AWM Insights Financial and Investment News

In this episode of AWM Insights, Chief Investment Officer Justin Dyer and Portfolio Manager Mena Hanna break down the dynamic world of private market investing. Together, they explore the explosive growth of private markets, the distinct strategies that separate institutional investors from individual ones, and the myths and realities of access to exclusive opportunities. Discover why diversification, data analysis, and a disciplined approach matter more than chasing the next hot startup. Whether you’re curious about the potential of private markets or looking to refine your investment playbook, this discussion offers practical wisdom and sharp insights you won’t want to miss.

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Chapters
(00:00) Introduction to Private Market Investing
(01:00) Growth and Complexity of Private Markets
(03:00) Institutional Approach Versus Individual Investing
(05:00) Access and its True Value
(08:00) Importance of Data and Base Rate Probabilities
(09:00) Pitfalls of One-Off and Product-Driven Investing
(11:00) Diversification and Building a Playbook

Creators and Guests

Host
Justin Dyer
Chief Investment Officer and Chief Operating Officer at AWM Capital
Host
Mena Hanna
Senior Investment Analyst at AWM Capital

What is AWM Insights Financial and Investment News?

A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.

Justin Dyer: Hey everyone.

Welcome back to another
episode of a WM Insights.

Justin Dyer here, chief Investment
Officer with a WM Joint.

As always, by Mina Hana, our portfolio
manager, and we're gonna get into, uh.

Hopefully a really interesting
topic for listeners today.

And, uh, broadly speaking, we're gonna
talk about private market investing.

Maybe, uh, that, that sets up a couple
conversations over the coming weeks,

uh, as well, and, and really just trying
to, trying to highlight how to go about.

Investing in the private markets, it
certainly is of interest to our clients.

Uh, and it's also just becoming
a huge topic of conversation in

general in, in the financial press.

Um, the size of private markets has.

Has exploded.

The different types of
products has also exploded.

Deal flow, access, all of these crazy
terms are becoming really common.

Part of the, the, the lexicon out there.

And so we're gonna try to, um, help,
you know, help Bri shed a little

light, I guess is a way to think about
it, um, on the private markets, just

broadly to educate, but then also most
importantly, really try to explain.

How and why we allocate to the private mar
markets or invest in the private markets.

Um, there's a lot of caution you
have to take when it comes to

these markets, uh, as it, as it,
as it truly is with any investing.

But, um, it's certainly much more
of a black box, opaque place, uh,

and so on and so forth, which is.

On the flip side, why there, why
there's some opportunity there.

So, um, you know, just to throw
out some, some context here,

there's a couple different studies.

I think PWC released this
number as did McKinsey.

Private markets hit $22 trillion.

It's massive.

It's bigger than the public markets.

Um.

It's a lot less regulated.

And again, there's, there's,
uh, both caution and opportunity

that comes, uh, comes with that.

But what, um, what does it
actually mean to tap into that?

Right?

You, we, we talk about making
sure we're diversified.

Certainly you have to throw private
market exposure into that conversation.

At least we cer we, we believe that.

But then how do you, how do
you weave through all this

opaqueness and make sure your.

You are still being compensated through
returns for the risk you're taking.

'cause there is, there's
different types of risk.

In some cases there's more risk.

In other cases there's less
risk, but it's different.

And so, uh, there, there's just a lot when
it comes to this general topic that we

really spend a lot of time thinking about.

And, uh, and we're just gonna get into
a little bit, uh, um, of that today

and, and hopefully peel the onion.

So really kind of the framework
that we're gonna, we're gonna

set up initially here, Mina is.

This idea of like, how, how do
institutions invest versus individuals.

Now we really take that
more institutional approach.

That's really kind of the punchline.

So just throwing it out there,
uh, right off the bat, but

even a lot of quote unquote.

Money managers, investment managers
still invest like individuals

because they're chasing the hot
startup or they're chasing the hot

sector or whatever the case may be.

They're not understanding what's
called base rate probabilities, right?

These, these are.

Especially when it comes to
venture capital, the failure

rate's astounding, right?

If you looked at the, the failure rate
of some of these of, of, of companies

in general, like it's, it's wild.

A lot of people probably
wouldn't even touch it.

But if you can appreciate the data, the
nuance, the, the factors that actually.

Start to help you get exposure
to these companies that grow into

massive, massive outcomes, it starts
to make a little bit more sense.

Um, and so that's really where the
institutional grade approach, diligence,

appreciation of data comes into
play, um, and certainly what we do.

So, yeah.

Without f, without further ado, I
mean a mean a give us your take.

Mena Hanna: Yeah.

And if you really think, I hear
the term smart money a lot.

Like where's the smart money going?

How are people investing?

The smart money institutions really
are a starting spot where you can say.

These are massive organizations.

They have massive investment teams,
and they're looking at this inefficient

market space, which is the private
markets where, you know, 98% of companies

out there are private market companies.

A WM is a private market company.

Were not publicly owned or traded.

So you have so much opportunity,
it's such a wide range of.

Industry sectors, companies that
you can actually invest in, and you

need to be able to access that in
an efficient way and in a smart way.

Access is a word that gets thrown
out there all the time, and

not all access is good access.

Let's just start there.

There are a lot of times where you're
going to have a buddy or you're going

to hear about a deal coming through.

Uh.

Whatever channel it might be coming
through, and you might think that you

have access, but the only access that you
really have there is you have financial

capital, and that financial access is the
lowest form of access on that totem pole.

There's, there's other forms.

You could be a large institution that
has connections and can potentially help

a company that company's incentivized
to actually give you positive access

and include you in a good deal
because they also benefit from it

outside of just getting your money.

So there are these different
ways of actually thinking about

how you operate and how you.

Co integrate into an ecosystem as
complicated as the private markets.

But what we do is we are.

We are not being sold anything
in the private markets.

We're specifically looking at things.

We're buyers with the intention,
with the, call it proactive execution

to target some of these deals in
asset classes, whether it be venture

private, real estate, private
equity, but to specifically look for.

Deals and opportunities that make
the most sense and filter out what

ends up being 98 to 99% of these bad
opportunities that have a low barrier

of entry or low levels of access.

I know if you'd agree with that,
uh, for the most part, but that,

that's, that's really the intention.

It's about hunting.

A lot of this is about hunting.

Instead of being the one that's being
hunted, you know, same concept, being

a buyer, being an intentional buyer,
a thoughtful buyer, instead of being

sold to, we've all been sold to and
usually get ripped off when that happens.

So, so yeah, avoiding, avoiding those
simple mistakes and, and really operating

like a pro and not being the dumb money,
but being the smart money in the room.

Yeah.

Justin Dyer: glad you, you talked through
the, the framework or the comparison

of, of access, good access, bad access.

It's definitely not all created equal.

And I would even say, going back to this
institutional approach, you know, access.

Really comes down the line, if you
will, and, and more importantly,

qualifying good access really comes
down the line when you're thinking

about allocating to private markets.

So what do I mean by that?

Well, let's start with the data.

We are data-driven investors.

Hopefully everyone can repeat that
in their sleep at this point in

time, listening to this podcast.

But really that goes to
this idea of base rates.

I mentioned that, right, which is
just fundamental probabilities, right?

Because.

Y

Just because you know someone who invested
in Uber back way back when and turned,

you know, a little bit of money into a
lot of money that individ, you should not

suppose initially that that individual
can all of a sudden do that again.

Right?

There are just probabilities that it.

That are, that need to be acknowledged
when it comes to investing,

both in venture capital, private
markets, and public markets that

are, that are the starting place.

And then you can start to add all these
different layers as you're thinking

about building a, a, a, uh, a process
to allocate or to invest money.

Getting to access is
like the very last one.

You still have to understand
what's the likelihood of any

one individual outperforming.

Um, and again, access is kind of a good
access is, is a, is a variable there.

So, um, it, it, it.

It's a great topic to, to
hit on a little bit here.

When it comes to, just broadly
speaking, thinking about

institutional investing versus,
you know, individualized investing.

Individuals are gonna say
like, oh, I have access.

I'm gonna invest in this one
company, or I have access.

I'm gonna invest in this one fund.

Well, you're actually not setting
yourself up for success by just

kind of taking that one shot, right?

Goes back to building that right
lineup and thinking about your

playbook and all of that type of stuff.

The same analogies apply.

In the private markets, um, and
certainly specific to venture

Mena Hanna: capital.

Yeah.

And one, one mistake that I feel like
I see a lot of individuals making when

they're investing in private markets is
they look at the opportunity and they

don't think about it as a true investment.

They either like the product, they
like the general concept of the

company, the role that the company
plays in the ecosystem, and they make

decisions based on those kind of narrow.

Factors.

Like if I, if I like a product that's
great, that doesn't mean that it's

actually going to sell enough units
and do so in a profitable way that

has the right amount of margin to
lead to a positive exit for investors.

So really taking a step back and thinking
like as an individual, okay, I am seeing.

What the company wants me to see,
and I'm seeing what the company kind

of is putting out there for, for
consumers and for individual investors.

I'm not really seeing behind the
scenes what this actually means

for me as an investor and what
the outcomes actually look like.

So being the smart money, not looking
at things in the most simple of senses,

peeling the layers back and, and figuring
out, Hey, what am I actually getting into?

Yeah.

What is this investment that I'm writing
a check into is how Smart Money operates.

Justin Dyer: Yeah, 100%.

And uh, it's also really important to
remember, this kind of ties into what

I've been talking about a lot on this
convers in this conversation so far,

but doing that one off deal, if you can
get there from an institutional lens

exactly what you just, uh, outlined, Mina.

The more of those you can do, the
better off you will actually be again.

'cause you have to understand even if
this is a good investment, okay, we're

talking kind of early stage investing
here, a little bit isolated within what

would be categorized as venture capital.

This conversation can be
extrapolated to private equity

real estate, and we will do that.

But, uh, it is important to know,
hey, as good as this company is,

as, uh, as compelling as, as this
founder is, et cetera, et cetera,

checks all these institutional boxes.

If there's a high likelihood that
that doesn't come to fruit fruition.

And so taking this diversified
approach, I, I saw a statistic recently

that Angelist, I believe, posted.

Uh, angel investors doing at least
50 deals, outperform anyone else

by pretty substantial amounts.

It's something like, I think the
number might be 10 x will be will.

We'll putting, putting an asterisk
next to that, that statistic and

we'll, we'll validate it, but, um.

It just, it just goes back to this idea.

You, you can't just rifle shoot things.

You can't just chase something that
sounds cool or you like the product.

Good investments are not
necessarily, uh, good products.

Right?

Or a good, a cool company does not
necessarily make a good investment

'cause of the, the price or the
structure or whatever the case may be.

Um, and these are just all really
good things to, to know and, and.

Need to be taken into account
as, as we're building a, um,

a, a platform and or process to
allocate to the private markets.

We've, we've focused a little bit more,
like I said, kind of in, in specific

examples with venture capital Today.

These ideas apply to private equity and
real estate where we generally allocate

when it comes to the private markets.

And there's a lot here.

Obviously we've been going back,
hopefully we've been a little bit, uh uh.

Mena Hanna: more

Justin Dyer: More clear and and
cohesive in this conversation.

We will certainly continue this
conversation to try to unpack shed

a little bit more light on, on
investing in the private markets, how,

and specifically how we think about
investing in the private markets, um,

in, in coming, in coming episodes.

But, uh, if there's anything you
have, uh, any questions you have

specific to this general topic,
definitely shoot 'em our way.

Mina, give

Mena Hanna: them,

yeah.

6 2 6 8 6 2 0 3 5 5.

Justin Dyer: Awesome.

We definitely want to want to hear your
questions, address them, them spot on.

This actual conversation was somewhat
spurred by that, so, so thank you.

Keep 'em coming.

Um, and until next time, own your wealth,
make an impact, and always be a pro and.