August 15, 2024 • 25 mins
In this episode of FI15, Joe is joined by Jay Sammons, Co-Founder of SKKY Partners and Raam Ratnam, Managing Director at S&P Global Ratings. Topics included SKKY Partners investment process, Jay’s experience founding the company with Kim Kardashian, staying on top of consumer culture and Raam’s takeaways from his career as an accountant.
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Episode Transcript
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(00:00):
Hello and welcome.
My name is Joe Cassidy, a director at S& P Real Ratings,
I'm the host and the creator of the FI15 podcast.
On this episode, we have Jay Sammons, co founder
and managing partner of Sky Partners and Ram
Ratnam, Managing Director, S& P Global Ratings.
Just a quick reminder that the views of the
external guests are their views alone, and they
do not represent the views of S& P Global Ratings.
(00:21):
Jay, we'll kick off with you.
Can you share with us a brief overview of your career
thus far, including how you originally connected with Kim
Kardashian, And really the origin story of Sky Partners.
Sure.
Well, first, thanks again for having me today.
It's nice to be with you both.
I started in the finance, business about 26
(00:41):
years ago and I started investing 24 years ago.
I spent the majority of that time, at the Carlyle Group where
I, helped build and then ultimately had the opportunity to lead.
The firm's global consumer investing
practice based in New York the entire time.
Our strategy was really focused on backing disruptive high
growth consumer brands, which we did successfully in a number
(01:03):
of instances and generated great returns for our investors.
But most importantly, I learned a lot about entrepreneurship,
how founders build brands, how founders disrupt
markets with new ideas in a really authentic way that
ultimately delivers a great deal of value to consumers.
And I have A great deal of passion for finding
those opportunities to invest behind those great
ideas through the course of my time at Carlisle.
I had the opportunity to meet Kim.
(01:25):
We were introduced by a mutual friend nearly a decade ago, and we were
introduced by that friend because the friend saw an opportunity for
Kim, hopefully to benefit from knowing someone like me as she began
to build further her entrepreneurial endeavors and evolve her career.
in the direction that she's now shown, she's very capable of
(01:45):
doing at the same time, our mutual friend thought that I could
benefit from having the opportunity to learn from Kim, as we
were investing behind great brands and helping them grow and win.
And over the course of the next many years, she and I got to know
each other, built a lot of trust in one another, built a lot of
mutual respect for each other, and ultimately had the opportunity
to partner together to build what we hope will be the leading
next generation consumer investing platform, called sky partners.
(02:08):
Fantastic.
Thanks, Jay.
Ram, could you give us an overview of your role at S&
P Global Ratings and maybe also some kind of high level
perspectives on the global retail and consumer sectors?
Thanks, Joe.
And great to be here with Jay.
as sector leader in, in, EMEA consumer goods and retail practice,
I'm responsible for sort of overseeing the, analytical aspects
(02:31):
of ratings and EMEA, in the retail and consumer goods sector.
And importantly, there's also an element where.
I, lead the sector research and communication
with the wider market and investors.
So in course of my work, I'm really fortunate to interact with a
range of, you know, companies in the retail and consumer sector
(02:52):
across the value chain, they are both big and small companies,
they are multinational corporations, but they're also private
sponsor owned companies, and across the wide range of subsectors.
I mean, we, cover food, beverage, staples, but
also apparel, personal luxury, and also durables.
So, the range of, range of companies, range of subsectors.
(03:14):
and again, going back to the sector outlook, the sector has
seen a range of challenges, disruptions, you know, we know since
the pandemic, supply chain disruptions, geopolitical conflicts,
and a period of slow economic growth, and also now with quite
recently, you know, very high inflation, which is since now
falling, you know, varying speeds across different, geographies.
(03:35):
Now, given the scale of challenges, if the sector has been
generally very resilient, the consumer has been pretty,
robust, although some cracks appear in some segments.
and the focus really for the company is to build back volumes,
you know, there's the cumulative effect of high prices, which
are, you know, folding back some of the spending we've seen.
(03:56):
and generally there's greater pressure
on discretionary retail, mainly apparel.
Fantastic.
Thanks Ram.
Jay, as managing partners, what do you and Kim really
prioritize when evaluating potential investments?
Well, first and foremost, our strategy is
very focused on backing great consumer brands.
(04:17):
it's where we feel like we have an opportunity to win leveraging.
What we believe is a highly complimentary set of experiences
that she and I bring as managing partners at the firm.
you know, her experiences as an entrepreneur, a brand
builder, cultural leader, as an individual who knows,
you know, what's happening in culture around the world,
as well as just about anybody in the consumer landscape.
and me bringing my experiences, touching and
(04:39):
helping win a number of great consumer brands, over
my experience, over the last couple of decades.
And that's precisely what we're trying to bring
together for the benefit of our portfolio companies.
when we think about what a great consumer brand is, we really focus
on finding brands that have a balance between delivering consumers
something that they really need, but also, finding brands that have
(05:00):
developed really deep emotional connectivity with their consumers,
brands that make consumers feel good when they're using them.
And the reason that's important is that obviously a brand or
a product needs to deliver on a, real consumer need state.
That's the functional side of things and
brands need to deliver really well there.
But if they can also connect emotionally with their consumers,
make their consumers feel great when they're using those products.
(05:21):
And this is different in every category.
That's what drives loyalty.
That's what drives long lifetime value.
That's what drives resilience during tough economic times.
That's what private causes consumers to prioritize those
brands over others as they seek to deploy their scarce
resources into the things that they care about the most.
And we studied brands with this approach for many years.
(05:41):
Many of the great brands that I've had the opportunity to invest in.
We've looked through.
Through that lens, and as Kim has built her brands,
most notably skims, it's exactly that approach.
If you look at skims, it's a phenomenally high quality product that
has expanded quite dramatically over the last five years, but it
also has connected very emotionally with consumers in the way that
it's delivered a highly inclusive brand, a brand that the captures.
(06:05):
The needs and the emotional, the emotional
likes of consumers over many years.
So, that's really the lens that we look through.
And our first investment that we made
earlier this year is precisely that.
It's a company called trough.
That is a high growth flavor enhancement
business that focuses on hot sauces and.
Salts and oils, all with black and white truffle oil.
(06:27):
it's making food taste great, but it also makes
consumers feel really good when they gather together
around the table and enjoy a great meal together.
And that is, that is why truffle will continue to be successful in
the same way that brands that we've worked with in the past have been
great.
Thanks Jay.
Ram, we continue to hear about the ongoing disruption
of online to the retail and consumer sectors.
(06:48):
Now in 2024, what's the current view of how
online is really making headway into these areas?
So, yeah, I mean, e commerce, is indispensable now, for global retail.
I mean, we are looking at, retail e
commerce sales exceeding, six trillion U.
S.
dollars, you know, in terms of retail sales, this year in 24.
(07:12):
And roughly, worldwide, this should be
about 20 percent of, all retail purchases.
So, a significant part of, component of the, global, retail landscape.
Now, while this thing takes place, I mean, digitization has
opened new markets for retailers, for consumer goods companies.
but on one hand, while this is great, the
(07:34):
competition has significantly increased.
and, this comes back on, on from what Jay was saying, you have to look
at companies that are able to glean deeper customer insights through
retail media, looking at digital footprints, we all leave, et cetera.
So there's a lot of data and analysis behind this and much
greater visibility of the consumer now than ever before.
(07:57):
So again, this has caused a lot of changes in the landscape.
And again, while companies are clearly investing in their
digital capabilities, there's also this link to how,
this all links up to the typical retail value chain.
so you're seeing a mix of strategies, clearly, we see only
channel models, slightly outperforming, you know, pure,
(08:19):
play, either pure play but in water or pure play, e commerce.
and in consumers value, a range of things, the value
experience, especially when it comes to luxury premium
purchases, the emotional connect, G was talking about, but
also the flexibility and the convenience are key factors.
So, so essentially retailer then consumer goods companies
(08:40):
are looking to rationalize the store footprint to get the
maximum value out of the brick and mortar real estate.
at the same time, investing a lot into the digital capabilities
to say, stake competitive and, get to know the customer better,
really.
Great.
Thanks Ram.
Jay, can you share examples of how SkyPartners
leverages its networks, its partnerships to add value
(09:04):
to your portfolio companies beyond capital investment?
That's a great question, Joe, because capital is obviously very
plentiful, and if we only are seeking to differentiate ourselves
with our capital, you know, that's a fairly limited strategy.
We need to find businesses and brands that we can add
a tremendous amount of value to in partnership with
our founder and executive partners that we work with
(09:26):
who run these portfolio companies every single day.
This is why we started, and Kim, I were highly aligned on this
when we started building this firm, which was to start with
building a great team that brings experiences from the world's
best private equity firms, investing in consumer brands over
time, and we assembled a phenomenal team that brings collectively
many decades of experience, you know, touching the consumer
(09:48):
landscape, seeing how value can be added in a very, customized way.
and it's different in every set of circumstances.
There is no one size fits all approach given the unique nature of
what these founders are trying to do and their unique marketplaces.
And so our goal is to listen and learn and
understand what our portfolio company partners need.
Figure out what we know and what we don't know.
(10:10):
And if we don't know something, how
do we find someone who can help us?
And it's a combination of our investment team, our operating
team, internally operating advisors, like Angela Arentz, who we
brought on board, leveraging her decades of experience, you know,
running companies like Burberry and a very large part of Apple.
bringing all of that together for the benefit of our
portfolio companies, to help them solve problems, help
(10:31):
them capture opportunities and in their own unique
ways is really the way we seek to add value the most.
Great.
Thanks, Jay.
Ram, as part of your role, you spend a lot of time speaking
to C suite leadership in the retail and consumer companies.
What's their sentiment right now and what's on their mind?
Yeah, I mean, it's, this is a time when, companies
(10:52):
are sort of going back to basics in some ways
and looking to build back, volumes, really.
I think that's been the biggest, sort of focus
for most of the companies we've been speaking to.
Ram.
And if you look at branded, players in the CPP space and
they're investing in innovation, and, I think to regain some
of the grounds, they lost the private label products, which
(11:13):
is because seeing some of the, growth as the viewers are
more value focused in the last few months now, but we also
expect more promotions, this year, compared to previous years.
because there are issues around working capital and in some
parts of the, the currency markets, space, and especially
for the apparel or footwear and those kind of categories.
(11:34):
a lot of companies still have a huge amount of inventory
on the balance sheet, which they need to liquidate.
Now, I think the bigger, aspect we're looking
at is, as competition is quite intense.
there will be, some gross margin gains, nevertheless, in the
sector, because clearly input costs are much lower now than before.
there will be some cost efficiencies as companies
(11:56):
are looking at their operational processes.
and more importantly, there'll also be some carryover pricing gains
from previous price increases you've seen over the last 18 months.
So, essentially, we're looking at an
uptake in gross margins across the sector.
now, equally, when you look at the, next sort of level
effect, I mean, you will probably see most of these gross
margin gains being deployed into, into strengthening
(12:19):
brand equity to, to fight against competition.
And this will mean more advertising, more promotions,
more investment in the digital space that we talked about.
So from a capital allocation perspective, we expect most companies
to have a relatively well balanced financial policy there.
I mean, as Jay was talking about it, capital has been, quite
(12:41):
easily available to most of the industry players in the sector.
I mean, we've seen spec rate companies as well have come to
market recently to push out maturities, that we call repricings.
And, add on debt to essentially invest across
their operational, elements of the business.
(13:01):
Now, widely again, looking at the sector at large, we expect
this to be a significant amount of reshaping portfolios.
As companies are looking at, you know, in the
environment, so we expect, disposals actually a few
disposals from big multinationals on non core assets.
there will also be a bolt on acquisitions now.
(13:22):
and, notably, I think close to, sectors Jay was
talking about in the food and ingredients sector.
we've seen a lot of, companies have recovered the
credit metrics, essentially to strong pricing gains.
so they may end up doing some acquisitions
to realign their product portfolio.
So, watch
the space.
(13:42):
Thanks Ram.
Jay, how does Sky Partners kind of stay
on top of consumer culture, future trends?
And the growth of these potential new brands or even new sectors.
Yeah, it's one of the most important things that we do.
And I think, it really starts with, prioritizing
(14:03):
building a great culture internally at our firm.
And, you know, our firm is built with a high level
of prioritization on, diversity and inclusion.
We've built a team that is a majority women,
including at every level of our organization.
we are focused on not only having a diverse team, but
tapping into all of those diverse perspectives by making
(14:25):
sure that our culture is highly inclusive as leaders.
Kim and I not only allow for every voice to be heard.
We require that every voice is heard in the room,
because if not, Then we as leaders of the firm
will miss things that we can't afford to miss.
And so that's really the first thing, is, creating a really, inclusive
culture and then making sure that everybody on our team is as
(14:46):
passionate as we are about understanding everything that's going on in
the consumer marketplace and, what's coming around the corner and what
are the trends that are driving consumptive behavior across, markets.
It's one of the reasons why I believe a sector specialized firm, in
consumer is really, important and it's why we have chosen to focus.
(15:06):
you know, in many ways, so narrowly on what we do, it's about
being really great at a, at a very specific investing strategy.
And it's driven by having highly passionate people who want
to be out in the world, seeing every brand that's being
developed, not just the ones that we're going to invest in.
Next month or next quarter, but over the next, you know, five
to 10 years, getting to know those founders, watching those
(15:27):
companies grow and take market share and then being their partner
of choice when, they come in terms of the big macro trends,
Joe, they, actually haven't changed that much over my career.
they've evolved.
and we like to, you know, swim with the
current rather than against the current.
And many of the macro currents are things like health and
wellness, things like the bifurcation of the consumer,
things like the, the impact of technology, as Ron was
(15:49):
talking about earlier, 20 years ago, when I first started
in this sector, it was about the threat of technology.
Now it's about the opportunity of technology and how technology,
digital communication, social platforms, Can all help brands
build community and loyalty over long periods of time.
and so we study and watch those all really closely, but in terms
of the day to day, it's about having a highly passionate team.
That's all very, motivated to see the next thing that's coming.
(16:11):
Great.
Thanks Jay.
Jay, over the course of your career, you've
personally worked on some real kind of mega deals.
So Dr.
Dre's Beat sale to Apple, Haircare Phone Vogue
International sale to Johnson and Johnson.
Are there any deals or just specific moments in
your career that have been particularly memorable?
(16:32):
Yeah, Joe, that's like asking someone to name their favorite,
their favorite child, you know, we, spend a lot of time
with these companies, you know, over the course of a long
period of time, you actually don't make a lot of investments.
You, make a few investments in, in brands and
businesses that you believe very passionately in,
and you see a real opportunity to partner with.
and so while there's no favorite, what I would say the, common
(16:56):
theme across some of those you mentioned is really what I had
the opportunity to learn as an investor from these extraordinary
entrepreneurs that I had the opportunity to partner with.
And Jimmy Iovine and Dr.
Dre, who started Beats by Dr.
Dre, and ultimately, as you noted, sold the company to Apple.
are very different entrepreneurs than Tom Christopher, who was a
multi generational hairdresser who started Vogue International.
(17:16):
And together we sold that company to Johnson and Johnson for 3.
3 billion.
That's very different from James Jebbia, who's the founder of Supreme
that we had the privilege of partnering with for a few years before.
selling that company, all of those founders are very different.
They approach their, value creation and
their brand story in a very different way.
And I had the opportunity to learn from all of them.
And that's a real privilege, for a person like me to be in the room
(17:37):
with some of the biggest innovators in the consumer space, have
the opportunity to learn from them and then hopefully contribute
that knowledge and experience to, to the success of the next one.
Great.
Great stuff.
Jay, throughout your career, you've fostered personal
relationships that have been really critical in building brands,
companies, and partnerships, what kind of advice would you give
(18:01):
to others when trying to build a relationship from scratch?
Yeah, it's a tough question because it really
comes down to personality and style and approach.
But I think the, way to build great partnerships and
relationships is to be authentic, be transparent, be
trustworthy, be honest, all of this sort of human basics.
(18:22):
I think a lot of people, in business as they, seek to accomplish
business goals, they will do things that, maybe, protect some
of those aspects of who they are, what their objectives are.
And that only leads to bad partnerships
because you've not put everything on the table.
The best way to create a great partnership is when both
sides of that partnership are putting everything on the
table, being their true authentic selves, sharing what their
(18:44):
objectives are, sharing what their fears and concerns are.
So that, in the event that there's a conflict between
those, you know, you don't get into a bad partnership
that, you know, that, that goes the wrong way.
you know, very quickly, but if you are straightforward
and you are transparent, you're really authentic about
who you are and what you're trying to accomplish, that
leads to great things because like minded people who share
those objectives can partner together and go in together.
(19:06):
so I know it sounds quite basic, but, that
would be, my most, important suggestion.
Great.
Thanks.
Ram, you're a trained accountant and I recently came to know
that you're also the chairperson of your local tennis club.
So how does an early accountancy career shape your role
(19:27):
in credit analysis, but also your life outside of work?
Yeah.
I mean, accounting can be seen as slightly less
glamorous, you know, again, but again, you know, but I
think it laid great foundation for critical thinking.
And these days where we're bombarded by data
and, you know, financial transactions can be
structured, it can be more complex, than ever before.
(19:51):
So having a firm grasp of accounting can, you know, to
me, you know, cuts with complexity in a, large spot.
And it helps us, look at underlying economic reality, which is, I
think, really, quite an important trait, when it comes to credit
analysis, and we, train our analysts, we on, on, you know, on
(20:11):
looking at complicated accounting structures and capturing the key
economic reality and, and, you know, and reflect that into a rating.
So I think it's a really important trait.
So So that's helped me a lot, in my career at S& P as well.
I joined S& P many years ago, as, an accounting specialist,
maybe, and, I was quite, incredibly privileged to have, had
(20:31):
a role in shaping the ratios and adjustments criteria over
many years and building the financial and forecasting models
used by S& P analysts, S& P corporate analysts globally.
So.
So that's been a great privilege.
but again, as you said, outside work, I've been able to
contribute and address some challenges in the community.
again, the focus in my case has been around tennis and some local
(20:52):
sports, sports organizations, but, look, organizations these
days are required to do more with less and, you know, more so
than ever before, and the core principles of, you know, financial
prudence, budgeting, sort of forward planning, you know, with,
those sort of key cornerstones, you can add value at many levels.
Great.
Jay, what opinion or view on investing do you
(21:17):
have that may be considered unconventional?
Yeah, I, I think the word unconventional is an important one,
because if you look at the types of businesses that we invest
in, and the founders who have created them, and I was referencing
this earlier, they are almost by definition unconventional.
You need to be unconventional to disrupt markets because.
(21:39):
To come up with an idea and turn it into a great business, it
requires, a great deal of foresight and hard work and, tenacity,
and often doing things differently than the incumbents are doing
them in order to capture consumer's imagination and grow and win.
And so having respect for their being
unconventional is a cornerstone of what we do.
(22:01):
I think the.
the private equity industry broadly has sought to
build playbooks and approaches that they take to
leverage scale and leverage their capabilities.
And I think those playbooks and that scale and
those resources work really well in certain sectors.
but when you're trying to back disruptive high growth,
consumer founders, they're actually quite fearful of playbooks.
(22:23):
They're quite, fearful of conventional approaches, to their
businesses because their success has come from being unconventional.
So our, approach to doing this is, as I was
referencing earlier, spend a lot of time listening.
Rather than a lot of time off talking in the early stages of
building a relationship, learning a lot about what our partners
want and what they do not want, thinking a lot about what
(22:45):
we can contribute and what we cannot contribute and simply
not having a one size fits all approach to every investment.
Because if we come to companies with a one size fits all
approach, it's a very quick way to be dismissed from the room.
And, and our job is, is instead to build trusting longterm
relationships that show the respect that we have for what
these founders and executives have done in such a unique.
(23:06):
An unconventional way to grow and win and take on the giants of
industry to take market share and create a lot of equity value.
Great.
Thanks, Trey.
Jay, final question to you.
What lessons have you learned from working alongside Kim?
And how has she influenced your perspective on business and investing?
Yeah.
So she is one of the most extraordinary
(23:27):
entrepreneurs of our generation.
And a lot of people in the world, you know, certainly she's a
very well known individual, but I think, when you take a look
deeper into what her business and entrepreneurial accomplishments
are, particularly over the last decade or so, it is, remarkable.
And that has come from a tremendous amount of vision and
tremendous amount of understanding of the modern consumer,
(23:48):
the modern platforms that are activating consumers.
But I would say that if I had to put my finger on, you
know, one or two things that make Kim such an extraordinary
entrepreneur and such a successful individual that I learn
from every day are some of the things that I saw behind
the scenes, getting to know her over the last decade.
really, Kim is, exceptionally good at knowing what she's good at,
but also exceptionally good at knowing what she's not good at.
(24:11):
And there are a lot of people with her level of success.
across industries who begin to believe
that they're great at everything they do.
And as we know, there's no human being who's
great at everything that she does or that he does.
And her success in many ways has come from
her recognition of where she needs help.
And there, I think a lot of people in the finance
world believe asking for help is a sign of weakness.
(24:32):
I believe that asking for help is a sign of strength.
And it's a sign of confidence and conviction on what you're good at.
And I think Kim is exceptionally good at that.
And I think we're trying to continue to infuse our culture and our
team and the executives that run the companies that we invest in.
that you don't have to be great at everything you do.
You don't have to try to be, good at
the things you don't know how to do.
In fact, when you try to do things that you don't know how to do
(24:53):
without asking for help, it often creates risk and creates, creates
problems rather than amplifying the opportunities to be successful.
And, Kim, I think is world class in that.
And I'm lucky to have learned a lot about
that from her over a long, period of time.
And we're hoping that is a key part of how we continue to build
sky partners in the portfolio companies that we invest in.
Fantastic.
(25:13):
Well, that's it.
Thank you very much to Jay.
Thank you to Ram for your time today, for
everyone watching, everyone listening.
See you next time in FI15.
Hello and welcome.
My name is Joe Cassidy, a director at S& P Real Ratings,
I'm the host and the creator of the FI15 podcast.
On this episode, we have Jay Sammons, co founder
and managing partner of Sky Partners and Ram
Ratnam, Managing Director, S& P Global Ratings.
Just a quick reminder that the views of the
external guests are their views alone, and they
do not represent the views of S& P Global Ratings.
(00:21):
Jay, we'll kick off with you.
Can you share with us a brief overview of your career
thus far, including how you originally connected with Kim
Kardashian, And really the origin story of Sky Partners.
Sure.
Well, first, thanks again for having me today.
It's nice to be with you both.
I started in the finance, business about 26
(00:41):
years ago and I started investing 24 years ago.
I spent the majority of that time, at the Carlyle Group where
I, helped build and then ultimately had the opportunity to lead.
The firm's global consumer investing
practice based in New York the entire time.
Our strategy was really focused on backing disruptive high
growth consumer brands, which we did successfully in a number
(01:03):
of instances and generated great returns for our investors.
But most importantly, I learned a lot about entrepreneurship,
how founders build brands, how founders disrupt
markets with new ideas in a really authentic way that
ultimately delivers a great deal of value to consumers.
And I have A great deal of passion for finding
those opportunities to invest behind those great
ideas through the course of my time at Carlisle.
I had the opportunity to meet Kim.
(01:25):
We were introduced by a mutual friend nearly a decade ago, and we were
introduced by that friend because the friend saw an opportunity for
Kim, hopefully to benefit from knowing someone like me as she began
to build further her entrepreneurial endeavors and evolve her career.
in the direction that she's now shown, she's very capable of
(01:45):
doing at the same time, our mutual friend thought that I could
benefit from having the opportunity to learn from Kim, as we
were investing behind great brands and helping them grow and win.
And over the course of the next many years, she and I got to know
each other, built a lot of trust in one another, built a lot of
mutual respect for each other, and ultimately had the opportunity
to partner together to build what we hope will be the leading
next generation consumer investing platform, called sky partners.
(02:08):
Fantastic.
Thanks, Jay.
Ram, could you give us an overview of your role at S&
P Global Ratings and maybe also some kind of high level
perspectives on the global retail and consumer sectors?
Thanks, Joe.
And great to be here with Jay.
as sector leader in, in, EMEA consumer goods and retail practice,
I'm responsible for sort of overseeing the, analytical aspects
(02:31):
of ratings and EMEA, in the retail and consumer goods sector.
And importantly, there's also an element where.
I, lead the sector research and communication
with the wider market and investors.
So in course of my work, I'm really fortunate to interact with a
range of, you know, companies in the retail and consumer sector
(02:52):
across the value chain, they are both big and small companies,
they are multinational corporations, but they're also private
sponsor owned companies, and across the wide range of subsectors.
I mean, we, cover food, beverage, staples, but
also apparel, personal luxury, and also durables.
So, the range of, range of companies, range of subsectors.
(03:14):
and again, going back to the sector outlook, the sector has
seen a range of challenges, disruptions, you know, we know since
the pandemic, supply chain disruptions, geopolitical conflicts,
and a period of slow economic growth, and also now with quite
recently, you know, very high inflation, which is since now
falling, you know, varying speeds across different, geographies.
(03:35):
Now, given the scale of challenges, if the sector has been
generally very resilient, the consumer has been pretty,
robust, although some cracks appear in some segments.
and the focus really for the company is to build back volumes,
you know, there's the cumulative effect of high prices, which
are, you know, folding back some of the spending we've seen.
(03:56):
and generally there's greater pressure
on discretionary retail, mainly apparel.
Fantastic.
Thanks Ram.
Jay, as managing partners, what do you and Kim really
prioritize when evaluating potential investments?
Well, first and foremost, our strategy is
very focused on backing great consumer brands.
(04:17):
it's where we feel like we have an opportunity to win leveraging.
What we believe is a highly complimentary set of experiences
that she and I bring as managing partners at the firm.
you know, her experiences as an entrepreneur, a brand
builder, cultural leader, as an individual who knows,
you know, what's happening in culture around the world,
as well as just about anybody in the consumer landscape.
and me bringing my experiences, touching and
(04:39):
helping win a number of great consumer brands, over
my experience, over the last couple of decades.
And that's precisely what we're trying to bring
together for the benefit of our portfolio companies.
when we think about what a great consumer brand is, we really focus
on finding brands that have a balance between delivering consumers
something that they really need, but also, finding brands that have
(05:00):
developed really deep emotional connectivity with their consumers,
brands that make consumers feel good when they're using them.
And the reason that's important is that obviously a brand or
a product needs to deliver on a, real consumer need state.
That's the functional side of things and
brands need to deliver really well there.
But if they can also connect emotionally with their consumers,
make their consumers feel great when they're using those products.
(05:21):
And this is different in every category.
That's what drives loyalty.
That's what drives long lifetime value.
That's what drives resilience during tough economic times.
That's what private causes consumers to prioritize those
brands over others as they seek to deploy their scarce
resources into the things that they care about the most.
And we studied brands with this approach for many years.
(05:41):
Many of the great brands that I've had the opportunity to invest in.
We've looked through.
Through that lens, and as Kim has built her brands,
most notably skims, it's exactly that approach.
If you look at skims, it's a phenomenally high quality product that
has expanded quite dramatically over the last five years, but it
also has connected very emotionally with consumers in the way that
it's delivered a highly inclusive brand, a brand that the captures.
(06:05):
The needs and the emotional, the emotional
likes of consumers over many years.
So, that's really the lens that we look through.
And our first investment that we made
earlier this year is precisely that.
It's a company called trough.
That is a high growth flavor enhancement
business that focuses on hot sauces and.
Salts and oils, all with black and white truffle oil.
(06:27):
it's making food taste great, but it also makes
consumers feel really good when they gather together
around the table and enjoy a great meal together.
And that is, that is why truffle will continue to be successful in
the same way that brands that we've worked with in the past have been
great.
Thanks Jay.
Ram, we continue to hear about the ongoing disruption
of online to the retail and consumer sectors.
(06:48):
Now in 2024, what's the current view of how
online is really making headway into these areas?
So, yeah, I mean, e commerce, is indispensable now, for global retail.
I mean, we are looking at, retail e
commerce sales exceeding, six trillion U.
S.
dollars, you know, in terms of retail sales, this year in 24.
(07:12):
And roughly, worldwide, this should be
about 20 percent of, all retail purchases.
So, a significant part of, component of the, global, retail landscape.
Now, while this thing takes place, I mean, digitization has
opened new markets for retailers, for consumer goods companies.
but on one hand, while this is great, the
(07:34):
competition has significantly increased.
and, this comes back on, on from what Jay was saying, you have to look
at companies that are able to glean deeper customer insights through
retail media, looking at digital footprints, we all leave, et cetera.
So there's a lot of data and analysis behind this and much
greater visibility of the consumer now than ever before.
(07:57):
So again, this has caused a lot of changes in the landscape.
And again, while companies are clearly investing in their
digital capabilities, there's also this link to how,
this all links up to the typical retail value chain.
so you're seeing a mix of strategies, clearly, we see only
channel models, slightly outperforming, you know, pure,
(08:19):
play, either pure play but in water or pure play, e commerce.
and in consumers value, a range of things, the value
experience, especially when it comes to luxury premium
purchases, the emotional connect, G was talking about, but
also the flexibility and the convenience are key factors.
So, so essentially retailer then consumer goods companies
(08:40):
are looking to rationalize the store footprint to get the
maximum value out of the brick and mortar real estate.
at the same time, investing a lot into the digital capabilities
to say, stake competitive and, get to know the customer better,
really.
Great.
Thanks Ram.
Jay, can you share examples of how SkyPartners
leverages its networks, its partnerships to add value
(09:04):
to your portfolio companies beyond capital investment?
That's a great question, Joe, because capital is obviously very
plentiful, and if we only are seeking to differentiate ourselves
with our capital, you know, that's a fairly limited strategy.
We need to find businesses and brands that we can add
a tremendous amount of value to in partnership with
our founder and executive partners that we work with
(09:26):
who run these portfolio companies every single day.
This is why we started, and Kim, I were highly aligned on this
when we started building this firm, which was to start with
building a great team that brings experiences from the world's
best private equity firms, investing in consumer brands over
time, and we assembled a phenomenal team that brings collectively
many decades of experience, you know, touching the consumer
(09:48):
landscape, seeing how value can be added in a very, customized way.
and it's different in every set of circumstances.
There is no one size fits all approach given the unique nature of
what these founders are trying to do and their unique marketplaces.
And so our goal is to listen and learn and
understand what our portfolio company partners need.
Figure out what we know and what we don't know.
(10:10):
And if we don't know something, how
do we find someone who can help us?
And it's a combination of our investment team, our operating
team, internally operating advisors, like Angela Arentz, who we
brought on board, leveraging her decades of experience, you know,
running companies like Burberry and a very large part of Apple.
bringing all of that together for the benefit of our
portfolio companies, to help them solve problems, help
(10:31):
them capture opportunities and in their own unique
ways is really the way we seek to add value the most.
Great.
Thanks, Jay.
Ram, as part of your role, you spend a lot of time speaking
to C suite leadership in the retail and consumer companies.
What's their sentiment right now and what's on their mind?
Yeah, I mean, it's, this is a time when, companies
(10:52):
are sort of going back to basics in some ways
and looking to build back, volumes, really.
I think that's been the biggest, sort of focus
for most of the companies we've been speaking to.
Ram.
And if you look at branded, players in the CPP space and
they're investing in innovation, and, I think to regain some
of the grounds, they lost the private label products, which
(11:13):
is because seeing some of the, growth as the viewers are
more value focused in the last few months now, but we also
expect more promotions, this year, compared to previous years.
because there are issues around working capital and in some
parts of the, the currency markets, space, and especially
for the apparel or footwear and those kind of categories.
(11:34):
a lot of companies still have a huge amount of inventory
on the balance sheet, which they need to liquidate.
Now, I think the bigger, aspect we're looking
at is, as competition is quite intense.
there will be, some gross margin gains, nevertheless, in the
sector, because clearly input costs are much lower now than before.
there will be some cost efficiencies as companies
(11:56):
are looking at their operational processes.
and more importantly, there'll also be some carryover pricing gains
from previous price increases you've seen over the last 18 months.
So, essentially, we're looking at an
uptake in gross margins across the sector.
now, equally, when you look at the, next sort of level
effect, I mean, you will probably see most of these gross
margin gains being deployed into, into strengthening
(12:19):
brand equity to, to fight against competition.
And this will mean more advertising, more promotions,
more investment in the digital space that we talked about.
So from a capital allocation perspective, we expect most companies
to have a relatively well balanced financial policy there.
I mean, as Jay was talking about it, capital has been, quite
(12:41):
easily available to most of the industry players in the sector.
I mean, we've seen spec rate companies as well have come to
market recently to push out maturities, that we call repricings.
And, add on debt to essentially invest across
their operational, elements of the business.
(13:01):
Now, widely again, looking at the sector at large, we expect
this to be a significant amount of reshaping portfolios.
As companies are looking at, you know, in the
environment, so we expect, disposals actually a few
disposals from big multinationals on non core assets.
there will also be a bolt on acquisitions now.
(13:22):
and, notably, I think close to, sectors Jay was
talking about in the food and ingredients sector.
we've seen a lot of, companies have recovered the
credit metrics, essentially to strong pricing gains.
so they may end up doing some acquisitions
to realign their product portfolio.
So, watch
the space.
(13:42):
Thanks Ram.
Jay, how does Sky Partners kind of stay
on top of consumer culture, future trends?
And the growth of these potential new brands or even new sectors.
Yeah, it's one of the most important things that we do.
And I think, it really starts with, prioritizing
(14:03):
building a great culture internally at our firm.
And, you know, our firm is built with a high level
of prioritization on, diversity and inclusion.
We've built a team that is a majority women,
including at every level of our organization.
we are focused on not only having a diverse team, but
tapping into all of those diverse perspectives by making
(14:25):
sure that our culture is highly inclusive as leaders.
Kim and I not only allow for every voice to be heard.
We require that every voice is heard in the room,
because if not, Then we as leaders of the firm
will miss things that we can't afford to miss.
And so that's really the first thing, is, creating a really, inclusive
culture and then making sure that everybody on our team is as
(14:46):
passionate as we are about understanding everything that's going on in
the consumer marketplace and, what's coming around the corner and what
are the trends that are driving consumptive behavior across, markets.
It's one of the reasons why I believe a sector specialized firm, in
consumer is really, important and it's why we have chosen to focus.
(15:06):
you know, in many ways, so narrowly on what we do, it's about
being really great at a, at a very specific investing strategy.
And it's driven by having highly passionate people who want
to be out in the world, seeing every brand that's being
developed, not just the ones that we're going to invest in.
Next month or next quarter, but over the next, you know, five
to 10 years, getting to know those founders, watching those
(15:27):
companies grow and take market share and then being their partner
of choice when, they come in terms of the big macro trends,
Joe, they, actually haven't changed that much over my career.
they've evolved.
and we like to, you know, swim with the
current rather than against the current.
And many of the macro currents are things like health and
wellness, things like the bifurcation of the consumer,
things like the, the impact of technology, as Ron was
(15:49):
talking about earlier, 20 years ago, when I first started
in this sector, it was about the threat of technology.
Now it's about the opportunity of technology and how technology,
digital communication, social platforms, Can all help brands
build community and loyalty over long periods of time.
and so we study and watch those all really closely, but in terms
of the day to day, it's about having a highly passionate team.
That's all very, motivated to see the next thing that's coming.
(16:11):
Great.
Thanks Jay.
Jay, over the course of your career, you've
personally worked on some real kind of mega deals.
So Dr.
Dre's Beat sale to Apple, Haircare Phone Vogue
International sale to Johnson and Johnson.
Are there any deals or just specific moments in
your career that have been particularly memorable?
(16:32):
Yeah, Joe, that's like asking someone to name their favorite,
their favorite child, you know, we, spend a lot of time
with these companies, you know, over the course of a long
period of time, you actually don't make a lot of investments.
You, make a few investments in, in brands and
businesses that you believe very passionately in,
and you see a real opportunity to partner with.
and so while there's no favorite, what I would say the, common
(16:56):
theme across some of those you mentioned is really what I had
the opportunity to learn as an investor from these extraordinary
entrepreneurs that I had the opportunity to partner with.
And Jimmy Iovine and Dr.
Dre, who started Beats by Dr.
Dre, and ultimately, as you noted, sold the company to Apple.
are very different entrepreneurs than Tom Christopher, who was a
multi generational hairdresser who started Vogue International.
(17:16):
And together we sold that company to Johnson and Johnson for 3.
3 billion.
That's very different from James Jebbia, who's the founder of Supreme
that we had the privilege of partnering with for a few years before.
selling that company, all of those founders are very different.
They approach their, value creation and
their brand story in a very different way.
And I had the opportunity to learn from all of them.
And that's a real privilege, for a person like me to be in the room
(17:37):
with some of the biggest innovators in the consumer space, have
the opportunity to learn from them and then hopefully contribute
that knowledge and experience to, to the success of the next one.
Great.
Great stuff.
Jay, throughout your career, you've fostered personal
relationships that have been really critical in building brands,
companies, and partnerships, what kind of advice would you give
(18:01):
to others when trying to build a relationship from scratch?
Yeah, it's a tough question because it really
comes down to personality and style and approach.
But I think the, way to build great partnerships and
relationships is to be authentic, be transparent, be
trustworthy, be honest, all of this sort of human basics.
(18:22):
I think a lot of people, in business as they, seek to accomplish
business goals, they will do things that, maybe, protect some
of those aspects of who they are, what their objectives are.
And that only leads to bad partnerships
because you've not put everything on the table.
The best way to create a great partnership is when both
sides of that partnership are putting everything on the
table, being their true authentic selves, sharing what their
(18:44):
objectives are, sharing what their fears and concerns are.
So that, in the event that there's a conflict between
those, you know, you don't get into a bad partnership
that, you know, that, that goes the wrong way.
you know, very quickly, but if you are straightforward
and you are transparent, you're really authentic about
who you are and what you're trying to accomplish, that
leads to great things because like minded people who share
those objectives can partner together and go in together.
(19:06):
so I know it sounds quite basic, but, that
would be, my most, important suggestion.
Great.
Thanks.
Ram, you're a trained accountant and I recently came to know
that you're also the chairperson of your local tennis club.
So how does an early accountancy career shape your role
(19:27):
in credit analysis, but also your life outside of work?
Yeah.
I mean, accounting can be seen as slightly less
glamorous, you know, again, but again, you know, but I
think it laid great foundation for critical thinking.
And these days where we're bombarded by data
and, you know, financial transactions can be
structured, it can be more complex, than ever before.
(19:51):
So having a firm grasp of accounting can, you know, to
me, you know, cuts with complexity in a, large spot.
And it helps us, look at underlying economic reality, which is, I
think, really, quite an important trait, when it comes to credit
analysis, and we, train our analysts, we on, on, you know, on
(20:11):
looking at complicated accounting structures and capturing the key
economic reality and, and, you know, and reflect that into a rating.
So I think it's a really important trait.
So So that's helped me a lot, in my career at S& P as well.
I joined S& P many years ago, as, an accounting specialist,
maybe, and, I was quite, incredibly privileged to have, had
(20:31):
a role in shaping the ratios and adjustments criteria over
many years and building the financial and forecasting models
used by S& P analysts, S& P corporate analysts globally.
So.
So that's been a great privilege.
but again, as you said, outside work, I've been able to
contribute and address some challenges in the community.
again, the focus in my case has been around tennis and some local
(20:52):
sports, sports organizations, but, look, organizations these
days are required to do more with less and, you know, more so
than ever before, and the core principles of, you know, financial
prudence, budgeting, sort of forward planning, you know, with,
those sort of key cornerstones, you can add value at many levels.
Great.
Jay, what opinion or view on investing do you
(21:17):
have that may be considered unconventional?
Yeah, I, I think the word unconventional is an important one,
because if you look at the types of businesses that we invest
in, and the founders who have created them, and I was referencing
this earlier, they are almost by definition unconventional.
You need to be unconventional to disrupt markets because.
(21:39):
To come up with an idea and turn it into a great business, it
requires, a great deal of foresight and hard work and, tenacity,
and often doing things differently than the incumbents are doing
them in order to capture consumer's imagination and grow and win.
And so having respect for their being
unconventional is a cornerstone of what we do.
(22:01):
I think the.
the private equity industry broadly has sought to
build playbooks and approaches that they take to
leverage scale and leverage their capabilities.
And I think those playbooks and that scale and
those resources work really well in certain sectors.
but when you're trying to back disruptive high growth,
consumer founders, they're actually quite fearful of playbooks.
(22:23):
They're quite, fearful of conventional approaches, to their
businesses because their success has come from being unconventional.
So our, approach to doing this is, as I was
referencing earlier, spend a lot of time listening.
Rather than a lot of time off talking in the early stages of
building a relationship, learning a lot about what our partners
want and what they do not want, thinking a lot about what
(22:45):
we can contribute and what we cannot contribute and simply
not having a one size fits all approach to every investment.
Because if we come to companies with a one size fits all
approach, it's a very quick way to be dismissed from the room.
And, and our job is, is instead to build trusting longterm
relationships that show the respect that we have for what
these founders and executives have done in such a unique.
(23:06):
An unconventional way to grow and win and take on the giants of
industry to take market share and create a lot of equity value.
Great.
Thanks, Trey.
Jay, final question to you.
What lessons have you learned from working alongside Kim?
And how has she influenced your perspective on business and investing?
Yeah.
So she is one of the most extraordinary
(23:27):
entrepreneurs of our generation.
And a lot of people in the world, you know, certainly she's a
very well known individual, but I think, when you take a look
deeper into what her business and entrepreneurial accomplishments
are, particularly over the last decade or so, it is, remarkable.
And that has come from a tremendous amount of vision and
tremendous amount of understanding of the modern consumer,
(23:48):
the modern platforms that are activating consumers.
But I would say that if I had to put my finger on, you
know, one or two things that make Kim such an extraordinary
entrepreneur and such a successful individual that I learn
from every day are some of the things that I saw behind
the scenes, getting to know her over the last decade.
really, Kim is, exceptionally good at knowing what she's good at,
but also exceptionally good at knowing what she's not good at.
(24:11):
And there are a lot of people with her level of success.
across industries who begin to believe
that they're great at everything they do.
And as we know, there's no human being who's
great at everything that she does or that he does.
And her success in many ways has come from
her recognition of where she needs help.
And there, I think a lot of people in the finance
world believe asking for help is a sign of weakness.
(24:32):
I believe that asking for help is a sign of strength.
And it's a sign of confidence and conviction on what you're good at.
And I think Kim is exceptionally good at that.
And I think we're trying to continue to infuse our culture and our
team and the executives that run the companies that we invest in.
that you don't have to be great at everything you do.
You don't have to try to be, good at
the things you don't know how to do.
In fact, when you try to do things that you don't know how to do
(24:53):
without asking for help, it often creates risk and creates, creates
problems rather than amplifying the opportunities to be successful.
And, Kim, I think is world class in that.
And I'm lucky to have learned a lot about
that from her over a long, period of time.
And we're hoping that is a key part of how we continue to build
sky partners in the portfolio companies that we invest in.
Fantastic.
(25:13):
Well, that's it.
Thank you very much to Jay.
Thank you to Ram for your time today, for
everyone watching, everyone listening.
See you next time in FI15.
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