How I Invest with David Weisburd
E147: Inside the Mind of a $2.4 Billion Investor w/Charlotte Zhang
Tue, 18 Mar 2025
In this episode of How I Invest, I dive deep into a conversation with Charlotte Zhang of Inatai Foundation. Charlotte shares her approach to managing a $2.4 billion private investment program, the importance of market inefficiencies, and how she strategically builds GP relationships. We explore how Inatai identifies top managers, why LPs are increasingly interested in fundless sponsors, and what makes a great investment philosophy. Whether you're an LP, VC, or just curious about institutional investing, this episode is packed with insights on capital allocation, conviction-based investing, and long-term partnership building.
Chapter 1: What is the financial mandate of the Inatai Foundation?
What is the financial mandate for the Inatai Foundation? What are you trying to achieve through your portfolio?
We are simply trying to generate the most attractive risk-adjusted returns. And that is the reason why we actually have so few constraints. We invest globally. We don't have any asset allocation targets. And truly, it is about trying to capture those things that I had chatted about before, innovation and market inefficiencies, as we believe that that tends to generate alpha over the long run.
When you joined Inatai Foundation, you were tasked with building a $2.4 billion privates program. How did you go about doing this?
We don't have an asset allocation target. And I tried to begin by aligning with the team on what do we actually fundamentally want to have exposure to. For us, that answer was we want exceptional returns that are generated from global innovation as well as market inefficiencies.
This naturally pointed us in the direction of you're probably going to invest more in venture and buyout, although we do have some select real assets exposure as well. And then also having a bias for specialists. We then went on to leverage our networks and I developed a forward calendar of essentially wishlist GPs that we'd like to do further diligence with.
I also created a commitment budget to coordinate all of our sizing and pacing decisions.
Very curious. You said you went about building a wishlist of GPs that you'd like to access. How did you go about building that wishlist?
We started off by focusing on thematic areas that we felt tied to that innovation or market inefficiency. With innovation, we felt that there was a lot of density of talent in China, as well as an incredibly large market opportunity. Another example would be for market inefficiencies. We all know that lower mid-market businesses tend to have a lot more sub-optimized functions, and there would be
opportunities to create value add by professionalizing these businesses and then became another subset of GPs that we added to the wishlist target.
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Chapter 2: How did Charlotte Zhang build a $2.4 billion privates program?
When you're learning about a particular topic, your understanding kind of goes from simple to complex back down to simple. So that first simple is because you really just don't know very much. And then when it gets to the complexity, it's because you're actually cobbling together kind of all these like disparate
Facts and figures and how you ultimately end back at that last simple starting point is by organizing everything that you know and distilling it down into a coherent framework. The idea being if a GP has spent sufficient time and effort truly studying their market, they're able to design their strategy with the intent behind.
to capture a very specific underappreciated opportunity then in talking to you all they have to do is really tell you what that target opportunity is for them why is it attractive and then why their best position to invest in it it's simple there's no selling it's just explaining i have found that strategies that are not purpose-built based on some nuanced insight
that's where you really require some selling.
When we were last chatting, you mentioned that many LPs are looking for fundless sponsors today. Why are LPs interested in this space?
Institutional LPs, we tend to love lower middle market buyout because it has this potential to generate attractive returns by capitalizing on market inefficiency. What you're dealing with essentially is you have less sophisticated sellers and intermediaries that equates to cheaper entry valuations. And then there's usually
a lot of low hanging fruit in terms of value creation opportunities to professionalize these sub-optimized businesses. Unfortunately, what happens is the most successful lower middle market buyout firms, they quickly raise the increasingly larger funds and then they abdicate the inefficient market that actually generated their success.
For us to find these groups early, ideally backing them from the beginning in fund one, it requires spending time with them even earlier in their life cycle of development to build that conviction. That's the reason why LPs are now flocking to focusing on fundless sponsors.
It essentially just represents this earlier phase of private equity investors who are just raising capital for opportunities in the lower market, mid market on a deal by deal basis. And, you know, given how difficult the fundraising environment for emerging managers is today, I would say it is an opportune time to access
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Chapter 3: How do you identify and build relationships with GPs?
But perhaps the expectation historically has just been, by simply providing the capital, that is my value. I really do think that we can do a little bit better than that.
What are the best ways that LPs can provide incremental value to GPs?
it parallels a lot of the same things that they're able to do. GPs, you know, they try and hire and retain exceptional talent. And in that endeavor, you can send them relevant referrals from kind of your expanded network. And of course, you'd be more equipped to do this.
You did the landscaping exercise, kind of know where some of like the exceptional investors are, and also have a dialogue with them. So you know, if there are certain people looking for opportunities in terms of fundraising.
A lot of GPs do want to be very thoughtful and they welcome into the partnership fold and being able to kind of matchmake as to which LP institutions might have similar investment philosophies and alignment. You can make kind of more curated introductions that might shorten their fundraising exercises. I think this is also part of the beauty of being a generalist.
For example, when we are thinking about our biotech exposure in the portfolio, we have evaluated biotech strategies that span the private markets as well as the public markets. And if you are structured in a particular way, you might not know what your counterparts in the public markets or the private markets are doing.
Being able to collect that overarching market view and then relay it back to them can actually maybe provide them with some incremental context that would help them When they're dealing with these folks as, you know, fellow stakeholders or even in better understanding why the market might behave in certain ways.
I've also heard on the value add is being good thought partner, giving good feedback, getting the right amount of feedback and encouragement. And also being either quick to act on a new fund or maybe coming with ideas. I'd like to invest in this kind of fund. I'd anchor your new fund.
If you go to a GP and you say, I want to back you in a crypto strategy and you're that first check, that's a huge value add for managers. It really scales. I've heard managers with tens of billions of dollars that would love those kind of LP relationships.
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