Dan Gwak, Managing Partner of Point72 Private Investments, joined us to talk about his role at the Firm, Point72 Hyperscale, and his plans for growing the Firm's private investing business.
What’s your role at the Firm?
I run Point72 Private Investments (P72PI), our institutional private investing business. P72PI is primarily made up of two businesses. One is Point72 Ventures – a global venture capital business that invests in technology startups. We specialize in fintech, deep tech and core enterprise.
The second is Point72 Hyperscale, which is our private equity strategy designed to drive value creation through applied AI. Point72 Hyperscale focuses on finding industries where we think AI can be transformative, acquiring an established business in that industry, and then using our own team of technical experts – the Foundry – to improve efficiency within those businesses by applying AI techniques to their workflows.
The reason why that makes sense is because applied AI is really the only technology right now that has the potential to improve human productivity so significantly. There’s really nothing else that’s going to do that, so we’re just laser focused on finding companies and industries that are the right fit.
How do the private investing and the hedge fund sides of the business at Point72 fit together?
It comes down to the DNA of the Firm. Where do you want to build a private investment business? You want to build it in a place that deeply values fundamental analysis and domain expertise, because those are the main things that can generate alpha in the private investing world. Those two things are absolutely core to the DNA of this place. Steve Cohen hires specialists. He is a believer in domain expertise. Everything that we do is about deep fundamental analysis. I think sharing that similar approach with the hedge fund is what lets us be so effective.
What are the growth areas for the private investing business?
There’s a consolidation happening in the private investing industry as the funds that started late stage get more involved in early stage; and as the early-stage folks – like us – have started to go later stage. I think five to 10 years from now, you are either a great private investing business across all stages or you’re just a little bit less relevant. What does that mean for us? We’re focusing on building a great private investing business across all stages, because we have a unique opportunity to do that here.
Being domain experts is key to that. When an investor is evaluating a private company for a potential investment, generally they’ll look at the team, the technology or product they’re offering, and the financial progress they’ve made. The earlier stage you go, the more you care about the first two, while the later the stage you’re investing in, the more you care about the last one. Early-stage investors naturally look at teams and products a lot more closely. Having that starting point means it’s much more natural to move to later stage because the financial progress question is the easiest to ascertain. Essentially, we’re growing up with our companies.
The converse is much more of a challenge, especially if you don’t have strong sector expertise. It’s like reading a book in reverse – you can do it, but every page you flip you’re trying to figure out what’s going on.
What about expanding into other areas of investing? Are there natural extensions from what we do now?
The areas that we’re most likely to go are where our expertise in one area helps us learn our way into another. Crypto investing is a classic example of that. Our Fintech team are hardcore experts when it comes to all things fintech, market structure, and so forth—and they do a lot of thematic investing in that space. As crypto continues to develop and attract more institutional investors, there are just so many overlaps with the core enterprise fintech areas that our team are experts in.
How did your career lead you to Point72?
I started out in investment banking at Credit Suisse on the M&A team, and after a couple years, I left to join the Carlyle Group’s tech buyout team here in Menlo Park. It was a really interesting time to be in private investing because it was right before the 2008 crash, and it was one of the busiest times in M&A. Valuations were higher than they’d ever been, leverage was higher than it had ever been. We went from breaking records for private equity deals to absolutely no deals. It was a rare opportunity to learn about booms and busts in a very short amount of time.
From there, I decided to enlist in the Marines. At that time, I felt like I had been in school my whole life. I had worked for what felt like a relatively short period. I wanted to do more before I went back to school. Plus, at that point, even though I grew up in Jakarta, I felt like America was my home. But, I had some cognitive dissonance about not having really earned it. Enlisting was my way of becoming an American. I earned my citizenship in a way that felt authentic to me, which was important.
Following my deployment, I returned to the U.S. and went to Harvard Business School. In one of my classes, I heard about an organization called In-Q-Tel, the venture capital arm of the U.S. intelligence community. I thought, that sounds really cool. It was the hardest I have ever had to work to get a job, but through a very energetic effort on my part, I was finally hired as a senior associate.
Amazing. What did you learn there?
The number one thing I learned is what I’ll call true hard tech investing. There’s a spectrum of technology investors. On the one hand, you’ve got the big PE firms of the world that really don’t underwrite technology risks. You’re investing in cashflow positive assets and you’re not underwriting technology development. That’s all the way on one extreme.
All the way on the other, you’ve got organizations like In-Q-Tel who will back a strong technical team who have an idea that can change the world. Those innovations are usually the hardest to do due diligence on and to fund because you don’t have any of the signals that the late-stage investors or anybody in between might have. I think early is the hardest and most interesting time to invest in a tech company.
Last question: What do you love about the job at Point72?
I love that we have a super smart, hard-working and highly engaged team pulling towards a collective mission of building a great private investment business. We all have different roles in that. Some people are investors. Some people add value to the portfolio. Some people focus on our business internally so that we can all do our best work. But the collective strength of the team that we have built here just gives me tremendous confidence and energy. Every day I think, “I work with people who are so much better than me at a whole bunch of things.” I can’t help but get excited about that.