In this episode of Spotlight On, TBP's Founder, Nicholas Barton, sits down with Carl Evander, OC&C's Global Head of Private Equity, who offers an insider's view off the back of a trip to Superreturn Berlin. Carl discusses how private equity is navigating today's tough economic climate, including rising interest rates and tech disruption.
Carl visits PE at a turning point, moving from a boom to a cautious period. Despite this, Carl also notes that long-term PE returns still beat public markets. He notes that firms must transform businesses, not just buy and hold, driving the rise of value creation teams and investment in sectors like energy transition and AI data centers.
He also provides a nuanced take on AI: great for productivity, but not a replacement for human judgment. Join this insightful conversation on PE's evolution in uncertain times.
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Episode Transcript
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Speaker 1 (00:00):
Welcome to Spotlight On, the must-listen podcast
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(00:20):
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Tune in and join us as we shinea spotlight on the
game-changers andthought-leaders who are shaping
the future of business.
Today I'm talking to CarlEvander.
Carl's the global head of OCNC'sprivate equity practice, with a
(00:40):
focus on advising privateequity clients and their
portfolio companies on strategicquestions across the investment
cycle.
Carl is also co-leader of thefirm's B2B practice in the US
and serves as an elected memberof the OC&C Global Board.
Over the course of a20-year-plus career in
consulting and as a privateequity investor, he has built
deep experience working globallyin complex industries where
(01:00):
information is scarce.
He has covered a range of B2Bindustries, with a particular
focus on companies in theinfrastructure and construction
space, along with businessservices, industrial services,
food manufacturing, waste andfacilities management.
In addition to his work atOC&C's corporate client.
Carl also leads the firm's probono efforts in North America.
He serves on the board of EOEducation, a national education
(01:23):
non-profit organisation.
He's based in New York but haspreviously lived and worked
across the UK, Europe, Africaand Asia.
Carl, great to have you heretoday.
You and I have known each othera long time, so I've been
looking forward to thisconversation for a while, so
thank you for joining me on this, and certainly keen to talk
about your recent trip to SuperReturn.
But let's start with you.
Tell us about your careerhistory to date, Tell us what
(01:44):
led you to OCNC and tell usabout your role there as well.
Speaker 2 (01:47):
Thank you so much for having me, nick.
It's great to be here andlooking forward to the
conversation, happy to take youthrough the rich tapestry that
is my history.
I've been doing this for acouple of decades now.
I started my career back inLondon at Bain.
I kind of came out of collegedidn't quite know what I wanted
to do with my life.
Somebody said something aboutstrategy consulting and I
(02:08):
thought that sounds interestingand took to a roughly like
efficient fish to water I meanmaybe a saltwater fish to fresh
water.
But eventually I figured it outand ended up being a lifelong
consultant, more or less.
So I started my career at Bainin London.
I was always theinternationalist.
I was always the guy with myhand up, willing to move around.
(02:29):
So I spent the first eightyears of my career loosely based
out of London, but with longstints in South Africa, in
Singapore, in Hong Kong, inShanghai and all across Europe.
In 2012, that's about eightyears into my career, I made the
move over to the US, still withBain, still doing fundamentally
the type of consulting I had bythat point made my specialism,
(02:53):
which was a lot around bothprivate equity and sort of the
intersection of private equityand industrials and B2B
businesses.
Speaker 1 (03:01):
And this was in New York at Bain.
Speaker 2 (03:03):
This was in New York at Bain, yeah, when I moved
although I had done the samething in Europe as well Stayed
at Bain in New York for four tofive years and then got that
itch that we all got.
I'd been someone who'dconstantly been in the moves.
I'd moved geography, I'd movedtopics somewhat and felt like I
didn't want to be a lifelongconsultant.
I felt like I don't want to dothis advisory thing.
(03:25):
I want to be an owner, I wantto take care of things.
I spent a lot of my career atthat point with private equity
investors, thinking about howthey add value to businesses and
thinking about how they set uptheir own portfolio value
creation teams, and got anopportunity to do just that in a
small mid-market fund in the USjust that in a small mid-market
(03:46):
fund in the US.
So for a while I left and becamea private equity operating
partner on a number of portfoliocompanies, but sort of quite
rapidly becoming a real operatorfor a while.
I joke that it's the only realjob I've ever done in my life.
But I was seconded onto one ofour businesses as a chief
commercial officer and got tosort of see the real nitty
gritty and it was a hugelearning experience for me.
I think it has made me a muchstronger advisor because I
(04:10):
learned in that the realities ofhow to make growth happen on
the ground, how to make changehappen on the ground, that are
very different than the somewhatacademic lens that consultants
can sometimes take on things,where you, you know, you sort of
you see that the world is aspreadsheet and you think to
yourself, hey, I'll add 10 moresales people here and if they're
effective, then I'll grow, andyou think, well, that's not
(04:33):
quite what it looks like on theground.
Speaker 1 (04:35):
What advice would you give anyone now, give yourself,
if you could turn back theclock and making that transition
from consulting into privateequity now?
What advice would you giveanyone thinking about making
that move into a similar role?
Speaker 2 (04:47):
I mean I think it is a great type of role to do.
I think it is a greatopportunity to make.
I think I probably should havemade it earlier in my career.
I think I started to develop alittle bit of senioritis already
by the time I left Bain and Ithink it is the transition back
to the coalface and it's a lotless supported as a role.
(05:09):
And so you are doing your ownanalysis, you're back to the
Excel, you're back to thePowerPoint, and that was
probably a tougher transitionthan it would have been if I'd
made that move five to 10 yearsearlier in my career.
But I think it is a great wayof continuing to build on the
skills that you learn as aconsultant but to take those
into a real world applicationand what was interesting is that
(05:31):
you went straight fromconsulting into that role.
Speaker 1 (05:33):
You didn't have any real world experience exactly.
Speaker 2 (05:35):
I still barely have any real world experience.
A harder transition, but it wasone that was.
Speaker 1 (05:40):
I think it was a very good way of doing it and and
then you decided it wasn't foryou, or and then I decided it
wasn't for me.
Exactly.
Speaker 2 (05:48):
No then.
Then two things happened reallyfor me.
One was I realized when I gotclose to the cold face that,
while I liked the detail, what Ireally missed was the pure
focus on strategy, and I missedthe the ability to to work on
lots of different topics thatwere always the most important
topic for my clients.
And so you know when you startto do, when you're chief
commercial officer of a smallregional business, you're
(06:10):
worrying day to day much moreabout individual customers,
about production quotas, aboutsales concerns, and you're
worrying a lot less about thebig picture strategy stuff,
which was really why I had goneinto consulting in the first
place and what I had loved aboutthe job.
And the other thing I missedwas the teams.
I mean, for me, the mostrewarding thing about my job
(06:31):
continues to be the people I getto work with, and that is both
my clients, but it's also theteams on the ground and it's the
problem solving as a group,it's the ability to learn from
other people on an ongoing basisthat really energizes me, and
you get that much more, I think,in consulting than you do in
deep operations, where you bynature end up being a little bit
(06:52):
more independent.
This was also at a time whenCOVID was hitting and I'd been
spending five days a week on theroad.
My wife was pregnant with ourfirst child and it was a very
good opportunity to transitionback into something that was a
little bit less travel and alittle bit more comfortable.
Speaker 1 (07:09):
Which sounds unusual for a consulting job, but that's
exactly what you've got.
Speaker 2 (07:13):
Well, that is the beauty of doing the type of
consulting that I do, and, tosome degree, the type of
consulting that OC&C does,relative to the type of
consulting that I've beenexposed to earlier in my career,
is we're not really on theground at the client site four
days a week type of people.
It's not the type of projectswe do.
Private equity, by nature, is alot less travel, and so it
(07:33):
tends to be a little bit moreoffice based.
Speaker 1 (07:35):
As it's noted here, you're global head of OCNC's
private equity practice and youco-lead the firm's B2B practice
as well in the US, as well asserving as an elected member of
the global board, which isfantastic.
Tell us a bit about that andwhat that encompasses.
Speaker 2 (07:52):
OC&C is a pure play strategy firm.
We've been around for 35 years.
The genesis of the firm wasvery much out of the UK, one of
the things that drew it to me asan expat Brit.
I'd actually applied to OC&Ccoming out of undergrad in 2003,
not to age myself and beenfirmly rejected by them at the
time.
Finally they accepted me.
(08:12):
We primarily do two things we dostrategy and we do diligence,
and about 50% of our work is inthe private equity community.
About 50% of our work is in thecorporate world community.
About 50% of our work is in thecorporate world.
And when we say strategy wemean strategy and that is.
I think we don't do what Ibecame used to at Bain, which is
(08:33):
sort of year-longtransformation programs, lots of
in-depth things likeoperational improvements and
cost reduction.
We are much more focused onquick c-suite level high level
strategy work.
That then bridges very nicelyinto the type of problems you're
trying to solve when you'redoing commercial due diligence
(08:53):
for private equity clients andyou're doing strategy for
private equity clients too, whoare trying to be targeted.
They're trying to be focused onwhat are the key levers?
Speaker 1 (09:01):
I can?
Speaker 2 (09:01):
pull.
That will really drive value andand they're trying to do that
with a view of who do I want tobe when I grow up in the
business, and that's always beenour strength, and the way we
organize and have alwaysorganized is much more by sector
vertical than it is byhorizontal capability.
So we are fundamentally sectorexperts or sector specialists,
(09:25):
all of whom do both strategy anddiligence.
We don't have a private equityring fence like Ebene does.
The people who work with ourcorporate clients on their most
important questions are the samepeople who are then evaluating
businesses for private equity orworking with our private equity
businesses or working with ourprivate equity businesses.
(09:45):
So what does that mean for myrole as the horizontal leader in
a world that is more verticallyspecialized?
Really, it's a role ofcoordination and just making
sure that across these sectors,private equity is one community.
Private equity doesn't alwaysarrange itself in the way that
we might arrange ourselves, andso we are all talking to
fundamentally the same people.
We're all trying to drive tothe same goals with our clients,
(10:07):
and a lot of my role is makingsure that we are doing that in a
coordinated way, both ataccount levels, so when we're
talking to the same people, weknow what the other hand is
doing, but also at a productexecution level, thinking about
what are the types of projectswe can be doing more with our
clients, how can we be betterimproving the way that we do
(10:28):
diligence, the tools that we usein diligence and the way that
we serve the private equitycommunity in as helpful a way as
possible?
Because I think we've beenemerging.
I mean, I think we've beenarguably for 20, 30 years and if
you sort of take the Europeanview, but certainly in the US, I
think we've got a really stronggrowing position as one of the
(10:49):
leading, certainly boutiqueproviders of strategic advice
into private equity.
And I think that is a you know,it's always fun.
One of the things that drew meto coming back to consulting at
OC&C is it's always fun to be achallenger brand.
But I think the type of workthat we do, the quality of the
work that we do and the breadthof coverage that we will offer
(11:10):
to private equity from kind ofdiligence through to value
creation, through to exitplanning and sell side I think
has really resonated with themarket.
So that has been a lot of myfocus is how do we evangelize
that gospel, how do we get infront of more private clients.
How do we continue to maintainthe strength of that proposition
?
Speaker 1 (11:29):
Great.
Well, listen, let's move on,because really what I want to do
is pick your brains on superreturn as our eyes and ears on
the ground, as our intrepidreporter, keen to get your view
on what you took away from that.
You were in Berlin last week.
What were your away from that?
I mean, you were in Berlin lastweek.
What were your observationsfrom that?
What were some of your keytakeaways?
Did you come away positive,optimistic?
(11:49):
Did you come away deflated?
How was the whole experience?
Was this the first time you'vebeen, or you've been before?
Speaker 2 (11:56):
This was my first time at Super Returns, which was
a really fascinating experience.
It was incredibly well attendedup and down, both in terms of
representation of firms, butalso if you just look at years
for private equity and certainlynot private equity writ large,
(12:24):
but as an industry you know Ithink you can paint a picture of
a significant investment boomin the sort of 2019 to 21 period
.
Certainly, 2021 was incrediblybusy and that was playing into a
low interest rate environmentwith a lot of dry powder and a
significant growth trajectory onbusinesses that were being
(12:46):
bought and so people were comingin and buying things at a very
high price.
But they's coming from theUkraine crisis in Europe, strong
(13:08):
inflationary pressure in the US.
Now, obviously, the noisethat's coming from tariffs and
other global questions has put alittle bit of a dent in some of
those growth plans.
Has put a little bit of a dentin some of those growth plans.
It has driven up interest rates, so now, suddenly, interest
rates are much higher, so thecost of borrowing is going to be
higher for the next buyers.
(13:54):
And it has somewhat stalledactivity for the last 18, 24
months.
So we're seeing a lot lessexits, in part because the IPO
channel has dried up and we'reseeing nervous LPs, which
obviously, with high interestrates, is a much more exciting
space to be.
It's gotten everyone a littlebit cautious about their ability
to do deals, both to exitexisting businesses that aren't
doing as well as you thoughtthey were and where you bought
(14:16):
them at such a high price thatyou need to get a high price at
exit bought them at such a highprice that you need to get a
high price at exit but then alsosome nervousness around the
ability to put capital to work,which you always get in private
equity, because there's alwaysfunds that were raised five
years earlier and are looking attheir investment cycle and the
expectations of drawdown fromLPs and the need to put capital
to work.
The optimism side of it iscertainly there are pockets that
(14:39):
remain exciting and debt was abig topic that came up.
The expectation is the marketwill work itself out.
Yes, we're in a position rightnow where DPI is a challenge,
where exits aren't coming, butthere are so many assets out
there that just fundamentally,will need to be exited.
The money needs to go back toLPs.
(15:00):
There's more money coming in atthe top end that needs to get
deployed.
Yes, there's been uncertainty.
That uncertainty is nowbecoming clarity around the
uncertainty, which I realize isa slightly weird distinction,
but I think once you knowthere's going to be uncertainty,
you can almost plan foruncertainty.
It's giving people a path togetting comfort around new deals
(15:21):
Before super returns, and it'strue of my general conversations
.
In the market there is agrowing expectation for deal
volume acceleration, if it's inone quarter, two quarters, three
quarters, but it's not in twoyears that the dam's going to
break and at some point thevolumes are going to start to
increase again and deals aregoing to get made.
(15:41):
And so that's the sort of shortterm look, this will work
itself out optimism.
It's almost a kind of hey look,we've seen this picture before.
Yes, it's a little bitstruggling right now, but we
think we'll get through it.
I think that was coupled withsome really interesting data
brought by people and justgeneral commentary around a firm
belief that private equity isstill one of the best, if not
(16:05):
the best, way to fund and holdbusinesses in the market,
particularly in the middlemarket.
Five-year returns, 10-yearreturns, 15-year returns they
still outpace public markets.
The value that you can drive asa private equity-backed
business is higher than it is inpublic markets.
(16:25):
You are taken away from theshort-term quarterly earnings
cycle and need to please amarket that is looking at very
recent data and very short-termdata.
You're giving yourself accessto patient capital that can
transform businesses and drivevalue over a longer horizon, and
(16:46):
so I think, unsurprisingly, thedelegates and the speakers were
unapologetic in their supportof private equity as an asset
class and continue to believethat it will be a big driver and
it will continue to be a strongasset class.
There's a point of view that Iam buoyed by but also firmly
believe in.
Speaker 1 (17:05):
Good, you and I both.
So was there one piece ofinsight or one prediction about
the private equity market thatdominated discussions there?
Speaker 2 (17:12):
Two big ones were partly this debt question, but
also just it's my first time assuperintendents, but it's not my
first time in this industry, sosome of these feel like
messages that we've heard overand over again.
But I think it only becomesmore and more important in an
environment like this to do gooddeals and do them well, and
(17:34):
what that means and what a lotof the conversation was about
was really continued importanceof value creation and
operational improvement plansand the ability to not just be a
passive investor but takebusinesses and transform them
and drive growth in a way thatothers can't, and to have a
proprietary view, particularlyin auction markets, the
(17:54):
proprietary view on the type ofvalue you can generate with a
business that allows you to bidup with confidence, that allows
you to go after assets in a waythat maybe your competitive
competing funds won't be able todo.
So that's the kind of own welland drive value well.
And I think the other flip sideof that the importance of
sourcing and finding companiesbeing able to do that in a
(18:17):
thematic way, being able to dothat, hopefully, in a
proprietary way.
You know all of these thingsare driving, I think, continued
need for specialization, forskills, for capabilities in
private equity houses that canreally make a difference.
We are past the world offinancial engineering allowing
you to make money in privateequity.
(18:37):
You know the first decade ofprivate equity where it was just
all about the LBO.
It was all about the debt andthen the own the asset, hold the
asset, make a ton of money.
That's not possible anymore.
Debt's become smarter, priceshave gone up, auctions are more
competitive.
You can't just be a buy andhold anymore.
Speaker 1 (18:56):
You've got to transform the businesses, you've
got to add value to them whenwe talk about sort of privacy,
firms adapting their strategies,is this one of the key things
that you've seen at superreturns and this is what you've
been advising your clientsaround?
Speaker 2 (19:08):
yeah, I think I mean, and that that has been the the
big sea change since since onlysince I started this career has
been the growth of valuecreation teams in private equity
obviously I I'm a good exampleof that and the constant
evolution of those teams.
Right, I think that thestruggle here is there is no one
right model and a lot of peoplehave gone through many models
(19:30):
until they found the one thatworks for them.
There are funds that do thisincredibly well.
Bain Capital is an obviousearly example of a fund that
figured out how to do theseoperational changes, built a
portfolio value creation team,figured out the internal
mechanics of how do you pass thedeal over to the value creation
team, share ownership with thedeal team.
(19:52):
The Bain Capital model would notwork for a large number of
funds out there.
The culture doesn't work withit, the individuals wouldn't
work with it and the types ofinvestments they're making
aren't suited to it, and soeveryone has to find the model
that fits them, and it is astop-start process.
I would say and I'm sure you'veseen this too right, yeah, the
(20:15):
groups that get stood up andthen get stood down again, and
then another slightly differentgroup gets stood up and you go
between do want generalists, doyou want specialists, do you
want x operators, or do you wantx, x advisors.
Do you want young, hungry, ordo you want old, wizened, and I
don't know that there is ananswer for that there isn't.
Speaker 1 (20:34):
I mean, this is a daily conversation we have with
every property fund and a lot ofit is predicated on the
investments they're making andthe companies within their
portfolio and their needs, and Iguess you know the strategic
challenges that they're facing.
So there isn't one answer thatwould fit the whole industry.
But, we'll come on to that,because I'm keen to discuss how
you've seen talent evolve, Iguess in that regard as well,
especially within that valuecreation world.
(20:56):
So, again thinking about superreturn, but now talking about
the US.
How has the private equitylandscape in the US evolved over
the past couple of years?
If I link in that what wetouched upon, how do you think
recent tariff policies underTrump is affecting the PE market
in?
Speaker 2 (21:10):
the US as well.
Environment, I think, has heldtrue in the US.
I think what's happened isthere's been, certainly over the
last two years, there's been aflight to quality is probably
the wrong word but there havejust been sectors that have been
(21:34):
a little bit more resilient orseen as a little bit more
attractive or, most importantly,have significant secular
tailwinds behind them.
That has driven up demand andhas, where you've seen, a real
resurgence in deal activity anda lot of money has flooded into
those.
And you know from you knowanything infrastructure related,
anything that was takingadvantage of the infrastructure
investment in jobs act and theinflation reduction act, where
(21:57):
you suddenly had firm fundingtailwinds into markets like
engineering, like infrastructureservices, both transportation,
water power and you have anindustry that is ripe somewhat
for private equity consolidationand professionalization.
It has been very busy.
So there are pockets that havebeen incredibly busy.
I think there are pockets insort of more traditional
(22:18):
consumer markets.
There are pockets in some techareas that have been very, very
quiet, where you know there'smore uncertainty that's giving
driving a lot more caution, andsome of that uncertainty is
macroeconomic.
Some of that uncertainty isaround the rise of AI and how
that changes.
Who wins and who loses in thoselandscapes, and that has caused
GPs to be a little bit morecautious in those markets.
(22:41):
That turning of the corner isbecoming a little bit apparent
here as well, I think in the USwe're seeing more green shoots
across the board.
The tariff question, which hasof course been the core part of
any diligence anyone has lookedat.
Some industries are prettyprotected from tariffs, and so,
again, you are seeing moreactivity and more certainty
(23:02):
around industries that areservice industry businesses,
businesses that are not exposedto as complex international and
global supply chains.
And even then, the impact oftariffs has become a core
question on how does it changethe underlying macroeconomics of
the industry.
How does that affect?
Because, even if it doesn'taffect the businesses directly,
(23:25):
it affects their customers andtherefore it affects the ongoing
demand for their services.
And I think it has caused apause and it has caused a lot of
things, and we've seen livedeals that have gone silent
specifically for this reason ispeople try to figure out what
the end result looks like, and Ithink the struggle that has
(23:48):
really driven it is, if it's onething, if you say, hey, we've
got a shift in policy, this isnow the tariff policy, then you
can adapt to that, you can workout how it's going to impact
things, you can calculate it andyou can say, okay, there's
going to be winners and there'sgoing to be losers, and I can
plan that out.
I think what's really happenedis nobody knows what the tariff
policy is going to be intomorrow.
(24:09):
Right, we could wake up to atweet that changes everything
and and so there's, there's justturbulence, and in a world of
turbulence you need there's beenI think there was a few months
of a real hope for stability anda hope for kind of hey, this
will wash out and then we'llknow the answer.
I think, we're all coming toterms now with the fact that
that uncertainty will continuefor longer, and now people are
(24:32):
shifting instead to how can weplan for uncertainty in both?
How can we look for investmentswhere we can protect ourselves
against uncertainty, and then inour portfolio companies?
How can we look for investmentswhere we can protect ourselves
against uncertainty, and then inour portfolio companies?
How can we?
How can we strengthen oursupply chain?
How can we mitigate againstfuture impact of tariff changes,
knowing that they could changeany minute?
Speaker 1 (24:52):
So, based on that and on the back of that, what
sectors are you currently seeingas being the most attractive
for private equity investmentright now, and what are the
challenges with investing inthese sectors?
Speaker 2 (25:02):
Yeah, so I mean, we talked a little bit about
infrastructure services thingsthat are taking advantage of the
tailwinds around energytransition, the tailwinds around
AI, around AI and I don'tnecessarily mean tech companies
here, but I mean AI driving up ahuge demand for data centers.
That is driving up a lot ofdemand for businesses that serve
(25:24):
data centers, both in theconstruction phase and in the
ongoing management phase.
But, from my perspective, iswhere we're seeing a lot of
activity, great opportunitiesfor investments, in part because
they are nascent industries.
They've been traditionallyquite fragmented.
So we're seeing some realsuccess early on here of private
equity businesses buyingplatforms and rapidly
(25:47):
accelerating their growth,taking share, doing a series of
bolt-on M&A acquisitions in aplaybook that's been done in
other sectors in the past.
I think some of the challenge isstill around managing the exact
level of uncertainty, and thenI think there's an element of,
again, with any nascent industryor any large point of
(26:08):
inflection, it's not alwaysclear who the winners and losers
are going to be.
You have to be confident thatyou're backing a business that's
well positioned for futuretrends, but you also have to be
confident that you're backing abusiness that's well positioned
for future trends, but you alsohave to be confident that you
are backing a management teamand that you yourself have the
capability to ride the waves asthey come and be able to adapt
(26:28):
and change and take advantage ofopportunities as they arise,
because it is harder to predictlong term views are growth
markets, not stable markets.
Growth markets will always seecompetitive shakeouts.
Speaker 1 (26:42):
How do you see technology and, I guess, ai
impacting the future of privateequity?
I mean, when you say you can'tpredict, isn't there an argument
to suggest that actually AI can?
Speaker 2 (26:51):
I don't think AI today can predict winners and
losers.
I think AI as it stands todayis an incredibly valuable
productivity tool and it willtransform many industries and it
will hugely transform some andit will cause the demise of some
.
Candidly, it will change whowins and who loses in others.
Where it's who can adapt themost to AI, who can use this
(27:14):
productivity tool?
I think there's an element oftruth to that.
In my own industry, consultingfrom a productivity level I
think is absolutely going to beeffective.
I think there is no question inmy mind that the way that we do
the job is rapidly changingwith the advent of AI.
The hey, can I just replace myOC&C study with?
(27:34):
I'll ask chat GPT.
I don't think we're there yet.
I think there's still a realimportance of the human in the
loop in that story.
I think the reasoning, thehistory, the human overlay that
comes from experience, thatisn't just data extrapolation, I
think will continue to becritical.
Speaker 1 (27:53):
There's talk today that actually everything you get
from ChatGPT isn't necessarilyaccurate.
Speaker 2 (27:58):
I mean, the hallucinations are huge.
The ability of the tool toreason has been, when we have
tested it in our applications,has probably been not as strong
as we would like it to be, whichmeans it is a very, very
powerful tool for research.
It's a very powerful tool forextracting information from vast
(28:20):
amounts of data.
The reasoning skills are, bynature, not there, and the
auditability of the reasoningskills are definitely not there.
Someone gave me the analogy theother day which is a very
helpful one, which is you ask ananalyst to go find something
out and they come back and theygive you an answer, and then you
say great.
Speaker 1 (28:37):
And you say well, how did you?
Speaker 2 (28:38):
come up with that answer and they'll take you
through exactly every step thatthey took and you can then audit
it and say well, I'm not sureif that assumption or that data
source was right.
If you ask ChatCPT for ananswer, it'll give you an answer
and it may give you an answerthat looks just as good as the
answer that the analyst gave you.
If you ask it how it came upwith the answer, it will give
(28:58):
you a probabilistic answer forwhat it thinks.
The answer is to the questionof how did I come up with the
answer.
It's not actually going to giveyou how it came up with the
answer.
It has no understanding of itsown processes.
It is a probability-based modelthat when you ask it to
self-reason, it just gives youthe probability answer to the
self-reasoning question, not theactual self-reasoning question.
(29:19):
Going to drive with AIs thatare much more task-specific
oriented and therefore can betrained to lose hallucinations
(29:39):
over time and better promptengineering around that, I think
all of that will improve it,but it's still not going to
solve for the perfect reasoningand it's still not going to give
you the exactly as you say, theconfidence that you get from
the human factor of expertise,experience, depth of kind of?
How many times have we donethis before?
(30:00):
How many times have we seenthis before?
That doesn't change the factthat it dramatically changes the
process that we go through andthe nature of the job,
particularly at the juniorlevels, and it shifts the takes
away a lot of the boring rotestuff that most people don't
like to do, can automate a lotof that, and it probably shifts
(30:22):
the balance of workload fromanswer generation and research
generation to pressure testingand dissemination.
In the past you'd send theanalyst out to do a bunch of
research, make some slides, comeback with an answer and then
there'd be a little bit of backand forth on.
Is this the right answer?
(30:43):
Let's make sure it makes senseand let's make sure it's a story
that seems coherent.
I think that first task isgoing to be a lot quicker, but
that's going to push the need tospend more time on that second
task.
So, yes, research time willdrop, but then error checking
and pressure testing is going toincrease and, more
fundamentally and I'm old enoughthat I've seen a lot of this in
(31:06):
the past productivityimprovements have been multiple
in consulting over the last 30,40 years.
I'm not quite old enough to sayI started in a world where we
didn't have Excel, but Icertainly started in a world
where we didn't have expertnetworks, for example.
So you sort of think aboutprimary research.
It was a good project if youcould get 10 calls in three
weeks because you were sort ofcold calling people to try to
(31:28):
get answers.
Suddenly the expert networkscome in and now we're driving 50
to 100 calls in a two-weekperiod and we're getting a huge
amount of increased insight outof that.
Data availability has grown overtime.
Everything has made the abilityto drive value so much higher.
(31:48):
But the answer has not beengreat, so we'll do a shorter
project.
The answer has been great.
So when I did my firstdiligences 20 years ago they
were a 50 page report with someinteresting data and the key
data in there, of course.
But those 50 pages of analysiscome out of over three weeks.
Now my teams are doing 200, 250pages of real in-depth analysis
(32:13):
with insights coming out of amuch vaster trove of information
that they can then process alot faster and generate a lot
more insight out of.
And I think that is probably,you know, the optimist's view is
that's what's going to happento us under ChatGPT we're going
to see a huge growth inproductivity.
Maybe, at the margin, a changein ultimate pyramid shape may be
(32:41):
at the margin, a change inultimate pyramid shape, but but
you cannot take away the um, theapprenticeship model, out of
consulting.
It's critical because you, evenif you, even if you said I
could, I could automateeverything that my first and
second year analysts do.
Well, great, but I still needthe third year analyst and the
consultant and the manager andthe associate partner.
I need, I still need people whohave learned how it all works
and can come up and canultimately replace me.
Then maybe that changes thenthe sort of way you think about
(33:03):
junior resources.
Maybe it becomes more of ashadowing and apprenticeship
role and less of an active doingrole.
Speaker 1 (33:11):
With the changes that we're seeing from a technology
point of view, with the impactthat we're seeing not just from
Trump's tariffs but thegeopolitical situation across
the world now, and, I guess,your experience of not only
operating yourself as anoperating partner but working
with value creation teams howare you seeing the capability
requirements change withinprivate equity funds, the skills
(33:33):
needed to help funds andportfolio companies navigate
their way through all of thisright now?
How have you seen that adaptover the last 12 months and how
can you see the change goingforward that's going to be
required?
Speaker 2 (33:44):
12 months is always hard to see a pattern right.
I think it's probably more likea sort of 10-year trend that
kind of goes through waves and Ithink, as we talked about,
different funds will havedifferent approaches and I am
still not sold that there's aperfect answer, because I think
it's always a situational answer.
But I certainly think over thelast five years the growth in
(34:06):
specialization has beensignificant in terms of the
portfolio groups are looking for.
I think if you wind the clockback 15 years, even arguably, if
you wind the clock back toyears, even arguably, if you
wind the clock back to when Istarted that job, it was a
generalist's job, as wasconsulting.
When I started consulting, Iwant a smart person who can look
at my portfolio and think abouthow to add value and maybe
(34:28):
bring in some expertise.
But ultimately I just needsmart people and they'll figure
it out.
I think as those groups havematured just as consulting
matured, over time they haverealized that actually
specialization is critical.
You want someone who knows howto do talent management.
You want someone who knows howto work with office of the CFO,
someone who understands supplychain.
(34:49):
You want someone whounderstands pricing and there is
much more value in specializedtools and scalpels that you can
send in to really drive specificprograms at your portfolio
companies, more than a bunch ofconsulting trained generalists
running around sort of trying torun mini consulting projects in
(35:10):
the portfolio.
But sometimes the answer is bothright.
Sometimes the answer is hey,it's important to have the
generalists because thegeneralist can take the
aggregated view, it can helpwith the prioritization, it can
help identify what the rightthings are to be driving and
then program manage those.
But you also critically needaccess to specialization and
sometimes that access in somechoices that access comes from a
(35:33):
deep bench of advisors, a deepbench of not employees but
people who you can bring in on aconsulting basis.
Sometimes it comes throughaccess to specialized consulting
firms, but often, andparticularly at scale private
equity businesses, it is comingfrom individuals with expertise
that can sit across portfoliocompanies.
Speaker 1 (35:53):
That's a great note to finish on, carl.
It's been great talking to youtoday, really appreciate it.
You and I have known each othera long time, as I said, and
it's been great to get yourinsights, certainly on the Super
Return event that happened lastweek as well.
So thank you for sharing thatwith us.
Good to see you today.
Thanks very much.
Speaker 2 (36:08):
Thanks so much Good.
Welcome to Spotlight On, the must-listen podcast
series where visionary leaders,global executives, trailblazing
entrepreneurs and top-tierexperts come together to share
their inspiring stories andtackle the hottest issues facing
businesses today, Brought toyou by the Barton Partnership,
an award-winning global talentsolution organization.
We specialize in executivesearch, independent consulting
(00:20):
and consulting solutions fromstrategy through to execution.
Our mission to help businessesaccelerate their growth by
connecting them with world-classstrategy and transformation
talent.
Tune in and join us as we shinea spotlight on the
game-changers andthought-leaders who are shaping
the future of business.
Today I'm talking to CarlEvander.
Carl's the global head of OCNC'sprivate equity practice, with a
(00:40):
focus on advising privateequity clients and their
portfolio companies on strategicquestions across the investment
cycle.
Carl is also co-leader of thefirm's B2B practice in the US
and serves as an elected memberof the OC&C Global Board.
Over the course of a20-year-plus career in
consulting and as a privateequity investor, he has built
deep experience working globallyin complex industries where
(01:00):
information is scarce.
He has covered a range of B2Bindustries, with a particular
focus on companies in theinfrastructure and construction
space, along with businessservices, industrial services,
food manufacturing, waste andfacilities management.
In addition to his work atOC&C's corporate client.
Carl also leads the firm's probono efforts in North America.
He serves on the board of EOEducation, a national education
(01:23):
non-profit organisation.
He's based in New York but haspreviously lived and worked
across the UK, Europe, Africaand Asia.
Carl, great to have you heretoday.
You and I have known each othera long time, so I've been
looking forward to thisconversation for a while, so
thank you for joining me on this, and certainly keen to talk
about your recent trip to SuperReturn.
But let's start with you.
Tell us about your careerhistory to date, Tell us what
(01:44):
led you to OCNC and tell usabout your role there as well.
Speaker 2 (01:47):
Thank you so much for having me, nick.
It's great to be here andlooking forward to the
conversation, happy to take youthrough the rich tapestry that
is my history.
I've been doing this for acouple of decades now.
I started my career back inLondon at Bain.
I kind of came out of collegedidn't quite know what I wanted
to do with my life.
Somebody said something aboutstrategy consulting and I
(02:08):
thought that sounds interestingand took to a roughly like
efficient fish to water I meanmaybe a saltwater fish to fresh
water.
But eventually I figured it outand ended up being a lifelong
consultant, more or less.
So I started my career at Bainin London.
I was always theinternationalist.
I was always the guy with myhand up, willing to move around.
(02:29):
So I spent the first eightyears of my career loosely based
out of London, but with longstints in South Africa, in
Singapore, in Hong Kong, inShanghai and all across Europe.
In 2012, that's about eightyears into my career, I made the
move over to the US, still withBain, still doing fundamentally
the type of consulting I had bythat point made my specialism,
(02:53):
which was a lot around bothprivate equity and sort of the
intersection of private equityand industrials and B2B
businesses.
Speaker 1 (03:01):
And this was in New York at Bain.
Speaker 2 (03:03):
This was in New York at Bain, yeah, when I moved
although I had done the samething in Europe as well Stayed
at Bain in New York for four tofive years and then got that
itch that we all got.
I'd been someone who'dconstantly been in the moves.
I'd moved geography, I'd movedtopics somewhat and felt like I
didn't want to be a lifelongconsultant.
I felt like I don't want to dothis advisory thing.
(03:25):
I want to be an owner, I wantto take care of things.
I spent a lot of my career atthat point with private equity
investors, thinking about howthey add value to businesses and
thinking about how they set uptheir own portfolio value
creation teams, and got anopportunity to do just that in a
small mid-market fund in the USjust that in a small mid-market
(03:46):
fund in the US.
So for a while I left and becamea private equity operating
partner on a number of portfoliocompanies, but sort of quite
rapidly becoming a real operatorfor a while.
I joke that it's the only realjob I've ever done in my life.
But I was seconded onto one ofour businesses as a chief
commercial officer and got tosort of see the real nitty
gritty and it was a hugelearning experience for me.
I think it has made me a muchstronger advisor because I
(04:10):
learned in that the realities ofhow to make growth happen on
the ground, how to make changehappen on the ground, that are
very different than the somewhatacademic lens that consultants
can sometimes take on things,where you, you know, you sort of
you see that the world is aspreadsheet and you think to
yourself, hey, I'll add 10 moresales people here and if they're
effective, then I'll grow, andyou think, well, that's not
(04:33):
quite what it looks like on theground.
Speaker 1 (04:35):
What advice would you give anyone now, give yourself,
if you could turn back theclock and making that transition
from consulting into privateequity now?
What advice would you giveanyone thinking about making
that move into a similar role?
Speaker 2 (04:47):
I mean I think it is a great type of role to do.
I think it is a greatopportunity to make.
I think I probably should havemade it earlier in my career.
I think I started to develop alittle bit of senioritis already
by the time I left Bain and Ithink it is the transition back
to the coalface and it's a lotless supported as a role.
(05:09):
And so you are doing your ownanalysis, you're back to the
Excel, you're back to thePowerPoint, and that was
probably a tougher transitionthan it would have been if I'd
made that move five to 10 yearsearlier in my career.
But I think it is a great wayof continuing to build on the
skills that you learn as aconsultant but to take those
into a real world applicationand what was interesting is that
(05:31):
you went straight fromconsulting into that role.
Speaker 1 (05:33):
You didn't have any real world experience exactly.
Speaker 2 (05:35):
I still barely have any real world experience.
A harder transition, but it wasone that was.
Speaker 1 (05:40):
I think it was a very good way of doing it and and
then you decided it wasn't foryou, or and then I decided it
wasn't for me.
Exactly.
Speaker 2 (05:48):
No then.
Then two things happened reallyfor me.
One was I realized when I gotclose to the cold face that,
while I liked the detail, what Ireally missed was the pure
focus on strategy, and I missedthe the ability to to work on
lots of different topics thatwere always the most important
topic for my clients.
And so you know when you startto do, when you're chief
commercial officer of a smallregional business, you're
(06:10):
worrying day to day much moreabout individual customers,
about production quotas, aboutsales concerns, and you're
worrying a lot less about thebig picture strategy stuff,
which was really why I had goneinto consulting in the first
place and what I had loved aboutthe job.
And the other thing I missedwas the teams.
I mean, for me, the mostrewarding thing about my job
(06:31):
continues to be the people I getto work with, and that is both
my clients, but it's also theteams on the ground and it's the
problem solving as a group,it's the ability to learn from
other people on an ongoing basisthat really energizes me, and
you get that much more, I think,in consulting than you do in
deep operations, where you bynature end up being a little bit
(06:52):
more independent.
This was also at a time whenCOVID was hitting and I'd been
spending five days a week on theroad.
My wife was pregnant with ourfirst child and it was a very
good opportunity to transitionback into something that was a
little bit less travel and alittle bit more comfortable.
Speaker 1 (07:09):
Which sounds unusual for a consulting job, but that's
exactly what you've got.
Speaker 2 (07:13):
Well, that is the beauty of doing the type of
consulting that I do, and, tosome degree, the type of
consulting that OC&C does,relative to the type of
consulting that I've beenexposed to earlier in my career,
is we're not really on theground at the client site four
days a week type of people.
It's not the type of projectswe do.
Private equity, by nature, is alot less travel, and so it
(07:33):
tends to be a little bit moreoffice based.
Speaker 1 (07:35):
As it's noted here, you're global head of OCNC's
private equity practice and youco-lead the firm's B2B practice
as well in the US, as well asserving as an elected member of
the global board, which isfantastic.
Tell us a bit about that andwhat that encompasses.
Speaker 2 (07:52):
OC&C is a pure play strategy firm.
We've been around for 35 years.
The genesis of the firm wasvery much out of the UK, one of
the things that drew it to me asan expat Brit.
I'd actually applied to OC&Ccoming out of undergrad in 2003,
not to age myself and beenfirmly rejected by them at the
time.
Finally they accepted me.
(08:12):
We primarily do two things we dostrategy and we do diligence,
and about 50% of our work is inthe private equity community.
About 50% of our work is in thecorporate world community.
About 50% of our work is in thecorporate world.
And when we say strategy wemean strategy and that is.
I think we don't do what Ibecame used to at Bain, which is
(08:33):
sort of year-longtransformation programs, lots of
in-depth things likeoperational improvements and
cost reduction.
We are much more focused onquick c-suite level high level
strategy work.
That then bridges very nicelyinto the type of problems you're
trying to solve when you'redoing commercial due diligence
(08:53):
for private equity clients andyou're doing strategy for
private equity clients too, whoare trying to be targeted.
They're trying to be focused onwhat are the key levers?
Speaker 1 (09:01):
I can?
Speaker 2 (09:01):
pull.
That will really drive value andand they're trying to do that
with a view of who do I want tobe when I grow up in the
business, and that's always beenour strength, and the way we
organize and have alwaysorganized is much more by sector
vertical than it is byhorizontal capability.
So we are fundamentally sectorexperts or sector specialists,
(09:25):
all of whom do both strategy anddiligence.
We don't have a private equityring fence like Ebene does.
The people who work with ourcorporate clients on their most
important questions are the samepeople who are then evaluating
businesses for private equity orworking with our private equity
businesses or working with ourprivate equity businesses.
(09:45):
So what does that mean for myrole as the horizontal leader in
a world that is more verticallyspecialized?
Really, it's a role ofcoordination and just making
sure that across these sectors,private equity is one community.
Private equity doesn't alwaysarrange itself in the way that
we might arrange ourselves, andso we are all talking to
fundamentally the same people.
We're all trying to drive tothe same goals with our clients,
(10:07):
and a lot of my role is makingsure that we are doing that in a
coordinated way, both ataccount levels, so when we're
talking to the same people, weknow what the other hand is
doing, but also at a productexecution level, thinking about
what are the types of projectswe can be doing more with our
clients, how can we be betterimproving the way that we do
(10:28):
diligence, the tools that we usein diligence and the way that
we serve the private equitycommunity in as helpful a way as
possible?
Because I think we've beenemerging.
I mean, I think we've beenarguably for 20, 30 years and if
you sort of take the Europeanview, but certainly in the US, I
think we've got a really stronggrowing position as one of the
(10:49):
leading, certainly boutiqueproviders of strategic advice
into private equity.
And I think that is a you know,it's always fun.
One of the things that drew meto coming back to consulting at
OC&C is it's always fun to be achallenger brand.
But I think the type of workthat we do, the quality of the
work that we do and the breadthof coverage that we will offer
(11:10):
to private equity from kind ofdiligence through to value
creation, through to exitplanning and sell side I think
has really resonated with themarket.
So that has been a lot of myfocus is how do we evangelize
that gospel, how do we get infront of more private clients.
How do we continue to maintainthe strength of that proposition
?
Speaker 1 (11:29):
Great.
Well, listen, let's move on,because really what I want to do
is pick your brains on superreturn as our eyes and ears on
the ground, as our intrepidreporter, keen to get your view
on what you took away from that.
You were in Berlin last week.
What were your away from that?
I mean, you were in Berlin lastweek.
What were your observationsfrom that?
What were some of your keytakeaways?
Did you come away positive,optimistic?
(11:49):
Did you come away deflated?
How was the whole experience?
Was this the first time you'vebeen, or you've been before?
Speaker 2 (11:56):
This was my first time at Super Returns, which was
a really fascinating experience.
It was incredibly well attendedup and down, both in terms of
representation of firms, butalso if you just look at years
for private equity and certainlynot private equity writ large,
(12:24):
but as an industry you know Ithink you can paint a picture of
a significant investment boomin the sort of 2019 to 21 period
.
Certainly, 2021 was incrediblybusy and that was playing into a
low interest rate environmentwith a lot of dry powder and a
significant growth trajectory onbusinesses that were being
(12:46):
bought and so people were comingin and buying things at a very
high price.
But they's coming from theUkraine crisis in Europe, strong
(13:08):
inflationary pressure in the US.
Now, obviously, the noisethat's coming from tariffs and
other global questions has put alittle bit of a dent in some of
those growth plans.
Has put a little bit of a dentin some of those growth plans.
It has driven up interest rates, so now, suddenly, interest
rates are much higher, so thecost of borrowing is going to be
higher for the next buyers.
(13:54):
And it has somewhat stalledactivity for the last 18, 24
months.
So we're seeing a lot lessexits, in part because the IPO
channel has dried up and we'reseeing nervous LPs, which
obviously, with high interestrates, is a much more exciting
space to be.
It's gotten everyone a littlebit cautious about their ability
to do deals, both to exitexisting businesses that aren't
doing as well as you thoughtthey were and where you bought
(14:16):
them at such a high price thatyou need to get a high price at
exit bought them at such a highprice that you need to get a
high price at exit but then alsosome nervousness around the
ability to put capital to work,which you always get in private
equity, because there's alwaysfunds that were raised five
years earlier and are looking attheir investment cycle and the
expectations of drawdown fromLPs and the need to put capital
to work.
The optimism side of it iscertainly there are pockets that
(14:39):
remain exciting and debt was abig topic that came up.
The expectation is the marketwill work itself out.
Yes, we're in a position rightnow where DPI is a challenge,
where exits aren't coming, butthere are so many assets out
there that just fundamentally,will need to be exited.
The money needs to go back toLPs.
(15:00):
There's more money coming in atthe top end that needs to get
deployed.
Yes, there's been uncertainty.
That uncertainty is nowbecoming clarity around the
uncertainty, which I realize isa slightly weird distinction,
but I think once you knowthere's going to be uncertainty,
you can almost plan foruncertainty.
It's giving people a path togetting comfort around new deals
(15:21):
Before super returns, and it'strue of my general conversations
.
In the market there is agrowing expectation for deal
volume acceleration, if it's inone quarter, two quarters, three
quarters, but it's not in twoyears that the dam's going to
break and at some point thevolumes are going to start to
increase again and deals aregoing to get made.
(15:41):
And so that's the sort of shortterm look, this will work
itself out optimism.
It's almost a kind of hey look,we've seen this picture before.
Yes, it's a little bitstruggling right now, but we
think we'll get through it.
I think that was coupled withsome really interesting data
brought by people and justgeneral commentary around a firm
belief that private equity isstill one of the best, if not
(16:05):
the best, way to fund and holdbusinesses in the market,
particularly in the middlemarket.
Five-year returns, 10-yearreturns, 15-year returns they
still outpace public markets.
The value that you can drive asa private equity-backed
business is higher than it is inpublic markets.
(16:25):
You are taken away from theshort-term quarterly earnings
cycle and need to please amarket that is looking at very
recent data and very short-termdata.
You're giving yourself accessto patient capital that can
transform businesses and drivevalue over a longer horizon, and
(16:46):
so I think, unsurprisingly, thedelegates and the speakers were
unapologetic in their supportof private equity as an asset
class and continue to believethat it will be a big driver and
it will continue to be a strongasset class.
There's a point of view that Iam buoyed by but also firmly
believe in.
Speaker 1 (17:05):
Good, you and I both.
So was there one piece ofinsight or one prediction about
the private equity market thatdominated discussions there?
Speaker 2 (17:12):
Two big ones were partly this debt question, but
also just it's my first time assuperintendents, but it's not my
first time in this industry, sosome of these feel like
messages that we've heard overand over again.
But I think it only becomesmore and more important in an
environment like this to do gooddeals and do them well, and
(17:34):
what that means and what a lotof the conversation was about
was really continued importanceof value creation and
operational improvement plansand the ability to not just be a
passive investor but takebusinesses and transform them
and drive growth in a way thatothers can't, and to have a
proprietary view, particularlyin auction markets, the
(17:54):
proprietary view on the type ofvalue you can generate with a
business that allows you to bidup with confidence, that allows
you to go after assets in a waythat maybe your competitive
competing funds won't be able todo.
So that's the kind of own welland drive value well.
And I think the other flip sideof that the importance of
sourcing and finding companiesbeing able to do that in a
(18:17):
thematic way, being able to dothat, hopefully, in a
proprietary way.
You know all of these thingsare driving, I think, continued
need for specialization, forskills, for capabilities in
private equity houses that canreally make a difference.
We are past the world offinancial engineering allowing
you to make money in privateequity.
(18:37):
You know the first decade ofprivate equity where it was just
all about the LBO.
It was all about the debt andthen the own the asset, hold the
asset, make a ton of money.
That's not possible anymore.
Debt's become smarter, priceshave gone up, auctions are more
competitive.
You can't just be a buy andhold anymore.
Speaker 1 (18:56):
You've got to transform the businesses, you've
got to add value to them whenwe talk about sort of privacy,
firms adapting their strategies,is this one of the key things
that you've seen at superreturns and this is what you've
been advising your clientsaround?
Speaker 2 (19:08):
yeah, I think I mean, and that that has been the the
big sea change since since onlysince I started this career has
been the growth of valuecreation teams in private equity
obviously I I'm a good exampleof that and the constant
evolution of those teams.
Right, I think that thestruggle here is there is no one
right model and a lot of peoplehave gone through many models
(19:30):
until they found the one thatworks for them.
There are funds that do thisincredibly well.
Bain Capital is an obviousearly example of a fund that
figured out how to do theseoperational changes, built a
portfolio value creation team,figured out the internal
mechanics of how do you pass thedeal over to the value creation
team, share ownership with thedeal team.
(19:52):
The Bain Capital model would notwork for a large number of
funds out there.
The culture doesn't work withit, the individuals wouldn't
work with it and the types ofinvestments they're making
aren't suited to it, and soeveryone has to find the model
that fits them, and it is astop-start process.
I would say and I'm sure you'veseen this too right, yeah, the
(20:15):
groups that get stood up andthen get stood down again, and
then another slightly differentgroup gets stood up and you go
between do want generalists, doyou want specialists, do you
want x operators, or do you wantx, x advisors.
Do you want young, hungry, ordo you want old, wizened, and I
don't know that there is ananswer for that there isn't.
Speaker 1 (20:34):
I mean, this is a daily conversation we have with
every property fund and a lot ofit is predicated on the
investments they're making andthe companies within their
portfolio and their needs, and Iguess you know the strategic
challenges that they're facing.
So there isn't one answer thatwould fit the whole industry.
But, we'll come on to that,because I'm keen to discuss how
you've seen talent evolve, Iguess in that regard as well,
especially within that valuecreation world.
(20:56):
So, again thinking about superreturn, but now talking about
the US.
How has the private equitylandscape in the US evolved over
the past couple of years?
If I link in that what wetouched upon, how do you think
recent tariff policies underTrump is affecting the PE market
in?
Speaker 2 (21:10):
the US as well.
Environment, I think, has heldtrue in the US.
I think what's happened isthere's been, certainly over the
last two years, there's been aflight to quality is probably
the wrong word but there havejust been sectors that have been
(21:34):
a little bit more resilient orseen as a little bit more
attractive or, most importantly,have significant secular
tailwinds behind them.
That has driven up demand andhas, where you've seen, a real
resurgence in deal activity anda lot of money has flooded into
those.
And you know from you knowanything infrastructure related,
anything that was takingadvantage of the infrastructure
investment in jobs act and theinflation reduction act, where
(21:57):
you suddenly had firm fundingtailwinds into markets like
engineering, like infrastructureservices, both transportation,
water power and you have anindustry that is ripe somewhat
for private equity consolidationand professionalization.
It has been very busy.
So there are pockets that havebeen incredibly busy.
I think there are pockets insort of more traditional
(22:18):
consumer markets.
There are pockets in some techareas that have been very, very
quiet, where you know there'smore uncertainty that's giving
driving a lot more caution, andsome of that uncertainty is
macroeconomic.
Some of that uncertainty isaround the rise of AI and how
that changes.
Who wins and who loses in thoselandscapes, and that has caused
GPs to be a little bit morecautious in those markets.
(22:41):
That turning of the corner isbecoming a little bit apparent
here as well, I think in the USwe're seeing more green shoots
across the board.
The tariff question, which hasof course been the core part of
any diligence anyone has lookedat.
Some industries are prettyprotected from tariffs, and so,
again, you are seeing moreactivity and more certainty
(23:02):
around industries that areservice industry businesses,
businesses that are not exposedto as complex international and
global supply chains.
And even then, the impact oftariffs has become a core
question on how does it changethe underlying macroeconomics of
the industry.
How does that affect?
Because, even if it doesn'taffect the businesses directly,
(23:25):
it affects their customers andtherefore it affects the ongoing
demand for their services.
And I think it has caused apause and it has caused a lot of
things, and we've seen livedeals that have gone silent
specifically for this reason ispeople try to figure out what
the end result looks like, and Ithink the struggle that has
(23:48):
really driven it is, if it's onething, if you say, hey, we've
got a shift in policy, this isnow the tariff policy, then you
can adapt to that, you can workout how it's going to impact
things, you can calculate it andyou can say, okay, there's
going to be winners and there'sgoing to be losers, and I can
plan that out.
I think what's really happenedis nobody knows what the tariff
policy is going to be intomorrow.
(24:09):
Right, we could wake up to atweet that changes everything
and and so there's, there's justturbulence, and in a world of
turbulence you need there's beenI think there was a few months
of a real hope for stability anda hope for kind of hey, this
will wash out and then we'llknow the answer.
I think, we're all coming toterms now with the fact that
that uncertainty will continuefor longer, and now people are
(24:32):
shifting instead to how can weplan for uncertainty in both?
How can we look for investmentswhere we can protect ourselves
against uncertainty, and then inour portfolio companies?
How can we look for investmentswhere we can protect ourselves
against uncertainty, and then inour portfolio companies?
How can we?
How can we strengthen oursupply chain?
How can we mitigate againstfuture impact of tariff changes,
knowing that they could changeany minute?
Speaker 1 (24:52):
So, based on that and on the back of that, what
sectors are you currently seeingas being the most attractive
for private equity investmentright now, and what are the
challenges with investing inthese sectors?
Speaker 2 (25:02):
Yeah, so I mean, we talked a little bit about
infrastructure services thingsthat are taking advantage of the
tailwinds around energytransition, the tailwinds around
AI, around AI and I don'tnecessarily mean tech companies
here, but I mean AI driving up ahuge demand for data centers.
That is driving up a lot ofdemand for businesses that serve
(25:24):
data centers, both in theconstruction phase and in the
ongoing management phase.
But, from my perspective, iswhere we're seeing a lot of
activity, great opportunitiesfor investments, in part because
they are nascent industries.
They've been traditionallyquite fragmented.
So we're seeing some realsuccess early on here of private
equity businesses buyingplatforms and rapidly
(25:47):
accelerating their growth,taking share, doing a series of
bolt-on M&A acquisitions in aplaybook that's been done in
other sectors in the past.
I think some of the challenge isstill around managing the exact
level of uncertainty, and thenI think there's an element of,
again, with any nascent industryor any large point of
(26:08):
inflection, it's not alwaysclear who the winners and losers
are going to be.
You have to be confident thatyou're backing a business that's
well positioned for futuretrends, but you also have to be
confident that you're backing abusiness that's well positioned
for future trends, but you alsohave to be confident that you
are backing a management teamand that you yourself have the
capability to ride the waves asthey come and be able to adapt
(26:28):
and change and take advantage ofopportunities as they arise,
because it is harder to predictlong term views are growth
markets, not stable markets.
Growth markets will always seecompetitive shakeouts.
Speaker 1 (26:42):
How do you see technology and, I guess, ai
impacting the future of privateequity?
I mean, when you say you can'tpredict, isn't there an argument
to suggest that actually AI can?
Speaker 2 (26:51):
I don't think AI today can predict winners and
losers.
I think AI as it stands todayis an incredibly valuable
productivity tool and it willtransform many industries and it
will hugely transform some andit will cause the demise of some
.
Candidly, it will change whowins and who loses in others.
Where it's who can adapt themost to AI, who can use this
(27:14):
productivity tool?
I think there's an element oftruth to that.
In my own industry, consultingfrom a productivity level I
think is absolutely going to beeffective.
I think there is no question inmy mind that the way that we do
the job is rapidly changingwith the advent of AI.
The hey, can I just replace myOC&C study with?
(27:34):
I'll ask chat GPT.
I don't think we're there yet.
I think there's still a realimportance of the human in the
loop in that story.
I think the reasoning, thehistory, the human overlay that
comes from experience, thatisn't just data extrapolation, I
think will continue to becritical.
Speaker 1 (27:53):
There's talk today that actually everything you get
from ChatGPT isn't necessarilyaccurate.
Speaker 2 (27:58):
I mean, the hallucinations are huge.
The ability of the tool toreason has been, when we have
tested it in our applications,has probably been not as strong
as we would like it to be, whichmeans it is a very, very
powerful tool for research.
It's a very powerful tool forextracting information from vast
(28:20):
amounts of data.
The reasoning skills are, bynature, not there, and the
auditability of the reasoningskills are definitely not there.
Someone gave me the analogy theother day which is a very
helpful one, which is you ask ananalyst to go find something
out and they come back and theygive you an answer, and then you
say great.
Speaker 1 (28:37):
And you say well, how did you?
Speaker 2 (28:38):
come up with that answer and they'll take you
through exactly every step thatthey took and you can then audit
it and say well, I'm not sureif that assumption or that data
source was right.
If you ask ChatCPT for ananswer, it'll give you an answer
and it may give you an answerthat looks just as good as the
answer that the analyst gave you.
If you ask it how it came upwith the answer, it will give
(28:58):
you a probabilistic answer forwhat it thinks.
The answer is to the questionof how did I come up with the
answer.
It's not actually going to giveyou how it came up with the
answer.
It has no understanding of itsown processes.
It is a probability-based modelthat when you ask it to
self-reason, it just gives youthe probability answer to the
self-reasoning question, not theactual self-reasoning question.
(29:19):
Going to drive with AIs thatare much more task-specific
oriented and therefore can betrained to lose hallucinations
(29:39):
over time and better promptengineering around that, I think
all of that will improve it,but it's still not going to
solve for the perfect reasoningand it's still not going to give
you the exactly as you say, theconfidence that you get from
the human factor of expertise,experience, depth of kind of?
How many times have we donethis before?
(30:00):
How many times have we seenthis before?
That doesn't change the factthat it dramatically changes the
process that we go through andthe nature of the job,
particularly at the juniorlevels, and it shifts the takes
away a lot of the boring rotestuff that most people don't
like to do, can automate a lotof that, and it probably shifts
(30:22):
the balance of workload fromanswer generation and research
generation to pressure testingand dissemination.
In the past you'd send theanalyst out to do a bunch of
research, make some slides, comeback with an answer and then
there'd be a little bit of backand forth on.
Is this the right answer?
(30:43):
Let's make sure it makes senseand let's make sure it's a story
that seems coherent.
I think that first task isgoing to be a lot quicker, but
that's going to push the need tospend more time on that second
task.
So, yes, research time willdrop, but then error checking
and pressure testing is going toincrease and, more
fundamentally and I'm old enoughthat I've seen a lot of this in
(31:06):
the past productivityimprovements have been multiple
in consulting over the last 30,40 years.
I'm not quite old enough to sayI started in a world where we
didn't have Excel, but Icertainly started in a world
where we didn't have expertnetworks, for example.
So you sort of think aboutprimary research.
It was a good project if youcould get 10 calls in three
weeks because you were sort ofcold calling people to try to
(31:28):
get answers.
Suddenly the expert networkscome in and now we're driving 50
to 100 calls in a two-weekperiod and we're getting a huge
amount of increased insight outof that.
Data availability has grown overtime.
Everything has made the abilityto drive value so much higher.
(31:48):
But the answer has not beengreat, so we'll do a shorter
project.
The answer has been great.
So when I did my firstdiligences 20 years ago they
were a 50 page report with someinteresting data and the key
data in there, of course.
But those 50 pages of analysiscome out of over three weeks.
Now my teams are doing 200, 250pages of real in-depth analysis
(32:13):
with insights coming out of amuch vaster trove of information
that they can then process alot faster and generate a lot
more insight out of.
And I think that is probably,you know, the optimist's view is
that's what's going to happento us under ChatGPT we're going
to see a huge growth inproductivity.
Maybe, at the margin, a changein ultimate pyramid shape may be
(32:41):
at the margin, a change inultimate pyramid shape, but but
you cannot take away the um, theapprenticeship model, out of
consulting.
It's critical because you, evenif you, even if you said I
could, I could automateeverything that my first and
second year analysts do.
Well, great, but I still needthe third year analyst and the
consultant and the manager andthe associate partner.
I need, I still need people whohave learned how it all works
and can come up and canultimately replace me.
Then maybe that changes thenthe sort of way you think about
(33:03):
junior resources.
Maybe it becomes more of ashadowing and apprenticeship
role and less of an active doingrole.
Speaker 1 (33:11):
With the changes that we're seeing from a technology
point of view, with the impactthat we're seeing not just from
Trump's tariffs but thegeopolitical situation across
the world now, and, I guess,your experience of not only
operating yourself as anoperating partner but working
with value creation teams howare you seeing the capability
requirements change withinprivate equity funds, the skills
(33:33):
needed to help funds andportfolio companies navigate
their way through all of thisright now?
How have you seen that adaptover the last 12 months and how
can you see the change goingforward that's going to be
required?
Speaker 2 (33:44):
12 months is always hard to see a pattern right.
I think it's probably more likea sort of 10-year trend that
kind of goes through waves and Ithink, as we talked about,
different funds will havedifferent approaches and I am
still not sold that there's aperfect answer, because I think
it's always a situational answer.
But I certainly think over thelast five years the growth in
(34:06):
specialization has beensignificant in terms of the
portfolio groups are looking for.
I think if you wind the clockback 15 years, even arguably, if
you wind the clock back toyears, even arguably, if you
wind the clock back to when Istarted that job, it was a
generalist's job, as wasconsulting.
When I started consulting, Iwant a smart person who can look
at my portfolio and think abouthow to add value and maybe
(34:28):
bring in some expertise.
But ultimately I just needsmart people and they'll figure
it out.
I think as those groups havematured just as consulting
matured, over time they haverealized that actually
specialization is critical.
You want someone who knows howto do talent management.
You want someone who knows howto work with office of the CFO,
someone who understands supplychain.
(34:49):
You want someone whounderstands pricing and there is
much more value in specializedtools and scalpels that you can
send in to really drive specificprograms at your portfolio
companies, more than a bunch ofconsulting trained generalists
running around sort of trying torun mini consulting projects in
(35:10):
the portfolio.
But sometimes the answer is bothright.
Sometimes the answer is hey,it's important to have the
generalists because thegeneralist can take the
aggregated view, it can helpwith the prioritization, it can
help identify what the rightthings are to be driving and
then program manage those.
But you also critically needaccess to specialization and
sometimes that access in somechoices that access comes from a
(35:33):
deep bench of advisors, a deepbench of not employees but
people who you can bring in on aconsulting basis.
Sometimes it comes throughaccess to specialized consulting
firms, but often, andparticularly at scale private
equity businesses, it is comingfrom individuals with expertise
that can sit across portfoliocompanies.
Speaker 1 (35:53):
That's a great note to finish on, carl.
It's been great talking to youtoday, really appreciate it.
You and I have known each othera long time, as I said, and
it's been great to get yourinsights, certainly on the Super
Return event that happened lastweek as well.
So thank you for sharing thatwith us.
Good to see you today.
Thanks very much.
Speaker 2 (36:08):
Thanks so much Good.
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