WEBVTT - Michael Fisch on Private Equity Funds 0:00:02.040 --> 0:00:06.000 This is Master's in Business with Barry rid Holds on 0:00:06.240 --> 0:00:08.240 Bloomberg Radio. 0:00:09.280 --> 0:00:12.959 This week on the podcast, I have an extra special guest. 0:00:13.520 --> 0:00:17.720 Michael Fish is co founder and CEO of American Securities. 0:00:18.239 --> 0:00:22.480 They're one of the older private equity firms around, been 0:00:22.720 --> 0:00:26.040 in business since nineteen ninety four. They run over twenty 0:00:26.040 --> 0:00:30.280 seven billion dollars in assets. If you're at all interested 0:00:30.840 --> 0:00:34.440 in what it's like to run a private equity firm 0:00:34.920 --> 0:00:37.680 that doesn't just buy up companies and parcel them out, 0:00:37.760 --> 0:00:42.479 but rather partners with management, keeps the teams in place 0:00:42.960 --> 0:00:48.560 on the companies they buy, and just facilitates the improvement 0:00:48.640 --> 0:00:51.320 of the company, how it operates, how they're able to 0:00:51.320 --> 0:00:56.040 bring expertise both in along with capital and whatever necessary 0:00:56.120 --> 0:01:00.320 debt is, as well as a network of experts. Then 0:01:00.360 --> 0:01:01.920 I think you're going to find this to be a 0:01:01.960 --> 0:01:07.000 fascinating conversation. There aren't a lot of companies and there 0:01:07.040 --> 0:01:10.800 aren't a lot of people that have the historical perspective 0:01:11.400 --> 0:01:14.559 on the rise of private equity like Michael Fish does. 0:01:15.000 --> 0:01:18.240 I found this conversation to really be intriguing, and I 0:01:18.280 --> 0:01:22.520 think you will also with no further ado. My discussion 0:01:22.640 --> 0:01:26.640 with American Security CEO, Michael Fish. 0:01:26.680 --> 0:01:28.200 Thank you Berry. It's a pleasure to be here. 0:01:28.440 --> 0:01:29.440 It's a pleasure to have you. 0:01:29.520 --> 0:01:33.200 So let's talk a little bit about your background BA 0:01:33.200 --> 0:01:37.200 in economics from Dartmouth. You get a Stanford NBA. What 0:01:37.319 --> 0:01:40.040 was the original career plan? Were you always thinking about 0:01:40.080 --> 0:01:41.040 going into finance? 0:01:41.840 --> 0:01:44.920 The original career plan was to be employed to provide 0:01:44.920 --> 0:01:47.560 a safety net for my mother and my two sisters. Right. 0:01:47.840 --> 0:01:49.480 But if I had a plan as to how to 0:01:49.560 --> 0:01:52.680 do that when I went to college, it was learn 0:01:52.760 --> 0:01:54.400 as much as I could, as fast as I could, 0:01:54.760 --> 0:01:57.360 and get a BA and then become an accountant and 0:01:57.400 --> 0:01:59.840 a lawyer, because then I figured I could always be 0:02:00.000 --> 0:02:03.000 deployed either managing the numbers or doing law and get 0:02:03.000 --> 0:02:04.080 those two degrees. 0:02:04.400 --> 0:02:07.040 That that's not the direction you ended up going though. 0:02:07.120 --> 0:02:10.440 What was it that made you say, Hey, this finance 0:02:10.480 --> 0:02:12.760 thing looks like it's fun and interesting. 0:02:13.760 --> 0:02:16.640 Well, it's, you know, like life, it's a serendipitous series 0:02:16.680 --> 0:02:19.399 of things. I met a terrific man at Dartmouth named 0:02:19.440 --> 0:02:22.960 John Hennessy Junior. He was the ex deean of the 0:02:23.000 --> 0:02:25.080 Tuck School, the business school at Dartmouth College, and I 0:02:25.120 --> 0:02:27.639 took a freshman seminar with him because I needed a course, 0:02:28.560 --> 0:02:32.320 and he became a mentor. And he once asked me, 0:02:32.320 --> 0:02:34.400 when you just asked me? And I explained him, get 0:02:34.400 --> 0:02:37.000 the CPA, get the law degree, I'd always be employable. 0:02:37.600 --> 0:02:40.200 And he kind of said, hmm, I'm higher. Have you 0:02:40.200 --> 0:02:41.160 thought about an MBA? 0:02:41.760 --> 0:02:45.600 Really? That's very interesting, though, says the person at Tuck 0:02:45.680 --> 0:02:46.720 Business School. 0:02:46.840 --> 0:02:51.840 Right exactly. And he ultimately encouraged me to apply to 0:02:51.919 --> 0:02:54.320 the three to two program. They had a dormant program 0:02:54.480 --> 0:02:57.919 left over from the Korean War. You know, business schools, 0:02:57.960 --> 0:03:00.000 of course have favored people with experience. 0:03:00.480 --> 0:03:04.480 So five years gives you undergraduate and graduate is that the. 0:03:04.480 --> 0:03:07.120 Time you basically do three years as an undergrad. You 0:03:07.160 --> 0:03:09.240 apply to the Tuck school. If you get in and 0:03:09.240 --> 0:03:11.720 it hadn't taken anyone in over a decade, then you 0:03:11.919 --> 0:03:14.680 do your senior year effectively as the first year MBA 0:03:14.919 --> 0:03:16.600 do the second year, and you get both degrees in 0:03:16.639 --> 0:03:17.160 five years. 0:03:17.200 --> 0:03:17.560 Wow. 0:03:18.400 --> 0:03:22.080 And he encouraged me to apply. He wrote a recommendation 0:03:22.160 --> 0:03:25.440 for me, and I guess, surprising, not surprisingly after that. 0:03:25.280 --> 0:03:28.640 I did get in, But you went to Stanford, not Tuck. 0:03:29.160 --> 0:03:32.280 So I trotted down the street to call to his 0:03:32.320 --> 0:03:34.920 assistant made an appointment, all sweaty and nervous, and went 0:03:35.000 --> 0:03:39.280 to thank him for his gracious recommendation. And he said, 0:03:39.680 --> 0:03:42.280 in the way of good mentors, well do you want 0:03:42.280 --> 0:03:44.800 to go? And I'm thinking he's the x dan of 0:03:44.880 --> 0:03:47.320 the business school, like, this is a trick question. And 0:03:47.360 --> 0:03:49.040 I gave him the deer in the headlights look, and 0:03:49.080 --> 0:03:52.160 he said, well, let me let's let me imagine we 0:03:52.240 --> 0:03:55.040 got three letters here. We got a letter to get 0:03:55.080 --> 0:03:58.600 into Tuck, a letter to get into Harvard, and a 0:03:58.720 --> 0:04:01.520 letter to get into Stanford. And I said well, and 0:04:01.560 --> 0:04:04.240 I thought to myself, well, I know he went to Harvard, right, 0:04:06.120 --> 0:04:08.400 And he said, Dean Attuck is a trick question. And 0:04:08.520 --> 0:04:11.800 I said something like, well, I guess Harvard or Stanford. 0:04:12.160 --> 0:04:15.240 And he said, well, then we're done. And I said, 0:04:15.280 --> 0:04:16.960 but I'm not into Harvard and Stanford. He said, well 0:04:17.000 --> 0:04:17.599 you will be. 0:04:18.720 --> 0:04:23.960 That's very funny. So in between Dartmouth and Stanford you 0:04:24.040 --> 0:04:27.280 work for Goldman Sachs doing M and A early eighties. 0:04:28.320 --> 0:04:28.840 How is that? 0:04:28.920 --> 0:04:33.080 How did that help prepare your path to private equity? 0:04:33.440 --> 0:04:36.320 Well, that same man the next year I trotted down 0:04:36.960 --> 0:04:40.800 and he's said, well, okay, we're applying to Harvard and Stanford, 0:04:40.800 --> 0:04:43.520 aren't you? And when do I write my letter of recommendation? 0:04:43.680 --> 0:04:46.520 So he did, and I was fortunate to be accepted 0:04:46.560 --> 0:04:51.479 to both and that was very important because when this 0:04:51.680 --> 0:04:54.479 was the dawning of what is now a big analyst 0:04:54.640 --> 0:04:57.680 program across the country in all banks and investment banks. 0:04:58.880 --> 0:05:03.120 But back then, in nineteen eighty three, the entire analyst 0:05:03.200 --> 0:05:06.039 program of Goldman Sachs was twenty five people, and that 0:05:06.160 --> 0:05:08.520 was a big expansion from the prior year before, and 0:05:08.600 --> 0:05:10.279 it had only been in existence for two years, so 0:05:10.320 --> 0:05:13.400 Wall Street was so much smaller. Barry, you remember, back 0:05:13.440 --> 0:05:15.960 in nineteen eighty three, Goldman Sacks had about thirty thousand 0:05:16.040 --> 0:05:17.359 total employees, fifteen hundreds. 0:05:17.360 --> 0:05:19.440 They were a private partnership. They weren't even public. 0:05:19.760 --> 0:05:20.039 YEP. 0:05:20.760 --> 0:05:21.559 Very different world. 0:05:21.680 --> 0:05:24.760 And the entire merger department of Goldman Sachs in nineteen 0:05:24.920 --> 0:05:30.360 eighty three was thirty two people. That's amazing, and I 0:05:30.520 --> 0:05:32.760 like to say none were lowered to the ground than me, 0:05:33.160 --> 0:05:35.200 a first year analyst, which meant I was below ground. 0:05:36.240 --> 0:05:38.560 And how did you end up at Bain and Company 0:05:38.600 --> 0:05:39.159 in Paris? 0:05:39.760 --> 0:05:43.880 What was that like? Well, in the time that I 0:05:43.960 --> 0:05:47.960 was working at Goldman Sachs. In mergers, there were a 0:05:48.000 --> 0:05:50.800 bunch of big public companies who were on We were 0:05:50.800 --> 0:05:52.400 on M and a retainer they call it. So the 0:05:52.440 --> 0:05:55.159 public companies looking to buy lots of acquisitions, and they 0:05:55.200 --> 0:05:58.440 would have us running the numbers with their people for them, 0:05:58.520 --> 0:06:00.600 as they would have Bain and Company in two of 0:06:00.640 --> 0:06:04.520 these situations doing the strategic work alongside their management team. 0:06:04.560 --> 0:06:07.039 So I got to know the work and we would 0:06:07.120 --> 0:06:10.360 jointly make presentations to the senior management team or their 0:06:10.400 --> 0:06:13.680 board if a deal went far. And I got to 0:06:13.760 --> 0:06:17.520 see firsthand what Bain was doing in strategic consulting and 0:06:17.680 --> 0:06:21.240 understand their view of business separate from the numbers. And 0:06:21.360 --> 0:06:24.679 so when I did go out to Stanford, I wanted 0:06:24.720 --> 0:06:27.719 to spend my summer learning that better and in Paris, 0:06:27.920 --> 0:06:30.279 and Bain was kind enough to offer me a job 0:06:30.360 --> 0:06:31.160 to facilitate. 0:06:31.520 --> 0:06:34.279 I have to imagine that Paris in the mid eighties 0:06:34.440 --> 0:06:37.320 was just delightful. 0:06:38.800 --> 0:06:40.839 It was not tough duty. I was very lucky to 0:06:40.880 --> 0:06:42.480 be there and grateful all summer. 0:06:43.080 --> 0:06:47.000 So you come out of Stanford, you enter the LBO world, 0:06:47.920 --> 0:06:52.560 what we now call essentially private credit and private equity. 0:06:53.080 --> 0:06:56.599 What was it like in the late nineteen eighties, how 0:06:56.600 --> 0:07:00.799 to be the wild West. It really wasn't a mature 0:07:00.839 --> 0:07:02.160 industry the way it is today. 0:07:03.320 --> 0:07:05.800 Well buryer again like Wall Street. It was all so 0:07:05.920 --> 0:07:09.520 much smaller. In nineteen eighty three, by my reckoning, the 0:07:09.680 --> 0:07:13.240 entire global institutional private equity business was less than a 0:07:13.280 --> 0:07:14.920 billion dollars of committed capital. 0:07:15.040 --> 0:07:17.480 That's unbelievable, large nothing. 0:07:17.720 --> 0:07:20.800 The largest fund then was KKR with one hundred and 0:07:20.840 --> 0:07:24.840 seventy five million dollars. The second largest fund was forcement 0:07:24.880 --> 0:07:26.360 Little with one hundred and fifty I. 0:07:26.280 --> 0:07:31.840 Mean these are transaction levels. Today those entire funds are 0:07:31.880 --> 0:07:33.320 like partial transaction. 0:07:34.000 --> 0:07:36.080 They'd be less than I'm sure ten or twenty percent 0:07:36.120 --> 0:07:39.320 of what KKR would put into many private equity deals. 0:07:39.840 --> 0:07:42.400 So you're doing LBO, you're doing M and A. How 0:07:42.440 --> 0:07:46.520 did those experiences lead to a career in private equity? 0:07:48.000 --> 0:07:51.880 So there was almost no M and A activity. There 0:07:51.920 --> 0:07:54.760 was no M and A departments in any investment bank 0:07:54.840 --> 0:07:58.800 really until the very late seventies. Because the today where 0:07:58.800 --> 0:08:00.960 we talk about return on equity, your margins with your 0:08:00.960 --> 0:08:04.400 stock price. Back then, if you were in business in 0:08:04.680 --> 0:08:06.320 you know, the real world, they said how many people 0:08:06.360 --> 0:08:09.000 work for you? And if you started your career on 0:08:09.120 --> 0:08:13.480 a line became a line manager or foreman, became a 0:08:13.520 --> 0:08:16.520 plant manager maybe, or a division manager, so on up 0:08:16.520 --> 0:08:18.920 the line. If people ask you how many people work 0:08:18.960 --> 0:08:22.640 for you, and you said, well, I sold a business, 0:08:22.680 --> 0:08:24.120 you know, I had a thousand, but now I'm at 0:08:24.120 --> 0:08:26.040 you know, eight hundred. When you barry, you're not a 0:08:26.040 --> 0:08:29.239 good manager. I thought you were a manager. So literally 0:08:29.320 --> 0:08:31.120 nobody sold in and the only things that got sold 0:08:31.120 --> 0:08:35.240 were bankruptcies. The odd company that went bankrupt would need 0:08:35.240 --> 0:08:37.200 to get sold. But there wasn't an active M and 0:08:37.240 --> 0:08:39.600 A business. There wasn't a leverage finance business, all the 0:08:39.640 --> 0:08:42.800 things we know now. So when I was at Goldman 0:08:42.880 --> 0:08:46.319 Sachs doing M and A from eighty three to eighty five, 0:08:46.960 --> 0:08:50.000 there came to be some people looking at the M 0:08:50.040 --> 0:08:53.040 and A business was started to boom, be a fraction 0:08:53.120 --> 0:08:54.760 of what it is now. But there came to be 0:08:54.840 --> 0:08:59.760 in certain situations buyers that were bootstrap buyers, that were 0:09:00.440 --> 0:09:04.440 we would call them today. They then leveraged buyout financiers, 0:09:04.440 --> 0:09:06.400 and now we call it the private equity industry. And 0:09:06.440 --> 0:09:09.839 so I came to see some of these entities at 0:09:09.880 --> 0:09:12.360 the very early stages KKR would be one, but there 0:09:12.360 --> 0:09:15.440 were others and a lot of entrepreneurs trying to do 0:09:15.480 --> 0:09:18.439 the same thing, because wealthy families were often these bootstrap buyers. 0:09:20.040 --> 0:09:23.920 And honestly, it was almost like a religious war between 0:09:24.040 --> 0:09:27.520 two views of the world. EPs earnings per share that 0:09:27.600 --> 0:09:32.280 all public companies would look at to evaluate mergers and 0:09:32.400 --> 0:09:35.840 cash flow ebit DA, which didn't exist as a term, 0:09:35.840 --> 0:09:38.520 believe it or not back then, but ibadiya cash flow 0:09:38.640 --> 0:09:41.520 was how these these bootstrap buyers would look at it. 0:09:42.040 --> 0:09:45.840 And this seemed kind of interesting and new and different, 0:09:45.960 --> 0:09:49.640 and I became interested in how they did what they 0:09:49.679 --> 0:09:52.640 did and how they valued it and the differences between 0:09:52.679 --> 0:09:55.439 that and ebit DA. So sorry then, EPs. 0:09:56.480 --> 0:09:59.959 So in nineteen ninety four, you and your co found 0:10:00.320 --> 0:10:05.680 Chuck Klein launch what is the present version of American Securities? 0:10:05.760 --> 0:10:08.720 What was the catalyst for launching the firm? 0:10:09.080 --> 0:10:09.280 Then? 0:10:10.200 --> 0:10:11.920 What kind of business were you hoping to build? 0:10:12.240 --> 0:10:14.080 Well, it was more than just Chuck and I. So 0:10:14.120 --> 0:10:19.720 we had the great gift of the Rosenwaldt family. So 0:10:19.880 --> 0:10:22.960 I had worked for two private equity firms when I 0:10:23.000 --> 0:10:25.400 got out of Stanford, so I'd really gotten a little 0:10:25.400 --> 0:10:28.080 bit of experience. I was still young, Hope. I still 0:10:28.080 --> 0:10:30.960 am young today, but I'd gotten a little bit of experience, 0:10:31.520 --> 0:10:35.320 and I met Chuck, and Chuck was then the senior 0:10:35.360 --> 0:10:38.280 financial advisor to the William ROSENWALDT family and the William 0:10:38.320 --> 0:10:43.440 Rosenwald family. Julius was the genius behind Sears Roebuck and 0:10:43.480 --> 0:10:46.640 so they had largesse from the Rosenwald fortune. 0:10:46.760 --> 0:10:50.800 So, in other words, this after building, helping to build 0:10:50.880 --> 0:10:53.719 Seers and run Seers for a number of years, this 0:10:53.840 --> 0:10:56.920 was we would call that today a family office of. 0:10:56.240 --> 0:11:01.040 It absolutely was. It was called w R. S. William 0:11:01.120 --> 0:11:06.640 Rosenwald family Associates. Julius Rosenwald, who was the eminence grease 0:11:06.720 --> 0:11:09.080 behind the growth of Sears the way Ray crock was 0:11:09.120 --> 0:11:15.079 with McDonald genius for the Catalog and Downtown department stores. 0:11:16.280 --> 0:11:19.199 Sears Alton got taken public. He passed away in the 0:11:19.559 --> 0:11:23.000 nineteen thirties. Bill was his youngest son. Bill separated his 0:11:23.040 --> 0:11:24.800 money from that of his siblings and came to New 0:11:24.880 --> 0:11:27.160 York and right after World War Two set up his 0:11:27.240 --> 0:11:31.800 family office modeled along the lines of the Rockefeller family, 0:11:32.559 --> 0:11:35.840 and he's founded the name. He registered the name American 0:11:35.880 --> 0:11:39.880 Securities Corporation, the first corporate owned broker dealer. All the 0:11:39.920 --> 0:11:42.400 other ones had been private partnerships, but he had capital 0:11:42.400 --> 0:11:45.920 and didn't want to have it at risk, and that 0:11:46.559 --> 0:11:49.800 family office had done were then called bootstraps, all sorts 0:11:49.840 --> 0:11:52.360 of investments, not just the stocks and bonds common of 0:11:52.640 --> 0:11:55.360 wealthy families of the day, but actually buying businesses, some 0:11:55.520 --> 0:11:59.480 very very successful businesses that were still private, that were 0:11:59.480 --> 0:12:01.400 private when I bought them. Now one of them is 0:12:01.440 --> 0:12:03.640 public and as a equity market cap of thirty five 0:12:03.679 --> 0:12:08.240 billion dollars. But Chuck was their senior financial advisor, so 0:12:08.280 --> 0:12:12.280 he's buying selling stocks. And Chuck and I hit it 0:12:12.320 --> 0:12:14.760 off on our first breakfast on the Upper East Side 0:12:14.760 --> 0:12:19.480 here in New York, and he kindly asked me if 0:12:19.520 --> 0:12:23.559 I would come join him, saying that he would if 0:12:23.800 --> 0:12:27.200 he wanted me to come join him. He was fifty five, 0:12:27.240 --> 0:12:30.160 he wanted to retire when he's sixty. Families take a 0:12:30.200 --> 0:12:32.160 while to get used to somebody, so he wanted me 0:12:32.200 --> 0:12:36.000 to work with him and then he'd retire. And I 0:12:36.200 --> 0:12:39.360 said to Chuck, I really like you, but that's not 0:12:39.600 --> 0:12:41.640 really what I want to do. But I got a 0:12:41.640 --> 0:12:44.480 different idea. You be my partner. We'll set up a 0:12:44.480 --> 0:12:47.240 private equity firm, and the Rosewold family will be our 0:12:47.320 --> 0:12:51.520 lead investor, and that's what I want to do. 0:12:52.000 --> 0:12:54.920 And everybody signed on and said, let's go. That's the 0:12:55.000 --> 0:12:57.839 launch of the modern version of American securities. 0:12:57.880 --> 0:13:01.000 It's more complicatan that because Chuck was a very cautious investors. 0:13:01.040 --> 0:13:05.760 So what Chuck actually said was, Okay, well, come work 0:13:05.800 --> 0:13:07.800 with me for a year and assuming that works out, well, 0:13:07.840 --> 0:13:09.720 then we'll go raise this private equity firm. 0:13:09.800 --> 0:13:10.040 Right. 0:13:10.200 --> 0:13:13.680 So I joined the Rosenwald family in the spring of 0:13:13.760 --> 0:13:17.800 nineteen ninety three, and we we did some investing together 0:13:17.920 --> 0:13:19.840 for the first year, and we raised our private equity 0:13:19.840 --> 0:13:20.600 fund the next year. 0:13:21.000 --> 0:13:24.920 I almost feel compelled to point out to younger listeners 0:13:25.440 --> 0:13:29.840 who may not be familiar with what Sears was back 0:13:29.840 --> 0:13:33.200 in the day. But I'm not exaggerating when I say 0:13:33.679 --> 0:13:36.840 Sears was the Amazon of its time. It was America's 0:13:36.960 --> 0:13:42.520 largest retailer. Every major city, every major town had a Sears. 0:13:42.920 --> 0:13:44.280 They were dominant, weren't they. 0:13:45.000 --> 0:13:47.760 Oh? Absolutely. I like to say I hadn't thought about 0:13:47.800 --> 0:13:49.840 think about Amazon. I like to say they created the 0:13:49.880 --> 0:13:52.720 walton esque fortune, ok the first half of the nineteen 0:13:52.800 --> 0:13:56.400 hundreds because they were Walmart at least and maybe Amazon two. 0:13:57.240 --> 0:14:00.680 They had a one third market share of certain product 0:14:00.760 --> 0:14:03.520 sales in the entire country. And they were also an 0:14:03.559 --> 0:14:10.240 amazing they picked. Julius successfully leveraged two really great trends. 0:14:10.320 --> 0:14:14.000 One was the urbanization of America and the downtown department store, 0:14:14.200 --> 0:14:18.120 which was so prevalent then and then almost on a 0:14:18.120 --> 0:14:22.280 different axis to the catalog which was mailed. The Sears 0:14:22.320 --> 0:14:25.800 Catalog was mail to homes across the country and it 0:14:25.880 --> 0:14:30.880 allowed anyone in any community of any background to buy 0:14:30.920 --> 0:14:34.120 exactly what the city slickers were buying, or vice versa. 0:14:34.280 --> 0:14:38.240 And that was and they were. Interestingly, I think it's 0:14:38.280 --> 0:14:42.320 true to say the first non utility, non railroad that 0:14:42.440 --> 0:14:44.640 was thought stable enough to be allowed to be a 0:14:44.680 --> 0:14:49.320 public company. Huh. Only utilities and railroads at the beginning 0:14:49.360 --> 0:14:52.280 of the stock market were thought stable enough. 0:14:52.880 --> 0:14:56.840 So last question about that. That's really fascinating, and there's 0:14:56.880 --> 0:15:03.280 a whole long history of things that Sears spun out. 0:15:03.960 --> 0:15:07.040 I think the Discover card came from Sears and All 0:15:07.040 --> 0:15:09.880 State Insurance and a couple of banks. I mean, it 0:15:09.960 --> 0:15:12.760 was just one different entity after another. 0:15:13.600 --> 0:15:18.600 That's absolutely true. And the family separately is responsible. The 0:15:18.680 --> 0:15:23.040 Rosenwald family for Blue Cross and Blue Shield. Oh really, 0:15:23.080 --> 0:15:26.560 for the Museum of Science and Industry in Chicago. Uh huh. 0:15:26.640 --> 0:15:31.320 Julius Rosenwald was an important trustee of Tuskegee University and 0:15:31.440 --> 0:15:34.280 friend of I think it's Booker t. Washington. I mean, 0:15:34.320 --> 0:15:37.200 the family's philanthropic legacy is staggering. 0:15:38.000 --> 0:15:41.360 That's really fascinating. You know, it's funny. I'm very aware 0:15:41.920 --> 0:15:47.840 of the audience age, and it's arranged from people listening 0:15:47.840 --> 0:15:49.920 who might be in college or grad school and people 0:15:49.920 --> 0:15:53.840 who have are retired, and I sort of feel like, 0:15:53.960 --> 0:15:57.760 all right, some of you youngsters may not know. This 0:15:58.040 --> 0:16:01.880 was literally the biggest retailer of its day, whether you 0:16:01.920 --> 0:16:04.040 want to compare it to Walmart for the stores or 0:16:04.120 --> 0:16:07.720 Amazon the catalog not all that different from online shopping. 0:16:08.160 --> 0:16:12.240 They were just massive and failed to pivot when the 0:16:12.280 --> 0:16:18.200 time came. So hey, everything is temporary, right, last question 0:16:18.360 --> 0:16:22.320 about the launch of the firm, So ninety four, it's 0:16:22.360 --> 0:16:26.320 still early days for private equity. Not a lot of transactions, 0:16:26.880 --> 0:16:31.040 not a lot of money under management. When you're out 0:16:31.240 --> 0:16:35.400 pitching this to institutional investors in the middle of a 0:16:35.440 --> 0:16:39.920 giant bull market, let me add inequities. What was what 0:16:40.000 --> 0:16:43.240 was the response, did people understand that this was a 0:16:43.320 --> 0:16:47.680 different type of investing and potentially a diversifier, or did 0:16:47.680 --> 0:16:49.760 they look at you kind of funny? 0:16:50.800 --> 0:16:53.520 Well berry to paint where we were in the arc 0:16:53.600 --> 0:16:57.480 of private equity. So as we were talking before it did, 0:16:57.920 --> 0:17:01.480 it didn't exist until the very late seventies at best, 0:17:02.040 --> 0:17:05.440 and then was you know, from five firms to ten firms, 0:17:05.480 --> 0:17:09.480 two hundred firms in the nineteen eighties, and so it 0:17:09.680 --> 0:17:12.800 was growing. And when we went to raise our first 0:17:12.800 --> 0:17:16.040 fund again we had the great benefit of the support 0:17:16.040 --> 0:17:19.080 of the William Rosenwald family. They were a committed lead investor. 0:17:20.920 --> 0:17:24.280 But I had been involved in some transactions and had 0:17:24.320 --> 0:17:27.440 and those transactions had happily gone well. Chuck Klin and 0:17:27.480 --> 0:17:29.680 the family had been involved in a bunch of transactions. 0:17:29.720 --> 0:17:32.359 So we had some form of a track record that 0:17:32.440 --> 0:17:35.480 we could talk to people about and a very specific 0:17:37.040 --> 0:17:40.840 investment objective about what we were planning to do. And 0:17:40.920 --> 0:17:44.119 so there were certainly there weren't that many, and we 0:17:44.160 --> 0:17:46.640 did talk to a lot of people, but we were 0:17:46.640 --> 0:17:51.639 grateful to have a college endowment, a publicly traded insurance company, 0:17:52.600 --> 0:17:56.600 a publicly traded company, corporation's pension fund, and some wealthy 0:17:56.680 --> 0:18:00.120 individuals join our first fund, which was a mighty seven 0:18:00.200 --> 0:18:02.720 one point four million dollars at the final closing. 0:18:02.960 --> 0:18:06.840 Well, so you mentioned you had some specific objectives back 0:18:06.880 --> 0:18:07.880 in nineteen ninety four. 0:18:08.119 --> 0:18:10.040 What were those objectives? 0:18:10.600 --> 0:18:17.120 Well, building on the the investment legacy of the Rosenwald 0:18:17.200 --> 0:18:20.720 family and some of the things that I had been 0:18:20.760 --> 0:18:24.800 doing and thinking about, we agreed that we were only 0:18:24.800 --> 0:18:26.880 going to buy the market leading company, the number one 0:18:26.920 --> 0:18:29.320 market share company in its niche. I mean, obviously these 0:18:29.359 --> 0:18:31.760 would be modest sized companies given the size of our fund, 0:18:31.760 --> 0:18:34.320 but the number one market share company, we would look 0:18:34.400 --> 0:18:37.000 to only buy that company an industry which was GDP 0:18:37.160 --> 0:18:41.040 growth or better, we would look to only support the 0:18:41.119 --> 0:18:44.600 existing CEO. We wanted to support them, Meaning you're. 0:18:44.440 --> 0:18:46.919 Not coming in cleaning house and installing your own guys. 0:18:47.040 --> 0:18:49.600 You're looking for a management team you want to work with. 0:18:49.800 --> 0:18:54.200 We had then and we have still today, a relationship focus. 0:18:54.880 --> 0:18:59.040 And you know, changing and it's practical, changing executives is risky. 0:18:59.440 --> 0:19:03.600 We believe that if we're coming in and feel aligned 0:19:04.000 --> 0:19:07.359 and simpatico with the management team and particularly the CEO 0:19:07.480 --> 0:19:10.560 running the business that delivered the earnings that we're valuing 0:19:10.600 --> 0:19:13.840 the business on if we could just help them be 0:19:13.920 --> 0:19:17.480 the same or better, we'd have only good outcomes for investors. 0:19:18.000 --> 0:19:20.840 And why take the risk of changing management. We'd rather 0:19:20.880 --> 0:19:24.280 just look for a new situation. And we wanted to 0:19:24.359 --> 0:19:27.680 have relatively modest leverage. We tended at the beginning to 0:19:27.760 --> 0:19:31.560 capitalize our companies with less debt than other investors. 0:19:31.680 --> 0:19:33.040 Huh, really really intriguing. 0:19:33.160 --> 0:19:36.560 So let's talk a little bit about twenty seven billion dollars, 0:19:36.600 --> 0:19:40.320 one hundred and eighty full time professionals. What is the 0:19:40.359 --> 0:19:45.320 secret to successfully growing a private equity firm? For you? 0:19:45.440 --> 0:19:47.400 Coming up on your thirtieth year? 0:19:49.320 --> 0:19:51.520 Great people, you know, I like to say money is 0:19:51.560 --> 0:19:54.360 the ultimate commodity. So our product, if you will, is money. 0:19:54.440 --> 0:19:56.800 That's what we invest and so if we're going to 0:19:56.880 --> 0:20:00.000 outperform for our investors, it's going to be the people 0:20:00.480 --> 0:20:04.640 that we've attracted, our investment philosophy, and maybe some processes 0:20:04.680 --> 0:20:05.560 that we've employed. 0:20:06.240 --> 0:20:10.199 So you've done plenty of deals over that thirty year period. 0:20:10.520 --> 0:20:15.760 What stands out anything really memorable? Any transactions that stick 0:20:15.800 --> 0:20:18.960 with you? 0:20:18.960 --> 0:20:20.880 You know when I think about that, we've certainly had 0:20:20.920 --> 0:20:24.119 the great pleasure to be involved with some great businesses, 0:20:24.600 --> 0:20:27.080 but it's really the people that stick out the most. It's, 0:20:27.119 --> 0:20:29.200 you know, life is people, and we are in the 0:20:29.240 --> 0:20:35.320 people business managers, investors, lenders, bankers, the whole ecosystem. And 0:20:35.400 --> 0:20:39.440 it's the special relationships which we're proud to have created. 0:20:40.680 --> 0:20:42.960 And some of the CEOs from our very first fund, 0:20:43.000 --> 0:20:45.160 our very first deals, you know, twenty eight years ago, 0:20:45.520 --> 0:20:47.240 are still close friends of mine. I'll be going to 0:20:47.240 --> 0:20:50.240 Florida to spend a weekend with one of our first 0:20:50.280 --> 0:20:54.520 CEOs and his wife staying with them next month. Huh. 0:20:54.720 --> 0:20:59.800 That's really interesting. So let's stay focused on that concept 0:20:59.840 --> 0:21:05.280 of people and partnering with management rather than just taking 0:21:05.320 --> 0:21:10.640 over a company and cleaning house. Is this relatively uncommon 0:21:10.720 --> 0:21:15.080 in the industry. I have to imagine other companies see 0:21:15.119 --> 0:21:18.280 the value of this, Or when you first started doing this, 0:21:18.480 --> 0:21:20.600 was it kind of a one off? 0:21:22.320 --> 0:21:24.239 We weren't really sure when anyone else was doing At 0:21:24.240 --> 0:21:25.800 the beginning, You're just kind of doing it and hoping 0:21:25.840 --> 0:21:28.920 it works out. As it turns out, You're absolutely right. 0:21:29.000 --> 0:21:31.480 There is a consulting firm which did a study a 0:21:31.520 --> 0:21:35.119 few years ago that twenty five percent of the CEOs 0:21:35.160 --> 0:21:38.240 are gone at closing in most partly the average private 0:21:38.240 --> 0:21:43.480 equity transaction, fifty percent are gone by two years and 0:21:43.560 --> 0:21:48.440 only twenty five percent are there after four years. In 0:21:48.480 --> 0:21:52.800 contrast to that, now, for our thirty year existence, are 0:21:52.920 --> 0:21:55.880 what I call CEO win rate is over eighty percent, 0:21:56.480 --> 0:21:58.840 meaning eighty percent of the men and women who were 0:21:58.920 --> 0:22:01.159 running the business before we showed up, we're running it 0:22:01.200 --> 0:22:03.920 at exit or are running it today if we still 0:22:03.960 --> 0:22:04.280 own it. 0:22:04.720 --> 0:22:08.480 So this is really very different if if the typical firm, 0:22:08.760 --> 0:22:12.920 they're in half the situations, they're gone either closing or 0:22:13.560 --> 0:22:14.439 two years later. 0:22:15.640 --> 0:22:18.119 We are walking the talk in terms of management partnership, 0:22:18.200 --> 0:22:19.280