It’s the start of a new year and with it comes an opportunity to re-evaluate your trajectory and set your goals for the months to come, whether they be financial, personal, or all of the above. Kicking things off for today’s episode is our conversation with Steve Balaban, a private equity insider with a refreshingly realistic and practical perspective on private equity. We talk with Steve about investing in private equity, the benefits and drawbacks every investor should know about, why due diligence is essential, how private equity interacts with investor psychology, and much more. Tuning in you’ll also learn about the Private Equity Certificate offered by CFA Society Toronto in collaboration with Mink Learning and how listeners can gain special access to these training tools. Next, we take a look back at our conversation with Ayelet Fishbach from the Booth School of Business on the science of motivation and goal setting and the contents of her new TEDxChicago Talk The Science of Getting Motivated. We wrap things up with a review of Justin Breen’s book titled, Epic Life: How to Build Collaborative Global Companies While Putting Your Loved Ones First, followed by our conversation with the author on the transformational power of naming your year, the power of networking, and other key lessons from his book. For all this and much more, be sure to tune in and start 2024 armed with insights from some of the best thinkers around!

Key Points From This Episode:

(0:01:26) Use discount code RATIONAL to watch the award-winning documentary Tune Out The Noise, free of charge (valid until the end of January 2024, so make sure you don’t miss out!)

(0:03:44) An introduction to Steve Balaban and Mink Learning, a private equity education company he founded in 2019.

(0:07:29) Steve’s insights on aggregate public market equivalent (PME) benchmarking and key issues that arise when using Internal Rate of Return (IRR) to benchmark private equity.

(0:17:58) The best arguments in favour of private equity, the downsides you need to know about, and a rundown of the fees involved.

(0:23:38) Top reasons Steve has come across for why people want to invest in private equity, and what he considers to be the right reasons.

(0:29:38) How private equity interacts with investor psychology and the importance of having different vintages in your portfolio.

(0:35:15) Why private equity is typically illiquid, how liquid private equity works, and the tradeoffs for investors with liquid private equity as opposed to more direct illiquid approaches.

(0:42:59) The differences between private and public equity; advice on how investors should interpret private equity marketing materials and the importance of doing due diligence.

(0:51:59) Trends in the industry towards permanent equity, rather than rolling over every few years. 

(0:59:55) Details on the Private Equity Certificate offered by CFA Society Toronto in collaboration with Mink Learning and how to use the discount code RationalReminderPEC.

(01:02:21) A look back at our conversation with Professor Ayelet Fishbach and her newly released TEDxChicago Talk The Science of Getting Motivated.

(01:03:58) Our book review of Epic Life: How to Build Collaborative Global Companies While Putting Your Loved Ones First, and our conversation with the author, Justin Breen.

(01:07:12) The transformational impact of naming your year, finding your purpose, and the power of networking.

(01:25:47) An update on our new podcast Money Scope, the content you can expect from it, and its success on the Canadian Apple Podcast charts.

(01:28:43) What we’ve been experiencing on LinkedIn, book recommendations for the start of 2024, and exciting upcoming guests!

Read the Transcript

Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, and Cameron Passmore. Portfolio Managers at PWL Capital. 

Cameron Passmore: Welcome to episode 287. Happy New Year, Ben. 

Ben Felix: Happy New Year. 

Cameron Passmore: It's our first episode we've recorded in 2024. And boy, this year is kicking off with a bang. We have so many great guests lined up. And today is no exception. So, off the top, we welcome Steve Balaban who's an expert in private equity. And boy, did he bring the energy to the conversation today as you guys will hear. 

And we'll take a look at a prior episode. Ayelet Fishbach joined us two years ago to talk about goal setting and motivation. Phenomenal interview we'll look back on. And for the third year, we will be hosting our reading challenge. And this year it's going to be the 24 and 24. And I'm also going to try to get as many authors on as we can. 

And to kick it off, I invited Justin Breen to join us who wrote the book Epic Life: How to Build Collaborative Global Companies While Putting Your Loved Ones First. Justin joins us. And this week, Mark is off. And he'll be back in two weeks with his Mark to Market segment. 

Ben Felix: Yes. 

Cameron Passmore: Why don't you talk about the movie offer that we have? 

Ben Felix: Yes, sure. This is pretty cool. Last week, as listeners know, we had film director Errol Morris on to talk about his recent film Tune Out the Noise. Hearing him talk about his thought process as he went through it. I thought that was a really interesting episode. 

The film is great. We both saw it in a theater, which was pretty cool. A whole big thing in Austin, Texas last year in 2023, which was a cool experience. But anyway, it's a really good documentary which basically covers a story of this group of really smart people who crossed paths at the University of Chicago just as computers were starting to be used to analyze data. And the coming together of those people is sort of what caused the index fund revolution that we benefit from so much. It really changed the way that people invest but also the way that we think about asset pricing and financial markets. 

Now the cool thing is that we have free access to this documentary for podcast listeners only for the month of January. If you're listening to this later in February 2024 or later, the link will no longer work. But in the month of January, you'll be able to use the URL that we'll put in the show notes and the access code RATIONAL, all capital letters, to watch the documentary. It's professionally produced by an expert documentary filmmaker. 

Cameron Passmore: Academy award-winning.

Ben Felix: Yes. Right. Yes, yes. About so many of the things that we talk about. The foundation of so many things we talk about in this podcast. The fact that you can sit back and watch it from your laptop, or phone, or whatever at home I think is pretty cool. And it's not a film that's been released elsewhere. 

Cameron Passmore: Yet. Correct.

Ben Felix: Yet. 

Cameron Passmore: I would highly encourage people to share it widely. This is a very important evolution, revolution that happened. And I think Errol's documentary is beautifully done in his own style. If you're familiar with his style. Share it widely. And the link will work for the month.

Ben Felix: Yes. The URL will be in the show notes and the password will as well, which is again RATIONAL. All caps.

Cameron Passmore: Excellent. Okay, with that, let's get to the episode. 

***

Cameron Passmore: All right. Welcome to episode 287. Ben, why don't you set up this incredible conversation with Steve? 

Ben Felix: Yes. Okay. We met Steve Balaban at the CFA Society Toronto Wealth Management Conference that we spoke at last year. Steve was also a speaker there. And I'll be completely honest. When I saw Steve on the speaker card, I kind of rolled my eyes. Like, "Oh, we're going to get another private equity guy talking about why private equity is awesome." 

Cameron Passmore: Really? I didn't know that.

Ben Felix: Well, you see him on the card, it's like, "Okay, we got a private equity guy." Usually at a conference, when you have a private equity guy, they're talking about why private equity is the greatest thing ever and why everybody should be investing in it. 

And so, when Steve got up on stage and said not the opposite but gave a very sober and practical perspective on private equity, I was impressed. It massively exceeded my expectations. And he was not bashing private equity by any means, but he had a very realistic and at times critical perspective on the asset class, which I really, really appreciated. 

We asked him after he spoke, I was like, "Hey, Steve. We have this podcast. Do you want to be a guest?" And it turned out that he had listened to our episode with Ludovic Phalippou. So, he kind of knew a little bit about the podcast and he was excited to come on. 

What I wanted to title the segment was A Practical Look at Private Equity because that's really what we got from Steve. Steve specializes in education about private equity. He's the CIO of Mink Capital. He advises, consults and educates family offices on how to invest in private equity. But again, he's not promoting the asset class. He's just got a very realistic practical sober perspective on it. 

He's also on the Board of Directors for the CFA Society Toronto. He's an award-winning lecturer at the University of Waterloo where he's created courses on private equity, wealth management and the international course. Of course, to take students to different areas of the world each year. He's a qualified instructor academically, especially on the topic that we talked with him about today. 

And one other thing that's kind of cool is that he is launching through the CFA Society Toronto a private equity certificate. And we were able to get a discount code for listeners, which is kind of neat. If anybody wants to take Steve's course through the CFA Society, there's a coupon, RationalReminderPEC. All one word. But again, we'll put that in the notes if people want to check that out. Kind of a neat offer to help Steve promote a new course.

Cameron Passmore: Indeed. I liked him a lot. A lot of technical details that he explains beautifully but with energy. It's just so much fun to talk to him.

Ben Felix: Yes. I mean, we've seen stuff and we get into it with Steve. I don't want to say too much more now. But we talked about practical things like how should retail investors approach when they see marketing materials that suggest private equities got a 5% premium over public equity? How should retail investors interpret that? But it also fills in a lot of gaps I would say. 

This is one of the reasons I found Steve compelling is that we've taken the approach of saying look at the aggregate public market equivalent returns of private equity. They're not that much better than public equity. Therefore, we should just ignore the asset class, which is effectively what we do. But there's more nuance to it than that in terms of why a family office might want to allocate to private equity and how they would do so. And I think that's what we got from Steve. 

If listeners have heard our past episodes on this topic, I think this really fills in a lot of gaps that we left. 

Cameron Passmore: Okay. With that, you're good to go? 

Ben Felix: Yes. Let's go to our conversation with Steve. 

Steve Balaban, welcome to the Rational Reminder podcast. 

Steve Balaban: Thank you both for having me. I really appreciate it. 

Ben Felix: Steve, to give our listeners some background, what is Mink Learning? 

Steve Balaban: Mink Learning is a private equity education company that makes the complex world of private equity simple for investors, financial institutions like wealth managers, advisers and service providers through highly interactive boot camps, workshops and master classes. 

I built Mink Learning because of the growing need in private equity education globally. Before Mink Learning, you had really two options on how to learn private equity. With academics or with private equity firms. With academics, you have excellent research but not so much industry experience. Private equity firms, lots of industry experience but not the most biased education. 

With Mink Learning, we're unbiased and we have the best of both worlds. For the academic portion, I've been teaching at the University of Waterloo private equity for almost 10 years. For the industry portion, I've been investing with and for family offices for over 15 years. And just one thing to add, Mink Learning just created the Global Private Equity Certificate with the CFA Society Toronto. 

Ben Felix: Yes. Super cool. And we'll ask you more about that later. We've talked about PMEs on this podcast with academics. And Cameron and I have talked about them together. That's public market equivalence, which is often used in academic research. Because you have this cool practitioner perspective, can you talk about what gets missed when we look at aggregate PME benchmarking for private equity to assess whether we like that asset class? 

Steve Balaban: PME, public market equivalent, which you've talked about a lot, is it's a very interesting metric. And it's good to see on an aggregate basis private equity versus public equity. But there are lots of issues with that such as which benchmark to use? You've seen some academics saying we should use the S&P 600. Some say we use Russell 2000 and lots of other challenges as well. 

But from an investor perspective, when a family office looks to invest in private equity, what they're really looking at is how private equity fits into their entire portfolio. Their entire portfolio is built based on their liquidity needs, their time horizon, their task considerations, legal situation, unique circumstances which then result in a target return and a certain level of risk. And based on that, they say, "Okay, private equity should be in my portfolio in a certain way." Now I have lots of examples of family offices and how they invest in private equity. But we can leave that for later in the podcast or I can go into that now. Whatever you prefer.

Ben Felix: It's basically like even if Ludovic, who we had on as a guest previously, can show that from a PME perspective in aggregate, private equity is not that exciting. If you're a family office building your overall portfolio, you might not actually care about the aggregate PME because you want this piece of private equity in your portfolio for some other specific reason that isn't necessarily outperforming public equities. 

Steve Balaban: Yes. And if family offices have certain access or knowledge to private equity, they're not kind of going on an aggregate basis which might be biased from a survivorship-biased point of view. Or maybe you can't get into certain top cortile managers which make the data not so good. 

Let's say a family office made their money in the financial services industry and then they decide to do direct private equity by buying small investment banks. Okay, well, they end up getting access through their connections and they end up getting proprietary deal flow which then they can actually outperform public equities, right? 

Let's say you have a family, let say from Germany, that comes from a Mittelstand family, these big German businesses that are looking to diversify away into private equity. Let's say they have kids that want to invest in private equity. They might give a pool of money to the kids to go to the US and maybe invest in certain companies, right? 

Let's say you're a family from Singapore that just came from Hong Kong and you're divesting in some of your Chinese assets and you don't want to diversify with private equity. You might look at the West. Maybe some North American or Western Europe private equity funds to diversify against your holdings. These are all specific strategies and you're evaluating each strategy you have. 

When the family office from Singapore is looking at the private equity firms that are targeted in the US, they're not looking at global aggregate PME. When the family offices of financial services is looking for an individual investment bank, they're not looking at aggregate PME. And when the German family is giving it to their kids, they're trying to have some sort of strategy to be able to get some alpha in their returns. But what they're not also looking at is global PME. I don't know if that answers a question.

Ben Felix: Yes, yes. No. It does. It does. Nobody's really investing in global aggregate P because that doesn't exist in an index fund. Looking at global aggregate P doesn't necessarily make sense from the investor's perspective. 

Steve Balaban: Although the closest you can get to global aggregate PME are these new liquid private equity vehicles, which I'm sure we'll talk about later in this podcast.

Ben Felix: Yes. We do have questions about those later. 

Cameron Passmore: Steve, what are the issues with using IRRs to benchmark private equity? 

Steve Balaban: Okay. There's lots of issues, but we only have an hour or whatever it is on this podcast. I'll just focus on three issues. Okay. I'll talk about the issues with committed capital in private equity industry and then I'll talk about a few specific issues such as with a subscription line of credit and with NAV loans. 

Okay. Issues with committed capital. Okay. Let's say I'm the GP. And, Cam, let's say you're investing $100 million with me and you're the only LP for simplicity's sake. You give me a $100 million. But wait a second, you don't actually give me $100 million, right? You'll commit $100 million to my private equity fund but you may only give me $20 or $30 million upfront. Okay? And then I'm going to go look and find and buy companies. As I find more companies to buy, I'm going to call more capital from you, create value, sell companies. Give you the money back. 

Now IRR doesn't account for the money that you haven't given me. And you probably noticed, I'm just saying this anyway. Right? If you still have 70, 80 million of the money that you're supposed to give me in your bank account because it's committed and not invested yet, that doesn't actually account for IRR. An IRR makes the assumption that the money that in the IRR rate is actually being reinvested at the same rate. But good luck for you in your bank account to get 20% or 30% or whatever my IRR. That's the issue with committed capital. 

Now IRR is very time-sensitive, right? Private equity firm let's say gets the money in from the investor here and sells it here. There's two beginning and end points. Well, they can actually play with the endpoints using loans. Okay. Let's start with the subscription line of credit. Let's say, Cam, I find after we've called the initial capital, I want to call more capital from you because I find a company I want to buy. 

But instead of actually calling the capital from you, what I can do is let's say Ben is the bank that I have a subscription line with. I could actually call the capital from the bank from Ben and I pay him an interest rate. And then what I'll do is I'll use that money to invest. And then maybe in a bit of a time then I'll call the money from you. Now because I'm calling the money from you later, it actually shortens the time frame from when I called the capital. Therefore, I can have a higher IRR. Now not all private equity funds will calculate IRR with and without a subscription l a credit. But you need to ask. 

On the other side, a subscription is when you first buy the company. When I sell the company, imagine I can give you the money before I sell it, right? Wouldn't that help the IRR for the private equity fund? Well, that's what happens with NAV loans. NAV loans, net asset value loans, are made on the portfolio of companies. It's different than the actual debt that's on individual companies. That's in a leverage bio. You have your own debt in an individual company. 

But you put the portfolio together, the GPs will borrow against the portfolio and actually make distributions earlier to the investor. This will also get IRR higher. But even if you use it and you don't use it, it's going to be a different IRR. But the same thing happens with the company. And also, another metric which we haven't talked about, DPI, distributed to paid-in capital, will also be increased using NAV loans. My examples are committed capital, subscription lines of credit and NAV loans that are used to inflate IRR. There's lots of other things as well. But like I said, we only have so much time. 

Ben Felix: Yes. Super interesting. If you're an investor looking at IRRs, there's a possibility that the number has been manipulated in a way that makes it look a lot more attractive than the actual rate of return that you would have earned. 

Steve Balaban: We just did a video on our YouTube channel that's going to be coming out after this podcast. It's called IRR is the Worst Metric to Use in Private Equity Except For All the Others. We just found a little play-on-words from the Winston Churchill quote, right? 

IRR is a number. There's lots of different ways to inflate it. But the thing is that I don't think there's anything better. You can use IRR along with multiple on invested capital or TVPI and then you have two points. But you can't really use multiple on invested capital on its own. But you can. But doubling your money in one year versus doubling your money in 20 years is a big difference, right? So, you need something else. Right? 

PME has a lot of challenges to it like the time frame that's chosen and the benchmark that's chosen, which we can go into more detail if we want. And DPI, distribute to paid-in capital, which people were starting to use as an unbiased metric because it's like how can we get distributions earlier? But now you can get distribution earlier. 

And another thing. When I said that you have NAV loans and you give the distributions back, there is a chance that those NAV loans are recallable. You can have recallable NAV loans. And that also will influence DPI. Out of everything you have, I would say IRR is the best we got. But in no way am I saying it's great. 

What an investor should do, if an investor is going to invest in private equity, don't ever look at just a top IRR number and say, "Okay. That's the return I'm going to get." Okay? Understand all these things. Understand committed capital. Understand how different loans can actually influence IRR. And then when you're doing due diligence on the funds, ask these questions. And don't just due diligence on one fund that has a nice high number. Interview multiple private equity funds, multiple private equity offerings and see if there's consistency in the answers and see how they answer it.

Cameron Passmore: Yes. That's interesting. What about from the investor's perspective, does it make sense to ask for multiple performance metrics? Like, show me the IRR. But also show me a PME. Also, show me a TVPI. All that kind of stuff? 

Steve Balaban: I don't know. PME is not really used too much in industry but it does make sense for a multiple of money. And that's basically TVPI or MOIC, multiple invested capital. Yes. You would like to know multiple invested capital and IRR. And a lot of private equity firms will have both. But you want to ask. You want to ask. Not everybody will. Not everybody shows it. But you want to ask. 

And the challenge is there's not that much regulation in the private equity industry. And there's a big lag. For example, the SEC just came out with new private equity regulations on August 23rd, 2023. And those addressed the conflicts of interest in GP-led secondaries which were really big in 2022. 

Now NAV loans are kind of substituting for GP-led secondaries a little bit but they're not as regulated. I would guess maybe some regulation is going to come out in a year or two about those. And I think the challenge is regulations kind of lag in this industry. And so, I don't know, that might affect the answer to the question.

Ben Felix: Yes. Interesting. Yes, we've got some questions later about some performance numbers that we've seen posted as advertising private equity and showing like a 5% better return than public equities. Anyway, we'll come back to it later. 

Steve Balaban: Yes. Okay. Yes. Okay. Sounds good. Sounds good.

Ben Felix: What would you say are the best arguments for allocating to private equity? 

Steve Balaban: Well, if you do actually have access to the best funds and certain portions of private equity. So, private equity. For the argument, now let's include buyouts, growth capital and venture. We can argue if private equity should be just buyouts. But that's just a definition thing. But in venture capital, your top core tile managers usually outperform. If you have specific access to these top core file managers, then you should go in. Then maybe that's how you really access it. 

Another is knowledge and connections. A lot of family offices will have connections because of the business that they built. They'll know suppliers, customers and lots of different people where they can actually access deals and have proprietary deal flow. If they can do that, yes, you should definitely do private equity. And as long as you have a good due diligence process to do it. There's multiple reasons on why private equity is good. But I wouldn't just say private equity is good just because of a number that says it returns higher. 

Cameron Passmore: And what are the downsides, Steve, to having private equity? 

Steve Balaban: I think the downside is lots of people just want to be in private equity. They want to say that they're in private equity. Right? And it goes on both direct and funds. Right? For funds, a lot of funds play on the private equity argument. And I would argue not all the returns are on a net-of-fee basis. 

And so, the argument for private equity is that, by definition, the companies are private. And so, there actually is alpha to be created. If you can have a proprietary deal flow which everyone claims to have but not everybody does, then you can actually find deals before people do. If you have a good due diligence process, you can uncover things that other people can't uncover. If you're a good negotiator, you can buy at a lower price. If you're good at creating value, you can create value operationally, you can do multiple expansions through various strategies like a rollup. Or you can structure it in a good way. 

And so, there's different ways that you can create value in an active way that is hard to do as a minority investor in the public markets. Okay? There's lots of reasons why private equity has this extra alpha. But the big downside is that you're paying for this, right? There's a lot of fees associated with it. 

It's not that alpha can't be generated. It's alpha net-of-fees on how that can be generated. And then also, also, it's your ability to pick managers. A lot of people are just very happy with a brand name in private equity to say they got access to it whether that brand name has outperformed or not. 

And so, I think that's also a challenge is that people want into the industry so badly that basically, they're getting in however they can. And so, those would be the two main challenges is the fact that people just want to say that they're in private equity. 

Another one actually that I didn't mention, which is very common with family offices, is family offices have friends that will be in a deal and they'll say, "Hey, do you want to join this deal?" And no due diligence is done. And then basically it's just a follow-on to another family. That's another challenge.

Ben Felix: Yes. That's a big one. The net-of-fee things is so important too. When I read Ludovic's research the first time, one of the craziest things about it is that he estimates private equity fees at around 6% like all considered and finds – call it equal to public equity returns, which means that private equity managers are generating an alpha of about 6%, which is crazy.

Steve Balaban: Let's just walk through the assumptions in the fees and how we get 6%. Okay? On the actual fund level, there's a management fee and a performance fee. Management fee traditionally would be 2%. But nowadays, bigger and bigger funds, it's a little less. And that's uncommitted capital usually upfront. Not invested capital. Although there are cases where it's on invested capital too. 

Cameron Passmore: Uncommitted. 

Steve Balaban: Most of the time it's uncommitted, right? There's longer life funds that might do uninvested. But most private equity firms, yes, it's uncommitted. 

Ben Felix: Yes. That's big. 

Steve Balaban: Yes. It's uncommitted. And that's the management fee. Then there's the performance fee. Performance is 20% of the upside. Usually there's an 8% hurdle rate and a 2% catch-up clause. 2% catch-up clause meaning the first eight goes to the investor. Next two will go to the private equity firm. And then after that it's 80/20. 

And if you add up, if it's pretty good performance, there's going to be some good points there on the performance fee which kind of can get you to, in total, 4%, 5%, 6%. And then there's a few other fees depends on what assumptions you make. For example, a private equity fund, when they buy a company, they might have people sitting on the board that get payments. They might have consulting fees that get payments. Should that be included in the fees or not? Well, we can argue that maybe be paying those fees anyway to someone else or maybe they wouldn't. That's an argument that's there. 

Also, on co-investments, there's deal origination fees. They're usually small. But that's also something that should be there. And then there's another layer of fees if you're paying someone to choose private equity funds for you, which is I think we'll get to the retail options a little later, where you're paying someone to pick funds, they'll also get a management fee and a performance fee as well.

Cameron Passmore: This is one that I have not asked any about. I've only seen it. We looked at BREIT, the Blackstone REIT. And to access it in Canada, you had to pay like an access fee to go through some offshore vehicle or something like that which was like another percent on top of the regular fees. Is that typical being in Canada? 

Steve Balaban: It depends where the domicile of the people raising money is from. But, yes, if there's extra structuring fees based on where you are in the world, you would have to pay it, right? That's another question you want to ask. 

There's also some initial fees just to give you access to it. And then there's also in new liquid private equity. If let's say you're locked up for three years and you want to get out earlier, there could be a penalty fee. There's different fees there as well. 

Ben Felix: Man, it's crazy. It really does highlight though that there's logically reasons for there to be alpha in the space. But net-of-fee alpha is what matters. And there's a whole lot of layers of fees to think about.

Steve Balaban: Yes, yes. It depends on the vehicle you want to go to. And you want to look at how many layers that are in the fees. I think the challenge is people know that there's alpha in private equity. They want to access it and then they access it to the people that they've been talking to who then use a fund that then selects funds. And I think that's where it really adds up. 

The concept I think everybody should understand, which everybody knows, but I'm just going to say it anyway, private equity is an equity investment in private companies. Regardless of what you're doing, you have to find the company, you have to negotiate with the company. And it's owned by someone or some investor and you have to buy it. And you have to do the whole process. Let's go through the whole process and explain how this works, right? 

Let's say they have someone to sell for them. The private company has someone to sell. There's a teaser. You sign an NDA. After that you get a CIM, Confidential Information Memorandum, which you go through. After that, you might negotiate a letter intent, an LOI, or an indication of interest, an IOI. And then you sign that, which really is not binding. It might give you a no-shop agreement or something like that. 

After that, you get access to a data room. Now, it's more virtual. Before, it used to be more in-person. And then you negotiate a purchase and sell agreement. This stuff takes a lot of time. So, it is not liquid. That being said, people want private equity and they want liquidity. If you want both, you have to pay for the liquidity. And then it costs a lot of money because of what I just told you. And so, it's just making that connection between the process of how it is to buy a company and all the people involved to make it liquid for you. 

Cameron Passmore: Can you talk more about how family offices are actually using private equity in their portfolios? 

Steve Balaban: It's kind of like the examples I gave, right? I'll give you two different types. You have a family that made their money through a certain business. Okay. They still have this business. It's a large business and it's in a certain industry. Now they've made a lot of connections. They have a lot of suppliers, customers and different people in the ecosystem that know them very well. 

We can that if that family is going to invest directly, they have proprietary deal flow. They'll find out deals before anybody else. They have knowledge in the space. They have connections. And so, a lot of times you'll have families that will go into the industries they know. Okay? They'll go into Industries they know and they don't pay really any fees. Well, there's always a transaction fees. You might have a lawyer for negotiating a deal and stuff like that. But you're not paying fees to a private equity fund because you're finding it themselves. 

Now sometimes you'll have a family that wants to learn private equity that might invest in a private equity fund and might co-investment to eventually build a direct practice. Now another ways that family officers are using private equity is to diversify by geography. Okay? 

What they might be doing is like the example I gave of a Singapore family that just came over from Hong Kong and is looking to invest in the West, I'll say. Western Europe and North America. Now one thing is a lot of time private equity is used not on an aggregate basis. But what they'll do is they'll use private equity to access to a market where there might not be the best public equity exposure there. 

You might go, for example, European venture. You might want some access to that. And there's some pretty good Venture funds that you can access through European venture. But you probably can access the European venture as well or European tech, for example, through the public market. 

You might do European venture to get access to tech in Europe. You might do public equities to get access to different sectors. And it's kind of like just building an overall portfolio based on risk but also sector in geography and then dividing up the asset classes based on that.

Cameron Passmore: That all sounds sensible. That makes sense to me how a family office would get utility out of allocating that way. You made some allusions to how people just kind of want to get into private equity. When you talk to people in general, excluding the family offices that you're just describing, what reasons do you get for why people want to invest in private equity? 

Steve Balaban: Why do people want to invest in private equity? Well, the industry does a fantastic job of showing IRR. Showing out performance and showing how alpha can be created. These numbers really attract people to the industry. And all the points that the industry talks about on Alpha being generated are all true. They're all true. All the things that we've talked about in private equity. If you're able to find a company and you're able to negotiate well, you're able to create value, there's actually alpha to be created. That what brings everybody to the industry. 

And also, it's the fear of missing out. They know someone else that went into private equity that says they have these returns. And so, they want to get in on that. That's usually what happens. And then a big issue, a big issue that I find happens a lot with family officers or larger investors that go into private equity, which I think we might cover a little later, but I'll just touch on it, is the fact that once there's a liquidation event. Maybe they sold a business or whatever it is. 

Once there's a liquidation event and they want to be in private equity, they get so excited about all the pitches from all the private equity firms that they try to put all of their money in one vintage. Right? In one year. Even if they diversify it across sectors and geographies, it's all in one year, which is a challenge which I think we're going to cover a little later.

Ben Felix: Just to be clear, is responding to the industry sales pitches and FOMO and all that stuff, are those the right reasons to be investing in private equity? 

Steve Balaban: My opinion is kind of exactly what I just said. In my opinion, an investor should figure out all of the constraints for their portfolio. Their liquidity needs, time horizon, task considerations, unique circumstances, legal situation. Develop a portfolio either by themselves, or with a wealth manager, or an adviser that says, "What is a target return for my portfolio? And what is the level of risk?" 

Then they should build a portfolio around that. Then figure out how private equity fits into that portfolio. I think this is how most investments should be made. What I don't think is that you have an advertisement that says something is outperformance. Something is going to outperform. And then you tell your wealth manager, "Put this in my portfolio." Right? I think the idea is you have to look at your situation, build your portfolio and figure out how it fits in your portfolio. 

CPP Investments has a whole team called total portfolio management that does a great job at integrating private equity, public equity and many other asset classes in a portfolio context, which is what I think most investors should do. I do not believe investors should look at the pitch and put it in their portfolio without looking at their overall portfolio objective. 

Cameron Passmore: I have to ask you, Steve. You've done this for a long time and you said two things. Outperformance attracts people. There's also a fear of missing out. Can you talk about how private equity interacts with investor psychology? 

Steve Balaban: Yes. I'll do it from the perspective of valuations. Okay? When you have a company that's traded on the stock market, it goes up and down on a regular basis. And we can argue that the stock market is fairly volatile. When a private equity fund owns a private company or a group of private companies, it reports usually every three months to their investors. 

And let's say you're in a time where the market's not going so well. And the overall public markets go down a lot. Even if you have the similar companies in the private equity fund, just because of the nature of how things are valuated and the sticky valuation, you actually don't have the private companies that go down as much. 

And so, what ends up happening, you have sticky valuations. Over the long period, you don't have the big cyclical points that you have in public markets. And so, that actually is positive, I would argue, for investors. There's lots of books written about the public markets where you have investors that try to time the market and end up actually mistiming it, right? 

When things go badly, they get scared and then they sell. And when things are going well, there's a lot of momentum and they buy more, right? Which is why a lot of instruments are made in the public markets that we recommend that the everyday investor should go into because it takes away this behavioural issue. 

Private equity kind of takes it away for you. It's good, I would argue, from a psychological perspective for investors. It's challenging also because of the fact that, when you actually run the numbers, it looks like it's less correlated than it really is. 

Ben Felix: Yes. I want to ask more about that. How much of the perceived diversification benefits from private equity come from that valuation lag as opposed to actual economic diversification benefits? 

Steve Balaban: It depends on the vehicle, right? If you're looking at an aggregate vehicle, you're comparing an aggregate public market vehicle on global and then you're looking at an aggregate private on the whole global, I would argue that's probably fairly correlated. But a main cause would be the valuation lag. 

That being said, if you're investing in a specific strategy like I discussed before, that is, let's say, a European venture in a certain European country that might not be representing the public markets. Well, that would be fairly low-correlated public markets because you might not even have that option. I think it all depends on the strategy. But yes, on an aggregate basis, I believe a lot of it is because of the valuation lag.

Ben Felix: That's a big takeaway, that it's like if you put private equity into a portfolio optimizer, aggregate private equity, it's going to look good because of the valuation lag. But that doesn't mean there can't be diversification benefits if you're accessing equities in like you said earlier, like a region, or a country, or a sector, or something that just doesn't have public equities available. There can be diversification. But the way it's often viewed is not where the actual diversification comes from. 

Steve Balaban: I guess the question is, is it private equity that's not adjusting fast enough? Or is it public equity that's adjusting too quickly that might be irrational? That's the question, right? Now I don't have a view on each one. I just want to bring up the point. I'm not going to argue to say that public equity is irrational. And I'm not going to say private equity is rational because I don't agree with that statement. But the idea, the argument from the private equity industry – and I told you I'm always trying to get both sides of the argument. The argument from the private equity industry is that, actually, when things drop, it's more investors overreacting and it's eventually going to come back. And you can't sell anyway. In the long term, it's all going to be the same anyway. It's not perceived diversification. It's actual diversification, which is the argument. Now, by the way, I'm not making that argument. I just want to present the argument so we can just kind of see the other side. 

Cameron Passmore: So interesting.

Ben Felix: Yes, that is interesting.

Cameron Passmore: Steve, you mentioned vintage years. How important is it to have different vintages in your portfolio? 

Steve Balaban: Imagine, imagine you're a family office or an investor and you have a big liquidation event in 2005. You hear about private equity. You get excited. And you invest all your private equity allocation into private equity funds that are a 2005 vintage. The funds starts buying companies regardless of industry in 2005, in 2006. Right? And before the financial crisis. Okay? Then the financial crisis happens. 

Regardless of how good you are at picking managers, regardless of how good, you are most likely you have a lot of headwinds coming at you, right? You're probably not going to perform that well. Contrast that with the family office that it starts investing in private equity in 2010. They have a big liquidity event and they invest in 2010. Then regardless of who you pick, it's going to go really well in 2011, '12 and '13. 

Now, obviously depending on the industry, and I know there's some little factors that I'm not talking about. But overall, that's an issue. And so, I would argue that investors should not – this is my opinion. I don't think investors should try to time the market. And so, if you want to have a private equity allocation, you should build a private equity plan. In other words, I would argue that you want to diversify for five years. 

If let's say you have X amount you want to invest in private equity, I would divide that to 20% a year regardless of all the pitches that say, "Don't worry. In a downturn, we'll be fine." Regardless of those pitches, 20% a year into private equity. And that's what I would recommend. 

Now a lot of these new vehicles, these liquid vehicles try to do that as well. We can argue that they're trying to diversify per year. But when you're building a program on your own, I think it's extremely, extremely important. And there's also an argument in the industry is what exactly does the vintage year mean? Because sometimes it takes more than a year to actually raise the fund. Is it the beginning of the raise? The first close? Is it the last close? Because a lot of them, what'll happen is there'll be multiple closes. And they'll bring some investors in the first close and then there'll be investors in the final close. And they might buy something in the middle. And there's something called an interest equalization payment to make it all okay. 

Ben Felix: You mentioned earlier, you kind of walked us through the process of buying a private company and how that relates to liquidity. Can you talk a little a bit more about why private equity is typically illiquid? 

Steve Balaban: Okay. It's illiquid. Because regardless of all the vehicles you have, it all goes down to first principles that you're buying a private company. And once you own a private company, regardless of how many people won out of the fund or whatever you have, at the end of the day, the company is private. And so, to sell the company is a long process. To sell the company, there's negotiations. You have to get a certain price. It takes time. 

And so, while there's mechanisms, which we'll get into later when we go into liquid private equity discussion on cash sleeves, on lines of credit. But at the end of the day, the company is private and people need to not forget that and realize that they're paying for liquidity. 

Cameron Passmore: If private equity is illiquid, how does liquid private equity work? 

Steve Balaban: Okay. I'll give three different examples. I'll give you an example of the third-party evergreen funds. I'll give you an example of the open-ended first-party funds. And then I'll give you an example of some things that private wealth managers are doing for their clients to make it liquid. Okay? 

Let's start with third-party evergreen funds. These are the funds that are raised by firms such as HarbourVest, Northleaf, Hamilton Lane, Partners Group, where in the portfolio there's an element of secondaries, an element of directs, an element of primaries. Depending on the firm, there's different percentages. 

And then what ends up happening is they take money. They take subscriptions from investors. Then what there usually is, depending on the firm, there's a lockup period. It could be two years. Most of the time it's three years. Sometimes there's a penalty to sell early. But usually, it's three years. After that, there are redemptions. Redemptions are usually quarterly. Sometimes monthly. And in your redemption, you can sell your stick. 

Now, of course, they have to have redemption gates. Because otherwise, if everybody sold your private companies underneath, what would you do? What they do is they have these gates on redemption. Usually, it's 5% of net asset value. Not everybody tries to sell at once. You mentioned BREIT. This is what happened to BREIT during the pandemic when all of the commercial real estate firms went down on the public markets and then everybody wanted their money out of BREIT because they had sticky valuations and they had to gate those people. 

There's redemption gates at 5% of net asset value. But then there's also this sleeve, right? A cash sleeve and then a line of credit to try to smooth out the subscriptions coming in and the redemptions going out just to make sure there's enough liquidity in there. That's kind of the liquid private equity for the third-party evergreen funds. 

You're seeing more and more of these first-party open-ended funds. KKR. Something called K Prime. They used to have actually something called Cygnus in Canada, which no longer exists. You have EQT Nexus, which is EQT, one of the largest private equity firms in Europe that has a fund. And you have a lot of private equity firms that are looking to go this way. 

TPG just bought Angelo Gordon. CVC just bought DIF. Angelo Gordon's a private credit fund. DIF is an infrastructure fund. And they're trying to get different asset classes so that they can go after what they say is the private wealth channel. These first-party companies are trying to do it internally. They're arguing that there's less fees. But we can get it that argument if we have to. 

The third one is through the private wealth channel. There's different opportunities that your wealth manager advisers can access it. There's feeder funds such as Moonfare that have agreements with private equity firms such as Primera to chop it up in a way that people can kind of access. 

And then in the US, you have Opto Investments, which was started by the old CEO of CPP Investments, Mark Machin. And so, they basically have a technology platform. You had IRAs kind of access into private equity funds. And this is all driven by the fact that – and again, this is my opinion, that the private equity industry has kind of raised a lot of money from pensions and other types of investors. 

There's this data from Bain that says 50% of the investable assets comes from the private wealth channel. But only 12% of the assets invested in alternatives comes from that channel. And so, the idea is that there's this white space. And they're trying to raise from this white space. So, creating these other vehicles.

Ben Felix: What are the tradeoffs for investors with liquid private equity as opposed to more direct illiquid approaches that you talked about earlier? 

Steve Balaban: If you're going to look at private equity, the main thing on why these exist is because of a few things. One is the minimum amount. You can get into a liquid private equity vehicle sum. There's no minimum sum. $25,000 is what we're looking at. We're a closed-end fund, which are the ones I was talking about before. A million, five million. Depends on the fund, right? 

Access is a big thing, which is why they've been created. Another thing is they do the best they can to make it liquid. And these are traditional ways you're just not liquid. And they do the best you can to also diversify across vintages because they're continually raising and continually deploying. That's why these liquid private equity funds exist because I don't think the everyday investor that wants to get a private equity just hasn't been able to access it because of the current structure. It's not like liquid private equity versus illiquid private equity. A lot of people don't have that second option. It's liquid private equity compared to any other types of investment. 

And so, the main trade-off is the access to private equity versus the fees to get access to liquid private equity. That's kind of what you're looking at. And then I think when any investor is looking at any of these vehicles, I think it's important to meet multiple firms if you can. Or have a wealth manager advisor that you trust and ask them their process on how they selected the firm that's a partnership with their company.

Cameron Passmore: What are your thoughts in general, Steve, on these private assets being available through the private wealth channels? 

Steve Balaban: I think it's important for the retail investor or any investor in the private wealth channel that's going to invest to kind of understand this in detail or to work with someone that fully understands it. When I say work with someone, probably their existing wealth manager and adviser. And ask the questions that you need answers. And hopefully, your wealth manager advisor has done that due diligence on these products for you so they can answer the questions that you have. 

And then once you have all the answers to questions, make a decision once you have all of the information. How does it fit into your portfolio, right? Does it make sense for your portfolio? What are your other options? What are the pros and cons of liquid private equity versus other options? There's lots of options to invest these days, right? Don't just invest in like – I think it's a little dangerous when someone says, "Okay, I'm going to invest because of the fact that private equity sounds good and it outperforms based on some number that I read." I think it's important that they go into detail due diligence.

Ben Felix: What about access? Through these more liquid vehicles, are you still getting access to the best funds? 

Steve Balaban: That's up to you to kind of decide. I gave you lots of different options of different companies. All of them invest in different private equity funds. There's some overlap but they all invest in different private equity funds. As of a number I saw a little while ago go, I think it was last year, I think they said 11,000 funds around the private equity funds around the world. But I don't have a full definition on it. But it's around that number. And so, I think it's to kind of figure out what they're investing in. 

I think most numbers, aggregate numbers might be biased by the top performers that you might not have access to and also the survivorship bias. Because a lot of private equity funds get raised and then you don't hear from them again. And so, I don't know. To say out of all of our providers, who has the best private equity fund offerings? I would say to do your own due diligence. 

And what ends up happening actually for the retail channel that I think is going to happen, I think what's going to happen is your current advisor is not really going to have an option. I think you're going to have more and more of the banks partner with – BMO just partnered with Partners Group. And I think you're going to have more and more of the banks partnering with these firms. 

And so, you'll have the one option available to you if you want to go through the channel that you're used to. And I think it's just asking the questions that you want answered. 

Cameron Passmore: Right. Vanguard did that too, right? They partnered with a huge firm as well. 

Steve Balaban: HarbourVest. I think Vanguard with HarbourVest. I was going to say I believe you can go through HarbourVest directly. For that, I'm almost positive instead of through Harbour now. But I don't know that much about the Vanguard HarbourVest product on. Whether it's the same or different than the current one.

Ben Felix: Okay. Interesting. It matters a lot, right? Because my understanding of private equity is being different from public equity is that the dispersion in returns for managers is huge relative to the dispersion in public equity manager returns. 

Steve Balaban: Oh, yes. For sure. You look at buyout growth in venture. In venture, it's extreme. You might have had a video actually where you showed the dispersions. If not, maybe we can overlay it on this podcast. But the dispersions in venture capital are huge between you're top quartile and your bottom quartile. 

Fun fact, and I know we've talked about this before, there's actually a really good academic article out of the University of Virginia Darden that talks about benchmarking and private equity. And what the academic article says is that 50% of private equity funds say that they're in the top quartile. Those that don't know are the top 25%. 

And the way they do that is because the industry – we talked about PME before. But that's not really what the industry uses as benchmark. They don't use Russell 2000 or S&P 600. But they usually use is they use benchmarks from PitchBook, from, Preqin and from Cambridge Associates. Now these are good benchmarks. The challenge is they don't all have the same things in their benchmarks. And there's different sector benchmarks and different types of benchmarks. And so, the paper kind of goes into detail on how private equity funds compare their funds to what benchmark and why they can all say they're top quartile. 

I'm always careful when I say the word top quartile because the question is according to who. And so, with that said, going back to your point, yes, there's a lot of dispersion in private. I would argue I'm more, more with family offices. But usually, when family offices are investing in private equity funds, the recommendation is, once you have the geography and the sector that you want to invest in, you want to figure out your risk level and you want to kind of figure out the size of the deals that they're going to. And then what you want to do is you want to meet at least three managers with that strategy and you want to interview each one. And then you want to kind of create this criteria where, basically, you're going to say, "Okay, here are all the things I'm looking for in a private equity fund." And then you're going to kind of rate them based on that strategy. And that's how you would do it. As opposed to looking at some of these benchmarks. Because the challenge with some of these benchmarks is they're reliable for what we have but they're not the most reliable.

Ben Felix: We've seen marketing materials from a retail distribution channel. Just leave it at that. Suggesting that private equity has a 5% return premium over public equity. How should investors who see numbers like that assess that type of claim? 

Steve Balaban: I think investors are used to shopping for things and are used to marketing coming at them saying that you have the best network, you have the highest return. People are used to this. And so, sometimes you think about it and say, "Okay. Wait a second. How was this number calculated?" Right? 

And so, it's one of many things to just realize. I think for marketing materials, there'll be more and more private equity offerings come out. And if you're the private equity firm, you can choose the time frame where your data comes from. You can choose the benchmark. And similar, private equity funds that were in the University of Virginia study, which are most of them, they're going to choose the benchmark that helps them look the best, right? And so, that's just the nature of how people are going to market. They're going to market. And they get the choice of a benchmark. They'll choose the benchmark they want. They get a choice of time frame. They'll choose the time frame you want. 

And so, as a buyer you just know, whenever you buy anything, you don't just rely on marketing materials. You do your own due diligence. I would recommend, if you're going to go with someone that's says 5%, interview three other people that are claiming something similar. Ask them some questions and then you can kind of figure it out. But I would argue never anything in private equity. When you get something in marketing material, get something in a nice pitch deck, you always need to question everything. 

It goes back to people that do direct private equity when they get the sims and they get this number called adjusted EBITDA. You probably want to ask how it's been adjusted. 

Cameron Passmore: I want to go back to capital calls that we talked about earlier. How big a practical issue is it in the way that capital is committed to upfront and then called for in the back end by these private equity investments? 

Steve Balaban: Okay. Originally, originally, it actually was an issue. Because what happened was the private equity firm would go to buy a company and then it would be hard to actually get the money to come in so quickly. Because when you buy a company, it's not like you can really choose your own timing. 

Basically, what ends up happening is you have to rush and get the money. And that was always a challenge. That's how subscription lines actually came up in the first place. To actually help give a little bit of gap for the investor to have a little time before the investment was made. That's actually why it existed in the first place. Because of the massive issues you have with it. That's on the private equity fund side. 

On the investor side, sophisticated investors now have full teams to figure out how to deal with this, right? You have the total portfolio approach. Like I mentioned, CPP Investments, most of our big pensions in Canada are fairly sophisticated when it comes to private equity. And they have a good way to manage these commitments. 

That being said, your family office investor, a lot of this is new to them, is this idea where, "Wait a second. I just committed $100 million and I'm only giving 20. What do I do with the other 80?" And the private equity fund says, "Well, you deal with that. We'll deal with your 20. And by the way, have your money ready for us to call." 

And so, it is a challenge in the industry. And I think investors that are looking to invest directly into private equity funds. Not the liquid private equity vehicles. Because they take care of this for you. But if you're going to invest in closed-end private equity funds on your own, you really need to figure this out. 

Ben Felix: Maybe you can describe the issue that I'm referring to and then talk about how much an issue you think it is. The conflict of interest that exists when a fund sells assets that it has invested into a continuation fund. It's like a fund selling private equity assets to a fund that it's friendly with which can cause – I don't know. Can you just talk about that? 

Steve Balaban: 100%. Why don't I explain GP-led secondaries and continuation funds? And then I'll talk about the conflict of interest you're talking about. Okay. Let's go back to me having the private equity fund and Cameron being my investor. Where, again, assuming he's the only investor. Even though usually you have many investors. Okay?

Cameron's going to give me $100 million. I'm going to take 20, 30 up front. As I find companies, I'm going to buy, create value and then sell and give Cameron his money back. Let's say around year seven, eight and nine I still have a company or companies but I don't believe the market is good enough to sell them. Or maybe I haven't finished how I'm going to create value on them. Okay? 

What I can do as the GP is I can lead a secondary transaction. Now secondary transaction is if we back up into let's say year five or year six and Cam decides he wants to sell and no longer be with a private equity fund, he can find another LP to sell his stake to. And that's called an LP-led secondary transaction. That's an example of how secondary started. 

But in years seven, eight, nine, before the fund ends by the company or companies. Okay? I can go to Cam. And for this example, actually, let's say there's multiple investors. And I can say, "Cam, look. There's more value I want to create in this company. So, here's what we're going to do." I'm going to create as the GP a special-purpose vehicle called the continuation fund. And then what's going to happen is the continuation fund is going to buy – let's just say it's one company for simplicity. I'm going to buy this one company. It's called the single asset continuation fund and I'm going to bring the company into the continuation fund. And by the way, Cam, I'm going to give you the option if you want to roll over your stake. Okay? 

Now usually what happens is not all of the LPs want to roll over their stake. As I mentioned, pensions are fairly sophisticated and they plan to get this capital in. They probably has a use for something else. Okay? So then what happens is some of your LPs are going to want to sell. Some are going to want to stay on. That's the idea of a GP-led secondary and a continuation fund. 

Now here's the conflict of interest. At what price do you sell? Because you're selling to yourself. Now I'll give you why you want to have a high price and why you want to have a low price. You want to have a high price, because as the GP, you technically get to collect performance fees because it's an exit. But now most of the performance fees are actually rolled over into the continuation fund, so you actually can collect it out. 

But the problem is if you have too high of a price, all the LPSs will want to get out and you won't be able to attract new LPs. So then maybe you want to have a lower price. If you want to have a lower price, you'll attract new LPs. And what's very common now is stapled commitments. Because it's a lower price, you can tell new LPs, "Look, we've been trying to raise money from you for a while. We'll give you access at a low valuation. But we need you to commit to our next fund." 

The challenge is having a fair way to value this. Because some people might want to value it lower. Some higher. And the industry will argue this balance each other out so we get a fair valuation and we use an independent valuator. This was an issue in the new SEC August 2023 new guidelines which are over 600 pages. But one of the things they talk about is how valuation is done in GP-led secondaries. And they talk about the idea where an extra independent opinion needs to come in. And we can argue about how independent that independent opinion is. But that's the idea. The idea is you have a 10-year fund or your seven, eight, nine. You have these GPs that want to continue holding on. 

Back in the day, they used to just extend it like a year or two. But now they split up the LPs and sell it to themselves. And like I said earlier, NAV loans are also kind of used now a little more. GP-led secondaries, we're getting pretty big compared to LP-led secondaries in 2022. And now you'll see different methods but I think they're still going to come on depending on what happens in the public markets, right? This will happen a lot if public markets go down.

Cameron Passmore: You make me think of another question, Steve. Is there a trend at all in the industry towards some sort of permanent kind of equity instead of rolling it over every eight to 10 years? 

Steve Balaban: There are permanent vehicles. And a lot of times it's using insurance capital. A lot of the private equity firms will work with insurance companies or will own various insurance companies. We did a video on this on our YouTube channel. And so, there basically having these permanent vehicles that are long. There's also other longer-life funds. Like Altus, for example, in Toronto. They have a 17-year fund. And by the way, their management fee is on invested capital. And a lot of the bigger players like CVC and Blackstone also have longer life funds that are 17-year. But, yes, they do have the permanent capital. 

The challenge with a permanent Capital vehicle is really on the structure of how private equity professionals are going to get paid. Because a lot of times they get paid on the performance fees. And technically, management fees should be just covering your cost. And we can argue if they are or not. But let's just say they are. And so, that's actually another argument for something I didn't talk about here but I think maybe it would be good to talk about is different types of waterfalls. What do you think? A deal by deal and a whole of fund? 

Let's say, again, Cam, I take a $100 million. I get a commitment from you and I'm investing 20 to 30 million. Now let's say I've invested, for simplicity's sake, 10 million in 10 different companies. And let's say I sell the first company that I pay 10 million for, I sell it for 20 million. Okay? 

Now, remember, my hurdle rate is 8%. I've doubled my money. And for simplicity's sake, let's say I only held the company for one year. I've made 100% on that company and my hurdle rate is 8%. And so, the question is do I get to accept the performance fee or not? One argument would be yes because I doubled my money on that deal. I got 100% IRR. One argument would be no because Cam committed to me. You committed $100 million and you haven't got your $100 million back. 

And so, the right answer in the private equity industry is it depends on what you negotiated in your limited partnership agreement. A deal-by-deal waterfall, also known as an American waterfall, is just like what it sounds like. On deal by deal is when the performance me gets collected. And a whole of fund is after Cam gets $100 million back plus the 8%. Then I start collecting. Okay? This also affects the timing of cash flows to the private equity firm which I think will impact this idea of permanent funds. 

Cameron Passmore: Wow. And Ben, you can correct me on this. But I think we've been pitched more on private debt than any other asset class over the past few years. Steve, what risk do you see with these fund flows going into private debt? 

Steve Balaban: Okay. Let's look at the pros and cons of private debt in this market. Now, by the way, it's interesting because private debt originally was called private debt. Because debt is when you loan money. And now you're seeing people call it private credit. Credit's like a credit card where you have access to it because you have lines of credit as well in there and they figure that kind of covers it. Okay? I'll use the words private debt and private credit interchangeably. But I just wanted to kind of talk about that quickly. 

Let's say you're in a private debt fund in 2024. Well, interest rates are higher. Is that good or bad? Well, it's very good because of the fact that you get higher returns. It's probably not so good because the economy is probably not so great and they'll be more defaults. 

And so, the balance is are these extra returns outweighing the defaults? And then the argument for the industry is, actually, they are. And the other argument for the industry is that these private debt funds have the expertise to get a high recovery rate when they default. Because in private debt, you're a little higher on the capital structure than the private equity firm. And so, if you're higher on the capital structure, if a company does poorly, you actually can restructure it and maybe get the most out of it. 

Now there's another point on private debt I'd like to mention. Back years ago, the CFA Institute asked me to create a private debt section for the CFA materials. For any of your listeners that are writing the CFA exams, they probably saw my name on the alternative investment section. Originally, we created this private debt section, okay? What we did is we had four categories for the private debt section. We called it direct lending, mezzanine loans, venture debt and distress debt, okay? For those people that are writing their CFA exams, remember those four. 

But I would argue that since we wrote that, there's actually a fifth type of loan that comes up that I think people need to be aware of when they're investing in private credit. And I would call that specialty loans. An example of a specialty loan would be what I talked about earlier, these NAV loans. 

Private credit firms will give private equity funds capital and they will use the portfolios, the group of portfolios as collateral. Now this is different than subscription lines, which use commitments as a collateral. They're going to use this. And so, as an investor, you're investing in the private credit fund, which is now investing in these NAV loans. 

Now NAV loans are just one example of these specialty loans. There are tons of these specialty loans. As an investor in a private credit or debt fund, what you're doing is you're investing in one of these five. Specialty loans, venture debt, distress debt, mezzanine debt and direct lending. And my recommendation is you have to fully understand the strategy. But if it's going to be in direct loans, direct loans which is where most of the private debt industry has grown from since the financial crisis, right? Because after the financial crisis, Dodd-Frank came out. And then there were more restrictions on banks. And then the private debt industry really kind of blew up and mainly because of these direct loans. 

Well, if they're direct loans, you get an idea of the underlying companies. And if it's a blind pool where they haven't bought it yet, you can actually look at their previous funds to see the types of deals they have and you get a little more insight into type of investments. 

I find that as an investor, if you're looking at private credit or private debt, you want to fully understand where it's going into. If it's going into companies. That makes sense. Then you can actually understand the companies and then make a decision there. But if it starts going into these specialty loans, this is where it gets a little more complex as an investor to do your due diligence. And so, you hope that, if you're with an adviser a wealth manager, that they fully understand these complex specialty loans. I don't know if that answers your question.

Ben Felix: That's a lot of good information. Anytime I see – and I know there's always nuance. But anytime I see something getting pitched like Cameron said that we've seen this pitch to us a lot. And it's true. People approach us all the time for pitching their product, or their security, or whatever. But it seems like we've heard about this more than anything else. And whenever happens, I worry about – I don't know. Valuations in the asset class. Just general risk with too much capital flowing in. Do you worry about that at all in the space? 

Steve Balaban: The industry has really not been tested, right? Because the industry's kind of really grown since after the financial crisis. In my opinion, if you're going to invest in it, make sure you understand what happens in the event that the industry gets tested, which is I'm a little more on the side of the direct loans. Because then you can actually see through it. But there's different structures and it's making sure you understand it. And you really understand – in private debt, usually, there's an interest rate that gets paid on a regular basis. But the main risk isn't a regular event. The main risk is that there's defaults. 

And so, I think when you're doing due diligence on private debt, what is really, really, really important is that you fully understand the process of what happens if this company fails. What is the process, right? What happens if the structure is bad? Because you've probably seen those graphs where it's basically risk and return. And then you have everything that kind of goes linear. And then you have whoever's selling you their product is highest return, lowest risk, right? 

You've probably seen those. And you can substitute a lot of products. But it depends on the private debt firm. I think it's your job as the investor, especially with more pitches coming out, to really try to understand the downside. The upside is really easy to understand. Okay, higher interest rates. Okay. You might get 10% return. 12% return. Some of these PIK loans that you've seen. The paid-in-kind loans are now getting up to 20%. That's easy to understand. 

The hard part to understand is what happens when it blows up? Which I think is where you're coming with your question. And it's unproven, right? It hasn't hit. This industry is new and it hasn't hit a big downturn like we saw in 2008. It'd be interesting to see how it plays out.

Ben Felix: Yes. I'm personally, and for our clients, happy to be on the sidelines for that one.

Steve Balaban: Yes. Okay. Okay. I got you. Yes. There are a bunch of risks in there and you really have to uncover what's going on. You need to spend some time to fully understand it.

Ben Felix: Yes. Makes sense. Steve, this has been great. I want to ask you, before we finish up, if you can talk about the private equity certificate that you're launching through the CFA Society Toronto. And maybe in addition to that, you mentioned that you've written some of the CFA curriculum. If you can talk about that too, I think that'd be worthwhile. 

Steve Balaban: It sounds good. I guess on the certificate. This is a couple years in the make it. We have over 70 videos of just me talking like I'm talking now, except easier to follow because there's graphics next to my head when I'm speaking. So, that should be okay. Plus, there is 60 like real-world problems. There are quizzes. There's an exam. And at the end, there's a certification in private equity. And that's kind of set up for investors, wealth managers, advisers and service providers as they're talking to their clients to fully understand what's going on. As well as give them this resource that, after they do the exam and hopefully do okay, they can actually go back into the resource and actually see what's going on. 

And just to quickly mention, we have a coupon code for Rational Reminder listeners because we are launching it in January and we'd love for your listeners to go through it. As for the CFA curriculum, there's continually advances getting done in the CFA curriculum and there's going to be a new private markets portion to level three, which is pretty exciting for the CFA institute as well as multiple certificates. There's a data analytic certificate and multiple certificates that are coming out in the CFA Institute, which is fairly exciting.

Ben Felix: Super cool. 

Cameron Passmore: Awesome. Steve, final question for you. How do you define success in your life? 

Steve Balaban: This is going to be probably a different answer than most. I absolutely love helping people. That's why I teach at the University. And so, if I can help in my lifetime as many people as possible, that would be how I would define success. There's that book – I forget the guy's name. It's called Flow. Remember, you guys – I don't know if you've read that. Where he talks about like when do you feel like you're doing something where you're just kind of in the flow? What are you really, really passionate about? And for me, it's after a class that I've been teaching at the University of Waterloo and I'm able to help some of my students. Or it's after a workshop where I'm able to help people. I just absolutely love it. if I can kind of do that, which is why I'm spending most of my time teaching these days, well, that's what I would say, is just helping as many people as I can around the world. 

Ben Felix: That's awesome. That's Mihaly Csikszentmihalyi. That's who wrote that book. 

Steve Balaban: Okay. I'm happy you're the one that got to say it. Not me. Because I definitely wouldn't have said that properly. Thanks, Ben.

Cameron Passmore: I knew it. But I thought I'd let Ben do the proper pronunciation because I've mucked it up before. Steve, this is great to have you on.

Steve Balaban: Thank you both for having me. I really appreciate it.

Ben Felix: Awesome. Thanks a lot, Steve. 

Cameron Passmore: And thanks for the course for the listeners. It's going to be awesome to check it out. Incredible conversation. I just loved having Steve on. So let's go to a quick review of a previous episode. With that, here we go. 

In episode 188 in early 2022, we were joined by Professor Ayelet Fishbach from the Booth School of Business to talk about the science of motivation and goal setting. She is also the author of the excellent book Get It Done. She started that conversation by explaining the difference between intrinsic and extrinsic goals. Intrinsic are goals for personal desire, and extrinsic are goals for other factors such as money or recognition. What are the characteristics of an effective goal such as how specific should a goal be, what should it not be, and whether goals should be quantifiable. 

We also talked about the power of commitment devices to help you achieve your goals. We also discussed how you can become intrinsically motivated to achieve a goal and how our relationship with our future self can impact that motivation. Another interesting part was when she described what a goal system is and how it can be effective at achieving multiple goals. So during this time of the year, when many people do set goals, this is an excellent episode to revisit to better understand the science of goal setting. That was Professor Ayelet Fishbach on episode 188. 

I also want to mention that she just released a TEDxChicago talk a couple weeks ago, and we'll share that link in the show notes as well. But if you Google Ayelet Fishbach TEDxChicago, it comes up right away, an excellent, excellent presentation on goal setting. 

Okay. So let's go to a quick book review, very quick because we have the author with us this week. I want to highlight a book that I read late last year. It kept showing up in my feed, and it's called Epic Life: How to Build Collaborative Global Companies While Putting Your Loved Ones First, which I thought was an interesting title. The author is Justin Breen. I read the book, and the book is a collection of 30 ideas that he has collected through his personal networking. Justin's a very interesting, and I think Ben [inaudible 01:04:33] says somewhat eclectic individual, who kind of comes at the world in a different way.

It’s an interesting way of even engaging with us that you'll hear in a minute, and it's from connecting with these people that he's come up with this list of ideas about how you can be more successful. I thought it'd be neat to have him just come on to talk in general. I think he did give us some concrete ideas, and he talked about the power of networking, which is what he does. He's got incredible focus in his life, which is what I thought was interesting. It kind of gives us permission to say no to things that aren't important in our life. Once you defined your purpose, what can you do to stay focused on that purpose through the year? Then why would it matter in that purpose to connect with other people? So he talked about that. 

He is a renowned entrepreneur, author, and speaker. He's been in publications such as Forbes, Inc., and Entrepreneur. He's a Founder and CEO of BrEpic Communications, which is a PR firm that helps businesses grow by creating compelling stories and building strong relationships with the media. Again, the book is Epic Life. It's a collection of 30 ideas clearly spelled out that are super easy to implement. I think we're all hoping to have epic lives. I think reading this book and listening to Justin will give some insights into how you might be able to at least come closer to having an epic life. With that, let's go to our conversation with Justin Breen. 

Cameron Passmore: Justin Breen, welcome to the Rational Reminder Podcast. 

Justin Breen: Yes. We The North. I was looking at your site, sensible investing. Sensible and all I do is talk to visionaries all day. I think most visionaries, humans think they're talking nonsense until it makes sense. Then it's like, “Oh, that makes sense.” But it takes a while for people to understand that it makes sense sometimes. 

Cameron Passmore: Well, I think people will realize that it makes sense to have you on to kick off 2024. I like your link to We The North and basketball. You may know Ben's background in basketball. 

Justin Breen: I didn't know that. That's interesting, but I don't believe in randomness. We live in the United States but love Canada, wearing the Canada men's soccer national team uniform now, sing O Canada at minor league baseball games, and love Canada, great people. 

Cameron Passmore: Awesome. So let's kick it off. One of the things that struck me in your book is that naming your year can actually be transformational. Can you talk about that?

Justin Breen: Well, I don't believe in randomness. So we just had our latest BrEpic Network meeting, and we had about 30 folks on there. They're all visionaries. Then we talked about this very topic and just this background. I've been naming my ears for several years now. Then a good friend of mine, former PR partner, Joe Martin, it was his idea. I'm like, “Oh, that's a good idea. I'll start doing that.” Focusing the entire year on one word or one phrase, it just kind of manifests itself. 

Again, just as background, 2020 was Global Growth, so every day say ‘global growth’. 2021 was No Limits. So when you have no limits, there are no limits. 2022 was Epic Life, which became the name of Epic Life book. Again, manifests itself. 2023, last year was Net Works, two words, Net Works. Then BrEpic Network, that's when it's really taken off. Then this year is Century Club. That’s getting BrEpic Network to 100 members. We're halfway there. But more importantly, I plan to live until at least 2100. So I look at BrEpic Network as a century club that gets me through the rest of the century. That's the background on it. 

Then our members ask to provide their answer to naming their year. Then here are some of the words that they said. I'm saying this because I think it will provide the audience and you perhaps and me some good ideas for the year. So here are some of the words that they chose. So joy, simplify, presence, exponential growth, excellence, purpose, appreciation, fulfillment, impact nations, increase freedom, why, awareness, patterns, partnership, blessed, antifragile, maximize impact, inner circle, and restore relationships. That's about half of the things they gave. I don't want to spend the whole show recapping that. But it's all different, and it's all collaborative. It was really interesting. 

Ben Felix: What process do you find works in deciding what to name your year?

Justin Breen: Great question. So I am not a process person, but I am a pattern person. Then the key to life is like there's good and bad habits. So the best patterns become the best habits, and then the best habits become the best rituals, so naming my year as a ritual. I'm very low in ideation. Most of the visionaries I talk to are very, very high in that. They're all over the place, endless shiny object. I'm not like that. I'm an activator who doesn't overthink. I just do it and then see what happens. 

With the naming my years, because I'm so low in ideation, to have myself do the ideas takes a long time. So I start thinking about the next year in like August or September. Then I even start – it's like the year begins for me in August or September, if that makes sense. So I was thinking about Century Club in August or September. Then whatever 2025 becomes, I'll start thinking about that in August or July or something. Then that's what it'll become. The key to the process as well is saying it every day, every single day. So I say Century Club every day, every single day. 

Cameron Passmore: How does this all link back to one's purpose?

Justin Breen: Well, you're a great thinker and simplifier with that question, a great thinker. I see us having this conversation in Greece or something in like 2,000 years ago. Then now, we have the technology to fast-track it or communicate it. But it's the same type of thinking. It's the same type of thinking. I live a very simple life, very simple life. Like people from the outside think it's very complex, but it's not. I only do two things. One, spend time with my family. Two, connect visionaries to serve humanity, so not humans, not business owners, not consultants, just pure visionaries. 

By having that ultra-focus, a part of the mechanism or the flywheel or the trigger to doing that is naming years. So everything that I do, the purpose and the family are the litmus test. If it doesn't match what the purpose is or spending time with my family, I just don't do it, or it's a bad idea. So naming years, that adds to the purpose. It focuses even more on the purpose. 

Ben Felix: How does defining purpose affect your mindset?

Justin Breen: Thank you for asking that for your audience. I appreciate that, but that's everything. Without that, there's nothing. I mean, to me, without family and purpose, there's nothing. Without family and purpose, there's nothing. Without mindset, I don't think there's a purpose. Again, my brain, very simple. Everything's a pattern or a habit or a ritual. So my favorite pattern is right mindset attracts right network, creates right opportunities. So right mindset attracts right network, creates right opportunities. 

That mindset, to answer your earlier question, it just goes into the purpose. So purpose of life is to connect visionaries to serve humanity. I can't do that if I don't have the right mindset because if I don't have the right mindset, I don't have the right network of visionaries. Then there's no opportunities. So I can't do my purpose without that mindset. I can't do it. 

Cameron Passmore: Okay. This is the question I've been most looking forward to asking you because in the podcast I've listened to you, you talk so much about the power of networking. So how does one develop that skill of networking? What does it even mean?

Justin Breen: Well, it is a skill. I mean, it literally is my purpose, so it's more than a skill. I think you're born with a certain set of gifts. I've always been like this and just kept refining it. But I think it's first acknowledging that that's one of the gifts is to build a network because there are certain people, that's naturally what they're good at. They're good at connecting or building a network and then, “Oh, that's my gift or my purpose. Do something about it.” So I just, “Oh, I'm good at that. Let's just keep doing that.” 

I really want to think and answer your question to the best of my ability because you're a deep thinker, and you've waited a long time to ask that question. I'm guessing with your three quick start and seven follow-through, you've thought for hours and hours about waiting to ask that question. So I want to do it justice and slow my brain down for once. 

I'm 46 years old, 46. April 10th, I'm 47th, so kind of almost 47. It took most of my life of talking like this to understand I didn't necessarily belong in human society. Even though we're all humans, I'm not really. It was important to go through that journey or struggle or being completely misunderstood by most of society to understand that I wasn't this person. I always knew I was this person floating out here. I just didn't know it until meeting more of those people. 

Then, again, to answer your earlier question, if these are the people that understand you or share your mindset or want to help you with your purpose, and you can help them with theirs, then that's the network. That's the network. So I certainly hope it doesn't take folks 40-plus years. I think that's the point of the second company, the BrEpic Network, is so people don't have to do that, so they can find people quicker who actually do understand them. 

But I think for anyone going through building a company or finding a purpose in life, I think it's a lifetime exercise, a lifetime exercise. So I spent my whole life doing this, and I'll never stop doing it, and it will be very interesting to see how that continues to evolve. 

Cameron Passmore: Do you have any advice you'd give to younger people who might be new to connecting and networking?

Justin Breen: Nothing to me has ever been a cost ever. Like in my whole life, nothing's been a, “Oh, what does that cost?” I very rarely have said that, even though I just said it. But networking or building a company or building a family or I don't know, whatever you're building, it's always an investment. You can't know who you are or who you are not unless you put yourself out there to find people who resonate with you and just as, if not more important, don't resonate with you. 

Most people do not resonate with how I talk. I'm very aware of that. It just so happens the people that do are top entrepreneur visionaries on planet or those who will make the investment to do that. For most of my life, I did not know that. Maybe subconsciously or unconsciously but certainly not consciously. You're either born a visionary or not. So if you are a visionary, you go out and figure out who you are and who you're not. Then just keep writing bigger checks to be in cooler rooms. That's just what I do and then just created own room with the coolest people. 

Ben Felix: Your book has 30 ideas that you've collected. How important are ideas like these as people pursue their goals?

Justin Breen: I really appreciate the tone and the calmness of this interview. Most of the folks I talk to are very high quick start, and we're just [inaudible 01:17:48]. This one, I always try to mirror the host, so I'm really slowing down. So thank you for that. That's a gift. That's a gift to get me to slow down. But, for me, no, I'm serious because this is how I learn in real-time. I just like to hit the record button and think. I don't like brief shows. That's annoying to me. Just hit the button and then.

Ideas are meaningless to me without action and investment. They're meaningless. Most of the people I talk to, they're endless ideation, endless. There's a working genius assessment. It's really good. Lencioni, Patrick Lencioni is. Then I'm a discernment galvanize, so most people I talk to are wonder, invent, or something. I'm discernment galvanize, so I hear, “Blah, blah, blah, blah, blah, blah, blah, blah, blah, blah, blah.” Then no, no, no, no, no, no, no. Yes, activate. Yes, connection. Yes, pattern. Then focus on the pattern. 

Those ideas in the book, the 30 ones, those are not – I mean, they are ideas, but they're actionable ideas that I'm actually doing and then the visionaries that I talk to are doing. They weren't just ideas that they were not doing. They were ideas that they were taking action on and living their lives with those. So I almost look at them as principles or rituals. They're almost like rituals really. To me, they're not really ideas. They've gone beyond that because, to me, ideas are worthless without doing something about it. They're meaningless. 

Cameron Passmore: You ask yourself two questions every day. Can you tell us what they are and why listeners might want to have their own two questions?

Justin Breen: Tremendous. Again, very simple person, very simple, and I was a journalist for 20 years before starting first company with zero business background. So I don't know anything really about business, and I don't really want to know. It doesn't interest me. It never has. There are only two questions that I ask myself every day that matter, only two because less is more simplifier. 

One, did I have a good experience that day with my family? Every single day since I started doing that, this has been years now, the answer to that has been yes. Okay. Good experience that day with my family, yes. Two, did network grow on a global level? Every day, the answer to that has been yes because you like the nuts and bolts of things. Network growing on a global level, to me, means doing a show like this, having a one-on-one meeting, being in an entrepreneur group, posting something on social media that highlights someone else and how great they are, someone emailing me an intro, me emailing someone else an intro. This is what I do all day, and I never get tired of it because it's connecting visionaries to serve humanity. 

I have found by focusing on family and network all this business owner stuff has taken care of itself because of ultra-focus. I don't really think about revenue or employ. I never really think about that stuff. What I do think about is talking to visionaries. Then my brain's kind of like a CRM. It's just how for visionaries. Then I can just like, “Oh, someone three years ago said. This would be a good intro.” I connected two visionaries. 

A couple years ago, I talked to a visionary whose child died, and I hadn't talked to him in a couple years. But then I talked to another visionary a couple days ago whose child died, so I connected them based on their children die. I just said, “Oh, you will bond over your mutual understanding of what actually matters in life.” That, to me, is what connectivity truly is. It certainly is about what you do. But, really, to me, it's more about who you are and what you've been through because it's a common understanding. 

Ben Felix: What advice would you give to someone who wants to become a high achiever?

Justin Breen: No advice for that. No, no, no, no. A high achiever won't – they'll just do it. No, no, no, no. A high achiever would never ask that question. There's no chance they would ever ask that. 

Cameron Passmore: I know Ben likes that answer. 

Justin Breen: I always know when the host is asking for their audience because they're trying to be nice. Then I'm dead last in empathy on strength finders. But for visionaries, I have – empathy endless. But if someone asks something that's a – like you're trying to be relating to your audience that that's – no. Because a high – are you kidding me? No, no, no. A high achiever is not going to – no. They're just going to keep doing it. 

Again, my litmus test is my father who was 61 when I was born. He was a World War II hero, and he was shot down multiple times in combat, many times without a parachute. Then he would just get back into another plane. So he's not asking me, and people like that aren't asking me what high achievers – no, no, no. You just – they just do it. So that's what a visionary is. They’re not going to overthink things. They're just going to execute. 

Cameron Passmore: We'll see how you respond to my next question. Again, I've heard you talk about free time before. How important is it to have the ample or the right amount of free time in your life because that is a constant struggle for so many people?

Justin Breen: I mean, again, I only ask myself two questions every day that matter. Again, sometimes the answer is said before the question is asked. That's what I mean. So like I just want to spend time with my family and connect visionaries to serve humanity. Visionaries never make excuses, so get back into the plane without a parachute after another one's been shot down. But, no, obviously, free time is essential. 

Again, there's good habits and bad habits. Bad habit is overworking or drinking, cheating on your spouse. Good habit is spending time with family and then connecting visionaries based on purpose. I think that's a pretty good habit. Then, again, ideas are meaningless without execution. So a bad idea, I'm going to execute not doing that. Oh, you're overworking. You're not seeing your family. Bad idea, not going to do that, not doing that. 

Cameron Passmore: You have kids, Justin how do you encourage good habits in your kids?

Justin Breen: Well, I don't really need to do that. Our sons are 9 and 11. They're both nine quick starts. They're both maniacs. That's a compliment. They're unemployable, also a compliment. The nine-year-old already is planning to take over both companies. Then the 11-year-old, his fastest 5K is 20 minutes 38 seconds. So I don't really need to say, “Oh, oh.” My wife's a pediatrician and the COO of BrEpic Network. She's literally like the nicest person on the planet. So she knows how to “parent” or raise children or whatever. I know how to spend time with them. I don't necessarily know how to raise them. 

My advice for them, even though I hate saying that word, but felony, bad; misdemeanor, okay. So that's my parenting. Don't do anything that will like permanently. But you want to get in trouble. That's fine. I mean, all entrepreneurs are good at getting in trouble in some capacity. They're like little pranksters. My dad died when I was 13, so I know what it's like not to have a dad around it. That's a bad idea, so I'm not going to be that. I'm not going to not be around for my children. I’m not going to do it. 

Cameron Passmore: Well, thanks for joining us. Great to see you. Congratulations on the book and we wish you a great 2024. 

Justin Breen: Thank you. I really enjoyed this interview. It really got me to think and slow down. I'm very grateful for that. 

Cameron Passmore: Awesome. 

How are you, Ben? First after show of 2024. What's happening?

Ben Felix: Well, as listeners know, we launched a new podcast, a limited series with Dr. Mark Soth, aka The Loonie Doctor. When did we launch it in, November, December, late last year?

Cameron Passmore: December, mid-December. Yes. 

Ben Felix: Mid-December. Yes. I haven't checked recently, but it spent like a couple weeks at the top of the Canadian Apple Podcast charts, which is a black box. Apple intentionally does not disclose exactly how they calculate their chart positions, but it's some combination of listening, duration, engagement through reviews and ratings, download numbers, all that kind of stuff. 

Money Scope was number one in investing and business categories for like a couple weeks, I think, which is Rational Reminder has been number one in investing several times. I don't know if we've hit number one in business before. 

Cameron Passmore: I don't think so. Even on investing, we there very briefly. 

Ben Felix: Yes, yes, yes. The craziest part to me was that Money Scope was high up on the all podcast charts, which is the top, I think, 300 podcasts in Canada. It was number 15 or 16 at one point of all podcasts in Canada. That's a chart that Rational Reminder’s never appeared on at all. I don't have an explanation for why that happened, but it was pretty cool to see. It's also been pretty successful on YouTube. It's got just under 2,000, well, 1,670 subscribers on that channel, which is pretty good for a brand-new channel. 

Cameron Passmore: It’s a phenomenal podcast. Listeners, you got to go check it out. The chemistry you guys have is great. It's amazing how much content comes out. I know you have notes, which you can't tell you guys have notes. It's that well done, but it gives proper amount of air time to really important topics in such a beautifully structured and systematic way. It works beautifully. It's like a great course on financial literacy. It's not until episode 11 you get into issues that are specific to incorporated professionals. 

Ben Felix: Yes. That's something that I've seen online a few times. I've seen someone's comment on Reddit that they're really enjoying the Money Scope Podcast, and someone replies saying, “Isn't that for Canadian doctors?” It’s not just for Canadian doctors. Most of the content are not even just for Canadians. Most of the content is going to be applicable to anybody in any country. 

The difference between that and Rational Reminder is that on Money Scope, we're not trying to hide our Canadianness. On Rational Reminder, we try to cater to a global audience because we know our audience is global. On Money Scope, we are speaking to a Canadian audience. However, most of the concepts are either applicable globally or easy enough to translate globally. 

Cameron Passmore: Very well done. Yes. 

Ben Felix: Anyway, so that's been cool. We'll see how the next few episodes get received. We've only released the first handful, and we've got many more to go. 

Cameron Passmore: There's no recent reviews, and I don't know about you, Ben. But LinkedIn, I'm getting inundated with people with sales pitches. People wanting to promote the podcast want us to distribute their investment product. People want to scale our advisory practice, marketing services. It never ends. I don't know what happened in the past month, but it's like multiple every day like that. 

Ben Felix: No. I'm not getting that. 

Cameron Passmore: Good for you. I did get one letter from a professional colleague that had a chance to meet at Future Proof last year. Seth reached out to say, “Through your podcast, I got through 12 books this year, nowhere near 23 in ‘23 but a huge improvement. Here's my question. Your half-hour a day of reading books is correct. Do you also fit in time to read magazines, journals, et cetera? Thanks.” 

I've had this question a fair amount, and I put a note on Twitter. I say this not to brag. That is not the point at all. But I did complete 61 books last year. Yes, there were some flights in there that I read a bit more, and there was a vacation I read a bit more. But the bulk of the reading is just from my 45-minute daily habit. I swear to you, if you just do 45 minutes a day, the books melt away. Yes, of course, during the day, we're all reading periodicals and stuff for work. So I only do the reading in the mornings, and it just works. It just works. 

I'm also happy to say that the challenge will continue. Like I said at the top, you can go to rationalreminer.ca. There’s a tab there 24 in 24. We’ll show you how to sign up. You go into the Beanstack app, which is where you track the books you read. You might want to go back and check out episode 237, where we interviewed Beanstack Co-Founder Felix Lloyd. He talked about the app. 

We also interviewed Daniel Doyon, who's Co-Founder of one of my favorite apps, Readwise, which is the tool I use to capture my notes from Kindle. So if you're into this stuff, you might want to go check out episode 237. I also hope that my 421 friends on Beanstack will continue this year in the challenge. I actually just finished. Ben, you're going to love this book, or I'll send you my notes. 

My first book of the year called The Geek Way by Andrew McAfee. I'd love to get him on the podcast. I reached out. We'll see if he can come on. But The Geek Way is basically a management book on how geeks – we're all self-professed geeks, how we prefer to operate in a much more freewheeling, thought-driven, challenging environment as opposed to a typical hierarchical environment that kind of grew up in the last 50 to 100 years. So it's a phenomenal book. Of course, we'll try to get more authors on this year. We have a lot of really cool authors coming up in the next few weeks. 

Speaking of which, next week Scott Rick will be here. He's author of the book Tightwads and Spendthrifts: Navigating the Money Minefield in Real Relationships. That book was just released on January 9th, and it's gold. I would argue for anyone who's in a relationship. 

Ben Felix: It's a really good book. The wheels were spinning for me. I talked to my wife about it afterwards. I said that I just read this book and I was thinking about – because you can't not think about your own relationships as you're reading the book because that's what it's about. Lots of really good empirical stuff in there, just scientific stuff, I guess, because there's theory and evidence supporting it for all sorts of different things from like what type of partner you should choose, and how having a partner with different spending tendencies can affect relationships, and how to deal with it, and how to set up bank accounts. So all that very, very practical stuff, but it all stems from a scientific perspective. 

Here's why we might expect things to work out this way theoretically. Here's the evidence. In some cases even, here's some reflecting evidence. Then, usually, the point will finish with Scott's own research on probably the right way to interpret things and his opinion but really good. For the Rational Reminder listener type person who wants to think about how money affects relationships and how to deal with money in relationships, this book is exquisite for that type of thinker. 

Cameron Passmore: The part that really struck me was the tightwads got to be a tightwad all the time to get their way because all it takes is one spendthrift. You've blown all the events but a tightwad was able to maintain control. 

Ben Felix: Yes. 

Cameron Passmore: I thought that's so fascinating. The tightwad’s always going to be a tightwad if that's what their value framework is. 

Ben Felix: Yes. Well, he talks about ways that tightwads can loosen up a little bit, too. But my interpretation of the point that you just brought up was that the result of a spendthrift, like someone that spends loosely, the results of a loose spender’s actions are irreversible, whereas a tightwad could always choose to spend more. Or their partner could convince them to spend more or could spend more on their own.

If a really miserly person is in a relationship with a loose spender, the loose spender can say, “Well, screw you. I'm going to go spend anyway.” They have that option. But the reverse is not true, where if the spender spends all the household’s money, the miserly person, there's no recourse. They can't say, “Screw you. I'm going to go get all that money back.” So one's irreversible and one's not. Anyway, that'll be, I'm sure, a great episode because the book was excellent. 

Cameron Passmore: Then in two weeks’ time, inspired by the whole Dave Ramsey kerfuffle proclamation that eight percent withdrawal rate was safe, we welcome three of, I would argue, the world's finest experts in retirement thinking; David Blanchett, Wade Pfau, Michael Finke. They’ll be here. 

Ben Felix: Inspired by the Dave Ramsey situation, for sure. But we also got the opportunity to ask about Scott Cederburg’s recent research. Like you said, Cameron, these are three of the best guys to give their informed perspective on that research. They did give us very informed perspective and lots of really interesting insights that I think will add more colour to the recent episode with Scott Cederburg. 

Cameron Passmore: They're so good. In three weeks’ time, Morgan Housel’s back to talk to us about his recently released book, Same As Ever. As always, we're on LinkedIn and on X. I'd love to hear from listeners on LinkedIn, as opposed to people trying to sell us stuff. So that'd be great. Keep an eye out on our feeds for upcoming coming webinars. We’ll be launching the 2024 series shortly. Check out the documentary that Ben mentioned at the top, Tune Out the Noise. URL and the access code will be in the show notes. If you want to take Steve's private equity course, you can save some money on that. Anything else, Ben?

Ben Felix: I did want to mention that in the Rational Reminder community, in the topic for the Scott Cederburg episode, Scott was very active in that discussion for a couple days. Then with the holidays, he had to go. But he spent a lot of time answering people's questions in there. So if anybody came away from that episode with questions, there's a good chance they were answered by Scott himself in the Rational Reminder community, which is pretty cool. 

The other thing, in that topic, there are people who have anonymous accounts. But I know that they're finance PhDs who are also adding their commentary and their thoughts on the episode. So the Rational Reminder community is nuts because everyone's anonymous, right? But behind the anonymous names, there are some just ridiculously brilliant people. So I think that was a big episode, and the Scott Cederburg episode was a big episode in terms of the amount of discussion that it created. So I'm sure lots of people have questions in the discussion. If people want more to think about on that topic, the discussion in the community was excellent. 

Cameron Passmore: The audience loves Scott. 

Ben Felix: He’s so good. His research is so – it's so practical. 

Cameron Passmore: I agree. Anything else? 

Ben Felix: Nope. I think that's good. 

Cameron Passmore: All right, thanks for listening. 

Is there an error in the transcript? Let us know! Email us at info@rationalreminder.ca.

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Participate in our Community Discussion about this Episode:

https://community.rationalreminder.ca/t/episode-287-a-practical-look-at-private-equity-w-steve-balaban-epic-life-w-justin-breen-discussion-thread/27073

Books From Today’s Episode:

Epic Life: How to Build Collaborative Global Companies While Putting Your Loved Ones First — https://www.amazon.com/Epic-Life-Collaborative-Companies-Putting/dp/1544532555

Flow: The Psychology of Optimal Experience — https://www.amazon.com/Flow-Psychology-Experience-Perennial-Classics/dp/0061339202

Get It Done: Surprising Lessons from the Science of Motivation — https://www.amazon.com/Get-Done-Surprising-Lessons-Motivation/dp/0316538345

The Geek Way — https://www.amazon.com/Geek-Way-Radical-Transforming-Business/dp/0316436704

Tightwads and Spendthrifts: Navigating the Money Minefield in Real Relationships — https://www.amazon.com/Tightwads-Spendthrifts-Navigating-Minefield-Relationships/dp/1250280079

Same as Ever: A Guide to What Never Changes — https://www.amazon.com/Same-Ever-Guide-Never-Changes/dp/0593332709

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/ 

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://twitter.com/RationalRemind

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.ca

Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ 

Benjamin on X — https://twitter.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/

Cameron on X — https://twitter.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Tune Out The Noise — https://film.dimensional.com/podcast/login?redirect=%2Fpodcast

Discount Code for Tune Out The Noise — RATIONAL

Steve Balaban — https://www.stevebalaban.com/

Steve Balaban on LinkedIn — https://training.minklearning.com/

Mink Learning — https://training.minklearning.com/

Private Equity Certificate offered by CFA Society Toronto in collaboration with Mink Learning — https://web.cvent.com/event/10af7f03-e05c-465a-803e-3e8ac3864120/summary

Discount Code for Private Equity Certificate — RationalReminderPEC

Justin Breen on LinkedIn — https://www.linkedin.com/in/justinbreen1/

BrEpic Communications LLC — https://www.brepicllc.com/

BrEpic Network — https://brepicnetwork.org/

Episode 188: Prof. Ayelet Fishbach — https://rationalreminder.ca/podcast/188

Professor Ayelet Fishbach's TEDxChicago Talk, The Science of Getting Motivated — https://www.youtube.com/watch?v=T8CegN1xssY

Episode 286: Errol Morris — https://rationalreminder.ca/podcast/286

Episode 210: Prof. Ludovic Phalippou — https://rationalreminder.ca/podcast/210

Episode 237: Who are you, and who do you want to be? — https://rationalreminder.ca/podcast/237

Episode 224: Prof. Scott Cederburg — https://rationalreminder.ca/podcast/224

Episode 284: Prof. Scott Cederburg — https://rationalreminder.ca/podcast/284

Money Scope Podcast — https://moneyscope.ca/