Misaligned Incentives

In Practise Analysis

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Last year, we posted our analysis of GLG’s S1 and the future of expert networks. After another year of sourcing executives for fundamental equity hedge funds, we thought we’d share our updated views on the industry.

After 8 years of sourcing and interviewing 3,000+ executives, it has become clear to us that traditional networks are not structured effectively to serve long-term, fundamental public market investors. This misalignment is rooted in the culture and structure of traditional expert networks (“ENs”).

We never set out to offer EN services, like 1-1 executive calls. We launched in 2020 as a research service for long-term fundamental investors and conducted all the interviews ourselves. Our mission was, and is, to understand how the world’s greatest companies create value. Connecting public equity investors with executives was an unplanned, but logical, evolution of our service.

Over time, we have refined our process for sourcing relevant executives for our own internal and client interviews. In this analysis, we share how ENs are organized, serve different clients, and how we think about building a specialized primary research service for public equity hedge funds.

To understand how ENs work, it’s worth looking at where and how they earn the majority of their money:

Source: Inex OneSource: Inex One

Inex One estimates PE and consulting drives ~61% of industry revenue. Excluding credit and distressed hedge funds, we believe PE and consulting contribute closer to 70% of a traditional EN’s revenue. Understandably, the needs of consulting firms and private equity funds have come to define the way in which traditional expert networks are structured and run.

An Apollo or McKinsey analyst, typically, has very different needs compared to a PM buying and owning public securities for 5+ years. This is an important nuance to how investors use ENs: PE and consulting clients prioritize speed and volume while long-term, fundamental equity funds prioritize speaking to the best executives.

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