Public markets rewarding asset managers with 25-30x+ multiples on fee-related earnings (FRE) created a powerful incentive to prioritize AUM growth over performance. This valuation arbitrage fueled the "factory model" of industrialized asset gathering to maximize stable management fee profits.

To democratize venture capital, ARK created a fund that eliminates the traditional 20% carried interest (a share of profits). Instead, it charges a flat 2.75% management fee. This structure aims to give retail investors with as little as $500 direct access to premier private company cap tables without the performance fees that typically benefit fund managers disproportionately.

Wealth management firms charging a flat fee on assets are not incentivized to build sophisticated alternative investment teams. It's easier and more profitable to use basic stocks and bonds, as building an alternatives practice is expensive, complex, and doesn't increase their fee.

Momentum investor Gerald Tsai's strategy made him a star, attracting huge inflows. Even after his performance collapsed, placing 299th out of 305 funds, assets continued to grow due to his past reputation. This highlights the misaligned incentives of AUM-based fees, where managers can profit long after their strategy fails.

Some BDC management teams refuse to buy back their stock at massive discounts to net asset value (NAV). This preserves the fund's asset size, on which their fees are calculated, prioritizing compensation over creating significant shareholder value.

TA's compensation structure aligns partner incentives directly with investor returns. The primary way for partners to increase their ownership (carry) is by generating realized gains—i.e., returning capital to Limited Partners. This systemically prioritizes liquidity and successful exits over simply deploying capital or marking up portfolio value on paper.

Unlike private market ETFs whose prices can be driven by public market sentiment, AngelList's USVC is a closed-end tender offer fund. This structure ensures the price at which investors buy and sell shares is roughly equal to the underlying net asset value (NAV) of the portfolio companies, creating a more stable, fundamentals-driven investment vehicle.

The legendary investor calls venture capital's business model a "scam" because VCs get paid management fees regardless of performance. He argues this structure incentivizes deploying capital even on overly risky bets, as the manager's personal downside is limited while their upside is significant.

Instead of hunting for new deals, Naval Ravikant's USVC invites existing Special Purpose Vehicles (SPVs) on AngelList to sell shares into the new fund. This provides immediate, high-quality deal flow and a liquidity pathway for early investors, creating a powerful flywheel.