As my weekly posts began to gain momentum, around the time of my fifteenth post, the most frequent comment I received was “how long can this last, given the limited number of substantive topics related to the LP/GP dynamic?” I wasn’t sure how to feel about the comment because it wouldn’t be my initial knee-jerk reaction to something I found useful or interesting to read. In my mind, the topics available to write about were not infinite, but I believed they were sufficient enough to dissect and, perhaps, even reexamine in numerous nuanced and layered ways. Additionally, since interesting topics can emanate from many sources, such as personal life, news, books, podcasts, market cycles, investment innovations, and more, I have never worried about what to write next.
In line with the above thinking, and without trying to get too political, I was listening to the BBC a week ago, where they were taking a deep dive into the ongoing Gaza peace plan. The podcast episode attempted to analyze the many moving parts of the deal, as well as the people who could be involved in the long-term maintenance of the plan. As many know, it has been suggested that when the war ends, Gaza would be overseen by a “Board of Peace”, made up of individuals put in place to make sure this technocracy succeeds. One of the names floated as a potential board member was Tony Blair, the former Prime Minister of the United Kingdom (1997-2007). The credentials of Tony Blair as a viable member of this board were debated, with a particularly thorough assessment of whether his role in the 2003 Iraq War, which ultimately proved to be a major fiasco, undermined his candidacy. On the other hand, Tony Blair’s critical involvement in the Good Friday Agreement (signed on April 10th, 1998), which resulted in the end of an ethno-nationalist conflict in Northern Ireland that had lasted for approximately 30 years, along with his other attempts to bring peace to the Middle East, added to his credibility as a peacemaker. This was a fascinating program that took an even more intriguing turn when it meandered into a psychoanalysis of Tony Blair. It was mentioned that Former Prime Minister Blair had a lifelong absorption with the mindset of negotiating parties – he has always been determined to understand the psychology of compromise. What would make negotiating parties budge on seemingly rigid stances? Through his many years of negotiating the most difficult stalemates, he realized that the negotiating parties each needed to be able to declare victories to their constituencies in some way for an agreement to come about. This epiphany led him to coin the term “strategic ambiguity”. Strategic ambiguity is used to describe key areas of an agreement that are purposely left vague, allowing each of the negotiating parties to interpret them as they see fit when communicating breakthroughs to their constituencies. Brilliant!
I quickly related the term “strategic ambiguity” to private investing, where GPs purposely (in my opinion) leave certain key areas about their fund or strategy vague enough to allow flexibility of interpretation. In some cases, research analysts take the strategic ambiguous baton and relay similar vagueness in internal research meetings, research memos, and due diligence reports. It is difficult to blame any party for willful manipulation because, for the most part, due diligence is an eyes-wide-open endeavor, and all parties, particularly the one conducting the assessment, can go as deep or as shallow as they desire. Below are some examples of “strategically ambiguous” statements/situations that are relatively common in the private investing world. Newer analysts should be wary of getting lured into these nice-sounding but very vague traps.
- Strategic ambiguity in value-add capabilities: These days, because of the sheer competition for deals, investor capital, and visibility, the value-add capabilities of GPs are under increased scrutiny. LPs believe that a tangible track record of operational improvement in a portfolio company is a superior metric for selecting managers to commit capital to. Operational improvement is considered the most effective way to achieve long-term portfolio insulation across market cycles. Being quite discerning themselves, GPs have heard the message loud and clear and are finding creative ways to convey their mastery of operational improvement. The problem is that most of the expressions are nebulous. Statements like “the majority of our returns are driven by operational improvement”, or “we have a team of operating partners who ensure that we have operationally repeatable processes”, or “financial engineering and multiple expansion do not play any role in our projections”, all sound good on paper or when uttered, but one must be careful not to overlook their inherent vagueness. How does the GP define operational improvement, how does it calculate this, and how are past returns attributed to this? What does “majority” mean in their context? What does “operationally repeatable” mean, and so on? Lifting the hood on these gray statements can be very eye-opening.
- Strategic ambiguity in performance: Performance interpretation is another hornet’s nest for strategic ambiguity. “We have consistently outperformed public markets”, “We consistently beat peers in the space”, “Most of our funds have delivered above median returns”, “Even our latest funds are partially realized”, are all examples of GP statements that sound fantastic on the surface but contain enough ambiguity to harbor shocking truths. What benchmarks are they using for public markets? Is the benchmark truly relevant? Who are their peers? Are their peers confirmable? Do LPs really care about peer comparisons in a sector, or do they have a broad goal to find the best managers regardless of industry sector? What are the above median returns, and for what benchmark? What does partially realized mean? Is it 5% or 50%, and does it even matter if the returned capital is recallable or if the fund is not close to being fully drawn down? Nitty-gritty details can quickly turn roses into poison ivies.
- Strategic ambiguity in valuations: A persistent critique of private investing is the malleability of net asset values. I have heard private assets investing painfully described as “the long-term management of valuations until a portfolio can be sold at a decent price”. Ouch! Although I remain loyal to the positive attributes of private investing, I can still understand why critics would criticize the valuation feature of the asset class. Too often than not, private investing, at least on paper, seems to fall into “The Greater Fool Theory” where an overvalued asset is acquired with the expectation of selling it to a “greater fool” at a higher price. Many LPs are complicit in the valuation game because valuation changes in private investing tend not to significantly affect their portfolio volatility score. I still believe that, for the sake of gaining a sense of future potential write-offs, write-downs, write-ups, and exit amounts, LPs should demand more rigor and transparency in the way their GPs mark portfolios.
- Strategic ambiguity in sourcing: This one does not need too many words, because it has been an inside joke for LPs forever. Every GP has proprietary deal flow. Every GP was handpicked by sellers, in a sea of many willing to pay a higher price, as the preferred buyer of the asset. Every GP does not participate (or does not like to participate) in auctions, but a broken auction, ooh la la, yummy, yummy. Every GP has been working on relationships for years, so at the time of a portfolio company acquisition, there was no question that they were the natural buyer. Every GP took the seller out for dinner and met their spouse during the courting process, and at some magical moment, kismet hit, and soulmates were discovered. Forgive my facetiousness; I am trying (and probably failing) at using humor to convey the similarities between the majority of GP stories. I am not saying that GPs are being dishonest or exaggerating, but I am making the point that these stories have long ceased to be differentiators.
- Strategic ambiguity in staff: This one is just a little reminder for newer analysts to pry a little deeper when it comes to assessing a GP’s team. Total team member count can be a tricky number, especially when not broken out by “investment professionals”, administrative”, “back office”, etc. Additionally, it is essential to understand the proportion of full-time employees or those who are fully captive to the organization, particularly when discussing auxiliary personnel such as operating partners. Also, employee turnover can be a source of ambiguity, as many GPs don’t report staff below a certain level of seniority who have left, and also typically have a five-year cutoff when depicting turnover. Although such reporting methodologies have become the norm, there could be very insightful information in understanding why junior staff are leaving or what the turnover situation was beyond the five-year cutoff.
- Strategic ambiguity in incentive sharing: You often hear from GPs that “even the receptionist gets a portion of carry”. This statement aims to highlight both the strong alignment among all staff members and the benevolence of the GP. The words convey a great institutional spirit, but a few questions help cut through ambiguity like a hot knife through a bar of butter. What portion of the carried interest is allocated to people below the “Managing Director” rank? Who benefits from the excess profits of the management company, or how broad is the management company’s ownership? Is ownership real or some phantom calculation? Judgment of the acceptable or desirable degree of a GP’s incentive sharing program is an LP-specific exercise, but if one discovers that a tiny minority takes up say 95% of carry and 100% of excess profits, it is fair to say sharing is not as broad as the cover language would have you believe.
Strategic ambiguity is a powerful tool that GPs use to maintain flexibility and appeal to broad audiences, but it often leaves critical gaps in transparency. For LPs and analysts, vigilance and deep questioning are essential to uncover the real story behind the polished narratives. Ultimately, genuine alignment and clarity should be prioritized over clever obfuscation in private investing relationships.
Anthony Kwesi Hagan
Founder and Head of Research, FreedomizationTM
October 12th, 2025
