Erik Serrano invests in investment firms themselves, not just their funds. He says most fund managers are great at picking stocks but terrible at running a business, which creates a big opportunity. He sees this as an overlooked, low-competition space. He highlights Blackstone (its founder says LPs, or limited partners, prefer people they like over just high returns), Apollo, and KKR (both successful with a two-person partnership model).
This podcast episode features Erik Serrano, CEO of Stable Asset Management, discussing his unique strategy of investing in investment companies. Stable manages over $3 billion in assets and focuses on identifying and supporting the next Blackstone, providing capital and operational support to founde
Erik Serrano is the CEO of Stable Asset Management. He founded the firm 14 years ago at age 23, and today it manages over $3 billion in assets. Stable's unique strategy is to invest in other investment firms, providing emerging GPs with capital and operational support so they can focus on investing itself. The most weighty judgment in the entire video: Serrano believes that the biggest misjudgment by founders of investment firms is thinking that their investment ability automatically translates into business ability — "investment portfolio" and "investment firm" are two completely different skill sets, and most people only focus on the former while neglecting the latter.
Serrano argues that investment firms themselves are excellent business models, yet almost no one systematically invests in them the way they do in early-stage tech companies.
Historical Context: When Serrano was 23 and wanted to start his own private equity fund, he ran into a structural contradiction—starting a tech company attracts VC support, but starting an investment firm has no dedicated institution for it. "The strangest thing is that no one starts a company that starts investment companies." He attributes this to the peculiarities of the investment industry: your "product" is your track record, but track records take time to materialize, and distinguishing skill from luck takes time—unless you have a time machine, you cannot prove you will succeed at a young age.
Data Support: Stable has an internal research project called Project Legends that analyzes the best investors in history across public and private markets, defined by "lifetime P&L" (return rate × assets under management). Key findings:
Competitive Landscape: Serrano points out that the investment firm industry has a natural tendency toward oligopoly—"the bigger you are, the easier it is to get bigger." One reason is the career risk of asset owners: "Nobody gets fired for investing in IBM"—once an investment firm is proven safe, capital flows in. On the other hand, the lifecycle of an investment fund is limited by human lifespan—"the lifecycle of an investment firm follows the lifecycle of the people," because the product is human intellectual capital.
Implication: Competition in this space is actually very scarce, because most capital allocators lack the time or opportunity to deeply understand the founders of investment firms themselves. Stable's unique advantage is being able to spend extensive time with founders and truly get to know them.
Serrano argues that founders of successful investment firms generally share two core traits: Resilience and Variant Perception.
Resilience: Born from a passion for what one does. "Everything that goes wrong flows upward—you think being the boss is great, but in reality, all the difficult problems land on your desk." Serrano finds that the resilience of successful investors often stems from early adversity. He cites data: "Two-thirds of British prime ministers lost a parent before the age of 18, and about one-third of U.S. presidents." Among the legendary investors he has interviewed, many mention "financial insecurity in childhood" or "seeing their father not succeed"—they transform that adversity into a superpower.
Variant Perception: Seeing what others do not see, believing what others do not believe. "In investing, if you are merely average, you are the market’s beta—you need a different view." This differentiation often comes from an unconventional upbringing and way of thinking. Yet Serrano also notes that variant perception has diminishing returns—excessive stubbornness can turn negative. "I used to look for extreme variant perception, but later found that at a certain point, too much obstinacy is actually harmful."
Key Takeaway: Group pressure can kill variant perception. The investment industry suffers from a "halo effect"—when a strategy succeeds, even if for the wrong reasons, few question it. But truly outstanding investors ask: "Is this result luck or skill?"
Falsification Condition: Serrano offers an interesting quantitative indicator—the "Cars and Fund Manager Performance" study. Academic research finds that fund managers who drive faster, flashier cars:
1. Have slightly better absolute returns but worse risk-adjusted returns—a manifestation of the "sensation-seeking" personality trait
2. Give up earlier during drawdowns—because if they are primarily in investing for the money (as shown by buying flashy cars), when performance falters and bonuses seem out of reach, they lack the motivation to persist.
Serrano believes that most founders of investment firms fail to realize that their investment strategy is essentially a product, and it needs to be designed like a product manager would.
Core Insight: LPs (Limited Partners) are not just buying returns; they are buying knowledge transfer, relationship optionality, and emotional security. Serrano states bluntly: "If you completely deconstruct an investment strategy, it loses its appeal—just like a film director who, after learning to analyze every shot, can no longer enjoy the movie."
Three Levels of Product Design:
| Level | Content | Example |
|---|---|---|
| Knowledge Transfer | Share how to think and how to select investments | Share investment memos, best practices |
| Relationship Optionality | Offer co-investment opportunities, discounted fees | Co-investing to reduce fee burden |
| Emotional Connection | Predictability, reliability, trust | Proactive communication even when performance is poor |
The Secret to Winning Over LPs: Serrano quotes Blackstone founder Steve Schwarzman—"People don't give money to those who deliver the highest returns; they give money to people they like." Here, "like" is a proxy for "predictable and reliable"—because unpredictable people are often unsettling.
Counterintuitive Case: Patrick O'Shaughnessy shares his experience—he once had a quantitative strategy that performed exceptionally well over the long term but was completely unsellable. The reason was that LPs thought it was "too simple"—"You must be hiding something from us." Serrano responded: "People have a premium for simplicity, yet they can't believe simple things can make money." He mentions that some large quantitative funds even hire a large number of PhDs as "window dressing"—they are not involved in the strategy at all, purely to make LPs feel that "this strategy is very complex, and we definitely can't keep up."
Inference: Serrano believes that the "marketability" of a strategy is severely underestimated in the industry. Founders need to consider "how to package this story"—but not to the point of complete distortion. The key is to find a narrative that is "honest yet attractive."
Serrano reflects on a harsh reality in the investment industry: it seems that "unlikable" people are more likely to achieve financial success, but he argues this is only a short-term phenomenon. Over the long run, predictability and reliability generate compounding returns.
Data & Observations: Serrano conducted an internal study at Stable called "Seeds of Wisdom," exploring the question "Do good people end up losing?" The conclusion: "Being a bad person" is not a sustainable strategy—while being uncompromising or uncooperative may yield short-term gains in certain deals, generosity and helping others generate compounding returns over the long term.
The Quantifiable Value of Being "Good": Serrano argues that in private markets, "likability" is actually a quantifiable asset—it means better deal flow, more stable LP relationships, and lower employee turnover. He cites the mindset that "the other side should also win in a transaction"—a way of thinking that expands the pie rather than treating it as a zero-sum game.
LPs' Emotional Needs: Serrano believes that for LPs, as capital allocators, their career risk is more important than investment returns. "If you give money to a big brand, even if you lose it, no one will blame you; but if you give money to an obscure emerging fund, even if it performs well, you bear enormous career risk." Therefore, emerging GPs need the ability to make LPs feel "at ease"—which includes regular transparent communication, proactively reporting problems, and even making LPs feel "treated as partners."
Falsification Condition: Serrano mentions an interesting "water feature indicator"—"If you see an investment firm starting to spend heavily on office renovations, especially installing a water feature, that is a sell signal." Because it means management fees have exceeded a reasonable range for investment purposes and are beginning to flow into luxury consumption.
Serrano believes that the life cycle of an investment firm can be divided into several key stages, each requiring different types of capital and support, and that Stable's product design is precisely tailored to match this life cycle.
Capital Stack (Founder Cap Stack):
| Stage | Capital Type | Support Description |
|---|---|---|
| Launch | Working Capital | Management fees cover costs, ensuring the ability to hire staff and rent office space |
| Early Stage | LP Capital (Investment Capital) | Fund investments, providing initial track record |
| Growth Stage | Co-Investment Capital | Co-invest with LPs, offering discounted fee rates |
| Maturity | Growth Capital | Expand business lines, enter new markets |
Portfolio vs. Business Entity: This is a key distinction. Serrano points out that most GPs focus only on the portfolio, while neglecting that they themselves are operating a business entity. He cites an analogy: "An investment firm is like a software company — the marginal cost is nearly zero, but many people don't know how to manage that 'software company'."
Fundless Sponsor Model: Serrano recommends that early-stage entrepreneurs accumulate experience through a "deal-by-deal" approach rather than raising a large fund from the start. He himself did this — "In the early days, I was practically a member of these companies' teams because I didn't have the resources to hire others." He advises: "Make sure that even if the bet you place doesn't pay off, you still have a chance to come back — 'Stay alive, keep fighting.'"
The Math of "Staying Alive": Serrano uses an "inventory curve" analogy — "Life is like quadratic equation inventory management — you can see the inventory declining, but you cannot cross that warning line, because once you cross it, there's no coming back." Early-stage entrepreneurs don't have much "margin of safety," so they need to be especially cautious.
The Cost of Time: Serrano candidly discusses a harsh trade-off — "Every hour you spend with your family is an hour you are not investing." He acknowledges that successful investment founders often pay a price in family time. "If your return drops from 19% to 18%, or your wealth falls from $7 billion to $6 billion, but you spend more time with the people you love — that might be a more valuable choice."
| Target | Guest Attitude | Key Data |
|---|---|---|
| Blackstone | Positive case, industry benchmark | Founder Steve Schwarzman's "liking" insight; dual partner model (Schwarzman + Peterson) |
| Apollo | Positive case, industry benchmark | Alongside Blackstone and KKR, considered to have created substantial EV value |
| KKR | Positive case, industry benchmark | Same as above |
| TPG | Positive case | Dual partner model (Bonderman + Coulter) |
| Tiger Management (Julian Robertson) | Positive case, learning object | Serrano learned from Gil Caffrey the distinction between portfolio vs. business entity |
| Blue Owl (formerly Dyal) | Industry ecosystem | One of the largest equity investors in asset managers, holding ~80% market share |
| Neuberger Berman | Industry ecosystem | Houses the Dyal team |
| Goldman Sachs | Industry ecosystem | Has a team focused on equity investments in asset managers |
| Ray Dalio / Bridgewater | Historical case | Someone provided his initial capital |
| Steve Schwarzman | Source of personal insight | "People give money to people they like, not to those offering the highest returns" |
| Warren Buffett / Charlie Munger | Analogy | Use insurance float to maximize returns |
1. "Portfolio management and investment firm management are two completely different skill sets" (Serrano): Most GPs focus only on the former, neglecting the latter. You can be an excellent investor on a large platform, but when you become a founder, you may spend only 40% of your time on investing — the remaining 60% goes to operations and fundraising.
2. "LPs don't buy returns, they buy peace of mind" (Serrano, quoting Schwarzman): Career risk is the LP's biggest consideration — "no one gets fired for investing in IBM." Emerging GPs need to make LPs feel "predictable and reliable," not just chase high returns.
3. "Fund managers who drive flashy cars give up earlier during drawdowns" (Serrano, citing academic research): If you invest for the money (manifested by buying flashy cars), when performance is poor and bonuses are unlikely, you have no incentive to persevere. Conversely, if you genuinely love investing, you will outlast your competitors.
4. "A water feature is a sell signal" (Serrano): When an investment firm starts spending heavily on office renovations, especially installing a water feature, it means management fees have shifted from "used for investing" to "used for luxury consumption."
5. "Don't lose money in new, interesting ways" (Serrano): Losing money is inevitable, but you need to "lose money in the way you promised." If you deviate from the stated strategy, even if the result is decent, it may not be a good thing — because you are not validating your skill, but gambling on luck.
6. "The lifecycle of an investment firm follows the lifecycle of its people" (Serrano): Because the product is human intellectual capital, investment firms are inherently limited in lifespan — unlike software or drug formulas that can last much longer. This means you need to think about succession and capital allocation much earlier.
7. "Every hour you spend with your family is an hour you are not investing" (Serrano): It's a brutal trade-off, but Serrano argues that if returns drop from 19% to 18% in exchange for more family time, it might be the better choice.
8. "You need 'survival' capital to afford risk-taking" (Serrano): "Being able to take risk is a huge privilege — because it means you have enough chips to lose." Early-stage entrepreneurs lack a margin of safety and need to be especially cautious, ensuring that even if a bet fails, you still have a chance to come back.