Updating Your Priors [Edition 3]: Graham Duncan, the talent whisperer you may not know about, but you should!
19 minutes read.
Graham Duncan sees talent differently than most people.
While others look at performance data and track records, he built a $3.7 billion investment firm by focusing on one thing: understanding what’s going on here, with this human.
As co-founder of East Rock Capital, Duncan has earned a reputation as the "talent whisperer" of the investment world. His ability to spot and back exceptional investment talent early has helped him deliver market-beating returns and build one of the most successful fund-of-funds over the past two decades.
Let’s look at the numbers. Since its launch, the firm has delivered an annualized return of 11.1%, outperforming the S&P 500’s 8.6%, the MSCI World Index’s 6.2%, and the HFRI Fund of Funds Index’s 2.3%. Over the past decade, East Rock’s CAGR has been a solid 12.5%, consistently placing it in the top 5% of its peer group across five-, ten-, and fifteen-year timeframes.
However, it’s not the numbers that make Graham Duncan someone worth paying attention to.
What really sets him apart is his uncanny ability to spot and back exceptional talent—earning him the reputation of being a “talent whisperer.” While most investors back venture funds by looking at their performance data, Duncan focuses on evaluating people. Matt Huang, co-founder of Paradigm venture fund, says: “Graham is walking around long/shorting people.”
This talent-first approach has led Duncan to spot and seed some of the most successful investment firms of the last two decades. The funds East Rock has backed now manage over $5 billion. Among insiders, Duncan is seen as someone whose skill at identifying and nurturing elite talent borders on the extraordinary.
In this edition of 'Updating Your Priors,' we fall down the Graham Duncan rabbit hole, exploring his insights and anecdotes on talent through three distinct areas: Hiring talent, managing talent, and managing yourself.
Let's go!
Hiring Talent
What makes someone take that first entrepreneurial leap? How do you find why this person wants to join you and why now? These are the questions that fascinate Graham Duncan. Through hundreds of conversations with founders and investors, he's uncovered subtle patterns in how exceptional talent emerges and grows. From the psychology of first risk to the art of reference checks, here are his top observations about hiring.
The Origin Story: Why First Risk has to come from Within
As an investor, you should be very careful about who took that first risk and why they took it. True "source" dynamics (risk-taking) originate from an internal drive, not external validation. External validation-led risk-taking doesn't stick.
I was talking with a guy, I won't use the name of the fund, but he was at a very prestigious fund and somebody called him and offered him, it was a big seed, call it $200 million. My hypothesis, I remember talking to him, my hypothesis was if the guy hadn't called and given him the $200 million, he wouldn't have come up with it on his own. It's a very subtle,
Peter Koenig, and he had looked at all these startups in Europe, several hundred, and found that even when there were co-founders, there was really One person who took the first risk, even if that was calling the other co-founder, and that you'd be really careful about that first risk and who's taking it and why they're taking it. And this guy, Peter Koenig, has this argument that all organizational dysfunction can be traced back to disagreements about who is source or the actual source playing small or not Fully owning being source of the thing.
And it totally fit my sample of hedge funds where our friend Diana Chapman has this analogy of the chick needs to peck through the eggshell and develop the strength through the pecking In order to make it once you're outside. If you break the shell for them, they will die. If you mess with the origin in any subtle way, it can affect the entire trajectory of the thing in ways you wouldn't think.
There's an inevitability that people hopefully most often become more themselves over time. If somebody can spot in themselves the thing that will become, you can kind of short circuit it maybe a little bit.
Candidate-Centric Hiring
Graham highlights the importance of understanding a candidate's perspective during hiring—why this role is a good fit for them and why now.
And then I think one key thing that people miss on hiring is you need to understand why it makes sense for the candidate, why the candidate should choose this container and this setup And be rating it like 100 out of 100, if possible.
I see people make a mistake. It's like I'm hiring. It's like a left hemisphere approach. It's like I'm hiring this person to do this thing. It's like they're treating it as a machine, but it's so much more complicated than that. If you want the person to thrive and have the energy and then be rooting for them, you need to understand why from their perspective, this is the right thing for them at this stage of their Life with this set of skills. If you understand that, then it gives the stability to the whole thing
The Art of Reference Checks
Graham emphasizes that ref checks are the most important part of any hiring. He suggests using on-list references (shared by the candidate) to gauge general impressions and prioritizing off-list references (those you find yourself). Treat references as the core of due diligence, not a mere formality.
...one advantage of interviewing a ton of people in a given thing is often, you know, a people that they've worked with in other context that they didn't give but i actually find on list References like bizarrey high signal value, because what happens is, after ten minutes a reference, people run out of nobody wants to lie. They run out of their script. They run out of their script
so one of my closest friendships in the business was when somebody who runs another family office, was calling me on a reference on somebody. And my job, i went into that call thinking, ok, i like this guy. We don't have money with him. I respect him. He stuck me in his reference list, ok? I and the guy sat me for an hour and would not allow me to a basiclly give, you know, a positive endorsement without specifics
And so i think of it as a net promoter score. So you know, either at the beginning or the end of a reference, i'll say, ok, what i hear you saying is you're kind of giving this guy a, a seven on the net promoter score. Is that right? Did i hear that correctly? Or i'll just ask it diregula on one ten. What's your level of endorsement of this person?
Well, first, we know each other, so i would, i would do the ref check in person. I'd track you down and say, tim, so what's the skinny? I but let's say we don't know each other tht well, and i'm caling u on the phone. I would be trying to understand, ok, are you still in touch with assistant? A, what you're like? What's the social dynamic? I make it safe for you. Look'm i'm calling 20 people. I'm not passing any of that information back to the candidate, unless you ask me to. so you need to make it safe for them. But if at the end i've got, in effect, an aggregate number of net promoter scores on a given person, you start to see patterns after reference number four and and then you know, you can Stop, because yu're hearing the same thing over and over again.
Well, one meta, one stance that i think it's really important, is that i'm not trying to catch somebody in any way. I'm just curious, and the references pick up on this vibe. A, and i want to help the the candidate construct the best environment for them, right? Right? Cause that's there's no gotcha to it.
so all i'm trying to do is help the person get in the best possible context for them. And so that i feel like that stance elicits a lot more, because then you're on the same side. Particurly, if yu're talking to a former boss or, you know, so am, that's, i guess that's how i think
The Mirror Question: "How Would You Hire?"
When evaluating someone, ask them what criteria they would use to hire for their role. This reveals their definition of success and nuanced considerations.
if you were hiring somebody to Do this, what criteria would you use to hire that is a great question, because what what it captures is their definition of success, and also captures some nuance that you wouldn't Even known to ask about.
Managing Talent
For Duncan, this is where the real art begins. He sees talent management through unexpected lenses - the grip of an oar, the tension of a violin string, the subtle dynamics between partners. These metaphors reveal something deeper about how talent actually works.
Positive feedback loop: Compulsion-Ignition Moments-Right Set Up
The concept of positive feedback loops centers around identifying a person's "compulsion"—the thing they're uniquely passionate and skilled at—and then creating the right environment ("setup") to allow that compulsion to flourish and create unlimited upside.
So the questions I ask sometimes, what are you compulsive about? I noticed it for myself. I could surf LinkedIn. I don't know what my appetite would be. It's somewhat applied. I'm doing it on this biotech AI thing right now. I'll just surf LinkedIn. I could probably do it for three or four hours, which is like so- I don't think I've ever surfed LinkedIn. Boring. For most people, it would be very boring. And so I like looking at their picture. I feel like someone's self-selected photo is so crazily high signal. If somebody chose that photo to represent themselves, they are saying there's something of my essence that I want to have be my essence that's in this photo. And then matching it up with my impression of what life has done to them, what they've done to life in the photo, and then matching against the resume, I could literally do that.
And then other places other than what are you compulsive about that question of, have you felt a moment of ignition where you saw somebody else and you said, I want to be that. I read that in the talent code. . I was like, oh shit, I totally had that. I had that twice. I had that when I was in eighth grade and I was rowing. It was like the sixth time I went rowing. And this senior and junior, a guy and a woman who are tall and he was handsome and she was beautiful. And they just had such presence and mastery of rowing. They both won national championships. And I was in eighth grade at the time. I was like, oh, all I have to do is row four hours a day and I can be that done. And then I didn't look back because it was so embodied. And it was also a recognition that I have enough overlap with them that I can do this. Like it's not completely random, but then that feels like a viable path.
The Right Grip: Creating the Right Set Up.
Graham Duncan introduces the concept of the "right grip," inspired by rowing. It suggests a balance between firmness and flexibility in managing situations, avoiding rigid ideology to create the right set up for talent.
And when you're holding the oar, there's a tendency to really grip it, in which case your forearm tightens up and you're kind of muscling it versus there's a version where your grip is Like paradoxical. It's both solid, but also loose. And if you catch a crab, it's called catching a crab where the oar goes under the water, the blade goes under the water, and you can get thrown into the water if you're not careful. In that case, you need to be able to let go of the oar, otherwise you're going in the water.
So there's this tight but loose grip that I started noticing that when I speak to certain people, if someone's ideological about the thing they're discussing, they're kind of subtly Conveying to you it's not up for grabs. It's not debatable.
Tension in Talent
Graham suggests that individuals are like musical instruments, limited by the tensions they can hold. To get them unlimited upside, you should understand the subtle interplay of the tensions they hold and why.
I read once that people are like musical instruments, and the range of notes they can play is dependent on the range of tensions that they've learned to hold. And i like that because itit acknowledges that everybody, whatever they're playing right now, there is actually other notes they could play in a different context. So as an example, the tension i'm focussed on right now in the investment management world is, i think there's something really interesting about the tension between someone's intensity and integrity, or, if you double click on each other's aggression and humility.
Graham shares an example of investor David Tepper, a billionaire investor, hedge fund manager, and the founder of Appaloosa Management, about the tensions he holds—Aggression and Integrity.
And if you, if you were to rank a, i to try to use a concrete example, a, i've written an essay before about david tepper. I don't know david tepper. He's somewhat in the public domain. He's on cnbc written some. And i think of david tepper, in many ways, as the platonic ideal of a good hedge fund manager and a good investor. And one thing he holds iis like, i think people work for him, but have interviewed people have worked for him, they experience him as as that mix, if like, super aggressive in taking a Position in an equity or a debt security from zero to 20 % of the fund with no a, no hesitation, like if you were and yet, if you were on the other side of a transaction with him, he's not going To do something that youd characterize, i mean, you would never say fraudulent, but a, he's not going to be overly aggressive, like he's playing the game because he enjoys it.
Building Trust at Speed: The Art of Disclosure
If you can match the pace of disclosure about you to the pace the other person can absorb, it increases mutual trust. For instance, the people who share more of their personality on Twitter have a higher degree of trust with potential recruits.
I think it's along the lines of what we were just saying, like a pace of mutual disclosure that's slightly uncomfortable, but not too uncomfortable, such that if the other person has the skills and the desire to build a deeper relationship, that's available
Another aspect is to disclose any agendas in a conversation upfront to shift from "handling" to "relating" in interactions.
And then I like this distinction between relating to somebody and handling them. I feel like when you move, like most of us, like I have a hair trigger. The argument is that you move to handling somebody when you perceive them as slightly crazy or unpredictable, or they can't handle an agenda you have for them. And so one thing I've been experimenting with lately is if I can find any agenda I have for an interaction, even if it's pretty small, I disclose it upfront. And I found that it kind of shifts the energy a little bit in a useful way and a way that keeps me more into relating rather than handling
Managing Yourself
The hardest part of building something new isn't the external challenges - it's managing what happens inside your head. Duncan explores this internal landscape with remarkable clarity: the vertigo of defining reality from scratch, the challenge of protecting your mental state, and the blind spots we all carry. Through his own experiences and observations, he shows that managing yourself is the highest leverage point of all.
Principal-Agent Relationship
Patrick O'Shaughnessy talks to GRaham about the Principal-Agent tension in the context of money management, but it has a wider implication in any professional relationship.
Patrick frames his question as this:
I was thinking of the Stuart quote of people make money like pros and then manage it like amateurs. How many people like that I know that want an amazing setup, but somehow don't have it or are in one of these mills that seems nice and probably feels nice, but under the hood is like, there's Nothing actually going on.
(Stuart Miller is the Executive Chairman (and former CEO) of Lennar Corporation, one of the largest homebuilders in the US, who handed Graham his first USD 50M to start his fund in 2006.)
Treating an agent like an agent can create a self-fulfilling prophecy, where the agent behaves solely as a hired hand rather than a true partner.
I think it's a principal agent thing that there's a way in which this paradoxical thing where if you're the principal and you treat the agent like an agent, then they become an agent. And so it's this very subtle energetic thing where you got to have this vibe of let's make money together. So what happens is somebody who's commercial wants more control over their life than most principals will give them. And so when the principal tries to bring an A player inside the boundary of their firm, quote unquote, it's not unleashing the commercial activity of the agent. And I think the fact that Stuart Miller let me set up my own company, it's possible it was path dependent because he initially gave me a smaller amount of money, 50 million. And I ran that for a year and built trust. And then if it hadn't been like that, it's possible the market construct would have been just run my family office, but it's my thing.
Does the Principal want to make money 'with the agent' or 'through the agent.' The difference lies in how the Principal models the risk.
There's a book called Simple But Not Easy about money management by, I think he was a long only stock picker, but he basically managed a family office. And he used to talk about how he's the agent. The principal would call him after like when the market was down a lot or when the principal knew his stocks were down a lot and he'd ask, is there any left? And the guy said, I always love that question because I could always say yes. There's always some left, even if I was down 50%. So it's like, there's something about that vibe of like, we're doing this together and we're grownups and we're taking risk. And I know shit could go bad.
The other vector is, does the Agent understand the existing beliefs and aesthetics of the Principal?
It's also like if we talked about someone specific you were thinking of, it has to be consistent with their existing aesthetic, I think. So like if you had a quant guy whose family office needs a family office or wants to partner with somebody or put somebody in the business to run a family office, that guy's going to need The underlying agent is going to need to be super mathematical, left hemisphere-y in order to have the Principal's map of reality overlap enough with the agent's that when shit goes down, It doesn't get wonky. The principal's existing assumptions about business, about investing, about reality, and being within a band of 70% of what they already think.
Defining Reality: Leading Through Ambiguity
Ambiguity is a big hurdle that can stump you, especially when starting something new. You need to understand your new reality to get over ambiguity.
The job of the leader is to define reality on the way in and thank them on the way out, which I think is so profound because it speaks to how each container is a different reality. … And most people have that about moving from one container to another. You're like, oh, this one is so idiosyncratic based on the source and the way the leader defined reality on the way in. Oh, I'm going to go to this next one, but that won't be the case of the next one. It'll be quote normal. Every single one is so weird and idiosyncratic. And the older you get, your ability to transition between containers gets really compromised because either you've grown up in one container or your willingness to put up with somebody else's frame on reality diminishes.
I think the ambiguity that I was referring to when somebody's starting something new is just that act of defining the reality is a creative act. But while you're doing it, it feels super slippery and amorphous. And it's like, I don't know if I'm going to get the investors. I don't know if I'm going to get the team. You're like holding so many 33% probability things at once that it's very taxing. And if you haven't run something yourself before, you're not used to having everything be up for grabs. And I feel like the act of starting something new, you're sitting there on Monday morning, hopefully you have an office. If you don't have an office, you're sitting at a Starbucks and you're like, the sheer lack of strength, right? You've moved from order to chaos. There's no order. The only order comes from you asserting reality. And if you haven't done it before, you can feel fake, it can feel disorienting, you can have vertigo, you can be like, oh my god, what did I just do?
Protecting the Climate in Your Skull: Managing Mental Inputs
When starting something new, manage your inputs aggressively to protect the climate in your skull (your mental state).
It's related to the idea in the investment world, but maybe it applies to founders too. The main asset is your future decisions. And so when you're moving from the container you were in before and the way reality was defined into this new ambiguous setting, if in the transition, you are now sitting next to somebody, I use the example in the piece of often younger hedge fund managers will hire a more seasoned CFO, but the CFO is taking risk that almost by definition, if they're a CFO and grew up in the Accounting profession, is more risk than they actually feel comfortable taking. And so their risk aversion and slight skepticism about you, the portfolio manager, can enter your confidence when your fund is down 10%.
you're less senior, and your own chip stack is smaller. And you're sitting there, and the guy sitting next to you, in his body language and in his questions is conveying anxiety and fear. Those are very contagious emotions. You want to be very pristine, particularly early on as you're holding the ambiguity and trying to assert reality about the energy of the people around you and whether they believe in You
And I think one of the best ways to do that is manage the inputs.
Know Your Blindspots
Understanding life’s blind spots—whether in parenting, relationships, or business—unlocks moments of clarity and leverage when starting something new. But you need to have the humility to absorb the right inputs at the right moment.
It's the what's going on here. It's what's going on here in this new setup. And can I or anybody else “describe it in a way that's useful to you truly understanding the structure of what's going on here?
so you have blind spots. I haven't posted it yet, but I have a letter to a new father. So I feel like having kids is an equivalent of that. It's just like, this is a whole new reality that you're stepping into. And if you have humility about it and realize the things you can't see, then if you read the right thing or hear the right person talking at the exact right moment, there's such leverage To that moment.
And I feel like a lot of extremely left hemisphere dominant investors and business people end up with screwed up family situations in part because they don't get how much action is there In the first year. And so I was trying to capture things you can do. This is such a weird obsession, but I'm obsessed with hiring nannies and I regularly help friends hire nannies. I think hiring a nanny is one of the most fraught, high potential, high leverage. Variance. Variance. If the mom's going to work, assuming it's a traditional family structure, it's unlike anything else you're going to do in your life. You're hiring a family member. It's so nuanced and complex to get the system right around that.
The Correlation between Quality and Quantity
Top performers generate more ideas than average performers, even if some are inferior, which is what makes them top performers.
So we've noticed that the people who do best tend to have lots of ideas. There's an academic named Dean Siminton who studied genius across field, and he observed that, whether it was bach or any given scientist, tha, the sheer number of compositions that Bach had were like a hundred times more than average composers. And some of his lousy pieces of music were a inferior to his peers at the time. But then he also ended up with some great pieces. So there's something around just sheer quantity of ideas and original thinking that characterizes a lot of them.
So i feel like, ah, as you in any field, i think when you start to achieve, you start, often people start creating their own language to capture the nuance that they are seeing that makes Them good at their thing. An investment management buffet is kind of the shakespeare of the industry. And everybody is living in his language and in his mental models to the point where it's limiting.
Loosening Your Tightly Held Beliefs
A good coach helps surface hidden assumptions by observing how you make sense of things. Tightly held beliefs, where you can't articulate the opposite, indicate ego involvement.
...he has a theory about adult development, which is that the process of moving through adult hood is one of increasing your mental complexity and increasing the number of things that used to be you used to be subject to, assumptions you had you couldn't see, and making them object overtime. So an example for many people would be, if they grew up in a religious context, are they actively choosing their religious beliefs, or did they arrive at them because their parents and Community, you know, ther everyone was swimming in those beliefs together.
...a really good coach can do is by listening of the way you're make listening the way i'm making sense of something. Can observe, oh, you're actually assuming x. Your grip, i think of it is grip like your grip on certain things is really tight. And if if a coach can find what you're gripping really tightly and you're actually not, you can't articulate the opposite of this belief you have, that might be a sign that you have Identity or ego caught up in that thing.
I hope you enjoyed this edition of Updating Your Priors. If you were forwarded this newsletter, you can join the free mailing list below. I ship this newsletter every week-ish.
Cheers
Rohit
PS: Here are all the sources for this edition.