February 4, 2025 • 2hr 17min

Graham Duncan - Talent Whisperer - [Invest Like the Best, EP.409]

Invest Like the Best with Patrick O'Shaughnessy

Graham Duncan is the co-founder of East Rock Capital, where he built an impressive track record managing billions for select families by focusing on identifying and backing talented investors. This conversation explores his philosophy around talent assessment, platform building, and career development through the lens of his own experiences and observations.

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Key Takeaways

Principal-Agent Dynamic - The relationship between principals (investors) and agents (managers) requires careful balance. Treating agents purely as agents can limit their potential.
Source Dynamics - Understanding who is the true "source" or originator of a venture is critical. Organizational dysfunction often stems from confusion or conflict around source dynamics.
Talent Assessment - Graham's approach focuses heavily on extensive referencing, understanding a person's "elephant" (unconscious patterns), and evaluating cultural fit through deep due diligence.
Platform Building - Creating an effective investment platform requires managing ambiguity, protecting mental clarity, and structuring relationships thoughtfully with alignment of incentives.
Career Development - Early exposure to excellence, finding one's natural compulsions/interests, and being willing to take calculated risks are key factors in career growth.

Introduction

Graham Duncan is the co-founder of East Rock Capital, where he built an impressive track record managing billions for select families by focusing on identifying and backing talented investors. This conversation explores his philosophy around talent assessment, platform building, and career development through the lens of his own experiences and observations.

Topics Discussed

The Principal-Agent Dynamic (8:40)

Graham discusses the delicate balance required in principal-agent relationships, particularly in investment management:

Paradoxical relationship where treating someone purely as an agent causes them to behave more like an agent
Importance of autonomy - Truly talented commercial actors need sufficient independence
Trust building - Starting with smaller amounts and building trust over time can lead to better outcomes
Example of his relationship with Stuart Miller, who gave him increasing autonomy over time

Managing Through Crisis (12:06)

Graham shares his experience managing through the 2008 financial crisis with Stuart Miller:

Leadership qualities demonstrated by Miller during crisis - maintaining optimism and perspective
"You guys, what the h**l do you think? I knew we were at risk of losing money. You don't see me moping around." - Stuart Miller's response to team's concerns
Importance of principals creating environment where agents can take appropriate risks
Value of maintaining proper perspective during difficult periods

The Right Grip (14:22)

Graham explains his concept of having the "right grip" on situations:

Balance between control and flexibility - like holding an oar while rowing
Avoiding ideological rigidity while maintaining clear direction
Creating space for adaptation while staying grounded
Importance of humor and perspective in maintaining proper grip

Platform Development (17:07)

Discussion of how East Rock's platform evolved:

Core mission of finding and partnering with great investors
Organic development based on opportunities and relationships
Balance between seeding new managers and backing established ones
Importance of maintaining flexibility in approach

Commercial Mindset (22:22)

Graham defines what it means to be "commercial":

Creating more value than captured
Operating with abundance mentality
Prioritizing making money over being right
Focus on long-term relationships over short-term gains

Finding and Backing Talent (28:20)

Graham's approach to identifying and supporting talent:

Extensive referencing and due diligence process
Understanding person's natural compulsions and interests
Creating appropriate platforms for talent to flourish
Importance of proper incentive alignment

Career Transitions (37:21)

Discussion of managing career transitions effectively:

Managing ambiguity during transition periods
Importance of not being purely reactive to previous situation
Need for proactive vision of future state
Value of patience during transition periods

Source Dynamics (43:05)

Graham explains the concept of "source" in organizations:

Importance of clear source identification
Impact of source confusion on organizational health
How to manage source transitions
Role of source in decision-making authority

CIO Selection Criteria (50:07)

Key criteria for selecting a Chief Investment Officer:

Good taste in people that aligns with principal's preferences
Quiet ego - ability to make money through others without needing credit
Conservative by nature - understanding risk management deeply
Track record of good judgment in various market conditions

Managing Ambiguity (1:03:40)

Discussion of handling uncertainty in investment management:

Comfort with uncertainty while maintaining direction
Balance between confidence and humility
Managing team dynamics during uncertain periods
Importance of protecting mental clarity

Physical Spaces (1:17:49)

Graham's philosophy on creating effective work environments:

Importance of extra space for collaboration
Role of physical environment in culture building
Using space to facilitate relationships
Impact of environment on productivity and creativity

Restaurant Venture (1:22:46)

Graham shares his experience starting a restaurant:

Importance of location selection
Focus on finding right talent combination
Attention to cultural fit in hiring
Creating sustainable operating model

Investment Mastery (1:36:06)

Discussion of stages of investment mastery:

Apprentice to Steward progression
Characteristics of master investors
Role of adaptability in longevity
Importance of maintaining learning mindset

Referencing Process (1:44:10)

Graham's approach to reference checking:

Understanding the "elephant" - unconscious patterns
Importance of multiple perspectives
Looking for consistency across references
Value of deep reference checking

Personal Growth (1:52:08)

Discussion of formative experiences and development:

Impact of early excellence exposure
Role of mentors and relationships
Importance of self-awareness
Value of calculated risk-taking

Conclusion

The conversation provides deep insights into Graham Duncan's philosophy around talent assessment, platform building, and career development. His emphasis on understanding source dynamics, creating appropriate structures for talent, and maintaining the right balance between control and flexibility offers valuable lessons for investors and business builders. The discussion highlights the importance of self-awareness, continuous learning, and thoughtful relationship building in creating sustainable success in investment management and beyond.