What ‘Skin in the Game’ Really Means—and Why It Matters to You
What Is “Skin in the Game”?
The term was popularized by investor and author Nassim Nicholas Taleb, but the concept is ancient. At its core, “skin in the game” means that the people managing your money are also risking their own. It’s about alignment of interests. It’s about trust. It’s about accountability.
If a sponsor stands to lose if the investment fails, they’re far more likely to make prudent, conservative decisions—not just ones that boost short-term optics.
In the private investment world, this concept plays a central role. When Infinity⁹ evaluates opportunities, we look not only at projected returns and market dynamics but also at how much the sponsor has at stake. If they’re not putting their own capital on the line, we’re already asking tough questions.
Why It Matters in Private Investing
Unlike public markets—where managers can often benefit from short-term performance metrics, stock options, or exit strategies that favor them over investors—private investing offers a chance to build deeper alignment.
Here’s why skin in the game matters:
- It builds trust. When someone risks their own capital, they tend to act with more discipline and care.
- It reduces moral hazard. Managers who have nothing to lose might take excessive risks.
- It encourages transparency. If your capital is locked up for five years, you want to know the people involved are equally committed.
At Infinity⁹, we prefer working with partners who co-invest materially—not symbolically. A token investment doesn’t cut it. We want partners who stand shoulder-to-shoulder with our investors.
How to Tell If There's Real Skin in the Game
Not all “skin in the game” is created equal. Some firms highlight their participation, but if you look closely, it’s often a tiny sliver compared to the investor pool. Here’s what to watch for:
- Percentage of total capital: A sponsor investing 1% isn’t the same as one investing 10% or more.
- Source of funds: Are they investing personal cash, or just recycling fees from other deals?
- Waterfall structures: Does the payout prioritize investors first, or are sponsors rewarded early and disproportionately?
Smart investors ask these questions. At Infinity⁹, we teach our clients to read between the lines and assess true alignment, not marketing optics.
Case Study: Real Alignment in Action
One of our institutional real estate partners in Texas recently launched a mid-market multifamily fund. They committed over 15% of the total capital personally—before raising a single dollar from investors.
That move changed the entire psychology of the deal. It showed investors that the sponsor wasn’t just selling a vision—they were betting on it.
The fund has since outperformed early expectations. We’re not saying the sponsor’s co-investment caused that, but it sure didn’t hurt.
Skin in the Game and the Infinity⁹ Philosophy
We believe in putting real capital to work—not just ideas. At Infinity⁹, “skin in the game” is more than a phrase. It’s embedded in our Capital Framework. It shapes who we partner with, how we evaluate deals, and where we deploy capital.
In private investments, there’s no Fed backstop, no liquidity at the click of a button. That’s why we focus on institutional-quality real estate with experienced operators who’ve navigated multiple cycles—and who’ve risked their own money to do it.
Because there are no bad markets, just bad strategies.
What It Means for You
As an investor, you want to know your money is in good hands. When the people managing your investment are equally exposed to downside risk, you can sleep better at night.
Whether you're investing $100K or $10M, demand alignment. Ask the hard questions. Dig into the terms. Don’t be impressed by shiny decks—be impressed by commitment.
In a world full of marketing, skin in the game is one of the few things you can measure that truly matters.
