I just highlighted a handful of things about your career, but I really want to delve into the specifics. You're at Stanford studying computer science and somehow you land a job as an intern at PayPal. Tell us a little bit about that.
Well, this was a pretty cool place. So Elon Musk, with his smartest friends, started a company back then in the 90s called X.com, and Peter Thiel and his smartest friends started Confinity. They were two of eight competitors, and they decided rather than destroy each other to merge. It was actually interesting times. The people were working so hard that some of the people working for Peter at one point had not gotten enough sleep and were suggesting ways to bomb the office of the other guys. They realized this is barely bad, we should probably stop this. And so the companies merged to form PayPal. A lot of the most talented people from Stanford computer science went there at that time. It was an amazing place. Elon kept trying to rename PayPal back to X.com, which they didn't let him do, so I guess he eventually got his way 20 years later with Twitter. But no, it was a really fun place to learn. A lot of my friends there, these guys were like 10 or 15 years older than me. A lot of people who were working there ended up going on to start YouTube, Yelp, LinkedIn, and all sorts of great companies. So it was a fun place to learn.
Right, that was quite a brain trust over there. Your next role is at Peter Thiel's hedge fund, Clarium Capital. You described that as one of the top intellectual think tanks in the world. Tell us a little bit about your experience working with Thiel at Clarium Capital.
Yeah, sure. That was a global macro hedge fund, and so that's a really fun part of finance where you just get to try to figure out at a high level what's going on in the world. Lots of arguments about politics, economics, history, and financial markets. You try to, on one hand, it's quantitative, you're modeling different things like the Australian currency versus the price of commodities versus what's going on in China. On the other hand, you're kind of just discussing what's going to happen the next five or 10 years. We had a really good 10-year run. But while I was there, I tried to hire a bunch of my smartest friends to help us, and they thought finance was boring. We started a project based on how PayPal was going after all the bad guys because the Chinese and Russian mafia had been stealing our money at PayPal. We ended up building these investigative tools and creating Palantir out of there. So that's what I ended up doing instead.
So I just want to put a little flesh on the bones. You said you had a pretty good run. You ended up with a very nice 10-year track record, but first two years out of the gate, something like plus 30% and plus 50%. Am I getting those numbers about right?
Yeah, I mean, if you want to know, this is macro finance, right? So it's a fun area. An example of one of the best trades we figured out that worked for a few years is Greenspan had cut interest rates, and there was more money than ever before going into GSEs, Fannie Mae and Freddie Mac. So you had this massive amount of money there. Because these guys were so big, when they would hedge their mortgage portfolios, it would move all the global fixed income. So what happened was, you remember like late 2002, you had like 5-6% interest rates, and rates started to fall. So people started refinancing their homes. When people start refinancing their homes, the duration of mortgages goes down. In order to balance the durations, Fannie Mae and Freddie Mac had to buy huge amounts of 10-year notes. But they had to buy so much that it actually made their interest rates go lower, which led to more refinancing, which led to them having to buy more, so a feedback effect. You were able to measure the feedback effect. You got down to like one duration, 3% 10-year notes back then. And then all of a sudden it snapped back really quickly because all the money was staying in the economy. So anyway, you can kind of map this stuff out, figure out how to trade fixed income. It was a fun environment.
That must have been a fun environment. So you mentioned Palantir here. I have to mention, how old were you when you were one of the co-founders of Palantir? You were a young guy.
It's 21. I'm 42 now, so it was a long time ago.
Since now we're going to talk about Palantir. Congratulations, last week it was announced they're entering the S&P 500. It's an awesome milestone. At 21, did you ever imagine something like that would happen?
Yeah, I was a pretty obnoxious kid. So you know, Palantir, it was great. We gave offers. We were known for having the top engineering culture. Peter was an investor in Facebook at the time, so our competition was Palantir and Facebook for the best engineers. You really had to convince these people this is going to be a big upside place. So you'd give them offers, and you give them three options: they could have a higher salary but less equity, less stock; medium, medium; or a lower salary but more stock. I'd draw up for the first 200 people, we'd put a table, we'd say here's how much your stock might be worth if this company's worth half a billion dollars, or a billion dollars, or 5 billion. I got so much flak for including 5 billion as one of the possibilities. People are like, this is ridiculous. And the market cap today is about 82 billion now. So it worked out. It took a long time, but it worked out. 20 years for $80 billion, it's a well-worth trade.
So when the company launches, it's a big data analytics company. Today the focus is defense, commercial, and government. Was this a natural evolution or was there a pivot somewhere along the way?
No, we started the company to kill the bad guys. Yeah, let's be clear. I don't work there anymore, so I can say it now. We started the company after 9/11 to kill the bad guys and stop attacks. We ended up helping run the targeting systems in 40 allied countries, wiping out over 10,000 terrorists, including a lot of the most important ones. So it protects civil liberties too, but let's get the bad guys. And it turns out the hard data problems you solve when you run that infrastructure could be used for a lot of other things. You're basically building ontologies of information and workflows and organizing all the data the government has. When we started Palantir, the government at the time spent like $38 billion gathering data. I don't even know what it spends now, but massive amounts of information and tens of thousands of databases. How the hell do you make all this stuff talk to each other? By solving those problems to organize that, it turns out you now have the data in a form where AI can be used really easily. So today, Palantir really caught the AI wave because it enables AI workflows no one else can.
Am I correct in saying during COVID, Palantir helped governments figure out how to monitor, how to track, how to roll out vaccines? What was Palantir's role during the pandemic?
Yeah, I mean, it's used by the forces to organize all their logistics and supplies and everything. So it's a very similar problem: how do you use all the data coming in about how to prioritize things in a pandemic because you're coordinating massive numbers of things and production and all sorts of stuff. I mean, you have a lot of Fortune 500 companies using it to manage and optimize all of their production and distribution. So obviously it works very well for that. For the pandemic, I think like 36 countries used it for that too. So it's good. It's a proven technology today.
What was it like getting governments to recognize the value of this in the early 2000s?
They were distracted. It was almost as difficult as it was to get Addepar to take seriously the first five years. So no, it's actually very funny. You think after Palantir, we were like, oh, this is going to be easy. No. Listen, governments are very funny. They want to use things that are new and innovative, but they want to use things that everyone else is already using. So breaking in is a very chicken and egg problem that's very hard. It turns out that there's a lot of money in the special forces and special operations units who, frankly, their lives are a lot more on the line than almost anyone else because they're constantly doing really dangerous missions around the world and they're running a lot of the most important things that our armed forces do. Those groups have such bold and confident people that we were able to break in, work with them, get them to prove that it worked, and then that set the precedent for other parts of government to then work with us. So thank goodness for our special ops groups.
Wasn't DARPA that first started with you, or did you have any work with them?
I think DARPA was helpful a little bit, but the thing that really matters is people using it on the ground where lives are on the line. If you have something that's the best, it's going to break in because people need it because something is existential, where they're going to die if they don't have it, they're not going to be able to do the mission if they don't have it. So DARPA is more of an academic thing that's smart, but I'd much rather work with the people whose lives are on the line. That's how you really break in with best things: real-world tests.
We'll see some more examples of real-world tests. You mentioned Addepar and AI. Just so you know, ChatGPT is what told me it was $5 trillion. Well, not ChatGPT, it's behind. So you found the company in 2009. Today you're the chairman. It began life as a cloud-based software platform specializing in data aggregation, analytics, and reporting of portfolios. What was the original business model?
Well, you know, I had my family office at first right around then. It was a smaller family office, and I had a lot of friends and people I talked to who run family offices, who ran RIAs. There were new groups on the West Coast like Iconiq and others building these firms around the tech world on RIA land, and everyone hated their software. I looked at it and it's like, this is a mess, and there's not a really good solution here. We were mapping out there's a lot of new possibilities thanks to the cloud, thanks to what you could do with data. So we said, let's build something that's better. I naively thought we would have something that was significantly better within a year or two. It turned out it took us hundreds of millions of dollars and several years, but I am quite confident it's the best at this point.
So the genesis was, hey, I have to manage my own capital and the tools aren't good, I'm going to create it? Or was the original plan, I have an idea and everybody should be using it?
It was a business. I think in general, when you have an area that you realize is broken for you and for people you know, rather than just build it for yourself, it's a good excuse to build a business around it. So I was actually CEO full-time for a few years getting this off the ground. Eric Poirier, who's run it for over 10 years now, is a much better CEO than me, so I'm a proud chairman now. But no, we built it as a business. I mean, listen, when we first hooked up data, there's 7,000 custodians in the US. The biggest custodians are people like Fidelity and Schwab and others. We get this all set up, we spent a bunch of time on it. The first year we hook up the live data, we're getting going, and it's all wrong. We're like, oh, what did we do wrong? And it turns out even those custodians just have bad data. This space is a mess. There's lots of hard problems to solve to make this stuff all work right together. Everyone wants to customize things differently. Every RIA has their own way of doing things, their own way of showing things. So it turned out it took us several more years to get it right.
So $7 trillion, you have some very large RIAs on it, you have broker-dealers like Morgan Stanley on it. How big can Addepar scale?
Well, I think there's about $250 trillion globally that's addressable. Maybe only 150 or 200 of that would use a resolution. So even though we're growing really quickly now, I think we're growing like over 30% a year still, we are still probably at least another decade of fast growth. I mean, this is a giant market. We're still learning every week from clients about how to serve them better. I think there's about 1,200 firms or so on the platform now, and I'd love to see them triple that over the next few years.
So most of what Addepar focuses on are private and public markets: stocks, bonds, mutual funds, ETFs. But you also said, hey, this private market thing is going to get big one day. Well, being able to report on every possible thing someone owns is key for Addepar, but Addepar itself doesn't help people access the private market. So let's talk a little bit about Opto and that platform. The idea behind Opto, and you're chairman of Opto Investments, is to focus on private markets. Tell us what you see in that space.
