E2: Jordan Stein | How Cresset Partners Raised $40B, Invested in Andreessen Horowitz + Founders Fund

Episode Summary

Executive Summary: Jordan Stein of Cresset Partners argues that venture capital remains a compelling but highly selective asset class because returns are extremely dispersed, top-fund persistence is real, and access to elite managers is scarce. He explains Cresset’s programmatic approach to sourcing, diligence, co-investing, and portfolio construction, while emphasizing that LPs must be disciplined, well-networked, and selective—especially when evaluating emerging managers and VC co-investments.

Main Topics: Why venture capital matters for LPs (Priority: 5/5): Jordan frames VC as the highest-returning but most dispersion-heavy asset class, with unique persistence at the fund-manager level that makes access to top firms essential. How Cresset built access to top-tier VC funds (Priority: 5/5): Cresset delayed launching its VC strategy until it had the scale, network, and investor profile to secure introductions and allocations from elite firms like Andreessen Horowitz, Lightspeed, and Founders Fund. Evaluating emerging managers (Priority: 5/5): Jordan says Cresset looks for managers with edge, track record, strong references, founder endorsement, and evidence they can both source and win the best deals. Common LP mistakes in venture (Priority: 4/5): He warns that first-time LPs are often sold by VC firms’ storytelling and fail to diligence markdowns, attribution, founder feedback, and ecosystem context deeply enough. VC’s place in a broader portfolio (Priority: 4/5): Cresset buckets capital into diversified income, growth, and aspirational buckets, placing venture mostly in the long-dated aspirational bucket alongside other private market strategies. Co-investment best practices and risks (Priority: 4/5): Jordan says VC co-invest is hard, often subject to adverse selection and timing pressure, and works best when LPs pre-negotiate interest, maintain strong relationships, and use structured processes. Cresset’s broader mission and client model (Priority: 3/5): Cresset positions itself as optimizing for 'wealth and life,' combining wealth management, events, client ownership alignment, and democratized access to private investments.

Key Arguments: VC outperforms other asset classes over long periods, but the spread between top and bottom managers is wider than in any other asset class. Fund persistence in venture is real: top-quartile funds are meaningfully more likely to produce another top-performing successor fund. Access is the main bottleneck in VC; without access to tier-one managers, LPs often face adverse selection and weaker expected outcomes. Cresset waited until it had enough scale and ecosystem credibility to gain access; launching too early would have undermined the strategy. Emerging managers can be attractive because of hunger and 'killer instinct,' especially in early funds where performance can be strongest. The best emerging-manager investments require proof of edge through references, prior track record, founder feedback, and evidence of deal-winning ability. First-time LPs often over-trust polished VC narratives and under-invest in diligence across the broader ecosystem. VC should usually be only one sleeve of a broader portfolio; long-duration capital belongs in the aspirational bucket, not the cash-needs bucket. Co-investing in VC is difficult because opportunities move fast, selection can be adverse, and many LPs lack the skill set to underwrite individual deals well. Cresset believes its scale and manager network can improve both sourcing and diligence, giving it an advantage in co-invest and manager access. The firm aims to be more than a wealth manager: it wants to provide alignment, community, events, and access to private investments for clients and external investors.

Data Points: Cresset AUM at launch of VC strategy: about $20 billion - Jordan says the firm waited to launch venture until it had reached sufficient scale and ecosystem reach in late 2021. Cresset current AUM: over $40 billion - Jordan says the firm has grown significantly since launching the venture program. Cresset starting AUM: about $3 billion in first 12 months - He describes the firm’s early growth from scratch. Cresset AUM after 12 months: about $6 billion - He notes the firm doubled in its first year. Cresset AUM after 25 months: about $12 billion - He describes continued rapid scaling in the early years. VC manager persistence: ~45% top-quartile repeat rate - Jordan cites Steve Kaplan’s research on the likelihood that a top-quartile fund is followed by another top-quartile fund. VC manager persistence vs. median: ~70% likelihood of beating median - Jordan cites research on the probability that the next fund outperforms the median. Number of VC firms reviewed: about 700 - Cresset talked to roughly 700 venture firms over two years. Number of VC funds invested: 15 - Jordan says Cresset remained highly selective despite broad sourcing. Average client age: about 45 years old - Jordan describes Cresset’s typical client as a CEO/founder in mid-career. Ownership split at Cresset: 70% founders/employees, 30% clients - He emphasizes the firm’s alignment structure. Client-raised capital share: 55%–60% - He says most capital raised came from existing clients. External capital share: about 40% - He says the rest came from other family offices and high-net-worth investors. Events hosted last year: over 100 - Jordan highlights Cresset’s event platform and broader community-building efforts. Average time to IPO: more than 11 years - Used to justify VC as a long-duration allocation. VC industry count: over 4,000 firms - Jordan notes how crowded the venture landscape has become. Investor yield in private credit: low double-digit yield - He describes Cresset’s private credit bucket as currently attractive.

Pivotal Quotes: "Venture is the only asset class where there is actual persistence" — Jordan Stein: He explains why strong managers tend to keep outperforming and why access to top firms matters so much. "You really need to be able to get in the top funds to make it worth doing." — Jordan Stein: He warns LPs against investing in venture without access to the strongest managers. "We like to say that we're optimizing for wealth and for life." — Jordan Stein: He describes Cresset’s broader philosophy beyond traditional wealth management.

Implications: LPs should treat VC as a high-conviction, access-driven, long-duration allocation—not a casual diversifier. Manager selection, ecosystem diligence, and portfolio fit matter more than headline brand or hype.