York and how you got into the world of family offices?

Juan Diego Briceno 00:40
Yeah, so I started my career in New York doing wealth management, advising a lot of ultra high net worth families out of Latin America. So I spent three years at Credit Suisse, and then Morgan Stanley, I actually acquired the division that was in. And so we all transitioned to Morgan Stanley, and that was just a great period, really transformative for my career. We are bringing on new clients, growing really quickly. And one of the main things I learned from that team, which is one of the best performing teams in Morgan Stanley, was just how relentlessly advocating they were for their clients, and just how they wouldn’t take easy notes. When you’re in a very bureaucratic environment like a Swiss bank or Morgan Stanley, you get banks pushing back on a lot of things, and they were just asking, you know, why is this the case, and able to get, like, really good things for their clients? And so to start off my career, I mean, Wealth Management is fantastic, right? Because you’re in finance, you have access to most things. So we were doing equities, fixed income, real assets and alternatives. So a really good training ground. But if you go back to that period, 2012 2016 it was kind of a golden age for a venture for alternatives. And so as more time passed, I became more and more drawn to alternatives. And I was lucky enough to have the opportunity to join a Latin American family office that is a very unique family office for Latin America because of its call. It is TNA, so it comes from a capital markets finance background, as opposed to an operating company, and that just gave that family a very unique lens in terms of how they built out their family office, how they underwrote risk, and how they approached alternatives.

Earnest Sweat 02:49
How did you balance both, like, learning and bringing your, you know, putting your fingerprints on the strategy?

Juan Diego Briceno 03:10
I mean, it’s a slow journey at first, right? First, I just wanted to pick up as much as I could from what they were doing. But I think one of the main things from that family, going back to what I was mentioning, is how forward thinking they were. And since they were early alternatives, they were always looking for new initiatives to give me a lot of license to, I mean, essentially, make mistakes right and learn from them. And so I’d say, you know, we were there when we began navigating away from so a lot of families started doing alternatives and doing like buyouts on the private equity side, and then, you know, some of the more established VC firms. But it was, it was a family that began shifting away from that and moving on the private equity side to lower middle market and on the venture side, building out an emerging manager program really early on. And I was kind of tasked with helping lead a lot of those efforts. And so it was a little bit of push and pull right that principle gave me that confidence, that security to do it, and then it was an area that I was, as I mentioned, really interested in. And so I was able to kind of just really focus on that.

Alexa Binns 04:11
you were one of the people I was always happy to share co investment deals with around climate. And I’m curious if sort of that what you’ve sort of taken from that lesson of being part of trend, or, you know, having built a minor thesis focus area, if, if there’s any lessons learned today, of like, how you think about what you’re doing for families today differently

Juan Diego Briceno 04:50
in terms of, like, specific focus areas on CO investments,

Alexa Binns 04:55
yeah, it seemed like climate was a big area of interest. In that job, and has that taught you about how to sort of look at hype cycles? Or, yeah, if it changes how you do thesis driven investing or focus area investing? Yeah. I mean,

Juan Diego Briceno 05:16
I think when we think about venture capital, it’s an already extremely cyclical asset class. And so just like there are parallel companies, there’s parallel vintage years. And I think a big mistake that people make is getting too sector focused or theme driven for very specific areas. And so you’re adding more cyclicality to your portfolio, more risk, essentially. And so the way we try to approach it is we’d rather work with venture capital managers that have more of a first principles and like clear view of how they think the world is moving and where it’s moving, and then try to back people in various different sectors, because it’s your point about hype cycles, we’ve seen them come and go constantly in venture, right? And so you can go back and see just, you know, how many there have been. But if you, if you focus too narrowly on one of these, you’re essentially, potentially putting money to work at really extreme valuations, high valuations, and you know, the long term results of that could be very questionable. So we’d rather be able to find a manager that has multiple deep themes that they’re focused on, but they can move around based on where they’re seeing the best talent, the best founders and the best companies being formed.

Alexa Binns 06:34
There’s a major self awareness to not be doing those deals yourself. Where do you go? Where does a family office sort of get that self awareness? Is it? Is it just a benefit of being outside the US ecosystem that you sort of know you need and you need to access these deals through managers?

Juan Diego Briceno 06:57
Well, I think the reality is, you know, you learn by making mistakes. And a lot of families learn faster than others, but I think a lot of the journeys that family offices take is that they begin thinking they can do everything in house. And so they think they can, why outsource venture in terms of managers, when they can try to do it directly, because they see, I think they have this great deal flow. And I mean, I think if you really look at this space and spend time studying the space, it’s an extremely difficult space to work at, right? I mean, venture managers who are fully dedicated to this space and have been doing it for, you know, sometimes decades produce sub par returns, and that’s because, you know, it’s really top decile funds that are really driving the returns for that asset class. So it’s, it’s a little bit disingenuous to think that, you know, a family office can really outperform and do a better job than a full time VC manager. And so, yeah, I mean, we would do some investments, and we were on the direct side where we were open to doing deals. But, you know, we always had this lingering question in the back of our mind, why are we getting access to this, as opposed to a top VC firm out in the Bay Area New York? And so if you try to do that, I think you’re running the risk of creating an adverse selection bias in your programs and investing in, you know, sub par companies and sub par founders.

Earnest Sweat 08:25
I think that’s such a good lesson, and especially from a unique family office that had so much experience and alternatives to still have that self awareness of like, Hey, we should, you know, partner with people and learn, and then we’re able to, kind of like, all right, this is what we’re really good at. This is where we’ve gained a brand, and this is where we gain an advantage at that that speaks volumes. But we’re talking to you today, and you’ve created a new entity. Could you talk about, kind of, like, how you came to that, to that journey? Yes.

Juan Diego Briceno 08:59
I mean, when I was at the family office that I was mentioning earlier, I started developing a thesis around the space, which was there was other like minded family offices that have very sophisticated pools of capital and internal teams, but that I wanted to increase kind of that bandwidth for alternatives, because they really understood how complicated and hard It is to navigate. But by the same token, they were somewhat not attracted to or dissatisfied with the status quo of offering. So if you think about the space, you know, there’s multi family offices consultants that feel too separated from what’s actually happening at the family office level, and understand the principles and stakeholders involved. And then also just, fund the funds, and for various reasons, they’d rather be more involved in understanding what’s going on. So we saw a white space for a different offering, which we call like an extension of family office teams, which is being really plugged in with the families we work with, but just being dedicated to alternatives, and specifically within alternatives. It is focused on what we think are the higher potential pockets of alternatives, and that’s private equity and venture capital. The private equity side is its lower middle market. On a venture side, mostly early stage ventures, but investing across the board. And so with the anchor, with the original family that I worked for and their blessing, I was able to spin out and start Pomifer for capital, but they became our anchor client. So in the process, you know, was able to achieve complete continuity of focus and relationships and have that family on board with us. Now that was really important.

Earnest Sweat 10:33
so you mentioned that, like at Pomifer for the families, there’s a certain type of family that you all work with, and so today, you’re looking to offer them a little bit about the specific type of offerings. Is it one size fits all on your approach, or is it more kind of a customized approach when you’re looking to help them in their PE and VC allocations? Just talk to me a little bit about the strategies for all the families. Yeah.

Juan Diego Briceno 11:55
I mean, it’s a combination of the two, right? I mean, so to begin with, like the types of families that we’re looking to work with are families that are either already very institutional or very clearly moving in that direction. And by that I mean families that have a very clear asset allocation framework. They’re trying to move away from very centralized, ad hoc decision making to having empowered teams, and want to have a dedicated and real approach and program for alternatives. So it’s a family that wants to allocate to alternatives for, you know, many years to begin a program. You know, you should be thinking about allocating over five or six years, given some of the dynamics I’ve already mentioned about that volatility, that parallel vintage years and so that we really want to understand, too, like, you know, what issues that family is facing internally, and really work with them to show them that we’re one, not trying to replace their internal teams. On the contrary, we’re trying to kind of continue empowering their team and be, you know, a real advocate for them in terms of building those alternative programs. And so it’s a combination to your question, a little bit of the two, right? So we, like I mentioned, are trying to find the higher performing pockets of venture, private equity. And so it’s one working with what we think are the best funds, so trying to find the very best fund managers, and then working alongside them to create co-investment opportunities. And so each family’s specific allocation between private equity venture capital, co investments and other adjacent strategies will be different based on where they are in their journey, in building out their portfolios, their level of risk, if they want to do co investments, if they want to do secondaries, and how truly patient they can be right? Family Offices, I think, are one of the best, best sources of capital when they’re structured correctly, but they have two huge things to their advantage, and that’s patience and flexible capital. So if you can really structure those things, well, that is how you can really compound capital and create, you know, even larger wealth

Alexa Binns 14:03
could you just tell us? Maybe there’s even an example of what that patient capital looks like. How do these things play out in reality?

Juan Diego Briceno 14:12
Well, I mean, yeah. I mean, good examples. You don’t have to be careful about sharing two specifics of us in the families, right? But at a high level, it’s just families that are able to since at a fund level, if you think about a venture firm, they do have to create distributions dpi, right? DPI has become the new main metric that so many allocators track, and so venture firms have that pressure to close to that year seven, give or take, they need to find ways to create distributions that can run counter to how you compound capital, right? Because if you think about how some of these best companies continue gaining market share and really building even larger and more defensible modes so they’re the type of companies you want to hold. Hold on to and so, you know, good examples of that are just, you know, the families, the individuals that receive distributions on companies call it like Tesla, or, you know, on the illiquid side, like SpaceX, and really hold on, hold on to them. But there’s any examples where, in other programs, people would have a lot more pressure, given the stakeholder dynamics to sell them early, given that maybe they’re just taking a bigger market share or larger percentage of that portfolio. The family offices can hold on because they can do real work, like first principles work around like, okay, maybe it is a large position, but how is it compounding? How is it growing? What are the dynamics around it so they can continue maintaining those positions?

Alexa Binns 15:45
So have you been on the coaching side of any managers saying, as one of your major LPs, we would much prefer you hold this position. We don’t need the liquidity right now.

Juan Diego Briceno 15:58
Well, what we try to tell them is, you know, give that option to your LPS because we’d rather. We don’t want to be in the in, we don’t want to put ourselves in a position where we’re trying to force a manager to go one way or another, because they have their own diverse set of LPs and the different needs that they might have. And, you know, we don’t want to tell a firm to do something that’s advantageous to us, but maybe disadvantageous to them as a firm long term in terms of building and fundraising. So what we’d rather tell them is, if you have a great position and you have pressure from LPs to sell, or maybe you’re considering it, why don’t try to find ways of providing that optionality where the ones that want to sell can we’re the ones who want to stay can stay. And so we’ve seen that with, you know, continuation vehicles are one of these words that you know, are all encompassing and can mean lots of things. But I think a very well structured continuation vehicle can be very supportive for LPs and GPS.

Earnest Sweat 18:20
We spoke about earlier how you came into a unique situation. JD, and so you came to a family that knew a lot about alternatives, but for typical situations people are a little naive when it comes to how easy or not easy it is to actually start a venture program. Could you talk to us about, like, share kind of what you’ve seen on why starting a Venture Program is there is a little bit of a struggle when going into it. Yeah.

Juan Diego Briceno 18:53
I mean, I think families kind of underestimate a little bit how much venture has evolved over the last decade and so, so it’s gotten extremely competitive. There’s so many firms fundraising and so many different strategies and ways about going, building the program, right? And so you have, you know, emerging managers, established managers. You have pre seed, seed, later stage, secondary strategies. And so it is quite confusing for families. But, I mean, I think the main issue that family offices face, or just allocators face, when building a program, it’s not probably diversifying their portfolio across strategy, management vintage, as I mentioned earlier, right? But I think we’ve seen a lot of these issues, so like starting on that vintage year diversification. So a lot of people say, Okay, I want to build out a program, but they end up doing that program over a very short period of time, so maybe one or three years in venture, and that’s extremely dangerous, right? And it’s likely that when they want to build those programs, they might be approaching it at a time when valuations and momentum and fund was high, and a good example is covid deserve era, right? Where. 2020, 2021, people were heavily focused on venture and over, over deployed, and then 2223 came around. And, you know, they didn’t want any more, because they felt they were at capacity. And that may be some, it’s looking to be some great period to have invested, right? So one is that vintage year. So really, being slow, methodical, to deploy building your program over multiple years. So you’re talking about four, six years to really have good, good exposure. Then it’s also having a good mix of strategies and managers. So on the strategy side, as I was mentioning, you want to have a good mix of strategies that can help you move forward in that J curve, that can provide distributions and that can help you with that risk.

Alexa Binns 21:25
And how do you filter for top, best, highest performing managers

Juan Diego Briceno 21:32
in terms of traits that we look for for managers? I mean, that’s a great question. I think it starts off with the team. And so what we really look for is, you know, people that have a track record of excellence, and so that’s either professionally, personally or even esthetically, right? So people who have, like, a high ability to sustain pain and have an ability to spot excellence in others. Like, once you’ve achieved excellence, you can, you can see it in others. And we think that, like successful people, they are never truly satisfied. They have got a really high level of commitment. And then coupled with that, there’s so much around venture about first principle thinking and really backing people that are differentiated that there are very few venture firms that are actually doing that because it’s very uncomfortable, right? You have to have a view that other people don’t. And a lot of these bets are going to go sideways or not return anything, but the ones that will are going to be extremely material for that fund. But it’s trying to understand people’s mentality, their thesis, and understanding if they are really that first principles thinking, and then from there, it’s just really trying to understand if they have a discernible edge in terms of how they Source Select and support their portfolio companies. And so on the sourcing side, it’s understanding their networks and their nodes, not just the breadth of those, but also the depth. You know, how, how much are they going to reach out to them? Do they have access to some of the best founders, or people reaching out to them and trying to have them come in and then their process, right? Is it? There’s, there’s always ventures, a very qualitative process, but we want to make sure that there’s some sustainability built in there, right? They didn’t just very randomly walk in and meet someone, they are kind of creating these serendipitous moments constantly in their lives. They’re kind of putting themselves out there. Have a strong brand, and so have a really strong pub of a funnel that brings them some of these best founders. And then, you know, sometimes they also have value added. They can be there for further companies. And so if those things continue checking out, then what we want to make sure is that does that portfolio construction tie in to that edge that they have?

Earnest Sweat 24:44
JD, that was such a great response to what you’re looking for and the whys that you’re looking for. But what are some great ways and how did you find those answers?

Juan Diego Briceno 24:56
Yeah, I mean those, that’s a really good question. And, yeah, I mean, so I don’t want to give up too many of my great questions for GPS. But, you know, give this one away because I think it’s really good. It’s trying to understand, like, how, how willing are they to spot blind spots that they may have and really pressure testing themselves. And so, you know, one of the questions that I really like to ask GPS is, I asked them to play, call it the devil’s advocate, or that contrarian. Or ask them, you know, if you’re an allocator underwriting your fund, what are the reasons that you would come up with for not investing? And how they come up with those responses is really interesting, because we’ve had, you know, very institutional, established firms really struggle with that. And to me, what that seems to indicate is that they’re not thinking about risks that they may have from other firms. They think they’re, you know, maybe have too many answers. And some emerging managers are constantly maybe thinking about a lot more, but it just goes. It gives you a lot of clarity into their thinking and you know where they are. And so it’s questions like that, like really trying to peer into them, that’s very helpful for us, in turn, trying to understand those managers

Alexa Binns 26:22
speak in our language, for sure, I feel like the theme of this show is like, what would your customer? What is the allocator? How does the allocator feel about this response? You are sort of unique compared to many of our guests. We found on the show that you’re meeting as many PE managers as VC managers. Can you just help break down for us some of the big differences you see between how they’re operating and just your insights right now looking at the two asset classes, yeah,

Juan Diego Briceno 26:57
I mean from an allocator point of view, I think there’s two that are very interesting. And so one is on the private equity side. What makes a successful GP, and the background that they come from is very standardized. And so when you see a private equity manager, they tend to come from a very strong undergraduate program. I have worked as an investment banking consultant. Usually you’ve done an MBA and then went on to go to a great private equity firm, or important private equity firm, and then spun out and so for that pattern recognition, know what the what funds to lean into? I mean, it makes the job quite a lot easier. But then when you think about venture firms, GPS can really come from any background. And then when I say any background, it really can be right. You’re thinking like, the most common are like ex founders and operators engineers, you know, product leaders. But then you start going down that list, and it can be like ecosystem builders, people who have been in government, creative backgrounds, and they all have great ingredients to make great firms. And that’s, you know, that’s a beauty of venture, but also makes underwriting extremely difficult, right? Because then you have to be very open to taking calls, to spending time with people, because they may have, like I mentioned earlier, a very distinct view of the world and where things are heading, and I can give them a really unique edge. So that’s one, and I think that’s, that’s a very good strength of venture. And the other one is just when you think about data and transparency and where private equity has shifted, there’s been a very conscious effort around private equity to provide very clear information for the most part of where portfolios stand. So it’s not just the marks, but it’s everything behind those marks, right? So where those companies are from a revenue point of view, how they’ve grown year over year. You can get very granular information on margins, EBITDA margins, you know, projections for the next year. And on the venture side, that still isn’t the case, right? For the most part, you can get data rooms that have so is and you have just high level marks. But a big issue with marks is that they can be either leading or lagging indicators, and it tends to be lagging indicators, unfortunately, on when things are going south, right? And so you can have companies that were marked really aggressively two or three years ago, and those companies haven’t met those projections and what people hope for them. And so you can look at a portfolio an soI and say, Wow, this fund is marked really well. It’s top quartile, top decile, but you really need to start peering under the hood and finding creative ways of gathering that information.

Earnest Sweat 30:42
Yeah, I think that’s a great segue in speaking about, like, your experience with CO investing and venture, and what I think actually kind of level setting to the audience. What do you think is most misunderstood about venture co investing? Because I think people just kind of rope it into like, oh, it’s all private equity co investing, lower middle market, early tech. Oh, it should be kind of the same, further from the truth, right?

Juan Diego Briceno 31:11
Yeah, that’s a great one. So when you think about private equity co investing, the word means very much like what it should right? You are investing alongside that manager, Eric Passu, in the same round and the same terms. And usually it’s no fee, no carry. And so it’s a controlled process. You have full access to the diligence materials that they created. So there I am quality of earnings. You can speak to the managers. You can really understand what’s going on. And so there’s, there’s no questions around you know, what are they really showing me here? It’s a company that they’re willing to put a sizable amount of their fund into, and so it’s, I don’t want to say easier, but it’s, you know, it’s a process that is a lot more structured and makes a lot of sense for allocators to, if you’re already working with great managers, to put some more capital to work and build a satellite portfolio around co investments in venture you know, co investments, the word is used often, but it really doesn’t mean any anything, right? It can mean anything for a lot of people. So you have on one end, people selling their parade on rounds and charging full fees. And then you have firms that are investing and are giving you preferential terms as being an LP. And so that spectrum of what it can be is extremely, extremely large. But I think one of the big issues that allocators LPS have when they venture co-invest is that they kind of expect what happens in private equity to happen in venture capital. And so they tell their venture managers, hey, I really like your fund. We’re investing, and we also want to co invest. But what they’re essentially doing is they’re putting the responsibility, the pressure, on that VC manager to create these co-investment opportunities. But structurally, the dynamics around VC are very different, and so what ends up happening, or usually happens, is that these venture firms have to find actionable co investment opportunities for their LPs, but not necessarily the best ones, because they need to find something that has like a good lead, but is a slower moving process and one that where they can, you know, provide them some access to information and Investment memos. But some of the best companies in venture rounds are either preempted or happen extremely, extremely quickly. I mean, we’re talking for three to five days or so, sometimes even less.
Alexa Binns 35:00
Yeah. And how are you keeping track of at the portfolio level? At this point, do you try to limit however many managers you’re looking to work with, so that you can have deep enough relationships with all their portfolio winners.

Juan Diego Briceno 35:15
So we’re, I mean, we’re not trying to limit the portfolio that we have. We’re trying to have a good, diversified portfolio, as I mentioned earlier, but I think we we draw, we make a list of the firms where we think we can have the best opportunity to find the best co investments, because it’s not about you can’t stay super close to all of them and run the strategy, the playbook that I just mentioned, but you can have a list of, you know, five to seven people per person at the team that they that you can stay really close to at the GP level. And so you know that that way you can, you can run that playbook.

Alexa Binns 35:47
Yeah, it strikes me that by the time you’re at the AGM, and they’re, you know, trotting those three or four founders out in front of it all the lps, it’s a little competitive, exactly. As we sort of wrap up. JDB, this is a very unique place where you are actively deploying capital. So who is a who should be actually reaching out, and who can kind of qualify themselves as not a good fit.

Juan Diego Briceno 36:22
You are very open. We, like I said earlier, given our views on venture, we want to be speaking to lots of people and really understanding the ecosystem. But if it’s someone who is building something unique and has a different view of the world, we definitely want to speak with them. And we try to be very accessible. I mean, we will reply to cold inbounds if they’re done correctly, right. And it’s very easy for venture managers to also find a way of getting a warm referral into us, and if it’s coming from a trusted source, we, for sure, will try to take those conversations as well.

Earnest Sweat 36:58
One last question, is there anything in the market that you want to see more of, whether it’s a strategy or Yeah, is there a certain strategy or team or Yeah, you don’t have

Juan Diego Briceno 37:14
I mean, I think it’s just continuing to be really creative about how you build portfolios and what it means to to build like a firm, I think you know this can be then used territory for some GPS, but like the twin 20 structure was built many years ago now, and it made sense in a different world, or other models where that can be adapted. And we have seen managers shift away from sort of those elements and create different structures that can hopefully create even higher alignment between themselves and the GPS, so that you have, you know, people feeling that they’re on the same boat, right? That is a win, win situation, and not have potentially managers that are just, you know, getting getting wealth off of management fees and not really optimizing for the carry, which is what you know, obviously the LPs are, and so, yeah, just, just people who are innovating around those areas is something that’s very interesting to us.

Alexa Binns 38:15
What’s, what’s a structure that sounds attractive?

Juan Diego Briceno 38:19
Hypothetically, yeah. Yeah. I mean, so attractive is so there’s a there’s a couple of firms that come to mind that did 1% management fee, and then traditional carry, because they’ve run the numbers themselves, and they say, Okay, if that, because if you’re running 1% instead of two, that’s 10% management fee over the life of the fund, instead of 20. But if that additional 10% is invested correctly in great companies, the whole pie will be bigger for the GP, but also for the LP, but that requires a GP that really believes in themselves right, in their selection capabilities, and their ability to raise subsequent funds because they have obviously a lower management fee. But that’s something, you know, it’s really attractive for us because, like, as I mentioned, or it creates that even higher alignment.