The obvious issue today for many private markets investors is the continued slow return of capital — a lot of value is tied up in private funds with little guidance on when it’s coming back.

But there’s another issue I predict will be the next major headache for LPs:

The GP clawback.

A number of investors will find themselves in the following scenario.

Several of their funds — those with deal-by-deal waterfalls and 2018–2022 vintages — saw early winners and realizations. Realized IRRs cleared the preferred return and carried interest was paid to the GP. So far, so good.

However, much of the unrealized value in these funds, which GPs are still marking at or near prior valuations, will actually come in well below the preferred hurdle. That will drag cumulative IRRs below the hurdle rate and trigger a clawback.

This isn’t a short-term liquidity/uncertainty/volatility issue as claimed by GPs. It’s a “mediocre companies bought at high prices” issue. Many funds are stuck, GPs and LPs know it, and now it’s just a game of when the pain is realized.

This won't be a problem for every fund, but it will be a problem for many. Yes, I know every GP and LP thinks they are the exception, but perhaps at least prepare yourself for this possibility, especially with those funds sitting right at or above the hurdle rate. It will only take one or two realized blow-ups to drive the IRR below the hurdle.

But wait, there’s a second problem.

LPs won’t get back 100 cents on the dollar — thank you, net-of-tax language. Some may not get anything back (I actually had a GP respond to a clawback obligation with “Sue me”). Others may have the willingness but not the cash — small funds without resources or a successor fund, funds that lack an escrow provision, etc.

I’ve compiled this guide from notes across the funds and GPs I’ve worked with over many years. LP awareness of clawback mechanics isn’t great, and I expect this issue to become significantly more prominent over the next few years.

Read the GP Clawback Guide Here

I don’t worry about mistakes in an organization, I worry about "collective numbness”—the tendency for people to blindly go through their day without questioning their actions or taking responsibility for their outcomes.

An ownership mentality replaces passiveness with accountability and urgency. It’s the antidote to a victim mentality. Don't just preach ownership—give it. Here are 15 ideas to create owners in your organization.

1.      Shared responsibility is no responsibility. When everyone owns something, no one does. Teams need owners—not to work alone, but to make sure someone answers when things go wrong. Blame isn’t the goal, it’s accountability. 

2.      Hire drivers, not passengers. CEO Frank Slootman recommends hiring drivers, not passengers. Drivers act with urgency and without being told. Passengers wait for directions and then follow along. Part of what makes Toyota’s manufacturing so successful is the act of giving line workers ownership and responsibility for a product’s quality, enabling them to suggest changes and raise concerns, not just going along for the ride.

When you want to solve problems, go direct to the source. Conflict between two people? Get right to them. Customer service issue? Go to the agents. A manufacturing issue? Walk the floor.

The shortest distance between you and the truth is when you’re standing right in front of it.

Any other path delays resolution.

Don’t take the indirect path. Don’t talk to the manager of the supervisor of the employee and hope that you’ll find resolution through this convoluted chain of command. You’ll get a biased and softened “truth” because if those managers sense any personal culpability, you’ll hear the story they want you to hear.

This is why you “walk the floor.” Generate your own evidence.

There’s this idea of the “fog of war,” commonly attributed to the Prussian military strategist Carl von Clausewitz. The fog of war describes the chaos and uncertainty of knowing what’s going on during battle.  Your organization isn’t a warzone, but the elements are similar. Uncertainty and complexity destroy the information chain. In fact, General George Marshall, in his 1920 letter on leadership, advised going to the front lines to understand what’s happening

Organizations want one thing, and it’s not excellence, innovation, or even results.

It’s variation reduction. Managers go out and find any person or process that’s deviating from the norm and initiates swift corrective action.

But deviation is the essence of innovation. It’s the core of new ideas, products, creativity, and differentiation.  

In many companies, a miss is many times more career costly than the benefit of a win of a similar magnitude, so the effort and focus become minimizing the downside. Rewards go to those who avoid being wrong, not being right.

However, capping the downside eliminates the upside. Innovation is impossible without failure or looking bad, both intolerable options for the average manager.  

“Is it conforming?” becomes the rallying call, rather than “Is it interesting?” Compliance replaces inspiration. Timidity replaces risk taking.

Failure is visible, missed potential is not. You’ll never be punished for that great hire you didn’t make or the great investment you didn’t fund, even if those would have led to 10x returns. But hire someone who rocks the boat a little too much or lose money on an investment, and you’ll immediately answer for it.

Psychologist Gerd Gigerenzer refers to this as “Defensive Decision-Making” – making a decision which is unconsciously designed not to maximize welfare overall but to minimize the damage to the decision maker in the event of a negative outcome.

It’s one thing to ask for help, it’s another to outsource our thinking.

There’s a role for consultants and outside research, but only if it’s a supplement, not a replacement, for our own original work.

Don’t accept assertions from authority, experience, education, or credentials.

Why do we outsource our thinking? Because it’s easier. It protects our ego and gives us someone to blame when things go sideways.

Ask yourself, is it true?

To paraphrase Leo Tolstoy, there’s no worse way to go about investing than to follow the untested opinions of other people. For example…

·  Don’t read a sell-side report, dive into the 10-K yourself

·  Don’t accept the CEO’s conviction, only what can be verified

·  Don’t rely on “research shows…” and “the science says…” Read the research firsthand.

·  Don’t buy a stock because some hedge fund guru bought it, do your own research

What sounds accurate, and is accurate, are two different things. The first is untested; the second is validated.

This is the practice of Epoché, the Stoic discipline of suspending judgment until we can examine something for ourselves.

Go to the source. Don’t take things at face value.

Investors love talking about their high conviction ideas but conveniently forget one uncomfortable truth: conviction has no bearing on accuracy. I’ve seen high conviction ideas wildly succeed and crash and burn. The correlation between the two is weak, if not entirely missing.

Conviction is everywhere. From sports GM’s talking about their “can’t miss” draft picks, to CEO’s high conviction guidance, all the way to politics and religion. There’s no reference to expertise, just absolute conviction in their views.

As Scott Adams puts it: “Being absolutely right and being spectacularly wrong feel exactly the same.”

Conviction is easily faked, which is why it’s worthless. Just like applicant resumes – so easily manipulated they have no value.

Oren Vazol calls this, “…the art of pretending to have an opinion—smiling, nodding, and bluffing our way through a makeshift answer. We’ve been told to “fake it until we make it,” and we’ve become experts at the faking part…”

Many high conviction ideas are just chasing what’s recently worked. There’s no skill to that. Any idiot can just tag along with what’s working. In a long bull market, conviction grows. But it’s not conviction that’s working, just rising asset levels. 

In a world obsessed with certainty and perfection, Tim Harford’s “Adapt: Why Success Always Starts with Failure,” offers a refreshing perspective: success comes from experimentation, trial and error, and feedback from failure. We need less leadership worship, predictability, perfect solutions, and consensus. The world is complex so let’s stop pretending that we have all the answers and try new things, learn from failure, and iterate.

Key Takeaways:

• Experts are great, but only to a degree

• Trial and Error is far more effective than you think

• Leadership matters, but only to a degree

• Why centrally planned economies and bureaucracies fail

• Feedback is essential, but hated by most

• Variation is suppressed due to egos and a preference for stability

• Disagreement, not consensus, is what drives great decisions

• Generate multiple solutions rather than finding “the one”

• Develop better systems rather than relying on better people

• Try new things, safely fail, and get feedback

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Negotiation is a skill anyone can master, yet few people actually do. I've summarized the 20 best ideas from Richard Shell's Bargaining for Advantage: Negotiation Strategies for Reasonable People, ideas used by elite negotiators to command respect and secure optimal deals. Learn why cooperation, listening, and patience are better tools than ruthlessness, tricks, and manipulation. Stop relying on gut reactions and build methodical expertise. The difference between amateur and professional results isn't innate ability — it's these specific, actionable skills you can implement today.

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Coach John Wooden was the antithesis of our culture’s current focus on hacks, shortcuts, and virtue signaling. Here are seven ideas on what really constitutes a philosophy of success.

Principle #1: Focus on what you can control

As a basketball player, I wanted to be in the best possible physical condition. There was a time when I’d tell myself, I’m going to be in better condition that anyone else. As I grew older, my thinking changed to I’m going to be in the best possible condition I can be. I had learned that I only have control over myself.

My Takeaway: It’s tempting to focus on things outside your control because it relieves you of your responsibility to improve. But you have to own yourself before worrying about others.

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At the close of World War II, General Douglas MacArthur could have humiliated Japan at the surrender ceremony. Instead, he treated the Japanese delegation with respect—seating them as equals, allowing them to wear full military uniforms, and removing his own combat decorations. Rather than seeking vengeance, he focused on rebuilding Japan's future.

You face this same choice. You’re in the middle of an argument that you know you are going to win. You now have two choices. The first is complete obliteration of your opponent. Personally humiliate them and their argument.

Or you can choose the MacArthur approach and give your opponent dignity by leaving them a line of retreat. Let them down graciously, and you’ll have won the argument without creating an enemy.

In workplace discussions, I've witnessed people exploit others' mistakes for personal gain, earning a few laughs through a direct attack or snide remark, all while creating lasting resentment.

When you have the chance to go in for the kill, don’t. Give someone the option of retreat. B.H. Liddell Hart, in his book, Why Don’t We Learn from History, describes how you can reduce your opponent’s resistance by providing a line of retreat:

It is an elementary principle of strategy that, if you find your opponent in a strong position costly to force, you should leave him a line of retreat—as the quickest way of loosening his resistance. It should, equally, be a principle of policy, especially in war, to provide your opponent with a ladder by which he can climb down. 

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“A” talent doesn’t want to work for “B” talent. The book The Talent War: How Special Operations and Great Organizations Win on Talent, reveals an underlying truth of many organizations: it’s not bad companies that cause people to leave, but bad leaders. Compensation and purpose can only go so far to offset mediocre leadership.

A talent-dense company isn’t a family. In his book, No Rules Rules, Netflix CEO Reed Hastings describes the necessity of firing a good employee to get a great employee. It’s odd to think about removing a good employee, because isn’t that good enough? Not for the best companies. The bigger lesson is even broader: is comfort being prioritized over getting better? Because getting better as an organization means making tough choices, even on good people.

The goal isn’t low turnover, it’s the right turnover. From the book No Ego, How Leaders can Cut the Cost of Workplace Drama, End Entitlement, and Drive Big Results by Cy Wakeman. Many companies celebrate low team turnover. But is that really the right metric? Low turnover is great only if the people are great. Achieving the mission is the prize, which may or may not be helped by low turnover. The question is, would some turnover actually accelerate your progress?

If you’re not dying to make an offer, don’t. The hiring process can be arduous so there’s a tendency to settle for okay candidates to get closure. But that’s a mistake, because the agony of tolerating a middling performer is far greater than an extended hiring process. Don’t swap short-term hiring pain for decades of long-term management pain.

Is this person a force of nature? In his article How to be Successful, Sam Altman talks about finding people who are a “force of nature.” That is, someone with S-tier level internal drive and agency. Those that just flat-out produce at a higher level, that get things done and generate unique insights, all without having to be told to do so. Getting these people to work is never the concern, rather it’s about channeling their skills in the right direction and keeping them motivated. So ask yourself, how many colleagues fit this description?

Look at the jaggedness of the person. The hiring process usually focuses on safe, predictable accomplishments like grades, schools, and past employers. The exceptional will often have those traditional accomplishments but will then have something extra that others don’t.  They will have put their own personal touch on their accomplishments, choosing individuality and creativity over what’s safe. Iconoclastic thinkers don’t fit well into a predictable mold.

Find your “bar raisers.” In his book The Everything Store, Brad Stone highlights Amazon’s “bar raisers,” a small group that had a knack for recruiting talent and were the key to sourcing exceptional people. Remarkable talent isn’t found through resumes and traditional HR channels. Instead, it’s tracked down by a select group of colleagues that can separate the phenomenal from the fake. Fake talent can fool HR screens and average managers. Real talent knows real talent.

Almost every organization focuses on attracting good clients and recruiting valuable employees. But fewer companies focus on keeping out the bad ones. The bias is always towards more clients, more applicants, and more sales. But all clients and customers are not equal, and many find out the painful way how unprofitable and stressful it is chasing the wrong group. There might be more value in keeping out the negative rather than attracting the positive, even though every corporate initiative tends to focus on attraction, rather than repulsion.

Costco’s membership card is a great example. A typical annual fee ranges from $65-$130. On episode #189 of The Knowledge Project Podcast, Chris Davis told the story of once asking Charlie Munger, a Costco board member, why Costco didn’t drop the membership card to bring in more customers. After all, it wouldn’t take many more customers to offset the loss of membership revenue. Here’s Charlie’s insight:

…the card is an important filter: Think about who you’re keeping out [with a membership card]. Think about the cohort that won’t give you their license and their ID and get their picture taken. Or they aren’t organized enough to do it, or they can’t do the math to realize [the value]…that cohort will have a 100% of your shoplifters and a 100% of your thieves. Now, it’ll also have most of your small tickets.

…Charlie called this the intelligent loss of sales. Most people just think more is better. But more is not always better. It’s who you keep out.

Experience is a double-edged sword. While experience can lead to greater expertise, this relationship is by no means guaranteed, and often hides stagnation, if not outright decline.

The true value of experience isn't measured in years, but in one's capacity for radical intellectual humility—the willingness to constantly challenge assumptions, embrace uncertainty, and prioritize learning over ego.

This doesn’t invalidate all experience, but is a reminder to evaluate talent through a more dynamic lens: by tangible results, demonstrable skills, and compelling evidence rather than accumulated tenure.

Here are 10 ideas on how experience can mislead:

1. 30 years of experience is often 1 year of experience repeated 30 times. Just because we show up doesn’t mean we get better. Think of your coworkers 30 to 40 years into their careers. Are they really at the top of their game or just hanging on? What was the last novel skill they learned? When was the last time they challenged a corporate tradition or volunteered to cross-train in a new area? What experience cohort is more often advocating for change and innovation?

It’s just like driving a car. We’re no better at driving at age 40 than we were at 30. Ten extra years of experience. Zero skill improvement.

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Napoleon once remarked that the moment of greatest vulnerability is immediately after victory. It’s a familiar concept not only in military history, but also in business, sports, and investing. In his book, The Dichotomy of Leadership, former Navy SEAL Jock Willink describes “The Disease of Victory”:

A chief contributing factor to recklessness comes from what military historians have long referred to as “the disease of victory.” This disease takes place when a few battlefield successes produce an overconfidence in a team’s own tactical prowess while underestimating the capabilities of its enemy or competitor. This is a problem not just for combat leaders but for leaders and teams anywhere, in any arena, throughout the business world and the civilian sector.

Most environments are dynamic, continuous efforts. The game or battle is never over. There’s always another round, perhaps tomorrow, maybe next year, or a decade from now. Whether it’s the win you had last week, the successful product launch, or the decisive battlefield victory, the pursuit doesn’t end, because competitors and enemies never stop.  

There are 4 smart ways to handle a victory: 1) celebrate, but in moderation, 2) acknowledge the role of luck, 3) prepare for the opponent’s response, 4) counteract the “Success Disease”

Too many people worry about being perfect rather than being prolific.

While it feels righteous to demand nothing but perfection, it’s usually a closeted excuse not to do the work or share your ideas. It’s your ego protecting you from what’s hard. As the saying goes, perfection is the enemy of progress.

Instead of perfection, prioritize being prolific. Generate and share more ideas. Create more art. Compose more music. No matter the task, great work is achieved through repetition and quantity.

Want to be a better public speaker? Stop reading public speaking books and get out and speak. Don’t let preparation get in the way of the actual work.

Quantity is the foundation of quality. Quality is a byproduct of quantity, not independent of it. To be sure, quantity can’t be throwaway effort or just going through the motions. You have to at least try.

As Jerry Seinfeld recommends, “The way to be a better comic is to create better jokes and the way to create better jokes is to write every day.”

It’s the “writing every day” part that bothers most aspiring writers. There’s no shortcut. No hack. Real progress is hard and slow, one repetition at a time.

Like Hollywood and the music industry, the investment industry also feels the need to give out awards. But unlike those other industries, I’m not sure the investment world rewards what’s actually valuable.

Here’s what typically gets awarded:

Exciting, popular investments. Implementing a new sleeve of long-short hedge funds? How impressive! What a proactive way to manage risk yet retain the equity upside. Of course, that’s the promise, not always what gets delivered. No matter, it’s exciting and it gets an award. Nothing against hedge fund strategies, other than the fact that like many popular strategies, they are blindly anointed as superior, before delivering what they promise.

I’ve never seen a firm win an award that implemented a new, low-cost passive strategy. I mean, how old-fashioned and barbaric! Well, some of us in the industry realize that many, but not all, plans would be better off giving up the chase of active/private/complex strategies. However, many egos and organizations require the pursuit of the strategies to justify their existence. Again, the solution is easy: awards based on long-term results, not hopes and promises. Speaking of promises…

Grand proclamations, promises, and forecasts of future action. Net zero by 2050? You get an award, despite making marginal, if any, actual progress toward that goal. New sustainable/ESG strategies? Also award eligible, despite not actually having any tangible evidence to show if the strategies delivered on their promises or the risk/reward as initially advertised. Perhaps we should see how decisions play out before we grant awards.

Size. I know several under-the-radar pensions and endowment funds that put the big plans to shame by delivering better results over the long-term. But alas, that’s not enough. Size and popularity are always better in the world of awards, because the big players have their hand in just about every strategy, and by random chance, something will always be working.

Here’s a quick test of your organization’s health. When you need to find out the truth, where do you turn?

Do you get it straight from the leaders?

Or do you have to rely on gossip and rumors at the water cooler and in the hallways to figure out what’s going on? Usually these discussions begin with, “Don’t tell anyone you heard this…”

Ed Catmull, founder of Pixar said, “If there’s more truth in the hallways, you have a problem.”

No leader likes to announce bad news. No leader likes to admit a strategic or business failure. No leader likes to admit when there’s been bad behavior among employees.

But the truth will always come out. It’s only a matter of the path that truth will take and how much rumor, gossip, and wasted time will be generated along the way.

A leader has two choices. The first is a quick and decisive delivery of bad news. Yes, it will be painful and embarrassing, but I swear if there’s one thing employees want, besides perhaps getting paid more, is a leader that will call it like it is and not hide behind bullshit or company policy.

The second choice, and the choice that many leaders make, is to assume their people are just plain stupid, naïve, or gullible. Deny and cover up the bad news, and figure people will just accept it, get back to work, and move on, because if the leader says everything is ok then it must be ok. It’s management by condescension.

When people don’t get the truth, they know it, and they don’t move on. Instead, they double down on trying to find out what happened, which makes it even a bigger issue than it already was.

Few words incite resistance faster than the idea of imposed constraints or limitations.

For example, if you give someone the option of a project with no deadline and nearly unlimited budget, or a project with a tight deadline and strict budget, they’ll pick the no constraint option anytime. The appeal of boundless freedom and unlimited resources is too tempting to pass up. But if your goal is to actually deliver a project, and an innovative one at that, you’re better off embracing the constraints, not fighting them.

While freedom from deadlines and budgets is exciting, it drowns you in a sea of never-ending optionality, constant second guessing, unfocused activity and distraction.

Constraints are not the limiting factor we assume. They are powerful tools, forcing us to think differently and act with urgency. A lack of resources isn’t the failure point on a project. Excessive scope creep and ambiguous goals are the bigger issues. Constraints don’t crush productivity and creativity, they enable it.  

Legendary choreographer Twyla Tharp praises the power of constraints and cautions against unlimited resources:

Whom the gods wish to destroy, they give unlimited resources...remember this the next time you moan about the hand you’re dealt: No matter how limited your resources, they’re enough to get you started. Time, for example, is our most limited resource, but it is not the enemy of creativity that we think it is. The ticking clock is our friend if it gets us moving with urgency and passion. Give me a writer who thinks he has all the time in the world and I’ll show you a writer who never delivers.

An army sent off to war, even if victorious, will return a bedraggled, maimed mob of madmen. Whatever proportionality between means and ends that may have once existed on the field of battle no longer exists. Even the victors must pass through a slaughterhouse on the way to victory. - No More Heroes: Madness and Psychiatry in War

We all want to reach our goals, but are you sure you understand the price you will pay?

You’ve heard of Pyrrhic victories, based on Pyrrhus, the king of Epirus, who defeated the Romans in 279 BC but paid a terrible price in losing many of his troops. There are many areas in which the costs of winning are greater than the win itself.  

Society obsesses over victory and success but often ignores the costs of getting there. Whether it’s getting to the coveted CEO position, winning a gold medal, or being an entrepreneur, all are incredibly worthy goals, but with potentially enormous costs.

That’s not to say the cost is not worth it. For some people, the cost is absolutely worth it and they pay it with a smile on their face. But then there’s many people who never consider or don’t even know the cost it will take to achieve what they think they want. The focus is always on the benefits, never on the costs.