Qubit: Andy Rachleff on Retail Investors
Venture funds that accept retail investors are desperate for capital, according to Andy Rachleff. This was from a podcast interview from five years ago.
Since then many of the top-tier venture funds have become RIAs making it easier to fundraise from alternative sources of capital, including retail investors.
“It's really funny. One of the things that we will not do that private wealth managers do is offer access to alternative assets. And the reason is because of the old Groucho Marx line, ‘I would never join a club that would have me as a member.’ Let me explain what I mean by that. So one of the primary tools that private wealth managers use is, ‘Hey, I can give you access to hedge funds or venture capital or buyouts.’ The problem is the ones that they can give you access to suck. And the reason they suck is... So back when I was a partner of Benchmark, the last person I wanted was a retail investor in my fund. Why? Because as you know there's been tremendous amount of research done that shows that individual investors, retail investors, buy when the market goes up and sell when the market goes down. The exact opposite of what they should do. The opposite of a contrarian. Contrarians make money.
So why do I want an investor in my long-term capital fund, who's going to feel the urge either to want to sell when the market goes down or not want to meet their capital call when I need it. Now, if I'm in the fortunate position to be able to choose any investor I want, that's the last investor I want. So the best investor, the one that is the most long-term oriented is either a university endowment or a charitable foundation, all things being equal and there are obviously exceptions. But on average, those are the best. So that's true for all the premiere venture capital funds. So the only venture capital funds that would let Morgan Stanley or Goldman Sachs invest in their funds are the ones that are desperate for capital. Why are they desperate for capital? They suck. The same is true of the best hedge funds.
The same is true of the best private equity funds. So by definition, if Goldman Sachs or Morgan Stanley give you access, run away. So I'm sorry, that's why we're not going to offer it. We can give you some additional asset classes that are not correlated, that are liquid and that are rules based and peer reviewed, but they're not going to be those alternative assets.”
Source:
Andy Rachleff - Building Something People Want to Buy
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