Spotlight On with Hugh MacArthur, Chairman of Bain & Company's Global Private Equity Practice.

In this episode of Spotlight On, Nicholas Barton, Founder of The Barton Partnership, is joined by Hugh MacArthur, Chairman of Bain & Company's Global Private Equity Practice. 

We dive into the evolution of private equity from its humble beginnings to a trillion-dollar powerhouse, with Hugh's 30-year career at Bain providing unparalleled insights. Hugh also touches upon the surprising shift in value creation, moving from multiple expansions to operational excellence, and the rise of the Chief Transformation Officer.

 We also discuss how generative AI revolutionises deal sourcing, portfolio analysis, and internal operations. Plus, Hugh forecasts the future of private equity: consolidation, new wealth products, and even daily asset valuations. Tune in to understand how firms can craft winning talent, investment, and capital strategies in this rapidly changing landscape.

Episode Transcript

Speaker 1 (00:00):
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 organisation.
We specialise 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 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 and thought leaders whoare shaping the future of
business.
Today, I've got the greatpleasure of talking to Hugh
MacArthur, who's a seniorconsultant, executive and
investment professional.

(00:40):
He helped found Bain's PrivateEquity Practice 30 years ago and
has built the business now intoan undisputed industry leader.
Hugh is also a leading thoughtpartner for alternative asset
managers, including privateequity firms of all kinds, hedge
funds, infrastructure and realestate funds, credit funds,
secondary funds, sovereignwealth funds and other limited
partners.
Hugh has authored frequently onprivate equity value creation,

(01:03):
state of the industry and otherrelated topics in publications
around the globe and is the hostof Bain Company's Dry Powder,
the private equity podcast inwhich he interviews leading
experts on the trends andopportunities that will redefine
the private equity industry.
And when he's not busy doingall that, hugh sits on the
investment committee of GreaterShare, an innovative
philanthropic investment modelharnessing the expertise of the

(01:24):
world's top performing privateequity funds and impact NGOs to
solve the complex globalchallenges.
Hugh, great to have you heretoday.

Speaker 2 (01:31):
Thank you for joining us.
Well, Nick, first of all, thankyou very much for having me on
the show.
I really appreciate theinvitation and the chance to
chat today.

Speaker 1 (01:39):
And on the back of Bain's private equity report
this year.
It's great to spend some timewith you, so thank you for
joining.
Tell me a bit about yourself.

Speaker 2 (01:46):
It's a bit dangerous, your first topic asking you to
talk about me personally.
I think my family's sick oftalking about anything that has
anything to do with me, so we'llsee how that goes with your
audience, but I'm delighted tobe here.
So I started at Bain over 30years ago.
So I've been a Bain lifer andabout a year or two into my
career a couple of colleaguesand I were thinking about we'd

(02:13):
done a little bit of work atthat point with a couple of
buyout firms on the West Coastand a bunch of us had done some
thinking around Bolt.
We seem to be able to generatea lot of results, which is the
word of the day back in theearly 1990s, for Bain Company
really is kind of the word weuse to describe what we do for
clients, which is rathercommonplace now but was unique
back in those days.
The consultants were known forwriting a lot of reports, not

(02:33):
for generating actual resultswith clients.
And we're thinking, since weactually started a relatively
successful private equity firmcalled Bain Capital, that
perhaps we might be useful toother private equity firms.
And a firm actually on the WestCoast that we'd done some work
with called us up one day andessentially said you know, bain
Capital seems to be doing ratherwell and the only thing that we

(02:56):
can see that they dodifferently from us is that
everybody that they have ontheir staff is from Bain Company
.
Could you potentially do for uson an outsource basis what they
seem to insource, and try that?
And we thought, huh, well,that's an interesting, that's an
interesting idea, maybe, maybewe could.
And so the first business thatwe really started inside of what
we call our private equitygroup, but it's really a
financial investors practice,was due diligence doing due

(03:20):
diligence for private equitybuyers, looking at a company and
having a few weeks to assess isthis a good idea or a bad idea.
And that sounds like, you know,quite banal today because it
happens all the time and it's avery big business.
But back then private equityfirms never hired consultants to
do anything.
That looks like that.
And I very, very vividlyremember walking up and down

(03:41):
Park Avenue in New York, whichwas where most of private equity
central was in the 1990s stillmajority of it is today with
colleagues and we would visitdifferent GP offices and go up
and talk to them and they wouldsay well, hugh, I know why I
need an accountant to do atransaction, and I know why I
need a lawyer to do atransaction, but what on earth
would I do with a consultant?

(04:03):
And so we started askingquestions like well, how would
you like to know how fast theindustry that the target in is
really growing at versus what'sin that analyst report, and
would you like to know whatpricing is going to do in the
future and whether or not theircustomers like them better than
other options, and what theircompetitors are doing and how
regulatory issues might change,or technology?
And they said, oh my gosh, youcan tell us things like that.

(04:24):
And we said, well, yeah, we dothat for a living.
We go hunt down external dataand figure those kinds of things
out.
And so we had to create a newproduct around that, nick,
because when we were doing itfor corporations back then, we
did things in months and yearsand not weeks.
So we had to create somethingthat you know, in a three to
five week period actually toldsomeone something insightful
that they didn't know about thecontext around the target

(04:45):
company and about the targetcompany that they were going to
buy.
And that became the duediligence business that has
grown so tremendously well forus today.

Speaker 1 (04:54):
And that was on the back of that one conversation
from the client that had come toyou and said can you do this
for us?
And that gave you the idea andthe initiative to then put a
proposition together and take itout onto the street.

Speaker 2 (05:05):
Yeah, I would say that was a bit of a galvanizing
spark, Nick.
There had been conversationsand dabblings.
A lot of us knew people in theprivate equity world.
Obviously, as I said, wecreated a private equity firm
ourselves and so we've done alittle bit of work, primarily on
the West Coast, with differentfunds over time, trying to
figure out what is it we shoulddo, how should we do it, what

(05:27):
does that look like.
And so there were a number ofus on both coasts involved in a
lot of these conversations.
It seemed like there wassomething there, because we were
in the industry and it seemedlike there was a felt need there
.
But we couldn't quite.
We had to craft, kind of, whatthe solution was.
But I think that was I wouldcall that a catalyst toward
getting the thinking reallykicking into gear, saying, okay,
this is actually a business,this is not something that quote

(05:50):
unquote we're doing on the sidehere because it's interesting.
This is something that weshould be doing in places like
San Francisco at scale, inBoston at scale, in London at
scale, and try and sort of seehow far this goes.
Because remember, back then thebuyout world and the private
equity world was really afledgling industry.
It was a cottage industry.
It was not very big.
The average transaction sizewas about $100 million.

(06:11):
The largest business that wasbought would never be enough to
pay Bain Company consulting fees.
So this is not something likewe're going after this in any
kind of a traditional way.
I believe that there was goingto be growth there and that
we're going to be able to makemoney doing due diligence work.
And actually the other way thatwe came up with in 1996 that we

(06:33):
thought we would align ourselveswith clients and would be a
good adjunct, since we didn'tthink there'd be a lot of
portfolio work there at the time, was the co-investing along
with our clients, and so webegan co-investing on a
deal-by-deal basis about 30years ago with our clients.
We have an investment committeethat I've sat on for about 25
years along with others thatmake decisions on different

(06:53):
deals, and we actually foundthat our clients liked that.
This is Bain Company and it wasactually our own personal money.
We would raise funds still dowith our own personal money to
invest in individualtransactions, and we found out
that our clients liked itbecause, in addition from having
a due diligence and getting aninvoice from Hugh, we get my
personal check in the deal aswell, and so our skin is in the

(07:17):
game in a bunch of these dealsand very often our clients were
interested in whether or not ourinvestment committee liked the
deal.
What they were worried aboutDid we say yes to co-invest, did
we say no to co-invest?
And we, in the instances wherewe do co-invest, you know we're
shareholders right alongside ofthe client, obviously at a very
de minimis amount compared tothe client, but it aligns our

(07:37):
interests and aligns ourconversations in a way that is
more on the same team, if youwill rather than transactional
and commercial in nature, right,I guess.

Speaker 1 (07:47):
In the industry it is referred to quite commonly the
Bain Private Equity Rinfinks.
What percentage of the businessdoes it account for now?
How has it expanded over thelast 30 years as part of Bain's
proposition?

Speaker 2 (07:56):
Well, it's grown quite rapidly.
It's better to be lucky thangood.
I think it's great to be both,nick, but I'll take lucky if I
have to choose one of those two.
And we happen to catch theincoming of a very huge tide in
the move toward private assets,private equity and buyouts, in
particular being the leadingedge of that.
The business has grownincredibly strongly over the

(08:18):
last 30 years and if you takewhen I say the business, I mean
the business writ large, whichincludes obviously due diligence
, what I've described, which isthe ring fence bit that you've
talked about, there's obviouslythe post-acquisition work which
has now become, since largercompanies are bought, a very
material part of our business.
And there's a third solution weoffer, which we call firm
strategy, operations andorganization, which is kind of

(08:40):
doing work for the GPs and LPs,sources of capital themselves on
their own businesses.
And if you take those threethings in aggregate, it ebbs and
flows with each given year, butit's about a third of
everything that Bain Companydoes.
So it's now the largestpractice area at Bain and has
been the fastest growingpractice area over that piece of
time.
So, as I said, it's great tocatch the tide when it's coming

(09:02):
in and have those ideas right,as the industry is going to
change and inflect upward to ahuge degree.

Speaker 1 (09:08):
And the nature of the work obviously has continued to
evolve over that time as well.
How has that evolved?
The proposition in terms of asthe markets moved?
How has Bain evolved as part ofthat?

Speaker 2 (09:19):
Well, it's really interesting.
I mean it really has evolved,as you pointed out, nick,
tremendously over 30 years.
When we started doing duediligence, we lived in an analog
world.
We weren't even using theInternet on a daily basis, so
this was all smiling and dialingwith customers and trying to
dig through books and fact basesthat got published every month.
I mean, it looks nothing likethe product that's out there now

(09:49):
, using AI and lots oftechnology and tools that,
frankly, I don't even understandhow half of them get done now,
versus what we did 30 years ago.
And that's just on thediligence front.
As I mentioned earlier, we nowwork very systematically through
portfolio companies and tryingto understand, working with
portfolio groups and others,what good looks like and how do
we take something that'sunderwritten, which I call speed
to insight, and translate thatinto speed to value, like how do
I actually generate what I wasunderwriting in the fastest
possible way in partnership withmanagement, in a very

(10:10):
harmonious fashion?
That's not an easy trick toaccomplish and that's evolved a
lot over time.
Probably the biggest thingthat's changed our business has
been or one of the biggestthings I should say, has been
the need for strategy, whichdidn't really exist.
We have lived for the mostaccumulated time, most of the
accumulated history of privatemarkets.
The beautiful thing about ourbusiness was everyone could win.

(10:32):
There was enough space thateveryone could have enough
talent and enough access toinvestment opportunities and
enough access to capital to dowell.
Well, we're now in anenvironment where it's pretty
crowded out there and it'smaturing and it's very intense,
and so there's not, and wheneverthere's not, enough of
everything to go around,strategy and differentiation
suddenly become very, veryimportant.

(10:52):
And I'd say since the GFC,we've seen an increasing move
toward folks realizing thatthey've got to have a
differentiated strategy toachieve specific ambitions.
It's not just make your nextdeal a good one anymore, which
is what it always used to be,but as the industry's
professionalized, it's much morenow dependent upon having an
end goal in mind, and that'sreally not in the DNA of a lot

(11:15):
of folks that got together 30years ago because they wanted to
do deals.
They're not strategic thinkersby nature.
Generally speaking, they'redeal makers and that's what they
want to do, and they'redealmakers and that's what they
want to do and they're great atit.
So seeing that transformationand being a small part of it has
been very interesting.
I'd say the last thing, nick, inyour question as to what's
really different now is just theexplosion of private markets in
general.
We are on a secular growthtrend in private markets that's

(11:37):
absolutely unbelievable.
If you'd have told me 30 yearsago that it's not just going to
be buyouts and venture capital,it's going to be growth equity
and it's going to be privatecredit and it's going to be
hedge funds getting into privateassets and it's going to be
infrastructure and it's going tobe real estate and it's going
to be all these kinds of privateasset classes and it's going to
go global and it's going to be$20 or $30 trillion.

(11:58):
So I put that all in a bow andwrap it up and say that is a
universe of complexity, all ofwhich we work in today, that I
don't think anyone doing deals30 years ago would have guessed
at.

Speaker 1 (12:09):
And tell me, in your role as chairman, is part of
your responsibility thinkingabout how you continue to
differentiate Bain's propositionin this market and evolve as
the market's evolving?
How has Bain continued todifferentiate itself from its
competitors in this space?

Speaker 2 (12:25):
You know we try to look around corners as best we
can.
Certainly, my crystal ball isas cloudy as anybody else's and
one of the most challengingparts of looking at this
industry as you know, nick, isthe data can be very patchy and
very spotty and in some casesdownright inaccurate.
I used this line years ago atmany talks that you know.
The old saying goes there arelies, damn lies, statistics and

(12:47):
then there are facts about theprivate equity industry way out
there on the edge of thespectrum.
So it has been very difficultto get good data and for that
reason, 16 years ago we startedto publish our private equity
annual report, because we justwere looking at so many things
in the media and so manypurported academic studies and
it just didn't resonate with ourdaily experience and we kind of
looked and said this is notactually what's going on in the

(13:08):
marketplace.
And so it wasn't that we hadthe golden key answer to
everything that was going on inthe marketplace, but we felt
like we could do a good job attrying to divine all of these
diverse sources of data andinformation, marry it up with
what we were seeing every singleday in the marketplace and
saying this is the best pictureof what we think is happening.
These are the trends that aregoing to shape the industry

(13:29):
going forward, and if we were aGP or an LP, these are the few
things that we would want toknow and have in the front of
our minds in the upcoming yearand in the years coming forward
for that.
So my role is, in some ways, tohelp shepherd that IP, to make
sure that we are doing that, andthen we're helping to
disseminate that.
In many ways.
The annual report is one way.

(13:51):
It's a major thrust of what wedo, but there are a lot of
things that hang off of it.
It's to get the message out bydoing the podcast that I do and
doing a lot of client meetings,and really to continue to build
a network of world-class, globalrelationships with senior
executives in and around thisbusiness so that we can all try
and divine where it's going,because one of the most exciting

(14:13):
things about this industry isthat, as you pointed out earlier
with your question, it's young,it's dynamic.
A lot of the people thatfounded this industry are still
around and active in it, whichis very unusual for most
industries of this scale, and Idon't think any one person knows
exactly where it's going,especially now 30 years plus at
Bain.

Speaker 1 (14:31):
Now I mean I don't want to label it by any stretch,
but that's an amazing run.
What's kept you there?
I mean, why have you stuck withBain for so long?
Has it been the evolution ofthe industry that you're facing
into For anyone to stay in onefirm for that period of time?
Something must have continuedto evolve.
Keep your interest there, right.

Speaker 2 (14:49):
You've got to have a really good closet to hide in.
Nick, you pointed out that I'vereached the final stage of G&A
in my career.
I have been at Bain a very longtime and the best thing I can
say about it that's kept mearound personally is that Bain
is an incredibly entrepreneurialplace.
When I joined the firm, therewere no practice areas at Bain.

(15:10):
There were no practice areas atmost consulting firms.
They're all generalist firms,not specialized at all.
As I said, the internet was notextremely prevalent which tells
you what kind of a dinosaur I amand so everything was on paper
and the private equity group atBain became the first practice
area at the company and the factthat the company would allow a

(15:30):
group of like-minded individualsto form a practice that ran in
a very different way.
As you pointed out earlier,nick, we needed a ring fence
because we were doing things ina few weeks cycle time and the
company was used to doing thingsin months or years, not a few
weeks, and so we needed our ownstaffing.
We needed our own folks that wehad to recycle very quickly.
We needed our own routines andways of doing things that had to

(15:51):
speed up the clock and dothings in a different way than
traditional corporate consultingwould do it.
And the fact that the firmwould allow me to do that with
people that I wanted to workwith, essentially build a
business with inside of abusiness and invest behind us if
we were successful, wasfantastic, and so for me that
ticked the box, which is kind ofthe what I want to do.
I said, well, if Bain is goingto allow me to work in an

(16:14):
environment and do what I wantto do with people that I
actually want to do it with, andthat's very exciting, that puts
a really high bar on doinganything else.
Over time, and, as you pointedout, the dynamism of the
industry has allowed us to growand find new opportunities and
learn new things and have theopportunity to succeed in
learning those new things andputting them to work for clients
.
And it's just created, for mepersonally, a tremendous sense

(16:38):
of loyalty.
And it's not that I haven't hadopportunities, obviously, to go
and do different things, but,as I said, when you're doing
things with great people andthey're the things you want to
do and you would have drawn upon a piece of paper anyway why
would I go elsewhere?

Speaker 1 (16:52):
Of course, you've supplemented this with outside
interest and you share a commonone with Graham.
Talk to me about Greater Shareand what your involvement has
been with that and why.

Speaker 2 (17:04):
Well, Greater Share is a fascinating organization, a
charitable organization that isthe brainchild of Graham Elton,
a friend and client of mine,Paul Fletcher he used to be the
senior partner at Actis and isnow chair of Teach for All about
putting together the best ofeducational charities and

(17:26):
private equity investors.
And the idea was you know whatif we created an organization
where we had part of theorganization focused on
identifying the best educationalcharities in the world that are
helping people that desperatelyneed it?
I think we can all agree thatyou don't have to look too hard
in any country in the world tofind places where educational

(17:47):
impact is needed.
Money is needed to supportthose ideas, and so where are
they is part of the equation.
The other part of the equationis where are the best private
equity investors that can reallycontribute tremendous returns
and put a sustainable amount offunding into those charities
over time?
And so the other half of theorganization, which I'm on the

(18:10):
investment committee wasidentified with, was tasked with
identifying the best privateequity operators in the world
and pitching them on.
The greater share is a good idea.
It's to be able to how wouldyou like to contribute some of
the economics that you'regenerating into the greater
share is a good idea is to beable to.
How would you like tocontribute some of the economics
that that you're generatinginto the greater share machine?
And there's obviously amultiplier effect to doing this

(18:31):
because it goes all the way backto the individual investor or
the individual institutionthat's putting their money into
the private equity fund.
They're contributing 50 or 100percent of their gains into the
charitable foundation.
The private equity fund iscontributing their fees and
carry into the foundation andyou have these multipliers that
go along and then the helpersalong the way are doing the same

(18:51):
, and so $1 becomes $2.50 or $3,going into the charities and
the profit.
And so if you actually do thatwell, you have a stream of
supporting cash flow from thebest investors going into the
best educational charities.
That goes on for years.
And one thing that I found veryinteresting when I got involved
in this, Nick, is that charitiesactually have a very good line

(19:14):
of sight from the way that theyfundraise to the next year's
budget and maybe the next year'sbudget after that.
But the difficulty that theyface is that it's very hard for
them to invest for the long term.
They just have no idea whateconomics they're going to be
looking at in years three, four,five or six or beyond.
And that matches up beautifullywith the private equity cash
flow system where you put moneyinto deals today and then you

(19:36):
start harvesting, maybe in yearthree, four or five, but knowing
that that money is going to bethere for the charities over
time and knowing that they canplan for that new initiative,
they can plan for that newcenter, they can actually think
about that because money iscoming in the door.
It's incredibly valuable forthem.
Tremendously rewardingexperience for us to work with a
broad ecosystem of people thatgoes well beyond Bain in greater

(20:00):
share, to get that off theground and to close our first
fund and really start to put itinto practice An amazing
achievement as well, I reallywant to delve into your views
around winning the future andhaving a clear strategy to win,
including leveraging Gen AI and,perhaps more importantly to a
point, winning the talent war.

Speaker 1 (20:18):
Given the growing integration of Gen AI and
private equity, what do youperceive as the most significant
use cases of Gen AI across thedeal lifecycle and how is Bain
capitalizing on this, bothinternally and in client
engagements?

Speaker 2 (20:32):
It's a great question , Nick.
I mean Gen AI.
I think we're obligated to sayGen AI at every conference we
speak at or client meeting, orcertainly in every publication
or podcast.
I'm glad you brought that up,because otherwise the burden
would have been on me to figureout some way to slip it in here.

Speaker 1 (20:44):
There'd be something wrong.

Speaker 2 (20:45):
If I didn't, it would sound wrong.
I think Gen AI is going to be abig game changer.
I am a person that pumps thebrakes just a little bit when I
speak on Gen AI, only because wehave to remember that two and a
half years ago, we were noteven using that term.
Within the last two and a halfyears, this has now become quote

(21:10):
unquote a thing, if not thething.
It's interesting.
I was doing a webinar recentlyand there were several thousand
folks that were in attendance onit and I did a digital poll
during the webinar and a lot ofthem were GPs and I said what
are you excited about?
What's the thing you're mostexcited about over the next five
years?
And I had six or seven veryinteresting things up there and,
of course, ai was one of them,and I was astounded that 45% of
the votes were on AI, thatnothing else was even close.

(21:31):
The others were 4%, 5%, 6%, 45%.
So it's fair to say that Gen AIhas everyone's attention in the
private equity industry.
And so the question is okay,it's less than two and a half
years old really in terms ofanybody's real mindset.
Okay, it's less than two and ahalf years old, really in terms
of anybody's real mindset, andtherefore it's quite new.
So to expect the world tocompletely evolve in two and a
half years, I think is a lot,but one of the most exciting

(21:53):
things that everybody's seen intheir career.
And so where do we go with thatand how do we think about that?
I break it down into threepieces and here's how we think
about it and in-bane privateequity when we're using it for
people.
One is obviously it impactsevery industry to one degree or
another and will impact it morein the future a lot or a little.
So the things our clients buyin their portfolio, we need to

(22:17):
look at what are the differentindustry changes that are going
to provide opportunities orthreats that Gen AI enables, and
so we need to be able tounderstand for clients that are
actually buying things in thisindustry, and so we need to be
able to understand for clientsthat are actually buying things
in this industry.
This is now going to beautomated.
These people are going to bereplaced by this.
These new services or newproducts are now going to be
created by Gen I If you can'tdescribe what that's going to

(22:41):
look like in a given industryand software is going to be
different than healthcareprovision.
It's going to be different thanindustrial manufacturing.
So it's going to be what flavorof it is going to actually have
the biggest impact and how bigis that impact?
In some industries, it may nothave that big an impact at all.
In other industries, it willhave a completely transformative
effect.
We haven't seen a lot of thatyet.
You know what I've seen so farpersonally in terms of boots on

(23:03):
the ground.
What's happening right now,it's a lot of initiatives that,
if you add them all up, theyamount to something.
But if you look, if you'relooking for that one silver
bullet that changes the entireindustry, it's not.
It's not quite there yet in anyindustry that I've seen.
So it's more like the onlinebusiness that has a, an
answering service that they'venow changed into a chat bot and

(23:27):
so they've been able to swap outpeople for machine and the
chatbot is more accurate andpeople give it better
satisfaction scores and it's asmall thing like that and it's
okay.
Now we need 25 more ideas likethat to move the needle at all,
and where do we go from there?
So we're still in manyindustries at that level of
putting it into practice, whichis not to say that the ideas
don't get bigger and theopportunities don't get bigger.

(23:48):
It's just that you need tostart somewhere, start
experimenting, do a thing,believe a thing and then keep
moving onward, and so I thinkwe're in that moving onward
stage in the portfolio.
So that's one area where Ithink AI is having an impact and
making a difference.
The second area is for theinvestment process of GPs
themselves.
So how can I use Gen AI and newalgorithms to search data lakes

(24:13):
, to find me investmentopportunities, to find me
opportunities of businesses thatI want to own that might not
even be for sale yet.
Maybe they'll be for sale inthree years, four years, but I
want to be the one that startsto know more about them now.
So when they come for sale, Iknow the most and I can pounce
on that opportunity and get itbecause it belongs to me,
because I know that I want ittoday, not in the future.
So building my own pipeline,underwriting better, utilizing

(24:35):
tools to drive tremendousproductivity.
And what I referred to earlieris the speed insight those that
get confidence more rapidly areable to pay the fuller price and
win the asset more rapidly, andthat's really what the name of
the game is today.
And so, whether it becomesautomated sweeping and
summarization of data rooms orexpert transcripts or other
types of just ways to processdata and extract the value from

(24:57):
it more rapidly, utilizing GenAI tools critically important
now and becoming ever moreimportant in the investment
process.
So, taking it from thecompanies themselves to how do I
identify, underwrite and makesure I win them are two critical
application areas of thetechnology.
And thirdly, I would say a lotof firms are turning Gen AI

(25:20):
inward on themselves and sayinghow do I remake me as a business
?
As we talked about a littleearlier, we're seeing a great
professionalization, if you will, and a maturation of the
private equity industry.
The firms are getting larger.
They're getting more complexover time.
The cost of generating alpha isincreasing over time.
I need to have more subsectorexpertise.
I need to have more investmentsin technology.

(25:41):
I need more investments in myportfolio operations group.
Those things cost a lot ofmoney.
I need more money in capitalformation to go raise money,
because it's harder now thanit's ever been before, so I need
to have earnings and margins.
If I'm an investment firm, howdo I actually turn technology
like Gen AI to help me automatesome things in areas like GNA
and the back office, so that Igenerate more productivity and

(26:03):
make sure that, as I'm scalingthis business, I understand how
my costs are going to behave andI get the margin structure that
I need and want going forward.
Now some people think well, ofcourse, that applies to only the
5 or 10 or 20 biggest publicfirms, and the answer is no, it
doesn't.
It actually applies tomid-market buyout firms as well,
because they're getting larger,they're getting ever more
complex and all the forces thatI just described apply to them

(26:25):
too.

Speaker 1 (26:26):
There is still an uncertainty around the negative
impact of Gen AI, especially inconsulting right.
When it first came out, one ortwo firms actually banned it as
part of their proposition.
There's a long-duringdiscussion around the impact of
Gen AI in terms of developingyoung consultants into future
partners.
Right, Because all the researchis now done by GenAI.

(26:47):
How has Bain utilized it?
How has it impacted it?
Both positively and perhapsnegatively, I think it's a great
question, nick.

Speaker 2 (26:56):
Now I'll tell you that from the outset that
banning technology is nevergoing to be a winning strategy.
Technology is.
One of my partners, whoactually led our retail practice
way back when, about 20 yearsago, said something I'll never
forget, which is don't ever betagainst technology, you will be
on the losing end of the bargain.
So understanding how to utilizetechnology and where it goes is

(27:18):
quite important and I've alwaystaken that to heart and I think
we do as a firm as well.
I'll also say that we're inprobably the I'm making this
number up, but seventh or eighthcycle of technology is going to
end jobs for everyone.
You know, when the PC firstcame out in 1984, that was said
just keep going and going theinternet.
You know, every time you hearabout something that's new in
technology, it's all the jobsare going to go away.

(27:38):
Well, well, guess what?
The jobs have multiplied.
They've not gone away over timebecause somebody needs to take
care of the technology, promotethe technology.
There are some things thattechnology just can never be
able to do.
I know create more jobs forunderstanding what the
technology is doing.
So I'm on the glass half fullside of this is that you know,
will there be some jobs that areeliminated over time?

(27:59):
Yes, they tend to be repetitive, redundant labor that, frankly,
most people that come to Baindon't sign up to do anyway.
And when we've utilized Gen AIand other automating
technologies because there are alot of them beyond Gen AI to
try and do things like diligencewhat we've found is that it
does actually eliminate a lot ofthe what I'll call hamster

(28:20):
wheel churning work that mostpeople don't sign up to be a
consultant to go do anyway, butit only gets you so far.
There is business judgment andhuman judgment required at the
end of the day, at all levels inorder to be able to understand
what is the information actuallysaying.
How do I actually apply that?
And in fact, we're able toanswer and look at new questions

(28:41):
that we never were able totackle before, that are becoming
additive to what we do.
So it's not simply reductive butadditive, and I'll give you an
example.
You know we've created thelargest database of expert
interview transcripts in theworld.
Bain does more expertinterviews than any firm in the
world.
That's not just me talking, thepeople that run the expert
interview firms tell us this.

(29:02):
And so creating a database bysector, by subsector, by
geography, of all of theseexpert interviews and
understanding what they feelabout their subsector, the
competitors, how it's evolvingover time, and being able to
track that Literally you knowmillions and millions and
millions of words being able tosearch it, being able to get the
three bullet point summary, thethree page summary, the 30 page

(29:23):
summary of questioning.
We couldn't do that before.
There was no point in eventhinking through doing something
like that.
So we're actually thinking upnew ways to analyze industries,
companies and data that we couldnever even do before because of
Gen AI, and we need people tobe able to actually interpret
that.
Look at it, and so it'sexpanding the pie of what we're
doing versus sort of actuallydetracting from the pie.

(29:44):
Now, there are definitelycertain types of work that ACs
and consultants don't need to doanymore, and I can't forecast
for you down the road whatthat's going to mean for those
types of jobs.
Doing that type of work, Iwould think, as I said, most
people don't want to do theboring repetitive work.
They want to do the, so what.
You've summarized it.
So what are the three thingsthis could possibly mean?

(30:27):
No-transcript, that analogproduct that I described for you
where we did.
Maybe maybe we had time inthree weeks to do 20 customer
interviews may not have evenbeen statistically relevant back
in the day and maybe we hadtime to look up things in a few
books that may or may not havebeen accurate.
They were certainly way betterthan anything the client had.

(30:51):
But compared to what we can dotoday, we're light years ahead
of where that was and we're ableto answer 20, 30, 40 other
questions that we couldn't haveeven thought of answering 30
years ago.
And clients want to knowbecause at the end of the day,
it's hundreds of millions, ifnot billions of dollars in a
transaction and they want tode-risk it as much as possible
and find out where the upside is.
And I just don't think thatthat passion for generating
those results is going to goanywhere anytime soon.

Speaker 1 (31:12):
No, I completely agree.
In your experience, what arethe key factors driving superior
returns in PE funds valuecreation processes and how do
these relate to capabilityrequired and the focus of PE
operations teams?

Speaker 2 (31:25):
Well, that's a big one.
There's a lot going on outthere in value creation
processes and teams right now.
I'll say firstly that in ourown experience that the premium
is still on the buy and thatmeans you need to buy an asset
for the right price.
Our experience, if we look backover the course of 30 years in
working with portfolio companies, if the fundamental assumptions

(31:47):
of what you were buying weresimply wrong, the client vastly
overpaid the ability of anyvalue creation process to fix.
That is kind of 50-50 at best.
You're sort of flipping a coinas to whether or not you can do
it.
So, assuming you get that right, I've always believed that
what's most important is theprocess that you undertake.
We'll talk about sort of whatforms that can look like, what

(32:10):
organizational and resourcestructures that can take over
time, but the process needs tobe rigorous and repeatable for
every single asset that you buy.
And what I mean by process isthat you need to set we call
them value creation plans theconsultant slang is VCP value
creation plans but what theyreally are are full ambition

(32:32):
plans with a strategy to achieveit.
Full ambition meaning how highis up for this asset.
Where can we go?
Forget about the deal model.
You know that's a financingissue.
Forget about the confidentialinformation memorandum.
That's a marketing document.
What is the unconstrainedequity value of this business at
full potential really, in fiveyears?
Let's go get the facts andfigure that out and then, once

(32:55):
we do that, what are the threeor four big things not 30,
because, like people, no companycan do 30 things a hundred
percent well but what are thethree or four big buckets of
things that, if we do them well,we're actually going to get our
full ambition or as close toour full ambition as we possibly
can in terms of equity value,and then create a strategic plan
around that to go and achieveit.

(33:16):
That is the process that I liketo see rigorously applied with
every single investment.
And why do I say every singleinvestment?
It's because, no matter howsmart GPs are, no matter how
good they are, it's always asurprise.
Some of the best investmentsthey didn't know they were going
to be the best investments whenthey bought them.
Some of the ones that weregoing to be most challenged,

(33:37):
they didn't know they were goingto be most challenged when they
bought.
So if you don't do the samething with every single
investment, you risk getting themaximum out of your best and
you risk underperforming on someof the ones that weren't your
best.
And so I'm a firm believer ondoing it the same way every
single time, which isn't easy,by the way, because we live in a
bespoke world.
This is not.
Companies are made up.
They're very organic.

(33:57):
They're made up of differenttypes of owners, different
structures, differentpersonalities in the C-suite.
So you may have to approachthis slightly differently to get
it done, but it's the ethos ofwhat we're trying to do and the
rigor with what we're trying todo, that we want to get done the
right way.
Not necessarily follow everysingle step of the spreadsheet
every single time.
You know down to 1,000 stepswith every company.

(34:17):
That's very, very hard to do.
But if you're not trying to doit rigorously every single time,
then you're not going to do itand I think that's the greater
failure and that's the biggervalue leakage for the industry.
So that's my sort of huge ranton kind of why process is very
important.
Process Uber Alice here.

Speaker 1 (34:34):
It completely stacks up.
It's interesting as wellbecause obviously, given the
maturity I guess to a point ofthe industry now, as you say,
there's no necessary learningsyou can take from the past.
That's going to define whatlooks good going forward.
But given the nuances of everysingle deal that will take place
, both in terms of size, shape,culture et cetera as well,
there's no one rule fits all, Iguess.

Speaker 2 (34:57):
That's right.
That's right.
You have to apply it.
It's something that you'retrying to be very deliberate and
routinized about, but apply itin a bespoke way which is a big.
That's a tall, that's a tall,that's a tall order.
And that's why I think you knowwe've seen, because of the
changes you mentioned, nick, inin industry and business and we
just talked about Gen AI that'sa huge one that the future is is

(35:17):
going to be different than thepast, and so there's a continual
relooking on the part ofprivate equity firms on what do
I need, on my own cost structurein terms of a resources group
in order to deliver this type ofprocess or whatever process I'm
trying to deliver, and whatshould I leave to outsiders?
And I describe it as kind ofyou need an ecosystem of some

(35:37):
sort to deliver the value thatyou're trying to deliver, and
explicitly deciding what thatecosystem is and how it's going
to be applied is very important,and I think that there are a
lot of ways that you couldactually go about this.
There are some firms that, oncethe deal is done, the partner in
the portfolio or resourcesgroup becomes 100% responsible

(36:00):
for the firm.
They're on the board, they'rerunning the show.
The person who did the deal,the deal MD, is no longer really
running the show at all forthat company.
Many firms are actually notthat.
They're kind of the opposite Ifyou did the deal, you're the
deal MD.
It's what they call cradle tograve.
That's kind of where theindustry came from.
You're going to own it from theday we close on it until the
day we sell it, and what goesright and what goes wrong is

(36:22):
ultimately on you, sometimesfinancially, obviously, from a
responsibility perspective.
And there are firms now that aremore centralizing their
approach and saying, well,that's good, we can have a
philosophy of like, either, youknow, putting it on to someone
in a group or putting it on tothe DLMD, but what is this
ecosystem we want to have andhow does it operate?

(36:43):
And we've kind of ebbed andflowed from an era where there
were firms certainly the mostactivist firms that had lots and
lots of people on their payrollsaying, well, we're going to
have people from every differenttype of business, functional,
specialty area to try andgenerate value, and we're going
to have sort of lots of expertson our team and we're going to
have HR specialists and we'regoing to have IT specialists and

(37:03):
lean manufacturing specialistsand we're going to roll these
all up.
Folks have found over time thatsome of that has worked.
In areas like procurement'sprobably been the most
successful.
But if you go too far down thespecialist chain, what you find
out is that every company windsup having that problem.
Everybody has an IT problem,everybody has a lean
manufacturing problem.
That's kind of the nature ofthe beast, and so you can kind

(37:25):
of get away from what I wastalking about earlier, which is
what is the big thing that'sgoing to drive value and full
potential equity value for thisbusiness and what are the three,
four big areas that we may needto go get it.
That might not fit very wellwith my functional specialist
lineup, and so maybe I needsomething more flexible and I
think a lot of the industry hasnow have hybridized a little bit
to having generalists there, tohaving folks with experience

(37:49):
that they know they're going touse.
90% of the time we buy B2Bbusinesses and so having
somebody who's an expert anddone a lot of B2B commercial
excellence programs and knowswhat good looks like is probably
a good idea to have on our teamMaybe not 20 people, but maybe
one or two people that canactually create a team of
outside experts and consultantsand whatever we need that's

(38:09):
bespoke and fit for thissituation.
That might be a good idea.
That's an example.
But finding that group of folksthat are both on your payroll
that you feel like you needbecause of who you are, what
your DNA is as an investor andwhat you need to do most of the
time, and then what types offolks outside of your P&L are
going to be useful to you themajority of the time that you

(38:30):
want to know and you want themto know you and how you approach
things and you want to be ableto work together.
And so when you pick up thephone and call them, it's not
hello, we've never met before,but I've got an opportunity.
It's we've got another one ofthese.
And and how do we do this?
That could be academics.
That could be industry experts,that could be consultants.
That could be any number offolks that are playing in the
market.
These days.

Speaker 1 (38:51):
That's really what's driven the growth of my business
over the last 18 years.
If I've been in this space for30 years now, I mean you're
fortunate to have kept your hair.
Obviously I've not succeeded inthat goal, but if I think about
the Barton Partnership'sevolution over the last five
years in relation to our work inprivate equity and the value
creation job title that's nowreally emerged, now the

(39:11):
capability and the skillsrequired and the flexibility of
that talent has led to uscreating now an independent
consulting network of roughlyaround 11,000 independent
consultants that we canparachute in to private equity
firms when they've done a dealfor those short-term value
creation orientated projects andone of those areas that you
know, this operationalexcellence piece as well that's

(39:33):
really driven that.
From your perspective, how haveyou seen the emerging role of
the chief transformation officer?
You know reshaping strategiesand practices within funds and
their portfolio companies,because we've really seen that
over the last couple of years bea driving factor from a value
creation success point of view.

Speaker 2 (39:50):
The role of the chief transformation officer is only
going to be increasing over time.
Now, of course, there'sdefinition of terms.
If you look under the hood ofwhat a quote-unquote chief
transformation officer is at avariety of GPs, they could be
very different jobs right nowand people doing very different
things.
I think there are two things,two general areas that are
pushing the need for folks towhat I'll call upskill into the

(40:14):
chief transformation officerarena, from where a lot of the
portfolio resource talent was afew years ago.
One is the fact that we nowhave more private equity
portfolio companies and buyoutfirms than ever before.
The number is approaching30,000 companies globally.
That is many multiples of whatwe had 15 or 20 years ago.

(40:35):
The average GP has twice asmany companies that they
currently own than they did 10years ago.
There is a problem exiting inthis industry, and the problem
really started in 2022 and into2023, when the central banks,
the ECB and the Fed essentiallyraised interest rates by 500
basis points over the course of18 months and that caused
everybody's deal model to blowup.

(40:56):
That was underwriting something, and it also caused folks that
were holding things andexpecting a certain multiple
amount of exit to take a bigintake of breath because
suddenly the cost of debt foranybody trying to take them out
of that business went updramatically.
And even though interest rateshave ameliorated, in many
markets there is still what Icall that bid-ask spread.
It's very recent.
This was just 2023 whereinterest rates stopped going up

(41:17):
and started coming down, so it'sonly been barely a couple of
years, and so it's tough to exit.
Even in reasonable economictimes it's tough to get out, and
what that causes is a liquiditycrunch on part of LPs who've
been expecting their money back.
And what most people don'treally understand that I've been
trying to emphasize is that thelevels of return, as a

(41:38):
percentage of NAV say, that LPsare getting today are no better
than what they were during theGFC.
So we are seeing the lowestlevel of liquidity going back,
and if we're not careful withthis macro instability, we may
see another year of it in 2025.
To lps, then we've seen sincethe greatest recession for the
last 75 years, and we're noteven in recession.

(41:59):
So this is causing a bigproblem and this is not a small
problem.
This is a big problem with thecapital p and so if I don't have
a fresh set of eyes with amature executive who's used to
the word and transformation isnot an inappropriate word saying
okay, we're halfway throughthat buy and build.
We were assuming interest ratesare going to be X.
They're now Y.
We can't do it anymore.
What have we got with thisasset?

(42:20):
What do we need to transformthis asset into?
What can it be in two yearsthat I can sell for a reasonable
multiple?
That's now a real questionthat's being asked.
Or, you know, our plan doesn'twork anymore.
The EBITDA didn't grow the wayit should have grown, and so how
do we think about doing thatdifferently, going forward so
that we actually can exit this,because it's going to be very
difficult to raise money if ourDPIs are not attractive to the

(42:42):
LPs at the end of the day.
So we've got that sort ofpressure.
The other pressure, I would say, is much longer live than that.
When we look at deals at bainthat over the last 12 years and
we look at all the sources ofvalue where GPs have cashed out
over time, and there's onlythree main ones right there's
revenues, there's margin,there's sort of multiple

(43:03):
expansion.
About 50% of the value fromcashing out of transactions has
come from revenue growth.
About 50% has come frommultiple expansion and about
zero has come from marginexpansion.
And for folks like you and Ithat have been kicking around
this industry for decades, nick,and for folks like you and I
that have been kicking aroundthis industry for decades, nick,
having value creation in a dealfrom margin expansion be zero

(43:23):
is almost inexplicable.
I mean, it's hard to even wrapyour head around.
This entire industry waspredicated upon levering up some
businesses, taking some costsout of some companies that
weren't efficient, making thembetter and then selling them and
making a big profit.
So, looking back over a dozenyears and seeing a value number
of zero coming out from marginexpansion, is number one
shocking.
Number two it's a littlefrightening when you look

(43:44):
forward and say whateverinterest rates are going to be
going forward, they're going tobe real, they're not going to be
zero anymore.
The zero decade we had was theanomaly, not sort of the real
interest rate.
So they can be what they'regoing to be, but they're going
to be real.
So I think you and I can agreethat whatever the value we
ascribe to multiple expansionfor the industry going forward,

(44:06):
it's probably going to be lessthan it's been over the last 12
years.
That means, in order togenerate the kind of returns
that my LPs and otherstakeholders want to see, that
margin expansion number can't bezero, whether I'm actually
doing carve-outs that I'mneeding to get more efficient
and getting the margins up, orwhether I'm buying fast-growing
software businesses and I needto learn how to generate real
operating leverage over time andensure that EBITDA is going up
as that revenue growth isskyrocketing toward the moon.

(44:28):
I've got to go back and have aplaybook to actually make that
work, because the industryhasn't done it as a whole over
the last 12 years and that callsfor the kind of talent that a
chief transformation officer isgoing to bring to the game.
This is big thinking stuff.
This is not small.
How do I get better at X, y, z?
This is we're getting zero fromthe margin department.
I guarantee you, from being onour investment committee for

(44:49):
Co-Invest, that there's marginexpansion in the deal model.
It's just not happening and ithasn't been happening at writ
large and it hasn't needed tohappen because the multiple
expansion has been there.
But now it needs to happen, andso I think many GPs are
realizing we need to do arethink of what we're doing here
, because we have a short-termcrisis where we need to actually
figure out, in our portfolio oftwice as many companies as we

(45:11):
had 10 years ago, what do weneed to do to transform these
assets so that they're asvaluable as we want them to be?
And then, looking forward, weneed to kind of rebuild some
muscles or build some newmuscles, since we're
underwriting growthier things asan industry than we were before
and make sure that we cantransform these businesses
whether they're fast growers orwhether they're carve-outs that
aren't fast growers into whatthey can be and make sure we're

(45:31):
pulling on one of those two biglevers that are controllable
revenue, but margin as well.
It's going to continuallyevolve right.

Speaker 1 (45:37):
There's never going to be an ending.
Answer to that one is there.

Speaker 2 (45:40):
There won't be an ending answer, and we didn't
even say I didn't want to sayGen AI too many times, nick, but
we didn't even say Gen AI.
But that's a whole other reasonto have a chief transformation
officer.
So it's no surprise that havingsomeone who's really being
thoughtful you know and it usedto be, as you'll well remember,
nick that you know, as you'llwell remember, nick, that when
you bought an asset, you didn'twant to upset management, you
just wanted the asset to goalong and do what it did, and

(46:04):
life would be fine and thereturns would be there.
But because of the competitivenature of the industry and the
prices that people need to pay,I can't do that anymore.
The word transformation nowneeds to be a part.
I mean hearing that word even20 years ago in a GP investment
committee meeting or talkingabout we need a chief
transformation officer, it wouldhave terrified half the room
right, and now it's kind of likeno, no, we actually need that

(46:24):
because of all the facts and allof the issues that you and I
have just been chatting about.

Speaker 1 (46:28):
And one of those issues that has been pushed down
it feels like it's been pusheddown the list because of Gen AI
has been the ESG sustainabilitytopic, because if you look back
sort of three, four years ago,that was the number one topic
the boardrooms were talkingabout and that has fallen down
the list, but it's stillimportant, I guess, with the
rise of ESG functions in privateequity funds.
Still, what are the key factorsthat will contribute towards an

(46:50):
effective integration of ESGinto investment strategies?
What have you seen thatdifferentiates a successful ESG
approach from another one?

Speaker 2 (46:58):
It's a great question , nick, because, as you
mentioned, esg is still vitallyimportant, for no other reason.
If you want to be crass aboutit, many of the sources of
capital have requirements thattheir GP partners have ESG
programs and actually implementthem, and so you're going to
face an ESG audit if you wantmoney from source X, y, z, and
so, therefore, you'd better beactually doing things.

(47:18):
I personally think the numberone thing that is critical to
implementing an ESG programthat's real is to not have an
ESG program.
If this is something, if thisis a bolt-on, if this is
something out here, our ESG teamis going to do something,
you're going to fail.
This has to be in the DNA ofeverything that you do.
I view Gen AI the same way.
By the way, this ESG has to beinvolved in every single thing

(47:43):
you do.
In fact, the investors that Iknow that do it the best.
They don't even say the lettersESG.
Those are not formally banned,but we don't discuss that
anymore.
And what I like to talk about asto why this is important, nick,
is it's generational change.
If you think about what peopleof a certain age and I'm talking
about you know.
Someone put this to me in avery interesting way, who's a GP

(48:05):
?
Of a good friend, a friendwho's been in the business for
many years.
He said, hugh, you know, ourparents were born in the Great
Depression and so what wasdrilled into our heads in our
generation is that you need togo out and get a job because
we're struggling for food andbuy a house and pay down your
mortgage and be financiallyresponsible.
And these are the mostimportant things that you need
to do, because, where we comefrom, the current generation of

(48:28):
people of a certain age andyounger didn't come from that
kind of background.
Their parents I wasn't bornduring the Great Depression, my
kids weren't raised that way,and so they want the world to be
different and better than theyinherited.
They're not as worried about amI going to get another meal
With inflation people were alittle bit more worried about
that in the past but they'reworried about what the world's
going to look like in the future, and if people aren't working

(48:50):
for a better world, they're lessmotivated to be part of it.
And that may mean if you're notdoing the right thing with ESG
for your company, they don'twant to be your customer and
they don't want to be youremployee, because you're not a
business that's doing the rightthings for the world.
When you think about it thatway, when you think about it in
terms of market share, when youthink about it in terms of
engaging and attracting the besttalent for your industry,

(49:12):
that's different.
Everybody can understand that.
And you're saying well, there'sa whole group of people here, a
massively important people,that will be spending the lion's
share of money in the future.
All of these topics arecrucially important, and if
you're not addressing them, youdon't have to call it ESG, you
can just call it doing the smartthing for the business over
time, if you want to.
Then you're not going to makethe kind of investment returns

(49:32):
that you need to make, and so Ithink, for those reasons, it's
critically important to saylet's not call it ESG, let's
call it the right, call itwhatever you want.
You can call it ESG for all Icare, but it cannot be this
bolted on thing that's hangingout over here.
It has to be part and parcel ofeverything we do as deal makers
, everything we do as the valuecreation machine, but making

(49:53):
sure that we are set up tosucceed and to win and to gain
market share and to have thebest people on our team to
succeed and to win and to gainmarket share and to have the
best people on our team.

Speaker 1 (50:05):
I mean obviously, as you say, the market conditions,
the challenges with theeconomies in various sort of
countries, et cetera.
Esg is still of paramountimportance when it comes to
dealmaking.

Speaker 2 (50:12):
I think it is of importance.
I completely agree with youthat it is not the front page
news.
It was absolutely the numberone topic for a while.
Now has all of themacroeconomic tumult and Gen AI
sort of taken away a lot of thespotlight on that?
Yes, but if you agree with methat these are fundamental
economic demographic changesthat are going to be there and

(50:35):
they're going to be there in thefuture over time, it's still
going to be important in orderto win, so it can't go away.
We can all say, ok, we need tostop for a minute and figure out
how we're going to deal withGen AI, or we need to figure out
where the heck inflation isgoing for the next 6 to 12
months, but I'm talking aboutgenerational issues, not issues
of the next sort of two years,three years, five years, and I

(50:55):
think it's still important forthat reason although it may not
be quite at the top of the listin the way that it was just a
few years ago.

Speaker 1 (51:06):
Let's get your cloudy crystal ball back out again for
a second.
For the last question, lookingahead, then, what do you see, as
I guess major trends or shiftsin the private equity sector
over the next few years, and howshould firms prepare to
navigate these changes?

Speaker 2 (51:16):
Well, I think we actually are, nick, at a real
inflection point in the privateequity industry.
This is something that you know, jim Coulter at TBG calls
private equity and buyouts theRube Goldberg machine, which I
think is very telling.
And for those that don't likeor know Rube Goldberg machines,
those are very, very complicatedmachines designed to do

(51:37):
extremely simple things, whichis kind of what we've developed
here as a private equityindustry To buy a company and
sell a company.
There's an awful lot ofnonsense in between those two
things, when actually that's allyou're doing Now that it's a
multi-trillion dollar globalindustry.
What I think we're seeing rightnow is the use of technology,
the forces of maturation, thefact that, as I said earlier,

(52:00):
not everyone can win anymore,and strategy being important,
forcing the maturity, thestreamlining of the industry in
a way that's going todramatically change it.
So I think we're going to seelarger players in the industry
that are growing.
Public players have animperative to grow.
They will get bigger over time.
We're going to see traditionalasset managers, the Black Rocks
and Fidelities and VangVanguard's and other folks of

(52:21):
the world who have lots ofpipelines into private wealth,
which represents half theworld's wealth, but has almost
no access to private equitywhatsoever right now, providing
products for those folks atdifferent pricing structures
with different sort of productsthan we've seen before.
That's going to change theindustry dramatically.
It's going to change access.
It's going to change servicelevel requirements.
It's going to change access.
It's going to change servicelevel requirements.

(52:41):
It's going to change valuationrequirements.
We may see daily valuations atsome point in the future.
But it's quite clear that thesupersizing of private equity
and private markets is not goingto change.
It's only going to be in onedirection and investors are
going to have to figure out am Igoing to be big and play in a
part of that and going to leantoward scale Because things are
going to cost more money, as wetalked about earlier?

(53:03):
Or am I going to be moredifferentiated and do things in
a way that others aren't andfind alpha and be an alpha
generator in a way that'sreliable and be more of a
medium-sized or niche playerthat does that?
But whether I decide to do oneor the other or some blend of
both, it still creates animperative that I need a
strategy and to me fundamentally, nick, a strategy relies on

(53:25):
three things.
I have three things.
As an investor I compete for.
I compete for talent.
I need the best talent to dothe best deals.
I compete for the bestinvestment opportunities for my
firm and I compete for sourcesof capital.
I need the lifeblood in orderto run the business, and so I
need a strategy to attract andretain the best talent.
I need a strategy to find andget the most attractive

(53:48):
investment opportunities for me,and I need a strategy and an
organization to go and get themoney whether it's institutions,
private wealth, wherever it'scoming from permanent capital in
order to keep all of thosethings going.
And the interesting thing isthat if I fail on any one of
those three dimensions, I failon all three dimensions, because
it all falls apart.
So strategy has never been moreimportant.

(54:08):
Shocking the strategyconsultant says that strategy is
important but it's never beenmore important in a maturing
industry, and understanding, asthe industry landscape changes
over the next five to 10 years,what your ambition and your
strategy is as an investor andhow you're actually going to go
about to achieve it, has neverbeen more important.

Speaker 1 (54:28):
Well, hugh, on that note, I can't think of a better
way to close out this discussion.
It's been brilliant talking toyou today.
Thank you for your time.
Thank you for your insight.
It's been amazing to hear aboutyour career journey today and,
on the back of Bain's privateequity report this year, which I
know is the cornerstone for theindustry, it's been great to
get your view on that as well.
So, thank you for your timetoday.

Speaker 2 (54:47):
Nick, I'm grateful for the opportunity.
It's been really fun to chatwith someone that's been kicking
around the industry for as longas I have, and your hair looks
great for me.
Thanks, buddy, buddy, Iappreciate that.